Dr. Tarlochan Singh DDS Inc. v. Dell Computers

Opinion

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6 UNITED STATES DISTRICT COURT 7 8 EASTERN DISTRICT OF CALIFORNIA 9 DR. TARLOCHAN SINGH DDS INC., et Case No. 1:22-cv-01087-ADA-SAB 10 al., ORDER VACATING JUNE 14, 2023 HEARING; 11 Plaintiffs, VACATING MARCH 16, 2023 FINDINGS AND RECOMMENDATIONS; DENYING JANUARY 12 v. 30, 2023 MOTION TO DISMISS AS MOOT

13 FINDINGS AND RECOMMENDATIONS DELL COMPUTERS, et al., RECOMMENDING GRANTING MOTION TO 14 DISMISS AND MOTION TO STRIKE, AND Defendants. DISMISSING DEFENDANT HARTFORD 15 (ECF Nos. 39, 42, 45, 47, 48, 49, 51, 53) 16 OBJECTIONS DUE WITHIN FOURTEEN 17 DAYS

18 19 I. 20 INTRODUCTION 21 Plaintiffs Dr. Tarlochan Singh DDS Inc. and Dr. Sukhmeet Kaur DDS APC (collectively, 22 “Plaintiffs”) initiated this action on June 8, 2022, in the Merced Superior Court. (ECF No. 1 at 7– 23 17.) The matter was removed by former Defendant Dell Computers on August 25, 2022. (ECF 24 No. 1.) Currently before the Court is Defendant Sentinel Insurance Company, Ltd.’s (“Sentinel”) 25 motion to dismiss. (ECF No. 49.) The matter was referred to this Court pursuant to 28 U.S.C. § 26 636(b)(1)(B) and Local Rule 302(c)(7). (ECF No. 50.) 27 The Court finds this matter suitable for decision without oral argument. See Local Rule 28 230(g). Thus, the hearing set for June 14, 2023 (see ECF No. 52), will be vacated and the parties 1 will not be required to appear at that time. Having considered the moving, opposition, and reply 2 papers, the declarations and exhibits attached thereto, as well as the Court’s file, the Court issues 3 the following findings and recommendations recommending granting Sentinel’s motion to 4 dismiss, and proceeding solely on Plaintiffs’ claim for breach of contract. 5 II. 6 RELEVANT BACKGROUND 7 A. Procedural Posture 8 Plaintiffs initiated this action against Defendants Dell Computers, Sentinel Insurance 9 Company (“Sentinel”), and The Hartford (collectively, “Defendants”) on June 8, 2022, in the 10 Merced Superior Court, Case No. 22CV-01651. (ECF No. 1 at 7–17.) On August 25, 2022, 11 Defendant Dell Computers removed the action to the Eastern District of California. (ECF No. 1.) 12 At the time of removal, Defendants Sentinel and Hartford had not yet been served or made 13 appearances in the case. Nonetheless, in support of removal, Dell provided evidentiary records in 14 support of its contention that Sentinel and Hartford are both incorporated and have their principal 15 places of business outside of California. (Id. at 2–4; Exs. B-2, B-3, B-4, B-5, B-6, ECF No. 1 at 16 23–72.) Dell also pointed to Plaintiffs’ allegation in the complaint that “Plaintiff[s] have lost 17 millions of dollars in economic losses” in support of its contention that the amount in controversy 18 exceeds $75,000. (ECF No. 1 at 5 (citing ECF No. 1 at 13).) Plaintiff did not challenge the 19 removal at any time during the next five months that Dell Computers remained a Defendant in 20 this action, and does not currently challenge the removal. 21 On September 12, 2022, Dell Computers filed a motion to change venue and a motion to 22 dismiss. (ECF Nos. 10, 11.) At the November 16, 2022 initial hearing on the motions, Plaintiffs 23 acknowledged that Defendants Sentinel and Hartford had not been served in the action. (ECF No. 24 24.) Accordingly, the Court continued the hearing on Dell Computers’s motions to allow time for 25 Plaintiffs to serve the remaining Defendants and for those Defendants to address the pending 26 motions. (Id. at 2.) On November 21, 2022, Plaintiffs filed a proof of service indicating service 27 of the summons and complaint was effected by U.S. Mail on The Hartford.1 (ECF No. 25.)

28 1 The Court declines, at this juncture, to address the propriety of Plaintiffs’ election to effect service of process on 1 On December 5, 2022, Defendant Sentinel appeared in this action. (ECF No. 26.) 2 On December 12, 2022, Plaintiffs filed their first amended complaint (“FAC”). (ECF No. 3 30.) 4 On January 10, 2023, Plaintiffs dismissed Dell Computers; the motions to dismiss and 5 transfer venue were deemed withdrawn as moot. (ECF Nos. 35, 36.) 6 On January 16, 2023, Plaintiffs filed their second amended complaint (“SAC”).2 (ECF 7 No. 37.) 8 On January 30, 2023, Sentinel filed a motion to dismiss the second amended complaint. 9 On February 1, 2023, the district judge referred the matter to this Court for the preparation of 10 findings and recommendations and/or other appropriate action. (ECF No. 40.) On February 23, 11 2023, Plaintiffs filed a late opposition to the motion. (ECF No. 42.) Concurrently with their 12 untimely opposition, Plaintiffs also filed a motion remand. (ECF No. 43.) The District Judge, 13 however, denied the motion, without prejudice, on the basis that Plaintiffs failed to include a meet 14 and confer declaration with the motion in compliance with the district judge’s standing order. 15 (ECF No. 44.) Plaintiffs were advised any renewed motion for remand must be filed no later than 16 March 7, 2023. (See id.) No renewed motion for remand was filed, thus indicating that Plaintiffs 17 no longer wished to file the motion. (See id.) On March 2, 2023, Sentinel timely replied to 18 Plaintiffs’ opposition to the motion to dismiss. (ECF No. 45.) On March 16, 2023, the Court 19 issued findings and recommendations, recommending Defendant’s motion to dismiss be granted 20 with leave to amend. (ECF No. 47.) The parties were given fourteen days to file any objections 21 to the findings and recommendations. 22 Defendants Sentinel and Hartford solely by U.S. Mail, rather than via personal service as required by the Federal 23 Rules of Civil Procedure. See Fed. R. Civ. P. 4(h). The Court notes, however, that The Hartford has never appeared in this action. Further, to the extent Plaintiffs may pursue a default against Hartford, they may be prevented from 24 doing so due to improper service of process.

25 2 The Court noted in its March 16, 2023 findings and recommendations that, while the caption of the SAC lists Hartford as a Defendant in this action, and the first cause of action includes an allegation relating to Hartford, Plaintiffs no longer identify Hartford as a party (see, generally, id. at 2), nor is Hartford included in Plaintiffs’ prayer 26 for relief (see id. at 5); therefore, the Court concluded Plaintiffs no longer intended to pursue this action against The Hartford, and recommended The Hartford be dismissed from the action. (ECF No. 47.) Since that date, Plaintiffs did 27 not object to the recommendation to dismiss The Hartford, and filed a third amended complaint which again does not identify The Hartford as a party to this action (see ECF No. 48 at 1–2). Accordingly, the Court shall renew its 28 recommendation in the instant findings and recommendations to dismiss this Defendant from the action. 1 On April 14, 2023, rather than file objections to the findings and recommendations—or 2 permit the district judge to issue a ruling on those findings and recommendations—Plaintiffs filed 3 the instant operative third amended complaint (“TAC”). (ECF No. 48.) To date, Plaintiffs have 4 not filed any renewed motion to remand in compliance with the Court’s February 28, 2023 order 5 to file any renewed motion for remand no later than March 7, 2023 (ECF No. 44), or sought leave 6 to do so.3 On April 27, 2023, Defendant Sentinel filed the instant motion to dismiss and motion 7 to strike prayer for punitive damages. (ECF No. 49.) On April 28, 2023, the district judge 8 referred the matter to this Court for the preparation of findings and recommendations and/or other 9 appropriate action. (ECF No. 50.) Plaintiffs opposed the motion on May 11, 2023 (ECF No. 51), 10 and Defendant replied on May 18, 2023 (ECF No. 53.) The matter is now deemed submitted. 11 B. Plaintiffs’ Allegations 12 The Court notes Plaintiffs’ TAC is substantially similar to their SAC, with only minor 13 amendments made to the pleading, mostly the removal of certain allegations; the main body of 14 the operative TAC is now little more than three pages long, with approximately two hundred 15 pages of an insurance policy attached. (See, generally, TAC, ECF No. 48; cf. ECF No. 37.) 16 Plaintiffs allege they purchased an insurance policy from The Hartford. (TAC ¶ 7, Ex. 1, 17

18 3 Notwithstanding Plaintiffs’ failure to timely challenge the original notice of removal and their implicit withdrawal of their motion for remand, the Court notes it has an ongoing independent obligation to ensure it has subject matter 19 jurisdiction over this case. See 28 U.S.C. § 1447(c); Bender v. Williamsport Area School Dist., 475 U.S. 534, 541 (1986). Accordingly, the Court notes it has conducted an independent review of the record and concludes that it 20 continues to have subject matter jurisdiction over this action based on diversity jurisdiction. As to diversity of citizenship, the Court notes the operative TAC alleges that Plaintiffs’ dental practice is located in California, and 21 Sentinel is a Connecticut Limited Company. Thus, diversity between the parties is established. As to amount in controversy, Plaintiffs allege there are no grounds for federal jurisdiction because they “waive[] damages in excess of 22 $74,999.00.” (TAC ¶ 2, ECF No. 48.) However, the Court is unpersuaded that Plaintiffs may use this new allegation to circumvent a finding of amount in controversy based on their prior factual allegation that “Plaintiffs have lost 23 millions of dollars in economic losses” as a result of Defendants’ alleged breach of agreement. (See ECF No. 1 at 13.) Plaintiffs identified no legal authority for their implied premise that a party may amend a prior allegation for 24 damages solely for purposes of destroying diversity jurisdiction; rather, some caselaw appears to suggest the contrary. See Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567 (2004) (of longstanding “time-of-filing 25 rule,” “jurisdiction of the court depends upon the state of things at the time of the action brought”); see also Arias v. Residence Inn by Marriott, 936 F.3d 920, 927 (9th Cir. 2019) (amount in controversy reflects the maximum recovery plaintiff could reasonably recover, not amount plaintiff may actually recover) (emphasis in original); St. Paul 26 Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288–89 (1938) (“the sum claimed by the plaintiff controls if the claim is apparently made in good faith”.). The Court also remains cognizant of the fact that Plaintiffs dismissed 27 former defendant Dell Computers after entering into a settlement agreement with them and, if the issue of remand were raised in a properly-noticed motion to remand and the amount in controversy were challenged on the facts, the 28 settlement amount may need to be considered in the amount in controversy analysis. 1 ECF No. 48 at 5–204.)4 Plaintiffs allege the policy designated Sentinel as the actual insurer of the 2 policy. (TAC ¶ 7.) The policy was purchased in connection with Plaintiffs’ purchase of a server. 3 (Id. at ¶ 14.) The policy provided that, as long as Plaintiffs paid their premiums, Sentinel would 4 make good faith investigations into any claims and, when appropriate, provide benefits upon loss, 5 pursuant to the policy. (Id. at ¶ 8.) Plaintiffs allege they complied with all of their obligations 6 under the contract and paid money to Sentinel. (Id. at ¶¶ 11, 14.) 7 Plaintiffs allege they lost their computer files and server, which contained valuable data 8 that was an asset to Plaintiffs’ dental practice business. (Id. at ¶ 9.) The loss of that data was 9 responsible for Plaintiffs needing to temporarily close their business, and created additional work 10 for Plaintiffs. (Id.) Plaintiffs appear to allege that the data loss they suffered constituted a “loss” 11 as contemplated in Plaintiffs’ insurance policy. (See id.) 12 When Plaintiffs lost their computer files and data, which interrupted their business, they 13 filed claims with Sentinel for business interruption expenses. (See id. at ¶¶ 9, 15.) Plaintiffs 14 allege Sentinel failed to investigate Plaintiffs’ claims and denied the claims without a full and 15 complete investigation. (Id. at ¶¶ 10, 16.) By doing so, Plaintiffs claim Sentinel “did not act 16 fairly and in good faith.” (Id. at ¶ 16.) Plaintiffs claim they were harmed by Sentinel’s failure to 17 reimburse them for their losses. (Id. at ¶ 17.) 18 The TAC then omits paragraphs 18–24 and proceeds with the prayer for relief at 19 paragraph 25. (See id. at 3.) Plaintiffs seek statutory, compensatory, consequential, general, and 20 punitive damages, attorneys’ fees and costs, pre- and post-judgment interest, and equitable relief 21 such as disgorgement and restitution. (Id. at ¶¶ 25–30.) 22 III. 23 LEGAL STANDARD 24 A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal

25 4 Although the attached policy is approximately two hundred pages long with multiple provisions, the TAC does not pin cite to the policy to highlight what Plaintiffs may contend are the section/s relevant to their instant claims; the 26 Court declines to guess or determine for Plaintiffs which portions of the policy are meant to be referenced in the TAC, or to otherwise “conjure up unpleaded facts” for Plaintiffs. See Bell Atlantic v. Twombly (Twombly), 550 27 U.S. 544, 562 (2007) (citation omitted); see also Greenwood v. F.A.A., 28 F.3d 971, 977 (9th Cir. 1994) (quoting U.S. v. Dunkel, 927 F.2d 955, 956 (7th Cir. 1991)) (“… As the Seventh Circuit in Dunkel stated aptly: ‘[j]udges are 28 not like pigs, hunting for truffles buried in briefs.’ ”). 1 sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Rule 8(a) 2 requires that a pleading contain “a short and plain statement of the claim showing that the pleader 3 is entitled to relief.” See Ashcroft v. Iqbal (Iqbal), 556 U.S. 662, 678–79 (2009). Under notice 4 pleading in federal court, the complaint must “give the defendant fair notice of what the claim … 5 is and the grounds upon which it rests.” Twombly, 550 U.S. at 555 (internal quotations omitted). 6 “This simplified notice pleading standard relies on liberal discovery rules and summary judgment 7 motions to define disputed facts and issues and to dispose of unmeritorious claims.” 8 Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002). 9 On a motion to dismiss, the factual allegations of the complaint must be accepted as true. 10 Cruz v. Beto, 405 U.S. 319, 322 (1972). A court is bound to give the plaintiff the benefit of every 11 reasonable inference to be drawn from the “well-pleaded” allegations of the complaint. Retail 12 Clerks Int’l Ass’n v. Schermerhorn (Retail Clerks), 373 U.S. 746, 753 n.6 (1963). A plaintiff 13 need not allege “‘specific facts’ beyond those necessary to state his claim and the grounds 14 showing entitlement to relief.” Twombly, 550 U.S. at 570. “A claim has facial plausibility when 15 the plaintiff pleads factual content that allows the court to draw the reasonable inference that the 16 defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. 17 at 556). 18 Nevertheless, a court “need not assume the truth of legal conclusions cast in the form of 19 factual allegations.” U.S. ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). 20 While Rule 8(a) does not require detailed factual allegations, “it demands more than an 21 unadorned, the defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. A 22 pleading is insufficient if it offers mere “labels and conclusions” or “a formulaic recitation of the 23 elements of a cause of action.” Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 678 24 (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory 25 statements, do not suffice.”). Moreover, it is inappropriate to assume that the plaintiff “can prove 26 facts that it has not alleged or that the defendants have violated the … laws in ways that have not 27 been alleged.” Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 28 519, 526 (1983). 1 Ultimately, a court may not dismiss a complaint in which the plaintiff has alleged “enough 2 facts to state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 679 (quoting 3 Twombly, 550 U.S. at 570). Only where a plaintiff has failed to “nudge[] [his or her] claims … 4 across the line from conceivable to plausible,” is the complaint properly dismissed. Id. at 680. 5 While the plausibility requirement is not akin to a probability requirement, it demands more than 6 “a sheer possibility that a defendant has acted unlawfully.” Id. at 678. This plausibility inquiry is 7 “a context-specific task that requires the reviewing court to draw on its judicial experience and 8 common sense.” Id. at 679. 9 If a complaint fails to state a plausible claim, “[a] district court should grant leave to 10 amend even if no request to amend the pleading was made, unless it determines that the pleading 11 could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 12 1130 (9th Cir. 2000) (en banc) (quoting Doe v. United States, 58 F.3d 484, 497 (9th Cir. 1995)); 13 see also Gardner v. Martino, 563 F.3d 981, 990 (9th Cir. 2009) (finding no abuse of discretion in 14 denying leave to amend when amendment would be futile). Although a district court should 15 freely give leave to amend when justice so requires under Rule 15(a)(2), “the court’s discretion to 16 deny such leave is ‘particularly broad’ where the plaintiff has previously amended its complaint.” 17 Ecological Rights Found. v. Pac. Gas & Elec. Co., 713 F.3d 502, 520 (9th Cir. 2013) (quoting 18 Miller v. Yokohama Tire Corp., 358 F.3d 616, 622 (9th Cir. 2004)). 19 IV. 20 DISCUSSION 21 The TAC asserts two causes of action against Sentinel: (1) breach of contract and (2) 22 breach of implied covenant of good faith and fair dealing. (ECF No. 48.) Sentinel moves to 23 dismiss Plaintiffs’ cause of action for breach of implied covenant of good faith and fair dealing 24 (claim 2) and strike Plaintiffs’ prayer for punitive damages, pursuant to Federal Rule of Civil 25 Procedure 12(b)(6) and 12(f), respectively.5 (ECF No. 49 at 1.) Sentinel indicates it will seek

26 5 While this Court has previously considered a similar request by Defendant to “strike” claims for punitive damages under Rule 12(f), it notes such a request under Rule 12(f) is procedurally improper, and that a motion to have certain 27 portions of a complaint dismissed—such as a claim for certain types of damages—is better suited for a Rule 12(b)(6) motion. See Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 974 (9th Cir. 2010) (citation omitted); see also 28 Universal Bank v. Northland Ins. Co., 8 Fed. App’x 784 (9th Cir. 2001) (affirming dismissal pursuant to Rule 1 dismissal of Plaintiffs breach of contract claim (claim 1) on summary judgment. (ECF No. 49-1 2 at 1 n.1.) 3 A. Breach of Implied Covenant of Good Faith and Fair Dealing 4 “The relationship between insured and insurer is contractual.” Benavides v. State Farm 5 Gen. Ins. Co., 136 Cal. App. 4th 1241, 1249 (2006). However, a covenant of good faith and fair 6 dealing is implied in every contract. Kransco v. Am. Empire Surplus Lines Ins. Co., 23 Cal. 4th 7 390, 400 (2000), as modified (Jul. 26, 2000). This implied obligation requires an insurer to deal 8 in good faith and fairly with its insured in handling an insured’s claim against it. Gruenberg v. 9 Aetna Ins. Co., 9 Cal. 3d 566, 574 (1973). “When the insurer unreasonably and in bad faith 10 withholds payment of the claim of its insured, it is subject to liability in tort.” Benavides, 136 11 Cal. App. 4th at 1249 (collecting cases). Thus, “[i]n order to establish a breach of the implied 12 covenant of good faith and fair dealing under California law, a plaintiff must show: (1) benefits 13 due under the policy were withheld; and (2) the reason for withholding benefits was unreasonable 14 or without proper cause.” 501 E. 51st St., Long-Beach-10 LLC v. Kookmin Best Ins. Co., Ltd. 15 (Kookmin), 47 Cal. App. 5th 924, 937 (2020); see also Guebara v. Allstate Ins. Co., 237 F.3d 16 987, 992 (9th Cir. 2001) (applying California law). 17 The first element is the threshold requirement. Love v. Fire Ins. Exch., 221 Cal. App. 3d 18 1136, 1151 (1990) (citing Cal. State Auto Assn. Inter-Ins. Bureau v. Superior Ct., 184 Cal. App. 19 3d 1428 (1986) (no award for bad faith can be made “without first establishing that coverage 20 exists”)). Assuming benefits were due and withheld, “[t]he key to a bad faith claim is whether or 21 not the insurer’s denial of coverage was reasonable.” Guebara, 237 F.3d at 992 (citing Love, 221 22 Cal. App. 3d at 1151) (“The primary test [for liability for breach of the implied covenant of good 23 faith and fair dealing] is whether the insurer withheld payment of an insured’s claim unreasonably 24 and in bad faith.”). “Where benefits are withheld for proper cause, there is no breach of the 25 implied covenant.” Love, 221 Cal. App. 3d at 1151; see also Kookmin, 47 Cal. App. 5th at 937 26 (“Where there is a genuine issue as to the insurer’s liability under the policy for the claim asserted

27 12(b)(6) of cause of action for breach of covenant of good faith and fair dealing and the related punitive damages claim). Accordingly, the Court shall consider Defendant’s motion regarding the prayer for punitive damages under 28 the Rule 12(b)(6) standard herein. 1 by the insured, there can be no bad faith liability imposed on the insurer for advancing its side of 2 that dispute ….”). To that end, California courts impose “special duties” on insurers, the breach 3 of which gives rise to a bad faith tort claim: an insurer must investigate claims thoroughly; it may 4 not deny coverage based on either unduly restrictive policy interpretations or standards known to 5 be improper; and it may not unreasonably delay in processing or paying claims. Love, 221 Cal. 6 App. 3d at 1148 (citations omitted). However, the allegations of the breach of the contract in and 7 of themselves do not amount to improper or unreasonable conduct required for the breach of 8 the covenant of good faith. “A breach of the implied covenant of good faith and fair dealing 9 involves something beyond breach of the contractual duty itself, and it has been held that [b]ad 10 faith implies unfair dealing rather than mistaken judgment ….” Chateau Chamberay 11 Homeowners Ass’n v. Assoc. Int’l Ins. Co., 90 Cal. App. 4th 335, 345 (2001) (citations and 12 quotations marks omitted), as modified on denial of reh’g (Jul. 30, 2001). Thus, “[t]he mere 13 denial of benefits does not establish bad faith.” Align Tech., Inc. v. Fed. Ins. Co., 673 F. Supp. 14 2d 957, 965 (N.D. Cal. 2009) (citing Cal. Shoppers v. Royal Globe Ins. Co., 175 Cal. App. 3d 1, 15 15 (1985)). 16 Here, the question is whether Plaintiffs sufficiently allege facts for the Court to infer that 17 Sentinel withheld benefits unreasonably or without proper cause.6 In support of their bad faith 18 claim, Plaintiffs allege Sentinel denied their claims, which were covered by the insurance policy, 19 and that, in “doing so, Sentinel did not act fairly and in good faith.” (TAC ¶ 16.) This statement 20 is a legal conclusion. “While legal conclusions can provide the framework of a complaint, they 21 must be supported by factual allegations.” Iqbal, 556 U.S. at 679. Within the TAC, however, the 22 Court finds no such supporting factual allegations. 23 At most, to support their conclusion that “Sentinel did not act fairly and in good faith,” 24 Plaintiffs allege Sentinel “… denied the claim without a full and complete investigation.” (TAC ¶ 25

6 Sentinel does not dispute whether Plaintiffs sufficiently allege a breach of contract claim, electing instead to 26 challenge the first cause of action via summary judgment. Nor does Sentinel dispute that Plaintiffs sufficiently allege the threshold element of their bad faith claim, which requires the same showing as the breach of contract cause of 27 action, in that Plaintiffs must allege benefits were due, but not paid, under the policy. Accordingly, for purposes of the instant motion only, the Court finds Sentinel concedes Plaintiffs have met the first, threshold element of the claim 28 that coverage under the contract exists. Love, 221 Cal. App. 3d at 1151. 1 ¶ 10.) This, however, is also a legal conclusion, albeit one that is “cast in the form of [a] factual 2 allegation[ ].” Chunie, 788 F.2d at 643 n.2. Plaintiffs do not describe Sentinel’s investigation in 3 any discernable manner—further, it is somewhat unclear from the allegations whether Plaintiffs 4 claim any investigation was performed—and Plaintiffs do not allege any facts showing why they 5 contend such investigation was not “full and complete.”7 This is crucial to Plaintiffs’ claim 6 because, as California courts explain, “[i]f the insurer’s investigation—adequate or not—results 7 in a correct conclusion of no coverage, no tort liability arises for breach of the implied 8 [covenant].” Benavides, 136 Cal. App. 4th at 1250 (emphasis in original) (collecting California 9 cases). Here, however, Plaintiffs do not identify the reason Sentinel provided for the denial of 10 their claim, nor do they indicate whether any reason was given at all. In short, Plaintiffs allege 11 zero facts describing the manner in which their policy claim was denied; thus, the allegations do 12 not show the denial of their claim was made in “bad faith.” See, e.g., Sgrillo v. Geico Cas. Co., 13 323 F. Supp. 3d 1167, 1170 (D. Nev. 2018) (dismissing bad faith claim for refusal to pay policy 14 limits as conclusory where complaint “contain[ed] no factual allegations detailing the 15 circumstances surrounding defendant’s refusal to pay the policy limits immediately after plaintiff 16 demanded payment”). 17 In sum, Plaintiffs’ cause of action fails to rise beyond “an unadorned, the defendant- 18 unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. Thus, Plaintiffs’ allegations, without 19 more, amount to mere “labels and conclusions” or “a formulaic recitation of the elements of a 20 cause of action.” Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 678. This is insufficient 21 to survive a Rule 12(b)(6) motion. Id. Accordingly, the Court finds Plaintiffs fail to allege facts 22 sufficient to state a cause of action for breach of the implied covenant of good faith and fair 23 dealing. 24 B. Request for Punitive Damages 25 Sentinel next challenges Plaintiffs’ request for punitive damages. (See ECF No. 49-1 at 26 5.) California Civil Code § 3294 (“§ 3294”) provides that in an action “for breach of an

27 7 The Court expressly pointed out this exact deficiency to Plaintiffs in its March 16, 2023 findings and recommendations, yet Plaintiffs have alleged no additional facts whatsoever in the TAC to cure the identified defect. 28 (See ECF No. 47 at 9–11.) 1 obligation not arising from contract,” a plaintiff may seek punitive damages “where it is proven 2 by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or 3 malice.” Cal. Civ. Code § 3294(a). “Malice” is defined as “conduct which is intended by the 4 defendant to cause injury to the plaintiff or despicable conduct which is carried on by the 5 defendant with a willful and conscious disregard of the rights and safety of others.” Cal. Code 6 Civ. Proc. § 3294(c)(1). “Oppression” is defined as “despicable conduct that subjects a person to 7 cruel and unjust hardship in conscious disregard of that person’s rights” Cal. Code Civ. Proc. § 8 3294(c)(2). “Fraud” is defined as “an intentional misrepresentation, deceit, or concealment of a 9 material fact known to the defendant with the intention on the part of the defendant of thereby 10 depriving a person of property or legal rights or otherwise causing injury.” Cal. Code Civ. Proc. 11 § 3294(c)(3). 12 The TAC is devoid of any factual allegations beyond the prayer for relief (TAC ¶ 26) 13 which indicate punitive damages are appropriate or being sought. Indeed, paragraphs 18–24 14 (which formerly addressed punitive damages in the second amended complaint) are missing 15 entirely from the TAC. In their opposition, Plaintiffs concede punitive damages are improper and 16 seek to withdraw that request. (ECF No. 51 at 4.) Accordingly, the prayer for punitive damages 17 should be dismissed. 18 C. Leave to Amend 19 Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to amend “shall be freely 20 given when justice so requires,” because “the court must remain guided by the underlying 21 purpose of Rule 15 … to facilitate decisions on the merits, rather than on the pleadings or 22 technicalities.” Lopez, 203 F.3d at 1127 (alterations and internal quotation marks omitted). 23 Nevertheless, a district court need not grant leave to amend where the amendment would unduly 24 prejudice the opposing party, cause undue delay, or be futile, or if the party seeking amendment 25 has acted in bad faith. Leadsinger, Inc. v. BMG Music Publ’g, 512 F.3d 522, 532 (9th Cir. 2008) 26 (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). “The decision of whether to grant leave to 27 amend nevertheless remains within the discretion of the district court.” Id. 28 Sentinel argues the second cause of action should be dismissed without leave to amend 1 because Plaintiffs have now had multiple opportunities to plead a plausible bad faith claim but 2 have failed to do so. (ECF No. 48-1 at 5–6.) The Court agrees. The instant litigation is currently 3 proceeding on the fourth iteration of the complaint, which Plaintiffs were permitted to amend the 4 first two times by stipulated agreement, following meet and confer discussions as to the purported 5 pleading deficiencies. The operative third amended complaint was filed after this Court issued 6 findings and recommendations identifying and explaining in detail the defects in Plaintiffs’ 7 pleading. (See ECF No. 47 at 7–13.) The Court recommended at that time that one final 8 opportunity to amend be granted. (Id. at 13–14.) While Plaintiffs did not wait for the district 9 judge to rule on those findings and recommendations and instead (improperly) filed their third 10 amended complaint, they did so with the benefit of the Court’s instructions and applicable legal 11 standards. Yet the third amended complaint, which was barely amended at all, still fails to state a 12 cognizable claim for breach of implied covenant of good faith and fair dealing. At this point, the 13 Court must conclude Plaintiffs are either unwilling to or incapable of curing the identified 14 pleading defects through amendment. Granting further leave to amend is thus futile, would only 15 prejudice Defendant Sentinel, and is therefore unwarranted. Leadsinger, Inc., 512 F.3d at 532. 16 V. 17 CONCLUSION AND RECOMMENDATION 18 Accordingly, IT IS HEREBY ORDERED that: 19 1. The hearing on Defendant’s motion to dismiss set for June 14 2023, at 10:00 a.m. 20 in Courtroom 9, is VACATED; 21 2. In light of the filing of Plaintiffs’ third amended complaint, Defendant Sentinel’s 22 January 30, 2023 motion to dismiss the second amended complaint (ECF No. 39) 23 is DENIED as MOOT; and 24 3. The findings and recommendations regarding Sentinel’s January 30, 2023 motion 25 to dismiss the second amended complaint, issued March 16, 2023 (ECF No. 47), 26 are VACATED. 27 Furthermore, based on the foregoing, IT IS HEREBY RECOMMENDED that: 28 1. Defendant Sentinel Insurance Company, Ltd.’s motion to dismiss (ECF No. 49) be 1 GRANTED, and Plaintiffs’ cause of action for breach of implied covenant of good 2 faith and fair dealing (Claim 2) and prayer for punitive damages be DISMISSED 3 without leave to amend; 4 2. This action proceed solely on Plaintiffs’ claim for breach of contract (Claim 1) in 5 the third amended complaint (ECF No. 48); and 6 3. Defendant The Hartford be DISMISSED from this action. 7 These findings and recommendations are submitted to the district judge assigned to this 8 | action, pursuant to 28 U.S.C. § 636(b)(1)(B) and this Court’s Local Rule 304. Within fourteen 9 | (14) days of service of this recommendation, any party may file written objections to these 10 | findings and recommendations with the Court and serve a copy on all parties. Such a document 11 | should be captioned “Objections to Magistrate Judge’s Findings and Recommendations.” 12 Plaintiffs SHALL NOT file any further amended complaints until after the district 13 | judge rules on the instant findings and recommendations and/or with express leave of the 14 | Court. (See Fed. R. Civ. P. 15 and 16.) The district judge will review the magistrate judge’s 15 | findings and recommendations pursuant to 28 U.S.C. § 636(b)(1)(C). The parties are advised that 16 | failure to file objections within the specified time may result in the waiver of rights on appeal. 17 | Wilkerson v. Wheeler, 772 F.3d 834, 839 (9th Cir. 2014) (citing Baxter v. Sullivan, 923 F.2d 18 | 1391, 1394 (9th Cir. 1991)). 19 20 IT IS SO ORDERED. DAM Le 41 | Dated: _ June 8, 2023 UNITED STATES MAGISTRATE JUDGE

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