Grammens v. Bankers Standard Insurance Company

• Court: District Court, N.D. California
• Decided: February 7, 2022
• Docket: 3:21-cv-06427
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 EDWARD GRAMMENS, et al., Case No. 3:21-cv-06427-WHO

8 Plaintiffs, ORDER GRANTING MOTION TO 9 v. DISMISS, TERMINATING MOTION AS MOOT, VACATING HEARINGS 10 BANKERS STANDARD INSURANCE COMPANY, et al., Re: Dkt. Nos. 7, 28 11 Defendants.

12 13 Plaintiffs Edward Grammens and Joanne Powell owned a home that was damaged in a fire; 14 they destroyed parts that they claim were damaged. The house was insured by defendant Bankers 15 Standard Insurance Company (“Bankers”), which hired defendant Madsen Kneppers and 16 Associates, Inc. (“MKA”), to prepare repair estimates. According to the defendants, some of the 17 destruction was done without authorization on non-damaged parts of the house. According to the 18 plaintiffs, the defendants falsely adopted this position to lower the insurance payout. MKA moves 19 to dismiss the fraud claim against it as well as the conspiracy and intentional interference with 20 prospective economic advantage (“IIPEA”) claims based on this alleged fraud. Its motion is 21 GRANTED with leave to amend.1 Although the claims survive many of MKA’s challenges, the 22 plaintiffs have not adequately pleaded that they justifiably relied on the alleged 23 misrepresentations. Any amended complaint shall be filed within 20 days. 24 Bankers has also filed a motion to dismiss scheduled to be heard in late March that raises 25 the same fundamental issues. That motion is TERMINATED AS MOOT in light of the dismissal 26 of the claims; the hearing on it is VACATED. 27 1 BACKGROUND 2 The plaintiffs were owners of a residential single-family home in Corte Madera, California 3 (“the Property”). Complaint (“Compl.”) [Dkt. No. 1 at 6–18] ¶ 1. The Notice of Removal states 4 that the plaintiffs are both citizens of Nevada. Notice of Removal (“Not.”) [Dkt. No. 1] at 2. 5 Bankers is an insurance company, incorporated in Pennsylvania, whose principal place of business 6 is in Philadelphia, Pennsylvania. Not. at 2; Compl. ¶ 2. MKA is a construction consultant and 7 engineering company, incorporated in Colorado, with its principal place of business in California. 8 Not. at 2; Compl. ¶ 3. 9 According to the plaintiffs, the Property was insured by Bankers; the insurance policy 10 “provided insurance coverage for property damage and loss of use of [the plaintiffs’] home in the 11 event of loss by fire.” Compl. ¶¶ 8, 12, Ex. 1. On September 4, 2019, a fire occurred at the Property. 12 Id. ¶ 9. The next day, the plaintiffs filed an insurance claim with Bankers for fire loss. Id. ¶ 10. 13 Bankers hired a remediation contractor, American Technologies, Inc. (“ATI”), and a consultant, 14 MKA. Id. ¶¶ 11–12. MKA prepared repair estimates for Bankers specifying which areas of the 15 Property required demolition and/or remediation. Id. ¶¶ 12–13. ATI performed work on the 16 Property that was specified or approved by MKA and Bankers. Id. ¶ 12. The plaintiffs also hired 17 separate contractors to prepare repair estimates and bids to repair the Property. Id. ¶ 13. 18 The plaintiffs allege that Bankers and MKA contrived the false positions that the plaintiffs 19 demolished parts of their home that were not damaged by the fire and directed remediation that was 20 not approved by Bankers. See id. ¶ 15. Based on these false premises, Bankers and MKA allegedly 21 prepared repair estimates that accounted for only a portion of the fire damage to the Property and 22 amounted to about one third of the amount that the plaintiffs’ contractors estimated was needed to 23 fully repair the damage to the Property. See id. ¶¶ 16–18. Bankers also refused to pay for some of 24 the work that ATI completed on the Property. Id. ¶ 18. 25 The plaintiffs also allege that Bankers denied “loss of use” coverage that they were entitled 26 to; Bankers denied this coverage because the plaintiffs “should have fully repaired the property by 27 May 2021, based on the false premise that only portions of the fire-damaged home need to be 1 Id. ¶ 20. The plaintiffs cannot complete repairs to the Property until the claim is paid in a way that 2 allows them “to repair all of the fire damage to the home.” Id. ¶ 20. In August 2020, the plaintiffs 3 requested an appraisal to assess the “amount of loss” sustained from the fire at the Property; the 4 house has been inspected but the results of the appraisal have not been announced. Id. ¶¶ 21–22; 5 Dkt. No. 25 (joint status report discussing progress of appraisal). In the plaintiffs’ view, “[a]ll of 6 [Bankers’s] positions on this claim have been asserted to minimize payment or deny payment to 7 [the plaintiffs] and to put the financial interests of [Bankers] well above those of [the plaintiffs].” 8 Id. ¶ 25. 9 In May 2021, the plaintiffs brought suit in state court and Bankers removed the case to this 10 court in August 2021. The plaintiffs bring three claims against MKA: fraud, conspiracy, and 11 IIPEA.2 On December 14, 2021, MKA filed its motion to dismiss all claims. Dkt. Nos. 28, 29.3 12 LEGAL STANDARD 13 Under Federal Rule of Civil Procedure (“FRCP”) 12(b)(6), a district court must dismiss a 14 complaint if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) 15 motion to dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible 16 on its face.” See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible 17 when the plaintiff pleads facts that “allow the court to draw the reasonable inference that the 18 defendant is liable for the misconduct alleged.” See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 19 (citation omitted). There must be “more than a sheer possibility that a defendant has acted 20 unlawfully.” Id. While courts do not require “heightened fact pleading of specifics,” a plaintiff 21 must allege facts sufficient to “raise a right to relief above the speculative level.” See Twombly, 550 22 U.S. at 555, 570. 23 In deciding whether the plaintiff has stated a claim upon which relief can be granted, the 24 court accepts the plaintiff’s allegations as true and draws all reasonable inferences in favor of the 25

26 2 The plaintiffs also bring four claims against Bankers: breach of contract, breach of the covenant of good faith and fair dealing, fraud, and conspiracy. See generally Compl. 27 1 plaintiff. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court 2 is not required to accept as true “allegations that are merely conclusory, unwarranted deductions of 3 fact, or unreasonable inferences.” See In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 4 2008). 5 FRCP 9(b) imposes a heightened pleading standard where a complaint alleges fraud or 6 mistake. Under FRCP 9(b), to state a claim for fraud, a party must plead with “particularity the 7 circumstances constituting the fraud,” and the allegations must “be specific enough to give 8 defendants notice of the particular misconduct . . . so that they can defend against the charge and 9 not just deny that they have done anything wrong.” See Kearns v. Ford Motor Co., 567 F.3d 1120, 10 1124 (9th Cir. 2009) (citation omitted). “Averments of fraud must be accompanied by the who, 11 what, when, where, and how of the misconduct charged.” Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 12 1106 (9th Cir. 2003) (citation omitted). 13 If the court dismisses the complaint, it “should grant leave to amend even if no request to 14 amend the pleading was made, unless it determines that the pleading could not possibly be cured by 15 the allegation of other facts.” See Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). In making 16 this determination, the court should consider factors such as “the presence or absence of undue 17 delay, bad faith, dilatory motive, repeated failure to cure deficiencies by previous amendments, 18 undue prejudice to the opposing party and futility of the proposed amendment.” See Moore v. 19 Kayport Package Express, 885 F.2d 531, 538 (9th Cir. 1989). Moreover, dismissals for failure to 20 comply with Rule 9(b) should ordinarily be without prejudice. See Vess, 317 F.3d at 1107-08 21 (internal citation and quotation marks omitted) (“when dismissing for failure to comply with Rule 22 9(b) leave to amend should be granted unless the district court determines that the pleading could 23 not possibly be cured by the allegation of other facts”). 24 DISCUSSION 25 MKA contends that the plaintiffs fail to state claims and, in any event, that “the Complaint 26 must be dismissed in its entirety against MKA because opinions are not actionable.” Motion to 27 Dismiss (“Mot.”) [Dkt. No. 29] 1. I address each cause of action in turn before addressing the 1 I. FRAUD 2 MKA moves to dismiss the fraud claim, arguing that the plaintiffs (1) have not pleaded with 3 the requisite particularity under Rule 9(b) and (2) have not adequately alleged justifiable reliance. 4 See id. at 5–6. 5 Under California law, the elements of fraud are “(1) a misrepresentation, (2) with knowledge 6 of its falsity, (3) with the intent to induce another’s reliance on the misrepresentation, (4) justifiable 7 reliance, and (5) resulting damage.” Conroy v. Regents of Univ. of California, 45 Cal. 4th 1244, 8 1255 (2009). 9 A. Particularity 10 The fraud claim must be pleaded with particularity under Rule 9(b). See Vess, 317 F.3d at 11 1103. MKA argues that the plaintiffs have failed to plead with particularity because they “fail[ed] 12 to set forth what is false or misleading about the statement and why it is false.” Mot. 6. The plaintiffs 13 counter that they have sufficiently pleaded the elements of fraud and that the Complaint meets the 14 requirements of Rule 9(b).4 See Opposition to the Mot. (“Oppo.”) [Dkt. No. 34] 3–4, 7. 15 The plaintiffs have met Rule 9(b)’s requirements. The “who” is Bankers and MKA. The 16 “what” is making false conclusions to artificially decrease the amount Bankers had to pay. The 17 “how” is by falsely claiming that that the plaintiffs demolished parts of the home that were not 18 damaged, and doing so without appropriate approvals. See Compl. ¶¶ 15, 46. The “when” and 19 “where” are also adequately pleaded. Although the Complaint does not include a precise date, time, 20 and geographic location, it need not do so on these facts. The plaintiffs plead that the false 21 representation occurred when MKA’s false estimate was incorporated into Bankers’s denial of a 22 higher payment. That is a sufficiently particular pleading about the when and where given the 23 specific type of allegations here. From these allegations, MKA is on notice of exactly the alleged 24 fraud it committed. Indeed, MKA’s brief simply conclusorily states that the “who, what, when, 25 26 4 At several points, the plaintiffs appear to argue that California pleading standards govern their 27 claims. See Oppo. 3. But “[t]he Federal Rules of Civil Procedure apply irrespective of the source 1 where, and how” is missing, without elaborating on why the allegations are insufficient. See Mot. 2 6. 3 B. Justifiable Reliance 4 Next, MKA argues that the plaintiffs have not sufficiently pleaded the element of justifiable 5 reliance. It asserts that plaintiffs cannot meet the element because they “cannot allege they 6 justifiably relied on the alleged misrepresentation when it is verifiable, i.e. Plaintiffs have direct 7 knowledge whether they demolished their own property or not.” Mot. 7. 8 “Reliance exists when the misrepresentation or nondisclosure was an immediate cause of the 9 plaintiff’s conduct which altered his or her legal relations, and when without such misrepresentation 10 or nondisclosure he or she would not, in all reasonable probability, have entered into the contract or 11 other transaction.” All. Mortg. Co. v. Rothwell, 10 Cal. 4th 1226, 1239 (1995). “Except in the rare 12 case where the undisputed facts leave no room for a reasonable difference of opinion, the question 13 of whether a plaintiff's reliance is reasonable is a question of fact.” Id. (internal quotation marks 14 and citation omitted). 15 The plaintiffs have failed to adequately allege that they justifiably relied on the alleged 16 misrepresentation. They argue that they “relied on their insurer (and their insurer’s expert) to handle 17 and adjust their claim fairly.” Oppo. 7. But that is not an argument that they relied on the 18 misrepresentation and that reliance damaged them. See Conroy, 45 Cal. 4th at 1256 (“Actual 19 reliance occurs when a misrepresentation is an immediate cause of a plaintiff’s conduct, which alters 20 his legal relations.” (internal quotation marks, citation, and alteration omitted). They do not include 21 any allegations, for instance, that they expended any money based on Bankers’s decision to pay 22 them less than they believed they are owed. And although they claim that they are damaged by 23 spending money on this suit, they brought this suit precisely because they believed the estimate was 24 false, not in justifiable reliance on it. They have leave to amend to adequately allege how they relied 25 on the alleged misrepresentation, why that reliance was justifiable, and the resulting damages. 26 C. Corporate Knowledge 27 MKA’s Motion stated—in a single sentence tacked on at the end of a paragraph about 1 substantiate and meet the requisite of corporate knowledge.” Mot. 6. It did not elaborate on this 2 statement or cite any authority. The plaintiffs’ Opposition did not address this point specifically, 3 instead arguing about broader particularity principles. In its Reply, MKA reveals that by “corporate 4 knowledge” it meant that the plaintiffs must “allege the names of the persons who made the allegedly 5 fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, 6 and when it was said or written.” Reply [Dkt. No. 37] 4 (quoting Cansino v. Bank of America, 224 7 Cal. App. 4th 1462, 1469, (2014)). It cites multiple cases and devotes a page-and-a-half of 8 developed argument to this point. 9 The argument was not sufficiently developed in the Motion for the plaintiffs to fairly be on 10 notice to respond; all of the development of the argument appeared in reply. New arguments in 11 reply—which this functionally is—are improper, so I decline to address it now. See Contratto v. 12 Ethicon, Inc., 227 F.R.D. 304, 309 n.5 (N.D. Cal. 2005) (collecting authorities). And whether these 13 pleading requirements apply in federal court has split district courts in this state, so addressing it in 14 this half-baked posture is especially unwarranted. See, e.g., Scott v. Bluegreen Vacations Corp., 15 No. 1:18-CV-649 AWI EPG, 2018 WL 6111664, at *5 n.4 (E.D. Cal. Nov. 21, 2018) (documenting 16 split). 17 II. CONSPIRACY 18 MKA moves to dismiss the conspiracy claim. It argues that conspiracy is “not recognized 19 as a cause of action within California” and that the plaintiffs “cannot allege conspiracy against MKA 20 as a matter of law.” Mot. 2. 21 In California, “[c]onspiracy is not a cause of action, but a legal doctrine that imposes liability 22 on persons who, although not actually committing a tort themselves, share with the immediate 23 tortfeasors a common plan or design in its perpetration.” Applied Equip. Corp. v. Litton Saudi 24 Arabia Ltd., 7 Cal. 4th 503, 510–11 (1994). As a result, “a civil conspiracy does not give rise to a 25 cause of action unless an independent civil wrong has been committed.” Id. “The elements of an 26 action for civil conspiracy are (1) formation and operation of the conspiracy and (2) damage 27 resulting to plaintiff (3) from a wrongful act done in furtherance of the common design.” Id. 1 A. Actionable Claims 2 MKA first argues that “[a] cause of action for conspiracy must fail because it is not a valid 3 claim.” Mot. 9. But, as explained above, California law does recognize a civil conspiracy action; 4 it simply does not do so without an independent wrong. See, e.g., Rusheen v. Cohen, 37 Cal. 4th 5 1048, 1062 (2006). 6 Next, MKA quotes Applied Equipment, apparently to argue that it cannot be subject to 7 liability. Mot. 9. But all that case held was that a contracting party cannot be liable for civil 8 conspiracy to interfere with its own contract. Applied Equip, 7 Cal. 4th at 508. And the portion that 9 MKA appears to rely on reiterated another case’s holding that non-insurer defendants cannot be 10 liable for breaches of the covenant of good faith and fair dealing implied into the contract between 11 the insured and insurer. See id. at 512 (citing Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 576 12 (1973)). But here, the conspiracy is not predicated on interference with contract or a breach of the 13 covenant of good faith and fair dealing, it is predicated on fraud. A conspiracy by an insurer and its 14 agent to commit fraud—a tort independent of the contract—is actionable. See Younan v. Equifax 15 Inc., 111 Cal. App. 3d 498, 511 (1980).5 16 B. Adequate Pleading 17 An action for conspiracy premised on fraud must be pleaded with particularity under Rule 18 9(b). See Swartz v. KPMG LLP, 476 F.3d 756, 765 (9th Cir. 2007). MKA argues that even if 19 conspiracy were a valid claim, the plaintiffs “fail[ed] to state facts sufficient to plead a claim for 20 fraud for which relief can be granted against MKA.” Mot. 9. For the reasons explained above, the 21 fraud claim has not been adequately pleaded, so the derivative conspiracy claim must fail too. 22 Accordingly, the claim of civil conspiracy is dismissed with leave to amend. 23

25 5 At one point, the plaintiffs allege that “defendants conspired with each other to commit fraud and generally deprive plaintiffs of insurance Policy benefits to which they were and are entitled.” 26 Compl. ¶ 51. If they intend the conspiracy to be predicated on actions other than the alleged fraud, they have not clearly alleged them. Based on the Complaint and Opposition, I understand them to 27 base the conspiracy claim only on fraud. When they amend the complaint, they should make clear III. IIPEA 1 MKA moves to dismiss the claim for IIPEA because the plaintiffs “fail[ed] to allege 2 MKA’s interference was a wrongful act beyond the interference itself.” Mot. 2. In California, the 3 elements of IIPEA are “(1) an economic relationship between the plaintiff and some third party, 4 with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of 5 the relationship; (3) intentional acts on the part of the defendant designed to disrupt the 6 relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff 7 proximately caused by the acts of the defendant.” Korea Supply Co. v. Lockheed Martin Corp., 29 8 Cal. 4th 1134, 1153 (2003). A plaintiff “must plead and prove as part of its case-in-chief that the 9 defendant’s conduct was wrongful by some legal measure other than the fact of interference 10 itself.” Id. In other words, “a plaintiff must plead and prove that the defendant's acts are wrongful 11 apart from the interference itself.” Id. 12 MKA argues that the plaintiffs failed to allege that MKA’s conduct violated any independent 13 legal measure. See Mot. 29. The plaintiffs reply that “[t]he intentional wrongful conduct was 14 alleged at paragraph 15 [of the Complaint],” and that they have “alleged fraud, which is unlawful.” 15 Oppo. 5–6; see Compl. ¶ 15. 16 Fraud and misrepresentations can generally constitute the wrongful act to support a claim 17 for IIPEA. See Rickel v. Schwinn Bicycle Co., 144 Cal. App. 3d 648, 659 (1983). But if fraud is 18 the independent wrongful act alleged in the IIPEA claim, the plaintiffs must meet Rule 9(b)’s 19 particularity requirements. See BioResource, Inc. v. U.S. PharmaCo Distribution, Ltd., No. C10- 20 1053 SI, 2010 WL 3853025 at *3 (N.D. Cal. Sept. 29, 2010). Because the plaintiffs have not 21 adequately pleaded the fraud claim (due to a failure to plead justifiable reliance), the IIPEA claim 22 must fall as well. Accordingly, the claim of IIPEA is dismissed with leave to amend. 23 IV. OPINIONS 24 MKA contends that, in the alternative, all of the claims must be dismissed because they are 25 premised on MKA’s repair estimate, which is a non-actionable opinion. See Mot. 2 (“MKA 26 provided an opinion and therefore the Complaint must be dismissed against MKA.”); id. 9 (“[a]n 27 opinion is not actionable”). Although the plaintiffs do not counter this argument in their Opposition, 1 MKA’s position is incorrect. The lone case it relied on held only that certain “forecasts of future 2 events [are] not actionable misrepresentations” because they are mere opinions. Cansino, 224 Cal. 3 || App. 4th at 1469. The alleged misrepresentation here was a misstatement of past and present facts: 4 || that the plaintiffs did or did not take a concrete action (destroying portions of their house without 5 warrant) that affected an appraisal price. It was not a bare opinion about future events. 6 CONCLUSION 7 The motion at Dkt. No. 28 is GRANTED with leave to amend. The motion at Dkt. No. 7 8 is TERMINATED AS MOOT. An amended complaint shall be filed within 20 days. Should 9 MKA and Bankers decide to move to dismiss again, they shall coordinate their briefing and the 10 || hearing schedule to avoid duplication of effort. 11 IT IS SO ORDERED. 12 Dated: February 7, 2022

5 William H. Orrick nited States District Judge 16

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