NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT MAY 07 2015
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
ROBERT DORROH; et al., No. 13-15316
Plaintiffs - Appellants, D.C. No. 1:11-cv-02120-AWI-
GSA
v.
DEERBROOK INSURANCE MEMORANDUM*
COMPANY, a wholly-owned subsidiary
of Allstate Insurance Company,
Defendant - Appellee.
Appeal from the United States District Court
for the Eastern District of California
Anthony W. Ishii, Senior District Judge, Presiding
Argued and Submitted April 16, 2015
San Francisco, California
Before: SCHROEDER and N.R. SMITH, Circuit Judges and RESTANI,** Judge.
Cedar Sol Warren and Robert and Barbara Dorroh appeal the district court’s
denial of their joint motion to join Warren into the action asserting a bad faith
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The Honorable Jane A. Restani, Judge for the U.S. Court of
International Trade, sitting by designation.
claim against insurer Deerbrook. We have jurisdiction under 28 U.S.C. § 1291
based on the collateral order exception recognized in Cohen v. Beneficial Industrial
Loan Corp., 337 U.S. 541, 546-47 (1949). Because we conclude that the district
court erred when it determined that Warren had no interest left in the bad faith
claim, we vacate and remand.
As a matter of law in California, purely personal claims are not assignable.
Murphy v. Allstate Ins. Co., 553 P.2d 584, 587 (Cal. 1976). Although the bad faith
claim was scheduled and initially part of the bankruptcy estate, the Bankruptcy
Code “does not authorize the bankruptcy trustee to sell or assign assets that are
nonassignable under applicable state law.” Baum v. Duckor, Spradling &
Metzger, 72 Cal. App. 4th 54, 71 (1999) (emphasis added). Therefore, when the
bankruptcy trustee assigned Warren’s bad faith claim to the Dorrohs, the trustee
could only transfer the economic property causes of action. See Archdale v. Am.
Int’l Specialty Lines Ins. Co., 154 Cal. App. 4th 449, 468 (2007) (finding the
assignment was only valid as to those rights that were properly assignable and that
assignor retained his rights to “his non-assignable ‘purely personal’ tort claims for
emotional distress and punitive damages”). The language of the assignment and
the intent of the trustee do not control, because wrongs of a purely personal nature
(emotional distress, punitive damages) cannot be assigned. See Essex Ins. Co. v.
2
Five Star Dye House, Inc., 137 P.3d 192, 195-96 (Cal. 2006). Thus, under
California law, Warren’s bankruptcy estate retained an interest in the bad faith
claim. See Allstate Ins. Co. v. Hughes, 358 F.3d 1089, 1093-94 (9th Cir. 2004)
(holding that a federal court exercising diversity jurisdiction must apply
substantive state law to determine whether the individual is the real party in
interest).
Warren did not waive his interest in the bad faith claim. Waiver is the
“intentional relinquishment of a known right after knowledge of the facts” and
waiver “always rests upon intent” City of Ukiah v. Fones, 410 P.2d 369, 370 (Cal.
1966). Deerbrook did not satisfy its burden of proving waiver “by clear and
convincing evidence that [would] not leave the matter to speculation.” Id. at 371.
Additionally, Warren did not have a duty to object to the assignment. See In re An-
Tze Cheng, 308 B.R. 448, 454 (B.A.P. 9th Cir. 2004) (noting that “[o]rdinarily, the
trustee or some party in interest, other than the debtor, prosecutes claim
objections”). Indeed “where a [debtor] lists a hybrid cause of action for wrongful
failure to settle” the trustee may only assign the assignable claims and the “[debtor]
need not expressly reserve such causes of action to himself.” Purdy v. Pac. Auto.
Ins. Co., 157 Cal. App. 3d 59, 80-81 (1984) (emphasis added). The purely
personal causes of action in the bad faith claim were automatically abandoned to
3
Warren when the bankruptcy estate closed. Bankruptcy Code § 554(c) “deems
abandoned to the debtor any scheduled property of the estate that is unadministered
at the close of the case.” 11 U.S.C. § 554(c); In re Adair, 253 B.R. 85, 88 (B.A.P.
9th Cir. 2000). In this case, the bad faith claim was properly scheduled, deemed to
have no merit by the trustee, and because of California law, the pecuniary causes of
action were subsequently sold/assigned to the Dorrohs. Thus, upon the closing of
his bankruptcy case, Warren’s rights in the properly scheduled, but unassignable,
purely personal causes of action were restored as though no bankruptcy petition
was ever filed. See In re Menk, 241 B.R. 896, 913 (B.A.P. 9th Cir. 1999).
California’s rule against splitting a cause of action prohibits Warren from
bringing an independent cause of action against Deerbrook (for his purely personal
damages). See Purcell v. Colonial Ins. Co., 20 Cal. App. 3d 807, 810-14 (1971).
Thus, when Warren and the Dorrohs filed their motion to add Warren, they were
following controlling case law requiring the assignor and assignee to join together
as plaintiffs in one lawsuit to assert a claim for damages. See Essex, 137 P.3d at
195-97 (recognizing that bad faith causes of action may be brought by an insured
who has joined together with the assignee in order to protect both the interests of
the assignee of the bad faith claim, as well as the insured party who retained rights
to the nonassignable claims). Fed. R. Civ. P. 17(a)(3) provides that a “court may
4
not dismiss an action for failure to prosecute in the name of the real party in
interest until, after an objection, a reasonable time has been allowed for the real
party in interest to ratify, join, or be substituted into the action.” If a claimant
without standing can obtain ratification from the real party in interest, such
ratification shall have the same effect as if the action had been commenced in the
name of the real party in interest. Fed. R. Civ. P. 17(a); Dunmore v. United States,
358 F.3d 1107, 1112-13 (9th Cir. 2004). Warren’s substitution into the action
asserting the bad faith claim under Fed. R. Civ. P. 25 is not time barred as it was
ratified by the Dorrohs. See Dunmore, 358 F.3d at 1112-13; Hilbrands v. Far E.
Trading Co., 509 F.2d 1321, 1323 (9th Cir. 1975) (finding that to protect the
interests of the insured, the insured should have been able to proceed as a
substituted party under Rule 25 to prosecute the action in her own name). “[L]eave
to amend shall be freely given when justice so requires.” AmerisourceBergen
Corp. v. Dialysist W., Inc., 465 F.3d 946, 951 (9th Cir. 2006) (internal quotation
marks omitted).1
1
Deerbrook requests we take judicial notice of several requested
documents. See Dkt. No. 15. Although the documents are of the sort such that we
may take judicial notice, see Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th
Cir. 2001), we decline.
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VACATED and REMANDED for further proceedings consistent with this
disposition. Costs on appeal shall be awarded to Appellants.
6