Opinion
SA CV 08-152 AHS (MLGx).
September 29, 2008
I. INTRODUCTION
On February 20, 2008, Defendants Mid-Century Insurance Company ("Mid-Century") and Farmers Group, Inc. ("FGI") (collectively, "Mid-Century/FGI") filed a Motion to Dismiss Plaintiff's First Amended Complaint Pursuant to Fed.R.Civ.P. 12(b)(6) and a Request for Judicial Notice. On that same date, Mid-Century/FGI also filed a Motion to Strike Pursuant to Fed.R.Civ.P. 12(f). On March 3, 2008, Plaintiff filed its Opposition to Mid-Century/FGI's Motion to Dismiss and Motion to Strike. Although not a moving party, Plaintiff's Opposition contained a request for leave to amend as well as a request to remand to state court. No separate motion for such relief was filed.
On March 3, 2008, Defendant Farmers Insurance Exchange ("FIE") filed a Motion to Dismiss Plaintiff's First Amended Complaint Pursuant to Fed. Civ. P. 12(b)(6), a Motion to Strike Pursuant to Fed.R.Civ.P. 12(f), and a Request for Judicial Notice. On March 24, 2008, Plaintiff filed its Opposition to FIE's Motion to Dismiss and Motion to Strike and filed a Request for Judicial Notice. On March 31, 2008, Mid-Century/FGI, and FIE (collectively, "Defendants") filed a combined Reply to Plaintiff's Oppositions to the Motions to Dismiss and a combined Reply to Plaintiff's Oppositions to the Motions to Strike. On April 1, 2008, the Court took the motions under submission.
All parties' requests for judicial notice are granted. Having read and considered the arguments and authorities raised in the parties' briefs, the Court grants Defendants' motions to dismiss and to strike.
II. PROCEDURAL BACKGROUND
A. Plaintiff's First Action
On March 27, 2007, Plaintiff filed a complaint against Mid-Century/FGI in San Diego County Superior Court on behalf of itself and a California-wide and nationwide class. (Mid-Century/FGI's Mot. to Dismiss 5:2-4; Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 5:2-4.) On May 11, 2007, Mid-Century/FGI removed the action to the United States District Court for the Southern District of California pursuant to the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d). (Mid-Century/FGI's Mot. to Dismiss 5:6-8; Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 5:4-5.) Mid-Century/FGI then brought a Motion to Dismiss and Motion to Strike against the complaint. (Mid-Century/FGI's Mot. to Dismiss 5:9-10.)
Before the motions were heard on May 22, 2007, Plaintiff dismissed the complaint. (Mid-Century/FGI's Mot. to Dismiss 5:11-12; Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 5:5-7.)
B. Plaintiff's Second Case (This Action)
On May 24, 2007, Plaintiff filed a new action based on similar facts in the San Diego County Superior Court, alleging only a California-wide class action. (Mid-Century/FGI's Mot. to Dismiss 5:14-15; Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 5:8.) Mid-Century/FGI filed a Motion to Transfer Based on Improper Venue seeking to have the case transferred to Orange County or Los Angeles County. (Mid-Century/FGI's Mot. to Dismiss 5:18-20; Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 5:9.)
The San Diego Superior Court transferred the case to the Orange County Superior Court. (Mid-Century/FGI's Mot. to Dismiss 5:21-22; Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 5:9-10.) On December 10, 2007, Mid-Century/FGI filed a Demurrer and Motion to Strike against the complaint. (Mid-Century/FGI's Mot. to Dismiss 5:25-26; Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 5:10.)
The Orange County Superior Court ruled on the motions and sustained in part and denied in part the Demurrer with leave to amend and denied the Motion to Strike. (Mid-Century/FGI's Mot. to Dismiss 6:1-4; Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 5:14-6:2.)
On January 31, 2008, Plaintiff filed its First Amended Complaint ("FAC"). (Mid-Century/FGI's Mot. to Dismiss 6:5-6; Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 6:3-5.) In the FAC, Plaintiff added FIE as a defendant and amended its class allegations to include a nationwide class. (Mid-Century/FGI's Mot. to Dismiss 6:7-11.) On February 12, 2008, based on the new allegation of a nationwide class, Defendants again removed the action pursuant to CAFA, this time to the United States District Court for the Central District of California.
Under CAFA, the federal district courts have original jurisdiction over a class action where any plaintiff class member is a citizen of a state different from any defendant, there are at least one hundred plaintiffs in the proposed class, and the amount in controversy exceeds $5,000,000 exclusive of interest and costs. 28 U.S.C. § 1332(d)(2)(A), (d)(5)(b), (d)(2). To satisfy CAFA, Defendants point out, inter alia, that diversity is established based on Plaintiff's allegation of a nationwide class. In the class allegations, Plaintiff asserts that the FAC is brought "on behalf of itself and as a representative of the general public as well as on behalf of all other members of a proposed California-wide and nationwide class." (Notice of Removal, Ex. 2, ¶ 10.) Mid-Century is a California corporation. (Notice of Removal at ¶ 13.) Thus, Defendants reason, a "nationwide class" necessarily includes citizens from states other than California. (Notice of Removal at ¶ 13.)
In the FAC, Plaintiff alleges claims for: (1) breach of contract; (2) open book account; (3) breach of implied covenant of good faith and fair dealing; and (4) violation of California Business Professions Code section 17200 ("section 17200"). Mid-Century/FGI seek to dismiss only claim four. FIE's motion also seeks to dismiss claim four as well as a dismissal based on the grounds that it was improperly added as a defendant.
In its Opposition to Mid-Century/FGI's Motion to Dismiss, Plaintiff requests that the Court grant leave to amend the FAC to delete reference to a "nationwide class" and assert only a California-wide class and remand the action to state court. (Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 7:14-16.) The parties were unable to enter into a written agreement to allow an amendment to the FAC. (Id. at 6:14-21.) Absent the opposing parties' written consent to amend the FAC, Plaintiff must seek the court's leave. Fed.R.Civ.P. 15(a)(2). Plaintiff, however, has brought no motion under this or any other rule of procedure.
III. SUMMARY OF THE FIRST AMENDED COMPLAINT
Plaintiff alleges that in September of 2005, Plaintiff renewed a commercial general liability insurance policy (the "Policy") issued by Defendants. (FAC ¶ 8.) The Policy had the effective dates of October 1, 2003, through October 1, 2004, and obligated Defendants to defend and indemnify Plaintiff against certain enumerated claims, including third-party lawsuits. (Id.) Plaintiff was subsequently sued by a third-party in Martinez, et al. v. Honda Santa Ana, Los Angeles Superior Court Case Number BC 3014278 ("Martinez Action"). (Id.) Plaintiff tendered the defense of the Martinez Action to Defendants. (Id.)
Plaintiff alleges that prior to the appointment of Defendants' panel counsel, Defendants instructed Plaintiff to have Plaintiff's corporate counsel, Vivoli Associates, defend and handle the day-to-day aspects of the Martinez Action. (Id. at 9.) Plaintiff states that Defendants expressly agreed to reimburse Plaintiff for the attorneys' fees incurred while defending the Martinez Action. (Id.) Plaintiff filed the instant action as a result of Defendants' refusal to reimburse Plaintiff the remaining $7,366.72 in attorneys' fees. (Id.)
IV. LEGAL STANDARD
A court may grant dismissal when the complaint fails to state a claim upon which relief may be granted. See Fed.R.Civ.P. 12(b)(6). A well-pleaded complaint must proffer "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007). When considering a motion to dismiss under Rule 12(b)(6), the plaintiff's complaint is liberally construed and all well-pleaded facts are taken as true. Syverson v. IBM Corp., 472 F.3d 1072, 1075 (9th Cir. 2007). However, conclusory allegations of law, unwarranted deductions of fact, or unreasonable inferences are insufficient to defeat a motion to dismiss. See Fields v. Legacy Health Sys., 413 F.3d 943, 950 n. 5 (9th Cir. 2005).
Where dismissal of the complaint is warranted, it is generally without prejudice, unless it is clear that the complaint cannot be saved by any amendment. See Sparling v. Danu, 411 F.3d 1006, 1013 (9th Cir. 2005), cert. denied, 546 U.S. 1172, 126 S. Ct. 1335, 164 L. Ed. 2d 51 (2006).
The purpose of a motion to strike is to remove "any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f). Rule 12(f) motions are intended "to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial." Rosales v. Citibank, Federal Savings Bank, 133 F. Supp. 2d 1177, 1180 (N.D. Cal. 2001) (citingFantasy Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993)). Although a party may bring a motion to strike in order to challenge a prayer for relief, the motions are generally disfavored and are not granted unless "it is clear that the matter sought to be stricken could have no possible bearing on the subject matter of the litigation." Id. (citing LeDuc v. Kentucky Cent. Life Ins. Co., 814 F. Supp. 820, 830 (N.D. Cal. 1992)).
V. DISCUSSION
A. Plaintiff's Claim for a Violation of Section 17200 Is Barred by California's Unfair Insurance Practices Act
Plaintiff's fourth claim alleges that Defendants violated section 17200 by refusing to fully reimburse the attorneys' fees Plaintiff incurred during the period after the defense was tendered but before panel counsel was appointed. Plaintiff asserts a section 17200 violation based on two grounds: (1) Defendants engaged in deceptive or unfair acts and practice; and (2) Defendants delayed responding to tenders of defense to avoid paying post-tender attorneys' fees and costs. (FAC ¶¶ 15, 35-38.)
California courts have held that California's Unfair Insurance Practices Act, CAL. INS. CODE § 790.03, ("UIPA" or "section 790.03") bars all private actions for unfair competition arising from specific, enumerated unfair claims settlement practices. See CAL. INS. CODE § 790.03; Moradi-Shalal v. Fireman's Fund Ins. Companies, 46 Cal. 3d 287 (1988); Textron Fin. Corp. v. National Union Fire Ins. Co. Of Pittsburgh, 118 Cal. App. 4th 1061 (4th Dist. 2004); Safeco Ins. Co v. Superior Court, 216 Cal. App. 3d 1491 (2nd Dist. 1990). The facts giving rise to Plaintiff's section 17200 claim falls within the UIPA.
The UIPA defines and regulates "unfair methods of competition and unfair and deceptive acts or practices in the business of insurance." See CAL. INS. CODE § 790.03. In section 790.03(h), insurers are prohibited from "knowingly committing or performing with such frequency as to indicate a general business practice any of the following [sixteen] unfair claims settlement practices." CAL. INS. CODE § 790.03(h). Included in Subsection (h) are: (1) "[f]ailing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;" (2) "[f]ailing to adopt and implement reasonable standards for prompt investigation and processing of claims arising under insurance policies;" and (3) "[f]ailing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured." CAL. INS. CODE § 790.03(h)(2)-(4).
Under the California Supreme Court's decision in Moradi-Shalal, the UIPA does not "create a private cause of action against an insurer that commits one of the various acts listed in section 790.03, subdivision (h)." Moradi-Shalal, 46 Cal. 3d at 304. Further, in Textron Fin. Corp., the court held that a party cannot plead around the rule established in Moradi-Shalal by "merely relabeling their cause of action as one for unfair competition." Textron Fin. Corp., 118 Cal. App. 4th at 1070 (citations omitted); see also Rubin v. Green, 4 Cal. 4th 1187, 1201-02 (1993), (noting the "decision in [Moradi-Shalal] may not be circumvented by recasting the action as one under Business and Professions Code section 17200"). Finally, in Safeco Ins. Co., the California Court of Appeal reaffirmed the holding inMoradi-Shalal, and held that "we have no difficulty in deciding the Business and Professions Code provides no toehold for scaling the barrier of Moradi-Shalal" and "[t]o permit plaintiff to maintain this action would render Moradi-Shalal meaningless."Safeco Ins. Co., 216 Cal. App. 3d at 1494.
As noted, the allegations underlying Plaintiff's section 17200 claim falls within the above three sections of section 790.03(h). Plaintiff asserts that Defendants engaged in a "pattern and practice of inducing their insured to employ personal counsel to defend admittedly covered claims upon the false promise of subsequent reimbursement for the fees incurred." (Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 12:18-20; see also FAC ¶¶ 36, 37.) In other words, Plaintiff alleges that Defendants did not promptly respond to Plaintiff's claim under the Policy and, as a result, Plaintiff incurred attorneys' fees during the time period between the time when the defense was tendered and when Defendants appointed panel counsel. This claim is covered by the UIPA because Plaintiff alleges that Defendants failed to "acknowledge . . . claims arising under insurance policies," "adopt and implement reasonable standards for prompt investigation and processing of claims," and "affirm or deny coverage of claims within a reasonable time." CAL. INS. CODE § 790.03(h)(2)-(4). In fact, Plaintiff concedes that the basis of its section 17200 claim implicates UIPA. (Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 12:16-20 (noting ". . . there is little doubt Defendants have also violated UIPA . . .").)
While Plaintiff concedes that Moradi-Shalal and its progeny restrict claims brought under the "unlawful" prong of section 17200, Plaintiff claims that the section 17200 claim remains valid because it is brought only under the "unfair" and "fraudulent" prongs. (Pl.'s Opp'n to Mid-Century/FGI's Mot. to Dismiss 8:16-28.) Plaintiff's distinction is without merit. The California courts have not created any distinction between the three prongs of section 17200 and its interplay with the UIPA. Rather, the courts created a general rule that bar private causes of action for violation of section 17200 against insurers that violate the provisions of the UIPA. See Textron Fin. Corp., 118 Cal. App. 4th at 1070. To allow an action to proceed with a section 17200 claim based on the "unfair" and "fraudulent" prongs would allow a party to plead around and circumvent the restrictions explained in Moradi-Shalal and assert an unfair competition claim. See Textron Fin. Corp., 118 Cal. App. 4th at 1070; Rubin, 4 Cal. 4th at 1201-02; Safeco Ins. Co., 216 Cal. App. 3d at 1494.
Accordingly, Defendants' motion to dismiss Plaintiff's fourth claim for violation of section 17200 is dismissed.
B. Defendants' Motions to Strike are Granted
Defendants filed separate motions to strike against the FAC. The two motions are substantially similar and both seek to strike the portion of the FAC's prayer "requiring disgorgement of defendants' ill-gotten gains. . . ." (FAC 11:24-26.) FIE's motion also seeks to strike all allegations in the FAC against FIE. The motions are granted.
The unfair competition law ("UCL"), section 17200 et seq., does not allow a plaintiff to seek disgorgement of ill-gotten gains. In Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1146, (2003), the California Supreme Court held that "the remedy of nonrestitutionary disgorgement is not expressly authorized by statute." Also, under a UCL claim a plaintiff may only "recover profits unfairly obtained to the extent that these profits represent monies given to the defendant or benefits in which the plaintiff has an ownership interest." Id. at 1148.
Plaintiff conflates the definition of "restitution" and "disgorgement" and prays for an unavailable remedy. The object of restitution, in the context of a UCL claim, is to "restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest." Id. at 1149. Disgorgement, however, in the context of a UCL claim, refers to the "`surrender of all profits earned as a result of an unfair business practice regardless of whether those profits represent money taken directly from persons who were victims of the unfair practice.'"Id. at 1145 (citation omitted). The remedy sought by Plaintiff is not restitution as it seeks disgorgement of all ill-gotten gains, which, by definition, would include money in which Plaintiff has no ownership interest. Thus, should Plaintiff prevail, any award that Plaintiff may recover from Defendants would not be restitutionary because it does not replace money that Defendants took from Plaintiff.
Further, for the reasons given in the section below, FIE's motion to strike is granted.
Accordingly, Defendants' respective motions to strike are granted.
C. Defendant FIE's Motions
Defendant FIE was added to the action through the FAC as a substitution for a Doe Defendant. The substitution occurred prior to the case being removed to this Court. According to defendant's motion, under California procedure, a plaintiff that is genuinely ignorant of a defendant's true name may identify that defendant in the complaint by use of a fictitious name or "Doe". CAL. CIV. PROC. CODE § 474. When a plaintiff discovers the defendant's true identity, however, the summons to the newly-named defendant must contain a notice stating in substance: "`To the person served: You are hereby served in the within action (or proceedings) as (or on behalf of) the person sued under the fictitious name of (designating it)." Id. In other words, the summons "must state the fictitious name under which such defendant was served. . . ."Id.
According to the documents supplied by the parties, the summons served upon FIE failed to comply with the notice requirement of section 474 by not stating the fictitious name under which FIE was served. (See Def.'s Req. For Judicial Notice in Supp. Of Combined Reply to Pl.'s to Dismiss Ex. 2.) To serve FIE with the FAC, Plaintiff used the form summons provided by the Judicial Council of California, Form Sum-100. (Id.) The form provided space for Plaintiff to identify the fictitious name under which FIE was originally sued. Plaintiff left that space blank. (Id.)
Consequently, it appears that FIE was not properly substituted as a fictitiously named defendant and should be dismissed. However, striking the allegations as to FIE and dismissing FIE, insofar as the latter motion asks for dismissal of the complaint based on improper service, are both motions granted without prejudice.
VI. CONCLUSION
Accordingly, and for the foreging reasons, the Court grants Defendants' motions to dismiss and motions to strike. The Court grants without prejudice Defendant FIE's motion for dismissal. Plaintiff's suggestion that it be allowed to file another amended complaint is not properly before the Court.
The claim on which federal jurisdiction was premised having been dismissed, the action is remanded to the Orange County Superior Court, Case # 07CC11798.
IT IS SO ORDERED.
IT IS FURTHER ORDERED that the Clerk shall serve a copy of this Order on counsel for all parties in this action and provide a copy of this Order to the Clerk of the Orange County Superior Court for filing in the above-referenced action.