2012-00129689-CU-CD

Dennis Kwong vs. Centex Homes

Nature of Proceeding:    Motion for Judgment on the Pleadings

Filed By:   Aguilera, A. Eric

Defendants/Cross-Complainants St. Paul Fire & Marine Insurance Company, et al.’s
(collectively “Travelers”) motion for judgment on the pleadings is denied.

The parties’ requests for judicial notice are granted.

Like a demurrer, a motion for judgment on the pleadings is confined to the face of the
pleading under attack, and the plaintiff’s allegations are accepted as true. (See C.C.P.
438(d); Colberg v. California (1967) 67 C.2d 408, 412).  When the moving party is the
defendant, there are two permissible grounds for the motion: (a) The court lacks
subject matter jurisdiction, or (b) the complaint does not state facts sufficient to
constitute a cause of action against the defendant. (C.C.P. 438(c)(1)(B).)

In this action, Centex Homes filed a complaint against various subcontractors alleging
that the subcontractors were required to defend it in a construction defect action
brought by homeowners.  Centex also asserted causes of action for declaratory relief
against its insurer Travelers.  In the seventh cause of action, Centex seeks a
declaration regarding the parties’ respective rights as to the allocation of Centex’s
defense fees and costs in the underlying construction defect action.  In the eighth
cause of action, Centex seeks a declaration that it is entitled to independent counsel in
the underlying construction action.

At the outset, the Court rejects Travelers’ contention that the presumption set forth in
CCP § 1909 dictates the outcome of the instant motion.  Section 1909 provides that
“Other judicial orders of a Court or Judge of this State, or of the United States, create a
disputable presumption, according to the matter directly determined, between the
same parties and their representatives and successors in interest by title subsequent
to the commencement of the action or special proceeding, litigating for the same thing
under the same title and in the same capacity.”  Travelers appears to argue that prior
orders in two federal actions and two trial court actions have created a presumption
that the two causes of action at issue here are meritless.  There are numerous
problems with this argument.  First, the federal actions dealt with summary judgment
motions, not pleading motions.  Second, one of the trial court actions is currently on
appeal and therefore not final.  In any event, §1909 at most creates a disputable
presumption and in no way requires this Court to rule in any particular manner on the
instant motion.  The Court would point out that, applying Travelers’ logic, §1909 also
could be used against Travelers as seen from Centex’s request for judicial notice
containing numerous trial court orders overruling demurrers by Travelers to similar
complaints brought by Centex.

Seventh Cause of Action (Declaratory Relief-Defense Costs)

Travelers motion for judgment on the pleadings is denied.  Travelers argues that
Centex’s declaratory relief cause of action regarding allocation of defense fees in the
underlying action is not ripe.  The Court disagrees.  Centex alleged that Travelers is
required to pay all of Centex’s defense costs in the underlying action and that
Travelers contends that it has a right of reimbursement for any money it is require to
pay or will pay to Centex.  Indeed, Travelers has filed a cross-complaint in this action
seeking to recover any fees paid to defend Centex.  Thus, there is in fact a current
dispute between the parties and therefore an actual controversy for purposes of CCP §
1060 that “admits of definitive and conclusive relief within the field of judicial
administration, as distinguished from an advisory opinion upon a particular or
hypothetical state of facts.  The judgment must decree, not suggest, what the parties
may or may not do.”  (Selby Realty Co. v. City of Buenaventura (1973) 10 Cal.3d 110,
117.)

Travelers’ argument that the controversy is not ripe because the “damages which
Centex is trying to allocate are not yet even determined” is incorrect.  The dispute here
does not turn on whether any damages have or have not been determined.  Rather the
dispute, as alleged, is whether Travelers is required to pay all of Centex’s defense
costs or none.  That dispute is ripe and does not depend upon a determination of any
damages amounts.  Nor would resolution of the homeowners’ allegations against
Centex somehow moot the dispute as Travelers claims.  Indeed, even if Centex was
found not liable in the underlying lawsuit, it will still have incurred defense costs.
Contrary to Travelers’ argument in reply, Centex’s statement in opposition that it
cannot provide a full release to subcontractors if it does not know how much Travelers
will be paying for defense costs is not a concession that an actual dispute does not
exist.  Again, Centex is seeking a declaration that Travelers is entitled to pay all
defense costs and that Travelers contends that it is not required to pay any.  This is a
proper subject of a declaratory relief action.

The Court also rejects the argument that “California courts have recognized no actual
controversy even exists under these circumstances.”  (Memo. 5:22-23 [emphasis
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in original].)  The cited authority, Buss v. Superior Court (1997) 16 Cal.4   35, 50-51,
does not support such a contention.  Indeed, Buss deals with conflicting coverage
obligations and recognized that an insurer has a right of reimbursement with respect to
claims it defended that were not “even potentially covered.”  (Id.)  However, Buss in no
way states that an insured such as Centex here cannot bring a declaratory relief action
premised on its contention that its insurer must pay all defense costs while the insurer
contends it is not required to pay any such fees/costs.  Indeed, Buss was an action
brought by an insurer against an insured to recover money.

In addition, the Court disagrees that the instant cause of action is neither necessary
nor proper, such that the Court could refuse to exercise its power to grant declaratory
relief.  (CCP § 1061.)  The case law cited by Travelers indicates that a trial court “may
consider in their section 1061 analysis whether the timing of the declaratory relief
action suggests litigation strategy motivated the filing rather than a concern that judicial
guidance was needed and would not be forthcoming absent the filing of a declaratory
relief action.”  (Osseous Technologies of America, Inc. v. Discoveryortho Partners,
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LLC (2010) 191 Cal.App.4   357, 376.)  Here, as discussed above, the dispute
regarding payment of fees is ripe and nothing suggests that the action was filed solely
as a litigation strategy, for example, to preempt a breach of contract action.  Indeed,
Centex has already been sued by the homeowners and is presently incurring defense
costs and given that Travelers has filed a cross-complaint seeking reimbursement of
any costs paid, its protest that Centex is somehow seeking to deprive it of some right
to assert such claims rings hollow.

The motion as to the seventh cause of action is denied.

Eighth Cause of Action (Declaratory Relief-Independent Counsel)

Travelers’ motion is denied.  Contrary to Travelers’ lengthy arguments, Centex has
alleged an actual controversy with respect to whether Travelers is required to provide it
with independent counsel.  Indeed, Travelers’ arguments, in contrast with the
arguments asserted in connection with the seventh cause of action (e.g., that the
controversy was not ripe) are properly characterized as ones which go beyond the
face of the pleading and are not properly resolved on a motion for judgment on the
pleadings.  Rather, they seek to test the ultimate merits of the allegations, that is,
whether the allegations entitle Centex to independent counsel.  That is, Travelers is
essentially contending that under existing case law, nothing alleged in the Eighth
Cause of Action entitled Centex to independent counsel.

Centex set forth nine separate grounds on which it contends it is entitled to
independent counsel.  (Comp. ¶ 94.)  These allegations are sufficient.  Travelers’
entire motion in this regard does nothing more than argue the merits of these
allegations and why they do not entitle Centex to independent counsel.  However, as
correctly pointed out by Centex, it is entitled to a declaration on its allegations and
granting Travelers’ motion would deprive it of such a declaration.  (Herzberg v. County
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of Plumas (2005) 133 Cal.App.4   1, 24.)  In Herzberg, the trial court sustained a
demurrer without leave to amend to numerous causes of action alleging that an
ordinance was unconstitutional and illegal, including a declaratory relief cause of
action seeking a declaration of rights and duties with respect to the ordinance.  The
appellate court affirmed the trial court’s ruling as it related to the non-declaratory relief
causes of action.  As it related to the declaratory relief cause of action, the appellate
court recognized that “[s]trictly speaking, a general demurrer [or in the instant case, a
motion for judgment on the pleadings] is not an appropriate means of testing the merits
of the controversy in a declaratory relief action because plaintiff is entitled to a
declaration of his rights even if it be adverse.”  The appellate court went on to say that
“where the issue is purely one of law, if the reviewing court agreed with the trial court’s
resolution of the issue it would be an idle act to reverse the judgment of dismissal
following an order sustaining a demurrer without leave to amend and the opinion of the
reviewing court will constitute the declaration of the legal rights and duties of the
parties concerning the matter in controversy.”  (Id. at 24.)  The appellate court then
went on to issue a declaration of rights to which the plaintiff was entitled.  (Id.)  Here,
the Court will not rule upon the merits of the allegations as to whether they are
sufficient to entitle Centex to independent counsel on a motion for judgment on the
pleadings.  Centex is entitled to proceed with the action to obtain a declaration, even if
it is adverse to Centex (e.g., that it is not entitled to independent counsel).  On this
basis alone, the motion is denied.

To the extent that Travelers is arguing that the allegations are too conclusory, as
opposed, to arguing that the allegations do not entitle Centex to independent counsel,
the Court disagrees.  Centex alleged that numerous conflicts exist entitling it to a
declaration that Travelers must provide it independent counsel, for example, Travelers’
claim that it can appoint counsel to represent both Centex and numerous
subcontractors in the underlying construction defect issues and simultaneously control
the defense of Centex and the subcontractors, and that Travelers has repeatedly filed
lawsuits against Centex in various courts seeking rulings that it has no coverage
obligations to Centex.  (Comp. ¶ 94.)  These allegations are not conclusory.  Again, to
the extent that Travelers argues that the allegations would not entitle Centex to
independent counsel, even if correct, Centex is entitled to proceed with its action to
obtain a declaration even if such declaration is adverse and a demurrer/motion for
judgment on the pleadings is not the appropriate vehicle in which a declaration can be
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issued.  (Herzberg, supra, 133 Cal.App.4   at 24.)  This principle is especially pertinent
here where “[t]he potential for conflict requires a careful analysis of the parties’
respective interests to determine whether they can be reconciled [ ] or whether an
actual conflict of interest precludes insurer-appointed defense counsel from presenting
a quality defense for the insured.”  (Dynamic Concepts, Inc. v. Truck Ins. Exch. (1998)
61 Cal.App.4th 999, 1007-1008.)  Such determination cannot be made at the pleading
stage.

Both parties’ requests for judicial notice are granted.

The minute order is effective immediately.  No formal order pursuant to CRC Rule
3.1312 or other notice is required.