CA Dept. of Toxic Substances Control v. Jim Dobbas, Inc.

[7] 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- [11] 12 CALIFORNIA DEPARTMENT OF TOXIC No. 2:14-CV-00595 WBS EFB SUBSTANCES CONTROL and the TOXIC 13 SUBSTANCES CONTROL ACCOUNT, 14 Plaintiffs, ORDER RE: MOTION TO INTERVENE AND SET ASIDE DEFAULT 15 v. 16 JIM DOBBAS, INC. a California corporation; CONTINENTAL RAIL, 17 INC., a Delaware corporation; DAVID VAN OVER, individually; 18 PACIFIC WOOD PRESERVING, a dissolved California 19 corporation; WEST COAST WOOD PRESERVING, LLC., a Nevada 20 limited liability company; and COLLINS & AIKMAN PRODUCTS, LLC, 21 a Delaware limited liability company, [22] Defendants. [24] ----oo0oo---- [25] Plaintiffs Department of Toxic Substances Control and [26] the Toxic Substances Control Account (collectively “DTSC”) sought [27] recovery of costs and interest incurred during the cleanup of a [28] 1 wood preserving operation in Elmira, California against multiple 2 defendants under the Comprehensive Environmental Response, 3 Compensation, and Liability Act (“CERCLA”), 42 U.S.C. § 9601 et 4 seq. (First Am. Compl. (“FAC”) at ¶ 19.) DTSC obtained an entry 5 of default against a canceled Delaware corporation, defendant 6 Collins & Aikman Products, LLC (“C&A Products”) in 2015 after it 7 failed to respond to DTSC’s First Amended Complaint. (Docket No. 8 129.) Presently before the court is The Travelers Indemnity 9 Company’s (“Travelers”) motion to intervene as a defendant in 10 this matter and vacate default against its insured, C&A Products. 11 (Mot. to Intervene and Vacate Default (“Mot.”) at 2 (Docket No. 12 196).) 13 I. Motion to Intervene 14 Travelers seeks to intervene as of right or, in the 15 alternative, permissively under Federal Rule of Civil Procedure 16 Rule 24. (Mot. at 6.) 17 In order to intervene as of right, the party must 18 demonstrate that it has an interest in the litigation and that 19 interest would be practically impaired if the intervention was 20 not granted. Cal. Dep’t. of Toxic Substances Control v. 21 Commercial Realty Projects, Inc., 309 F.3d 1113, 1119 (9th Cir. 22 2002) (quoting United States v. State of Washington, 86 F.3d 23 1499, 1503 (9th Cir. 1996)). Ordinarily, insurance companies do 24 not have an interest in actions between those they insure and 25 another party when they deny coverage and refuse to provide a 26 defense. Gray v. Begley, 182 Cal. App. 4th 1509, 1522 (2d Dist. 27 2010). 28 However, “an insurer providing a defense under a 1 reservation of rights has not lost its right to control the 2 litigation” and thus retains an interest in the action. Hyundai 3 Motor Am. v. Nat’l Union Fire Ins. Co. of Pittsburgh, No. SACV 4 08-00020-JVS (RNBx), 2010 WL 11468348 , at *3 (C.D. Cal. Oct. 26, 5 2010) (citing Gray, 182 Cal. App. 4th at 1523-24 )). Under 6 California law, where the insured defendant is “legally 7 incapacitated” because of suspension or cancelation, the insurer 8 can intervene in the action under a reservation of rights because 9 “if an insurer were unable to intervene . . . the insurer would 10 be deprived of any opportunity to ‘contest its insured’s fault or 11 the available damages.’” B.G.N. Fremont Square Ltd. v. Chung, 12 No. CV 10-9749 GAF (RZx), 2011 WL 13129968 , at *5 (C.D. Cal. Sep. 13 27, 2011) (citing APL Co. Pte. Ltd. v. Valley Forge Ins. Co., No. 14 C 09-05641 MHP, 2010 WL 1340373 , at *4 (N.D. Cal. Apr. 5, 2010). 15 But here, Travelers has both disclaimed coverage and 16 any duty to defend C&A Products (See Decl. of Alexander E. 17 Potente (“Potente Decl.”) at Exs. B & C (Docket Nos. 197-2, 19718 3)) and refused to provide a defense under a reservation of 19 rights.1 (Decl. of Laura J. Zuckerman (“Zuckerman Decl.”) at 2 20 (Docket No. 215-1).) Accordingly, Travelers forfeited any direct 21 interest in the action and the court will not permit it to 22 intervene as of right. 23 Alternatively, permissive intervention may be granted 24 by the district court under its broad discretion. Perry v. 25 Schwarzenegger, 630 F.3d 898, 905 (9th Cir. 2011) (per curiam). [26] 27 1 DTSC offered to stipulate to Travelers’ intervention if it provides a defense under a reservation of rights. Travelers 28 refused. (Zuckerman Decl. at 2.) 1 Courts may consider the “nature and extent of the intervenors’ 2 interest” and “whether intervention will prolong or unduly delay 3 the litigation.” Id. at 905 (citing Spangler v. Pasadena Bd. of 4 Educ., 552 F.2d 1326, 1329 (9th Cir. 1977)). For the reasons 5 above, the court finds Travelers does not have an interest in 6 this litigation and its intervention would only serve to prolong 7 the action. The court will not permit Travelers to intervene 8 permissively, and the court will deny Travelers’ motion to 9 intervene. 10 II. Motion to Vacate Default 11 Under Federal Rule of Civil Procedure Rule 55(c), a 12 court may set aside an entry of default for good cause. To 13 determine good cause, a court will consider: (1) whether the 14 party seeking to set aside default engaged in culpable conduct 15 that led to the default; (2) whether the party had a meritorious 16 defense; and (3) whether reopening the default would prejudice 17 the other party. United States v. Signed Personal Check No. 730 18 of Yubran Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (internal 19 quotations omitted). “[A] finding that any one of these factors 20 is true is sufficient reason for the district court to refuse to 21 set aside the default.” Id. 22 Looking to the Signed Personal Check No. 730 of Yubran 23 Mesle considerations, even if Travelers were permitted to 24 intervene, it has failed to establish good cause to set aside C&A 25 Products’ default. First, although there is no claim that 26 Travelers itself engaged in any culpable conduct, the conduct of 27 its insured corporation, through its duly authorized receiver, 28 can be considered culpable. C&A Products was a Delaware limited 1 liability company. Under Delaware law, a cancelled limited 2 liability company can be sued if the Delaware Court of Chancery 3 appoints a trustee or receiver for the company. 6 Del. C. § 184 805. The Court of Chancery’s appointed receiver, Brian Rostocki, 5 had “the power, but not the obligation, to defend, in the name of 6 Collins & Aikman Products, LLC, any claims made against it in 7 DTSC v. Dobbas.” In re Collins & Aikman Prods., LLC, No. 103488 CB, 2014 WL 6907689 , at *1-2 (Del. Ch. Dec. 8, 2014) (Docket No. 9 73-1). Mr. Rostocki accepted service of DTSC’s First Amended 10 Complaint and failed to respond, leading to the entry of default. 11 (Docket No. 129.) 12 Second, Travelers has not offered or suggested any 13 meritorious defense that C&A Products would have to the complaint 14 if its default were set aside. Travelers’ disagreement with Mr. 15 Rostocki’s decision not to respond does not rise to the level of 16 a “meritorious defense” necessary to show good cause. Further, 17 the court expresses no opinion as to the merits of Travelers’ own 18 declaratory relief action against DTSC, except to note that the 19 relief sought in that action would not constitute a defense which 20 C&A Products could assert to liability in this action. 21 Third, Travelers has failed to show that reopening the 22 default would not prejudice DTSC. The harm here is “greater” 23 than “simply delaying the resolution of the case.” TCI Grp. Life 24 Ins. Plan v. Knoebber, 244 F.3d 691 , 701 (9th Cir. 2001), 25 overruled on other grounds by Egelhoff v. Egelhoff ex rel. 26 Breiner, 532 U.S. 141 (2001). DTSC sought entry of default 27 against C&A Products in 2015. Neither C&T Products nor Travelers 28 did anything to attempt to set aside that default for over three 1 years. DTSC relied in good faith on that default and incurred 2 the litigation expenses associated with preparing and filing a 3 | motion for entry of judgment on that default. Accordingly, the 4 court will deny Travelers’ motion to vacate entry of default. 5 IT IS THEREFORE ORDERED that Traveler’s Motion to 6 Intervene and Motion to Vacate Default (Docket No. 196) be, and 7 the same thereby is, DENIED. 8 Dated: October 22, 2019 □ - ak. 9 □□□□□□□□□□□□□□□□□□□□□□□□□□□ 10 UNITED STATES DISTRICT JUDGE