CALIFORNIA DEPARTMENT OF TOXIC SUBSTANCES CONTROL; TOXIC SUBSTANCES CONTROL ACCOUNT, Plaintiffs-Appellees, v. JIM DOBBAS, INC., a California corporation; CONTINENTAL RAIL, INC., a Delaware corporation; DAVID VAN OVER, individually; PACIFIC WOOD PRESERVING, a dissolved California corporation; WEST COAST WOOD PRESERVING, LLC, a Nevada limited liability company; COLLINS & AIKMAN PRODUCTS, LLC, a Delaware limited liability company, Defendants, v. CENTURY INDEMNITY COMPANY; ALLIANZ UNDERWRITERS INSURANCE COMPANY; CHICAGO INSURANCE COMPANY; FIREMAN‘S FUND INSURANCE COMPANY; THE CONTINENTAL INSURANCE COMPANY, Proposed Intervenors, Movants-Appellants.
No. 20-15029
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
DEC 1 2022
D.C. No. 2:14-cv-00595-WBS-EFB
FOR PUBLICATION
OPINION
Appeal from the United States District Court for the Eastern District of California
William B. Shubb, District Judge, Presiding
Argued and Submitted November 9, 2021
Pasadena, California
Before: Daniel P. Collins and Kenneth K. Lee, Circuit Judges, and M. Miller Baker,* Judge.
Opinion by Judge Baker;
Concurrence by Judge Collins
SUMMARY**
Environmental Law / Intervention
The panel reversed the district court‘s order denying insurers’ motions to intervene to defend their defunct insured in an environmental tort action, dismissed the insurers’ appeal of the denial of their motions to set aside default, and remanded.
In 2014, the California Department of Toxic Substances Control and the Toxic Substances Control Account (“DTSC“) brought suit under the Comprehensive Environmental Response, Compensation, and Liability Act and state law relating to the remediation of hazardous materials alleged to be present at a site in Elmira, California. In 2013, a certificate of cancellation had been filed with the Delaware Secretary of State, cancelling the legal existence of defendant Collins & Aikman Products. The Delaware Court of Chancery granted DTSC‘s petition to appoint a receiver empowered to defend claims made against Collins & Aikman. The receiver declined to file an answer to DTSC‘s complaint, and the district court clerk entered default under
In Parts I and II of its opinion, the panel addressed the factual and procedural history and its jurisdiction to review the denial of intervention. In Part III, the panel held that the insurers sought relief that no existing party to the case sought and therefore were required to establish constitutional standing in order to intervene as of right. The panel concluded that the insurers satisfied the requirements of constitutional standing because DTSC‘s suit against their insured, Collins & Aikman, created an imminent threat of injury, and the district court‘s denial of any relief to DTSC would redress that injury.
In Part IV of its opinion, the panel addressed intervention. The panel held that
Here, there was no dispute that the insurers timely sought to intervene, nor was there any dispute as to the second factor. Thus, whether the insureds could intervene as of right turned on whether they had an “interest” under
In Part V, dismissing in part, the panel held that it lacked appellate jurisdiction over the insureds’ appeal from the district court‘s denial of their
Concurring in part and concurring in the judgment, Judge Collins wrote that he joined Parts I, II, IV(B)(3), and V of the court‘s opinion and concurred in the court‘s judgment. Parts III, IV(A), IV(B)(1), and IV(B)(2) of the majority opinion addressed issues regarding standing, the development of the law leading up to the court‘s articulation of Rule 24‘s standards in the en banc opinion in Wilderness Society, and choice-of-law principles. Judge Collins wrote that he did not join these parts of the majority opinion because they discussed matters that were not raised, briefed, or contested by the parties on appeal.
COUNSEL
Nicholas M. Gedo (argued) and Thomas F. Vandenburg, Wood Smith Henning & Berman LLP, Glendale, California; Stratton P. Constantinides, Wood Smith Henning & Berman LLP, Los Angeles, California, for Movants-Appellants Century Indemnity Company, Allianz Underwriters Insurance Company, Chicago Insurance Company, and Fireman‘s Fund Insurance Company.
Sara M. Thorpe and Randall P. Berdan, Nicolaides Fink Thorpe Michaelides Sullivan LLP, San Francisco, California, for Movant-Appellant The Continental Insurance Company.
Laura J. Zuckerman (argued), Deputy Attorney General; Dennis L. Beck Jr., Supervising Deputy Attorney General; Rob Bonta, Attorney General of California; Office of the California Attorney General, Oakland, California; Timothy M. Thornton Jr., Gray Duffy LLP, Encino, California; for Plaintiffs-Appellees.
In this environmental tort action, two primary insurers and an excess insurer timely sought to intervene in the district court to defend their defunct insured and set aside its default. The district court denied their motions to intervene as of right under
I
In 2014, the California Department of Toxic Substances Control and the Toxic Substances Control Account (collectively DTSC or the Department) filed suit in the district court against the current and various former owners of land in Elmira, California, as well as others who conducted operations on the site. The complaint sought relief under both state law and the Comprehensive Environmental Response, Compensation, and Liability Act,
A former owner of the property during the relevant time but missing from the suit was a defunct Delaware limited liability company, Collins & Aikman Products (Collins & Aikman). In 2005, Collins & Aikman filed a Chapter 11 bankruptcy petition.
In the Collins & Aikman bankruptcy, DTSC filed a claim against the estate based on the Elmira site. To resolve that claim, the bankruptcy court‘s final order approving a plan of reorganization in 2007 included a stipulation preserving the Department‘s ability to sue Collins & Aikman in the future for the sole purpose of securing a judgment to “be paid from insurance proceeds.”
Under that stipulation, the estate agreed to carve out from the bankruptcy stay an exception for “any action filed against [Collins & Aikman] to establish liability and to seek recovery of insurance proceeds.” DTSC agreed that if it obtained any judgment against Collins & Aikman, the former would not “collect any money or other forms of remuneration or relief” from the latter. The bankruptcy court‘s approval of this stipulation thus cleared a path for DTSC to sue Collins & Aikman to access the latter‘s insurance coverage while leaving no skin in the game for the insured.
In 2013, a certificate of cancellation filed with the Delaware Secretary of State terminated Collins & Aikman‘s legal existence. See also
The following year, DTSC brought this litigation. Shortly after doing so, the Department petitioned the Delaware Court of Chancery to appoint a receiver “to allow DTSC to add [Collins & Aikman] as an additional defendant” in this suit.1 The Department explained that it wanted
to add [Collins & Aikman] as a defendant ... as the first step in pursuing historic insurance coverage of [Collins & Aikman] for DTSC‘s costs of cleaning up a contaminated property in California. Under California law, a judgment
against [Collins & Aikman] is necessary before DTSC can pursue a direct action against the company‘s historic insurers. DTSC seeks to add [Collins & Aikman] as a defendant in DTSC v. Dobbas to obtain such a judgment, which in turn would allow a direct action against the company‘s historic insurers. DTSC will not seek enforcement of the judgment directly against [Collins & Aikman], but only as a means to pursue a direct action against the company‘s historic insurers. To ensure that [Collins & Aikman] has the capacity to be sued in DTSC v. Dobbas, DTSC requests that a receiver be appointed for the company under 6 Del. C. § 18-805 .
(Emphasis added).2 Because Collins & Aikman had no known assets, DTSC proposed “to pay the reasonable costs of the receiver appointed by the Court, unless and until an insurer of [Collins & Aikman] begins defending the company.”
On December 8, 2014, the Court of Chancery granted the Department‘s petition and appointed a receiver with “the power, but not the obligation, to defend, in the name of [Collins & Aikman], any claims made against it in DTSC v. Dobbas.” In re: Collins & Aikman Prods., LLC, C.A. No. 10348-CB, 2014 WL 6907689, at *1 (Del. Ch.) (emphasis added). The order (drafted by DTSC) further provided that the Department would pay the receiver, “unless and until [DTSC] shows good cause why [it] should no longer be required to pay that cost.” Id.
Three days later, DTSC amended its complaint to add Collins & Aikman as a defendant. After being served, the receiver—unsurprisingly as he was appointed at the behest of, and paid by, the Department—declined to file an answer or otherwise defend the suit on behalf of Collins & Aikman. DTSC promptly moved under
More than four years later—and after settling with the other defendants in the meantime—DTSC moved for a default judgment of around $3.2 million against Collins & Aikman on August 21, 2019. In so doing, DTSC also asked the district court to enter a declaratory judgment that Collins & Aikman “is jointly and severally liable . . . for all [remediation] costs incurred after May 31, 2019, and future response costs incurred by [the Department]” in cleaning up contamination at the site.
A few weeks later, the Department‘s insurance consultant and agent, the Arcina Risk Group, notified the three liability insurers involved in this appeal—Allianz,3 Century, and Continental—that the Department had applied for a default judgment “against your insured [Collins & Aikman].” This notice ostensibly requested that the insurers “defend and indemnify your insured immediately” and directed them to respond to both the receiver and DTSC. It was only then—over four years after DTSC filed its initial complaint—that the insurers learned that the Department had sued Collins & Aikman in this case.
The insurers immediately moved to intervene as of right under
In denying intervention as of right, the district court first observed that it had previously denied intervention by another of Collins & Aikman‘s insurers, Travelers, after finding that the latter‘s disclaimer of coverage and “refusal to defend [Collins & Aikman] under a reservation of rights forfeited its interest in the litigation” for purposes of intervention as of right under
The district court then noted that in moving to intervene, Continental, Century, and Allianz “offer[ed] many of the same arguments Travelers did in its
motion.” Id. The court then rejected Continental‘s and Century‘s arguments for largely the same reasons that it rejected those made by Travelers.
As to Continental—which, unlike Travelers, did not disclaim coverage—the district court found it critical that DTSC “offered to stipulate to Continental‘s intervention” if Continental either accepted coverage or agreed to defend Collins & Aikman under a reservation of rights, but Continental did neither and “failed to respond to plaintiffs’ offer.” Id.
As to Century, the district court noted that it, like Travelers, had disclaimed coverage based on a prior settlement agreement; the court found that “by implication [Century] refuses to offer a defense under a reservation of rights.” Id. at *2.
Finally, the district court turned to Allianz, which had reserved its rights. Id.6 The court observed that Allianz had only issued excess policies. Id. The court then noted that under California law, the policy limits of an underlying primary policy must be exhausted before an excess carrier has the right or duty to defend. Id. Because DTSC had not determined which primary carrier(s) would be responsible, “the court [could not] conclude that primary coverage is exhausted and that excess insurers can properly intervene,” and so the court denied Allianz‘s motion as well. Id.
The district court also denied the insurers’ motions to set aside the entry of default. Id. at *3. Its reasoning as to Century and Allianz was not entirely clear, although the court‘s order at one point suggested that Century‘s motion to set aside default was denied “[b]ecause it has both disclaimed coverage and refused to defend
The insurers timely appealed both the denial of their motions to intervene and the denial of their motions to set aside the entry of default.
II
The district court had federal question jurisdiction under
We review de novo a district court‘s denial of a motion for intervention as of right except for the district court‘s determination of timeliness, which we review for an abuse of discretion. See id.
III
Before turning to the merits, we first pause to consider the jurisdictional question of the insurers’ standing to intervene. Intervenors that seek relief that is broader than or different from the relief sought by existing parties to the case must possess constitutional standing, Town of Chester, N.Y. v. Laroe Estates, Inc., 137 S. Ct. 1645, 1651 (2017), but intervenors that seek the same relief sought by at least one existing party to the case need not do so. Little Sisters of the Poor Saints Peter & Paul Home v. Pennsylvania, 140 S. Ct. 2367, 2379 n.6 (2020); McConnell v. FEC, 540 U.S. 93, 233 (2003) (“It is clear ... that the [defendant agency] has standing, and therefore we need not address the standing of the intervenor-defendants, whose position here is identical to the [agency‘s].“), overruled in part on other grounds, Citizens United v. FEC, 558 U.S. 310 (2010).
Here, the insurers seek to intervene to defend Collins & Aikman, which (being controlled by the Department) is not defending itself. As they seek relief that no existing party to the case seeks, the insurers must establish constitutional standing. Town of Chester, 137 S. Ct. at 1651; Little Sisters of the Poor, 140 S. Ct. at 2379 n.6; McConnell, 540 U.S. at 233.
In this context, where the insurers seek to intervene as defendants, they must show that the relief sought by the plaintiff, DTSC, threatens them with “injury in fact . . . that is concrete and actual or imminent, not conjectural or hypothetical.”
Steel Co. v. Citizens for a Better Env‘t, 523 U.S. 83, 103 (1998) (cleaned up). They must also show “causation—a fairly traceable connection between [their threatened] injury” and the relief sought by the Department. Id. Finally, they must demonstrate “redressability—a likelihood that [their] requested relief will redress the [asserted] injury.” Id.
We conclude that the insurers easily satisfy the requirements of constitutional standing. DTSC seeks relief in form of a money judgment against their insured, and insofar as the California direct action statute applies, the Department could then sue the insurers for recovery under the policies, which DTSC has stated its intention to do. This contingent liability and its attendant costs (defending against the threatened direct action suit) creates injury
IV
As relevant here,
claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant‘s ability to protect its interest, unless existing parties adequately represent that interest.
In this circuit,
Here, there is no dispute that the insurers timely sought to intervene. Nor is there any dispute that the existing parties do not represent the insurers’ interests, if any such interests exist, or that their absence from the litigation “may as a practical
matter impair or impede [their] ability to protect [those assumed] interest[s].”
A
“The Supreme Court has yet to provide any clear definition of the nature of the ‘interest relating to the property or transaction which is the subject of the action.’ ” Arakaki v. Cayetano, 324 F.3d 1078, 1084 (9th Cir. 2003) (quoting 7C Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure: Civil 2d § 1908, at 21 (Supp. 2002)). This question—“What kind of interest is required?,” New Orleans Pub. Serv., Inc. v. United Gas Pipe Line Co., 732 F.2d 452, 463 (5th Cir. 1984) (en banc) (NOPSI) (emphasis in original)—has bedeviled the lower federal courts since
In general, the word “interest” in
The only Supreme Court case that sheds any meaningful light on this question is Donaldson v. United States, where a taxpayer sought to intervene in district court actions brought by the IRS against his former employer and its accountant seeking to compel production of their financial records related to his potential tax liability. 400 U.S. 517 (1971). The Court identified the taxpayer‘s asserted “interest” as a “desire . . . to counter and overcome” the former employer‘s and accountant‘s “willingness . . . to comply and to produce records,” id. at 531, and observed that “[t]he nature of the ‘interest’ . . . is apparent from the fact that the material in question . . . would not be subject to suppression if the Government obtained it by other routine means,” such as the defendants’ voluntary disclosure or through the taxpayer‘s own income tax returns, id.
The Court then cryptically announced that “[t]his interest cannot be the kind contemplated by
As these examples of “protectable interests” were legally cognizable—unlike the taxpayer‘s asserted interest, which was not protected by any law—it seems “that the Supreme Court in Donaldson used ‘protectable’ in the sense of legally protectable, and it is difficult to conceive of any other sense in which the Court might have been employing ‘protectable’ in that context.” NOPSI, 732 F.2d at 464.
Although the Supreme Court decided Donaldson in 1971, with one minor exception9 the Ninth Circuit‘s intervention cases didn‘t acknowledge it for almost twenty years, and instead generally followed an older line of authority recognizing the more expansive concept of “interest.” See, e.g., Cnty. of Fresno v. Andrus, 622 F.2d 436, 438 (9th Cir. 1980) (“We have rejected the notion that
In 1989, we recognized that Donaldson had “modified” “our circuit doctrine” by construing
Wilderness Society abrogated Portland Audubon Society‘s conclusion that private parties could never have a protectable interest under NEPA, explaining “that private parties seeking to intervene in NEPA cases may, in certain circumstances, demonstrate an interest ‘protectable under some law,’ and a relationship between that interest and the claims at issue.” Wilderness Soc‘y, 630 F.3d at 1179 (emphasis added) (quoting Sierra Club v. U.S. EPA, 995 F.2d 1478, 1484 (9th Cir. 1993), abrogated on other grounds by Wilderness Soc‘y, 630 F.3d at 1179–80).
Thus, Wilderness Society did not overrule Portland Audubon Society‘s recognition that Donaldson “modified” our circuit‘s expansive reading of “interest” under
We therefore read Wilderness Society to mean that, despite our pre-Donaldson “liberal policy in favor of intervention,” which ” ‘follow[s] practical and equitable considerations,’ ” id. at 1179 (quoting United States v. City of Los Angeles, 288 F.3d 391, 397 (9th Cir. 2002)), at an irreducible minimum
Here, there is no dispute that if the insurers have an interest “protectable under some law,” there exists “a relationship between the legally protected interest and the claims at issue.” We therefore turn to whether the insurers have any such interest.
B
1
The insurers’ briefing does not claim that federal law protects any interest
In diversity cases, we apply the choice-of-law rules of the forum state to decide state-law questions. Patton v. Cox, 276 F.3d 493, 495 (9th Cir. 2002) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). But in federal question (such as this one) and other cases in which our jurisdiction is not grounded in diversity, our decisions have been inconsistent—sometimes we have applied the federal common law to the “choice of choice-of-law principles,” Cassirer v. Thyssen-Bornemisza Collection Found., 142 S. Ct. 1502, 1507 (2022), and in other cases we have applied forum state rules, see Berman v. Freedom Fin. Network, LLC, 30 F.4th 849, 862 (9th Cir. 2022) (Baker, J., concurring) (collecting cases).
The Supreme Court‘s recent decision in Cassirer dispels this uncertainty and establishes a clear rule of decision governing choice of choice-of-law in federal question and other cases in which our jurisdiction is not grounded in diversity. “Judicial creation of federal common law to displace state-created [choice-of-law] rules must be ‘necessary to protect uniquely federal interests.’ ” Cassirer, 142 S. Ct. at 1509 (quoting Tex. Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 640 (1981)). Where, as here, state law supplies the “the substantive rule of decision,” there is no federal interest in “supplant[ing] the otherwise applicable choice-of-law rule.” Id. We therefore apply the choice-of-law principles of the forum state, California, to determine whether the insurers have a legally protected interest under state law for purposes of
2
California courts apply two sets of choice-of-law rules. Insofar as the state law question at issue involves the interpretation of contracts, state courts look to
Under both approaches, when (as here) the parties have not suggested that some other state‘s law applies, California courts will apply their own state‘s law. Cf. Ace Am. Ins. Co. v. Fireman‘s Fund Ins. Co., 206 Cal. Rptr. 3d 176, 181 n.1 (Ct. App. 2016) (applying California law in insurance coverage dispute involving the interpretation of contracts because the parties did not address choice of law); Hurtado v. Super. Ct., 522 P.2d 666, 670 (Cal. 1974) (under the governmental interests analysis, “generally speaking the forum will apply its own rule of decision unless a party litigant timely invokes the law” of another jurisdiction). We therefore apply California substantive law to determine whether the insurers have a legally protected interest for purposes of
3
The insurers contend that the California direct action statute,
The California Court of Appeal has since consistently followed Clemmer and repeatedly held that insurers have a protectable interest under
In Gray, an insurer providing a defense under a reservation of rights sought to intervene when its insured settled without the insurer‘s consent. The Court of Appeal held that the insurer had a protectable interest for intervention purposes, reasoning that “the key factor . . . is whether the insurer provided the insured with a defense, not whether the insurer denied coverage.” 106 Cal. Rptr. 3d at 740 (emphasis added). Like the insurer in Gray—and unlike the insurers in Hinton, who refused to provide a defense, see 98 Cal. Rptr. 3d at 616, and in Noya, who denied coverage and refused to provide a defense, see 49 Cal. Rptr. 3d at 588—the insurers here seek to provide a defense. The insurers explained to the district court that, if allowed to intervene, they would defend Collins & Aikman‘s interests by challenging its alleged liability for site contamination and whether DTSC‘s remediation actions are consistent with the statutory requirements for a CERCLA action, as well as by arguing “that DTSC is not entitled to recover prejudgment interest” or “fixed costs” that have “no relation to the site.”
We emphasize here that none of the insurers had previously denied a defense to their insured. The insurers only received notice of the litigation against Collins & Aikman from DTSC‘s agent, Arcina Risk Group, more than four years after it commenced and after the clerk‘s entry of default. During that time, the court-appointed and DTSC-paid receiver for Collins & Aikman never notified the insurers of DTSC‘s claims, let alone sought a defense from them. The insurers timely sought to defend Collins & Aikman through the only practical means by which they could do so—by intervention directly into the case.
Under our reading of Clemmer and its progeny, what is dispositive here is that the insurers timely sought to intervene to defend their helpless insured and prevent a default judgment. An insurer‘s coverage position is irrelevant under the direct action statute so long as the insurer timely acts to defend a helpless insured and prevent its default. See Clemmer, 587 P.2d at 1106, 1109; Gray, 106 Cal. Rptr. 3d at 740.
We therefore hold that under the California direct action statute, a primary or excess insurer16 that seeks to timely
V
Finally, the insurers appeal the district court‘s denial of their
DTSC asserts that we lack appellate jurisdiction because such an order is interlocutory. We agree. “Whereas we have jurisdiction to review a district court‘s order denying a motion to set aside the entry of a default judgment, we lack jurisdiction over an appeal from an order denying a motion to set aside the entry of default alone.” Symantec Corp. v. Global Impact, Inc., 559 F.3d 922, 923 (9th Cir. 2009) (cleaned up); see also Haw. Carpenters’ Tr. Funds v. Stone, 794 F.2d 508, 512 (9th Cir. 1986) (noting, in case involving review of entry of default judgment, rather than clerk‘s default as here, that “[o]ur review necessarily encompasses the entry of default and the conditional order setting the default aside, as neither of those orders constituted appealable final orders“) (emphasis added); Baker v. Limber, 647 F.2d 912, 916 (9th Cir. 1981) (characterizing appellee as “correct” that appeal was premature where district court entered default but had not yet issued default judgment).
Thus, we dismiss the insurers’ appeal of the denial of their motions to set aside the clerk‘s default. That said, on remand the district court may reconsider its denial of those motions.18
REVERSED in part, DISMISSED in part, and REMANDED. The parties shall bear their own costs.
Cal. Dep‘t Toxic Substances Control v. Century Indemnity Co., et al., 20-15029
COLLINS, Circuit Judge, concurring in part and concurring in the judgment:
As the majority correctly notes, whether the insurers in this case should have been permitted to intervene as of right under
Accordingly, I join Parts I, II, IV(B)(3), and V of the court‘s opinion, and I concur in the court‘s judgment.
Sections III, IV(A), IV(B)(1), and IV(B)(2) of the majority opinion respectively address additional issues regarding standing, the development of the law leading up to our articulation of