Fidelity & Guaranty Life Insurance Company v. Chiang

Filing 36

ORDER signed by Judge John A. Mendez on 11/12/2014 ORDERING 20 the Court GRANTS in PART, and DENIES in PART, Defendant's Motion to Dismiss, and DENIES Plaintiff's 9 Motion for a Preliminary Injunction. Plaintiff's first, third, fourth, and fifth causes of action are DISMISSED WITHOUT LEAVE TO AMEND. The action will proceed consistent with this Order. (Reader, L)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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FIDELITY & GUARANTY LIFE
INSURANCE COMPANY,

No.

2:14-cv-01837 JAM CKD

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Plaintiff,
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v.
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JOHN CHIANG, in his official
capacity as CONTROLLER OF THE
STATE OF CALIFORNIA,

ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT’S
MOTION TO DISMISS AND DENYING
PLAINTIFF’S MOTION FOR
PRELIMINARY INJUNCTION

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Defendant.
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This matter is before the Court on Defendant John Chiang,

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the Controller of the State of California’s (“Defendant” or

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“Controller”) Motion to Dismiss (Doc. #20) Plaintiff Fidelity &

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Guaranty Life Insurance Company’s (“Plaintiff” or “FGLIC”)

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Complaint (Doc. #1).

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for a Preliminary Injunction (Doc. #9).

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Defendant’s motion (Doc. #29) and Defendant opposed Plaintiff’s

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motion (Doc. #19).

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the following reasons, Defendant’s Motion to Dismiss is granted

Also before the Court is Plaintiff’s Motion
Plaintiff opposed

Both parties replied (Doc. ##31, 33).

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For

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in part, and denied in part, and Plaintiff’s Motion for a

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Preliminary Injunction is denied.

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I.

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FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

Plaintiff FGLIC is a nationwide life insurance company.

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Compl. ¶ 7.

Defendant is the Controller for the State of

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California.

Compl. ¶ 3.

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for the enforcement of the California Unclaimed Property Law

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(“UPL”).

Compl. ¶ 3.

As Controller, Defendant is responsible

The UPL requires certain persons and

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entities, including Plaintiff, to report and remit unclaimed

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property to the Controller.

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“unclaimed property” includes life insurance proceeds for covered

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individuals who have died.

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the Controller “to examine the records of any person if the

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Controller has reason to believe that the person is a holder who

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has failed to report property that should have been reported

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pursuant” to the UPL.

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2013, Defendant notified Plaintiff that a third party had been

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retained to conduct an audit of FGLIC “for unclaimed property

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escheatable to the State of California” under the UPL.

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¶ 15.

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Compl. ¶ 8.

Compl. ¶ 8.

Under the UPL,

The UPL also authorizes

Cal. Code Civ. P. § 1571.

On August 14,

Compl.

On November 6, 2013, Plaintiff commenced an action in this

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Court against Defendant, claiming that the proposed audit

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violated several federal constitutional principles and

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provisions.

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Defendant’s motion to dismiss, on the ground that the action was

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unripe for judicial review.

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new action in this Court against Defendant, which is

On July 23, 2014, the Court heard and granted

On August 4, 2014, Plaintiff filed a

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substantially similar to the first action.

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significant difference between the initial complaint and the

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present complaint are the additional allegations discussed below

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as “recent developments.”

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following causes of action: (1) “Declaratory Judgment – Commerce

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Clause;” (2) “Declaratory Judgment – Substantive Due Process;”

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(3) “Declaratory Judgment – Procedural Due Process;”

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(4) “Declaratory Judgment – Due Process – Contingent-Fee;”

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(5) “Declaratory Judgment – Unreasonable Search and Seizure;” and

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Doc. #1.

The only

Plaintiff’s complaint alleges the

(6) “Permanent Injunction.”

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II.

RECENT DEVELOPMENTS

On July 23, 2014, Defendant’s third party auditor – Kelmar –

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emailed Plaintiff to request an opening conference.

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Five days later, Plaintiff responded to Kelmar, in an attempt to

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“get clarification on the scope of your requests in connection

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with [the audit].”

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whether the initial document request was “intended to apply to

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policy records for all states.”

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should “have ready for us all . . . information that you are

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comfortable providing in advance of the opening conference.”

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Compl., Ex. H.

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because Plaintiff demanded information on the scope of the audit

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before an opening conference took place, and Defendant refused to

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provide this information prior to such a conference.

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¶¶ 36-37.

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Compl., Ex. G.

Compl. ¶ 33.

Plaintiff asked Kelmar

Kelmar responded that Plaintiff

The parties did not hold an opening conference,

Compl.

On August 1, 2014, Defendant filed a lawsuit in Sacramento
County Superior Court to compel an audit of Plaintiff’s records.
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Compl. ¶ 38.

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request for “all damages and penalties due to the State,

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including all penalties due under the applicable provisions of

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California’s UPL.”

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filed the present lawsuit, Defendant amended its state court

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complaint to remove the above-quoted language.

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Declaration, Ex. G.

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Included in Defendant’s “Prayer for Relief” was a

Clough Declaration, Ex. D.

After Plaintiff

Clough

Finally, on August 4, 2014, Kelmar issued a second document
request to Plaintiff.

Compl. ¶ 40.

This request noted that

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Plaintiff must “[p]rovide all annual unclaimed property reports

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filed by or on behalf of [Plaintiff] regardless of state or

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jurisdiction from January 1, 1986 to present.”

Compl., Ex. O.

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III.

JUDICIAL NOTICE

Defendant requests that the Court take judicial notice of an

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excerpt from a report by the California Department of Finance

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concerning proposed amendments to the UPL.

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for Judicial Notice (“DRJN”) (Doc. #32).

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oppose Defendant’s request.

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Defendant’s Request
Plaintiff does not

Generally, the Court may not consider material beyond the

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pleadings in ruling on a motion to dismiss.

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may take judicial notice of matters of public record, provided

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that they are not subject to reasonable dispute.

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Sherman v. Stryker Corp., 2009 WL 2241664 at *2 (C.D. Cal. 2009)

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(citing Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir.

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2001) and Fed. R. Evid. 201).

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However, the Court

See, e.g.,

The proffered document is drawn from the public records of a
state agency – the California Department of Finance and the
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information is not subject to reasonable dispute.

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is the proper subject of judicial notice.

Therefore, it

See Fed. R. Evid. 201.

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IV.

MOTION TO DISMISS

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A.

Issue Preclusion

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Defendant argues that Plaintiff’s claims are barred by the

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doctrine of collateral estoppel, or issue preclusion, i.e., that

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Plaintiff is improperly attempting to relitigate the issue of

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ripeness, which was decided by the Court at the hearing on July

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23, 2014.

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intervening events, circumstances have changed and the matter has

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become ripe for review.

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MTD at 4.

In response, Plaintiff argues that, given

Opp. to MTD at 4.

The Ninth Circuit has held that the doctrine of “issue

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preclusion” bars relitigation of issues adjudicated in an earlier

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proceeding only if the following three requirements are met:

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“(1) the issue necessarily decided at the previous proceeding is

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identical to the one which is sought to be relitigated; (2) the

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first proceeding ended with a final judgment on the merits; and

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(3) the party against whom collateral estoppel is asserted was a

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party or in privity with a party at the first proceeding.”

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Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1021 (9th

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Cir. 2012).

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and third requirements are met.

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whether the Court’s July 23, 2014 ruling was a “final judgment on

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the merits.”

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The parties do not appear to dispute that the first
The Court’s inquiry turns on

Rule 41(b) of the Federal Rules of Civil Procedure provides

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that a dismissal for lack of jurisdiction – such as a dismissal

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on ripeness grounds – does not constitute an adjudication on the
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merits.

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defect in jurisdiction” that may be relitigated “after correction

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of the deficiency.”

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Cir. 2010).

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ripeness collapse into a single inquiry: whether the action – as

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currently pleaded – is ripe.

The Ninth Circuit has held that ripeness is a “curable

Wolfson v. Brammer, 616 F.3d 1045, 1064 (9th

Accordingly, the questions of “issue preclusion” and

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B.

Ripeness

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Defendant argues that the matter remains unripe for judicial

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review because circumstances have not significantly changed since

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the July 23, 2014 hearing.

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argues that it has disavowed any intention to fine Plaintiff for

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non-compliance with the audit, and has stricken language from its

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state court complaint that could be interpreted otherwise.

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at 8.

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become ripe for two reasons: (1) the scope of the audit has been

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defined by the actions of Defendant, and (2) the threat of

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judicial enforcement is no longer speculative.

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MTD at 7.

Specifically, Defendant

MTD

Plaintiff, on the other hand, argues that the matter has

Opp. to MTD at 6.

For a case to be justiciable under Article III of the

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Constitution, it must be ripe for judicial review.

Hillblom v.

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United States, 896 F.2d 426, 430 (9th Cir. 1990).

A controversy

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is justiciable if it is “definite and concrete, touching the

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legal relations of parties having adverse legal interests.”

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Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227,

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240-41 (1937).

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review when the “alleged injury is too ‘imaginary’ or

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‘speculative’ to support jurisdiction.”

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Equal Rights Comm'n, 220 F.3d 1134, 1139 (9th Cir. 2000).

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Conversely, a matter is not ripe for judicial

Thomas v. Anchorage

The first “change in circumstances” identified by Plaintiff
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is that, after the July 23 hearing, the scope of the audit has

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become more precisely defined.

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notes that the second document request issued by Kelmar now

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requires that Plaintiff “[p]rovide all annual unclaimed property

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reports filed by or on behalf of [Plaintiff] regardless of state

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or jurisdiction from January 1, 1986 to present.”

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(emphasis added).

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in the initial document request.

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Opp. to MTD at 4.

Plaintiff

Compl., Ex. O

Similar jurisdictional language did not appear

Plaintiff also notes that its repeated inquiries as to the

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scope of the audit have gone unanswered.

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After the July 23 hearing, Plaintiff sent an email to Defendant’s

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agent, Kelmar, in an attempt to “get clarification on the scope

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of your requests in connection with [the audit].”

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Plaintiff asked Kelmar whether the initial document request is

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“intended to apply to policy records for all states.”

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responded, somewhat obliquely, that Plaintiff should “have ready

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for us all . . . information that you are comfortable providing

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in advance of the opening conference.”

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Plaintiff’s attorneys also contacted Defendant’s counsel with

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questions about the scope of the lawsuit.

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Defendant’s counsel declined to answer those questions until the

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opening conference had taken place.

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these recent developments – especially the new requirement that

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Plaintiff provide all unclaimed property reports “regardless of

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state or jurisdiction,” – the scope of the audit is now more

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precisely defined than it was at the time of the July 23 hearing.

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The absence of jurisdictional bounds on the inquiry does not mean

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that the audit’s scope is undefined; rather, its scope is
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Opp. to MTD at 5.

Compl., Ex. G.

Kelmar

Compl., Ex. H.

Compl., Ex. M.

Compl., Ex. N.

In light of

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unlimited but clearly defined.

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“alleged injury is too ‘imaginary’ or ‘speculative’ to support

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jurisdiction.”

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1134, 1139 (9th Cir. 2000).

Thus, it cannot be said that the

Thomas v. Anchorage Equal Rights Comm'n, 220 F.3d

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The second “change in circumstances” relied upon by

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Plaintiff is that Defendant has “eliminated uncertainty about

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judicial enforcement by initiating a lawsuit in California state

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court seeking to compel [Plaintiff’s] compliance with his

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proposed unlimited audit.”

Opp. to MTD at 6.

As noted by

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Plaintiff, Defendant’s state court complaint seeks a preliminary

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and permanent injunction requiring Plaintiff to submit to a

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“full, complete and timely examination of all [of Plaintiff’s]

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books and records[.]”

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Clough Declaration, Ex. G.

Under the pending state lawsuit, Plaintiff faces an injury

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that is neither “imaginary” nor “speculative.”

Thomas, 220 F.3d

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at 1139.

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complying with the Controller’s records examination . . . impose

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no direct and immediate practical effects on [Plaintiff’s]

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business,” the Court is obligated to take Plaintiff’s allegations

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as true when ruling on a motion to dismiss.

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Plaintiff affirmatively alleges that “[c]ompliance with [the

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audit] will cost [Plaintiff] hundreds of thousands of dollars.”

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Compl. ¶ 42.

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significantly weakened by its reliance on cases applying the

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ripeness argument to administrative agency action.

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4 (citing F.T.C. v. Standard Oil Co. of California, 449 U.S. 232,

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242 (1980) and Univ. of Med. & Dentistry of New Jersey v.

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Corrigan, 347 F.3d 57, 68 (3d Cir. 2003)).

Despite Defendant’s contention that “the costs of

MTD Reply at 4.

Defendant’s argument to the contrary is

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MTD Reply at

As discussed below,

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these cases are inextricably linked to the unique language of the

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APA regarding judicial review of agency action.

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administrative agency context, Defendant’s argument that the cost

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of “hundreds of thousands of dollars” does not constitute

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concrete injury fails.

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Outside of the

Defendant’s argument that the audit is not a “definitive

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statement of [its] position” is unavailing due to its continued

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reliance on Association of American Medical Colleges and other

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cases applying the ripeness doctrine to administrative agency

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action.

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United States, 217 F.3d 770 (9th Cir. 2000) and Corrigan, 347

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F.3d at 57).

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court should approach judicial review of an action or decision by

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a federal administrative agency.

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the language of the Administrative Procedure Act, and was

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developed to preserve the delicate balance between the judiciary

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branch and federal administrative agencies.

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course, is not a federal administrative agency; rather, he is a

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state elected official.

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action be “final” before the matter is ripe for review is taken

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directly from the APA.

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v. Corrigan, 347 F.3d 57, 68 (3d Cir. 2003).

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actions are not “agency actions,” and therefore there is no

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requirement that they be “final” under the APA.

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most important distinction between these cases and the case at

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hand is that here, Plaintiff has challenged the audit itself, not

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the regulatory standard to be applied subsequent to the audit.

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See Ass'n of Am. Med. Colleges v. United States, 217 F.3d 770

MTD Reply at 2-5 (citing Ass'n of Am. Med. Colleges v.

These cases address the manner in which a federal

This case law closely follows

The Controller, of

Moreover, the requirement that an agency

Univ. of Med. & Dentistry of New Jersey

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The Controller’s

Regardless, the

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(9th Cir. 2000) (holding that the matter was not ripe for

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judicial review because an audit was not a final agency action,

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where the plaintiff had challenged the substantive standards to

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be applied in evaluating regulatory compliance).

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The parties dispute whether Defendant has the authority or

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the intent to impose penalties on Plaintiff for failure to comply

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with the audit.

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penalties provision of the UPL, which provides that “[a]ny person

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who willfully fails to . . . perform other duties . . . required

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under this chapter shall be punished by a fine of” not more than

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$10,000.

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Plaintiff also notes that Defendant’s original state court

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complaint requested “all damages and penalties due to the State,

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including all penalties due under applicable provisions of

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California’s UPL.”

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does not intend to fine Plaintiff for non-compliance with the

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audit, but only for noncompliance with the UPL’s reporting

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requirements, if violations are found.

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Defendant amended its state court complaint to delete the request

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for relief quoted above.

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professed its intent not to seek fines from Plaintiff for failure

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to comply with the audit, it has not signed a waiver to that

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effect.

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§ 1576(a), it appears that Defendant has the authority to impose

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such fines.

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immediate injury of the cost of complying with the audit, it also

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faces the possibility of financial penalties for failure to

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comply with an audit that it maintains is unconstitutional.

Plaintiff points to the broadly written

Opp. to MTD (citing Cal. Code Civ. P. § 1576(a)).

Compl. ¶ 38.

Defendant maintains that it

Opp. to MTD at 8.

MTD at 8.

MTD at 7.

To that end,

Although Defendant has

Given the broad language of

Thus, not only does Plaintiff face the threat of

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This

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constitutes injury-in-fact, and the case is ripe for judicial

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review.

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Given these changes in circumstances – the further

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clarification of the audit’s scope and Defendant’s enforcement

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action in state court – the matter is ripe for judicial review

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and the jurisdictional defect has been remedied.

Defendant’s

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motion to dismiss on ripeness grounds is DENIED.

The remaining

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arguments in support of Defendant’s motion to dismiss Plaintiff’s

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claims will now be addressed by the Court.

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C.

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Failure to State a Claim
1.

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Commerce Clause – First Cause of Action

Defendant argues that Plaintiff’s dormant Commerce Clause

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cause of action must be dismissed for failure to state a claim.

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MTD at 10.

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the UPL is discriminatory against out-of-state insurance

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companies.

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“directly regulating” interstate commerce, which constitutes a

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per se violation of the dormant Commerce Clause.

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9.

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interstate commerce.

Defendant argues that Plaintiff has not alleged that

MTD at 10.

Plaintiff responds that the UPL is

Opp. to MTD at

Plaintiff also argues that the UPL excessively burdens
Opp. to MTD at 11.

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The dormant Commerce Clause primarily prohibits state

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statutes which discriminate against out-of-state commerce.

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Ass'n of Optometrists & Opticians v. Harris, 682 F.3d 1144, 1148

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(9th Cir. 2012).

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prohibits state statutes that excessively burden interstate

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commerce, and as well as those that directly regulate interstate

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commerce.

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(1978); Edgar v. MITE Corp., 457 U.S. 624, 640 (1982).

Nat'l

However, the dormant Commerce Clause also

Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 125

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Plaintiff alleges that Defendant seeks to audit “all of

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[FGLIC’s] business records, wherever the records are located,

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regardless of whether the records have a connection to

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California, and irrespective of the provisions of any of the

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other 49 States’ unclaimed property laws.”

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Plaintiff appears to be suggesting that the UPL directly

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regulates interstate commerce because it will require interstate

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insurance companies to maintain records indefinitely.

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MTD at 11.

Compl. ¶ 48.

Opp. to

However, Plaintiff cites no authority for its

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position that this constitutes “direct regulation” of commerce.

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Indeed, Plaintiff fails to analogize the current case to any

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other factually similar circumstances concerning direct

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regulation.

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specific explanation as to how an incidental record-preservation

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requirement constitutes “direct regulation,” the Court rejects

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this argument.

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In the absence of relevant case law, or a more

Plaintiff also argues that “the Controller’s proposed audit

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scheme will substantially burden interstate commerce generally by

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imposing California’s state audit laws on a nationwide basis.”

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Opp. to MTD at 11.

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allegation that other interstate companies will be similarly

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burdened by the UPL.

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interstate market, not particular interstate firms, from

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prohibitive or burdensome regulations.”

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of Maryland, 437 U.S. 117, 127-28 (1978).

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has failed to sufficiently allege that the UPL burdens interstate

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commerce.

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However, at most, this merely constitutes an

The dormant Commerce Clause “protects the

Exxon Corp. v. Governor
Accordingly, Plaintiff

For these reasons, the allegations that the UPL directly
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regulates interstate commerce and “substantially and excessively

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burdens interstate commerce” are conclusory and insufficient to

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state a claim.

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cause of action is GRANTED.

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2.

Defendant’s motion to dismiss Plaintiff’s first

Substantive and Procedural Due Process –
Second and Third Causes of Action

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7

Defendant argues that Plaintiff has failed to state

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substantive and procedural due process claims.

MTD at 12.

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Defendant maintains that Plaintiff has not established that the

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proposed audit would deprive it of a protected liberty or

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property interest, and that even if it would, it would not do so

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in a constitutionally arbitrary manner.

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responds that: (1) the proposed audit would deprive it of “its

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rights to pursue its business, to use its money, and to

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contract.”

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relationship to the interests of California.

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and (3) Defendant has “unilaterally and unlawfully revised the

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UPL by amending his ‘Holder Handbook,’” without “prior notice or

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other procedural protections.”

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MTD at 12.

Plaintiff

Opp. to MTD at 12; (2) the audit has no rational
Opp. to MTD at 14;

Opp. to MTD at 12-13.

To state a substantive due process claim, a plaintiff must

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allege (1) a deprivation (2) of a liberty or property interest

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(3) under color of state law.

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Island, 683 F.3d 1051, 1057 (9th Cir. 2012).

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governmental action at issue is economic in nature, a plaintiff

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must also allege that the action was “clearly arbitrary and

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unreasonable, having no substantial relation to the public

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health, safety, morals or general welfare.”

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1057.

Samson v. City of Bainbridge
When the

Samson, 683 F.3d at

To state a procedural due process claim, a plaintiff must
13

1

allege that the deprivation occurred without constitutionally

2

adequate process.

3

Cir. 2008).

4

Shanks v. Dressel, 540 F.3d 1082, 1089 (9th

Plaintiff has alleged that the audit “will cost . . .

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hundreds of thousands of dollars.”

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“undisputed that money constitutes a property interest protected

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by the Fourteenth Amendment.”

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2d 1056, 1083 (E.D. Cal. 2008).

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the proposition that the costs of complying with an audit do not

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“rise to the level of a constitutional deprivation of property.”

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Easter House v. Felder, 879 F.2d 1458, 1477 (7th Cir. 1989).

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However, this out-of-circuit case is not binding on the Court,

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and there is no indication that the “costs” in Easter House

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approached the “hundreds of thousands of dollars” alleged here.

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As such, Easter House is not persuasive authority.

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Compl. ¶ 42.

It is

Schwarm v. Craighead, 552 F. Supp.
Defendant cites Easter House for

As Plaintiff has alleged that the audit would deprive it of

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a protected property interest, the only remaining issue in

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Plaintiff’s substantive due process claim is whether the audit is

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“clearly arbitrary and unreasonable.”

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Plaintiff alleges that the audit will “arbitrarily, irrationally,

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and without a legitimate government objective or purpose” deprive

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it of property because the audit “has no temporal or geographic

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limitations and that is outside of the scope of the [UPL].”

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¶ 54.

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relationship to the interests of California,” because it will be

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reviewing property that does not escheat to California under the

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UPL.

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granting motions to dismiss substantive due process claims where

Samson, 683 F.3d at 1057.

FAC

Plaintiff argues that the audit “has no rational

Opp. to MTD at 18.

The Ninth Circuit has cautioned against

14

1

arbitrary governmental action is specifically alleged.

2

Dunes at Monterey, Ltd. v. City of Monterey, 920 F.2d 1496, 1508

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(9th Cir. 1990).

4

of the elements of its substantive due process claim, and these

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allegations must be taken as true, Defendant’s motion to dismiss

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the second cause of action is DENIED.

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Del Monte

Because Plaintiff has sufficiently alleged all

With regard to the procedural due process claim, Plaintiff

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must allege that the deprivation occurred without

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constitutionally adequate process.

Plaintiff appears to base its

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procedural due process claim solely on the Controller’s amendment

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to the “Holder’s Handbook.”

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“seeks to change the circumstances under which a life insurance

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policy is ‘deemed matured’ for purposes of remitting unclaimed

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life insurance proceeds to the State of California.”

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¶ 19.

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have matured under the [UPL] if proof of death is established by

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comparing a company’s records to the [Social Security Death

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Master File].”

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amendment is inconsistent with the UPL and occurred “without

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prior notice” to FGLIC.

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the Handbook is not binding, but merely meant to provide

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“guidance for the benefit of holders of unclaimed property.”

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Reply at 8, n.7.

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not relevant to Plaintiff’s lawsuit.

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the audit itself (not the eventual enforcement of the UPL

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provisions) is a constitutional harm.

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property interest is the cost of the audit to Plaintiff.

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argue otherwise would raise serious ripeness concerns.

Plaintiff alleges that the amendment

Compl.

Specifically, “all life insurance policies are deemed to

Compl. ¶ 20.

Plaintiff argues that this

Compl. ¶ 22.

Defendant responds that

MTD

Regardless, the amendment to the Handbook is

15

Plaintiff has claimed that

Here, the protected
To
See supra

1

at III(B)(1)(b), page 10.

2

provisions of the Handbook and the UPL are not relevant, and the

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amendment of the Handbook cannot serve as the basis for

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Plaintiff’s due process claim.

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other procedural due process violation, Defendant’s motion to

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dismiss Plaintiff’s third cause of action is GRANTED.

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3.

Accordingly, the substantive

As Plaintiff has not argued any

Due Process – Contingent Fee – Fourth Cause of
Action

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9

Defendant argues that the Court must dismiss Plaintiff’s

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fourth cause of action, which alleges that Plaintiff’s due

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process is violated by Defendant’s retention of a third-party

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auditor pursuant to a contingent fee.

13

notes that this practice is common, and widely accepted, in

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multiple states.

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objection is not to the contingent-fee arrangement, but to the

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Controller’s improper delegation of the “authority to act in a

17

judicial or quasi-judicial capacity” to a third-party auditor,

18

which has a financial incentive to find violations.

19

at 15.

20

auditor have a judicial or quasi-judicial role – that is reserved

21

for the courts.

22

MTD at 14.

MTD at 14.

Defendant

Plaintiff responds that its

Opp. to MTD

Defendant responds that neither the Controller nor the

MTD Reply at 8.

“Officers acting in a judicial or quasi judicial capacity”

23

may not have a financial interest in the outcome of the

24

proceeding.

25

In Tumey, the Supreme Court held that a city ordinance which

26

authorized the mayor to preside over prohibition trials, and

27

collect costs upon a finding of guilty, violated due process.

28

Tumey, 273 U.S. at 522.

Tumey v. State of Ohio, 273 U.S. 510, 522 (1927).

16

1

This rule, of course, only applies when the official is

2

acting in a judicial or quasi-judicial capacity.

Here, the

3

Controller cannot delegate judicial or quasi-judicial capacity to

4

a third-party auditor, because he does not maintain that status

5

in the first place.

6

Controller must bring an action in state court “for a judicial

7

determination that particular property is subject to escheat”

8

under the UPL or “to enforce the delivery of any property to the

9

State Controller as required” under the UPL.

The UPL specifically provides that the

Cal. Civ. Proc.

10

Code § 1572.

11

judicial or quasi-judicial authority to make self-enforcing

12

judgments as to the status of property.

13

the allegations in the Complaint as true, the Court must dismiss

14

this claim.

15

delegated . . . the power to act in a judicial or quasi-judicial

16

capacity” to a third-party auditor is both conclusory, and

17

contradicted by the terms of the UPL itself.

18

Accordingly, Defendant’s motion to dismiss Plaintiff’s fourth

19

cause of action is GRANTED.

20

4.

Accordingly, the UPL does not grant the Controller

Therefore, even taking

The allegation that Defendant has “unlawfully

Compl. ¶ 66.

Fourth Amendment – Fifth Cause of Action

21

Defendant argues that Plaintiff’s Fourth Amendment claim

22

must be dismissed because the proposed audit complies with Fourth

23

Amendment requirements for administrative subpoenas.

24

Plaintiff argues that a different Fourth Amendment standard –

25

that used for warrantless searches of physical property – applies

26

and that the audit violates that standard.

27
28

MTD at 15.

Opp. to MTD at 18.

The Fourth Amendment protects commercial privacy interests.
New York v. Burger, 482 U.S. 691, 699-700 (1987).
17

However, in

1

the context of an administrative subpoena, these protections are

2

limited.

3

(9th Cir. 1994).

4

the Fourth Amendment as long as the following criteria are

5

satisfied: (1) the inquiry must be within the authority of the

6

agency, (2) the demand must not be too indefinite, and (3) the

7

information sought must be reasonably relevant.

8

Morton Salt Co., 338 U.S. 632, 652-53 (1950).

9

Reich v. Montana Sulphur & Chem. Co., 32 F.3d 440, 448
An administrative subpoena is reasonable under

United States v.

Although the Controller did not issue an administrative

10

subpoena in this case, the proposed audit is the functional

11

equivalent of an administrative subpoena.

12

with the Fourth Amendment is, therefore, analyzed under the

13

administrative subpoena standard set forth above.

14

Inc. v. Fed. Mine Safety & Health Review Comm'n, 715 F.3d 631,

15

646 (7th Cir. 2013) (holding that courts “look to the substance

16

of [the statute’s] inspection power rather than how the [statute]

17

nominally refers to those powers;” where the “power at issue . .

18

. more closely resembles an administrative subpoena than a search

19

or seizure,” the more limited Fourth Amendment standard is

20

appropriate).

21

under the Fourth Amendment as long as (1) the audit is within the

22

authority of the Controller; (2) the demand for documents is not

23

too indefinite; and (3) the documents sought are reasonably

24

relevant.

25

The audit’s compliance

See Big Ridge,

The audit at issue in this case is reasonable

Morton Salt, 338 U.S. at 652-53.

The audit is within the authority of the Controller.

The

26

UPL gives the Controller authority “to examine the records of any

27

person if the Controller has reason to believe that the person is

28

a holder who has failed to report property that should have been
18

1

reported” pursuant to the UPL.

2

Court also finds that the demand for documents is not too

3

indefinite.

4

requests are too vague for it to identify which documents must be

5

turned over.

6

for documents is overbroad, which is a separate and distinct

7

concern from “indefinite.”

8

sought are reasonably relevant to the Controller’s inquiry.

9

documents sought relate to the tracking of unreported deaths and

Cal. Civ. Proc. Code § 1571.

The

At no point does Plaintiff allege that the document

Rather, Plaintiff’s complaint is that the request

Compl. ¶ 54.

Finally, the documents
The

10

unclaimed benefits, and the reporting of unclaimed property to

11

the Controller.

12

facial connection to California, the UPL provides that some

13

property may be escheatable to California despite the lack of a

14

California address on the face of a company’s records.

15

Specifically, the UPL states that property may escheat to

16

California if “[n]o address of the apparent owner appears on the

17

record of the holder and . . . [t]he last known address of the

18

apparent owner is in this state.”

19

§ 1510(b)(1).

20

to Defendant’s audit are satisfied, Defendant’s motion to dismiss

21

the fifth cause of action is GRANTED. 1

Although Defendant seeks documents which have no

Cal. Civ. Proc. Code

Because the Fourth Amendment criteria applicable

22
1

23
24
25
26
27
28

Plaintiff’s argument that the administrative subpoena Fourth
Amendment standard does not apply is unpersuasive. Opp. to MTD
at 18. The cases relied upon by Plaintiff concern warrantless
searches of commercial premises. The physical invasion and
search of a location, without a warrant, is far more invasive
than a demand for documents. The Fourth Amendment standard for
administrative subpoenas is more lenient, and restrictions are
more “limited” in this context. Reich v. Montana Sulphur & Chem.
Co., 32 F.3d 440, 448 (9th Cir. 1994). As the case law and the
interests implicated are markedly different, the Court declines
to apply the standard for warrantless searches of commercial
premises to the audit request at issue in this case.
19

1
2

5.

Permanent Injunction – Sixth Cause of Action

Plaintiff’s sixth cause of action requests a permanent

3

injunction.

4

claims, and at least one of these claims survives the motion to

5

dismiss, the permanent injunction claim also survives.

6

Defendant’s motion to dismiss Plaintiff’s sixth cause of action

7

is DENIED.

8
9

As this claim is derivative of Plaintiff’s other

6.

Leave to Amend

The parties agree on most, if not all, of the underlying

10

facts.

11

fifth causes of action is based on purely legal grounds, not on

12

the failure to sufficiently plead factual allegations.

13

Accordingly, amendment of the complaint would be futile, and

14

Defendant’s motion to dismiss Plaintiff’s first, third, fourth,

15

and fifth causes of action is GRANTED WITHOUT LEAVE TO AMEND.

16

Eminence Capital, L.L.C. v. Aspeon, Inc., 316 F.3d 1048, 1052

17

(9th Cir. 2003).

The dismissal of Plaintiff’s first, third, fourth, and

18
19

V.

MOTION FOR PRELIMINARY INJUNCTION

20

Plaintiff moves for a preliminary injunction “prohibiting

21

the Controller from conducting – or authorizing or directing –

22

any third party to conduct an audit or other examination of FGLIC

23

and its affiliates that violates the rights and protections

24

afforded by the United States Constitution.”

MPI at 1.

25

“The purpose of a preliminary injunction is merely to

26

preserve the relative positions of the parties until a trial on

27

the merits can be held.”

28

390, 395 (1981).

Univ. of Texas v. Camenisch, 451 U.S.

A plaintiff requesting a preliminary injunction
20

1

must establish: (1) a likelihood of success on the merits, (2) a

2

likelihood of irreparable harm in the absence of preliminary

3

relief, (3) that the balance of equities tips in his favor, and

4

(4) that an injunction is in the public interest.

5

Offshore, Inc. v. Greenpeace, Inc., 709 F.3d 1281, 1289 (9th Cir.

6

2013).

7

merits may be sufficient to warrant issuance of a preliminary

8

injunction where the balance of the hardships tips sharply in the

9

plaintiff’s favor and the other factors are satisfied.”

Shell

Further, “[a] showing of serious questions going to the

Coltharp

10

v. Herrera, 2014 WL 3720302, at *2 (9th Cir. July 29, 2014).

11

preliminary injunction is an extraordinary and drastic remedy,

12

one that should not be granted unless the movant, by a clear

13

showing, carries the burden of persuasion.”

14

F.3d 1068, 1072 (9th Cir. 2012).

15

“A

Lopez v. Brewer, 680

As discussed above, only Plaintiff’s substantive due process

16

claim survives Defendant’s motion to dismiss.

17

Court to grant Plaintiff’s motion for a preliminary injunction,

18

Plaintiff’s substantive due process claim alone must satisfy the

19

Ninth Circuit’s four prong test.

20

it is likely to succeed on the merits of this claim, or – at the

21

very least – that serious questions exist as to its merits.

22

Coltharp, 2014 WL 3720302, at *2.

23

Therefore, for the

Plaintiff must establish that

See

As the audit implicates economic rights only, Plaintiff must

24

demonstrate that the audit is “clearly arbitrary and

25

unreasonable” to succeed on its substantive due process claim.

26

Samson v. City of Bainbridge Island, 683 F.3d 1051, 1057 (9th

27

Cir. 2012).

28

show that the audit lacks “any reasonable justification in the

Under this “rational basis” test, Plaintiff must

21

1

service of a legitimate governmental objective.”

2

Dressel, 540 F.3d 1082, 1088 (9th Cir. 2008).

3

failed to meet this exceedingly difficult test.

4

Shanks v.

Plaintiff has

Plaintiff does not contend that the UPL fails to serve a

5

legitimate governmental objective, but instead argues that the

6

“unlimited, national audit of records bearing no relationship to

7

California is not supported by the [UPL].”

8

maintains that, under the UPL, “unclaimed property does not

9

escheat to California . . . unless the address of the person

MPI at 16.

Plaintiff

10

entitled to the unclaimed property is in California – as

11

determined by the company’s records.”

12

characterization of the UPL is inaccurate.

13

property may be escheatable to California despite the lack of a

14

California address on the face of a company’s records.

15

Specifically, the UPL states that property may escheat to

16

California if “[n]o address of the apparent owner appears on the

17

record of the holder and . . . [t]he last known address of the

18

apparent owner is in this state.”

19

§ 1510(b)(1).

20

connection to California may be relevant under the UPL.

21

Therefore, the extension of the audit’s scope to include all life

22

insurance policies nationwide – not just those which include a

23

California address for the owner of the policy – is not so

24

“clearly arbitrary and unreasonable” as to make it likely that

25

Plaintiff will succeed on the merits of this claim.

26

MPI at 16.

Plaintiff’s

The UPL provides that

Cal. Civ. Proc. Code

Accordingly, even documents which have no facial

At this very early stage of the litigation, Plaintiff has,

27

at best, established a possibility of success on the merits of

28

its remaining claim.

The Ninth Circuit has made it clear,
22

1

however, that a possibility is not the same as likelihood of

2

success.

3

344 F.3d 914, 919 (9th Cir. 2003).

4

first prong of the Ninth Circuit’s test, the Court DENIES

5

Plaintiff’s motion for a preliminary injunction, and need not

6

reach the parties’ arguments concerning the remaining three

7

requirements of the four prong test.

See Sw. Voter Registration Educ. Project v. Shelley,
Having failed to satisfy the

8
9
10

VI.

ORDER

For the reasons set forth above, the Court GRANTS in part,

11

and DENIES in part, Defendant’s Motion to Dismiss, and DENIES

12

Plaintiff’s Motion for a Preliminary Injunction.

13

first, third, fourth, and fifth causes of action are DISMISSED

14

WITHOUT LEAVE TO AMEND.

15

this Order.

16
17

Plaintiff’s

The action will proceed consistent with

IT IS SO ORDERED.
Dated: November 12, 2014

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