Unreported / Non-Citable
Background
Victor and Lisa Montez won a damages award against Dennis Perez in California state court arising from a car accident. While that case was pending, Perez's insurer, Farmers Direct Property and Casualty Insurance Company, filed a declaratory relief action in the Central District of California and obtained a default judgment against Perez. That judgment relieved Farmers of its duties to defend and indemnify him.
After the Montezes obtained their state court judgment, Farmers paid them $25,000, the policy limit, in partial satisfaction of it. The Montezes then moved to intervene in the federal declaratory proceeding to set aside the default judgment against Perez. The district court denied the motion to intervene and set aside judgment, and it also denied a related motion for reconsideration.
The dispute had been before the Ninth Circuit once already. The district court had earlier vacated its judgment and dismissed the action for lack of subject matter jurisdiction. The Ninth Circuit reversed, concluded that jurisdiction was satisfied, and remanded for the district court to conduct a Federal Rule of Civil Procedure 19 analysis in the first instance. The Montezes' current appeal challenges the denial of intervention and reconsideration.
The Court’s Holding
In an unpublished memorandum, a three-judge panel affirmed. It reviewed the joinder decision for abuse of discretion and its underlying legal conclusions de novo. Under Rule 19, a person must be joined only if that person claims an interest relating to the subject of the action. That interest must be legally protected, meaning more than a financial stake or speculation about a future event.
The Montezes asserted no interest arising under federal law, so California law defined their rights. As judgment creditors, they could proceed directly against Farmers under California Insurance Code section 11580, but only up to the policy limit. The panel said the district court wrongly stated that the Montezes were not judgment creditors when they sought to intervene. It called that error harmless, because Farmers had already paid the $25,000 limit and whatever limited rights the Montezes held as judgment creditors were satisfied.
The only other interest the Montezes could assert was speculative. California law lets an insured sue his insurer for bad faith and recover damages beyond policy limits, but an insurer that obtains a no-coverage declaratory judgment cuts off that right. The Montezes had no assignment of Perez's rights, and Perez had filed no bad faith suit against Farmers. Their interest in setting aside the default judgment was therefore only to preserve the possibility of a future assignment or suit, which is not legally cognizable. With no cognizable interest shown, the district court did not abuse its discretion in denying intervention or reconsideration. The panel also denied Farmers' motion for judicial notice as moot.
Key Takeaways
- A judgment creditor's direct claim against the tortfeasor's insurer under California Insurance Code section 11580 reaches only up to the policy limit, so collecting the full limit satisfies that statutory interest.
- A hoped-for future assignment of the insured's bad faith claims, or a bad faith suit the insured has not filed, is speculation about a future event and is not a legally protected interest under Rule 19.
- The district court's misstatement about whether the Montezes were judgment creditors was harmless, because the policy limit had been paid before they sought to intervene.
- The panel reviewed the joinder-based ruling for abuse of discretion and the underlying legal conclusions de novo.
- The panel did not decide the underlying coverage dispute or whether the default declaratory judgment was otherwise proper; it held only that these movants lacked a cognizable interest supporting intervention.
Why It Matters
This is a not-for-publication memorandum disposition. It is not precedent except as permitted by Ninth Circuit Rule 36-3, so it serves mainly as an illustration of how the panel applied settled Rule 19 principles to a California insurance dispute.
The ruling shows that a judgment creditor who has collected the policy limit, and who holds only a contingent hope of obtaining the insured's bad faith rights, does not have the legally protected interest Rule 19 requires. The panel did not address a situation in which an assignment or bad faith suit has actually occurred. The affirmance leaves the default declaratory judgment against Perez in place as against this challenge by the Montezes.