Opinion
No. C 04-01909 JW.
September 16, 2004
ORDER GRANTING CLARENDON'S MOTION TO DISMISS WITH LEAVE TO AMEND
I. INTRODUCTION
The matter presently before the Court is a Motion to Dismiss for Failure to State a Claim brought by Defendant, Clarendon National Insurance Company, ("Clarendon"). Child Development, Inc., Continuing Development, Inc., and Child Development Centers (collectively "Plaintiffs") filed a Complaint with five Causes of Action against Clarendon: Breach of Contract, Breach of Implied Covenant of Good Faith and Fair Dealing, Fraud and Civil Conspiracy, Unfair Competition, and Rescission. The Court must decide whether Plaintiffs' Compliant makes out a claim for which relief may be granted.
Three other Defendants are also involved in this suit: Foundation Insurance Co., InServe Corporation (InServe), and Tarheel Insurance Management. These other Defendants are not participating in this motion.
II. BACKGROUND
Issues of agency and contract underlie this case. Plaintiffs operate 151 child care centers in California, which serve over 10,000 children. Clarendon offers specialized forms of insurance, including workers compensation insurance.In May of 2002, Plaintiffs entered into a workers compensation insurance contract ("the Agreement") with Clarendon. Plaintiffs contend they entered into the deal because Clarendon or its agent, InServe, promised Plaintiffs that the Agreement would include a Risk Sharing Plan. The Risk Sharing Plan was to provide for the possible refund of a substantial portion of the premiums. Clarendon argues that only InServe discussed a Risk Sharing Plan with Plaintiffs. Further, according to Clarendon, the discussions took place separately and after the parties formed the Agreement, however, mutually acceptable terms were never reached. Thus, Clarendon contends that forming the Agreement was never contingent on the inclusion of a Risk Sharing Plan.
Clarendon also argues that InServe did not have authority to enter into any Risk Sharing Plan on behalf of Clarendon with Plaintiffs, before or after the parties agreed to the Agreement. Consequently, Clarendon argues that Plaintiffs are not owed any refund from the premium payments they made. Plaintiffs, naturally, disagree.
Plaintiffs argue that InServe had the power to act for Clarendon, and did so. The Complaint alleges that Clarendon's website states that Clarendon conducts its business through "Managing General Agents." Complaint, ¶ 14. The Complaint states that Clarendon's Managing General Agents are third-parties who preform "normal insurance company functions (including acquisition, underwriting, policy issuing, premium collections, administration and claims handling). . . ." Id. The Complaint identifies InServe as one of Clarendon's Managing General Agents. Id. at ¶ 19. Plaintiffs further identify Janice Pinard, of InServe, as representing herself to Plaintiffs as acting for both InServe and Clarendon. See id. at ¶ 26. Specifically, Plaintiffs allege that Ms. Pinard, when faced with a lower insurance quote from a competitor, assured Plaintiffs that "InServe and Clarendon could, and would, do better. . . ." Id. The Complaint states that Ms. Pinard's promise to "do better" included substantial premium refunds in the event Plaintiffs maintained a favorable loss record. Id. Plaintiffs claim that on the basis of these favorable terms they decided to use InServe and Clarendon for their workers' compensation insurance. Id.
The Complaint uniformly fails to identify the nature, i.e., whether oral or written, of the agreements, assurances, communications, representations, promises or presentations InServe and Clarendon made to Plaintiffs.
Plaintiffs allege that they believed the Agreement included a Risk Sharing Plan that provided for a substantial refund. Plaintiffs state, however, that eight months into the Agreement between Clarendon and Plaintiffs, Ms. Pinard presented Plaintiffs with new language for the Risk Sharing Plan making the promise of a refund illusory. Id. at ¶ 32.
In its Motion to Dismiss, however, Clarendon argues Plaintiffs did not set forth the specific circumstances of the parties' discussions with sufficient particularity to support a pleading of fraud. In particular, Clarendon argues that it made no false representations to Plaintiffs and that Plaintiffs do not identify in their Complaint how any of the representations that Clarendon made were fraudulent at the time they were made.
III. STANDARDS
In ruling on a motion to dismiss, "[a]ll material allegations in a complaint must be taken as true and viewed in the light most favorable to the plaintiff." Geraci v. Homestreet Bank, 347 F.3d 749, 751 (9th Cir. 2003). Any existing ambiguities must be resolved in favor of the pleading. Walling v. Beverly Enterprises, 476 F.2d 393, 396 (9th Cir. 1973).
A complaint may be dismissed as a matter of law for two reasons: (1) lack of a cognizable legal theory or (2) insufficient facts stated under a cognizable theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984). "[A] complaint should not be dismissed unless `it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" McLain v. Real Estate Bd. of New Orleans, Inc., 444 U.S. 232, 246 (1980).
A claim may also fail if it is based in fraud and not pled with particularly. See Fed. Rule Civil P. 9(b). Rule 9(b) of the Federal Rules of Civil Procedure "mandates that `[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.'" Desaigoudar v. Meyercord, 223 F.3d 1020, 1023 (9th Cir. 2000) (citing In re Silicon Graphics Inc. Secs. Litig., 183 F.3d 970, 996 (9th Cir. 1999)).
In diversity cases, state law will provide the substantive elements of the claim. See Bank of the W. v. Valley Nat'l Bank of Ariz., 41 F.3d 471, 477 (9th Cir. 1994). In California, "[t]he essential elements of a fraud claim include a false representation, knowledge of its falsity, intent to defraud, justifiable reliance and damages." Bank of the West, 41 F.3d at 477 (quoting Hackethal v. Nat'l Cas. Co., 189 Cal.App.3d 1102, 1111 (1987)). As mentioned, Rule 9(b) requires particularity for a fraud claim, however, Rule 9(b) also allows "[m]alice, intent, [and] knowledge . . . to be averred generally." Fed. Rule Civ. P. 9(b).
IV. DISCUSSION
Clarendon claims that the Complaint does not meet the standards of Rule 9(b) and thus, Plaintiffs' Third Cause of Action for fraud and conspiracy claims must fail.
The purpose of [Rule 9(b)] is to ensure that defendants accused of the conduct specified have adequate notice of what they are alleged to have done, so that they may defend against the accusations. Without such specificity, defendants in these cases would be put to an unfair disadvantage, since at the early stages of the proceedings they could do no more than generally deny any wrongdoing.Concha v. London, 62 F.3d 1493, 1502 (9th Cir. 1995) (citing Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985)).
The Court finds that Plaintiffs' Complaint does not conform with the particularity requirements set forth in Federal Rule of Civil 9(b) for stating a cause of action in fraud. The Complaint does not adequately describe the specific actions taken by InServe on behalf of Clarendon such that it is clear when the plan to defraud Plaintiffs was conceived. See Sweeney Co. of Maryland v. Engineers-Constructors, Inc., 109 F.R.D. 358 (E.D. Va. 1986).
In their Amended Complaint, Plaintiffs are to clearly identify the elements of fraud at each alleged instance of fraud. Plaintiffs must establish the relationship between InServe and Clarendon to show that Clarendon should be liable for fraud on the basis of InServe's actions. In so doing, Plaintiffs are to identify the nature of the communications between parties and show how the representations were false made. Plaintiffs must clarify whether communications between Clarendon and InServe, on the one hand, and Plaintiffs, on the other, were written or oral. Plaintiffs are to demonstrate at each alleged instance of fraudulent activity that Clarendon's present intent to defraud Plaintiffs brought about Plaintiffs' detrimental reliance. Because the Court anticipates an amended Complaint from Plaintiffs, it is not necessary to address the contract-based Causes of Action of the original Complaint.
Plaintiffs should likewise clearly identify each factual scenario which they claim gives rise to their Cause of Action for Unfair Competition.
V. CONCLUSION
For the above stated reasons the Court grants Clarendon's Motion to Dismiss with leave for Plaintiffs to amend their Complaint. Plaintiffs shall file and serve an amended complaint no later than October 7, 2004.