Opinion
B317615
11-28-2023
YEGHISH KAZANJIAN, Plaintiff and Appellant, v. FARMERS INSURANCE COMPANY et. al., Defendants and Respondents.
McCathern; Evan Selik and Christine Zaouk, for Plaintiff and Appellant. Hogan & Lovells US; Michael M. Maddigan and Jordan D. Teti, for Defendants and Respondents.
NOT TO BE PUBLISHED
APPEAL from orders of the Superior Court of Los Angeles County, No. 19STCV26295 Kenneth R. Freeman, Judge. Affirmed.
McCathern; Evan Selik and Christine Zaouk, for Plaintiff and Appellant.
Hogan & Lovells US; Michael M. Maddigan and Jordan D. Teti, for Defendants and Respondents.
MORI, J.
Appellant Yeghish Kazanjian appeals from an order denying class certification. Appellant alleged respondent Fire Insurance Exchange violated the Unfair Competition Law (UCL) (Bus. &Prof. Code, § 17000 et seq.) when it depreciated sales tax on materials used to repair property. Kazanjian sought restitution, disgorgement, injunctive and declaratory relief on behalf of the class. The trial court found the claims were inconsistent with class treatment because they would require individualized, case-by-case assessment of whether a given putative class member was harmed. The court also found the injunctive and declaratory relief available under the UCL would not address the harm allegedly suffered.
Except where otherwise specified, all statutory references are to the Business and Professions Code. We refer to sections 17200 through 17209 as the Unfair Competition Law (UCL). (ABC Internat. Traders, Inc. v. Matsushita Electric Corp. (1997) 14 Cal.4th 1247, 1252.)
On appeal, Kazanjian challenges only the trial court's order denying class-wide certification for purposes of injunctive and declaratory relief. However, as observed by the trial court, Kazanjian's class definition was confined to persons who had suffered harm in the past, while injunctive and declaratory relief are granted on a prospective basis. To the extent Kazanjian argues the trial court should have modified the class definition to accommodate the relief sought, we discern no reversible error and accordingly affirm the trial court's order.
BACKGROUND
A. Factual Background
1. Homeowners' Insurance Policies Issued by Respondent
Respondent is a reciprocal insurance exchange organized under California Insurance Code section 1300 et. seq; and as such, is owned by policyholders. Respondent markets its policies under the "Farmers" brand and is affiliated with Farmers Group, Inc. Respondent issues a variety of homeowners' policies. Within these different policy types, individual policies also vary by, among other things, policy year and policy limits specific to each customer.
Kazanjian filed his lawsuit against Farmers Insurance Group and Farmers Insurance Company, as well as Fire Insurance Exchange. However, the only defendant identified in the class certification is Fire Insurance Exchange. Similarly, Kazanjian's opening brief identifies the only defendant/appellee as Fire Insurance Exchange (FIE) and respondent's brief is filed on behalf of respondent FIE.
Claims submitted by policyholders under their policies often involve multiple rounds of claim estimates and settlements, as adjustors and claims representatives re-evaluate estimates and obtain further information from customers. Claims can involve a wide variety of property, such as dwellings, separate structures, and their contents.
2. Relevant Claims Process
Kazanjian had a homeowner's insurance policy issued by respondent in effect from September 4, 2018, to September 4, 2019. In November 2018, Kazanjian's property was partially damaged by a wildfire. Kazanjian's policy covered the "replacement cost" for losses to his building and separate structures.
There is a two-step process to recover replacement costs for losses. In the first step, a customer can seek "actual cash value" (ACV). The ACV is the "reasonable replacement cost at the time of loss less deduction for depreciation."
The second step in the process of recovering replacement costs involves seeking "replacement cost value" (RCV) (including any depreciation) by submitting copies of receipts for replacement related purchases within three years of the date of the first payment to the customer. By doing this, policyholders may obtain RCV, including tax without depreciation incurred when repairing or replacing the damaged items.
Some customers who receive ACV may prefer to keep the cash rather than replace the item. Other customers may decide to repair, replace, or improve the damaged property and then submit receipts to obtain full RCV amounts.
In Kazanjian's case, respondent agreed to cover property damaged by the wildfire, including 80-linear feet of ornamental-iron fencing at a price of $46.75 per unit. This totaled $3740 (80 ft. x $46.75). The sales tax was $157.32. Taking into account the state of the fencing before the fire, respondent depreciated the total amount of $3,897.32 ($3,740 plus $157.32) by 2.67% or $48.36 and paid $3,848.96 to Kazanjian. Respondent also agreed to pay for Kazanjian's damaged sprinkler system. Respondent calculated 2,500 square feet at a cost of $2.09 per unit, which totaled $5,225 (2,500 x $2.09). The sales tax was $190. Taking into account the state of the sprinkler system before the fire, respondent depreciated the total amount of $5,415 ($5,225 plus $190) by 10% or $219 and paid $5,196 to Kazanjian.
Kazanjian did not seek RCV recovery under the second step of recovery, although he had the right to do so until November 29, 2021. Kazanjian asserted that he was owed $4.22 for depreciated sales tax related to the ornamental fencing and $19.00 for depreciated sales tax related to the sprinkler system, for a total of $23.22.
In his declaration supporting class certification, Kazanjian alleged he was entitled to $48.36 depreciated for the ornamental fencing and $219 depreciation amount deducted for the sprinkler system. However, these depreciation amounts include not only the depreciated sales tax, but depreciation on the underlying materials based on their age and condition.
B. Kazanjian's Complaint
On July 29, 2019, Kazanjian filed a complaint (Complaint), asserting claims for (1) violation of the California Unfair Competition Law (UCL); and (2) declaratory relief arising under the same alleged violations. The Complaint alleged that on November 18, 2018, Kazanjian "suffered what was determined by [respondent] to be a covered homeowner's loss," and that respondent paid Kazanjian "based on the agreed [ ] scope." "However, [respondent] depreciated sales tax on materials used in repair of [Kazanjian's] property on the homeowner's claim." Kazanjian asserted that "[Respondent's] position with respect to failing to depreciat[e] sales tax on material used to repair the property violates the California Insurance Regulations governing the handling of insurance claims."
In his motion for class certification, Kazanjian cited both California Insurance Code section 2051(b) and California Code of Regulations Title 10, section 2695.9 as authority supporting his claims. Subdivision (b) of section 2051 provides: "Under an open policy that requires payment of actual cash value, the measure of the actual cash value recovery, in whole or partial settlement of the claim, for either a total or partial loss to the structure or its contents, shall be the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for physical depreciation based upon its condition at the time of the injury or the policy limit, whichever is less. A deduction for physical depreciation shall apply only to components of a structure that are normally subject to repair and replacement during the useful life of that structure." (Ins. Code, § 2051(b).) Subdivision(f)(1) of section 2695.9 states: "Under a policy, subject to California Insurance Code Section 2071, where the insurer is required to pay the expense of repairing, rebuilding or replacing the property destroyed or damaged with other of like kind and quality, the measure of recovery is determined by the actual cash value of the damaged or destroyed property, as set forth in California Insurance Code Section 2051. Except for the intrinsic labor costs that are included in the cost of manufactured materials or goods, the expense of labor necessary to repair, rebuild or replace covered property is not a component of physical depreciation and shall not be subject to depreciation or betterment." (Cal. Code Regs., tit. 10, § 2695.9, subd. (f)(1).)
Kazanjian asserted he was bringing the action "on behalf of himself and on behalf of all other similarly situated persons as a class action" which he defined as "[a]ll Farmers Insurance policyholders who made a claim for damages to their real property within the last four (4) years where [respondent] depreciated sales tax on materials."
The Complaint sought "disgorgement of all sums unjustly obtained" from Kazanjian and members of the class, restitution, declaratory relief, and an injunction prohibiting [respondent] from "directly or indirectly committing any violations of [the UCL], including, but not limited to, the violations alleged in this complaint[.]"
C. Kazanjian's Class Certification Motion
On June 11, 2021, Kazanjian moved for class certification. The class definition in the certification motion differed from the class in the Complaint. By the time Kazanjian filed his reply brief, the class definition was narrowed to include "[e]very California property owner who was insured by [respondent] homeowner's insurance (a) who suffered a covered [structural] residential loss from July 29, 2015[,] to the date this class is certified; (b) where [respondent] paid the insured the actual cash value ("ACV"); (c) wherein [respondent] depreciated the sales tax as part of that payment; and (d) where [respondent] did not make any replacement cost value ("RCV") payment to the insured."
For purposes of ruling on the motion, the court used the iteration of the class definition presented in Kazanjian's reply brief. This version was narrowed from the certification motion to include only policyholders who suffered a covered "structural" loss.
In the motion, Kazanjian alleged that through respondent's person most knowledgeable on the issue, it acknowledged that sales tax is one of the components that respondent depreciates when estimating reasonable replacement cost at the time of loss. Kazanjian asserted that "[t]his is the one fact that is common to each and every covered structural residential loss." He further argued respondent's practice was clearly shown by Kazanjian's insurance claim and the amounts paid by respondent.
To satisfy numerosity, Kazanjian submitted exhibit C, an Excel spreadsheet provided by respondent through discovery, reflecting a selection of homeowner's insurance claims from July 29, 2015, through July 29, 2019, for a total of 245 properties located in California.
The 245 claims were selected by identifying the first five claims on the 29th of each month (and 28th for February 2017, 2018, and 2019) by "Date Reported" in respondent's electronic database. This procedure for a limited subset of claims information was agreed upon by the parties.
As of March 30, 2021, respondent found coverage and made payments in 167 of those claims. Kazanjian's counsel then selected 60 claims from the list of 245 for respondent's research into whether depreciated costs included sales tax. According to Kazanjian's counsel, Respondent made an ACV payment and depreciated sales tax as part of that payment in 42 of the 60 claims.
Kazanjian further argued that class treatment was superior to individual adjudication because it would prevent respondent's unjust enrichment, avoid multiple actions, and allow class members to retain their "rightful pay." Kazanjian proposed the trial proceed in two separate phases, one for liability and one on damages.
Kazanjian attached a proposed trial plan that called for a seven-day jury trial and a determination of "damage on each insurance claim" without further details.
D. Respondent's Opposition To Class Certification
In opposition, respondent argued, among other things, that common questions would not predominate over individual issues for the claims sought for certification.
In support of its opposition, respondent included a sworn declaration by Jeffrey Gallo, the senior consultant who reviewed the 60 claims selected by Kazanjian's counsel in exhibit C. Gallo declared that in order to determine whether sales tax was paid on a depreciated basis, and to estimate the relevant amount, an individualized review of each claim file is required. On a "case-by-case basis," customers may choose to recover depreciation (including any amounts of tax in depreciated costs) by repairing or replacing the items and obtaining RCV, some may choose to not obtain RCV, or some customers may repair or replace items at a price less than full RCV. For some claims, components of depreciation may not be recoverable at all under the terms of the policy. Finally, tax depreciation amounts will vary across the life of a claim, as there are fluctuations in depreciation and claims estimates across multiple rounds of settlements. Gallo noted that exhibit C did not expressly state whether the homeowner paid ACV for any claims, or whether respondent paid the claimant RCV for any claim.
In reply, Kazanjian asserted that in 42 of the 60 claims the "final payment" column was the same as the amount in the "structure paid" column, which indicates that no RCV payment was made to these insured.
E. The Trial Court's Ruling
On November 2, 2021, the trial court denied Kazanjian's motion for class certification in full, finding Kazanjian had failed to demonstrate through the presentation of substantial evidence that the elements of class certification were present.
In its 29-page written order, the trial court denied class certification for several reasons.
First, the court found that common questions of law or fact do not predominate. The court noted the varying factors involved in settling a claim, including the continuing nature of claims settlement from interim to final settlement, policy coverage variations, and the option of subsequent recovery through RCV. The trial court concluded that even if restitution, or some type of damages, were permitted under the theory of liability asserted by Kazanjian, the alleged practice of depreciating sales tax would have to be conducted "on a case-by-case, policy-by-policy" basis to establish liability. "[E]ven in terms of injunctive or declaratory relief," the court found, "There is no way to determine whether a given putative class member was an alleged victim of Farmers' policy . . . without having to individually assess every affected claim retroactively. The Court would be unable to formulate an injunction or a declaratory judgment common to an entire class, on a prospective basis, under the facts of this case."
The UCL does not permit recovery of compensatory damages (Zhang v. Superior Court (2013) 57 Cal.4th 364, 371), and "disgorgement of money obtained through an unfair business practice is an available remedy in a representative action only to the extent that it constitutes restitution." (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144 (Korea Supply).) Under the UCL, an order for restitution is available to recover money or property in which a plaintiff had an ownership or vested interest. (Id. at p. 1149.)
Second, the court concluded that Kazanjian did not provide sufficient evidence of numerosity, as Kazanjian solely relied on exhibit C, which did not specifically show that ACV value was paid on any of the claims.
Third, the court found that a class action would not be superior to other methods of adjudication because of the "inherently individualized determinations of liability the Court would have to make under each policy." The court also found that there would be "inherent difficulties in managing any injunctive relief and/or declaratory relief class" because "any relief would be prospective only" but that "the class itself seeks relief for [respondent's] past conduct of depreciating sales tax when adjusting claims paying out the ACV."
The court accordingly denied the class certification motion in full and set a status conference for litigation of Kazanjian's individual claims. Kazanjian timely appealed the trial court's denial of his class certification motion, and the court stayed the action pending this appeal.
DISCUSSION
A. Class Action Requirements and Standard of Review
A lawsuit may proceed as a class action "when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court." (Code Civ. Proc., § 382.) To certify a class, "[t]he party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives." (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021 (Brinker).) In making this assessment, a court must "examine the allegations of the complaint and supporting declarations [citation] and consider whether the legal and factual issues they present are such that their resolution in a single class proceeding would be both desirable and feasible." (Id. at pp. 1021-1022.)
"In considering whether a class action is a superior device for resolving a controversy, the manageability of individual issues is just as important as the existence of common questions uniting the proposed class." (Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1, 4.) "As one commentator has put it, 'what really matters to class certification' is 'not similarity at some unspecified level of generality but, rather, dissimilarity that has the capacity to undercut the prospects for joint resolution of class members' claims through a unified proceeding.'" (Brinker, supra, 53 Cal.4th at p. 1022, fn. 5.)
"'Because trial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action, they are afforded great discretion in granting or denying certification .... [Accordingly,] a trial court ruling supported by substantial evidence generally will not be disturbed "unless (1) improper criteria were used [citation]; or (2) erroneous legal assumptions were made [citation]" [citation] .... "Any valid pertinent reason stated will be sufficient to uphold the order."'" (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326 (Sav-on Drug Stores); accord, Brinker, supra, 53 Cal.4th at p. 1022.)
B. The Unfair Competition Law
The UCL prohibits unfair competition, including unlawful, unfair, and fraudulent business acts. (Bus. &Prof. Code, § 17200.) It embraces anything that can properly be called a business practice and that is forbidden by law. (Korea Supply, supra, 29 Cal.4th at p. 1143.) Under the UCL, plaintiffs may seek (1) injunctive relief and/or (2) restitution. (Bus. &Prof. Code, § 17203; see Korea Supply, supra, 29 Cal.4th at p. 1144.) These forms of relief are "wholly independent remedies" and each requires a different showing. (Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758, 790; Korea Supply, supra, 29 Cal.4th at pp 1145, 1151; ABC Internat. Traders, Inc. v. Matsushita Electric Corp. (1997) 14 Cal.4th 1247, 1269-1271.)
C. The Trial Court Acted Within Its Discretion in Denying Certification of the Proposed Class
Generally, "'[t]here can be no cognizable class unless it is first determined that members who make up the class have sustained the same or similar damage.'" (Caro v. Procter & Gamble Co. (1993) 18 Cal.App.4th 644, 664.) When variations in proof of harm require individualized evidence, the requisite community of interest is missing and class certification is improper. (Ali v. U.S.A. Cab Ltd. (2009) 176 Cal.App.4th 1333, 1350; Frieman v. San Rafael Rock Quarry, Inc. (2004) 116 Cal.App.4th 29, 40.)
On appeal, Kazanjian does not dispute or address the trial court's discussion of disgorgement and/or restitution but contends the trial court erred in denying class certification of the UCL claim for declaratory and injunctive relief. Specifically, Kazanjian argues the individual assessment of class members is not necessary. The court could feasibly issue a declaration that respondent's practice is unlawful and issue a class-wide injunction precluding respondent from "continuing to depreciate sales tax on an ACV payments [sic]."
As observed by the trial court, however, Kazanjian's class certification solely sought to encompass those who suffered harm or had ACV payments up until the time of class certification.The trial court could not readily provide prospective injunctive and declaratory relief for the class as a whole, since Kazanjian described the class as seeking relief only for past harm. Indeed, Kazanjian proposed no workable means of fashioning prospective injunctive and declaratory relief to address past underpayment of claims. The court found it would have to make highly individualized determinations in order to assess whether any members within the class would be entitled to any such prospective relief. The court did not abuse its discretion concluding the declaratory and injunctive relief classes could not be certified for these reasons. (See, generally, Gafcon, Inc. v. Ponsor &Associates (2002) 98 Cal.App.4th 1388, 1403 [discussing prospective nature of declaratory relief]; Californians for Disability Rights v. Mervyn's, LLC (2006) 39 Cal.4th 223, 233 fn. 5 [noting, in context of UCL claim, prospective nature of injunctive relief]; see also Blumhorst v. Jewish Family Services of Los Angeles (2005) 126 Cal.App.4th 993, 1004 [plaintiff must show likelihood of future harm for remedial injunctive relief].)
Kazanjian does not argue there is a likelihood that he will suffer the same harm in the future.
Kazanjian contends the trial court could have modified the class by "changing the time frame to July 29, 2015 through July 29, 2028 to allow for such injunctive relief." However, the cases cited by Kazanjian for this proposition do not compel a conclusion that a trial court's failure to do so constitutes reversible error. (See Franchise Tax Bd. Limited Liability Corp. Tax Refund Cases (2018) 25 Cal.App.5th 369, 390-391; Hicks v. Kaufman &Broad Home Corp. (2001) 89 Cal.App.4th 908, 916.) Moreover, the trial court permitted Kazanjian to propose three iterations of the class definition, accepting the most recent version set forth in Kazanjian's reply brief in rendering its decision. Regardless, Kazanjian has not demonstrated the court's failure to modify the class definition on its own initiative constituted an abuse of discretion. (Sav-On Drug Stores, supra, 34 Cal.4th at pp. 326-327.)
In light of Kazanjian's stated basis for appeal-and his failure to define the class in a manner that would allow the remedies identified on appeal-we affirm the trial court's denial of class certification. (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 436 [noting any valid reason stated will be sufficient to uphold the trial court's order].)
DISPOSITION
The judgment is affirmed. Respondent shall recover its costs on appeal.
We concur: COLLINS, Acting P.J. ZUKIN, J.