Summary
denying leave to amend because "the Court's findings as to the Policy's interpretation are made as a matter of law [so] Plaintiffs may not re-plead [the claim] based on the same legal theory dismissed"
Summary of this case from Wiseblood v. Mut. of Omaha Ins. Co.Opinion
Case No. 13-0958 SC
04-22-2013
MOHSEN MOHAMED and OAKLAND M&M, INC., Plaintiffs, v. AMCO INSURANCE COMPANY and DOES 1-20, Defendants.
ORDER GRANTING MOTION TO
DISMISS
I. INTRODUCTION
Plaintiffs Mohsen Mohamed and Oakland M&M, Inc. ("M&M" or "Insured") (collectively "Plaintiffs") sued Defendant AMCO Insurance Company ("Defendant") for a variety of common law claims arising from Defendant's refusal to pay benefits under an insurance contract. Now before the Court is Defendant's motion to dismiss Plaintiffs' complaint. ECF No. 1 ("Notice of Removal") Ex. 1 ("Compl."); ECF No. 10 ("MTD"). The matter is fully briefed, ECF Nos. 13 ("Opp'n"), 17 ("Reply"), and appropriate for decision without oral argument, Civ. L.R. 7-1(b). As explained below, the Court GRANTS Defendant's motion.
The Court's citations to the complaint refer to the page numbers of the exhibit in which the complaint appears.
II. BACKGROUND
This is a dispute over an insurance contract. M&M, a California corporation, obtained a "Premier Businessowners Policy" from AMCO. ECF No. 10-1 (Decl. of Joseph Wucher ISO Def.'s MTD ("Wucher Decl.")) Ex. 1 (the "Policy") at 1-05. The Policy covers M&M's real property (the "property"), a convenience store and gas station in Oakland. Compl. at 4. Mr. Mohamed owns all of M&M's stock. Id. He is not named as an insured under the Policy's property coverage -- only M&M is. See id.; see also Policy at 1-05 (stating that M&M is the "Named Insured").
The Court takes judicial notice of the Policy since it is incorporated by reference into Plaintiffs' complaint. The Exhibit including the Policy is broken up into ECF Nos. 10-1, 10-2, and 10-3, but as it is consecutively paginated, the Court cites to page numbers without reference to the ECF numbers.
On October 17, 2011, a burglary occurred at the property. Compl. at 4. M&M notified Defendant of the burglary and submitted a proof of loss for damages resulting from the burglary. Compl. at 4. Defendant denied M&M's claim on the grounds that its burglary alarm system was "inadequate and deficient" at the time of the burglary, and the Policy will not cover property losses from burglaries unless the insured property is outfitted with a burglary alarm system that fits the Policy's requirements. Id. at 6. M&M disputes Defendant's denial, asserting that it had "an operable alarm system installed at the insured location and . . . an alarm monitoring agreement in force with an independent alarm monitoring company." Compl. at 4.
In response to the claim's denial, Plaintiffs sued Defendant in state court for breach of contract, breach of the implied covenant of good faith and fair dealing, intentional misrepresentation, and deceit. Defendant removed the suit to federal court. The core of Plaintiffs' complaint is that Defendant, in order to obtain Plaintiffs' business, misrepresented to Plaintiffs that the Policy would cover property losses related to burglaries and robberies, even though Defendant knew it would not. See Compl. at 6-7. Defendant now moves to dismiss, arguing that (1) Mr. Mohamed has no standing to sue for denial of insurance benefits, because he is not an "insured" under the Policy, and (2) Plaintiffs' intentional misrepresentation and deceit claims are not pled with sufficient particularity to satisfy Federal Rule of Civil Procedure 9(b), and in any event, Plaintiffs cannot state claims for those causes of action.
III. LEGAL STANDARD
A. Motions to Dismiss
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988). "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). However, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The court's review is generally "limited to the complaint, materials incorporated into the complaint by reference, and matters of which the court may take judicial notice." Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1061 (9th Cir. 2008) (citing Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)).
B. Rule 9(b)
Claims sounding in fraud are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), which requires that a plaintiff alleging fraud "must state with particularity the circumstances constituting fraud." See Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009). "To satisfy Rule 9(b), a pleading must identify the who, what, when, where, and how of the misconduct charged, as well as what is false or misleading about [the purportedly fraudulent] statement, and why it is false." United States ex rel Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011) (internal quotation marks and citations omitted).
IV. DISCUSSION
A. Plaintiff Mohamed's Standing
A party's standing to bring a legal challenge is a threshold issue that must be resolved prior to reaching the merits of the party's claim. See Scott v. Pasadena Unified Sch. Dist., 306 F.3d 646, 654 (9th Cir. 2002). In order to establish standing, a plaintiff must show that he has suffered the "invasion of a legally protected interest." Id. That interest may be protected by law or by contract. See, e.g., Hatchwell v. Blue Shield of Calif., 198 Cal. App. 3d 1027, 1034 (Cal. Ct. App. 1988).
Plaintiffs assert that Mr. Mohamed is insured under the Policy because he is the sole owner and shareholder of M&M and therefore meets the Policy's own definition of "insured." Opp'n at 2. Plaintiffs also claim that Gantman v. United Pacific Insurance Co., 232 Cal. App. 3d 1560, 1566 (Cal. Ct. App. 1991), supports their argument that owners or shareholders of a closely held corporation have standing in insurance disputes in which the policy names only the corporation. Id. Defendant replies that (1) while Mr. Mohamed may be insured under the Policy's third-party liability section, he is not an insured under the first-party property loss claim section, which covers burglaries; (2) Mr. Mohamed is not insured by definition under the property loss section of the Policy, because that section's definition of insured is limited to the Named Insured, M&M; and (3) no case law supports Plaintiffs' argument that Mr. Mohamed has standing, under any theory, to bring a claim based on denials of benefits under the Policy. Reply at 2-3.
Defendant is right. First, Plaintiffs cite sections of the Policy's third-party liability portion to support their contention that Mr. Mohamed is a "Named Insured" under the policy. See Opp'n at 1-2 (citing Policy at 1-70 (providing that for insured LLCs, managers are insured with respect to their duties as managers)). However, Defendant is correct that because Plaintiffs' insurance claim arises from a burglary at the property, the claim is governed by the first-party property loss section of the Policy, and that section limits who is insured under the Policy to the Named Insured, M&M. Policy at 1-05, 1-06, 1-18. The Policy's definition reaches no further. Id. at 1-05, 1-06.
Second, M&M as a corporation is a separate legal entity from Mr. Mohamed, and even if he is the owner and sole shareholder of M&M, he is not interchangeable with M&M as a legal claimant under the Policy. M&M is the only Named Insured under the section of the Policy that would cover a burglary claim. Policy at 1-05, 1-06, 1-18.
Third, Plaintiffs' own authority supports this limitation: "[a] nonparty who is nevertheless entitled to policy benefits, such as an 'insured' person under the terms of the policy or an express beneficiary, has standing only if [he or she] is the claimant whose benefits are wrongfully withheld." Gantman, 232 Cal. App. 3d at 1566 (quoting Hatchwell, 198 Cal. App. 3d at 1034) (internal quotations and citations omitted). As Gantman and Hatchwell explain, even though Mr. Mohamed might stand to gain when M&M gains, the benefits Plaintiffs seek belong only to M&M, the corporation. Id. at 1568; Hatchwell, 198 Cal. App. 3d at 1034.
The Court finds that Mr. Mohamed is not an insured under the Policy, and no exceptions in the Policy or relevant case law provide otherwise. He therefore has no standing to sue based on an alleged denial of the Policy's benefits. Plaintiffs' claims as to Mr. Mohamed are all DISMISSED WITH PREJUDICE.
B. Plaintiffs' Intentional Misrepresentation and Deceit Claims
Plaintiffs' claims for intentional misrepresentation and deceit sound in fraud. They must therefore be pled with particularity under Rule 9(b). This means that Plaintiffs must identify "the who, what, when, where, and how of the misconduct charged, as well as what is false or misleading about [the purportedly fraudulent] statement, and why it is false." Cafasso, 637 F.3d 1047 at 1055.
i. Intentional Misrepresentation
The elements of a claim for intentional misrepresentation are: (1) the defendant made a misrepresentation, including a false representation, concealment, or nondisclosure; (2) the defendant had knowledge that the statement was false; (3) the defendant acted with intent to defraud or induce reliance; (4) the plaintiff justifiably relied on the defendant's statement; and (5) the plaintiff was damaged by that reliance. See Firoozye v. Earthlink Network, 153 F. Supp. 2d 1115, 1128 (N.D. Cal. 2001).
Defendant argues that Plaintiffs' pleading does not meet Rule 9(b)'s pleading standard and, in any event, the facts pled show that Plaintiffs cannot state a claim. Plaintiffs state first that they met Rule 9(b)'s heightened pleading standard, noting that they pled "when" the fraud claim arose: the date when Defendant denied the request for burglary loss coverage. Opp'n at 3. Plaintiffs also state that the "Protective Safeguards" Endorsement of the Policy (the "Endorsement") -- a modification to the Policy requiring that the insured maintain certain protective safeguards at the property -- did not feature the symbol "P-7," which is an additional alteration to the Endorsement that specifically requires a "Central Station Burglar Alarm protecting the entire building." Id.
Since the Endorsement did not include a P-7 symbol, Plaintiffs assert that Defendant's denial of Plaintiffs' claim for lacking a required burglar alarm has no legal or factual basis. Id. However, the Endorsement does include specific exclusions stating that Defendant would not pay for loss or damage caused by burglary if the insured did not inform Defendant of a "suspension or impairment" in any protective safeguard or if the insured failed to maintain any protective safeguard against burglary or robbery "in complete working order." See id. Moreover, the Endorsement indicates that as a condition of the insurance, Plaintiff is required to maintain applicable protective devices "as designated at each premises by symbol in the Declarations," and the Declarations of the Policy indeed provide that P-7 is designated for Plaintiff's property even though the Endorsement page lacks a P-7 symbol.
Even so, Plaintiffs assert that without the addition of P-7 to the Endorsement pages themselves, which bear only the "P-9" symbol and no description of what it means, the Policy is ambiguous. See id. Plaintiff further states that ambiguities in an insurance policy must be construed against the insurer, and that a limitation in an insurance policy's coverage must be in understandable, plain language that does not render the policy ineffectual for its intended purpose (e.g., to cover property losses from a burglary). Id. (citing California v. Allstate Ins. Co., 45 Cal. 4th 1008, 1018 (Cal. 2009); Safeway Ins. Co. v. Robert S., 26 Cal. 4th 758, 764-765 (Cal. 2009)). Accordingly, Plaintiff urges the Court to interpret the Policy in a way that would not require the Central Station Burglar Alarm described in P-7, despite P-7's appearance in the Declarations.
Defendant responds that interpretation of an insurance policy is a question of law, citing Waller v. Truck Ins. Exch. Inc., 11 Cal. 4th 1, 18 (Cal. 1995), for the principle that the Policy should be read according to its plain terms. Reply at 5 (citing Policy at 1-95, 1-96). Defendant asserts that the Policy's plain terms eliminate coverage when the insured fails to maintain protective safeguards for its property (e.g., burglar alarms) or fails to notify Defendant of "suspension or impairment" to a safeguard. Id. According to Defendant, since the Declarations require the P-7 protective measure even though the Endorsement schedule lists only P-9, the plain language of the Endorsement indicates that it is the symbols listed in the Declaration that govern, not the schedule in the Endorsement. See Reply at 5-6.
The Court finds for Defendant on this issue. The plain language of the Endorsement's "Condition" section states: "As a condition of this insurance, you [i.e., the Named Insured M&M] are required to maintain the applicable protective devices or services . . . for burglary and robbery, denoted by . . . [symbol P-7], as designated at each premises by symbol in the Declarations." Nothing in this language purports to make the Endorsement's schedule binding. Moreover, since the P-7 symbol clearly appears in the Policy's Declaration, Policy at 1-09, there can be no confusion: Plaintiffs were required to maintain a Central Station Burglar Alarm according to P-7 under the Endorsement.
In this context, even absent a dispute over the Policy's interpretation, the Court does not find that Plaintiffs have met any of Rule 9(b)'s pleading standards as to its intentional misrepresentation claim. Plaintiffs have simply not indicated any facts suggesting that Defendant misled Plaintiffs as to the burglary alarm requirements, or that Defendant's refusal to pay Plaintiffs' claim was anything but, at best, a breach of contract. Since Plaintiffs' assertions as to this cause of action are implausible, and amendment would be futile, Plaintiffs' intentional misrepresentation claim is DISMISSED. Plaintiffs have leave to amend if they are able to plead the "who, what, when, where, and how" of Defendant's alleged misrepresentations made in convincing Plaintiffs to enter a contract. Since the Court's findings as to the Policy's interpretation are made as a matter of law, Waller, 11 Cal. 4th at 18, Plaintiffs may not re-plead a misrepresentation claim based on the same legal theory dismissed above.
ii. Deceit
Plaintiffs' claim for deceit is difficult to distinguish from their claim for intentional misrepresentation, because "deceit" and "intentional misrepresentation" are two terms for the same tort of fraud. 5 Witkin, Summary of Cal. Law Torts § 772, p. 1121 (10th ed. 2005) ("The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.").
However, based on the subtitle for Plaintiffs' claim ("entering into insurance contract with no intent to perform") as well as the claim's substantive allegations, it appears that Plaintiffs are pleading a claim for promissory fraud, and the Court will therefore construe Plaintiffs' claim liberally to avoid its being merely duplicative of Plaintiffs' deficient intentional misrepresentation claim. "Promissory fraud is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud." Lazar v. Super. Ct., 12 Cal. 4th 631, 638 (Cal. 1996) (quotations and citations omitted). "An action for promissory fraud may lie where a defendant fraudulently induces the plaintiff to enter into a contract." Id. (quotations and citations omitted).
Defendant argues that Plaintiffs fail to plead this claim with specificity, and that in any event, Plaintiffs' facts do not support their claim. In opposition to Defendant's argument on specificity, Plaintiffs copy and paste their allegations from the complaint. See Opp'n at 4 (quoting Compl. at 11). These allegations concern Plaintiffs' arguments as to the omission of P-7 from the Policy's modifications as to protective systems, as described above. See id. Plaintiffs assert that the absence of P- 7 proves that Defendant intended to defraud Plaintiffs, since, according to Plaintiffs, there can be no other credible or logical explanation for Defendant's denial of Plaintiffs' claim. Id. Apart from those facts, the remainder of Plaintiffs' deceit pleadings are purely conclusory statements, like the allegation that Defendant omitted P-7 "intentionally with malice, fraud, and oppression." Id.
Defendant objects to Plaintiffs' quoting this section of the complaint in their opposition brief in support of the deceit claim, because that page of the complaint, the "Exemplary Damages Attachment," does not state that it incorporates by reference the other pages of the complaint. Reply at 4 n.3. The Court disregards this argument. Plaintiffs' pleadings were evidently clear enough to enable Defendant to understand the nature and extent of the incorporation. In any event, if Plaintiffs re-plead their complaint, they should make their incorporations by reference clearer.
--------
None of Plaintiffs' allegations about deceit or promissory fraud are plausible or specific enough to state a claim. Again, since the Policy Declaration requires a Central System Burglar Alarm, Plaintiffs have pleaded at most a breach of contract if they indeed had such a system in place. Plaintiffs insist the facts of the complaint and the relationship between insurer and insured lead to a conclusion that Defendant must have meant to defraud Plaintiffs, but the Court finds this untenable: a claim sounding in fraud must show much more than this to be plausible. Further, regardless of whether Plaintiffs meant their deceit claim to be an alternative to their fraudulent misrepresentation claim or, more properly, a promissory fraud claim, the deficiencies of their pleadings as described above render the claim unsupportable.
Plaintiffs' deceit claim is DISMISSED. Plaintiffs have leave to amend if they are able to correct the factual deficiencies described above. If Plaintiffs do re-plead this claim, they should clarify exactly what tort they are pleading, and they must also keep in mind that (as above) the Court's interpretation of the Policy is a matter of law.
V. CONCLUSION
For the reasons explained above, the Court GRANTS Defendant AMCO Insurance Company's motion to dismiss Plaintiffs Mohsen Mohamed and Oakland M&M, Inc.'s complaint. All of Plaintiffs' claims as to Mr. Mohamed are DISMISSED WITH PREJUDICE. Plaintiffs' intentional misrepresentation and deceit claims are DISMISSED with leave to amend, per above. Plaintiffs' breach of contract and breach of the implied covenant of good faith and fair dealing remain in the case as to Plaintiff Oakland M&M, Inc.
Plaintiffs have thirty (30) days from this Order's signature date to file an amended complaint. If they do not, the deficient claims may be dismissed with prejudice.
IT IS SO ORDERED.
_____________
UNITED STATES DISTRICT JUDGE