Garcia v. Standard Life Insurance Company

Filing 30

MEMORANDUM AND ORDER signed by Senior Judge William B. Shubb on 4/21/2015 re 22 Defendant's Motion for Summary Judgment : IT IS ORDERED that defendant's motion for summary judgment be, and the same hereby is, GRANTED with respect to plaintiff's good faith and fair dealing claim, and DENIED with respect to plaintiff's contract claim, regarding plaintiff's eligibility for supplemental social insurance benefits. (Kirksey Smith, K)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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KATHLEEN GARCIA,
Plaintiff,

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CIV. NO. 2:13-02164 WBS CKD
MEMORANDUM AND ORDER

v.
STANDARD INSURANCE COMPANY,
and DOES 1 to 100,
Defendants.

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Plaintiff Kathleen Garcia was denied benefits by her

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disability insurer Standard Insurance Company (“Standard”).

In

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this action, originally filed in the Sacramento County Superior

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Court, plaintiff asserts claims against Standard for breach of

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contract and breach of the duty of good faith and fair dealing

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under California law.

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court based on diversity of citizenship.

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court is Standard’s motion for partial summary judgment pursuant

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to Federal Rule of Civil Procedure 56.

Standard timely removed the action to this

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Presently before the

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I. Factual and Procedural Background

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Plaintiff was employed as a dental hygienist.

At the

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age of 56, she took out a policy for long-term disability

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insurance with Standard which entitled her to a monthly payment

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of $3,800 per month if she became disabled such that she could

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not perform her job duties.

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During a lunchtime walk on November 2, 2010, plaintiff

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stumbled and injured her left hand.

Claiming she was unable to

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return to work, plaintiff applied for disability benefits.

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Standard preliminarily approved plaintiff’s claim for long-term

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benefits under a reservation of rights.

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ultimately denied plaintiff’s claim.

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to her job as a dental hygienist, and she states she continues to

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experience pain that radiates up the edge of her hand.

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However, Standard

Plaintiff has not returned

In its pending motion, Standard seeks summary judgment

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only on plaintiff’s good faith and fair dealing claim.1

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Def.’s Mot. (Docket No. 22).)

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(See

Although Standard does not seek summary judgment on
plaintiff’s contract claim, it argues that plaintiff is
ineligible for her Supplemental Social Insurance Rider of an
additional monthly amount of up to $1,200 because she failed to
apply for social security disability income (“SSDI”), which would
offset Standard’s obligation. (Def.’s Mem. at 37.)
The court finds Standard’s position on the $1,200
supplemental payment confounding. Standard informed plaintiff it
would not be approving her claim. (See Ihnen Decl. Ex. A at 149,
173.) Thereafter, there would appear to be no reason for
plaintiff to complete additional paperwork to qualify for the
supplemental income since there would be nothing to offset.
After hearing oral argument it is still not clear to the court
what Standard wants plaintiff or the court to do. The court will
accordingly deny Standard’s motion for partial summary judgment
on plaintiff’s breach of contract claim.
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II. Discussion

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Standard argues that the court should apply the

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doctrine of judicial estoppel to preclude plaintiff’s tort claim

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and limit her contract claim to $50,000, because she failed to

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disclose the tort claim in an earlier bankruptcy proceeding.

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“Judicial estoppel is an equitable doctrine that precludes a

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party from gaining an advantage by asserting one position, and

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then later seeking an advantage by taking a clearly inconsistent

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position.”

Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778,

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782 (9th Cir. 2001) (citing Rissetto v. Plumbers & Steamfitters

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Local 343, 94 F.3d 597, 600 (9th Cir. 1996)).

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court at its discretion.

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750 (2001).

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It is invoked by a

New Hampshire v. Maine, 532 U.S. 742,

“In the bankruptcy context, the federal courts have

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developed a basic default rule:

If a plaintiff-debtor omits a

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pending (or soon-to-be-filed) lawsuit from the bankruptcy

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schedules and obtains a discharge (or plan confirmation),

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judicial estoppel bars the action.”

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Dep’t of Transp., 733 F.3d 267, 271 (9th Cir. 2013); see also

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Payless Wholesale Distribs., Inc. v. Alberto Culver (P.R.) Inc.,

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989 F.2d 570, 571 (1st Cir. 1993) (“Conceal your claims; get rid

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of your creditors on the cheap, and start over with a bundle of

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rights.

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tolerate, even passively.”).

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judicial estoppel “when the debtor has knowledge of enough facts

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to know that a potential cause of action exists during the

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pendency of the bankruptcy, but fails to amend his schedules or

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disclosure statements to identify the cause of action as a

Ah Quin v. Cnty. of Kauai

This is a palpable fraud that the court will not
The Ninth Circuit has thus applied

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contingent asset.”

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Hamilton, 270 F.3d at 784.

Application of the doctrine is meant to ensure “the

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orderly administration of justice and regard for the dignity of

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judicial proceedings” and to “protect a litigant playing fast and

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loose with the courts.”

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citation omitted).

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depends on full and honest disclosure by debtors of all their

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assets.”

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179 F.3d 197, 208 (5th Cir. 1999)).

Id. at 782 (internal quotation marks and

“[T]he integrity of the bankruptcy system

Hamilton, 270 F.3d at 785 (citing In re Coastal Plains,
The interests of the

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creditors and the courts “are impaired when the disclosure

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provided by the debtor is incomplete.”

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Id.

In her chapter 7 bankruptcy filing, plaintiff disclosed

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a claim against Standard for $50,000 which she represented was

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“exempt” under California Code of Civil Procedure Section 704.130

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as a mere claim for recuperating disability benefits.

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256, 258); see Cal. Code Civ. P. § 704.130 (“Benefits from a

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disability or health insurance policy or program are exempt

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without making a claim.”).

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discharged, plaintiff filed this action which included millions

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of dollars in damages for a non-exempt tort claim.2

(Id. at

Then, immediately after her debt was

(See Nelson

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In her “Statement of Damages,” filed in conjunction
with her state-court lawsuit against Standard on September 10,
2013, plaintiff valued her damages at a total of over $3 million,
including $1 million in punitive damages pursuant to her tort
claim. (Notice of Removal at 136 (Docket No. 1).) In her First
Amended Complaint (“FAC”), plaintiff does not seek a set dollar
amount but prays for damages for the failure to provide full
benefits under the policy, including interest and other economic
and consequential damages; general damages for emotional
distress; punitive and exemplary damages; future special and
general damages for breach of the duty of good faith and fair
dealing; and attorney’s fees. (FAC “Prayer for Relief” ¶¶ 1-8.)
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Decl. Ex. J at 248 (docket indicating debt was discharged August

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15, 2013); Notice of Removal Ex. A at 15 (plaintiff’s state court

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Complaint filed on August 15, 2013)).

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This is not a case where plaintiff merely undervalued

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her claim in the bankruptcy filing.

See Whitworth v. Nat’l

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Enter. Sys, Inc., Civ. No. 3:08-00968, 2009 WL 2948529, at *4 (D.

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Or. Sept. 9, 2009) (holding that the plaintiff did not take a

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“clearly inconsistent” position with his prayer for damages of

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over $15,000 in the current action when his previous valuation

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was $1,000 in his bankruptcy filings).

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representation of her claim as one that was “exempt” because it

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was limited to disability benefits was clearly inconsistent with

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her Complaint in this action for multi-million dollar damages in

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tort.

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accepted by the bankruptcy court, gave plaintiff an unfair

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advantage by keeping potential proceeds from a tort claim from

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her creditors.

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Plaintiff’s

See New Hampshire, 532 U.S. at 750.

This representation,

See id.

Moreover, the court need not make a further inquiry

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into whether plaintiff’s concealment of her tort claim was

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intentional.

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appropriate to resist application of judicial estoppel when a

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party’s prior position was based on inadvertence or mistake.”

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Id. at 753.

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other circuits, interpreted New Hampshire narrowly and held that

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that in most circumstances, courts should “apply a presumption of

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deliberate manipulation.”

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The Supreme Court has recognized that “it may be

However, the Ninth Circuit has, consistent with

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Ah Quin, 733 F.3d at 273.

Here,

In Ah Quin, the Ninth Circuit carved out an exception
to this narrow interpretation, holding that “where, as here, the
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there are no circumstances present to rebut this presumption.

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Plaintiff made no effort to correct her misrepresentation, even

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though it appears she was represented by counsel during her

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bankruptcy proceeding.

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bringing her good faith and fair dealing claim.

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Plaintiff is therefore estopped from

IT IS THEREFORE ORDERED that defendant’s motion for

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summary judgment be, and the same hereby is, GRANTED with respect

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to plaintiff’s good faith and fair dealing claim, and DENIED with

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respect to plaintiff’s contract claim, regarding plaintiff’s

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eligibility for supplemental social insurance benefits.

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Dated:

April 21, 2015

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plaintiff-debtor reopens bankruptcy proceedings, corrects her
initial error, and allows the bankruptcy court to re-process the
bankruptcy with the full and correct information, a presumption
of deceit no longer comports with New Hampshire.” In those
circumstances, courts are to inquire “into whether the
plaintiff’s bankruptcy filing was, in fact, inadvertent or
mistaken, as those terms are commonly understood.” Id. at 276.
This exception does not apply to facts presently before the
court, because plaintiff did not reopen her bankruptcy
proceedings to amend her disclosures.
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