Opinion
Case No. 07-2846 SC.
November 13, 2007
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS
I. INTRODUCTION
This matter comes before the Court on a Motion to Dismiss ("Motion") filed by the defendants Unum et al., ("Defendants" or "Unum"). See Docket No. 20. The plaintiff Alexander P. Sommer ("Plaintiff" or "Sommer") filed an Opposition. See Docket No. 23. For the following reasons, the Court GRANTS Defendants' Motion to Dismiss.
II. BACKGROUND
The facts of this case have been exhaustively detailed in the three prior cases that comprise the history of the present action. The parties familiarity with the facts is assumed and the Court discusses only those relevant to the present Motion. It is nonetheless worth emphasizing that this represents the sixth time that a federal court has considered Sommer's claims against Unum.
Although the claims have varied slightly, and Sommer raises new claims in the present case, all claims are derived from the same nucleus of operative facts; namely Unum's denial of Sommer's disability benefits.
In 1996 Sommer sued Defendants for their denial of disability benefits and the Honorable Judge Jenkins granted summary judgment against Sommer. See Sommer v. Unum Life Ins. Co., Docket No. 93 CV 96-2407 (N.D. Cal. June 17, 1997) (Sommer I). Sommer appealed the decision and the Ninth Circuit, in an unpublished opinion, affirmed the district court's decision. See Sommer v. Unum Life Ins. Co., 173 F.3d 861, 1999 WL 173570, at *1 (9th Cir. 1999).
In November 1997, Sommer filed another action in district court against Defendants and the Honorable Judge Armstrong granted summary judgment against Sommer. See Sommer v. Unum Life Ins. Co., Docket No. 43 CV 97-4159 (N.D. Cal. March 27, 1998) (Sommer II). Sommer appealed this decision and the Ninth Circuit, in an unpublished companion opinion to Sommer I, affirmed the district court's decision. See Sommer v. Unum Life Ins. Co., 173 F.3d 861, 1999 WL 173592 at *1 (9th Cir. 1999) (stating "Sommer's claims are barred by the doctrine of res judicata").
Ninth Circuit Rule 36-3 states that unpublished opinions may not be cited and are not precedent except as follows:
(i) They may be cited to . . . by any other court in this circuit when relevant under the doctrine of law of the cases or rules of claim preclusion [res judicata] or issue preclusion. (ii) They may be cited to . . . for factual purposes, such as to show . . . sanctionable conduct . . ., entitlement to attorneys' fees, or the existence of a related case. . . .
In April 2000 Sommer filed yet a third complaint in federal district court and the Honorable Judge Armstrong dismissed on res judicata grounds. See Sommer v. Unum Life Ins., Docket No. 26 CV 00-1368 (N.D. Cal. January 8, 2001) (Sommer III). Sommer appealed and in another unpublished opinion the Ninth Circuit affirmed, stating, "[t]hese cases are concluded." Sommer v. Unum Life Ins. Co., 35 Fed. Appx. 489, 493 (9th Cir. 2002).
III. DISCUSSION
A. Legal Standard
A motion to dismiss tests the legal sufficiency of the claims asserted in the complaint and "all factual allegations are to be taken as true and construed in the light most favorable to the non-moving party." Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1482 (9th Cir. 1991). Dismissal "is proper only where it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. (internal citations and quotations omitted).
Defendants have moved to dismiss based on res judicata. "In order to bar a later suit under the doctrine of res judicata, an adjudication must (1) involve the same claim as the later suit, (2) have reached the final judgment on the merits, and (3) involve the same parties or their privies." Nordhorn v. Ladish Co., Inc., 9 F.3d 1402, 1404 (9th Cir. 1993). "[T]he doctrine of res judicata (or claim preclusion) bars all grounds for recovery which could have been asserted, whether they were or not, in a prior suit between the same parties . . . on the same cause of action."Costantini v. Trans World Airlines, 681 F.2d 1199, 1201 (9th Cir. 1982) (internal quotations and citations omitted) (alterations in original).
B. Analysis
1. Res Judicata
The parties in the present suit are the same parties fromSommer I. Sommer does not allege otherwise. Nor is there any dispute that the prior adjudications reached final judgments on the merits. Thus, the primary issue before the Court is whether the previous Sommer cases involved the same claims as the present action.
In determining whether two suits contain the same claims, courts examine the following criteria:
(1) whether rights or interests established in the prior judgment would be destroyed or impaired by the prosecution of the second action; (2) whether the two suits involve infringement of the same right; (3) whether substantially the same evidence is presented in the two actions; and (4) whether the two suits arise out of the same transactional nucleus of facts.Nordhorn, 9 F.3d at 1405. "The last of these criteria is the most important." Costantini, 681 F.2d at 1202.
In the First Amended Complaint in Sommer I, Sommer alleged two causes of action under ERISA: (1) breach of contract under 29 U.S.C. § 1132(a)(1)(B), to recover benefits owed to him under the terms of the benefit plans, and (2) equitable relief under 29 U.S.C. § 1132(a)(3), seeking to compel Defendants to pay him future benefits owed under terms of Defendants' respective policies. See Mot., Burnite Decl., Ex. 3, First Am. Comp. ¶¶ 19, 23; Ex. 4, Order from Sommer I at 3. This action arose out of Defendants' denial of disability benefits. See Sommer I, CV 96-2407, at 2-3 (stating "Plaintiff . . . alleges that defendants wrongfully breached, and continue to breach, their obligations to pay plaintiff disability insurance benefits due under his employers' group policies").
In the present action, Sommer asserts four causes of action: (1) civil RICO violations; (2) unfair business practices under the California Unfair Business Practices Act; (3) indemnity; and (4) punitive damages.
a. RICO Violations
The elements of a civil RICO claim are: "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (known as `predicate acts') (5) causing injury to the plaintiff's `business or property.'" Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir. 1996) (citing 18 U.S.C. §§ 1964(c), 1962).
Sommer's RICO claim arises out of the same operative facts as his ERISA claims from Sommer I. In the Complaint, under the RICO cause of action, Plaintiff states: "when defendants made these representations concerning their willingness to insure Plaintiff and to pay him money, should he become disabled, they knew such representations to be false. . . ." Firt Am. Compl. ¶ 46. Although dressed in different clothes, the underlying claim is aimed squarely at Defendants' refusal to provide Sommer with disability benefits. Thus, the two suits "arise out of the same transactional nucleus of facts." Nordhorn, 9 F.3d at 1405.
Furthermore, relitigation of these issues would clearly impact the "rights or interests established in the prior judgment."Nordhorn, 9 F.3d at 1405. Plaintiff's disability claims were found to be barred in Sommer I. Nonetheless, Plaintiff now alleges, under the RICO cause of action, that Defendants intended to "deceive Plaintiff and thereby deprive and defraud him completely of the benefits promised under the disability policy." First Am. Compl. ¶ 46. A finding in favor of Sommer would not only impact but eviscerate the finding in Sommer I that Sommer's claims for disability benefits were barred.
Sommer also argues that the rights asserted in this action are different than those previously asserted.
Plaintiff here is not seeking to vindicate merely his own contract rights as an employee, rather, plaintiff is seeking to vindicate the rights of himself and others, in fact all citizens, to live in a civil society where businesses that must . . . be licensed by the state can not, simultaneously, be run as criminal enterprises. . . . One set of rights, the ERISA rights[,] is personal and contractual. The other, under RICO, although arising from an injury to person or property, vindicates the right of society at large to be free of racketeering activity. . . .
Opp'n at 13-14.
Plaintiff's distinction is not compelling. Although it is true that ERISA and RICO are designed to protect different rights, the fact that Plaintiff's present claim is titled a RICO violation does not change the right that Plaintiff seeks to vindicate: Defendants' denial of his disability benefits. That Plaintiff is also seeking to "vindicate the right of society at large" does not alter this analysis.
In addition, in order to state a RICO claim a plaintiff must allege, in part, conduct "causing injury to the plaintiff's `business or property.'" Grimmett, 75 F.3d at 510 (citing 18 U.S.C. §§ 1964(c), 1962). Because Plaintiff's claims for injury against Defendants were previously adjudicated in favor of Defendants, Plaintiff cannot now re-allege this injury.
Finally, "substantially the same evidence [would be] presented in the two actions." Nordhorn, 9 F.3d at 1405. Plaintiff's underlying claim in the present action is that Defendants' wrongfully denied him disability benefits. This was also the underlying claim in Sommer I. The additional evidence of the findings made by the California Department of Insurance regarding Unum was not presented at the Sommer actions. Nonetheless, this evidence is, at best, tangential to Sommer's present claim.
As Sommer himself concedes, his prior action was "dismissed with prejudice before trial." First Am. Compl. ¶ 26. For these reasons, the Court finds that Sommer's RICO claim is barred by res judicata.
b. Unfair Business Practices
"California's unfair competition statute prohibits any unfair competition, which means `any unlawful, unfair or fraudulent business act or practice.'" In re Pomona Valley Med. Group, 476 F.3d 665, 674 (9th Cir. 2007) (citing Cal. Bus. Prof. Code §§ 17200, et seq.). "This tripartite test is disjunctive and the plaintiff need only allege one of the three theories to properly plead a claim under section 17200." Med. Instrument Dev. Lab. v. Alcon Lab., CV 05-1138, 2005 WL 1926673, at * 5 (N.D. Cal. Aug. 10, 2005). In the present action, Sommer has alleged unfair business practice.
Section 17200 also states that "a private person has standing to sue only if he or she has suffered injury in fact and has lost money or property as a result of such unfair competition." Pomona Valley Med. Group, 476 F.3d at 675 n. 12 (internal quotation marks and citations omitted). Sommer alleges that Defendants "acted without any good faith intention of actually paying plaintiff should he become disabled." First Am. Compl. ¶ 54. The injury that Sommer alleges for his § 17200 claim is an injury that directly resulted from Defendants' failure to pay his disability benefits. As has already been noted, however, the prior Sommer actions established that Defendants were not liable to Sommer for refusing to make these benefit payments. Therefore, Sommer cannot allege any injury resulting from Defendants' unfair business practices and this claim is also barred by res judicata.
c. Indemnity and Punitive Damages
Sommer's remaining two claims for indemnity and punitive damages are even more closely aligned with the claims raised in the prior Sommer actions. Sommer's indemnity claim states, in part, that "plaintiff is entitled to indemnification by defendants . . . for all losses suffered and/or proximately caused by the failure of these defendants . . . to previously indemnify plaintiff. . . ." First Am. Compl. ¶ 62. Sommer's punitive damages claim states, in part, that "defendants . . . acted oppressively toward plaintiff whom they knew to be disabled with a serious brain injury. Accordingly, the acts . . . warrant as [sic] assessment of punitive damages. . . ." Id. ¶ 65. At the root of both claims is Defendants' denial of disability benefits. Because a final judgment was previously entered in favor of Defendants on this issue, these final two claims are also barred by res judicata.
2. Exceptions to Res Judicata
Sommer argues that res judicata should not apply for two reasons: the underlying judgment was obtained by fraud and there is a strong public policy reason for allowing the case to go forward.
a. Fraud Exception to Res Judicata
The Ninth Circuit has recognized a fraud exception to the bar of res judicata. See Costantini, 681 F.2d at 1203 n. 12 (stating that "in situations where defendant's misconduct prevented plaintiff from knowing, at the time of the first suit, either that he had a certain claim or else the extent of his injury," the fraud exception to res judicata may apply).
Sommer alleges that Defendants "hid from the court, and from plaintiff, the fact of it's [sic] schemes, thereby depriving the court of the opportunity to consider the case fairly and denying the plaintiff of [sic] the opportunity to present his case to the court at all." Opp'n at 9. These schemes, according to Sommer, were finally brought to light by the California Department of Insurance, and included numerous violations of the California Insurance Code. See Compl. ¶ 31.
The Court does not doubt the findings made by the California Department of Insurance regarding the actions by Unum. To the contrary, the Court finds Unum's behavior troubling, to say the least. Sommer fails to establish, however, how these findings demonstrate that "defendant's misconduct prevented plaintiff from knowing, at the time of the first suit, either that he had a certain claim or else the extent of his injury." Costantini, 681 F.2d at 1203 n. 12. In other words, Sommer has not explained what fraudulent acts Unum perpetrated with respect to Sommer's specific case filed in 1996 (Sommer I). Sommer's allegations that "defendants concealed from plaintiff and this court the fact of their illegal scheme to intentionally deprive plaintiff, and other policy holders, of their rightful benefits," Mot. at 9, does little but echo the findings of the California Department of Insurance. Sommer asserts that the previous Sommer decisions were "based on partial and doctored information. . . ." The fraud exception, however, requires more than such conclusory allegations. Simply put, Sommer "has not shown the existence of any `fraudulent concealment,' even if such a showing would permit him to avoid the bar of res judicata." Costantini, 681 F.2d at 1203.
b. Public Policy Exception to Res Judicata
Sommer, citing California state law, also asserts that where a strong public policy consideration is at issue, the bar of res judicata may be lifted. In People v. Barragan, 32 Cal. 4th 236, 256 (Cal.App. 2004), the California Court of Appeal "recognized that public policy considerations may warrant an exception to the claim preclusion aspect of res judicata. . . ."
Sommer argues that "[t]he people and businesses of this state both need and deserve a reliable, properly functioning, insurance industry." Opp'n at 11. While the Court is in full agreement with this statement, the unfortunate reality for Sommer is that his claim, even if permitted to go forward, would not ensure a properly "functioning insurance industry." As Sommer himself points out, the California Department of Insurance has already taken Unum to task for its treatment of the people of California. Sommer's claims reach back to the mid-90s and it is far from clear how public policy today would be benefitted by exempting the present claims from res judicata. Accordingly, the public policy exception to res judicata is not applicable to the present case.
3. Attorneys' Fees, Costs and Sanctions
Defendants seek attorneys' fees and costs in the amount of $10,128.50. Burnite Decl. ¶ 2. This request is denied. The Court is convinced that Plaintiff's counsel filed the present suit in good faith. The Court notes that Plaintiff's counsel was not involved with Sommer I, Sommer II, or Sommer III. In addition, the Court understands that Plaintiff's counsel had a reasonable belief that the findings by the California Department of Insurance may have opened the door for Plaintiff to recover for what Plaintiff and his counsel believe was the wrongful denial of disability benefits. Thus, the request for attorneys' fees and costs is DENIED and, for the same reasons, the Court DECLINES to impose sanctions.
4. Vexatious Litigant
Finally, Defendants seek to have Plaintiff labeled a vexatious litigant. "District courts have the inherent power to file restrictive pre-filing orders against vexatious litigants with abusive and lengthy histories of litigation." Weissman v. Quail Lodge, Inc., 179 F.3d 1194, 1197 (9th Cir. 1999). Although vexatious litigant orders are typically imposed on pro se litigants, see id., Defendants have requested that Sommer, who has always been represented by counsel, be so labeled.
Mindful of the history of the prior Sommer actions, the Court declines this course of action. The Court is confident that Plaintiff and Plaintiff's counsel understand that further litigation of claims related to the denial of disability benefits to Sommer by Defendants is barred. The Court further reminds Plaintiff and Plaintiff's counsel that renewal of claims under these facts will inevitably result in consideration by the Court of attorneys' fees, costs, Rule 11 sanctions and Plaintiff's status as a vexatious litigant.
IV. CONCLUSION
For the foregoing reasons, Defendants' Motion to Dismiss is GRANTED and Defendants' Request for Attorneys' Fees and Costs is DENIED.
IT IS SO ORDERED.