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Mf Nut Co., LLC, Fka Mac Farms of Hawaii, LLC v. Continental Casualty Company

January 14, 2013


The opinion of the court was delivered by: Leslie E. Kobayashi United States District Judge


Before the Court are the following motions: (1) Plaintiff MF Nut Co., LLC's, formerly known as Mac Farms of Hawaii, LLC ("Mac Farms") Motion for Partial Summary Judgment as to Duty to Defend ("Mac Farms' Motion"), filed on May 30, 2012 [dkt. no. 52,] and (2) Defendant Continental Casualty Company's ("Continental") Motion for Summary Judgment ("Continental's Motion"), filed on July 30, 2012. [Dkt. no. 64.].*fn1

Continental filed its memorandum in opposition to Mac Farms' Motion ("Continental's Memorandum in Opposition") on September 25, 2012. [Dkt. nos. 77 (redacted), 80 (sealed).] Mac Farms filed its reply ("Mac Farms' Reply") on October 2, 2012. [Dkt. no. 81.] Mac Farms filed its memorandum in opposition to Continental's Motion on September 25, 2012 ("Mac Farms' Memorandum in Opposition"). [Dkt. no. 77.] Continental filed its redacted reply on October 2, 2012, [dkt. no. 82,] and its sealed reply on October 3, 2012. [Dkt. no. 85.]

Both motions came on for hearing on December 17, 2012. Appearing on behalf of Mac Farms was Richard B. Miller, Esq., and David R. Harada-Stone, Esq., and appearing on behalf of Continental was David Ronald Major, Esq., and Christopher R. Carroll, Esq. After careful consideration of the motions, supporting and opposing memoranda, and the arguments of counsel, the Court HEREBY DENIES Mac Farms' Motion and GRANTS Continental's Motion.


Prior to August 2008, Mac Farms "grew and harvested macadamia nuts on its farm in South Kona on the Island of Hawaii." [Complaint at ¶ 16.] Mac Farms had a contract with Global Horizons, Inc., a California corporation doing business as Agri Labor LLC ("Global Horizons") to provide seasonal laborers to supplement Mac Farms' workforce. Global Horizons provided Mac Farms with laborers from October 2004 through March 2007. [Id. at ¶ 17.]

Continental issued Mac Farms an "Epack" Insurance Policy, No. 287240960, originally effective May 1, 2008 through June 27, 2009 ("the Policy"). Endorsement No. 18, effective August 11, 2008, amended the Policy's expiration date to August 11, 2008. Endorsement No. 19, also effective August 11, 2008, provided for an extended reporting period through August 11, 2010. The Policy is a "claims made" policy. The "Insuring Agreement" in the Policy provides:

The Insurer shall pay on behalf of Named Company, any Subsidiary, any Plan or any Insured Person Loss resulting from any Claim first made against the Named Company Insureds during the Policy Period or the Extended Reporting Period, if applicable, for a Wrongful Act by such Named Company Insured or by any natural person for whose Wrongful Act such Named Company Insured is legally responsible. [Policy at CCC 00020 (emphases omitted).] The limit for the Employment Practices Liability ("EPL") coverage part is $1,000,000, with a $25,000 retention. [Id. at CCC 00008.]

The Policy defines a "claim" as "a written demand for monetary damages" or "a formal civil, administrative, or regulatory proceeding or investigation or an arbitration[.]" [Id. at CCC 00024.] A "wrongful act" is defined as "any actual or alleged error, misstatement, misleading statement, act, omission, neglect or breach of duty committed or attempted by the Insured Persons in their capacity as such or by Named Company or any Subsidiary." [Id. (emphases omitted).] A "wrongful employment practice" is defined as "any Wrongful Act constituted or relating to[,]" inter alia violation of any federal, state or local laws (whether common-law or statutory) concerning employment or discrimination in employment, including the Americans with Disabilities Act of 1992, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964 and the Civil Rights Act of 1866[.] [Id. at CCC 00025 (emphasis omitted).]

On or about April 18, 2006, three Global Horizons employees filed Equal Employment Opportunity Commission ("EEOC") charges against Global Horizons and Mac Farms. Between April 18, 2006 and August 13, 2008, 28 more employees filed charges against Mac Farms. The charges alleged national origin discrimination and retaliation for engaging in protected activity, both in violation of Title VII of the Civil Rights Act of 1964, as amended ("Title VII"). In a letter dated August 6, 2008, Mac Farms' counsel, Barbara Petrus, Esq., of the law firm Goodsill Anderson Quinn & Stifel, LLP ("Goodsill Anderson"), tendered the defense of the 31 EEOC charges to Continental. Ms. Petrus submitted copies of the charges and responses with the tender letter. The charges and responses reflected that some of the charges' filing dates were before the effective date of the Policy, and some were after the effective date.

In an August 28, 2008 telephone conversation, Bryna Stiefel, a Continental claim manager, informed Ms. Petrus that Continental was accepting the tender and would pay for Goodsill Anderson to defend Mac Farms.*fn2 Between September 4, 2008 and July 9, 2009, Mac Farms, through Goodsill Anderson, tendered the defense of an additional 10 EEOC charges to Continental. Thus, the total number of charges tendered was 41 (all collectively "the EEOC Charges" brought by "the Charging Parties"). Goodsill Anderson continued to defend Mac Farms and sent its invoices to Continental. There were delays in the payment of some invoices but, until August 3, 2010, Continental never disputed coverage and did not indicate that it was defending Mac Farms pursuant to a reservation of rights. [Separate Concise Statement in Supp. of Mac Farms' Motion, filed 5/30/12 (dkt. no. 53) ("Mac Farms' CSOF"), Decl. of Barbara A. Petrus ("Petrus Decl.") at ¶¶ 8-9.]

On or about July 23, 2010, the EEOC issued a determination as to eight of the charges that it had reason to believe Mac Farms had engaged in illegal discrimination. On or about August 3, 2010, Ms. Petrus's associate, Shannon Sagum, Esq., told Ms. Petrus that Ms. Stiefel had informed her that Continental would be issuing a reservation of rights letter. [Petrus Decl. at ¶¶ 11-12.] On or about August 6, 2010, the EEOC issued its determination as to the remaining charges, also concluding that it had reason to believe that Mac Farms had engaged in illegal discrimination as to those charging parties. [Id. at ¶ 13.] The two determination letters state:

The Commission has determined that there is reasonable cause to believe that Charging Party and similarly situated individuals were discriminated against due to their national origin (Thai). The Commission has also determined that there is reasonable cause to believe that Charging Party and similarly situated individuals were subjected to harassment, subjected to different terms & conditions of employment, and intimidated because of their national origin (Thai). .

Therefore, I have concluded that the evidence is sufficient to establish a violation of the statute under Title VII of the Civil Rights Act of 1964, as amended. [Continental's Separate and Concise Statement in Supp. of Continental's Motion, filed 7/30/12 (dkt. no. 66) ("Continental's CSOF"), Decl. of Bryna J. Stiefel ("Stiefel Declaration"), Exh. D at CCC 00497-98 (7/23/10 determination letter), CCC 00554-55 (8/6/10 determination letter).]

On August 27, 2010, the EEOC sent Mac Farms and Global Horizons a conciliation proposal which included, inter alia, a $12,865,000.00 settlement. Goodsill Anderson repeatedly tried to discuss the proposal with Continental, but Ms. Stiefel would not discuss it, other than to ask Goodsill Anderson to request an extension of the deadline to respond to the conciliation proposal. Goodsill Anderson obtained an extension until September 14, 2010. Ms. Petrus believed that the purpose of the extension was to allow Continental to review the proposal and discuss it with Mac Farms and Goodsill Anderson. During a September 14, 2010 telephone call which had been scheduled to discuss the proposal, Ms. Stiefel advised Ms. Petrus and Ms. Sagum that Continental was denying coverage for the EEOC Charges and withdrawing its defense. Goodsill Anderson has continued to defend Mac Farms. [Petrus Decl. at ¶¶ 14-18.]

Continental sent Mac Farms' general counsel a formal letter of denial dated September 27, 2010. [Mac Farms' CSOF, Decl. of David R. Harada-Stone ("Harada-Stone Decl."), Exh. 8.] It states that all of the EEOC Charges "arise out of the same 'wrongful acts,' and are, therefore 'interrelated wrongful acts,' and one single Claim[,]" which is deemed to have been made on the date of the earliest claim. [Id. at 000052.] The first claim was filed on April 26, 2006, which was prior to the effective period of the Policy and therefore there is no coverage for the single Claim. [Id.]

On April 19, 2011, the EEOC filed a Complaint against various defendants, including Global Horizons and Mac Farms. [EEOC v. Global Horizons, Inc., et al., CV 11-00257 LEK-RLP ("EEOC v. Global Horizons"), (dkt. no. 1).]*fn3 The current version of the complaint in that case is the Third Amended Complaint. [EEOC v. Global Horizons, filed 7/2/12 (dkt. no. 263).] The Third Amended Complaint alleges:

40. At all relevant times, Defendant Mac Farms has continuously been under contract with Defendant Global for services rendered in Hawaii, and has continuously been a joint employer with Defendant Global where both generally controlled the terms and conditions of the employment of Suthat Promnonsri and other individuals.

41. Global and Mac Farms jointly controlled the Claimants' work, housing, transportation, and access to food; jointly supervised the Claimants and/or Mac Farms exercised successively higher authority over Global and the Claimants; jointly determined the pay rates or the methods of payment; jointly held the right, directly or indirectly, to hire, fire, or modify the employment conditions of the workers; jointly participated in the preparation of payroll and the payment of wages.

42. Mac Farms' joint employer liability also stems from Mac Farms' ownership or control of the land, housing, transportation, and worksite, which placed it in a position to prevent the violations of Title VII alleged herein, even through it delegated hiring and some supervisory responsibilities to Global.

43. The Claimants were economically dependent on Mac Farms due to Mac Farms' investment in equipment and facilities.

44. At Mac Farms, the Claimants performed routine tasks that are a normal and integral phase of the Mac Farms' production making them dependent on the Mac Farms' overall production process.

45. Mac Farms maintained on-the-job control over Claimants through Mac Farms' own personnel and Global and on-site crew leaders who in turn spoke directly to the Claimants. [EEOC v. Global Horizons, Third Amended Complaint at ¶¶ 41-45.] The Third Amended Complaint alleges that Mac Farms engaged in misconduct and/or discrimination against the Claimants*fn4 by: providing uninhabitable housing; refusing to take them to the store to buy food to eat; failing to act when it was aware that Global Horizons was not paying them; failing to investigate when it was aware that some of them were running away; imposing quotas; restricting their movements at the farm and preventing them from leaving the farm; verbally abusing them; imposing exorbitant and/or unlawful recruitment fees; confiscating their passports; giving them demeaning job assignments; threatening them, including threats of deportation; intimidating them; and retaliating against them for engaging in protected activity. [Id. at ¶¶ 193-200, 240-43, 257-66.] The Third Amended Complaint also alleges that Mac Farms failed to investigate Global Horizons' credentials, in spite of the fact that Mac Farms was aware of the need to do so. [Id. at ¶ 212.] The Third Amended Complaint alleges that Mac Farms discriminated against the Charging Parties based on their race/national origin (Thai/Asian) and that non-Thai workers, including Vietnamese, Filipino, and Mexican workers were not subjected to the same conditions. [Id. at ¶¶ 221, 223.]

On January 4, 2011, Mac Farms filed the instant insurance coverage action against Continental, based on diversity jurisdiction. Count I of the Complaint seeks a declaratory judgment pursuant to 28 U.S.C. § 2201 that Mac Farms is entitled to a defense and indemnification from Continental in the underlying proceedings. [Complaint at ¶¶ 37-46.] Count II alleges that Continental breached its insurance contract with Mac Farms by withdrawing its defense and disclaiming any obligation of indemnification. [Id. at ¶¶ 47-51.] Count III alleges that Continental waived any defenses to coverage when it accepted Mac Farms' tender without a reservation of rights and that Mac Farms detrimentally relied on Continental's acceptance of the tender. Mac Farms therefore contends that Continental is now estopped from withdrawing its defense and/or from denying its indemnity obligations. [Id. at ¶¶ 52-58.] Count IV alleges an insurance bad faith claim. [Id. at ¶¶ 59-64.] Mac Farms seeks: a declaratory judgment that Continental has a duty to defend and indemnify; an order requiring Continental to immediately resume Mac Farms' defense; reimbursement of the attorneys' fees and costs incurred in the defense of Mac Farms after the withdrawal (including outstanding fees and costs at the time of the withdrawal); an order requiring Continental to indemnify Mac Farms for any amounts paid to settle the underlying charges or to satisfy any resulting judgment, even if the amount exceeds the policy's limitations; compensatory damages; punitive damages; reasonable attorneys' fees and costs; and any other appropriate relief.

I. Mac Farms' Arguments

In the instant motion, Mac Farms first argues that the Interrelated Wrongful Acts Exclusion of the Policy does not preclude coverage, and that courts have ruled that language such as the Policy's definition of "interrelated wrongful acts" is ambiguous.

Mac Farms emphasizes that the EEOC Charges involve 41 different employees who worked at Mac Farms during different time periods, and that the Third Amended Complaint includes numerous allegations that only apply to certain of the claimants, and that there is no way to establish that all of the claims asserted by the 159 former Mac Farms workers arose from "interrelated wrongful acts." The mere fact that the 41 EEOC Charges use the same boilerplate language and the Charging Parties are all Thai nationals is not enough. Thus, Mac Farms argues that evaluation of the EEOC Charges requires an evaluation of the facts specific to each employee. Mac Farms asserts that the allegations in the EEOC Charges and in the EEOC's complaint in EEOC v. Global Horizons are vague, prohibiting any finding that all of the EEOC Charges are logically ...

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