Kauai Scuba Center Inc v. Padi Americas Inc et al

Filing 95

MINUTES (IN CHAMBERS): ORDER by Judge David O. Carter: denying as moot 68 Motion to Strike ; granting 69 Motion to Dismiss ; granting 70 Motion to Dismiss ; granting 71 Motion to Dismiss Case ; granting 72 Motion to Dismiss Case ; granting 73 Motion to Dismiss. The Request for Judicial Notice (Doc. No. 70-2) is GRANTED. (MD JS-6. Case Terminated) (twdb)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. SACV 10-1579 DOC (MANx)
Title: KAUI SCUBA CENTER, INC. V. PADI AMERICAS, INC., ET AL.

Date: July 13, 2011

PRESENT:
THE HONORABLE DAVID O. CARTER, JUDGE
Julie Barrera
Courtroom Clerk

Not Present
Court Reporter

ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS:
NONE PRESENT

NONE PRESENT

PROCEEDING (IN CHAMBERS): ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS
AND DENYING MOTION TO STRIKE AS MOOT
Before the Court are six related motions to dismiss and/or strike the class allegations from
Plaintiff Kaui Scuba Center, Inc.’s (“Plaintiff”) Second Amended Complaint (“SAC”). Specifically,
these motions include: Lexington Insurance Company’s (“Lexington”) Motion to Dismiss (Doc. No.
71) and Motion to Strike (Doc. No. 68), York Risk Services Group, Inc.’s (“York”) Motion to Dismiss
(Doc. No. 72), Vicencia & Buckley Insurance Services, Inc.’s (“V&B”) Motion to Dismiss (Doc. No.
69), PADI Risk Purchasing Group Inc.’s Motion to Dismiss (Doc. No.70)1, and PADI Americas, Inc.
and PADI Worldwide Corporation’s Motion to Dismiss, or in the alternative, to Strike the Class
allegations (Doc. No. 73).2
The Court finds this matter appropriate for decision without oral argument. Fed. R. Civ.
P. 78; L.R. 7-15. After considering the moving, opposing and reply papers, and for the reasons stated
below, the Court hereby GRANTS the Motions to Dismiss. Lexington’s Motion to Strike is DENIED
as moot.
1

PADI Risk Purchasing Group also filed a Request for Judicial Notice (Doc. No.
70-2), which the Court grants.
2

As in the SAC, all PADI Defendants (PADI Risk Purchasing Group, Inc., PADI
Americas, Inc., and PADI WorldWide Corporation), are referred to collectively herein as
“PADI.”
MINUTES FORM 11 DOC
CIVIL - GEN

Initials of Deputy Clerk: jcb
Page 1 of 12

I.

BACKGROUND

For the last several years, Plaintiff owned and maintained a PADI-certified dive shop in
Hawaii. (SAC ¶¶ 3, 15.) One of the requirements of certification is maintaining insurance, which
Plaintiff bought from PADI, through V&B, PADI’s approved broker. (Id. ¶ 3.) Plaintiff asserts that
because PADI is the largest company in the world from which to obtain certification, most dive shop
owners purchase PADI-sponsored insurance. (Id. ¶ 16.) In purchasing commercial general liability
(“CGL”) and property damage (“PD”) insurance for dive shop owners, PADI and V&B represent that
insurance is provided by Lexington, a licensed insurance company. (Id.) In reality, PADI owns several
insurance policies through Lexington, with PADI as the named insured, and dive shop owners named as
additional insureds. (Id. ¶ 17.) The Lexington policies require PADI to pay the first $300,000 directly
to the injured dive shop, allegedly making PADI, not Lexington, the primary “insurer” for this amount.
(Id. ¶ 17.)
Plaintiff alleges that PADI is not licensed to act as an insurance company in any state, nor
does it carry mandated financial reserves. (Id.) In the event of losses to multiple dive shops, PADI will
not have sufficient funds to cover the losses. (Id.) Plaintiff was told that its insurance coverage would
be provided by Lexington, and paid full market value for the policy. (Id.) Plaintiff alleges it was
overcharged because coverage by PADI, which is unlicensed, is worth far less than coverage by
Lexington, a legitimate insurance company. (Id.) V&B and York, as broker and adjustor, respectively,
further perpetrate this scheme by adding “an air of legitimacy” to the transaction. (Id. ¶ 18.) PADI,
V&B, York, and Lexington all fail to disclose the true nature of this scheme to dive shop owners. (Id.
¶¶ 19, 23.)
On March 10 and March 15, 2011, the Court granted V&B, York, and Lexington’s earlier
motions to dismiss, and Plaintiff was granted leave to amend its complaint. (Doc. Nos. 54, 55.) On
April 6, 2011, Plaintiff filed its SAC, on behalf of itself and other dive shops that have acquired
insurance through PADI and V&B. The SAC alleges claims for: (1) Breach of Contract (Rescission)
(against V&B and all PADI Defendants); (2) Breach of Contract (Damages) (against V&B and all
PADI Defendants); (3) Money Had and Received (against V&B and all PADI Defendants); (4) Breach
of Contract (against V&B) (5) Breach of Fiduciary Duty (against V&B); (6) Negligence (against
V&B); (7) Intentional Misrepresentation (against all Defendants); (8) Negligent Misrepresentation
(against all Defendants); (9) violation of the Racketeer Influenced and Corrupt Organizations Act
(“RICO”) (against all Defendants); (10) False Advertising (“FAL”) (Cal. Bus. & Prof. Code § 17500)
(against V&B and all PADI Defendants); and (11) Fraudulent and Deceptive Business Practices
(“UCL”) (Cal. Bus. & Prof. Code § 17200) (against V&B and all PADI Defendants).

II.

LEGAL STANDARD

MINUTES FORM 11 DOC
CIVIL - GEN

Initials of Deputy Clerk: jcb
Page 2 of 12

A.

Rule 12(b)(6)

Under Federal Rule of Civil Procedure 12(b)(6), a complaint must be dismissed when a
plaintiff’s allegations fail to state a claim upon which relief can be granted. Dismissal for failure to
state a claim does not require the appearance, beyond a doubt, that the plaintiff can prove “no set of
facts” in support of its claim that would entitle it to relief. Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955,
1968 (2007) (abrogating Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99 (1957)). In order for a
complaint to survive a 12(b)(6) motion, it must state a claim for relief that is plausible on its face.
Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009). A claim for relief is facially plausible when the
plaintiff pleads enough facts, taken as true, to allow a court to draw a reasonable inference that the
defendant is liable for the alleged conduct. Id. at 1949. If the facts only allow a court to draw a
reasonable inference that the defendant is possibly liable, then the complaint must be dismissed. Id.
Mere legal conclusions are not to be accepted as true and do not establish a plausible claim for relief.
Id. at 1950. Determining whether a complaint states a plausible claim for relief is a context-specific
task requiring the court to draw on its judicial experience and common sense. Id.
In evaluating a 12(b)(6) motion, review is “limited to the contents of the complaint.”
Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). However, exhibits attached to the
complaint, as well as matters of public record, may be considered in determining whether dismissal was
proper without converting the motion to one for summary judgment. See Parks School of Bus., Inc. v.
Symington, 51 F.3d 1480, 1484 (9th Cir. 1995); Mack v. South Bay Beer Distribs., Inc., 798 F.2d 1279,
1282 (9th Cir. 1986). Further, a court may consider documents “on which the complaint ‘necessarily
relies’ if: (1) the complaint refers to the document; (2) the document is central to the plaintiff’s claim;
and (3) no party questions the authenticity of the copy attached to the 12(b)(6) motion.” Marder v.
Lopez, 450 F.3d 445, 448 (9th Cir. 2006). “The Court may treat such a document as ‘part of the
complaint, and thus may assume that its contents are true for purposes of a motion to dismiss under
Rule 12(b)(6).” Id.
B.

Rule 9(b)

Under Federal Rule of Civil Procedure 9(b), a plaintiff must plead each of the elements of
a fraud claim with particularity, i.e., a plaintiff “must set forth more than the neutral facts necessary to
identify the transaction.” Cooper v. Pickett, 137 F.3d 616, 625 (9th Cir. 1997) (emphasis in original).
In other words, fraud claims must be accompanied by the “who, what, when, where, and how” of the
fraudulent conduct charged. Vess v. Ciba-Geigy Corp., USA, 317 F.3d 1097, 1106 (9th Cir. 2003). A
pleading is sufficient under Rule 9(b) if it identifies the circumstances constituting fraud so that a
defendant can prepare an adequate answer from the allegations. Moore v. Kayport Package Express,
Inc., 885 F.2d 531, 540 (9th Cir. 1989). While statements of the time, place, and nature of the alleged
fraudulent activities are sufficient, mere conclusory allegations of fraud are insufficient. Id.
III.

DISCUSSION

MINUTES FORM 11 DOC
CIVIL - GEN

Initials of Deputy Clerk: jcb
Page 3 of 12

A.

Standing

Defendants argue that the SAC must be dismissed in its entirety because Plaintiff lacks
standing and/or fails to allege any damages. (Doc. Nos. 69-1 at 5-6, 70-1 at 6-7, 71-1 at 8, 72 at 22, 731 at 16-17.) Specifically, Defendants argue that Plaintiff lacks standing to sue because no injury in fact
is alleged. Defendants contend that the alleged harm of being overcharged for insurance premiums,
based solely on PADI’s unlicensed status, is not actionable under Medina v. Safe-Guard Prods., Int’l,
Inc., 164 Cal. App. 4th 105, 114 (2008). While Medina found that the plaintiff did not suffer any harm
because of the insurer-defendant’s unlicensed status, the court relied on the fact that the plaintiff did not
allege that he paid more for the coverage than what it was worth because of the unlicensed status. Id.
Here, Plaintiff alleges a loss based on paying higher premiums than what the policies were worth
because PADI in not a licensed insurer. (SAC ¶ 20 (“Plaintiff paid full, fair market value for insurance
premiums and coverage by a licensed insurer and received coverage worth far less, as the market value
for insurance from an unlicensed company is worth considerably less and possibly zero.”).)
Where a consumer alleges that he or she paid more for a product than they otherwise
might have, had the product been labeled accurately, the economic harm to the purchasing consumer is
real. Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 329 (2011). However, Plaintiff’s damages
theory cannot be saved by Kwikset because a review of the policies demonstrates that coverage was
provided by Lexington, not PADI.3 (Hornsby Decl. Exs. A-J.) Plaintiff fails to allege how the
inclusion of a self-insured retention (“SIR”) provision in certain group policies between PADI
Americas and Lexington renders PADI Americas an unlicensed “insurer.” See Aerojet-General Corp.
v. Transport Indem. Co., 17 Cal. 4th 38, 72 n.20 (1997) (Explaining that self insurance “is equivalent to
no insurance”; “In a strict sense, ‘self-insurance’ is a ‘misnomer.’”). “The Insurance Code defines
‘insurance’ as ‘a contract whereby one undertakes to indemnify another against loss, damage, or
liability arising from a contingent or unknown event.’” Fort Bragg Unified School Dist. v. Solano
County Roofing, Inc., 194 Cal. App. 4th 891, 904 (2011).
Plaintiff does not allege a contract whereby PADI undertook to indemnify dive shop
owners against loss. Rather, Plaintiff alleges that it was promised such a contract from Lexington. By
all accounts, this is what Plaintiff received. Insurance coverage was provided by Lexington under
PADI’s group policies, with Plaintiff named as an additional insured, and with PADI responsible for a
$300,000 annual deductible under certain of the past policies. That PADI paid the deductible does not
make PADI an “insurer.”
Accordingly, Plaintiff’s alleged injury in fact, based on the theory that PADI was acting
3

The Court considers the polices because the SAC necessarily relies on them, they
are central to Plaintiff’s claim, and Plaintiff does not question their authenticity, but rather
only asks the Court not to consider them in ruling on the motion to strike the Class
allegations. Marder, 450 F.3d at 448.
MINUTES FORM 11 DOC
CIVIL - GEN

Initials of Deputy Clerk: jcb
Page 4 of 12

as an unlicensed insurer is untenable. Stated another way, arguing that it paid too much for insurance
because Plaintiff unwittingly bought “unlicensed insurance” from PADI is not the type of economic
harm contemplated by Kwikset because Plaintiff cannot argue that it received only the functional
equivalent of licensed insurance, or a product it did not want or use. To the contrary, not only did
Plaintiff receive licensed insurance from Lexington, as evidenced by the policies, this is exactly what
Plaintiff admittedly wanted, and what Plaintiff relied on to have its claim paid.
Because Plaintiff cannot allege any injury from receiving licensed insurance from
Lexington, Defendants’ Motions to Dismiss are GRANTED and the SAC is DISMISSED in its entirety.
Even if the Court overlooks Plaintiff’s lack of standing, the individual claims are dismissed for the
reasons set forth below.
B.

Breach of Contract Claims

Plaintiff’s first, second, and fourth causes of action are rooted in breach of contract. In its
March 10, 2011 Order (“Order I”), the Court dismissed the breach of contract and recission claims
because Plaintiff failed to plead the existence of a contract by its terms or legal effect, and because
recission is a remedy, not a cause of action. (Order I at 3, 8.)
V&B and PADI attack Plaintiff’s amended breach of contract claims on the grounds that
Plaintiff failed to cure the defects previously identified by the Court. V&B again argues that recission
is not a cause of action, and the SAC does not plead facts demonstrating the existence of a contract, nor
does it plead facts showing actual damage. (Doc. 69 at 2.) PADI makes the same arguments with
respect to the first and second claims. (Doc. Nos. 70 at 2, 75 at 2.)
Plaintiff responds that the facts alleged are sufficient because the SAC alleges that the
insurance policy promised coverage by Lexington, a licensed insurance company, when in fact no such
coverage was provided, and Plaintiff received unlicensed coverage from PADI. (Doc. Nos. 78 at 8, 79
at 9, 81 at 8.)
1.

Recission

Plaintiff’s first cause of action for “Breach of Contract (Recisson)” is nothing more than
its dismissed Recission “claim” in disguise. As the Court previously stated, rescission is a remedy, not
a cause of action. See Cal. Civ. Code §§ 1689, 1691; Ozuna v. Home Capital Funding, 2009 WL
4544131, at *11 (S.D. Cal. Dec. 1, 2009) (dismissing a cause of action for rescission because it is a
remedy, not a cause of action); Nakash v.Superior Court, 196 Cal. App. 3d 59, 70 (1987). Thus,
Plaintiff’s first cause of action is DISMISSED WITH PREJUDICE as to all Defendants.
2.

MINUTES FORM 11 DOC
CIVIL - GEN

Breach of Contract

Initials of Deputy Clerk: jcb
Page 5 of 12

To state a claim for breach of contract under California law, a plaintiff must allege: (1)
the existence of a contract; (2) plaintiff’s performance or excuse for nonperformance of the contract; (3)
defendant’s breach of contract; and (4) resulting damage. Durell v.Sharp Healthcare, 183 Cal. App.
4th 1350, 1367 (2010). Moreover, in order to sufficiently plead breach of contract, Plaintiff must plead
the “contract either ‘by its terms, set out verbatim in the complaint or a copy of the contract attached to
the complaint and incorporated therein by reference, or by its legal effect.’” N. County Commc’ns
Corp. v. Verizon Global Networks, Inc., 685 F. Supp. 2d 1112, 1122 (S.D. Cal. 2010) (quoting McKell
v. Wash. Mut., Inc., 142 Cal. App. 4th 1457, 1489 (2006)). “In order to plead a contract by its legal
effect, [Plaintiff] must ‘allege the substance of its relevant terms.’” Id. (citing 4 Witkin, Cal. Pro. (4th
Ed. 1997) Pleading § 480, p. 573).
In Order I, the Court dismissed these claims from the FAC because Plaintiff failed to
plead the existence of the contract by its terms or legal effect. (Order I at 3.) As in the FAC, the SAC
does not attach a copy of the contract establishing the contractual terms, and/or lay out the specific
terms of the contract in the complaint.4 In the SAC, the only attempts Plaintiff makes to elaborate on
the substance of the relevant terms are to change its allegation of a single contract to an allegation of
multiple contracts, and allege that the contracts were “partly oral and partly written.” (SAC ¶¶ 33, 45.)
The Court agrees with Defendants that, rather than curing the FAC’s deficiencies, the SAC makes the
breach of contract claims “murkier.” Because Plaintiff has failed to remedy the pleading deficiencies
previously identified by the Court, and because the amended claims fail to plead the alleged contracts,
Plaintiffs second and fourth causes of actions are DISMISSED WITH PREJUDICE as to all
Defendants.
C.

Money Had and Received

Defendants argue that Plaintiff’s third cause of action for money had and received fails
because Plaintiff does not allege either unjust enrichment or a certain sum for money had and received
by Defendants. (Doc. Nos. 69-1 at 12, 70-1 at 12.) Additionally, PADI Americas and PADI
Worldwide argue that recovery must be denied because they have not actually received any money
from Plaintiff. (Doc. No. 70-3 at 10-11.)
Plaintiff responds that while the exact details of what money changed hands from V&B to
PADI is unknown, it should be allowed to take discovery to prove that both V&B and PADI were
4

While PADI provides copies of the relevant insurance policies, attached to the
Hornsby Declaration (Doc. No. 73-2), this does not alleviate Plaintiff’s burden to allege
facts setting forth the relevant terms of the alleged partly written/partly oral contracts and
actions giving rise to breach. Even assuming these policies constitute the alleged written
portions of the contracts, the Court cannot speculate regarding the nature of the alleged
oral portions of the contracts and/or any additional written or oral contracts between
Plaintiff and any of the other Defendants.
MINUTES FORM 11 DOC
CIVIL - GEN

Initials of Deputy Clerk: jcb
Page 6 of 12

unjustly enriched by Plaintiff’s payment of premiums. (Doc. Nos. 78 at 8, 79 at 8, 81 at 8.)
In order to bring a claim for money had and received, Plaintiff must allege “unjust
enrichment of the wrongdoer, and in order for plaintiff to recover in such action she must show that a
definite sum, to which she is justly entitled, has been received by defendant.” Walter v. Hughes
Commc’ns, Inc., 682 F. Supp. 2d 1031, 1047 (N.D. Cal. 2010) (quoting Bastanchury v. Times-Mirror
Co., 68 Cal. App. 2d 217, 236 (1945)). A plaintiff must plead that the defendant “is indebted to the
plaintiff in a certain sum for money had and received by the defendant for the use of the plaintiff.”
Schultz v. Harney, 27 Cal. App. 4th 1611, 1623 (1994) (citation and internal quotation marks omitted).
While Plaintiff has alleged unjust enrichment, and seeks the return of premiums to the
extent it overpaid for the coverage it received, (SAC ¶¶ 41, 43), because the crux of this claim relies on
an untenable allegation that Plaintiff bought unlicensed insurance from PADI rather than licensed
insurance from Lexington, see Section III.A, Plaintiff cannot state a claim. Moreover, as before,
because Plaintiff’s remaining claims fail to state a claim, Plaintiff cannot allege grounds on which the
money paid to V&B must be returned.5 See Order I at 8-9. Thus, Plaintiff’s third cause of action is
DISMISSED WITH PREJUDICE as to all Defendants.
D.

Breach of Fiduciary Duty

V&B seeks dismissal of Plaintiff’s fifth cause of action, breach of fiduciary duty, on the
grounds that the SAC does not cure the failure to allege damages. (Doc. No. 69-1 at 12.) Plaintiff’s
statement regarding difference in market value and price paid is a “conclusion unsupported by facts,”
V&B contends. (Id.)
Plaintiff responds that “PADI coverage is worth less than Lexington coverage and
Plaintiff has been damaged by paying fair market rates for Lexington and receiving coverage worth less
than that as provided by Lexington.” (Doc. No. 79 at 8.)
In reply, V&B argues that this claim is foreclosed by a recent California Court of Appeal
opinion holding that insurance brokers may not be sued for breach of fiduciary duty in a matter that
conflicts with existing insurance law. (Doc. No. 83 at 8, citing Workmen’s Auto Ins. Co. v. Guy
Carpenter & Co., Inc., 194 Cal. App. 1468 (May 4, 2011).)
5

The Court refers only to payments made to V&B due to the internal
inconsistencies in the SAC regarding whether Plaintiff paid any amount to PADI.
(Compare SAC ¶ 33 (“Plaintiff . . . [was] required to pay premiums to V&B and/or
PADI”) with ¶ 46 (“Plaintiff paid all premiums to V&B”).) While the Court must take
Plaintiff’s factual allegations as true, contradictory allegations cannot stand. Moreover,
because Plaintiff’s opposition concedes that it paid premiums only to V&B, (Doc. No. 78
at 8), the Court disregards allegations in the SAC suggesting otherwise.
MINUTES FORM 11 DOC
CIVIL - GEN

Initials of Deputy Clerk: jcb
Page 7 of 12

“In order to plead a cause of action for breach of fiduciary duty, there must be shown the
existence of a fiduciary relationship, its breach, and damage proximately caused by that breach.”
Pierce v. Lyman, 1 Cal. App. 4th 1093, 1101 (1991). A lack of any of these elements is fatal. Id.
“[B]efore a person can be charged with a fiduciary obligation, he must either knowingly undertake to
act on behalf and for the benefit of another, or must enter into a relationship which imposes that
undertaking as a matter of law.” Committee on Children’s Television, Inc. v. General Foods Corp., 35
Cal. 3d 197, 221 (1983).
As an initial matter, Workmen’s Auto is not citable precedent because the Court of Appeal
granted rehearing of the matter on June 2, 2011. Turning to the SAC, Plaintiff fails to allege how V&B
entered into a relationship with Plaintiff such that a fiduciary duty was imposed on V&B, either
because V&B knowingly undertook to act for Plaintiff, or because such a duty is imposed as a matter of
law. Plaintiff merely alleges that “V&B, as an insurance broker and expert in the insurance business, is
charged with a fiduciary duty of helping their clients obtain proper, legitimate and requested insurance
coverage.” (SAC ¶ 49.) This conclusory allegation is insufficient.
Even assuming that V&B is charged with a fiduciary duty by virtue of its role as an
insurance broker, the claim fails because the “duty” and “breach” alleged by Plaintiff are illusory.
Plaintiff alleges that V&B breached its duty to inform customers that insurance was “provided by an
unlicensed entity without mandated reserves[,]” Lexington does not cover the first $300,000 in loss,
PADI may not be able to cover multiple losses at once, and dive shop owners are not receiving licensed
insurance coverage in most circumstances. (SAC ¶ 51.) All of these allegations rely on the faulty
assumption that Plaintiff received unlicensed insurance coverage from PADI. Because Plaintiff in fact
received licensed coverage from Lexington, these allegations cannot state a claim for breach of
fiduciary duty.
Lastly, Plaintiff fails to allege damages under this claim because its damages claim is
based on the same faulty assumption that it received unlicensed coverage from PADI. Accordingly,
Plaintiff’s fifth cause of action is DISMISSED WITH PREJUDICE as to V&B.
E.

Negligence

As it did with the breach of fiduciary duty claim, V&B seeks dismissal of Plaintiff’s sixth
cause of action for negligence on the grounds that the SAC does not cure the failure to allege damages.
The SAC alleges the same damages for negligence as for breach of fiduciary duty. (SAC
¶ 58.) For the reasons stated above, these allegations are deficient. Thus, Plaintiff’s sixth cause of
action is DISMISSED WITH PREJUDICE as to V&B.
F.

Intentional Misrepresentation

MINUTES FORM 11 DOC
CIVIL - GEN

Initials of Deputy Clerk: jcb
Page 8 of 12

In Order I, the Court dismissed Plaintiff’s intentional misrepresentation claim because it
failed to plead nondisclosure, knowledge of falsity, and intent to defraud. (Order I at 5.) In its second
order regarding York and Lexington’s earlier motions to dismiss, the Court dismissed the claim because
Plaintiff failed to plead intentional misrepresentation with particularity, as required under Rule 9(b),
and Plaintiff failed to allege any damages, let alone damages caused by York and Lexington. (Doc. No.
54 at 3-4 (“Order II”).)
In the instant Motions to Dismiss, Defendants argue that Plaintiff’s seventh cause of
action remains deficient because only one fact was added to the SAC regarding a conversation Plaintiff
had with a V&B representative, (Doc. No. 69-1 at 13-14), no changes were made to the allegations
regarding PADI, (Doc. No. 70-1 at 12-13), no justifiable reliance with respect to PADI is alleged, (Doc.
No. 73-1 at 14), and no specific allegations were added regarding any misrepresentations/omissions
made by York and Lexington and/or damages caused therefrom, (Doc. Nos. 71-1 at 5-8, 72 at 11-15).
Plaintiff argues, without citations to alleged facts in the SAC, that it was told it would
obtain Lexington coverage, intent to deceive and knowledge of falsity may be inferred, Plaintiff relied
upon these misrepresentations, and suffered damage in the form of overpayment for its policy. (Doc.
Nos. 78 at 10, 79 at 11, 81 at 10.)
The SAC fails to meet Rule 9(b)’s requirement that fraud-based claims be pleaded with
particularity. See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097 (9th Cir. 2003) (stating that under
Rule 9(b) standards, “[a]verments of fraud must be accompanied by the ‘who, what, when, where, and
how’ of the misconduct charged”). Plaintiff’s conclusory allegation that all Defendants participated in
a conspiracy to sell illusory insurance and conceal the scheme from Plaintiff is insufficient to allow
each Defendant to respond to the claim. Plaintiff alleges that the true nature of the insurance it
purchased was omitted by PADI, V&B failed to disclose it, Lexington knew about it, and York
“provided an air of legitimacy” to the transaction. (SAC ¶ 60.) In support of these conclusory
allegations, Plaintiff alleges that a representative from V&B told Plaintiff that its insurance would come
from an “A+ rated” insurance company. (Id.) Plaintiff further alleges, without factual support, that
V&B concealed the true nature of the insurance at PADI’s request. (Id.) Plaintiff alleges that York
participated by issuing “exchange checks.” (Id.)
Although Plaintiff attempts to allege the “who” by asserting in a conclusory fashion each
Defendant’s alleged role in the transaction, Plaintiff fails to plead specific facts demonstrating a
misrepresentation by any Defendant. That a V&B representative told Plaintiff that Lexington was A+
rated, when in fact it was, does not give rise to an intentional misrepresentation claim. Similarly, that
York issued Plaintiff checks does not on its own lead to the plausible inference that York defrauded
Plaintiff. Without alleging particular facts supporting each Defendant’s alleged misrepresentations
and/or role in the fraud, the SAC fails to state a claim for intentional misrepresentation. The
insufficiency of this claim is compounded by the fact that Plaintiff fails to allege facts supporting the
“what,” “where” and “how” of the misconduct charged. It is not enough to allege a fraudulent scheme
MINUTES FORM 11 DOC
CIVIL - GEN

Initials of Deputy Clerk: jcb
Page 9 of 12

without alleging particular facts to show how Plaintiff was defrauded. Because Plaintiff fails to correct
the pleading deficiencies previously identified by the Court in Order I and Order II, the seventh cause
of action is DISMISSED WITH PREJUDICE as to all Defendants.
G.

Negligent Misrepresentation

Claims for negligent misrepresentation must also meet Rule 9(b)’s heightened pleading
requirements. Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101, 1141 (C.D. Cal. 2003). The
amendments to Plaintiff’s eighth cause of action for negligent misrepresentation are identical to those
made to the intentional misrepresentation count. (SAC ¶ 65.) Accordingly, because the intentional
representation claim fails to meet Rule 9(b)’s heightened pleading requirements, the negligent
misrepresentation claim also fails. For the reasons set forth in Section III.F above, the eighth cause of
action is DISMISSED WITH PREJUDICE as to all Defendants.
H.

RICO

As the Court previously stated in Orders I and II, where a RICO claim is predicated on
allegations of fraud, it must also meet the heightened pleading standards of Rule 9(b). (Order I at 6;
Order II at 5.) The allegations of fraud made in support of the RICO claim are the same as those
averred in Plaintiff’s failed misrepresentation claims. (SAC ¶ 70.) Thus, the RICO claim similarly fails
under Rule 9(b). For the reasons set forth in Section III.F above, and the reasons stated in the Court’s
RICO discussion in Orders I and II, the ninth cause of action is DISMISSED WITH PREJUDICE as to
all Defendants.
I.

False Advertising & Unfair Business Practices

V&B argues that the SAC does not describe what advertisements were promulgated by
V&B, what advertisements Plaintiff saw or read, and how Plaintiff relied on those advertisements.
(Doc. No. 69-1 at 21.) PADI makes the same arguments, (Doc. No. 70-1 at 19-20), and further argues
that these claims should be dismissed because neither restitution nor the injunctive relief sought by
Plaintiff can be granted against PADI where Plaintiff admits it paid all premiums to V&B. (Doc. No.
73-1 at 11.) V&B also argues that Plaintiff fails to establish actual injury of money or property,
reliance, and causation. (Doc. 83 at 11.)
Plaintiff premises both of these claims on allegedly false advertising by V&B and PADI.
Plaintiff contends that it properly pleaded reliance under the UCL, as well as all of the elements of a
false advertising claim. (Doc. Nos. 78 at 17, 79 at 19, 81 at 17.)
California’s false advertising law prohibits “any statement” that is “untrue or misleading”
and made “with the intent directly or indirectly to dispose of” property or services. Cal. Bus. & Prof.
Code § 17500. To state a claim for an FAL violation, Plaintiff must also allege that “members of the
MINUTES FORM 11 DOC
CIVIL - GEN

Initials of Deputy Clerk: jcb
Page 10 of 12

public are likely to be deceived.” In re Tobacco II, 46 Cal. 4th 298, 312 (Cal. 2009). The unfair
competition law prohibits “unlawful, unfair or fraudulent business act[s] or practice[s]” and “unfair,
deceptive, untrue or misleading advertising.” Cal. Bus. & Prof. Code § 17200. Where, as here, a
plaintiff proceeds under the fraudulent and deceptive prong, the conduct alleged must be likely to
deceive the public, and may be based on representations that are untrue. McKell v. Wash. Mut., Inc.,
142 Cal. App. 4th 1457, 1471 (2006).
Plaintiff alleges that PADI and V&B advertise that they will provide licensed Lexington
insurance coverage. (SAC ¶¶ 74, 80.) Plaintiff alleges that these advertisements are deceptive because
unlicensed PADI, not Lexington, is the principal insurer for the first $300,000. (Id. ¶¶ 75, 81.) Plaintiff
further alleges that it would not have purchased insurance through V&B and PADI had it known the
truth because Plaintiff wanted coverage from a licensed company. (Id. ¶¶ 75, 80.) Plaintiff also alleges
that the public is likely to be deceived. (Id. ¶¶ 76. 82.)
Advertising that licensed Lexington coverage would be provided is not false or
misleading because this is indeed the coverage Plaintiff obtained. That any purported advertising did
not disclose PADI as a principal insurer for the first $300,000 cannot give rise to an FAL or UCL
claim, because as discussed above, the allegation that PADI was acting as an “insurer” is untenable.
Thus, Plaintiff’s allegations of reliance and likely deception fail. Because Plaintiff has not alleged
actual loss of money or property as a result of the coverage it obtained, there can be no causation and/or
damages. Therefore, restitution cannot be awarded under either the FAL or UCL.6 To the extent
Plaintiff requests injunctive relief regarding disclosure of the fact that PADI is responsible for a
$300,000 deductible based on the SIR provision, the relief requested is moot because the current policy
no longer contains this provision. Because Plaintiff’s FAL and UCL claims are deficient, and because
neither restitution nor injunctive relief may be awarded, Plaintiff’s tenth and eleventh claims are
DISMISSED WITH PREJUDICE as to all Defendants.
J.

Leave to Amend

For the foregoing reasons, the Motions to Dismiss are GRANTED. Because dismissal is
based largely upon Plaintiff’s failure to correct the deficiencies previously identified by the Court in
Orders I and II, including Plaintiff’s failure to allege plausible damages, the Court DISMISSES
Plaintiff’s claims WITH PREJUDICE. Plaintiff has not made a showing that further amendment would
cure any defect, and the Court declines to afford Plaintiff another opportunity to cure the defects
previously identified by the Court and ignored by Plaintiff. Plaintiff’s repeated failure to plead facts in
support of its claims suggests that amendment would be futile.
K.

Class Allegations

6

Restitution from PADI is also not available based on Plaintiff’s admission that
premiums were paid only to V&B. See note 5, supra.
MINUTES FORM 11 DOC
CIVIL - GEN

Initials of Deputy Clerk: jcb
Page 11 of 12

Various Defendants seek to strike Plaintiff’s Class allegations. Because the SAC is
dismissed with prejudice, Lexington’s motion and all other requests to strike the Class allegations are
denied as moot.
VI.

DISPOSITION

For the reasons set forth above, the Court hereby GRANTS Defendants’ Motions to
Dismiss (Doc. Nos. 69, 70, 71, 72, 73). The SAC is DISMISSED WITH PREJUDICE. Lexington’s
Motion to Strike (Doc. No. 68) is DENIED as moot. The Request for Judicial Notice (Doc. No. 70-2)
is GRANTED.
The Clerk shall serve this minute order on all parties to the action.

MINUTES FORM 11 DOC
CIVIL - GEN

Initials of Deputy Clerk: jcb
Page 12 of 12