ANDREW ADELMAN V. U.S. SPECIALTY INS. CO. ( 2022 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS DEC 23 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
ANDREW ADELMAN, No. 22-15048
Plaintiff-Appellant, D.C. No. 21-cv-02758-JST
v.
MEMORANDUM*
U.S. SPECIALTY INSURANCE
COMPANY; GREAT AMERICAN
INSURANCE COMPANY,
Defendants-Appellees.
Appeal from the United States District Court
For the Northern District of California
Jon S. Tigar, District Court Judge, Presiding
Argued and Submitted December 9, 2022
San Francisco, California
Before: NGUYEN and KOH, Circuit Judges, and BOUGH,** District Judge.
In March 2017, Sungevity, Inc. (“Sungevity”) conducted mass layoffs and
went bankrupt. A class of laid off employees, including class representative
Andrew Adelman, (collectively “Adelman”) sued the company for violations of the
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Stephen R. Bough, United States District Judge for the
Western District of Missouri, sitting by designation.
Workers Adjustment and Retraining Act (“WARN Act”) and related state laws.
The case settled, and Adelman was assigned the right to sue Sungevity’s Directors
and Officers. The suit against the Directors and Officers settled, and Adelman was
assigned the right to sue Sungevity’s insurers, U.S. Specialty Insurance Company
and Great American Insurance Company (“Insurers”), for coverage. After
Adelman brought the instant case pursuant to that assignment, the Insurers filed a
motion to dismiss, arguing that their insurance contract with Sungevity excluded
coverage for the claims. The district court granted the motion, and we affirm.
We review a motion to dismiss de novo. See Whitaker v. Tesla Motors, Inc.,
985 F.3d 1173, 1175 (9th Cir. 2021). Accepting all well-pleaded facts as true, we
must decide if the complaint offers sufficient “facts to state a claim to relief that is
plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
Because this is a diversity action, interpretation of the insurance contract is
governed by the law of the forum state, California. See Encompass Ins. Co. v.
Coast Nat’l Ins. Co., 764 F.3d 981, 984 (9th Cir. 2014). Under California law, the
Insurers bear the burden of proving an exclusion applies. See MacKinnon v. Truck
Ins. Exch., 73 P.3d 1205, 1213 (Cal. 2003).
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We agree with the Insurers that Exclusion (L) bars Adelman’s claim.1 As
relevant here, Exclusion (L) reads: “the Insurer will not be liable to make any
payment of Loss in connection with a Claim . . . for any actual or alleged violation
of any provision of . . . the Worker Adjustment and Retraining Notification Act . . .
or any other similar provisions [of state law].” A “loss” is defined in relevant part
as: “Defense Costs and any damages, settlements, judgments, back pay awards
and front pay awards or other amounts . . . that an Insured is legally obligated to
pay as a result of any Claim . . . .” A “claim” includes “any civil proceeding
commenced by service of a complaint or similar pleading.” The key question we
must address is whether the losses stemming from the Directors’ and Officers’
breach of their fiduciary duties are connected to a claim for violation of the WARN
Act and related state laws.
To answer that question, we turn to Adelman’s complaint in the state law
action for which he seeks coverage. The first cause of action in the complaint
alleged that the Directors and Officers “breached their fiduciary duties to
Sungevity when they ordered a mass layoff . . . without complying with the
WARN Act and California WARN Act notice requirements or California and
Missouri wage-payment laws.” The second cause of action alleged that each of the
1
Because we find Exclusion (L) bars coverage, we do not address the parties’
arguments about Exclusion (F).
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Directors and Officers “aided and abetted . . . breaches of fiduciary dut[ies]” by
“caus[ing] the company to conduct a mass layoff . . . without complying with the
WARN Act and California WARN Act notice requirements or California and
Missouri wage-payment laws.” Adelman sought $3,500,000 in damages from the
Directors and Officers, as well as costs and any other relief the court deemed
proper.
We conclude that those damages—and the corresponding losses to the
Insured that a judgment favorable to Adelman would impose—are connected to a
claim for a violation of the WARN Act, and thus barred by Exclusion (L), for two
reasons. First, the losses are connected to the original WARN Act suit against
Sungevity. Adelman was only able to sue the Directors and Officers because he
was assigned the right to sue from Sungevity after Sungevity settled its own suit
with Adelman for violating the WARN Act and related state laws. Moreover, the
$3,500,000 in damages sought from the Directors and Officers is the settlement
amount from Sungevity’s settlement with Adelman for Sungevity’s violation of the
WARN Act and related state laws.
Second, by the complaint’s plain language, both causes of action required
Adelman to show that the Directors and Officers caused Sungevity to violate the
WARN Act and related state laws to succeed. Thus, any losses from the suit
against the Directors and Officers would be losses for a violation of the WARN
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Act and related state laws. We note that this conclusion is in accord with the most
closely analogous California case, relied on by both parties. See Medill v.
Westport Ins. Corp., 49 Cal. Rptr. 3d 570, 579 (Ct. App. 2006) (holding that
exclusion applied when “[a]ll of the allegations against the directors and officers
[arose] out of” breach of excluded contract).
AFFIRMED.
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