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Present: The Honorable CHRISTINA A. SNYDER Catherine Jeang Not Present N/A Deputy Clerk Court Reporter / Recorder Tape No. Attorneys Present for Plaintiffs: Attorneys Present for Defendants: Not Present Not Present Proceedings: (IN CHAMBERS) - DEFENDANT’S MOTION TO DISMISS (Dkt. | 16 ], filed January 15, 2020) I. INTRODUCTION AND BACKGROUND Plaintiffs Steven Draeger and Dara Draeger (“plaintiffs”) filed this action against defendant Transamerica Life Insurance Company (“Transamerica”) in the Superior Court of the State of California for the County of Los Angeles on July 19, 2019. Dkt. 1. Plaintiffs subsequently filed a first amended complaint on November 12, 2019. Dkt. 1-1, Exhibit J (“FAC”). On December 11, 2019, Transamerica removed this action to the United States District Court for the Central District of California. Dkt. 1. Plaintiffs allege that on January 23, 2003, Transamerica’s predecessor issued a universal life insurance policy (“the Policy”), with a face amount of $1,500,000.00, on behalf of insured Clarice M. Lacey (“Lacey”). FAC § 6. In February 2006, plaintiffs “purchased the Policy from its then-owner for approximately $430,000.00.” Id. 4 7. According to plaintiffs, “Transamerica changed the registered Policy ownership to [ plaintiffs’ | names in [ April 2006] and [Transamerica] changed the beneficiary designation at that time as well.” Id. Plaintiffs further contend that at the time they acquired the Policy, plaintiffs “received in-force Policy illustrations showing the expected premium required under the contract for the life expectancy of the insured, and relied on those illustrations in purchasing the Policy.” Id. Despite this representation at the time plaintiffs acquired the policy, Transamerica subsequently provided in-force illustrations projecting that plaintiffs would have to pay increased annual premiums to keep the Policy in effect. Id. 4] 7, 12. Plaintiffs contend that on July, 2016, “Transamerica mailed a notice of monthly deduction rate increase for the [P]olicy . . . stating, “starting on your next policy anniversary date, your monthly deduction rates will increase by approximately 100%. This rate increase 1s in addition to the customary increases that are associated with age.’” FAC 4 11.
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UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the claims asserted in a complaint. Under this Rule, a district court properly dismisses a claim if “there is a ‘lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.”” Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011) (quoting Balisteri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988)). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and a
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘139 F.3d 696, 699 (9th Cir. 1998). The complaint must be read in the light most favorable to the nonmoving party. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). However, “a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009): see Moss v. United States Secret Service, 572 F.3d 962, 969 (9th Cir. 2009) (“[F]or a complaint to survive a motion to dismiss, the non-conclusory “factual content,’ and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.”). Ultimately, “[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679. As a general rule, leave to amend a complaint which has been dismissed should be freely granted. Fed. R. Civ. P. 15(a). However, leave to amend may be denied when “the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986): see Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). Iii. DISCUSSION A. Breach of Contract Claim According to Transamerica, a “necessary element of a breach of contract claim is proximately caused damages.” Mot. at 1. Transamerica therefore contends that plaintiffs’ breach of contract claim is subject to dismissal because: (1) the death benefit is not recoverable because plaintiffs do not allege that the insured died while they were the beneficiaries or that the Policy was wrongfully cancelled; (2) plaintiffs cannot recover the purchase price of the Policy, the premiums paid, or emotional distress damages because
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘
Plaintiffs do not specifically allege whether their claim for breach of the implied covenant sounds in contract or in tort. However, plaintiffs seek punitive damages in connection with this claim. See FAC 4 45.
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UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘
? Instead, plaintiffs raise these contentions for the first time in their opposition to Transamerica’s motion to dismiss. Moreover, plaintiff Steven Draeger submits a declaration, attesting to these contentions, in connection with plaintiffs’ opposition. See Dkt. 19-1. However, “[u]nless a court converts a Rule 12(b)(6) or 12(c) motion into a motion for summary judgment, a court generally cannot consider material outside of the complaint (e.g., facts presented in briefs, affidavits, or discovery materials).” Optima Tax Relief LLC v. Channel Clarity, Inc., No. 8:14-cv-1902-JLS-JCG, 2015 WL 12765016, at *2 (C.D. Cal. Aug. 26, 2015).
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘Federal Rule of Civil Procedure 8 allows parties to plead inconsistent factual allegations in the alternative.” Wi-LAN Inc. v. LG Elecs., Inc., 382 F. Supp. 3d 1012, 1021 (S.D. Cal. 2019). Accordingly, the Court declines to dismiss plaintiffs’ intentional misrepresentation claim on the basis of plaintiffs’ purported disavowal of Transamerica’s pre-2015 conduct in § 32 n.1 of the FAC. Should plaintiffs choose to file a second amended complaint, however, plaintiffs should clarify the allegation contained in § 32 n.1 of the FAC as well as the temporal period that serves as the basis for plaintiffs’ claims. 2. Intentional Misrepresentation Based on Omissions Plaintiffs allege that “[t]he illustration of September 6, 2011 and September 26, 2011 were false, misleading, grossly inaccurate, and fraudulent, in that throughout September, [sic] 2011, when [Transamerica] was representing that a level premium ranging from $52,310 to $66,356 would maintain the Policy to ages of the insured ranging from 95 to 100, Transamerica knew it had suffered . . . prolonged losses . . . due to the years of low interest rates it had been earning and higher or nearly as high interest rates it had been crediting to universal life policies, and thus knew” that annual premiums ranging from
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UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘183 Cal. App. 3d 194, 201 (1986). The Court need not decide, at the pleading stage, whether a “special” relationship exists between plaintiffs and Transamerica or whether Transamerica’s September 2011 illustrations complied with the California Insurance Code’s requirements. Here, plaintiffs allege that in its September 6, 2011 and September 26, 2011 illustrations, Transamerica represented that plaintiffs would need to make annual premium payments ranging from $52,310 to $66,356 to keep the Policy in force until the insured reached age 100. FAC 4 47-48. Despite these representations, however, plaintiffs allege that “Transamerica .. . knew that the $52,310 annual premium was not, in fact, sustainable to keep the Policy in force until insured reached age 95 and that the $66,356 annual premium was not, in fact, sustainable to keep the Policy in force until the insured reached age 100.” Id. 49. These allegations, taken as true, tend to establish that Transamerica’s representations in the September 6, 2011 and September 26, 2011] illustrations are misleading in that they suggest that Transamerica’s premiums would stay constant at the illustrated amounts during the life of the policy, despite Transamerica’s knowledge that “the annual premium could more than triple.” Id. 951. See Erickson Family, 2019 WL 4673337, at *3 (D. Ariz. Sept. 25, 2019) (finding that owner of Transamerica policy had stated fraud claim against Transamerica based on allegations “that the 2006 policy illustration was misleading because it suggested the policy was sustainable at the premium amounts used in the illustration.”’); Patricia Bugher Family P’ship LLLP v. Transamerica Life Ins. Co., No. 18- cv-04629-PHX-GMS, 2019 WL 2744843, at *2 (D. Ariz. July 1, 2019) (determining that owner of Transamerica policy had stated a fraud claim against Transamerica where the owner “alleges that Transamerica issued annual illustrations and other informational graphics that did not contain accurate representations of the Policy’s value” and “issued the policy despite knowing that the illustrations were not an accurate depiction of the value of these policies.”).*
3 The Court recognizes that the plaintiffs in Erickson Family and Bugher Family asserted fraud claims pursuant to the Arizona Consumer Fraud Act (‘ACFA”). However, a “false promise or misrepresentation” is an element of an ACFA claim. See Holeman v.
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘171 Cal. App. 4th 912 (2009). There, an insured asserted a fraud claim against its insurer based on
Neils, 803 F. Supp. 237, 242 (D. Ariz. 1992). Because, pursuant to California law, a duty to disclose can arise based on an affirmative misrepresentation, the courts’ conclusions in Erickson Family and Bugher Family that Transamerica’s alleged illustrations-related conduct constituted a “misrepresentation” for purposes of the ACFA are instructive to the Court’s analysis here with respect to Transamerica’s duty to disclose. 4 In connection with its motion to dismiss, Transamerica submits copies of the two September 2011 policy illustrations at issue in this case. See Dkt. 17-1; Dkt. 17-2. Although plaintiffs do not attach copies of these policy illustrations to the FAC, the FAC explicitly refers to them, and plaintiffs do not appear to contest the authenticity of the two purported illustrations that Transamerica submits in support of its motion. Accordingly, the Court may consider them in connection with Transamerica’s motion to dismiss. See Casault v. Fed. Nat. Mortg. Ass’n, 915 F. Supp. 2d 1113, 1120 (C.D. Cal. 2012) (“Under the incorporation by reference doctrine, the court may also consider documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading.”).
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5 A “vanishing life policy” is “one where, after a certain number of out-of-pocket premium payments had been made, the policy itself would generate sufficient sums through its dividend and interest income to pay future premiums for the balance of the insured’s life.” Broberg, 171 Cal. App. 4th at 916.
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘601 F.3d 919, 931 (9th Cir. 2010) (citing Richard P. v. Vista Del Mar Child Care Serv., 106 Cal. App. 3d 860, 865 (1980)). Thus, “[a]n honest or sincere statement of belief about a future event is not actionable, but a statement known at that time by the speaker to be false . . . may constitute an actionable misrepresentation.” PhotoMedex, 601 F.3d at 931. “Typically, “whether a statement is nonactionable opinion or actionable misrepresentation of fact is a question of fact for the jury.” Id. (citing Furla v. Jon Douglas Co., 65 Cal. App.4th 1069, 1081 (1998)). Here, plaintiffs allege that “Transamerica knowingly made the false representations in the September 6, 2011 and September 26, 2011 illustrations that” annual payments ranging from $52,310 to $66,356 “would enable [plaintiffs| to maintain the Policy until the insured’s age 100.” FAC 4 49. Plaintiffs further allege that “Transamerica has over a century of experience in the life insurance business|.|” Id. [ 53. Thus, to the extent that Transamerica’s representations in its September 2011 illustrations constitute “predictions as to future events” that are generally not actionable, these representations fall within the exception where “the relationship of the parties and the circumstances under which the opinion was expressed were such as to imply a superior knowledge by the defendant of the subject matter of the representation.” Borba v. Thomas, 70 Cal. App. 3d 144, 153 (1977). D. Negligent Misrepresentation Claim Plaintiffs assert a claim for negligent misrepresentation claim against Transamerica. See FAC 4 56—60.”To allege a cause of action for negligent misrepresentation, Plaintiff must plead: (1) the misrepresentation of a past or existing material fact; (2) without reasonable ground for believing it to be true; (3) with intent to induce another’s reliance on
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UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘151 Cal. App. 3d 941, 946 (1983). Accordingly, the Court of Appeal in Cohen determined, at the pleading stage, that plaintiffs’ negligent misrepresentation claim, based on a prediction as to a future event, could proceed because they “have pleaded sufficient facts to meet the requisites of each exception.” Id. At least one district court has cited Cohen with approval. See Mueller v. San Diego Entm’t Partners, LLC, No. 16-cv-2997-GPC-NLS, 2017 WL 3387732, at *9 (S.D. Cal. Aug. 7, 2017) (denying motion to dismiss plaintiff's negligent misrepresentation claim based on opinion as to future events because plaintiff's claim “fall[s] under the exception ‘where a party states his opinion as an existing fact or as implying facts which justify a belief in the truth of the opinion.’”). Following the hearing, the parties submitted supplemental briefing to the Court regarding the split of authority as to whether a prediction as to future events may serve as the basis for a negligent misrepresentation claim. Transamerica relies on the Ninth
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6 The three exceptions identified in Cohen include “(1) where a party holds himself out to be specially qualified and the other party is so situated that he may reasonably rely upon the former's superior knowledge; (2) where the opinion is by a fiduciary or other trusted person; and (3) where a party states his opinion as an existing fact or as implying facts which justify a belief in the truth of the opinion.” 151 Cal. App. 3d at 946.
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘17200. “Because [the UCL] is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent.” Boschma v. Home Loan Ctr., Inc., 198 Cal. App. 4th 230, 252 (2011). Here, plaintiffs’ UCL claim is premised on alleged violations of the UCL’s “unlawful” and “unfair” prongs. FAC § 63. 1. Unlawful Prong Transamerica argues that “[p]laintiffs’ UCL claim is [subject] to dismissal to the extent it is based on ‘unlawful’ conduct” because, according to Transamerica, “a plaintiff cannot predicate UCL ‘unlawful’ claims on mere common law violations.” Mot. at 23. The Court has previously sustained, at the pleading stage, similar claims against Transamerica based on the UCL’s “unlawful” prong. See, e.g., DCD Partners, LLC. v. Transamerica Life Ins. Co., No. 2:15-cv-03238-CAS-VBK, 2015 WL 5050513, at *10 (C.D. Cal. Aug. 24, 2015) (“Because the Court finds that plaintiffs have adequately alleged a claim for tortious breach of the covenant of good faith the Court also finds that plaintiffs have stated a claim under the ‘unlawful’ prong of the UCL.”); but_see Feller □□□ Transamerica Life Ins. Co., No. 2:16-cv-01378-CAS-AJW, 2016 WL 6602561, at *13 (C.D. Cal. Nov. 8, 2016) (“Plaintiffs argue that they have stated a claim under the ‘unlawful’ prong of the UCL predicated upon their tortious breach of the covenant of good faith and fair dealing. Defendant argues that a claim under the UCL’s ‘unlawful’ prong cannot be predicated on a common law claim. .. . [1]nsofar as plaintiffs allege an ‘unlawful’ act in violation of the UCL, it may not be predicated upon their tortious breach of the covenant of good faith and fair dealing claim.”).
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘622 F.3d 1035, 1044 (9th Cir. 2010)). Here, the Court has already determined that plaintiffs have stated a claim for intentional misrepresentation pursuant to California law. Accordingly, the Court declines to dismiss plaintiffs’ UCL claim, premised on the UCL’s unlawful prong, on this basis. See Izsak v. Wells Fargo Bank, N.A., No. 13-cv-05362-SI, 2014 WL 1478711, at *6 (N_D. Cal. Apr. 14, 2014) (declining to dismiss UCL claim under “unlawful” prong because “the Court has not dismissed plaintiff's claims for intentional misrepresentation, negligent misrepresentation, and promissory estoppel” and “[t|hese common law causes of action may serve as the predicate unlawful conduct for plaintiff's UCL claim.”). 2. Adequacy of Remedy Transamerica also contends “[p|laintiffs’ alleged UCL violations fail because [plaintiffs have an adequate remedy at law.” Mot. at 20. That is because, according to Transamerica, “|p]laintiffs do not request injunctive relief, instead alleging only that they are entitled to” restitution. Id. at 21. Transamerica therefore contends that the Court “may dismiss at the pleading stage a UCL claim where the plaintiff fails to plausibly allege it lacks an adequate remedy at law[.]”” Id. “While the scope of conduct covered by the UCL 1s broad, its remedies are limited.” Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1144 (2003). “Prevailing plaintiffs are generally limited to injunctive relief and restitution.” Cel-Tech Commce’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 179, (1999). “Statutory relief under the UCL is subject to fundamental equitable principles, including inadequacy of the legal 7 The Court has previously rejected Transamerica’s argument in other cases challenging Transamerica’s MDR increases. See Hamra v. Transamerica Life Ins. Co., No. 2:18-cv-06262-CAS-GJS, 2019 WL 468803, at *11 (C.D. Cal. Feb. 6, 2019): accord Thompson, 2018 WL 6790561, at *13. The Court notes that, unlike the plaintiffs in Hamra and Thompson, however, plaintiffs in this case do not appear to be seeking junctive relief.
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UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CIVIL MINUTES —- GENERAL ‘