Free Motion for Certificate of Appealability - District Court of Arizona - Arizona

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Steven Plitt (SBN 007481) Joshua D. Rogers (SBN 021300) KUNZ PLITT HYLAND DEMLONG & KLEIFIELD 3838 North Central Avenue, Suite 1500 Phoenix, Arizona 85012-1092 Telephone: (602) 331-4600 Facsimile: (602) 331-8600 Attorneys for Assurance Company of America, Zurich American Insurance Company and Maryland Casualty Company UNITED STATES DISTRICT COURT STATE OF ARIZONA General Acrylics, Inc., an Arizona corporation, Plaintiff, vs. Maryland Casualty Company, a Maryland corporation; Assurance Company Of America, a New York corporation; and Zurich American Insurance Company, et al. Defendants. DEFENDANTS' MOTION TO CERTIFY FOR INTERLOCUTORY APPEAL NO. CV-03-1495 PHX RGS

(Oral Argument Requested)

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And Related Counterclaim.

Defendants Assurance Company of America ("Assurance"), Zurich American Insurance Company ("Zurich") and Maryland Casualty Company ("Maryland") (collectively "Defendants"), hereby move this Court to certify for interlocutory appeal, pursuant to 28 U.S.C. § 1292(b), the issues decided in the Court's April 6, 2006 and

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June 9, 2006 Orders denying Defendants' Motion for Summary Judgment and granting Plaintiff's Cross-Motion for Partial Summary Judgment ( "the Orders"). This motion is supported by the accompanying Memorandum of Points and Authorities. MEMORANDUM OF POINTS AND AUTHORITIES I. BACKGROUND On April 6, 2006, this Court issued a decision denying Defendant's Motion for Summary Judgment and granting General Acrylics' Cross-Motion for Partial Summary Judgment. See April 6, 2006 Order. In its decision, this Court held that the facts in this case constituted "property damage" caused by an "occurrence." In doing so, the Court distinguished this case from the Arizona Court of Appeals' holding in United States Fidelity & Guaranty Company v. Advance Roofing & Supply Company, 163 Ariz. 476, 788 P.2d 1227 (Ct. App. 1989). Specifically, this Court found that "the blistering and delamination occurring on the courts as a result of the ASR condition in the concrete supplied by United Metro constitutes `property damage' as defined under the plain terms of the policy" and "the damage to the courts was the result of the unexpected, unintended, and continuous exposure to the ASR condition in the concrete constituting an `occurrence.'" April 6, 2006 Order, at 5, 6. This Court also determined that the "Your Work" exclusion in the policy did not apply to preclude coverage because the Court held that the concrete supplier, United Metro, constituted a "subcontractor," bringing these facts with the exception to the exclusion. Id. at 7. Therefore, because the Court determined that there was "property damage" caused by an "occurrence" and there were no applicable exclusions, the Court denied Defendants' Motion for Summary Judgment and granted Plaintiff's Cross-Motion for Partial Summary Judgment. Id. On April 20, 2006, Defendants filed a Motion for Reconsideration of the Court's April 6,

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2006 Order.

On or about June 8, 2006, this Court entered an Order denying

Defendants' Motion for Reconsideration. See June 9, 2006 Order. II. LEGAL ARGUMENT A. This Court Should Certify Its April 6, 2006 And June 9, 2006 Orders For Interlocutory Appeal Under 28 U.S.C. § 1292(B) Because The Orders Involve A Controlling Question Of Law For Which There Is Substantial Ground For Difference Of Opinion And An Immediate Appeal May Materially Advance The Ultimate Termination Of The Litigation.

This Court may certify an order of interlocutory appeal if the order "involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation." 28 U.S.C. § 1292(b); Cardona v. General Motors Corp., 939 F. Supp. 351, 353 (D. N.J. 1996). These three factors should be applied flexibly and viewed together. See 16 C. Wright, A. Miller & C. Cooper, F EDERAL P RACTICE AND P ROCEDURE § 3930 at 415-16 (2d ed. 1996). While certification of an order under 28 U.S.C. § 1292(b) is discretionary, it is "the duty of the district court ... to allow an immediate appeal to be taken when the statutory criteria are met." Ahrenholz v. Board of Trustees, 219 F.3d 674, 677 (7th Cir. 2000). Because the standards for interlocutory appeal are met here, this Court should certify the Orders for interlocutory appeal . 1. This Court's Orders Involve a Controlling Question of Law.

The issue of coverage is a controlling question of law because it could materially affect the outcome of this litigation. "[A]ll that must be shown in order for a question to be "controlling" is that resolution of the issue on appeal could materially affect the outcome of litigation in the district court." In re Cement Antitrust Litigation, 673 F.2d 1020, 1026 (9th Cir. 1982); see also United States Rubber Co. v. Wright, 359 F.2d 784, 785 (9th Cir. 1966). If the issue will " materially affect the course of litigation with
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resulting savings of the court's or the parties' resources," it is appropriately deemed a controlling issue. Judicial Watch, Inc. v. Nat'l Energy Policy Dev. Group, 233 F. Supp. 2d 16, 19 (D.D.C. 2002); see also 16 Wright, Miller & Cooper, FEDERAL P RACTICE
AND

P ROCEDURE § 3930 at 426 (1996) (stating "[a] growing number of decisions ...

have accepted the better view that a question is controlling... if interlocutory reversal might save time for the district court and time and expense for the litigants."). The question of coverage, which is the subject of the Court's Orders, is controlling because it bears on the resolution of General Acrylics' remaining claims. The Court's Orders granted summary judgment in favor of General Acrylics on the issue of coverage. General Acrylics' remaining claim is one of bad faith, with a request for punitive damages. General Acrylics' allegation of bad faith is predicated solely on the Defendant's denial of coverage for reimbursement of repair costs. Thus, if the Court of Appeals were to depart from the Court's findings and hold that coverage does not exist, General Acrylics' bad faith claim would be rendered moot. Moreover, the resolution of the coverage issue forms the basis of how this case will proceed. Whether in the Defendants' favor or not, the Court of Appeals' ruling will impact the litigants' decisions with respect to the degree and nature of future disclosures or discovery; the filing of motions for summary judgment; the extension and acceptance of settlement offers; and the decision to proceed to a trial on the merits. Further, the question of coverage should be found to be controlling because of the potential impact an interlocutory appeal of the issue will have on other cases. "The impact that the appeal will have on other cases is also a factor supporting a conclusion that the question is controlling." APCC Services, Inc. v. AT & T Corp., 297 F. Supp. 2d 101, 105 (D.D.C. 2003); see also, Klinghoffer v. S.N.C. Achille Lauro, 921 F.2d 21, 24 (2d. Cir. 1990) (citing Brown v. Bullock, 294 F.2d 415, 417 (2d Cir.1961) (leave to appeal granted in part because the "determination was likely to have precedential value

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for a large number of other suits")); Genentech, Inc. v. Novo Nordisk A/S, 907 F.Supp. 97, 99 (S.D.N.Y.1995) (a question is "controlling" if it affects a number of cases). The dispute brought b efore the Court in this matter involves the question of whether an insurer should be required to cover the costs of repairs when work done in conjunction with a construction project is faulty. The factual scenario underlying the suit is a common one in the state of Arizona, as is the resulting dispute over coverage. The state of Arizona, and the Phoenix metro area in particular, are growing at a record pace. Hundreds upon hundreds of construction contracts are entered into as the

boundaries of development swell and expand. Indeed, construction defect lawsuits are rampant throughout the State and coverage is always at issue and has a significant impact on the underlying litigation. Because the issue of coverage raised here has the potential to implicate a myriad of other case, the Court's Orders should be certified for interlocutory appeal. 2. An Interlocutory Appeal of the Coverage Issue Will Materially Advance the Litigation.

This Court should certify its Orders for interlocutory appeal because to do so will materially advance the litigation. The interlocutory appeal of an issue will materially advance the litigation if "its resolution [] promise[s] to speed up the litigation." Ahrenholz v. Board of Trustees of University of Illinois, 219 F.3d 674, 675 (7 th Cir. 2000) (emphasis in original). The litigation in this matter will be "sped up" because the Court of Appeals' opinion will not only dispose of the coverage issue, but it may also be determinative of the other issues as well. See In re Ocwen Federal Bank FSB, 2006 WL 1371458 *3 (N.D. Ill. 2006) (finding "materially advanced requirement met when twenty of the twenty-three counts would be dismissed if defendant prevailed). Moreover, interlocutory appeal of the Court's Orders may save this Court and the parties the time and expense of further discovery. See AD Global Fund, LLC v. United

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States, 68 Fed.Cl. 663, 666 (2005) (determining that interlocutory appeal would materially advance the litigation because reversal of the trial court ruling would potentially save 18 months of discovery and trial preparation). This litigation has proceeded along a bifurcated discovery schedule. Thus, to date, no discovery has been conducted on General Acrylics' bad faith claim and its accompanying request for punitive damages. The discovery that is required for such a claim is distinct from the investigation already conducted by the parties. See Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 238, 995 P.2d 276, 280 (2000) (stating that the appropriate inquiry on a claim of bad faith "is whether there is sufficient evidence from which reasonable jurors could conclude that in the investigation, evaluation, and processing of the claim, the insurer acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable.") and Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326, 332, 723 P.2d 675, 681 (1986) (holding a plaintiff seeking punitive damages must present clear and convincing evidence that the Defendants' conduct was aggravated, outrageous, malicious, or fraudulent, and that the Defendants' acts were guided by an evil mind). The disclosures that will need to be made and the persons who will need to be deposed are distinct from those relevant to the coverage issue. Thus, should this Court certify its Orders and stay this case until the resolution of the interlocutory appeal, the Court and the parties may be spared the expenditures of time and expense that will be required to proceed on the bad faith claim and the accompanying request for punitive damages. Finally, the requirement that the interlocutory appeal will materially advance the litigation is met for the same reasons that the Orders present a controlling question of law. The issue of whether an order presents a controlling question of law and whether an interlocutory appeal will materially advance the litigation are closely related and, indeed, bend together. See 16 Wright, Miller & Cooper, FEDERAL P RACTICE AND

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P ROCEDURE § 3930 at 415-16 (1996). While the Ninth Circuit Court of Appeals has specifically differentiated between the "controlling question of law" requirement and the "materially advances the litigation" requirement, it has noted there is some overlap. See In re Cement Antitrust Litigation, 673 F.2d at 1026. Thus, Defendants here reiterate the assertions made above in support of an interlocutory appeal of the Court's Orders. See e.g., supra, Section I.A. and Triax Co. v. United States, 20 Cl.Ct. 507, 514 (1990) (determining an interlocutory appeal would materially advance the litigation because reversal of the trial court would resolve not only that case but also a large number of others). Because the Court's Orders meet both the requirement that the issue involve a controlling question of law and the requirement that the appeal will materially advance the litigation, this Court should certify the Orders for interlocutory appeal. 3. Substantial Ground for Difference of Opinion Exists with Respect to the Issue of Coverage for Faulty Workmanship.

Defendants respectfully submit that substantial ground for difference of opinion exists with respect to the issues decided in the Court's Orders. That substantial ground for difference of opinion exists is reflected in the fact that another Judge of this Court reached a diametrically different decision with respect to the very core issues addressed in the Orders. See Order, U.S. Home Corporation v. Maryland Casualty Company, et al., CV-04-1150-PHX-FJM, dated December 20, 2005, attached hereto as Exhibit "A". The requisite "substantial ground for difference in opinion" may be found in two different, but plausible interpretations of a case. See Klamath Irrigation District v. United States, 69 Fed.Cl. 160 (2005); see also, Verda, LTDA. v. United States, 271 F.3d 1367, 1373-74 (Fed.Cir.2001) (finding that a "substantial ground for difference of opinion" existed regarding interaction between two precedential cases). Or the

"substantial ground" requirement may result from a difference of opinion among the judges of the same court. See Hermes Consol., Inc. v. United States, 58 Fed.Cl. 409,

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419-20 (2003) (granting interlocutory appeal based on a difference of opinion among the judges of the Federal Circuit) rev'd on other grounds, 405 F.3d 1339 (Fed.Cir.2005). Crucial to this Motion is the fact that Judge Fredrick J. Martone, analyzing a strikingly similar set of facts, interpreted the Arizona Court of Appeals decision in Advanced Roofing as controlling on the questions of whether the faulty workmanship at issue constituted "property damage" resulting from an "occurrence." In U.S. Home v. Maryland Casualty Company, Judge Martone considered whether coverage should be extended to a general contractor as an additional insured under the policy for the costs of repairs to the stucco work performed by the named insured subcontractor on at least fifty homes that had extensive stucco cracks and soft spots. Judge Martone expressly rejected U.S. Home's attempts to distinguish Advanced Roofing and held that faulty workmanship cannot constitute an "occurrence" resulting in "property damage." Accordingly, Judge Martone determined that the costs to repair the defective stucco did not constitute "property damage" caused by an " occurrence" and were therefore not covered under the policy. This Court's Orders in this case are in direct contradiction to the decision made by Judge Martone. Thus, not only is there a substantial difference of opinion regarding the proper interpretation and application of the Advanced Roofing opinion, but there is also a substantial difference of opinion with respect to the meaning of "property damage" and "occurrence," as used in a commercial general liability policy. The terms "property damage" and "occurrence" are consistently incorporated into commercial general liability policies; therefore, the courts are continually called upon to interpret these terms. Accordingly, since there is a substantial ground for a difference of opinion not only with respect to the proper interpretation and application of Advanced Roofing, but also with respect to the interpretation of standard insurance contract language, this Court should certify the Orders for interlocutory appeal.

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B.

THIS COURT SHOULD GRANT A STAY OF PROCEEDINGS PENDING APPELLATE REVIEW OF THE COURT'S ORDERS.

In light of the extraordinary effect a disparate opinion from the Court of Appeals may have on the course of this litigation, this Court should grant a stay of proceedings during the pendency of the appeal of the Court's Orders. In deciding whether to grant a stay pending appeal, a court considers: "(1) the likelihood that the party seeking the stay will prevail on the merits of the appeal; (2) the likelihood that the moving party will be irreparably harmed absent a stay; (3) the prospect that others will be harmed if the court grants the stay; and (4) the public interest in granting the stay." Cuomo v. United States Nuclear Regulatory Comm'n, 772 F.2d 972, 974 (D.C. Cir. 1985). These factors are not prerequisites to be met, but rather considerations to be balanced. Thus, "[a] stay may be granted with either a high probability of success and some injury, or vice versa." Id. at 974. The fact that another respected Judge of this Court resolved a case presenting very similar facts in favor of the defendant/insurance company demonstrates a likelihood of success on the merits on appeal. The likelihood of the harm to the Defendants should this matter proceed is significant as the Defendants will have to expend considerable time and energy in defending a bad faith claim which may well be moot after the appeal. The probability that others will be harmed if the court grants the stay is slight. General Acrylics will simply be relieved from prosecuting its claims during the pendency of the appeal. Finally, the public interest is best served by granting a stay because the strained resources of the court will be freed and other cases can be litigated instead. Because the weight of the factors rests in favor of erecting a stay of

proceedings, this Court should both certify the Orders for interlocutory appeal and stay the proceedings during t he pendency of that appeal.

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III.

CONCLUSION An order of a district court is properly certified for interlocutory appeal when it

involves a controlling question of law as to which there is substantial grounds for difference of opinion and when a immediate appeal from the order may materially advance the ultimate termination of the litigation. Because each of the requisite factors is met here, this Court should certify its Orders for appeal and grant a stay of proceedings during the pendency of the appeal.

DATED this 7th day of July, 2006. KUNZ PLITT HYLAND DEMLONG & KLEIFIELD s/Joshua D. Rogers By: ______________________________ Steven Plitt Joshua D. Rogers 3838 N. Central Avenue, Suite 1500 Phoenix, AZ 85012-1902 Attorneys for Defendant Assurance Company of America, Zurich American Insurance Company and Maryland Casualty Company ORIGINAL filed electronically and a copy delivered to Judge Strand: ... and a COPY served electronically/mailed this 7 th day of July, 2006 to: Sid A. Horwitz, Esq. Carmichael & Powell, P.C. 7301 N. 16th Street, Suite 103 Phoenix, AZ 85020-5297 Attorneys for Plaintiff s/Joshua D. Rogers ________________________________ Document 5110 - Filed 07/07/2006
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