1. Motion by Defendant Arch Specialty Insurance Company [“Arch”]for Summary Judgment/Summary Adjudication of Issues on the 1st Amended Complaint :

The motion is denied in its entirety.

Arch’s Separate Statement of Undisputed Material Facts sets forth 309 UMFs. It appears that Arch relies on the same 44 UMFs in support of all six issues on which it seeks summary adjudication. In doing so, Arch effectively concedes that all 44 UMFs are material to each of these issues. [See Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243, 252.] Thus, if there is a triable issue as to any of the 44 UMFs, summary judgment will be denied.
Notwithstanding the above, it appears that Arch proffers the same three arguments to support adjudication of all six issues. Each of these three arguments is discussed and rejected below.

(a) Arch did not satisfy its initial burden of showing that the retentions have not been satisfied.

Summary adjudication is denied as to this argument because Arch failed to meet its initial burden of showing that the retentions have not been satisfied. (See UMF 40.) Even if Arch had met its initial burden, there is a triable issue of material fact as to whether the retentions have been satisfied. (See UMF 43 and RSM’s response thereto, and the evidence cited therein.)

With respect to Arch’s argument that RSM was required to pay the retentions, the Policy requires that RSM as the Assured Firm “undertake” to pay the retentions. The word “undertake” is not defined in the Policy. According to Black’s Law Dictionary (9th ed. 2009), the definition of “undertake” includes the following: (1) “[t]o take on an obligation or task”; (2) [t]o give a formal promise; guarantee; (3) “[t]o act as surety for (another); to make oneself responsible for (a person, fact, or the like)”. The court takes judicial notice of this definition as “[t]he true signification” of the word. (Evid. Code, § 451, subd. (e).) Thus, it appears there is no requirement that RSM pay the retentions, only that it takes on the obligation of paying them.

With respect to Arch’s argument that RSM never provided evidence of payment of the retentions (see UMF 43), RSM correctly notes that nowhere in the Policy is there language requiring RSM to prove retention payments have been made—or specifying the type of proof required—before coverage is triggered.

The language in Section IV. 2(b) of the Policy appears dispositive: “The retentions can be reduced by reasonable costs, charges and expenses incurred in the defense of a claim as well as payments in respect of a claim.” (See UMF 4.)
This language is significant for at least two reasons. First, it includes the word “reduce,” rather than “exhaust.” (Compare with Arch Evid., p. 244 [Section IV.2 (f) of the Policy provides “The Assured Firm agrees that upon the exhaustion of the Sum Insured under this Policy . . .”].) Second, there is no qualification as to who must incur the costs. (Compare with Arch Evid., p. 236 [“WHEREAS the persons carrying on business under the name of the Assured Firm . . . have undertaken to pay the retentions . . .”].) A reasonable reading of that language is that the retentions may be lowered, dollar for dollar, by virtue of reasonable defense costs incurred by any person on behalf of RSM in defense of the underlying claim. Stated another way, $11 million dollars in defense costs incurred would effectively reduce the retention amounts to zero. Even assuming the Policy required RSM to pay the retentions, it provides for a scenario where elimination of the retentions to be paid triggers Arch’s duty to indemnify.

None of Arch’s UMFs establish that $11 million in reasonable defense costs were never incurred. In fact, Arch’s UMF 41 provides that RSM’s defense bills ultimately reached $11 million sometime after the class was certified. Accordingly, Arch has failed to meet its initial burden of showing that retentions were not satisfied.

Arch further contends that proof of payment of the retentions was required because “Arch’s liability is computed with the retentions ‘applied first to payment made to dispose of a claim, with the balance, if any, then to be applied to reasonable costs, charges, and expenses.’” (Reply, p. 1:18-20.) As RSM argues, however, the beginning of this sentence provides that the foregoing computation is “[s]olely for the purpose of computing the extent of the liability of the Company.” (UMF 4 [emphasis added].) The computation thus does not appear relevant to determine when Arch’s liability is triggered under the Policy.

Finally, even if RSM had to pay the retentions to trigger coverage, there would be a triable issue of fact whether RSM made the payments. (See RSM’s response to UMF 43.) Although Arch offers evidence of the defense bills being sent to H&R Block’s address, that fact does not establish that H&R Block was responsible for the payments, as opposed to being responsible for the accounting and processing of the bills. At best, the evidence is equivocal, as some bills identify RSM EquiCo, Inc. as the client. For example, the 05/13/08 bill from Dickstein Shapiro LLP is addressed to “RSM Equico, Inc.” (See Arch Evid. Ex. A – RSM 0000006), and the 12/31/07 bill from O’Melveny & Myers LLP, although addressed to “H&R Block” indicates that the client is “RSM EQUICO, INC.” (See, e.g., Arch Evid., Ex. A – RSM 0000052, RSM 0000415).

(b) There is a triable issue of fact whether and to what extent the “Return of Fees” exclusion applies.

Summary adjudication is denied as to this argument because there is a triable issue whether and to what extent the exclusion applies. (See UMFs 20, 35, 41, 42 and RSM’s responses thereto.)

“[T]he insurer has the burden of establishing that a specific exclusion applies.” (Minkler v. Safeco Ins. Co. of Am. (2012) 49 Cal.4th 315, 322.) While the court interprets the insurance policy as a matter of law, the jury decides factual issues that affect coverage. (Mellinger v. Ticor Title Ins. Co. of California (2001) 93 Cal.App.4th 691, 695.)

Arch argues that the “return of fees” exclusion bars any recovery by RSM under the Policy because—without citation to any legal authority for the proposition—class certification in, and the parties’ settlement of, the Underlying Action was for return of the fees collected only. Arch draws on language in the class plaintiffs’ motion for class certification, Class Certification Order, and Stipulation for Settlement to support its claim that the settlement proceeds could only be for refunded fees. (See UMFs 20-21, 28-32.) At first blush, the argument is appealing and appears to satisfy Arch’s initial burden of production.

Missing, however, is any citation to legal authority supporting Arch’s implied position on the scope and effect of a class certification order. Neither party addresses the issue, so the court is left to address it alone.

First, the arguments raised in the motion for class certification do not help Arch. Parties often make numerous arguments in motions, but it does not follow that a court in granting a motion based its ruling on all or any particular argument raised by the moving party. The basis of a court’s ruling, if one was provided, will generally be found in the order itself.

Second, although the Class Certification Order sets forth common questions for certifying that class, Arch has not cited to legal authority for the proposition that common questions identified in the class certification order are the only issues remaining in dispute. “As a general rule if the defendant’s liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.” [Brinker Restaurant Corp. v. Sup.Ct. (Hohnbaum) (2012) 53 Cal.4th 1004, 1022.] “[A] class action is not inappropriate simply because each member of the class may at some point be required to make an individual showing as to his or her eligibility for recovery or as to the amount of his or her damages.” [Sav-On Drug Stores, Inc. v. Sup.Ct. (Rocher) (2004) 34 Cal.4th 319, 333 [internal quotes omitted]; but see Basurco v. 21st Century Ins. Co. (2003) 108 Cal.App.4th 110, 119 (class action improper where existence, cause, and extent of damage have to be determined on a case-by-case basis, even if there are some common questions).] As RSM asserts, the Class Certification Order did not specifically dispose of any of the 8 causes of action or any particular claim for damages. Without any such exclusion, all causes of action and the non-restitutionary relief sought (e.g. damages and nonmonetary relief) appear to have survived past the class certification stage. (See UMFs 20, 35, 41, 42 and RSM’s responses thereto.)

Third, the Stipulation for Settlement is subject to the interpretation asserted by both parties. On the one hand, the only class members who can recover money are those who paid the fee but did not receive any services. This limitation supports Arch’s argument. On the other hand, the Stipulation for Settlement does not explicitly state that the settlement money is earmarked for return of the fees. And under the Stipulation for Settlement, the class members “finally and irrevocably discharged, relinquished, dismissed with prejudice, settled, and released any and all Released Claims against any and all Released Persons.” (See Arch Evid., p. 294.) “‘Released Claims’ means any and all claims . . . damages of any kind . . . that have been, could have been, or in the future can or might be asserted in the [Underlying] Action . . ..” (See Arch Evid., p. 288.) Indeed, in the Final Settlement Order and Judgment Approving Class Settlement, “[t]he Action, including all individual and class claims presented thereby [wa]s dismissed on the merits with prejudice”. (See Arch Evid., p. 414.)

(c) For the same reasons discussed above, Arch’s third argument fails.

Arch’s third argument is summarized as follows: Even if the $11 million retentions could be satisfied by defense bills sent to H&R Block, recovery by the class plaintiffs and class members were limited to the return of fees by the time the bills reached $11 million, thereby triggering the “return of fees” exclusion. (Motion 1, pp. 12:24 – 14:3.)

This argument is essentially a synthesis of the first two arguments. It is denied for the same reasons.

(d) Arch’s Request for Judicial Notice [“RJN ”] and Supplemental RJN

The court grants Arch’s RJN in support of Motion 1 (Exs. 1-5). Judicial notice is proper under Evid. Code, § 452, subd. (d), which permits the court to take judicial notice of court records. Judicial notice, however, will not extend to any hearsay allegations contained therein. [Bach v. NcNelis (1989) 207 Cal.App.3d 852, 865.]

The court, however, declines to consider Arch’s Supplemental RJN filed in support of its Reply. The court sustains RSM’s objection to the Supplemental RJN on the ground that Arch was required to submit all supporting evidence with its original moving papers and any evidence submitted on reply must be disregarded by the court. [See San Diego Watercrafts, Inc. v. Wells Fargo Bank (2002] 102 Cal.App.4th 308, 313 (“While the code provides for reply papers, it makes no allowance for submitting additional evidence. . . .”).

(e) Evidentiary Objections

In light of the denial of the motion, based in part on triable issues of material fact as to UMFs 20, 35, and 41-43, it is only necessary for the court to review any objections to the evidence proffered by RSM in opposition to those UMFs. Arch made 6 objections to RSM’s evidence. But none of them pertained to any evidence RSM submitted in opposition to the aforementioned UMFs.

Responding Party shall give Notice.

2. Another Motion by Defendant Arch Specialty Insurance Company [“Arch”]for Summary Judgment/Summary Adjudication of Issues on the 1st Amended Complaint :

The motion is denied in its entirety.

Arch’s Separate Statement of Undisputed Material Facts sets forth 138 UMFs and re-alleges those same 138 for each of the six issues on which it seeks summary adjudication. In doing so, Arch effectively concedes that all 138 UMFs are material to each of these issues. (Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243, 252.) Thus, if there is a triable issue as to any of the 138 UMFs, summary judgment will be denied.

Separate statements “are intended to permit the judge to determine quickly whether the motion is supported by sufficient undisputed facts. If the opposing statement disputes an essential fact alleged in support of the motion, the judge merely has to review the evidence cited in support of that fact. This saves the judge from having to review all the evidentiary materials filed in support of and in opposition to the motion.” [St. Paul Mercury Ins. Co. v. Frontier Pac. Ins. Co. (2003) 111 Cal.App.4th 1234, 1248.] Indeed, “courts have the inherent power to strike proposed ‘undisputed facts’ that fail to comply with the statutory requirements and that are formulated so as to impede rather than aid an orderly determination whether the case presents triable material issues of fact. If such an order leaves the required separate statement insufficient to support the motion, the court is justified in denying the motion on that basis.” [Reeves v. Safeway Stores, Inc. (2004) 121 Cal.App.4th 95, 106.]

Here, Arch’s Separate Statement hinders, rather than helps, the court decide the issues. Arch’s Separate Statement is 83 pages long and 46 of the 138 UMFs—or about 1/3 of the UMFs—simply recite deposition testimony verbatim and at great length. (See UMFs 28-72, 78.) In effect, Arch has set forth paragraphs of evidence and identified those paragraphs as “facts.” Arch’s improper approach in preparing the Separate Statement almost certainly invited RSM to respond in kind. RSM’s response to Separate Statement disputes much of Arch’s UMF deposition testimony by reciting other excerpts of deposition testimony verbatim and at great length. In the end, RSM submitted a 220-page Response Separate Statement. For this reason, the court should and does strike UMFs 28-72 and 78 from the Separate Statement for noncompliance with the Cal. Rules of Court. (Ibid.)

In the face of this 1/3 reduction in UMFs, it is a simple matter to conclude that Arch has not met its initial burden of proffering admissible evidence sufficient to establish any of the issues for adjudication. As a result, the burden to proffer any evidence to show a triable issue of fact never shifted to RSM. [See Code Civ. Proc., § 437c, subds. (a), (p)(2); Hawkins v. Wilton (2006) 144 Cal.App.4th 936, 940.]

Because Arch failed to meet its initial burden, it is unnecessary for the court to reach the merits of the parties’ evidentiary objections.

RSM shall give notice.