UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT EB HOLDINGS II, INC.; QXH II, No. 23-15556 INC., D.C. No. Plaintiffs-Appellants, 2:20-cv-02248- v. JCM-NJK ILLINOIS NATIONAL INSURANCE COMPANY; CONTINENTAL OPINION CASUALTY COMPANY; FEDERAL INSURANCE COMPANY,

Defendants-Appellees.

Appeal from the United States District Court for the District of Nevada James C. Mahan, District Judge, Presiding

Argued and Submitted March 4, 2024 Las Vegas, Nevada

Filed July 29, 2024

Before: MILAN D. SMITH, JR., MARK J. BENNETT, and DANIEL P. COLLINS, Circuit Judges.

Opinion by Judge Milan D. Smith, Jr.; Concurrence by Judge Mark J. Bennett 2 EB HOLDINGS II, INC. V. ILLINOIS NAT’L INSURANCE CO.

SUMMARY *

Choice of Law

The panel reversed the district court’s summary judgment in favor of insurers in a lawsuit filed by EB Holdings II, Inc. and QXH II, Inc. (together, the Insureds) seeking coverage for the legal fees and expenses they incurred to defend against another lawsuit in which they were accused of fraudulently inducing others to purchase notes backed by an interest in repayment of their long-term debt. Applying Nevada law, the district court granted summary judgment to the insurers on their affirmative defense that the Insureds made a material misrepresentation in their renewal application for insurance by failing to disclose their significant long-term debt. As a threshold matter, the panel held that the Insureds did not waive their argument that Texas law applied to the affirmative defense of material misrepresentation. The panel held that the district court erred in concluding that Nevada law, and not Texas law, governs the affirmative defense. Federal courts must apply the choice-of-law rules of the forum state, which is Nevada. Nevada tends to follow the Restatement (Second) of Conflict of Laws in determining choice-of-law questions involving insurance contracts. Section 187 of the Restatement permits the parties within broad limits to choose the law that will affect their contract. * This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader. EB HOLDINGS II, INC. V. ILLINOIS NAT’L INSURANCE CO. 3

Although it was a close question whether the parties clearly chose Texas law to govern the affirmative defense of material misrepresentation, the panel held that it need not decide this question. The substantial relationship test set forth in § 188 of the Restatement leads to the application of Texas law, regardless of § 187: The underwriting process largely occurred through agents based in Texas, and the Insureds are both headquartered there. Applying Texas law, the panel held that reversal was required because there were material disputes of fact that precluded granting summary judgment on the affirmative defense of material misrepresentation. The panel declined to affirm the judgment on alternative grounds, and remanded to the district court so that it could evaluate in the first instance the other issues briefed by the parties in their summary judgment motions. Concurring, Judge Bennett agreed with the majority on everything except its decision not to decide whether the parties chose Texas law to govern the affirmative defense of material misrepresentation under § 187 of the Restatement. In his view, Endorsement #2 to the policy reflected the parties’ clear intent for Texas law to govern. 4 EB HOLDINGS II, INC. V. ILLINOIS NAT’L INSURANCE CO.

COUNSEL Steven M. Shepard (argued) and Ravi Bhalla, Susman Godfrey LLP, New York, New York; Jessica Moran and Thomas Birsic, K&L Gates LLP, Pittsburgh, Pennsy