1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 In re GARDEN FRESH RESTAURANTS, Case No.: 21-CV-1440 JLS (KSC) LLC, 12 ORDER (1) OVERRULING Debtor. 13 PLAINTIFF’S OBJECTIONS;

(2) ADOPTING IN PART PROPOSED 14 LESLIE T. GLADSTONE, ESQ., ORDER; AND (3) GRANTING

15 as Chapter 7 Trustee of Garden Fresh DEFENDANTS’ MOTION TO Restaurants, LLC, DISMISS WITHOUT PREJUDICE 16 Plaintiff, 17 (ECF No. 15) v. 18 TRAVELERS PROPERTY CASUALTY 19 COMPANY OF AMERICA; and 20 THE TRAVELERS LLOYDS INSURANCE COMPANY, 21 Defendants. 22 23 24 On August 30, 2021, Defendants Travelers Property Casualty Company of 25 America and The Travelers Lloyds Insurance Company (collectively, “Defendants”) filed 26 a Motion to Dismiss the First Amended Complaint of Plaintiff Leslie T. Gladstone, Esq., 27 as Chapter 7 Trustee of Garden Fresh Restaurants, LLC (“Plaintiff”) in Adversary 28 Proceeding No. 21-90043, currently pending in the United States Bankruptcy Court for 1 the Southern District of California. Gladstone v. Travelers Prop. Cas. Co. of Am., No. 2 21-90043-LT (Bankr. S.D. Cal. 2021), ECF No. 24. On January 28, 2022, the 3 Bankruptcy Court issued a Proposed Order on Defendants’ Motion to Dismiss, 4 recommending that the District Court grant Defendants’ Motion to Dismiss with 5 prejudice. ECF No. 15-1 (the “Proposed Order”). The matter was submitted to this 6 Court on March 24, 2022. See generally Docket. 7 Presently before the Court is the Bankruptcy Court’s Proposed Order, Plaintiff’s 8 Objections (“Objs.,” ECF No. 15-3), and Defendants’ Reply to Plaintiff’s Objections 9 (“Reply,” ECF No. 15-4). Pursuant to Civil Local Rule 7.1(d)(1), the Court finds the 10 matters presented appropriate for resolution without oral argument. After a careful, de 11 novo review of the relevant record, the Parties’ submissions, and the Proposed Order, the 12 Court OVERRULES Plaintiff’s Objections, ADOPTS IN PART the Proposed Order, 13 and GRANTS Defendants’ Motion to Dismiss WITHOUT PREJUDICE. 14 BACKGROUND 15 I. Procedural Background 16 On May 14, 2020, debtor Garden Fresh Restaurants, LLC (“Garden Fresh”) 17 commenced voluntary Chapter 7 Bankruptcy Proceeding No. 20-02477 in the United 18 States Bankruptcy Court for the Southern District of California. In re Garden Fresh 19 Restaurants LLC, Case No. 20-02477-LT, ECF No. 1. On June 7, 2021, Garden Fresh 20 initiated Adversary Proceeding No. 21-90043 against Defendants in Bankruptcy Court. 21 Case No. 21-90043-LT, ECF No. 1. 22 On June 14, 2021, Plaintiff, as the Chapter 7 Trustee of debtor Garden Fresh, filed 23 a First Amended Complaint against Defendants. Id., ECF No. 3. On August 30, 2021, 24 Defendants filed a Motion to Dismiss Plaintiff’s First Amended Complaint. Id., ECF No. 25 24. On October 4, 2021, the Bankruptcy Court determined the Adversary Proceeding 26 was a non-core proceeding. Id., ECF No. 37. On January 28, 2022, the Bankruptcy 27 /// 28 /// 1 Court issued the at-issue Proposed Order, prompting the filing of Plaintiff’s Objections 2 and Defendants’ Reply.1 3 On March 24, 2022, the Bankruptcy Court transmitted its Proposed Order, 4 Plaintiff’s Objections, and Defendants’ Reply to this Court for consideration. ECF No. 5 15. On April 28, 2022, Plaintiff filed a Notice of Supplemental Authority in the 6 Adversary Proceeding. Case No. 21-90043-LT, ECF No. 58. On May 6 and May 11, 7 2022, Defendants filed a Response to Plaintiff’s Notice with additional supplemental 8 authority. Id., ECF Nos. 59 & 60. 9 II. Factual Background 10 A. Garden Fresh’s Claim for Coverage 11 The Bankruptcy Court’s Proposed Order contains a thorough and accurate 12 recitation of the factual allegations in Plaintiff’s First Amended Complaint. Proposed 13 Order at 2–7. The Court incorporates the Proposed Order’s background discussion by 14 reference. In short, Plaintiff’s First Amended Complaint—styled as a declaratory 15 judgment action—arises from Defendants’ denial of Garden Fresh’s claim for lost 16 business income and other expenses under a commercial property insurance policy 17 following government closure orders due to the COVID-19 pandemic. Case No. 21- 18 90043-LT, ECF No. 3 ¶¶ 1–7. 19 Prior to its bankruptcy filing, Garden Fresh operated ninety-seven restaurants, two 20 distribution centers, and four other locations throughout the United States (hereinafter, 21 “Insured Properties.”). Id. ¶¶ 17–18. These locations were covered by a commercial 22 insurance policy Garden Fresh purchased from Defendants for the period spanning 23 April 1, 2019, through April 1, 2020 (hereinafter, the “Policy.”). Id. ¶ 2. Under the 24 general “Coverage” provision, the Policy provided Defendants would pay for a “direct 25 physical loss or damage” to the Insured Properties “causing by or resulting from a 26

27 1 On February 10, 2022, while briefing on the Proposed Order was still in process, this Court denied 28 Defendants’ Motion to Withdraw the Reference of the Adversary Proceeding to the Bankruptcy Court. 1 Covered Cause of Loss.” Case No. 21-90043-LT, ECF No. 3-2 at 14. The “Business 2 Income,” “Extra Expense,” and “Civil Authority” provisions further defined the various 3 benefits Garden Fresh could be entitled to if the general “Coverage” provision was 4 triggered and also set forth other requirements for coverage. Id., ECF No. 3-2 at 33–49. 5 Finally, the “Virus Exclusion” provision removed from coverage any “loss or damage 6 caused directly or indirectly by . . . [a]ny virus, bacterium or other microorganism that 7 induces or is capable of inducing physical distress, illness or disease.” Id. at 25, 27. 8 In March 2020, Garden Fresh made a claim pursuant to the Policy after state and 9 local authorities issued orders limiting the public’s access to restaurants in response to the 10 COVID-19 pandemic. Case No. 21-90043-LT, ECF No. 3 ¶¶ 61–95, 179. This claim 11 was denied by Defendants in a letter dated May 21, 2020. Id. ¶¶ 180–181. Plaintiff 12 alleges Defendants’ denial “compounded” the results of the government shutdown orders 13 and forced Garden Fresh into bankruptcy. Id. ¶ 185. 14 In Plaintiff’s First Amended Complaint, Plaintiff seeks an order declaring that: 15 (1) Garden Fresh sustained a “direct physical loss of or damage” to property; (2) the 16 Virus Exclusion provision of the Policy is not applicable to Garden Fresh’s losses; and 17 (3) Defendants must pay Garden Fresh “up to the limits of liability” in accordance with 18 the Policy. Id. at 51. 19 B. The Bankruptcy Court’s Proposed Order 20 In their Motion to Dismiss, Defendants argue Plaintiff failed to allege any facts 21 plausibly supporting Garden Fresh’s entitlement to coverage under the Policy. See Case 22 No. 21-90043, ECF No. 24-2. In its Proposed Order, the Bankruptcy Court recommends 23 Defendants’ Motion to Dismiss be granted with prejudice for two reasons. Proposed 24 Order at 9–15. First, the Bankruptcy Court concludes Plaintiff cannot allege Garden 25 Fresh sustained a “direct physical loss or damage” to property because Plaintiff cannot 26 plausibly allege that the physical presence of COVID-19 in only the Insured Properties 27 “caused Garden Fresh to suspend its operations[.]” Id. at 12. 28 /// 1 Instead, the Bankruptcy Court reasoned that: 2 Irrespective of what the Trustee argues or pleads, common 3 sense dictates that it was: (i) the pandemic spread of the virus throughout the United States—as opposed to it spreading solely 4 in Garden Fresh’s restaurants—that triggered the Government 5 Orders temporarily suspending on-site dining at its restaurants; and (ii) it was the Government Orders—not the presumed 6 physical presence of the virus in the air and on the property 7 surfaces in the Garden Fresh restaurants—that caused Garden Fresh’s loss of use of its restaurant premises and all of its 8 economic losses. 9

10 Id. (emphasis in original). 11 Second, the Bankruptcy Court found all of Plaintiff’s claims for coverage were, as 12 a matter of law, barred by the Policy’s Virus Exclusion provision. Id. at 13. In so doing, 13 the Bankruptcy Court rejected Plaintiff’s argument Garden Fresh’s losses were caused 14 predominantly by the United States Government’s negligence and not the COVID-19 15 virus. Id. at 13–15. The Bankruptcy Court concluded this allegation was “logically 16 implausible” because “[e]ven assuming the U.S. Government was negligent (a legal 17 conclusion), logically its negligence was not the predominant cause of Garden Fresh’s 18 operations without the virus (a point that is not debatable).” Id. at 14 (emphasis in 19 original). 20 LEGAL STANDARD 21 A bankruptcy court’s authority to enter final orders or judgments is governed by 28

. Section 157 “divid[es] all matters that may be referred to the bankruptcy 23 court into two categories: ‘core’ and ‘non-core’ proceedings.” Exec. Bens. Ins. Agency v. 24 Arkison,

, 33 (2014). 25 A bankruptcy judge “may hear and determine all cases under title 11 and all core 26 proceedings arising under title 11.”

(b). A bankruptcy judge may also 27 “hear a proceeding that is not a core proceeding but that is otherwise related to a case 28 under title 11.”

(c)(1). “However, because bankruptcy judges are not 1 Article III judges, the Constitution limits their ability to adjudicate—i.e., to render a final 2 judgment—to issues that are at the ‘core’ of the bankruptcy power.” Harris v. Wittman 3 (In re Harris),

(9th Cir. 2009).2 4 In a noncore proceeding, such as this one, the bankruptcy judge “shall submit 5 proposed findings of fact and conclusions of law to the district court[.]” 28 U.S.C. 6 § 157(c)(1). “[A]ny final order or judgment shall be entered by the district judge after 7 considering the bankruptcy judge’s proposed findings and conclusions and after 8 reviewing de novo those matters to which any party has timely and specifically objected.” 9 Id.; see Fed. R. Bank. P. 9033(d) (“The district judge shall make a de novo review . . . of 10 any portion of the bankruptcy judge’s findings of fact or conclusions of law to which 11 specific written objection has been made in accordance with this rule.”); see Maitland v. 12 Mitchell (In re Harris Pine Mills),

(9th Cir. 1995) (“In noncore 13 matters, the bankruptcy court acts as an adjunct to the district court, in a fashion similar 14 to that of a magistrate or special master.”).3 15 ANALYSIS 16 This matter is one amongst a multitude of cases across the United States in which 17 businesses have sought insurance coverage for losses sustained during the COVID-19 18 pandemic. As the Bankruptcy Court noted, an overwhelming majority of courts in the 19 Ninth Circuit—and indeed throughout the nation—that have considered policy language 20 virtually indistinguishable from that at issue here have rejected an insured’s claim for 21 coverage.

22 2 Generally, a “core proceeding is one that invokes a substantive right provided by title 11 or a 23 proceeding that, by its nature, could arise only in the context of a bankruptcy case.” Battle Ground 24 Plaza, LLC v. Ray (In re Ray),

(9th Cir. 2010) (internal quotation marks omitted). In contrast, a “non-core” proceeding is one that does “not depend on the Bankruptcy Court for [its] 25 existence and [] could proceed in another court.” Dunmore v. United States,

(9th Cir. 2004). “It is the bankruptcy court’s responsibility to determine whether each claim before it is core 26 or non-core.” Exec., 573 U.S. at 33.

27 3 The Proposed Order also contains a thorough and accurate recitation of the legal standard governing a 28 motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Proposed Order at 7–9. The Court 1 In so doing, numerous courts have reasoned that neither the COVID-19 pandemic 2 nor governmental closure orders associated with COVID-19 constitute a “direct physical 3 loss or damage” to property. See, e.g., Protégé Rest. Partners LLC v. Sentinel Ins. Co., 4

, 987–88 (N.D. Cal. 2021) (“Every California court that has 5 addressed COVID-19 business interruption claims to date has concluded that government 6 orders that prevent full use of a commercial property or that make the business less 7 profitable do not themselves cause or constitute ‘direct physical loss of or physical 8 damage to’ the insured property.”) (collecting cases); Park 101 LLC v. Am. Fire & Cas. 9 Co., No. 20-cv-00972-AJB-BLM,

, at *10 (S.D. Cal. June 10 29, 2021) (“A resounding majority of decisions support an insurer’s position that 11 business losses arising out of COVID-19 do not constitute as direct physical loss or 12 damage.”) (collecting cases); Musso & Frank Grill Co., Inc. v. Mitsui Sumitomo Ins. USA 13 Inc.,

, 760 (2022) (“At this point, there is no real dispute. Under 14 California law, a business interruption policy that covers physical loss and damages does 15 not provide coverage for losses incurred by reason of the COVID-19 pandemic.”). 16 In addition, the Ninth Circuit has already interpreted a Virus Exclusion provision 17 identical to the one at issue here and construed it to preclude coverage against an 18 insured’s claims arising out of COVID-19 losses. See, e.g., Mudpie, Inc. v. Travelers 19 Cas. Ins. Co. of Am.,

(9th Cir. 2021); see also Chattanooga Pro. Baseball 20 LLC v. Nat’l Cas. Co., No. 20-17422,

(9th Cir. Jan. 19, 21 2022)4; Mille Fleurs v. Nationwide Mut. Ins. Co., No. 21cv1096-LAB-AGS,

Dist. LEXIS 51636, at *5 (S.D. Cal. Mar. 21, 2022) (insurance coverage precluded 23 consistent with Mudpie); Sutter’s Place v. Zurich Am. Ins. Co., No. 5:20-cv-09384-EJD, 24

, at *13 (N.D. Cal. Mar. 14, 2022) (same). 25

26 4 As an unpublished Ninth Circuit decision, Chattanooga is not precedent, but may be considered for 27 its persuasive value. See Nuh Nhuoc Loi v. Scribner,

, 1201 n.10 (S.D. Cal. 2009) 28 (“Although still not binding precedent, unpublished decisions have persuasive value and indicate how 1 This rejection of an insured’s claim for coverage has been repeated in numerous 2 Circuit Courts of Appeals around the nation. See, e.g., Terry Black’s Barbecue, L.L.C. v. 3 State Auto. Mut. Ins. Co.,

, 460 (5th Cir. 2022) (“[Appellant’s] claimed 4 losses due to the suspension of dine-in services during the COVID-19 pandemic are not 5 covered by the policy.”); Santo’s Italian Café LLC v. Acuity Ins. Co.,

, 402 6 (6th Cir. 2021) (“All in all, the cause of the suspension of operations—the prohibition on 7 in-person dining—did not arise from a physical loss of property or physical damage to 8 it.”); Oral Surgeons, P.C. v. Cincinnati Ins. Co.,

(8th Cir. 2021) (“We 9 reject [appellant’s] argument that the lost business income and the extra expense it 10 sustained as a result of the suspension of non-emergency procedures were ‘caused by 11 direct loss to property.’”); Gilreath Family & Cosmetic Dentistry, Inc. v. Cincinnati Ins. 12 Co., No. 21-11046,

, at *6 (11th Cir. Aug. 31, 2021) 13 (“[W]e do not see how the presence of [viral] particles would cause physical damage or 14 loss to the property.”); Goodwill Indus. of Cent. Okla., Inc. v. Phila. Indem. Ins. Co., 21

, 710 (10th Cir. 2021) (“The Business Income provision unambiguously 16 covered only losses stemming from physical alteration or tangible dispossession of 17 property. Neither occurred here.”); 10012 Holdings, Inc. v. Sentinel Ins. Co.,

216, 223 (2d Cir. 2021) (“Because [appellant] alleges only that it lost access to its 19 property as a result of COVID-19 and the governmental shutdown orders, and not that it 20 suspended operations because of physical damage to its property, we agree with the 21 District Court that [appellant] cannot recover under either the Business Income or Extra 22 Expense provisions.”). 23 Against the clear weight of this binding and persuasive authority, Plaintiff raises 24 three objections to the Bankruptcy Court’s Proposed Order. First, Plaintiff contends the 25 Bankruptcy Court made inappropriate factual determinations at the Motion to Dismiss 26 stage. Objs. at 3–4, 15–21. Second, Plaintiff contends the Bankruptcy Court erred in 27 failing to interpret the insurance policy as a whole or to resolve ambiguities in favor of 28 coverage.

, 21–23. Finally, Plaintiff contends the Bankruptcy Court relied on 1 factually dissimilar legal precedent, while ignoring cases supporting Plaintiff’s position. 2

, 23–33. 3 Regardless of how Plaintiff’s objections are framed, the common thread is whether 4 Plaintiff’s claim for coverage is distinguishable from virtually all the decisions 5 dismissing substantively similar lawsuits at the pleading stage. The core issue before this 6 Court then—as before the Bankruptcy Court—is whether Plaintiff has sufficiently pled 7 around this unfavorable precedent. In analyzing this issue, the Court is guided by two 8 legal principles. First, California state law controls this Court’s interpretation of the 9 relevant insurance policy language,5 and, in interpreting state law, a federal court is 10 “bound to follow the decisions of the state’s highest court, and when the state supreme 11 court has not spoken on an issue, [the court] must determine what result the court would 12 reach based on state appellate court opinions, statutes and treatises.” Diaz v. Kubler 13 Corp.,

(9th Cir. 2015) (internal quotation marks and brackets 14 omitted). Second, this Court is, of course, bound by Ninth Circuit precedent. See Zuniga 15 v. United Can Co.,

(9th Cir. 1987). 16 I. Factual Determinations 17 A. Causation 18 Plaintiff first contends that in reaching its conclusions, the Bankruptcy Court 19 engaged in premature and impermissible fact finding contrary to the standards governing 20 a Motion to Dismiss. Objs. at 15–21. Centrally, Plaintiff objects to the Bankruptcy 21 Court’s determinations that: (1) the pandemic spread of the virus throughout the United 22 States—as opposed to just in the Insured Properties—triggered government closure 23 orders; (2) Garden Fresh’s losses were caused by these government orders—and not the 24 physical presence of the virus in the Insured Properties; and (3) the United States 25 Government’s alleged negligence was not the predominant cause of Garden Fresh’s 26 losses. Id. at 3, 15–20. 27 28 5 Although it is unclear to this Court whether the choice-of-law issue ever was raised, the Parties’ papers 1 The Court is not persuaded. Here, the Bankruptcy Court accepted the truth of 2 Plaintiff’s allegations and made an appropriate “context-specific” determination as to 3 whether Plaintiff had set forth a plausible claim for relief. Ashcroft v. Iqbal,

662, 679 (2009). This determination was based on both binding and persuasive legal 5 authority and the Bankruptcy Court’s resort to its “judicial experience and common 6 sense”—a determination expressly allowed under Supreme Court precedent. Id. Despite 7 Plaintiff’s insistence, the Court cannot—as a legal matter—discern any issues with the 8 Bankruptcy Court’s approach. 9 Indeed, the “factual findings” Plaintiff objects to are exactly the same types of 10 conclusions reached by the California Court of Appeal, Fourth Appellate District, in Inns- 11 by-the-Sea v. California Mutual Insurance Company,

(Ct. App. 12 2021), and the Ninth Circuit in Mudpie, Inc. v. Travelers Casualty Insurance Company of 13 America,

(9th Cir. 2021). As the Bankruptcy Court did, this Court likewise 14 concludes that both Mudpie and Inns-by-the-Sea are legally sound and directly on point. 15 Addressing Plaintiff’s specific objections, Plaintiff argues the Bankruptcy Court’s 16 conclusion “the government orders were not issued in response to the virus spreading 17 through Garden Fresh’s restaurants” was incorrect. Objs. at 17. This mischaracterizes 18 the Bankruptcy Court’s Proposed Order. The Bankruptcy Court found that the 19 government closure orders were not issued solely as a response to the virus spreading 20 through just Garden Fresh’s properties. Proposed Order at 12. Instead, the orders were 21 issued based on the presence of the virus in the wider community.

This is exactly the 22 conclusion reached by the California Court of Appeal in Inns-by-the-Sea. See

App. 5th at 699 (“Importantly, however, we approach our analysis mindful that, as the 24 Orders establish, it was the presence of the virus throughout San Mateo and Monterey 25 Counties—not the presence of the virus specifically on Inns’ premises—that gave rise to 26 the Orders, leading to Inns’ suspension of operations.”) (emphasis in original). 27 As in Inns-by-the-Sea, this is not a case where Plaintiff plausibly alleges it was the 28 target of a specific closure order. State and local authorities did not just close Garden 1 Fresh’s properties. Instead, the government orders closed numerous properties across the 2 nation. See United Talent Agency v. Vigilant Ins. Co.,

, 840 (2022) 3 (“Closure orders across the country were issued in response to the public health crisis 4 arising from the pandemic, not as ‘the direct result of’ damage to property near [the 5 insured’s].”); Baker v. Or. Mut. Ins. Co., No. 20-cv-05467-LB,

58453, at *13 (N.D. Cal. Mar. 25, 2021) (“[P]laintiffs do not plausibly plead a claim for 7 coverage of their business losses and expenses because no physical loss of or damage to 8 the restaurant caused the suspension of their business. Instead, the losses resulted from 9 the closure orders.”), aff’d, No. 21-15716,

, at *2 (9th Cir.

, 2022); see also Terry, 22 F.4th at 460 (“Even if [the insured] alleges COVID-19 11 was present in its restaurants, the civil authority orders did not result from [the insured’s] 12 exposure to the virus.”). 13 Plaintiff next argues the Bankruptcy Court “disregarded” the facts “by finding no 14 causal connection” between the COVID-19 virus and Garden Fresh’s required suspension 15 of operations. Objs. at 18. Again, this argument mischaracterizes the Proposed Order. 16 Rather than finding the absence of any causal connection, the Bankruptcy Court 17 concluded Plaintiff’s economic losses stemmed from a causal chain in which the COVID- 18 19 virus “directly caused the government orders which directly caused the alleged 19 losses.” Afm Mattress Co., LLC v. Motorists Commer. Mut. Ins. Co.,

, 446 20 (7th Cir. 2022). 21 Again, this is the identical conclusion on causation reached by the California Court 22 of Appeal in Inns-by-the-Sea. Specifically, in Inns-by-the-Sea, the court reasoned: 23 [T]he lack of causal connection between the alleged physical 24 presence of the virus on Inns’ premises and the suspension of Inns’ operations can be best understood by considering what 25 would have taken place if Inns had thoroughly sterilized its 26 premises to remove any trace of the virus after the Orders were issued. In that case, Inns would still have continued to incur a 27 suspension of operations because the Orders would still have 28 1 been in effect and the normal functioning of society still would have been curtailed. 2

3 71 Cal. App. 5th at 704. The analysis in Inns-by-the-Sea applies squarely here, as 4 articulated by other district courts. See Madera Grp., LLC v. Mitsui Sumitomo Ins. USA, 5 Inc., No. LA CV20-07132 JAK (AFMx),

, at *35 (C.D. 6 Cal. May 27, 2022) (“Plaintiff does not plausibly allege that something other than the 7 closure orders caused its business losses.”); Madison Int’l v. Valley Forge Ins. Co., No. 8 CV 21-8246-GW-KKx,

, at *9 (C.D. Cal. Jan. 18, 2022) 9 (“[A]s in Inns, Plaintiff was principally forced closed by the government stay-at-home 10 orders and closure orders. As the court in Inns discussed, even if Plaintiff had completely 11 removed all physical traces of COVID-19 from its premises, it still would have had to 12 remain closed because of the government orders.”). 13 Finally, Plaintiff argues the Bankruptcy Court made premature factual findings on 14 the applicability of the Virus Exclusion provision. To the extent Plaintiff asserts that 15 government restrictions and/or negligence—and not COVID-19—were the “efficient 16 proximate cause” of its losses, the Ninth Circuit has rejected this argument. In Mudpie, 17 the Ninth Circuit affirmed a district court’s dismissal of claims based on a Virus 18 Exclusion provision materially indistinguishable from the one at issue here. See

at 893–94. As here, the plaintiff in Mudpie argued it was the government closure orders 20 that “most directly caused” its injury.

. The Ninth Circuit rejected this 21 contention and held plaintiff had not plausibly alleged the “‘efficient cause’, i.e., the one 22 that set others in motion, was anything other than the spread of the virus throughout 23 California, or that the virus was merely a remote cause of its losses.”

24 Similarly, in Chattanooga, the Ninth Circuit— albeit in an unpublished opinion— 25 affirmed a district court’s dismissal of a case based on an almost identically-worded 26 Virus Exclusion provision.

, at *4–6. In so doing, the 27 Ninth Circuit reasoned that, while “attendant disease, resulting pandemic, and 28 governmental responses” may have affected plaintiff’s losses, plaintiffs did not 1 “plausibly allege that any of these other causes, and not the spread of the COVID-19 2 virus, were the ‘efficient proximate cause’ that set others in motion[.]”

. 3 These same conclusions on causation have been repeated by numerous courts. See 4 Mashallah, Inc. v. W. Bend Mut. Ins. Co.,

(7th Cir. 2021) (“[T]here can 5 be no honest dispute that the coronavirus was the reason these orders were promulgated. 6 It was, so to speak, the prime mover.”) (emphasis in original); Kingray Inc. v. Farmers 7 Grp. Inc.,

, 1172 (C.D. Cal. 2021) (“If there were no coronavirus, 8 there would be no Covid-19 pandemic, no Covid-19-related shutdowns, and no need for 9 [plaintiff] to close, operate at a limited capacity, or modify the floor plan of its sports bar. 10 This causal chain is straightforward and unbroken.”); BA LAX, LLC v. Hartford Fire Ins. 11 Co.,

, 717 (C.D. Cal. 2021) (“Here, there is no genuine dispute that 12 the activity of a virus, namely COVID-19, set government restrictions in motion, and is 13 therefore the efficient proximate cause of Plaintiffs’ claimed losses.”); Boxed Foods Co., 14 LLC v. Cal. Capital Ins. Co.,

, 522 (N.D. Cal. 2020) (“The Civil 15 Authority Orders would not exist absent the presence of COVID-19; COVID-19 is 16 therefore the efficient proximate of Plaintiffs’ losses.”). Accordingly, Plaintiff’s 17 objections on these grounds are OVERRULED. 18 B. Regulatory Estoppel 19 Plaintiff next contends the Bankruptcy Court erred by “glossing over” Plaintiff’s 20 allegations that various insurance industry trade groups—and implicitly Defendants— 21 “deceived state regulators” in order to obtain approval to add the Virus Exclusion 22 provision into their policies. Objs. at 20–21; Case No. 21-90043-LT, ECF No. 3 ¶¶ 133– 23 167. The basic premise of Plaintiff’s argument is that insurers cannot say one thing to an 24 insurance regulator and another thing to the insured. 25 The core legal issue before this Court is whether California courts would apply this 26 type of “regulatory estoppel” to override the plain language of the Virus Exclusion 27 provision. Here, the Bankruptcy Court correctly found that they would not. See 28 Proposed Order at 14 (citing French Laundry Partners, LP v. Hartford Fire Ins. Co., 535

(N.D. Cal. 2021) (“California courts reject the regulatory estoppel 2 doctrine.”) (collecting cases)); see also Madera Grp., LLC v. Mitsui Sumitomo Ins. USA, 3 Inc.,

, 831 (C.D. Cal. 2021) (“California has not adopted the doctrine 4 of regulatory estoppel.”). 5 Plaintiff’s reliance on the California Supreme Court’s decision in Riverisland Cold 6 Storage, Inc. v. Fresno-Madera Production Credit Association,

(2013), 7 is unavailing. Contrary to Plaintiff’s argument, Riverisland stands for the straightforward 8 proposition that the parol evidence rule should not be used as a “shield to prevent the 9 proof of fraud.”

at 1180–82. The California Supreme Court did not adopt the 10 doctrine of regulatory estoppel in Riverisland. Regardless, the propriety of using 11 extrinsic evidence to prove fraud and the applicability of the regulatory estoppel doctrine 12 to an otherwise unambiguous contract provision are two different things. Thus, 13 Plaintiff’s objections on these grounds are OVERRULED. 14 C. Alternate Provisions for Coverage 15 Plaintiff additionally contends the Bankruptcy Court failed to address Plaintiff’s 16 claims for coverage under “alternative policy provisions.” Objs. at 21. Although not 17 exactly clear, Plaintiff appears to take issue with the Bankruptcy Court’s finding the 18 Policy’s Virus Exclusion provision precluded Plaintiff from successfully claiming 19 coverage under other provisions of the Parties’ contract. See Proposed Order at 13. The 20 Court finds no fault with this conclusion, and Plaintiff’s argument—consisting of a single 21 paragraph—does not coherently specify how the Bankruptcy Court erred. It is not the 22 Court’s role to make legal arguments on Plaintiff’s behalf. See Indep. Towers of Wash. v. 23 Washington,

, 929 (9th Cir. 2003) (“[J]udges are not like pigs, hunting for 24 truffles buried in briefs.”). Plaintiff’s objections on these grounds are OVERRULED. 25 II. Adherence to California Rules of Interpretation 26 As her second primary objection, Plaintiff contends the Bankruptcy Court failed to 27 adhere to California’s rules governing the interpretation of insurance policies in 28 interpreting the phrase “direct physical loss or damage.” Objs. at 21–23. 1 It is true that, under California law, courts “generally interpret the coverage clauses 2 of insurance policies broadly, protecting the objectively reasonable expectations of the 3 insured.” AIU Ins. Co. v. Superior Court,

(1990). As the 4 Bankruptcy Court properly noted, however, courts also “may not ‘rewrite a policy to bind 5 the insurer to a risk that it did not contemplate and for which it has not been paid.’” 6 Proposed Order at 8 (quoting Safeco Ins. Co. v. Gilstrap,

, 533 7 (1983)). Here, the Bankruptcy Court recited and properly applied the familiar principles 8 of contractual interpretation to the language of the Parties’ Policy. 9 Plaintiff relies on the California Court of Appeal’s decision in Hughes v. Potomac 10 Insurance Company,

(Ct. App. 1962), to argue that “controlling 11 case law dictates there is a physical loss or damage to property when a fortuitous event 12 has changed the property from safe to use to too dangerous to use or has otherwise 13 compromised the property’s physical integrity.” Objs. at 21.6 14 As Defendants correctly point out, however, the Ninth Circuit has already found 15 Hughes to be inapposite to cases involving COVID-19 related business interruption 16 claims. Specifically, in Mudpie, the plaintiffs argued that, under Hughes, a “direct 17 physical loss of or damage to” property does not require “actual damage . . . but merely 18 requires that the property no longer be suitable for its intended purpose.” 15 F.4th at 891. 19 The Ninth Circuit rejected this argument, reasoning: 20 First, Hughes did not purport to interpret a “direct physical 21 loss” provision similar to the one at issue here. Hughes concerned whether a home insurance policy’s definition of 22 “dwelling” included the ground underneath a home in addition 23 to the structure itself. Second, contrary to Mudpie’s suggestion, Hughes did not imply that an insured need not show any 24 physical change to the insured property to prove “direct 25 26 6 In Hughes, the California Court of Appeal considered a case in which a landslide had swept away the lateral support of an insured dwelling, leaving it partially overhanging on a newly formed cliff.

App. 2d at 243. The insurer argued the “dwelling” was not damaged because it was still intact.

at 28 248. The Court of Appeal disagreed, finding it was “without question” the dwelling “suffered real and 1 physical loss.” To the contrary, the court in Hughes concluded that the home sustained “real and severe damage when the soil 2 beneath it slid away and left it overhanging a 30-foot cliff” and 3 deemed the home uninhabitable.

4

(internal citations omitted). 5 To the extent Plaintiff contends Mudpie was incorrectly decided, this Court—like 6 the Bankruptcy Court—has no authority to overrule the Ninth Circuit. See Zuniga, 812 7 F.2d at 450. Regardless, the Court reads Hughes in the same way as the Ninth Circuit, 8 and Plaintiff has not even attempted to explain how the Ninth Circuit’s reasoning was 9 incorrect. Accordingly, Plaintiff’s objections on these grounds are OVERRULED. 10 III. Precedent 11 As her third primary objection, Plaintiff contends that the Bankruptcy Court 12 “ignored precedent and case law” favoring Plaintiff and “relied on misstatements of 13 California law.” Objs. at 23. Specifically, Plaintiff contends that: (1) the Bankruptcy 14 Court ignored “numerous similar cases” where motions to dismiss were denied; (2) the 15 “law underpinning” the Proposed Order is distinguishable from the instant case; and (3) 16 under well-established Erie principles, the Bankruptcy Court should have waited for 17 guidance from the California Supreme Court. Id. at 23–33. The Court considers each of 18 Plaintiff’s arguments below. 19 A. Alternative Legal Authority 20 First, Plaintiff argues the Bankruptcy Court failed to consider cases in which courts 21 have denied an insurer’s motion to dismiss under similar circumstances. Id. at 23–26. As 22 the Bankruptcy Court—and this Court—noted, however, an overwhelming majority of 23 cases in the State of California, this District, the Ninth Circuit, and other Circuit Courts of 24 Appeals around the nation have reached the same conclusion as the Bankruptcy Court on 25 nearly identical facts. Plaintiff’s argument the Bankruptcy Court “made no mention” of 26 cases with different outcomes is irrelevant. It is true courts have not always arrived at the 27 same result when deciding these issues. Given the volume of such litigation, it is not at 28 all surprising some courts have decided in favor of the insured. Nevertheless, Plaintiff 1 has provided no legal authority—and this Court has found none—that entitles Plaintiff to 2 a lengthy opinion distinguishing each and every case cited in her briefing.7 Indeed, the 3 opposite is true. See Biltcliffe v. CitiMortgage, Inc.,

(1st Cir. 2014) 4 (“[C]ourts are not required to address every case cited by a litigant, and declining to 5 distinguish a particular non-controlling decision can hardly constitute an abuse of 6 discretion.”); Apotex Inc. v. Gilead Scis., Inc., No. 18-cv-06475-JCS, 2019 U.S. Dist.

, at *4 (N.D. Cal. June 7, 2019) (“The Court is not required to discuss every 8 case that a party cites in support of its position.”). Plaintiff’s objections on these grounds 9 are OVERRULED. 10 B. Underpinning Law 11 Plaintiff next contends the Bankruptcy Court erred in following the Ninth Circuit’s 12 decision in Mudpie and the California Court of Appeal’s decision in Inns-by-the-Sea. 13 Objs. at 26–29. In essence, Plaintiff argues Inns-by-the-Sea and Mudpie were wrongly 14 decided due to their reliance—either directly or indirectly—on COUCH ON INSURANCE (3d 15 ed. 2016) for the “generally recognized principle in the context of first party property 16 insurance that mere loss of use of physical property to generate business income, without 17 any other physical impact on the property, does not give rise to coverage for direct 18 physical loss.” Inns-by-the-Sea, 71 Cal. App. 5th at 705–06. In support, Plaintiff points 19 to a law review article examining the history of this principle. Objs. at 27–28, 43–61. 20 Again, to the extent Plaintiff contends that Mudpie and/or Inns-by-the Sea were 21 wrongly decided, this Court is not the proper forum for this challenge. This Court has no 22 authority to overrule the Ninth Circuit. See Zuniga,

. As for Inns-by-the- 23 Sea, a “federal court must follow the state intermediate appellate court decision unless the 24 federal court finds convincing evidence that the state’s supreme court likely would not 25 follow it.” Ryman v. Sears, Roebuck & Co.,

(9th Cir. 2007) (emphasis

26 7 The Court notes that most—if not of all—of the decisions to which Plaintiff points are not binding 27 authority and, indeed, are of limited persuasive value. In contrast, the Bankruptcy Court did not err in 28 adhering to the Ninth Circuit’s decision in Mudpie, the California Court of Appeal’s decision in Inns-by- 1 added). Here, there is no such evidence. Rather, the opposite is true. In a recent opinion, 2 the California Court of Appeal, Second Appellate District, specifically declined a 3 plaintiff’s “invitation to depart from the Couch treatise and the case law that relies upon 4 it.” United Talent, 77 Cal. App. at 833; see also Rialto Pockets, Inc. v. Limited, No. 21- 5 55196,

, at *3 (9th Cir. Apr. 20, 2022) (finding insured’s 6 claim for coverage to be foreclosed by Inns-by-the-Sea); Baker,

6769, at *3 (same). Plaintiff’s objections on these grounds are OVERRULED. 8 Plaintiff further contends that the Ninth Circuit’s decisions in Mudpie and 9 Chattanooga and the California Court of Appeal’s decision in Inns-by-the Sea are 10 factually distinguishable because here Plaintiff alleged a “non-virus efficient proximate 11 cause of loss” in the form of government negligence. Objs. at 29–32. As the Bankruptcy 12 Court correctly found, however, even assuming government negligence, this negligence 13 would not be the “efficient proximate cause” of Garden Fresh’s losses, “because this 14 negligence would not have impacted Garden Fresh’s operations without the virus.” 15 Proposed Order at 14 (emphasis in original). 16 Despite Plaintiff’s arguments to the contrary, however, this is the exact argument 17 the Ninth Circuit considered and rejected in Chattanooga.

29632, at *5–6 (“So too for governmental inaction or actions taken in response to the 19 virus. [Plaintiffs] have not plausibly alleged that the need for the government to act in 20 the first place—i.e., the context in which any alleged governmental inaction or action 21 arose—was something other than the COVID-19 virus.”). This argument was also 22 rejected by the Ninth Circuit in another recent unpublished decision: Palmdale Estates, 23 Inc. v. Blackboard Ins. Co., No. 21-15258,

(9th Cir. May 24 2, 2022). In Palmdale, the plaintiff alleged a “flawed public health response and 25 government negligence allowed COVID-19 to spread” and that COVID-19 was, 26 therefore, not the “proximate cause” of its losses.

at *1–2. As the Ninth Circuit 27 noted, “it would be difficult to blame the government’s response to the COVID-19 28 pandemic without implicating the virus itself[.]”

. For these reasons, the Ninth 1 Circuit found that plaintiff could not “show that the government’s response to the virus 2 was the product of anything other than the virus.”

3 Although neither Chattanooga nor Palmdale are binding, the Court finds them 4 persuasive, and thus Plaintiff’s objections on these grounds are OVERRULED.8 5 C. Guidance from California Supreme Court 6 Finally, Plaintiff argues that under well-established Erie doctrine principles, the 7 Bankruptcy Court should have awaited guidance from the California Supreme Court 8 before issuing its decision. Objs. at 32–33. Plaintiff has not, however, provided any 9 legal authority supporting a proposition that this Court—and the litigants in this case— 10 must wait until the California Supreme Court issues a ruling on these exact issues. 11 Regardless, this objection has been largely mooted since the filing of Plaintiff’s brief. In 12 contending the Bankruptcy Court should have waited for guidance, Plaintiff pointed 13 specifically to the fact that the policyholder in Inns-by-the-Sea had appealed the 14 California Court of Appeal’s decision to the California Supreme Court. Objs. at 32–33. 15 On March 9, 2022, however, the California Supreme Court rejected that petition for 16 review. The Inns by the Sea v. Cal. Mut. Ins. Co., No. S272450,

, 17 at *1 (Mar. 9, 2022). Plaintiff’s objections on these grounds are therefore 18 OVERRULED AS MOOT. 19 CONCLUSION 20 The challenges faced by Garden Fresh and other business that have suffered 21 financial hardships in the wake of the COVID-19 pandemic are not lost on this Court.

22 8 Plaintiff also argues Garden Fresh had to “physically alter” its premises. The Court agrees with the 23 Bankruptcy Court that this claim is vague and contradicted by Plaintiff’s allegations Garden Fresh 24 closed its restaurants shortly after the government orders were issued. Proposed Order at 13.

25 Regardless, the Court has doubts that an “alteration” equates to “direct physical loss or damage.” See TP Racing LLLP v. Am. Home Assurance Co., No. CV-21-00118-PHX-SRB,

202269, at *12 (D. Ariz. Oct. 13, 2021) (installation of plexiglass barriers does not equate to physical loss or damage); Crescent Plaza Hotel Owner L.P. v. Zurich Am. Ins. Co.,

, 1069 27 (N.D. Ill. 2021) (installing special air filters, plexiglass partitions, and protection shields at the front and 28 bell desks, as well as installing hand sanitizers dispensers in certain areas of the hotel, does not 1 || Nevertheless, the issue before the Bankruptcy Court was whether Plaintiff had set forth a 2 plausible claim for relief. Here, the Proposed Order recommending that this Court grant 3 || Defendants’ Motion to Dismiss is thorough and well-reasoned. As countless other courts 4 done, this Court must honor the coverage the Parties did—and did not—provide for 5 their insurance contracts. 6 For the reasons stated above and in the Proposed Order, the Court OVERRULES 7 || Plaintiff's Objections and ADOPTS IN PART the Proposed Order. The Court departs 8 the Bankruptcy Court’s Proposed Order in only one way. While the Court doubts 9 || Plaintiff can cure the fundamental deficiencies identified above, the Court is cognizant 10 ||that the “law concerning business interruption coverage linked to the COVID-19 11 ||pandemic is very much in development.” Mudpie, Inc. v. Travelers Cas. Ins. Co.,

|| Supp. 3d 834, 845 (N.D. Cal. 2020). Thus, in the interests of justice, the Court GRANTS 13 ||Defendants’ Motion to Dismiss WITHOUT PREJUDICE and WITH LEAVE TO 14 || AMEND. Plaintiff will have fourteen (14) days from the date of this Order in which to 15 || file an Amended Complaint. Plaintiff is CAUTIONED any Amended Complaint must 16 based on good faith allegations that sufficiently state claims on grounds that have not 17 || already been addressed and rejected in this Order. 18 IT IS SO ORDERED. 19 Il Dated: September 20, 2022 he ot Jt, ites 20 on. Janis L. Sammartino 1 United States District Judge 22 23 24 25 26 27 28