Opinion
Case No. 2:22-cv-00284-HDV (PVCx)
2023-09-28
TRANSAMERICA LIFE INSURANCE COMPANY, Plaintiff, v. James RICHARDS and Christopher Gurich, Defendants and Counterclaim Plaintiffs.
Valerie D. Rojas, Cozen O'Connor, Los Angeles, CA, Allison B. Goldis, Pro Hac Vice, Michael D. Rafalko, Pro Hac Vice, Cozen O'Connor, Philadelphia, PA, for Plaintiff. David M. Lilienstein, Katie Joy Spielman, DL Law Group, San Francisco, CA, for Defendants and Counterclaim Plaintiffs.
Valerie D. Rojas, Cozen O'Connor, Los Angeles, CA, Allison B. Goldis, Pro Hac Vice, Michael D. Rafalko, Pro Hac Vice, Cozen O'Connor, Philadelphia, PA, for Plaintiff. David M. Lilienstein, Katie Joy Spielman, DL Law Group, San Francisco, CA, for Defendants and Counterclaim Plaintiffs.
ORDER GRANTING DEFENDANT CHRISTOPHER GURICH'S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 76]
Hernán D. Vera, United States District Judge
I. INTRODUCTION
This action arises out of a Comprehensive Long-Term Care Insurance Certificate (the "Certificate") [Dkt. 55, Exhibit A] issued by Plaintiff Transamerica Life Insurance Company ("Transamerica") to Defendant James Richards ("Richards"). Transamerica alleges that Richards and his caregiver/stepson, Defendant Christopher Gurich ("Gurich"), fraudulently billed the Plaintiff for care that was never provided and seeks damages against both Defendants for the $269,453.20 that was paid by Transamerica to Richards under the policy.
Before the Court is a Motion for Judgment on the Pleadings (the "Motion") filed by Gurich on May 22, 2023 [Dkt. No. 76]. Gurich contends that Transamerica's negligence claim in its Second Amended Complaint ("SAC") fails as a matter of law and seeks dismissal of that claim under Fed. R. Civ. P. 12(b). Gurich argues that no "special relationship" exists between Gurich and Transamerica sufficient to create a duty between the non-contracting parties. See Motion at 6-20.
The Court agrees. Applying the factors discussed in J'Aire Corp. v. Gregory, 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60, 61 (1979), the Court concludes that no special relationship between Transamerica and Gurich was created by the Certificate. The Motion is GRANTED, and Transamerica's negligence claim is dismissed without leave to amend.
II. BACKGROUND
A. Factual Allegations
Transamerica issued the Certificate to Richards in October 2001, providing coverage for Home Health Care or "skilled nursing or other professional services provided in Your Home." SAC. ¶ 13, 14. To qualify for the Home Health Care benefit, Richards must have been "unable to perform two or more activities of daily living." Id. ¶ 15. Benefits from Transamerica under the Certificate could only be activated if Richards incurred actual expenses for care services rendered, meaning that Richards needed to receive care in exchange for money, then the invoices and other Proof of Loss statement would be submitted to Transamerica for benefits to be paid. Id. ¶ 17. Richards selected his stepson, Gurich, to be his paid caregiver, who provided services by being "regularly employed at Right at Home, a home health care agency that provides long-term care services for individuals in need." Id. ¶¶ 8, 23. "Proof of Loss statements . . . were provided by Defendants to Right at Home [who] would cause them to be transmitted to Transamerica." Id. at ¶ 27. Then Richards would be reimbursed by Transamerica. Id. at ¶ 76.
Over the course of a two-year investigation, Transamerica performed seven periods of surveillance on Richards and three periods of surveillance on Gurich. Id. ¶ 11. Transamerica alleges that during these periods of surveillance, Gurich was never seen providing care to Richards. Id. According to Transamerica, Defendants submitted or caused to be submitted to Transamerica certain Proof of Loss and other papers and information in which Defendants represented that Richards received paid care services from Gurich in the home on certain dates and at certain times to induce Transamerica to pay benefits. Id. Transamerica alleges that Defendants represented to Transamerica for more than two years that Richards was entitled to be paid benefits under the Certificate for care services he allegedly received from Gurich in the home each day. Id. ¶ 9.
B. Procedural History
Transamerica filed an initial complaint on January 13, 2022 and subsequently filed the First Amended Complaint ("FAC") on April 1, 2022 [Dkt. No. 29].
Richards and Gurich filed a motion to dismiss the FAC on June 27, 2022 [Dkt. No. 43]. On December 7, 2022, Judge Fitzgerald granted this motion with leave to amend as to Defendant Gurich and denied the motion as to Defendant Richards ("Order") [Dkt. No. 54]. In dismissing Transamerica's negligence claim against Gurich, the Court found that "there are not sufficient facts alleged here . . . to support that Defendant Gurich owed some duty to Plaintiff, or that one should be imposed . . . ." Order at 12.
In response, Transamerica filed the operative Second Amended Complaint ("SAC") on December 21, 2022 [Dkt. No. 55]. Transamerica asserts claims against both Defendants for fraud, civil theft, civil conspiracy, and restitution of benefits paid; negligence against each Defendant individually; and a request for declaration that the certificate between Richards and Transamerica is void. Id. ¶¶ 82-127. Transamerica prays for relief in the form of actual, compensatory, punitive, and statutory damages, attorney's fees and costs, and restitution of the benefits paid under the Certificate since a date to be determined by the Court. Id. at 23. Transamerica alleges that a "Special Relationship" exists between it and Gurich "of such a nature that Gurich may be held liable to Transamerica for negligence . . . ." SAC ¶ 109. Specifically, Transamerica alleges that Gurich made false representations to Transamerica over the life of the claim with knowledge and intent that the false representations would "affect plaintiff" by causing Transamerica to pay insurance benefits. SAC ¶ 110(a).
On May 22, 2023, Gurich filed the instant Motion on Transamerica's fifth cause of action for negligence. Plaintiff filed an Opposition ("Opp.") on June 12, 2023 [Dkt. No. 80]. Gurich filed his reply ("Reply") on June 26, 2023 [Dkt. No. 86]. The Court held oral argument on the Motion on August 24, 2023, and took the matter under submission.
III. LEGAL STANDARD
Rule 12(c) of the Federal Rules of Civil Procedure provides that "[a]fter the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c). A motion under Rule 12(c) is considered "functionally identical" to a motion under Rule 12(b)(6) and is evaluated under the same standard of review. Lyon v. Chase Bank USA, N.A., 656 F.3d 877, 883 (9th Cir. 2011) (citing Dworkin v. Hustler Magazine Inc., 867 F.2d 1188, 1192 (9th Cir. 1989)). The key difference between these two motions is the timing of the filing. See Dworkin, 867 F.2d at 1192.
"Judgment on the pleadings is properly granted when, accepting all factual allegations in the complaint as true, there is no issue of material fact in dispute, and the moving party is entitled to judgment as a matter of law." Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012) (internal quotation omitted). A court must construe all factual allegations in the pleadings in the light most favorable to the non-moving party. Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009). IV. DISCUSSION
Transamerica asserts an amended claim for negligence against Gurich. SAC ¶¶ 108-115. A negligence cause of action has three elements: (a) a legal duty to use due care; (b) a breach of such legal duty; and (c) the breach as the proximate or legal cause of the resulting injury. Ladd v. Cnty. of San Mateo, 12 Cal.4th 913, 50 Cal.Rptr.2d 309, 911 P.2d 496, 498 (1996). "A duty of care may arise through statute, contract, the general character of the activity, or the relationship between the parties." Cisco Sys., Inc. v. STMicroelectronics, Inc., 77 F. Supp. 3d 887, 895 (N.D. Cal. 2014) (citing The Ratcliff Architects v. Vanir Constr. Mgmt., Inc., 88 Cal.App.4th 595, 106 Cal. Rptr. 2d 1, 8 (2001)). The parties' briefs focus primarily on the first element of whether a legal duty existed, as "[l]iability for negligent conduct may only be imposed where there is a duty of care owed by the defendant to the plaintiff or to a class of which the plaintiff is a member." J'Aire Corp. v. Gregory, 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60, 62 (1979).
Generally, the economic loss doctrine bars tort recovery for negligently inflicted "purely economic losses," in the absence of personal injury or physical damage to other property. See, e.g., S. California Gas Leak Cases, 7 Cal.5th 391, 247 Cal.Rptr.3d 632, 441 P.3d 881, 887 (2019) (finding that despite SoCalGas's negligent maintenance of an underground gas storage facility that disrupted thousands of businesses, SoCalGas did not owe the plaintiff business owners a duty to protect against purely economic losses). The harm that Transamerica alleges is for purely economic loss, as it claims to have relied on misstatements from Gurich to "pay[ ] insurance benefits Defendants were not lawfully entitled to receive." SAC ¶ 113.
But an exception exists to this general bar against purely economic losses. "The primary exception to the general rule of no-recovery for negligently inflicted purely economic losses is where the plaintiff and the defendant have a 'special relationship.' " S. California Gas Leak Cases, 247 Cal.Rptr.3d 632, 441 P.3d at 887 (quoting J'Aire Corp, 157 Cal.Rptr. 407, 598 P.2d at 63). To determine whether a special relationship exists, and thus a duty of care applies, the California Supreme Court examines six criteria:
"(1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to the plaintiff, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant's conduct and the injury suffered, (5) the moral blame attached to the defendant's conduct and (6) the policy of preventing future harm."J'Aire Corp., 157 Cal.Rptr. 407, 598 P.2d at 63.
Transamerica's negligence allegations against Gurich are identical to what was originally pled and dismissed by the Order, except for the additional allegation that a "special relationship" existed between Transamerica and Gurich, where Gurich "had an ongoing duty to provide true and correct information to Transamerica concerning Richards' claim for benefits under the Certificate, alleged receipt of care and alleged compensation for the same." SAC ¶ 111; compare SAC ¶¶ 108-115 with FAC ¶¶ 102-107. Transamerica outlines in its SAC how the J'Aire Corp. six-factor test is satisfied. SAC ¶¶ 109-111.
Analyzing these six factors, the Court finds that no special relationship exists.
First, the transaction was not intended to affect Transamerica under the J'Aire Corp. factors. Plaintiff cannot point to any terms of a contract between Gurich and Right at Home or Richards that contemplated Transamerica at all. This differs significantly from the defendant contractor in J'Aire Corp., which involved a contract between a defendant contractor and the county, which owned and leased the restaurant property to the plaintiff restaurant owner. In J'Aire Corp., the contract specifically provided that the defendant would undertake improvements to the restaurant premises. 157 Cal.Rptr. 407, 598 P.2d at 61. Unlike Transamerica, the restaurant owner's interests were clearly articulated in the contract and directly impacted through defendant's non-completion of the construction. The relationship also differs greatly from Biakanja v. Irving, which Transamerica also points to in support of its claim. 49 Cal.2d 647, 320 P.2d 16 (1958); Opp. at 12. The Biakanja court held that the defendant—a notary public who prepared a will for testator and negligently failed to have the will properly attested—had a duty of care to protect plaintiff, the sole beneficiary, from injury even though the beneficiary and defendant were not in privity of contract. See id. at 16-19. In Biakanja, the "end and aim" of the will "was to provide for the passing of [decedent's] estate to plaintiff." Id. at 19 (quoting Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275, 277 (1922)).
Here, any effect that Gurich's allegedly incorrect daily care logs had on Transamerica was merely collateral to the transaction between Gurich and Right at Home in their employee-employer relationship, and Gurich and Richards in their caregiver relationship. SAC ¶ 23 ("Defendants represented to Transamerica that Gurich was regularly employed by Right at Home . . . ."); SAC ¶ 22 ("Richards . . . identified Gurich as his paid caregiver"). Moreover, the transaction of Gurich providing care to Richards and Gurich providing Proof of Loss statement to Right at Home was intended to benefit only Richards , not Transamerica. SAC ¶ 27 ("Proof of Loss statements . . . were provided by Defendants to Right at Home . . ."). Transamerica was not the "end and aim" of the transaction. Biakanja, 320 P.2d at 18. Transamerica fails to allege that its interests were specifically contemplated in any contract involving Gurich. Because Transamerica's alleged injury is only collateral to the transactions between Gurich and Right at Home, and Richards, the Court finds that the transaction was not intended to affect Transamerica.
Second, the Court finds that the harm to Transamerica was foreseeable, as it was foreseeable that Transamerica would be injured if Gurich made false representations to Transamerica about the care provided, as he knew that Transamerica would rely on these statements in adjudicating the claim. SAC ¶¶ 110(a)-(b). "Foreseeability of injury, however, is but one factor to be considered in the imposition of negligence liability," and allowing recovery on the sole basis of foreseeability would "impose liability out of proportion to fault or promote virtually unlimited responsibility for intangible injury." Bily v. Arthur Young & Co., 3 Cal.4th 370, 11 Cal.Rptr.2d 51, 834 P.2d 745, 761-62 (1992), as modified (Nov. 12, 1992).
Third, Transamerica's alleged harm was uncertain. Transamerica only provided notice of its concerns with the Proof of Loss statements after it had already paid benefits to Richards for two and a half years. SAC ¶¶ 18, 74. Crucially, Transamerica only alleges that the Proof of Loss statements it received were not satisfactory, not that Gurich failed to provide "care approximately 40 hours per week." Id. ¶¶ 72, 75. The statements that Transamerica believes were unsatisfactory "included the times each day when Gurich allegedly provided care, plus a written description of the specific care services Gurich allegedly provided." Id. ¶ 27. Unlike the plaintiff in J'Aire, whose "complaint le[ft] no doubt that appellant suffered harm since it was unable to operate its business . . . while the premises were without heat and air conditioning," Transamerica fails to allege that Gurich did not perform 40 hours of caregiving services a week for which it reimbursed Richards. J'Aire Corp., 157 Cal.Rptr. 407, 598 P.2d at 63.
While Transamerica alleges that "Gurich provided false information," the harm is uncertain and "to impose a duty on Defendant Gurich on these facts is too attenuated." Order at 12.
Fourth, no close connection exists between Gurich's conduct and any injury suffered by Transamerica. Again, Gurich did not submit Proof of Loss statements to Transamerica, Right at Home did. While Transamerica may be able to plead a negligence claim against Right at Home, it cannot skip over an appropriate party to make an employee liable. Proof of Loss is defined under the Certificate as "billing statements; invoices; payment receipts; Explanation of Benefits . . . ; attending Physician reports; medical records; and similar written documentation." Certificate at 28. But the SAC fails to allege that these were not provided to Transamerica, so it fails to allege a close connection between Gurich's activity and Transamerica's alleged harm.
Fifth, moral blame does not necessarily attach to Gurich's conduct, as he was living in the home with his stepfather, and never received notice from Transamerica that any time away from the home would be disqualifying for billing purposes. In J'Aire Corp., the court noted that the contractor's "lack of diligence . . . was particularly blameworthy since it continued after the probability of damage was drawn directly to [defendant's] attention." 157 Cal.Rptr. 407, 598 P.2d at 63. Here, by contrast, Transamerica fails to allege that Transamerica ever informed Gurich of any complaints it had regarding the Proof of Loss statements.
Sixth, public policy is not served by imposing a duty of care on third-party caregivers who have no contractual privity with the insurer and have no direct interactions or communications with the insurer. Bily v. Arthur Young & Co., 3 Cal.4th 370, 11 Cal.Rptr.2d 51, 834 P.2d 745 (1992), as modified (Nov. 12, 1992) is instructive. In Bily, plaintiffs were investors in a computer company that contracted with a defendant accounting firm to perform audits and issue audit reports on the computer company's financial statements. Id., 11 Cal.Rptr.2d 51, 834 P.2d at 747. The defendant's negligent performance of the audits caused plaintiffs to suffer losses on their investments in the company. Id., 11 Cal.Rptr.2d 51, 834 P.2d at 748. In analyzing whether the auditor owed investors a duty of care, the Bily Court noted that a policy of permitting third parties to recover from an auditor for mistakes in a client's financial statements would make the auditor "an insurer of not only the financial statements, but of bad loans and investments in general." Id., 11 Cal.Rptr.2d 51, 834 P.2d at 765 (rejecting a duty of care between auditor and investors). As the Court found in Bily, "third parties" like Transamerica, "should be encouraged to rely on their own prudence, diligence, and contracting power, as well as other informational tools." Id. Imposing liability on employee caregivers of home health care providers to insurance companies for purely economic losses would shift the risk and liability from insurers to caregivers, deterring individuals from becoming paid caregivers and harming the industry but subjecting them to stringent duties of care.
In summary, and balancing all of the factors as a whole, the Court concludes that Transamerica does not plead sufficient facts to plausibly satisfy the "special relationship" exception articulated in J'Aire Corp. Recent cases in this district are in accord. See Terpin v. AT&T Mobility, LLC, 399 F. Supp. 3d 1035, 1049 (C.D. Cal. 2019) (finding no special relationship existed after balancing factors, even after palty sufficiently alleged that J'Aire factors two and three were met); cf Shapiro v. AT&T Mobility, LLC, 2020 WL 4341778, at *4 (C.D. Cal. May 18, 2020) (finding a special relationship existed after balancing factors when five of the six factors were satisfied). And because "[l]iability for negligent conduct may only be imposed where there is a duty of care owed by the defendant to the plaintiff or to a class of which the plaintiff is a member," the Court finds that Transamerica fails to allege a negligence claim against Gurich for which it can recover. J'Aire Corp., 157 Cal.Rptr. 407, 598 P.2d at 61. The relationship between Transamerica and Gurich "is too attenuated to suggest that Defendant Gurich owed a duty to Plaintiff as to the veracity of the Proof of Loss statements, at least in terms of a claim for negligence . . . ." Order at 12.
V. CONCLUSION
In summary, because Transamerica is unable to state facts supporting a legal duty, Gurich's Motion is GRANTED and Transamerica's negligence claim against Gurich is hereby dismissed without further leave to amend.
When a motion to dismiss or motion for judgment on the pleadings is granted, a district court provides leave to amend "unless it is clear, upon de novo review, that the complaint could not be saved by any amendment." Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008) (quoting Polich v. Burlington N., Inc., 942 F.2d 1467, 1472 (9th Cir. 1991)). Transamerica has already been afforded a full opportunity to amend its deficient claim, and the Court finds that any further amendments would be futile. See Allen v. City of Beverly Hills, 911 F.2d 367, 373-74 (9th Cir. 1990) (affirming district court's dismissal and denying leave to amend second amended complaint where further amendment would be futile).
IT IS SO ORDERED.