Pennsylvania Transformer Technology, INC. v. Charter Oak Fire Insurance Company

• Court: District Court, S.D. California
• Decided: March 8, 2023
• Docket: 3:22-cv-00611
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 PENNSYLVANIA TRANSFORMER Case No.: 3:22-cv-00611-JAH-AHG TECHNOLOGY, INC., a Pennsylvania 12 corporation, ORDER DENYING CHARTER OAK 13 FIRE INSURANCE’S MOTION TO Plaintiff, DISMISS PUNITIVE DAMAGES 14 v. 15 THE CHARTER OAK FIRE , a

16 Connecticut corporation; and DOES 1-

100, inclusive, 17 Defendant. (ECF No. 4). 18

19 20 I. INTRODUCTION 21 Pending before the Court is Defendant The Charter Oak Fire Insurance Company’s 22 (“Defendant” or “Charter Oak”) motion to dismiss Pennsylvania Transformer Technology, 23 Inc.’s (“Plaintiff” or “PTTI”) request for punitive damages. (“Mot.”, ECF No. 4). Plaintiff 24 filed a response in opposition to the motion, (“Opp’n.”, ECF No. 5), and Defendant filed a 25 reply, (“Reply”, ECF No. 7). The Court decides the matter on the papers submitted and 26 without oral argument. See CivLR 7.1.d.1. Having carefully considered the motion, 27 responses, and for the reasons set forth below, Defendant’s motion is DENIED. 28 /// 1 II. BACKGROUND 2 In an Underlying Action which commenced on November 30, 2018, Imperial 3 Irrigation District (“IID”), an electrical power business, sued Plaintiff’s subsidiary, 4 Pennsylvania Breakers, LLC (“PAB”), for the sale and installation of allegedly defective 5 circuit breakers. (“Compl.”, ECF No. 1-2, Ex. 1 17). Plaintiff had taken over the 6 “warranty obligations of PAB with respect to maintenance and repair of the reported ¶ 7 problems with the circuit breakers,” and IID alleged that Plaintiff’s “efforts . . . caused or 8 exacerbated property damage to the circuit breakers and adjacent assemblies.” (Id. 15). 9 Plaintiff and PAB were both insured by Defendant, and Plaintiff alleges Defendant had a ¶ 10 duty to defend and indemnify Plaintiff in any suit pursuant to the provisions of their 11 respective policies and applicable law. (Id. 16, 20). Ultimately, Defendant agreed it 12 had a duty to defend Plaintiff, but stated it had no duty to indemnify Plaintiff or fund any ¶¶ 13 settlement in the underlying action. (Id. ¶ 27). Plaintiff eventually settled the underlying 14 action with IID. (Id. ¶ 29). 15 On February 10, 2022, Plaintiff filed the instant action in the Imperial County 16 Superior Court against Defendant for unreasonably withholding policy benefits. (See 17 generally Notice of Removal, Ex. 1). Plaintiff asserts two causes of action for Breach of 18 Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing. Plaintiff 19 alleges that Defendant “unreasonably refused . . . to defend” Plaintiff in the Underlying 20 Action after repeated demands to do so in accordance with the insurance policy. (Compl. 21 23). Specifically, Plaintiff asserts the claim in the underlying action was covered by the 22 insurance policies and Defendant acted in bad faith when it unreasonably and wrongfully ¶ 23 denied coverage and refused to reimburse Plaintiff towards the settlement of the 24 Underlying Action. (Id. 30, 32-34). Plaintiff further asserts that Defendant’s denial of 25 ¶¶ 26 27 1 The following is a recitation of pleaded facts and is not to be construed as factual 28 1 coverage was willful, malicious, intentional, and oppressive, stemming from improper or 2 evil motives. (Id. 63). 3 Defendant now moves to dismiss Plaintiff’s request for punitive damages on the ¶ 4 grounds that the allegations fail to state a claim upon which relief may be granted pursuant 5 to Federal Rule of Civil Procedure 12(b)(6). 6 III. LEGAL STANDARD2 7 “Federal Rule of Civil Procedure 12(b)(6) allows a defendant to file a motion to 8 dismiss for failing ‘to state a claim upon which relief can be granted.’ ” Fed. R. Civ. P. 9 12(b)(6). To withstand a motion to dismiss pursuant to Rule 12(b)(6), a complaint must 10 set forth factual allegations sufficient “to raise a right to relief above the speculative level.” 11 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Further, “a complaint must 12 contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible 13 on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim is facially plausible 14 when the factual allegations permit “the court to draw the reasonable inference that the 15 defendant is liable for the misconduct alleged.” Id. In other words, “the non-conclusory 16 ‘factual content,’ and reasonable inferences from that content, must be plausibly suggestive 17 of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Service, 572 F.3d 962, 969 18 (9th Cir. 2009). “Determining whether a complaint states a plausible claim for relief will 19 20 21 22 2 The Parties do not dispute the appropriateness of the Federal Rule of Civil Procedure 23 12(b)(6) standard for dismissing Plaintiff’s punitive damages claim. Nonetheless, the Court notes that courts within this district have grappled with the appropriateness of 24 dismissing a prayer for relief as a motion to dismiss under Fed. R. Civ. P. 12(b)(6) versus 25 a motion to strike under Fed. R. Civ. P. 12(f). However, the Ninth Circuit has held that “an attempt to have certain portions of [plaintiff’s] complaint dismissed or to obtain 26 summary judgment against [plaintiff] as to those portions of the suit [is] is better suited for 27 a Rule 12(b)(6) motion or a Rule 56 motion.” Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 974 (9th Cir. 2010). As such, the Court finds that based on the instant motion, 28 1 . . . be a context-specific task that requires the reviewing court to draw on its judicial 2 experience and common sense.” Iqbal, 556 U.S. at 679. 3 In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the 4 truth of all factual allegations and must construe all inferences from them in the light most 5 favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002); 6 Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). However, legal 7 conclusions need not be taken as true merely because they are cast in the form of factual 8 allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003); W. Min. Council v. 9 Watt, 643 F.2d 618, 624 (9th Cir. 1981). If a court determines that a complaint fails to 10 state a claim, the court should grant leave to amend unless it determines that the pleading 11 could not possibly be cured by the allegation of other facts. See Doe v. United States, 58 12 F.3d 494, 497 (9th Cir. 1995). 13 IV. DISCUSSION 14 1. Pleading Standard 15 As a threshold matter, the Parties dispute the applicability of Twombly and Iqbal to 16 a prayer for punitive damages. Defendant argues the Complaint sets forth no specific 17 factual allegations to support a punitive damages award, as required by Twombly and Iqbal. 18 (Mot. at 9-10). Plaintiff’s opposition as to this issue is two-fold: first, Plaintiff argues that 19 courts in the Southern District have declined to extend the pleading standard set out in 20 Twombly and Iqbal to a prayer for punitive damages; second, Plaintiff argues that even if 21 applicable, Plaintiff’s Complaint meets the standard set out by Twombly and Iqbal. 22 As to Plaintiff’s first point, although Plaintiff correctly observes that “district courts 23 in the Ninth Circuit disagree over whether the pleading standards set out by Twombly and 24 Iqbal may be used to dismiss a prayer for punitive damages[,]”, (Opp’n at 10), Plaintiff 25 nonetheless fails to cite to a case that makes such an express finding. Plaintiff relies on 26 Garcia v. United States, No. 14cv1192-WQH-JLB, 2014 WL 3734480, at *2 (S.D. Cal. 27 Jul. 28, 2014) and Putini v. Blair Corp., No. 09-cv-2729-W(BLM), 2010 WL 1797019, at 28 *2-3 (S.D. Cal. May 3, 2010). However, Plaintiff mischaracterizes the holdings in Garcia 1 and Putini. In Garcia, Judge Hayes acknowledged the disagreement amongst district 2 courts in their application of Twombly and Iqbal to punitive damages claims, but both Judge 3 Hayes and Judge Whelan expressly reserved making a finding on this issue, determining 4 instead that the allegations in the complaint are sufficiently plead to survive a motion to 5 dismiss. Garcia, 2014 WL 3734480, *2; Putini, 2010 WL 1797019, *3. Plaintiff’s 6 argument that Defendant “fail[s] to cite to any cases from the Southern District that have 7 held that the pleading standards set out in Twombly and Iqbal may be used to dismiss a 8 prayer for punitive damages, [and] it utterly ignores at least two cases from the Southern 9 District that have declined to do so[,]” is similarly unpersuasive. (Opp’n at 10). Plaintiff 10 “assume[s] an approach to federal pleading standards that is incongruous with the Supreme 11 Court’s most recent decisions on the issue.” MCI Comm. Servs., Inc. v. Security Paving 12 Co., Inc., Case No. 1:15-CV-01940-LJO-JLT, 2016 WL 1436521, *4 (E.D. Cal. April 12, 13 2016). Because Federal Rule of Civil Procedure 8(a), which dictates federal pleading 14 standards, applies to both the “statement of the claim” and the “demand for relief sought” 15 applying Twombly and Iqbal to a claim for punitive damages harmonizes Supreme Court 16 case law with the Federal Rules of Civil Procedure. Accordingly, the Court finds that the 17 standards set forth in Twombly and Iqbal apply to Plaintiff’s request for punitive damages 18 under California law. See e.g., Rivin v. Patrick K. Willis Co., Inc., No. 2:20-cv-07431- 19 RGK-KS, 2020 WL 8365251, at *3 (C.D. Cal. December 4, 2020) (“[T]he Court agrees 20 that Iqbal's and Twombly's pleading requirements apply to claims for punitive damages.”); 21 Diaz v. Bank of Am. Home Loan Servicing, L.P., No. cv 09-9286 PSG (MANx), 2011 WL 22 13046844, at *5 (C.D. Cal. July 8, 2011) (“The inclusion of statutory language in a 23 Complaint without alleging corresponding facts cannot lift an insufficiently pleaded 24 complaint over the Iqbal and Twombly hurdles.”). 25 2. Plaintiff’s Claim for Punitive Damages is Sufficiently Plead 26 California Civil Code § 3294(a) states a Plaintiff may recover punitive damages 27 “where it is proven by clear and convincing evidence that the defendant has been guilty of 28 oppression, fraud, or malice[.]” Cal. Civ. Code § 3294(a). 1 Defendant argues that the allegations in the Complaint are “largely recitations of its 2 core contention that [Defendant] unreasonably denied coverage.” (Mot. at 12). Defendant 3 further argues that any specific allegations are limited to “two boilerplate, conclusory 4 paragraphs that . . . summarize the elements of punitive damages.” (Id.) The Complaint 5 seeks punitive damages for a purported violation of a breach of the implied covenant of 6 good faith and fair dealing. In assessing whether a plaintiff sufficiently alleges oppression, 7 fraud, or malice, courts look to the definitions of those terms provided in § 3294: 8 (1) “Malice” means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on 9 by the defendant with a willful and conscious disregard of the rights 10 or safety of others.

11 (2) “Oppression” means despicable conduct that subjects a person to 12 cruel and unjust hardship in conscious disregard of that person's rights.

13 (3) “Fraud” means an intentional misrepresentation, deceit, or 14 concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of 15 property or legal rights or otherwise causing injury.3 16 Cal. Civ. Code § 3294(c)(1)-(3). 17 Here, Plaintiff alleges that a violation of Plaintiff’s rights occurred by Defendant’s 18 “refusals and denials . . . to provide coverage for [Plaintiff’s] losses under the applicable 19 policies[.]” (Compl. at ¶ 59). Plaintiff avers that Defendant’s refusal to provide coverage 20 “through their respective officers, directors and/or managing agents of their duties . . . was 21 willful, malicious, intentional, and was done with the intent to oppress [Plaintiff] and with 22 conscious disregard for [Plaintiff’s] rights . . . . solely to satisfy their profit motives and 23 corporate financial income objectives[.]” (Id.) Plaintiff further provides detailed 24 allegations of Defendant’s alleged violation of the covenant of good faith and fair dealing, 25 26 27 3 Plaintiff does not allege a cause of action for fraud. The specificity requirement of 28 1 (Compl. ¶¶ 58.a.-q.), which give rise to the request for punitive damages. Accepting the 2 allegations as true, and drawing all reasonable inferences in favor of Plaintiff, the Court 3 finds that the factual allegations in the Complaint are sufficient at this juncture of the 4 proceedings to infer oppression and malice and puts Defendant on notice of the claims 5 against them and the grounds on which those claims rest. See McKeever v. Block, 932 F.2d 6 795, 798 (9th Cir. 1991). 7 To the extent that Defendant attempts to advance an argument that Plaintiff must 8 show with “clear and convincing evidence that the defendant acted with ‘oppression, fraud, 9 or malice[,]’”, that argument is rejected. (Mot. at 11). California Civil Code 3294(a)’s 10 requirement of “clear and convincing evidence” is an evidentiary requirement applicable 11 at the summary judgment or trial phase—making such a determination at this juncture is 12 premature. Leon-Calderon v. Old Dominion Freight Line, Inc., No. 2:22-cv-08930-MCS- 13 KS, 2023 WL 1931328, *6 (C.D. Cal. Feb. 10, 2023); Mitchell Rubber Products, LLC v. 14 Verlan Fire Insurance Co., Case No. EDCV 21-1845 JGB (KKx), 2022 WL 17222233, *2 15 (C.D. Cal. Aug. 12, 2022). Additionally, and as further discussed above, unlike the 16 plaintiff in Cisneros v. Instant Capital Funding Group, Inc., 263 F.R.D. 595 (E.D. Cal. 17 2009)—a case which Defendant relies upon (Reply at 2-3)—Plaintiff’s complaint is not 18 devoid of “charging allegations of any wrongdoing by [Defendant] under the causes of 19 action for which Plaintiff claims punitive damages.” Cisneros, 263 F.R.D. at 611. As 20 such, the Court finds at this stage in the proceedings, the allegations contained in the 21 Complaint are sufficiently alleged, as required by Federal Rule of Civil Procedure 9(b). 22 Fed. R. Civ. P. 9(b) (“Malice, intent, knowledge, and other conditions of a person's mind 23 may be alleged generally.”). 24 3. Ratification 25 Finally, Defendant notes that under California law, a corporate entity is incapable of 26 engaging in willful and malicious conduct. (Mot. at 12-13 (citing to Cal. Civ. Code § 27 3294(b))). As such, Defendant argues Plaintiff offers no factual allegations of ratification 28 1 does not identify by name any Charter Oak officers, directors, or managing agents that 2 || ratified the alleged misconduct. (Mot. at 13). 3 As related to the request for punitive damages, Plaintiff's Complaint asserts generic 4 ||statements of ratification “that the respective officers, directors and/or managing agents 5 ||and/or employees of Defendants, and each of them, participated in, authorized and/or 6 || ratified the wrongful conduct of said Defendants as alleged hereinabove.” (Compl. at □ 7 59-60). Plaintiff asserts that at the pleading stage, “it is sufficient. . . to allege conduct by 8 officer or director or managing agent to support the request for punitive damages.” 9 ||(Opp’n at 15). Further, Plaintiff suggests, but does not explicitly state that the names at 10 |/this stage are unknown. (/d. (“The names of said individual actors will undoubtedly be 11 ||revealed during discovery.”) Accepting the factual allegations in the complaint as true, 12 |} and construing all inferences in favor of Plaintiff, the non-specific allegation of ratification 13 Charter Oak officers, directors, and/managing agent is sufficient. Gillespie v. Civiletti, 14 ||629 F.2d 637, 642 (9th Cir. 1980) (“situations arise. . . where the identity of alleged 15 || defendants will not be known prior to the filing of a complaint. In such circumstances, the 16 |/plaintiff should be given an opportunity through discovery to identify the unknown 17 || defendants, unless it is clear that discovery would not uncover the identities, or that the 18 complaint would be dismissed on other grounds.”). 19 V. CONCLUSION 20 For the foregoing reasons, Defendant's motion to dismiss Plaintiff's request for 21 || punitive damages is DENIED. 22 IT IS SO ORDERED. 23 || DATED: March 8, 2023 24

%6 JOHN A. HOUSTON XITED STATES DISTRICT JUDGE 27 28

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