United States District Court, D. Hawaii
ORDER (1) GRANTING DEFENDANTS' MOTION TO DISMISS
WITHOUT LEAVE TO AMEND; AND (2) DENYING PLAINTIFF'S
MOTION FOR PARTIAL SUMMARY JUDGMENT
Deirick K. Watson, United States District Judge
insurance coverage dispute, the law firm of Damon Key Leong
Kupchak Hastert (“Damon Key”) filed suit against
its insurer, claiming that the company wrongfully denied
coverage and failed to defend the law firm in an underlying
proceeding where the plaintiffs sought to hold the non-party
firm in contempt for allegedly violating a federal court
injunction order. Defendant Westport Insurance Corporation
avers that the underlying action did not present a
“Claim” for “Loss” covered by the
terms of the policy and accordingly has moved under Rule
12(b)(6) to dismiss the complaint. Dkt. No. 10. Firm in its
position, Damon Key filed a counter motion for partial
summary judgment. Dkt. No. 17.
forth below, the Court concludes that the unambiguous terms
of the policy did not obligate Westport to defend Damon Key
in the underlying action. Westport's motion to dismiss is
therefore GRANTED, and the complaint is DISMISSED with
& PROCEDURAL BACKGROUND
the dispute here centers on the meaning of policy terms that
both parties acknowledge, the material facts set forth below
Terms of the Policy
issued a Lawyers Professional Liability Insurance Policy (the
“Policy”) (Dkt. No. 1-1) to Damon Key, effective
March 31, 2015 to March 31, 2016. Dkt. No. 1, ¶ 7. The
Policy states that Westport will pay for “all LOSS . .
. as a result of CLAIMS” made against Damon Key. Dkt.
No. 1-1 at 1. The Policy further provides that Westport has
“the right and duty to select counsel and arbitrators
and to defend any CLAIM for LOSS” against Damon Key
“even if such CLAIM is groundless, false or fraudulent
. . .” Id. at 8. As defined in the Policy, a
CLAIM is “a demand made upon [Damon Key] for LOSS,
including . . . service of suit, or institution of
arbitration proceedings or administrative proceedings,
” id. at 2, and a “LOSS” is
“the monetary and compensatory portion of any judgment,
award, or settlement.” Id. at 4. A
“LOSS, ” however, does not include, inter
alia, “civil or criminal fines, penalties, fees or
sanctions” or “any form of non-monetary
The Underlying Litigation in Takiguchi v. MRI
this coverage dispute is Takiguchi v. MRI International,
Inc., a securities fraud class action filed in Nevada
federal district court on July 5, 2013, alleging that the
defendants operated a “massive Ponzi scheme.”
See 47 F.Supp.3d 1100, 1107-08 (D. Nev. 2014); Dkt.
No. 1, ¶ 15. Among the defendants named in
Takiguchi were certain members of the Suzuki family,
including Junzo, Paul, Keiko, and Catherine Suzuki
(collectively, the “Suzukis”). See Dkt.
No. 1, ¶ 16. Since 2013, the Suzukis have been clients
of Damon Key, and the law firm has held several million
dollars for the Suzukis in its client trust accounts,
separately accounting for each individual's funds.
See Dkt. No. 1, ¶¶ 17, 29. Damon Key,
however, did not represent the Suzukis in the
Takiguchi litigation, nor was Damon Key a party.
See Dkt. No. 15 at 2.
September 18, 2014, the federal district court in Nevada
entered an injunction order, essentially freezing the assets
of the Suzukis (“Asset Freeze Order”) (Dkt. No.
18-3). Dkt. No. 1, ¶ 15. The Asset Freeze Order
specifically prohibited “Junzo Suzuki, Paul Musashi
Suzuki, their agents and representatives, and all persons and
entities under the control of or acting in concert with
either of them” from “[d]irectly or indirectly
transferring, converting, selling, . . . or otherwise
disposing of any assets, wherever located . . .” Dkt.
No. 18-3 at 17.
The First “Show Cause” Application Against Damon
February 25, 2016, the Takiguchi plaintiffs filed,
under seal, an “Application for Order to Show Cause Why
the Suzuki Defendants and the Law Firm Damon Key . . . Should
Not Be Held in Contempt” (“First
Application”) (Dkt. No. 15). Dkt. No. 1,
¶ 24. As the caption implies, the Takiguchi
plaintiffs asserted that Damon Key “defied” the
Asset Freeze Order in October 2014 when the firm transferred
a total of $1.75 million in Suzuki family funds to bank
accounts in Japan that belonged to Keiko and Catherine
Suzuki. Dkt. No. 15 at 2-3. In terms of relief, the
plaintiffs sought an order requiring the Suzuki defendants
and Damon Key to “show cause” why they should not
be “adjudged in civil contempt of the orders of the
court.” If defendants, including Damon Key, could not,
the First Application asked the federal court to “find
each of them in contempt and order” Damon Key to
“deliver the sum of $1.75 million into a trust account
. . . to fund any judgment . . . against Junzo or Paul
Suzuki” and “provide an accounting” of
funds covered by the Asset Freeze Order. Dkt. No. 15 at 1-3,
September 16, 2016, the court denied the First Application,
without prejudice, because the Takiguchi plaintiffs
had failed to submit “evidence as to the origin of the
funds allegedly transferred in violation of [the Asset Freeze
Order].” Dkt. No. 18-8 at 1-2; see Dkt. No. 1,
The Second “Show Cause” Application Against Damon
by the court's ruling, on January 22, 2017, the
Takiguchi plaintiffs renewed their civil contempt
motion-but only as to Damon Key-and captioned the sealed
motion: “Application for Order to Show Cause Why the
Law Firm Damon Key . . . Should Not Be Held in
Application”) (Dkt. No. 18-9 at 1, 3). Dkt.
No. 1, ¶ 28. Like its predecessor, the Second
Application alleged that Damon Key covertly transferred $1.75
million in Suzuki funds to overseas accounts in violation of
the Asset Freeze Order. Dkt. No. 18-9 at 9. The
Takiguchi plaintiffs requested that Damon Key
“now be ordered to show cause why it should not be
adjudicated in contempt.” If Damon Key could not do so,
the plaintiffs asked the court to “then find the firm
in contempt and order” Damon Key to “pay and
deliver the sum of $1, 809, 569 into a trust account . . . to
fund any judgment . . . against the Suzuki defendants or
their affiliates” and “provide an
accounting” of funds covered by the Asset Freeze Order.
Dkt. No. 18-9 at 3-4; Dkt. No. 1, ¶¶
August 31, 2017, the court denied the Second Application
because the Takiguchi plaintiffs had “failed
to make a sufficient evidentiary showing to justify an order
to show cause.” Order at 9, Takiguchi, No.
2:13-cv-1183 (D. Nev. Aug. 31, 2017), ECF No. 723; Dkt. No.
1, ¶ 30.
Westport Denies Coverage Under the Policy
after the First Application was filed, Damon Key sent a copy
of the Application to Westport. Dkt. No. 1, ¶ 24. By
letter dated March 29, 2016, Westport denied that it had a
duty to defend or indemnify Damon Key under the Policy.
Westport allegedly reasoned that because the
Takiguchi plaintiffs sought to hold Damon Key in
contempt, the matter was a request for
“sanctions” expressly excluded from the
definition of a “LOSS” under the Policy. See
Id. at ¶ 32. Westport accordingly informed Damon
Key that it would make no further payments to Alston Hunt,
the law firm Damon Key had retained for its defense of the
contempt order Applications. See Id. at ¶ 32;
see also Dkt. Nos. 18-6 at 1; Dkt. No. 18-7 at
action followed on February 27, 2019. Dkt. No. 1.
complaint may be challenged for failure “to state a
claim upon which relief can be granted.” Fed.R.Civ.P.
12(b)(6). To withstand such a challenge, a complaint must
contain enough facts “to state a claim to relief that
is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007); Fed.R.Civ.P. 8(a)(2).
Even though a “complaint attacked by a Rule 12(b)(6)
motion to dismiss does not need detailed factual allegations,
a plaintiff's obligation to provide the grounds of his
entitlement to relief requires more than labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Twombly, 550
U.S. at 555 (citations omitted).
Rule 12(b)(6) motion to dismiss, a court “must accept
as true all of the factual allegations contained in the
complaint, ” Erickson v. Pardus, 551 U.S. 89,
94 (2007), and draw “any reasonable inferences”
in favor of the plaintiff. Johnson v. Riverside
Healthcare Sys., 534 F.3d 1116, 1122 (9th Cir. 2008). To
that end, a court must judge the sufficiency of a complaint
under a two-pronged approach: (1) disregard all “legal
conclusions” and “conclusory statements”;
and (2) determine whether the remaining “well-pleaded