United States Fidelity & Guaranty Co. v. Lee Investment LLC
641 F.3d 1126
| 9th Cir. | 2011Background
- Diversity action in federal court concerned rescission of a California workers' compensation policy issued by U.S. Fidelity to Lee Investments; insurer alleged misrepresentation in the application leading to policy issuance.
- The insured employer and insurer litigated across federal and state proceedings for over a decade, including jury and bench trials in federal court and parallel state board proceedings.
- The district court denied dismissal, ruled for the insurer on rescission and restitution, and enjoined state board proceedings when appropriate.
- California exclusivity provisions were at issue, with the district court rejecting a divestiture by the State Board in light of Erie-based state-law analysis.
- On appeal, the Ninth Circuit held federal jurisdiction was present, state-board exclusivity did not deprive the court of jurisdiction, and affirmed the district court’s rulings, including injunctions and damages awards.
- The final judgment granted restitution, prejudgment interest, and Rule 54(b) certification while leaving some issues for later resolution in the parallel proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the district court had subject matter jurisdiction | Fidelity asserts diversity jurisdiction; no improper removal | Lee contends lack of jurisdiction due to state exclusivity | Yes, subject matter jurisdiction existed |
| Whether California workers' compensation exclusivity divested federal court | Exclusivity cannot defeat federal jurisdiction | Exclusivity should limit fora; state board exclusive authority | Not divesting; Erie-appropriate application allowed federal hearing |
| Whether district court properly enjoined state board proceedings | Avoid duplicative relitigation; finality and efficiency | Board proceedings should proceed; parallel issues unresolved | District court correctly enjoined state-board proceedings |
| Whether there can be recovery for restitution and prejudgment interest | Insurer entitled to restitution and interest for overpayments | Employer disputes amounts and defenses | Restitution and prejudgment interest proper under California law |
Key Cases Cited
- Begay v. Kerr-McGee Corp., 682 F.2d 1311 (9th Cir. 1982) (exclusivity cannot divest federal jurisdiction; state-law questions in diversity apply Erie)
- Vacanti, M.D. v. State Comp. Ins. Fund, 24 Cal.4th 800 (Cal. 2001) (idle quote used to discuss exclusivity and state-law decisions)
- Scott v. Indus. Accident Comm'n, 46 Cal.2d 76 (Cal. 1956) (state-law claims potentially heard in state court; supports federal hearing in diversity)
- La Jolla Beach & Tennis Club, Inc. v. Indus. Indem. Co., 9 Cal.4th 27 (Cal. 1994) (damages not within workers' compensation; limits of exclusivity)
- Buss v. Superior Court, 16 Cal.4th 35 (Cal. 1997) (insurer's right to recover defense costs when no duty to defend exists)
- Fireman's Fund Ins. Co. v. Allstate Ins. Co., 234 Cal.App.3d 1154 (Cal. App. 1991) (prejudgment interest when damages are ascertainable)
- U.S. Fidelity & Guar. Co. v. Superior Court, 214 Cal. 468 (Cal. 1931) (state court jurisdiction where appropriate in interplay with federal diversity)