FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES FIDELITY AND
GUARANTY COMPANY,
Plaintiff-Appellee,
v.
LEE INVESTMENTS LLC, DBA The
Island,
No. 08-17753
Defendant-Appellant,
and D.C. No.
1:99-cv-05583-
AMERICAN SPECIALTY INSURANCE OWW-SMS
SERVICES; AMERICAN SPECIALTY
RISK MANAGEMENT SERVICES LLC,
Counter-defendants-Appellees,
AON RISK SERVICES, INC.,
Defendant-3rd-party-plaintiff-
counter-defendant-Appellee.
5179
5180 U.S. FIDELITY v. LEE INVESTMENTS
UNITED STATES FIDELITY AND
GUARANTY COMPANY,
Plaintiff-counter-defendant-
Appellee,
v.
LEE INVESTMENTS LLC, DBA The
Island,
Defendant-counter-claimant-
Appellant,
No. 09-16962
v.
D.C. No.
AMERICAN SPECIALTY INSURANCE
SERVICES; AMERICAN SPECIALTY 1:99-cv-05583-
OWW-SMS
RISK MANAGEMENT SERVICES LLC,
Counter-defendants-Appellees, OPINION
and
RICHARD K. EHRLICH; REXFORD
PROPERTIES, LLC, a California
limited liability company,
Defendants-counter-claimants,
v.
AON RISK SERVICES, INC.,
Third-party-defendant-Appellee.
U.S. FIDELITY v. LEE INVESTMENTS 5181
Appeal from the United States District Court
for the Eastern District of California
Oliver W. Wanger, Senior District Judge, Presiding
Argued and Submitted
February 16, 2011—San Francisco, California
Filed April 18, 2011
Before: Mary M. Schroeder and Sidney R. Thomas,
Circuit Judges, and Samuel Conti, Senior District Judge.*
Opinion by Judge Thomas
*The Honorable Samuel Conti, Senior District Judge for the U.S. Dis-
trict Court for Northern California, San Francisco, sitting by designation.
5184 U.S. FIDELITY v. LEE INVESTMENTS
COUNSEL
Daniel O. Jamison and Keith M. White, Dowling, Aaron &
Keeler, Inc., Fresno, California, for appellant/defendant,
counter-claimant, third-party plaintiff, and third-party
counter-defendant Lee Investments, LLC.
Jeffrey A. Charlston and Bruce T. Smith, Charlston, Revich
& Wollitz, LLP, Los Angeles, California, for appel-
lee/plaintiff United States Fidelity and Guaranty Company
and for appellees/counter-defendants American Specialty
Insurance Services, Inc., and American Specialty Risk Man-
agement Services, LLC.
Margaret L. Parker, Matthew S. Covington, and Stephen
Chiari, DLA Piper LLP, San Francisco, California, for appel-
lee/defendant, third-party plaintiff, counter-defendant Aon
Risk Services, Inc.
OPINION
THOMAS, Circuit Judge:
In this appeal, we consider whether a federal district court
had subject matter jurisdiction over an insurance company’s
diversity action seeking rescission of a workers’ compensa-
tion policy and, if so, whether it was required to dismiss the
case because exclusive jurisdiction was vested by state law in
a state workers’ compensation agency. We conclude that the
district court had subject matter jurisdiction and properly
denied the motion to dismiss. We affirm.
I
This seemingly ab aeterno litigation originated in a simple
event: an accident at “The Island,” a California waterpark.
U.S. FIDELITY v. LEE INVESTMENTS 5185
The incident spawned parallel actions that proceeded in dif-
ferent venues over many years, ultimately resulting in a judg-
ment in which The Island’s insurer prevailed.
The mishap occurred when a maintenance worker (“the
Employee”) was helping to assemble a five-story water slide.
A metal bar fell from a forklift and struck her head, causing
serious injuries. Prior to the accident, The Island’s owner, Lee
Investments, LLC (“the Employer” or “Lee”), had purchased
a workers’ compensation policy (“the Policy”) underwritten
by United States Fidelity & Guaranty Co. (“the Insurer”).1
The Insurer contends that it agreed to issue the Policy con-
tingent on the Employer’s representations that Island employ-
ees would not be “performing construction operations, as
opposed to performing duties in the day-to-day operation of
a water park.” Thus, the Insurer claimed that the Employer
had not told the whole truth in its insurance application, and
that the lie had wrongfully induced it to provide coverage.
The Employee filed a claim for benefits with California’s
Workers’ Compensation Appeals Board (“the State Board”)
and the Insurer began paying benefits to the Employee pursu-
ant to the Policy. Shortly thereafter, the Insurer filed this fed-
eral action against the Employer seeking Policy rescission and
related relief on account of the Employer’s alleged misrepre-
sentations.
The Employee initially filed, but later abandoned, a request
that the State Board arbitrate the claims asserted by the
Insurer in the federal action. Years later, the Employer
revived the Employee’s request. The Insurer objected, and a
state administrative law judge decided to hold a hearing on
1
The Policy was marketed by American Specialty Insurance Services,
Inc., the Insurer’s managing general agent (“the Insurer’s Agent”). The
Employer purchased the policy through insurance broker Aon Risk Ser-
vices, Inc. (“the Broker”).
5186 U.S. FIDELITY v. LEE INVESTMENTS
the objections. The hearing never occurred, and the issue was
left adrift.
In federal court, the Employer joined a motion to dismiss
raised by another party alleging that California law committed
adjudication of the Insurer’s action to the State Board. The
district court denied the dismissal motion. Subsequently, the
Employer, the Insurer, the Insurer’s Agent, and the Broker
filed claims against one another and additional parties.2
The case was bifurcated, with some of the claims tried to
a jury and others reserved for bench trial. The jury returned
special verdicts in favor of the Insurer and against the
Employer. The jury found that the Employer had made an
intentional misrepresentation of material fact and concealed
material facts during the policy application process. Based on
that determination, the jury found that the Insurer was entitled
to rescind the Policy and to recover restitution of payments it
made under it. The jury found against the Employer on all of
its affirmative defenses and counterclaims, and found in favor
of the Insurer on all but one of its affirmative defenses to the
Employer’s counterclaims.
The district court entered partial judgment on the jury ver-
dict. The Employer appealed, but its appeal was dismissed as
premature. The Employer filed various post-trial motions
seeking relief, which the district court denied. The district
court then held a bench trial on some of the remaining issues,
including the Insurer’s claims to restitution of attorneys fees
it paid to defend the Employer in the State Board proceedings
and to prejudgment interest.
More than a year after the federal jury entered verdicts in
favor of the Insurer on its claims against the Employer, and
2
The additional parties include the Employer’s alleged alter egos, Rich-
ard K. Ehrlich and Rexford Properties, LLC (“the Alter Egos”), who were
part of the action but not this appeal.
U.S. FIDELITY v. LEE INVESTMENTS 5187
while the district court was deliberating on the issues pre-
sented in the bench trial, the Employer attempted an exodus
from the federal action and again requested that the State
Board arbitrate the Insurer’s claims. The Insurer asked the
federal court to enjoin the State Board proceedings. The court
granted the Insurer’s motion, observing that:
The issues surrounding issuance of the insurance
policy have been fully litigated and jury verdicts
entered. Lee sought a jury trial, and only when the
jury decided every issue against Lee, now seeks to
avoid the effects of the trial following which the Par-
tial Judgment was entered. It will be the height of
judicial waste to permit Lee to yet again, a fourth
time, seek to relitigate the issues, going backward to
an administrative hearing.
The court also noted that “Lee’s revisionist assertion that it
was dragged kicking and screaming into the federal litigation
is categorically belied by the record.”
The court then granted the Insurer’s motion for summary
judgment on the Employer’s counterclaims for breach of con-
tract and the implied covenant of good faith and fair dealing.
The court subsequently issued its decision on the issues pre-
sented in the bench trial and granted the Insurer’s request for
the entry of judgment pursuant to Rule 54(b). In addition to
the amounts awarded by the jury, the court awarded the
Insurer restitution of the amount it spent for the Employer’s
legal defense in the State Board proceedings and pre-
judgment interest.
In sum, after a jury trial, a bench trial, and post-trial
motions, the Insurer won its claim for rescission, and was
awarded restitution damages from the Employer in the
amount of $841,708.13, to reimburse the Insurer for the bene-
fits it paid under the Policy less premiums the Employer paid
the Insurer. The Insurer was granted prejudgment interest
5188 U.S. FIDELITY v. LEE INVESTMENTS
against the Employer in the amount of $394,955.03 and was
permitted to recover all costs of suit. Judgment was entered
in favor of the Insurer on all claims the Employer brought
against it. The Broker was granted judgment on all of the
Employers’s claims against it and, conversely, the Employer
was granted judgment on all of the Broker’s claims against it.
No damages were awarded as between the Broker and the
Employer and each side was ordered to bear its respective
costs. The court also resolved certain claims involving the
Alter Egos.3
Meanwhile, over in the state proceedings, the request that
the State Board re-adjudicate the Insurer’s claims for rescis-
sion and restitution remained enjoined. The Employer and the
Employee reached a settlement of their separate disputes
before the State Board, but the deal did not resolve any of the
issues in the instant case.4
In the end, when the smoke cleared, the Insurer prevailed
in the main action and the parallel proceeding remained in
limbo. This appeal followed.
II
The Employer contends that the district court lacked sub-
ject matter jurisdiction over the Insurer’s claims. We disagree.
The Insurer is a corporation duly organized and existing under
3
The district court found against the Alter Egos as to their claims
against the Insurer. The district court severed claims filed by the Insurer
against the Alter Egos for separate trial in the event that the Insurer pre-
vailed on its rescission and restitution claims. Thus, those issues were left
behind for later resolution and are not part of this appeal.
4
The Insurer and The Broker have suggested that the settlement agree-
ment between the Employer and the Employee has mooted certain of the
Employer’s claims in this appeal. We disagree. Whatever the case may be
as to resolution of the solitary issue regarding compensation due to the
Employee, it is not relevant to the separate disputes among the Employer,
the Insurer, the Insurer’s Agent, and the Broker.
U.S. FIDELITY v. LEE INVESTMENTS 5189
the laws of the State of Maryland, with its principal place of
business located in that state. The Employer is a business
entity organized and existing under the laws of the State of
California with its principal place of business located in
Fresno. Because the parties are diverse and because the
amount in controversy exceeded $75,000, the district court
had subject matter jurisdiction over the action. 28 U.S.C.
§ 1332.
The Employer’s arguments to the contrary are not persua-
sive. First, the Employer argues that by filing the present
action the Insurer improperly removed the Employee’s state
workers’ compensation claim to federal court, thus running
afoul of 28 U.S.C. § 1445(c). Section 1445(c) provides that
“[a] civil action in any State court arising under the work-
men’s compensation laws of such State may not be removed
to any district court of the United States.” However, the fed-
eral action did not involve an adjudication of the Employee’s
workers’ compensation benefits; it addressed whether the
Employer’s insurance policy had been wrongfully obtained
through misrepresentation. Thus, this action did not “arise
under” California’s workers’ compensation laws.
Furthermore, the Insurer did not “remove” a civil action
from state court; it filed an original claim in federal court. The
Employer urges us to construe the Insurer’s complaint as a de
facto removal and apply the relevant jurisdictional restric-
tions. However, removal jurisdiction differs from original
jurisdiction and is subject to different constraints. See Hurt v.
Dow Chem. Co., 963 F.2d 1142, 1144-45 (8th Cir. 1992).
There is nothing in the statutory scheme that would allow us
to graft jurisdictional restrictions from one context onto
another. Section 1445(c) “proscribes only the removal of
claims arising under state workers’ compensation statutes.”
Vasquez v. North County Transit Dist., 292 F.3d 1049, 1061
(9th Cir. 2002) (emphasis in original) (citing Horton v. Lib-
erty Mut. Ins. Co., 367 U.S. 348, 352 (1961)). That statutory
restriction on the federal courts’ removal jurisdiction “does
5190 U.S. FIDELITY v. LEE INVESTMENTS
not prohibit plaintiffs from filing such actions directly in fed-
eral court.” Id. Nor did the district court appear, deus ex
machina, to wrest control over the litigation from the State
Board. Rather, it addressed the issues put before it in an origi-
nal federal proceeding. Section 1445(c) does not divest fed-
eral courts of jurisdiction over this diversity action.
Second, the Employer argues that the district court was
divested of jurisdiction by 28 U.S.C. § 1359, which provides
that “[a] district court shall not have jurisdiction of a civil
action in which a party, by assignment or otherwise, has been
improperly or collusively made or joined to invoke the juris-
diction of the court.” The purpose of § 1359 is to prevent the
perpetration of fraud on federal courts’ jurisdiction. See Har-
tog v. Memory, 116 U.S. 588, 590-91 (1886) (citing Williams
v. Nottawa, 104 U.S. 209, 211 (1881)). The Employer has
presented no evidence of fraud or collusion. Its argument is
without merit.
Finally, the Employer claims that the district court lacked
subject matter jurisdiction because California law vests the
State Board alone with jurisdiction to entertain the Insurer’s
claims.5 However, in Begay v. Kerr-McGee Corp., 682 F.2d
1311 (9th Cir. 1982), we rejected the argument that exclusiv-
ity provisions in state workers’ compensation laws, like those
in California’s Workers’ Compensation Act,6 could divest
federal courts of subject matter jurisdiction:
[S]tate law may not control or limit the diversity
jurisdiction of the federal courts. The district court’s
5
This jurisdictional allegation is distinct from the Employer’s claim that
exclusivity provisions in California law required the district court, in the
proper exercise of diversity jurisdiction, to dismiss the action so that it
could be decided by the State Board. We turn to this claim subsequently.
6
See Cal. Labor Code § 5300 (proceedings “[f]or the recovery of [work-
ers’] compensation, or concerning any right or liability arising out of or
incidental thereto” ”shall be instituted before the [State Board] and not
elsewhere”); see also id. §§ 3600(a), 3602(a).
U.S. FIDELITY v. LEE INVESTMENTS 5191
diversity jurisdiction is a creature of federal law
under Article III and 28 U.S.C. § 1332(a). Pursuant
to the supremacy clause, section 1332(a) preempts
any contrary state law.
682 F.2d at 1315. Here, as in Begay, “[t]he question is
whether the . . . complaint stated a claim for relief under
[state] law pursuant to [Erie Railroad Co. v. Tompkins, 304
U.S. 64 (1938)], rather than whether the district court lacked
subject matter jurisdiction.” Id. Thus, even if we were to hold
that the exclusivity provisions applied, they would not operate
to divest the federal court of subject matter jurisdiction.
The district court correctly concluded that it had subject
matter jurisdiction over the action.
III
The State Board did not have exclusive jurisdiction to hear
the Insurer’s claims, as the Employer contends. Therefore, the
district court properly denied the dismissal motion, a decision
we review de novo. Matter of McLinn, 739 F.2d 1395, 1397
(9th Cir. 1984) (en banc).
[1] As a general proposition, federal courts sitting in diver-
sity have authority to decide state law claims seeking rescis-
sion of an insurance policy. See, e.g., C.N.R. Atkin v. Smith,
137 F.3d 1169, 1172 (9th Cir. 1998); Gasaway v. Nw. Mut.
Life Ins. Co., 26 F.3d 957, 958 (9th Cir. 1994). However, the
California Workers’ Compensation Act’s exclusivity provi-
sions “are ‘substantive’ provisions which, under Erie, a dis-
trict court sitting in diversity is bound to follow.” Begay, 682
F.2d at 1318. “ ‘Erie requires that the federal court grant or
withhold relief as the state courts would.’ ” Id. at 1316 (quot-
ing Markham v. City of Newport News, 292 F.2d 711, 718
(4th Cir. 1961)); see Angel v. Bullington, 330 U.S. 183, 187
(1947) (“For purposes of diversity jurisdiction a federal court
5192 U.S. FIDELITY v. LEE INVESTMENTS
is ‘in effect, only another court of the State.’ ” (quoting Guar-
anty Trust Co. v. York, 326 U.S. 99, 108 (1945)).
Accordingly, we turn to California law and assess whether
it would preclude California state courts from hearing the
Insurer’s claims in favor of the State Board’s exclusive
authority to do so. We are reminded that “ ‘[t]he task of a fed-
eral court in a diversity action is to approximate state law as
closely as possible in order to make sure that the vindication
of the state right is without discrimination because of the fed-
eral forum.’ ” Ticknor v. Choice Hotels Int’l., Inc., 265 F.3d
931, 939 (9th Cir. 2001) (quoting Gee v. Tenneco, Inc., 615
F.2d 857, 861 (9th Cir. 1980)). Perhaps a better way of put-
ting it is to say that one of the goals in deciding state law
questions is to do no harm to state jurisprudence.
In analyzing state law in a diversity case, we are bound by
the decisions of the state’s highest court. If the California
Supreme Court has not decided the question, “ ‘we are
required to ascertain from all the available data what the state
law is and apply it.’ ” Soltani v. Western & Southern Life Ins.
Co., 258 F.3d 1038, 1045 (9th Cir. 2001) (quoting Insurance
Co. of Pennsylvania v. Associated Int’l Ins. Co., 922 F.2d
516, 520 (9th Cir. 1990)). In assessing how the California
Supreme Court would resolve the “question—absent control-
ling state authority—federal courts look to existing state law
without predicting potential changes in that law.” Ticknor,
265 F.3d at 939.
We are also mindful that “[o]nce a diversity case has been
tried in federal court, with rules of decision supplied by state
law under the regime of Erie . . . , considerations of finality,
efficiency and economy become overwhelming.” Caterpillar
Inc. v. Lewis, 519 U.S. 61, 75 (1996) (citation omitted). That
advice is particularly apt in a case that has engaged the federal
courts for more than a decade.
[2] California’s Workers’ Compensation Act grants the
State Board exclusive authority to hear claims “[f]or the
U.S. FIDELITY v. LEE INVESTMENTS 5193
recovery of [workers’] compensation, or concerning any right
or liability arising out of or incidental thereto.” Cal. Labor
Code § 5300(a). The Employer argues that the Insurer’s
claims arise out of or are incidental to the recovery of work-
ers’ compensation. Accordingly, the Employer argues that a
California state court could not entertain the Insurer’s com-
plaint, and therefore that, pursuant to the Erie doctrine, nei-
ther can the federal courts. The district court disagreed, and
on at least three occasions overruled objections to the exercise
of its jurisdiction to hear the Insurer’s claims in the face of the
contention that the State Board had exclusive authority to do
so.
While California case law is not conclusive on the matter,7
we are not writing on a tabula rasa, either. The relevant Cali-
fornia decisions establish that the State Board does not pos-
sess exclusive jurisdiction over the Insurer’s claims.
[3] First, Cal. Labor Code § 5300 does not, by its terms,
apply to the Insurer’s action for rescission. The Insurer’s com-
plaint against the Employer sought a declaration that the Pol-
icy was void ab initio and that the Insurer was entitled to
rescind it. The Insurer further sought restitution of all sums
paid by it in connection with claims on the Policy. The relief
the Insurer sought does not involve “the recovery of [work-
ers’] compensation,” nor does it “concern[ ] any right or lia-
bility arising out of or incidental thereto.” Cal. Labor Code
§ 5300(a). The Insurer’s claims here have no legal effect on
the Employee’s ability to recover workers’ compensation;
rather, they merely affect who pays those costs—the Insurer,
the Employer, or California’s Uninsured Employers Benefits
Trust Fund. Indeed, the California Supreme Court has con-
firmed that “[c]auses of action seeking to recover ‘[e]conomic
7
See Charles J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund, 24 Cal.
4th 800, 811 (2001) (“the unabated flow of published decisions clarifying
the scope of workers’ compensation exclusivity suggests considerable
confusion as well as innovative lawyering” (emphasis in original)).
5194 U.S. FIDELITY v. LEE INVESTMENTS
or contract damages incurred independent of any’ workplace
injury are . . . exempt from workers’ compensation exclusivi-
ty.” Vacanti, 24 Cal. 4th at 814 (emphasis and second alter-
ation in original) (quoting Pichon v. Pacific Gas & Electric
Co., 212 Cal. App. 3d 488, 501 (1989)). Thus, while perhaps
prompted by the Employee’s workplace accident, the Insur-
er’s contract claims are “independent of a compensable inju-
ry” under California workers’ compensation law. Id. at 816
(quotation omitted).
[4] Second, the California Supreme Court has held that
California state courts, and therefore federal courts sitting in
diversity, can entertain such claims. Scott v. Indus. Accident
Comm’n, 46 Cal. 2d 76, 89 (1956). Citing “the stricter rules
governing court procedures and character of proof rather than
the more liberal ones applicable” in administrative arbitra-
tions, the court stated that, “where questions as to . . . insur-
ance carrier liability within the terms of a contract[ ] are
close,” the carrier might “fil[e] a declaratory relief action in
[state] court rather than” before the State Board. Id.8
[5] Third, California law does not authorize the State
Board to award the damages sought by the Employer in its
counterclaims for breach of fiduciary duty, fraud, and negli-
gent misrepresentation. “ ‘[T]he [State Board] cannot award
damages for injuries.’ ” La Jolla Beach & Tennis Club, Inc.
v. Indus. Indem. Co., 9 Cal. 4th 27, 35 (1994) (quoting Scott,
46 Cal. 2d at 83); see id. at 43 (“[A] civil suit for damages
is no more a claim for workers’ compensation benefits than
a criminal or disciplinary action is a civil suit for damages.”);
cf. United Nat. Ins. Co. v. R&D Latex Corp., 242 F.3d 1102,
8
See also U.S. Fidelity & Guaranty Co. v. Superior Court, 214 Cal. 468,
471 (1931) (finding state court jurisdiction where a cause of action
between an employer and its purported workers’ compensation insurance
provider did “not involve the construction of an insurance policy with
respect to coverage thereunder, the recovery of compensation or incidental
liability or the enforcement against an insurance carrier of compensation
liability”).
U.S. FIDELITY v. LEE INVESTMENTS 5195
1112 (9th Cir. 2001) (“ ‘when other claims are joined with an
action for declaratory relief (e.g., bad faith, breach of contract,
breach of fiduciary duty, rescission, or claims for other mone-
tary relief), the district court should not, as a general rule,
remand or decline to entertain the claim for declaratory
relief’ ” (quoting Gov’t Emps. Ins. Co. v. Dizol, 133 F.3d
1220, 1225 (9th Cir. 1998) (en banc)).
This limitation is consistent with the constant theme gener-
ally applicable to administrative agencies: that they are crea-
tures of statute, bound to the confines of the statute that
created them, and lack the inherent equitable powers that
courts possess. Int’l Union of Elec., Radio & Mach. Workers,
AFL-CIO v. NLRB, 502 F.2d 349, 354 n.* (D.C. Cir. 1974).
Further, the matters at hand involve state law questions of
contract formation in which the State Board has no special
expertise. The California Court of Appeals has summarized,
stating that “jurisdiction rests with the courts” over claims “of
bad faith and breach of contract” regarding workers’ compen-
sation insurance policies. Salimi v. State Comp. Ins. Fund, 54
Cal. App. 4th 216, 220 (1997) (collecting cases).
[6] Because it had jurisdiction, the district court did not
abuse its discretion in enjoining the State Board proceedings
after the Insurer’s rescission and restitution claims had been
resolved by the federal jury. See Scott, 46 Cal. 2d at 81
(where there is concurrent jurisdiction and one tribunal has
already assumed jurisdiction, “another tribunal, although it
might originally have taken jurisdiction, may be restrained by
prohibition if it attempts to proceed”). Indeed, the court
served the greater good of “finality, efficiency and economy,”
Caterpillar, 519 U.S. at 75, by declining to allow the
Employer to litigate the primary issues anew a fourth time.
The Employer’s appeal to the Anti-Injunction Act, 28 U.S.C.
§ 2283, is misplaced: nothing in that act “prevent[s] federal
5196 U.S. FIDELITY v. LEE INVESTMENTS
courts from enjoining state administrative proceedings.” Bud
Antle, Inc. v. Barbosa, 45 F.3d 1261, 1271 (9th Cir. 1994).9
In sum, this case does not present a collision between fed-
eral and state interests. The district court properly wrote the
final chapter in the case, with the parallel proceeding ulti-
mately having no impact on the final reckoning.
IV
[7] The district court correctly concluded that, under Cali-
fornia law, there can be no breach of a duty to defend under
a rescinded insurance policy. Therefore, the Insurer was not
obligated to defend the Employer before the State Board and
in the federal action.10 See LA Sound USA, Inc. v. St. Paul
Fire & Marine Ins. Co., 156 Cal. App. 4th 1259, 1266-71
(2007) (where an insurance policy is “void ab initio,” the
insureds “never had any coverage under [the policy], and [the
insurer] never had a duty to defend or indemnify them”
(emphasis in the original)); Imperial Casualty & Indemnity
Co. v. Sogomonian, 198 Cal. App. 3d 169, 184 (1988) (“upon
a rescission of a policy of insurance, based upon a material
concealment or misrepresentation, all rights of the insured
thereunder (except the right to recover any consideration paid
9
At oral argument, the Employer also challenged the district court’s
decision not to abstain from adjudicating the Insurer’s claims. However,
by not “specifically and distinctly” arguing this claim in its opening brief,
the Employer has waived it. United States v. Ullah, 976 F.2d 509, 514 (9th
Cir. 1992).
10
The district court also correctly concluded that under California law
the Insurer adequately reserved its right to reimbursement for costs
expended on the Employer’s defense, see Buss v. Superior Court, 16 Cal.
4th 35, 61 n.27 (1997), and the court did not abuse its discretion in deny-
ing the Employer’s request for further discovery on its claims, see Califor-
nia ex rel. California Dep’t of Toxic Substances Control v. Campbell, 138
F.3d 772, 779 (9th Cir.1998) (“District courts have wide latitude in con-
trolling discovery, and their rulings will not be overturned in the absence
of a clear abuse of discretion.” (internal quotation and citations omitted)).
U.S. FIDELITY v. LEE INVESTMENTS 5197
in the purchase of the policy) are extinguished”); see also
Cigna Property and Cas. Ins. Co. v. Polaris Pictures Corp.,
159 F.3d 412, 419 (9th Cir. 1998) (“if [the insurer] prevailed
on its rescission claim, [the insured’s] counterclaims necessar-
ily would be defeated”). Thus, the effect of the judicial rescis-
sion was to turn back time, voiding all actions taken under the
Policy. With no effective policy in place, there was no duty
to defend.
The Employer’s appeal to Buss v. Superior Court, 16 Cal.
4th 35 (1997), is of no avail. There, the California Supreme
Court affirmed that, where an action against an insured mixes
claims that indubitably are covered by an insurance policy
with those that may not be, the insurer has a duty to defend
the entire action. Id. at 49. That such a duty is “an obligation
imposed by law in support of the [insurance] policy,” id. at
48-49, is irrelevant to the Employer’s arguments, as Buss
assumes the presence of a valid policy and never addresses
rescission. Furthermore, with regard to restitution, the Buss
court went on to hold that “[a]s to claims that are not even
potentially covered” by the insurance policy, “the insurer may
indeed seek reimbursement for defense costs” because “ ‘Cal-
ifornia law clearly allows insurers to be reimbursed for attor-
ney’s fees’ and other expenses ‘paid in defending insureds
against claims for which there was no obligation to defend.’ ”
16 Cal. 4th at 50 (quoting Omaha Indem. Ins. Co. v. Cardon
Oil Co., 687 F. Supp. 502, 504 (N.D. Cal. 1988)).
[8] Applying this principle to these facts, under California
law, the Insurer was entitled to summary judgment on the
Employer’s claims. Because the Policy was declared void ab
initio, the Insurer had no obligation to defend the Employer
notwithstanding that the Policy, if valid, would have covered
the Employee’s injuries.
V
Reversal is not warranted on the basis of any of the district
court’s pre-trial rulings.
5198 U.S. FIDELITY v. LEE INVESTMENTS
A
[9] The district court did not err in denying the Employer’s
motions in limine which sought to exclude two communica-
tions among the Employer, the Broker, and the Insurer’s
Agent that allegedly showed the Employer’s material misrep-
resentations in the policy application process. In the first let-
ter, the Insurer’s Agent expressed concern to the Broker that
the Employer’s employees were performing construction
duties, and asked for the Broker’s help in proving to the
Insurer that “[c]onstruction has ceased at The Island” and
accordingly that “workers’ compensation claims arising from
construction will not be reported under [the Policy].” In the
second letter, drafted by the Broker to assuage the Insurer’s
concerns and signed by the Employer’s general manager, the
Employer represented to the Insurer’s Agent that The Island
would “no longer employ construction laborers” and that
“[a]ny construction work will be performed by independent
contractors.” It was six months later that the Employee suf-
fered her injury while completing the assembly of a new
water slide.
The Employer contends the letters were not relevant, argu-
ing that the Insurer was required to issue a restrictive policy
endorsement if it did not intend to insure construction activi-
ties. However, the Insurer did not argue that the letters modi-
fied the Policy. Rather, the Insurer submitted those letters as
evidence that the Employer misrepresented its operations to
procure insurance, justifying the Insurer in rescinding the pol-
icy under California law. See Mitchell v. United Nat. Ins. Co.,
127 Cal. App. 4th 457, 468 (2005) (“any material misrepre-
sentation or the failure, whether intentional or unintentional,
to provide requested information permits rescission of the pol-
icy by the injured party” (citing Cal. Ins. Code §§ 351, 359;
Imperial Cas. & Indem. Co. v. Sogomonian, 198 Cal. App. 3d
169, 179-80 (1988))). The letters were relevant, and the dis-
trict court properly denied the Employer’s motion in limine.
U.S. FIDELITY v. LEE INVESTMENTS 5199
B
[10] The district court did not abuse its discretion in grant-
ing the Insurer’s motions in limine that precluded the
Employer from arguing at trial that the Broker was the Insur-
er’s agent. The district court held that this theory was not
fairly disclosed in discovery, that the defendants had not had
an opportunity to conduct discovery on the theory or develop
a defense, and that the defendants would be unfairly preju-
diced if the court allowed the Employer to present the new
theory at trial. The court did not abuse its discretion in declin-
ing to allow the belated assertion of an entirely new theory on
the eve of trial, when discovery would have to be re-opened
and the theory was of dubious merit. See Archer Daniels Mid-
land Co. v. Hartford Fire Ins. Co., 243 F.3d 369, 375 (7th
Cir. 2001) (upholding the exercise of discretion and noting
that “if the destination is fated, it is best to avoid the travail
of the journey”).
C
[11] The district court did not abuse its discretion in grant-
ing the Insurer’s and the Broker’s motions in limine preclud-
ing the Employer’s experts from testifying as to matters
beyond their expertise and the scope of their expert reports.
The Employer complains that its hands were tied. However,
its experts remained free to articulate the relevant standards of
care and to opine as to whether the Insurer’s and the Broker’s
conduct met their requirements. A district court does not
abuse its discretion in limiting expert testimony to the
expert’s area of expertise and the subjects contained in the
expert’s disclosure. United States v. W.R. Grace, 526 F.3d
499, 503 (9th Cir. 2008).
D
The Employer’s challenge to the district court’s denial of
the Employer’s motion for summary judgment is not properly
5200 U.S. FIDELITY v. LEE INVESTMENTS
before the Court. The Employer has not appealed the district
court order in question, nor could it: after a full trial on the
merits, no appeal can be taken of an order denying summary
judgment. Ortiz v. Jordan, ___ U.S. ___, 131 S.Ct. 884, 889
(2011); accord. Locricchio v. Legal Services Corp., 833 F.2d
1352, 1358-59 (9th Cir. 1987) (“[T]he denial of a motion for
summary judgment is not reviewable on an appeal from a
final judgment entered after a full trial on the merits.”).
E
Finally, the Employer’s complaint about the “morass of
documents” that the Insurer produced prior to the bench trial
provides no cause for reversal.
VI
The district court did not err in its trial rulings. The district
court did not impermissibly prevent the Employer from pre-
senting its theories of the case. Rather, its decisions were in
keeping with its “general ‘gatekeeping’ obligation . . . [as] to
testimony based on ‘technical’ and ‘other specialized’ knowl-
edge.” Kumho tire Co. v. Carmichael, 526 U.S. 137, 141
(1999). A careful reading of the record demonstrates that the
district court fully permitted the Employer to assert its theory.
[12] The further instructions given by the court on profes-
sional negligence claims conformed to the requirements that
California law imposes on such claims. In California, negli-
gence claims against insurance brokers are adjudicated
according to the professional negligence standard,11 and
11
See Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Assocs.,
Inc., 115 Cal. App. 4th 1145, 1154 (2004) (concluding that, where a negli-
gence claim challenged the failure of an insurance broker to obtain appro-
priate insurance, “the negligence claim is one for professional
negligence”); Valentine v. Membrila Ins. Servs., Inc., 118 Cal. App. 4th
462, 474-75 (2004).
U.S. FIDELITY v. LEE INVESTMENTS 5201
“proof of professional negligence requires testimony of
experts as to the standard of care in the relevant community.”
Huang v. Garner, 157 Cal. App. 3d 404, 413 (1984), disap-
proved on other grounds by Aas v. Superior Court, 24 Cal.
4th 627 (2000). Therefore, the court properly instructed that
expert testimony was required in order to sustain a profes-
sional liability claim. The Employer argues that its theories
were not “complex,” but California has yet to adopt a “sim-
plicy of theory” exception to its professional negligence rule.
Rather, California requires expert testimony on the standard
of care “unless the conduct required by the particular circum-
stances is within the common knowledge of the layman.”
Flowers v. Torrance Memorial Hosp. Med. Ctr., 884 P.2d
142, 147 (Cal. 1994).
VII
Reversal is not warranted on the basis of the district court’s
findings of fact, conclusions of law, or post-trial rulings.
A
The district court’s factual finding that the Insurer was the
real party in interest for purposes of restitution is supported by
the record. The Employer alleged that the Insurer was not the
real party in interest, claiming that it had not actually paid
benefits under the Policy. However, the record contains direct
and uncontradicted evidence of payments by the Insurer for
the Employee’s medical and related expenses. The Employer
did not tender any contrary evidence and did not sustain its
burden of proof. The district court correctly held that the
Insurer was the real party in interest.
B
The district court properly awarded prejudgment interest to
the Insurer. “ ‘Prejudgment interest in a diversity action is . . .
a substantive matter governed by state law.’ ” In re Exxon
5202 U.S. FIDELITY v. LEE INVESTMENTS
Valdez, 484 F.3d 1098, 1101 (9th Cir. 2007) (quoting Webco
Indus., Inc. v. Thermatool Corp., 278 F.3d 1120, 1134 (10th
Cir. 2002)). California law provides that
Every person who is entitled to recover damages cer-
tain, or capable of being made certain by calcula-
tion, and the right to recover which is vested in him
upon a particular day, is entitled also to recover
interest thereon from that day, except during such
time as the debtor is prevented by law, or by the act
of the creditor from paying the debt.
Cal. Civ. Code § 3287(a) (emphasis added).
In Children’s Hospital and Medical Center v. Bonta, 97
Cal. App. 4th 740 (2002), the California Court of Appeal
articulated the test for awarding prejudgment interest under
§ 3287(a) as entailing a determination of whether the “defen-
dant actually knows the amount owed or from reasonably
available information could the defendant have computed that
amount.” Id. at 774 (quotation omitted). In Fireman’s Fund
Ins. Co. v. Allstate Ins. Co., 234 Cal. App. 3d 1154 (1991),
quoted in Bonta, the court specified that
[d]amages are deemed certain or capable of being
made certain within the provisions of [§ 3287(a)]
where there is essentially no dispute between the
parties concerning the basis of computation of dam-
ages if any are recoverable but where their dispute
centers on the issue of liability giving rise to dam-
age. . . . The statute does not authorize prejudgment
interest where the amount of damage, as opposed to
the determination of liability, depends upon a judi-
cial determination based upon conflicting evidence
and is not ascertainable from truthful data supplied
by the claimant to his debtor.
Id. at 1173.
U.S. FIDELITY v. LEE INVESTMENTS 5203
The Employer argues that the district court erred in calcu-
lating the numbers because the Employer did not know, and
could not have known, the amount of damages, placing it in
a Catch-22 situation. The Employer’s contention, however,
hinges on arguments it made in its counterclaims and third-
party complaint—for example, that the Broker and the Insur-
er’s Agent were responsible for the Insurer’s loss—that the
district court properly rejected. In contrast, the Insurer’s claim
for restitution, which simply sought reimbursement for pay-
ments it made pursuant to the Policy, was discrete, and once
liability was determined, there could be “essentially no dis-
pute between the parties concerning the basis of computation
of damages.” Fireman’s Fund, 234 Cal. App. 3d at 1173.
“[A] defendant’s denial of liability does not make damages
uncertain for purposes of [Cal. Civ. Code § 3287(a)].” Wisper
Corp. v. California Commerce Bank, 49 Cal. App. 4th 948,
958 (1996). And “where the amount of the plaintiff’s claim
can be determined by established market values or by compu-
tation,” that provision “mandates an award of prejudgment
interest.” Id. (quotation omitted).
[13] Chesapeake Industries, Inc. v. Togova Enterprises,
Inc., 149 Cal. App. 3d 901 (1983), is distinguishable, as this
is “a case where the debtor could keep complete records of
the transaction from which it could calculate its indebted-
ness,” and it is not a case where “much of the critical data was
in the sole possession of” the Insurer. Id. at 911. Here, the
amount of the payments the Insurer made to the Employee
and to the Employer’s independent counsel were “reasonably
available.” Bonta, 97 Cal. App. 4th at 774. The Employee’s
workers’ compensation payments were statutorily set based
on her salary; her medical expenses were established as of
May 24, 2002, and could be reasonably determined thereafter
with simple inquiries; and the Employer admits that it “of
course[ ] did know how much was being paid to its indepen-
dent counsel.” As the district court found, there was never any
uncertainty as to the exact amount and date of each payment
5204 U.S. FIDELITY v. LEE INVESTMENTS
to the Employee and her counsel that is to be restored to the
Insurer. The district court properly applied California law in
awarding prejudgment interest. See Cal. Civ. Code § 3287.
C
The district court did not err in certifying its judgment pur-
suant to Federal Rules of Civil Procedure Rule 54(b). The
pendency of the Insurer’s claims against the Alter Egos did
not preclude the court from doing so. Any similarities
between the alter-ego claims and those already adjudicated by
the district court are insufficient to negate the district court’s
conclusion, made on the record, that, “[d]ue to the prior delay
in, complexity and contentiousness of this litigation, to avoid
uncertainty and inconsistent verdicts, there is no just reason
for delay and partial judgment should now therefore be
entered.” See Gregorian v. Izvestia, 871 F.2d 1515, 1519 (9th
Cir. 1989) (noting approvingly that the court below, in grant-
ing Rule 54(b) certification, “expressly stated that it found ‘no
just reason for delaying the entry of judgment’ ”). “Both the
Supreme Court and our court have upheld certification on one
or more claims despite the presence of facts that overlap
remaining claims when, for example, . . . the case is complex
and there is an important or controlling legal issue that cuts
across (and cuts out or at least curtails) a number of claims.”
Wood v. GCC Bend, LLC, 422 F.3d 873, 881 (9th Cir. 2005).
The Employer contends that it was inequitable for the dis-
trict court to enter judgment “piecemeal.” Of course, that is
precisely what a Rule 54(b) certification is intended to accom-
plish. The question is whether the preconditions for certifica-
tion have been satisfied. Here, the record reflects that the
district court carefully considered and applied the factors this
circuit has stated are relevant in determining the propriety of
Rule 54(b) certification. See Wood, 422 F.3d at 880-82; Gen-
eral Acquisition, Inc. v. GenCorp, Inc., 23 F.3d 1022, 1030
(9th Cir. 1994).
U.S. FIDELITY v. LEE INVESTMENTS 5205
[14] The order, although not final, certainly signaled the
beginning of the end. Not all the questions have been
answered, but most of the important issues have been
resolved. Thus, although an epilogue will be required, this
portion of the saga came to a proper end. The district court
did not err in granting partial judgment and entering the certi-
fication order.
VIII
The district court properly exercised jurisdiction, correctly
assessed the law, acted well within its discretion in making
innumerable litigation decisions, and did not err in granting
certification. We commit the remaining issues to the district
court.
AFFIRMED.