Shasta Linen Supply, Inc. v. Applied Underwriters, Inc. et al

Filing 47

ORDER signed by Senior Judge William B. Shubb on 10/17/2016 DENYING without prejudice 33 Plaintiff's Motion for Reconsideration. (Kirksey Smith, K)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 13 SHASTA LINEN SUPPLY, INC., a California corporation, on behalf of itself and all others similarly situated, 16 17 18 19 20 21 22 23 24 MEMORANDUM AND ORDER RE: MOTION FOR RECONSIDERATION Plaintiff, 14 15 CIV. NO. 2:16-158 WBS AC v. APPLIED UNDERWRITERS, INC., a Nebraska corporation; APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, a British Virgin Islands company; CALIFORNIA INSURANCE COMPANY, a registered California insurance company; APPLIED RISK SERVICES, INC., a Nebraska corporation, Defendants. ----oo0oo---Plaintiff Shasta Linen Supply filed this action against 25 defendants Applied Underwriters (“AU”), Applied Underwriters 26 Captive Risk Assurance Company (“AUCRA”), Applied Risk Services 27 28 1 1 (“ARS”), and California Insurance Company (“CIC”),1 alleging that 2 defendants fraudulently marketed and sold a workers’ compensation 3 insurance program to it and other employers in violation of 4 California law. 5 5).) 6 reconsideration of the court’s June 20, 2016 Order (“June 20 7 Order”) partially granting defendants’ motion to dismiss. 8 Mot. for Reconsideration (“Pl.’s Mot.”) (Docket No. 33).) 9 I. (First Am. Compl. (“FAC”) at 15-22 (Docket No. Presently before the court is plaintiff’s motion for (Pl.’s Factual and Procedural Background Defendants allegedly marketed and sold a workers’ 10 11 compensation insurance program--the EquityComp program--to 12 plaintiff and other California employers. 13 days after the EquityComp policies took effect for plaintiff, 14 defendants allegedly required plaintiff to sign, pursuant to 15 EquityComp “practices and procedures,” a Reinsurance 16 Participation Agreement (“RPA”) which modified the terms of 17 existing EquityComp policies, including their rates. 18 24, 44, 46.) (FAC ¶¶ 17, 57.) Four (Id. ¶¶ 2, On August 29, 2014, plaintiff filed an administrative 19 20 appeal with the California Department of Insurance, challenging, 21 among other things, the legality of the RPA. 22 Judicial Notice (“RJN”) Ex. A, Ins. Comm’r’s June 20 Decision & 23 Order (“Comm’r’s Order”) at 4 (Docket No. 34-1).2) (Pl.’s Request for Plaintiff 24 1 25 26 27 28 AU is the parent company of AUCRA and ARS, and controls CIC through another subsidiary. (Pl.’s Request for Judicial Notice Ex. A, Ins. Comm’r’s June 20 Decision & Order at 9-10 (Docket No. 34-1).) 2 The court takes judicial notice of the Commissioner’s Order because it is a public record whose existence “can be 2 1 argued that the RPA was void as a matter of law because 2 defendants did not file the RPA with the Commissioner thirty days 3 prior to when it was to take effect, as required under California 4 Insurance Code section 11735.3 (Id. at 2.) Section 11735 provides that “[e]very insurer shall file 5 6 with the commissioner all rates and supplementary rate 7 information that are to be used in this state . . . not later 8 than 30 days prior to the effective date.” 9 § 11735(a). Cal. Ins. Code Section 11737 states that “[t]he commissioner may 10 disapprove a rate if the insurer fails to comply with the filing 11 requirements under Section 11735.” 12 Policyholders harmed by the application of an insurance rate may 13 file an administrative appeal with the Commissioner under section 14 11737. 15 modify, or reverse" the rate after a hearing on the matter. Id. § 11737(f). Id. § 11737(a). The Commissioner may then “affirm, Id. On January 26, 2016, plaintiff brought an action in 16 17 this court alleging fraud and unfair competition against 18 defendants for their marketing and sale of EquityComp and its 19 RPA. 20 plaintiff again argued that the RPA was void because defendants 21 did not file it with the Commissioner prior to its effectuation, 22 pursuant to section 11735. (Compl. (Docket No. 1).) With respect to the RPA, (Id. ¶ 3.) Billing plaintiff under 23 24 25 26 27 28 accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” See Fed. R. Evid. 201(b)(2); Interstate Nat. Gas Co. v. S. Cal. Gas Co., 209 F.2d 380, 385 (9th Cir. 1953) (stating that federal courts may take judicial notice of administrative agency records). 3 Unless otherwise specified, all statutes referenced in this Order are from the California Insurance Code. 3 1 the void RPA, plaintiff argued, constituted fraud and unfair 2 business practice. 3 argument to the extent it relied on section 11735, arguing that a 4 rate is legal unless and until the Commissioner holds a hearing 5 and disapproves the rate, pursuant to section 11737. 6 17 at 6.) (Id. ¶ 4.) Defendants moved to dismiss that (Docket No. 7 On June 20, 2016, the court granted defendants’ motion 8 to the extent plaintiff relied on section 11735, stating that “a 9 rate that has not been filed as required by § 11735 is not an 10 unlawful rate unless and until the Commissioner conducts a 11 hearing and disapproves the rate” pursuant to section 11737. 12 (June 20, 2016 Order (“June 20 Order”) at 4 (Docket No. 30).) 13 Because plaintiff did not allege that the Commissioner held a 14 hearing and disapproved the RPA, the court concluded, it did not 15 plausibly allege that the RPA was void. (Id. at 4-5.) On the same day, the Commissioner of the California 16 17 Department of Insurance (“Commissioner”) issued a Decision & 18 Order in plaintiff’s administrative case (“Commissioner’s 19 Order”), holding that the RPA “must be filed and approved by the 20 Commissioner pursuant to [section] 11735 before use in this 21 State.” 22 the RPA before it took effect, the Commissioner stated, the “RPA 23 is void as a matter of law.” 24 (Comm’r’s Order at 62.) Because defendants did not file (Id. at 65-66.) Based on the Commissioner’s Order, plaintiff now moves 25 this court to reconsider its June 20 Order pursuant to Federal 26 Rule of Civil Procedure 60(b)(6). 27 court issue a new order finding that it may base its unfair 28 competition claim “on [defendants’] failure to file the RPA in 4 Plaintiff requests that the 1 violation of § 11735.” 2 II. Legal Standard Though plaintiff moves under Rule 60(b),4 its motion is 3 4 (Pl.’s Mot., Mem. (“Pl.’s Mem.”) at 6.) more appropriately considered under Rules 54(b) and 59(e). Rule 60(b) applies only to “final judgment[s], 5 6 order[s], or proceeding[s]. United States v. Martin, 226 F.3d 7 1042, 1048 n.8 (9th Cir. 2000) (“Rule 60(b) . . . applies only to 8 motions attacking final, appealable orders.”); Sch. Dist. No. 5 9 v. Lundgren, 259 F.2d 101, 104 (9th Cir. 1958) (Rule 60(b) 10 “applies only to judgments, orders, or proceedings which are 11 ‘final.’”). 12 and proceedings as “those which terminate the litigation in the 13 district court subject only to the right of appeal.” 14 Guam Coral Co., 318 F.2d 622, 629 (9th Cir. 1963). 15 Order did not terminate plaintiff’s case in this court. 16 Order at 5 n.4 (noting that plaintiff’s claims may proceed on 17 non-dismissed grounds).) The Ninth Circuit defines such judgments, orders, Corn v. The June 20 (June 20 18 Rule 54(b), by contrast, authorizes district courts to 19 “revise[]” interlocutory orders--orders that “adjudicate[] fewer 20 than all the claims or the rights and liabilities of fewer than 21 all the parties”--before entry of a judgment ending a case in its 22 23 24 25 26 27 28 4 Plaintiff also cites Local Rule 230(j) as a basis for its motion. (Pl.’s Mot. at 2.) Under that rule, plaintiff must show that “new or different facts or circumstances are claimed to exist which did not exist or were not shown upon such prior motion” and explain “why [such] facts or circumstances were not shown at the time of the prior motion.” E.D. Cal. L.R. 230(j)(3)-(4). Plaintiff has satisfied Rule 230(j) by showing that the Commissioner’s Order, the basis for plaintiff’s pending motion, was not issued when the parties briefed and argued defendants’ motion to dismiss. (Pl.’s Mem. at 6.) 5 1 entirety. Fed. R. Civ. P. 54(b). Additionally, Rule 59(e) 2 authorizes district courts to “alter or amend a judgment,” Fed. 3 R. Civ. P. 59(e), including appealable interlocutory orders, 4 Balla v. Idaho State Bd. of Corr., 869 F.2d 461, 466 (9th Cir. 5 1989) (“[T]he word ‘judgment’ [as used in the Federal Rules of 6 Civil Procedure] encompasses . . . appealable interlocutory 7 orders.”). 8 because it merely dismissed plaintiff’s reliance on section 11735 9 while leaving other grounds for its claims open. The court’s June 20 Order is an interlocutory order 10 Order at 5.) 11 (See June 20 as being brought under Rules 54(b) and 59(e). 12 Accordingly, the court construes plaintiff’s motion The standard of review for motions to reconsider is the 13 same under both rules. 14 2014 WL 3362353, at *1 (E.D. Cal. July 8, 2014) (Mueller, J.) 15 (“The standards [for motions to reconsider under Rules 54 and 59] 16 are the same . . . Courts rely on Rule 59 cases when discussing 17 the standard for Rule 54 motions.”); see also Cachil Dehe Band of 18 Wintun Indians of Colusa Indian Cmty. v. California, No. CIV.S- 19 04-2265 FCD KJM, 649 F. Supp. 2d 1063, 1069 (E.D. Cal. 2009) 20 (Damrell, J.) (relying on Rule 59 cases in discussing Rule 54 21 motion to reconsider); Drover v. LG Elecs. USA, Inc., No. 2:12- 22 CV-510 JCM VCF, 2013 WL 632103 (D. Nev. Feb. 19, 2013) (same). 23 Lal v. Felker, No. 2:07-CV-2060 KJM EFB, Motions for reconsideration “are directed to the sound 24 discretion of the court.” Riley v. Giguiere, No. CIV.S-06-2126 25 LKK KJM, 631 F. Supp. 2d 1295, 1310 (E.D. Cal. 2009) (Karlton, 26 J.); see also McDowell v. Calderon, 197 F.3d 1253, 1256 (9th Cir. 27 1999) (reviewing district court’s denial of reconsideration for 28 abuse of discretion). They are an “extraordinary remedy,” one 6 1 that should be used “sparingly in the interests of finality and 2 the conservation of judicial resources.” 3 of Bishop, 229 F.3d 877, 890 (9th Cir. 2000). 4 use a motion to reconsider “to raise arguments or present 5 evidence for the first time when they could reasonably have been 6 raised earlier in the litigation.” 7 v. Mucos Pharma GmbH & Co., 571 F.3d 873, 880 (9th Cir. 2009) 8 (citing Kona Enters, 229 F.3d at 890). Kona Enters. v. Estate Plaintiff may not Marlyn Nutraceuticals, Inc. Against this backdrop, the Ninth Circuit has held that 9 10 “[r]econsideration is appropriate if the district court (1) is 11 presented with newly discovered evidence, (2) committed clear 12 error or the initial decision was manifestly unjust, or (3) if 13 there is an intervening change in controlling law.” 14 No. 1J, Multnomah Cty., Or. v. ACandS, Inc., 5 F.3d 1255, 1263 15 (9th Cir. 1993); see also Smith v. Clark Cty. Sch. Dist., 727 16 F.3d 950, 955 (9th Cir. 2013) (holding the same); Nunes v. 17 Ashcroft, 375 F.3d 805, 807 (9th Cir. 2004) (holding the same). 18 “There may also be other, highly unusual, circumstances 19 warranting reconsideration.” Sch. Dist. Sch. Dist. No. 1J, 5 F.3d at 1263. Here, plaintiff does not present new factual evidence 20 21 or highly unusual circumstances warranting reconsideration of the 22 June 20 Order. 23 Order is a change “in controlling authority . . . meriting 24 reconsideration by this court.” 25 also continues to contend that the court’s June 20 Order was in 26 error. 27 /// 28 /// Instead, plaintiff argues that the Commissioner’s (Pl.’s Mem. at 6.) (See Pl.’s Reply at 6-10 (Docket No. 41).) 7 Plaintiff 1 2 III. Discussion A. The Commissioner’s Order is Not Controlling Law 3 The Commissioner’s Order interpreted section 11735 to 4 require that the RPA “be filed and approved by the Commissioner 5 pursuant to [section] 11735 before use in [California].” 6 (Comm’r’s Order at 62.) 7 Commissioner, “renders the plan[] unlawful.” 8 interpretation stands in direct conflict with this court’s June 9 20 Order, which held that “a rate that has not been filed as “Failure to do so,” according to the (Id.) That 10 required by § 11735 is not an unlawful rate unless and until the 11 Commissioner conducts a hearing and disapproves the rate.” 12 20 Order at 4.) 13 Commissioner’s Order constitutes “controlling law” as to compel 14 reconsideration of its June 20 Order. 15 (June The court must decide, therefore, whether the As an initial matter, federal courts must apply state 16 substantive law when sitting on diversity jurisdiction. See Erie 17 R. Co. v. Tompkins, 304 U.S. 64, 92 (1938). 18 this and other circuits have held that administrative deference 19 is a substantive question. 20 894, 911 (9th Cir. 2003) (applying Washington law in deciding 21 whether deference is owed to Washington agency’s interpretation 22 of state statute), aff’d, 546 U.S. 21 (2005); Ernie Haire Ford, 23 Inc. v. Ford Motor Co., 260 F.3d 1285, 1293 (11th Cir. 2001) 24 (“[I]f Florida courts must defer to agency interpretations when 25 construing Florida substantive law, then we must do the same.”); 26 Keys v. Safeway Ins. Co., No. 2:07-CV-372 KS MTP, 2011 WL 577357, 27 at *6 (S.D. Miss. Feb. 9, 2011) (applying Mississippi law in 28 deciding whether deference is owed to Mississippi agency’s Federal courts in See Alvarez v. IBP, Inc., 339 F.3d 8 1 interpretation of state statute). Because this case arises under 2 diversity jurisdiction, (FAC at ¶ 7), the court will apply 3 California law in deciding whether the Commissioner’s Order is 4 “controlling law.” 5 The California Supreme Court has held that while “an 6 agency[’s] interpretation of the meaning and legal effect of a 7 statute is entitled to consideration and respect by the courts,” 8 the “courts are the ultimate arbiters of the construction of a 9 statute.” Yamaha Corp. of Am. v. State Bd. of Equalization, 19 10 Cal. 4th 1, 7, 17 (1998); see also California Assn. of Psychology 11 Providers v. Rank, 51 Cal. 3d 1 (1990) (holding the same), as 12 modified on denial of reh’g (Sept. 20, 1990); Dyna–Med, Inc. v. 13 Fair Employment & Housing Com., 43 Cal.3d 1379, 1389 (1987) (“The 14 final meaning of a statute . . . rests with the courts.”); Morris 15 v. Williams, 67 Cal.2d 733, 748, (1967) (“[F]inal responsibility 16 for the interpretation of the law rests with the courts.”). In keeping with that principle, California courts are 17 18 instructed to “independently judge the text of the statute,” even 19 where an agency has interpreted its meaning. 20 at 7. 21 tools available to the court” in construing a statute. 22 “Depending on the context, [an agency’s interpretation] may be 23 helpful, enlightening, even convincing.” 24 controlling, however. 25 Com., 43 Cal. 3d 1379, 1388 (1987) (holding that while agency 26 interpretation of statutes may be “entitled to great weight,” 27 they are “not controlling”); Sheet Metal Workers Int’l Ass’n, 28 Local Union No. 104 v. Rea, 153 Cal. App. 4th 1071, 1080 (1st Yamaha, 19 Cal. 4th An agency’s interpretation is only “one among several Id. at 7-8. Id. It is not Dyna-Med, Inc. v. Fair Employment & Hous. 9 1 Dist. 2007) (holding the same), as modified (Aug. 29, 2007); Am. 2 Nat. Ins. Co. v. Low, 84 Cal. App. 4th 914, 924 (2d Dist. 2000) 3 (holding the same); see also Diablo Valley Coll. Faculty Senate 4 v. Contra Costa Cmty. Coll. Dist., 148 Cal. App. 4th 1023, 1034 5 (1st Dist. 2007) (responding to argument that agency 6 interpretation “is controlling unless it is plainly erroneous” by 7 noting that such rule “appears to be precluded by Yamaha”). 8 This is particularly true in the context of 9 administrative interpretations, which, unlike quasi-legislative 10 rules, “do[] not implicate the exercise of a delegated lawmaking 11 power,” but merely “represents the agency’s view of the statute’s 12 legal meaning and effect, questions lying within the 13 constitutional domain of the courts.” 14 Indeed, the California Supreme Court has held that such 15 interpretations, “however ‘expert’” they may be, “command[] a 16 commensurably lesser degree of judicial deference” than quasi- 17 legislative rules, id. at 11, which are themselves not 18 controlling either, see Dyna-Med, 43 Cal. 3d at 1388 (“The 19 contemporaneous construction of a new enactment by the 20 administrative agency charged with its enforcement [is] not 21 controlling . . . .”). 22 Yamaha, 19 Cal. 4th at 11. In bringing a motion for reconsideration, plaintiff 23 seeks an “extraordinary remedy,” one that compromises “the 24 interests of finality and the conservation of judicial 25 resources.” 26 relief, plaintiff directs the court’s attention to the 27 Commissioner’s Order, which was issued without quasi-legislative 28 procedures after the court decided defendants’ motion to dismiss. Kona Enters, 229 F.3d at 890. 10 Hoping to obtain such 1 (See Pl.’s Mem. at 5-6.) 2 clear that the Commissioner’s Order does not control this court.5 3 Because the Commissioner’s Order does not control this court, it 4 does not constitute “an intervening change in controlling law.” 5 B. The authorities discussed above make The Court’s June 20 Order is not Clearly Erroneous Plaintiff continues to argue that the court’s June 20 6 7 Order is erroneous. (See Pl.’s Reply at 6-10.) It contends that 8 section 11735’s “initial filing and waiting requirement is not 9 abrogated solely because the Commissioner may reject or 10 disapprove a rate that is actually filed” under section 11737. 11 (Id. at 2.) 12 it state that the threshold filing requirement is set aside 13 unless and until the Commissioner acts to ‘disapprove’ the 14 unfiled rate.” “Nowhere in Section 11735,” plaintiff notes, “does (Id. at 6.) As a threshold matter, this argument mischaracterizes 15 16 the court’s June 20 Order. In that order, the court held that “a 17 rate that has not been filed as required by § 11735 is not an 18 unlawful rate unless and until the Commissioner conducts a 19 hearing and disapproves the rate.” 20 an insurer may lawfully use an unfiled rate does not mean that it (June 20 Order at 4.) That 21 22 23 24 25 26 27 28 5 That the Commissioner designated his ruling “precedential” under California Government Code § 11425.60(b) does not alter the court’s analysis. That provision merely allows agencies to designate decisions as precedent. Cal. Gov. Code § 11425.60. It does not require courts to follow such precedent. See State Bldg. & Const. Trades Council of Cal. v. Duncan, 162 Cal. App. 4th 289, 300 (1st Dist. 2008) (agency precedents “can be relied upon in subsequent determinations” (emphasis added)); Sheet Metal Workers, 153 Cal. App. 4th at 1085 (“[A]n administrative decision may . . . be expressly relied on as precedent [if] so designated by the agency.” (emphasis added)). 11 1 may do so without being subject to recourse. Section 11737 2 provides a procedure for parties like plaintiff to appeal such 3 rates to the Commissioner who, after a hearing, “may affirm, 4 modify, or reverse [the] action” of the insurer. 5 § 11737. 6 “set aside” section 11735, as plaintiff suggests. 7 recognizes that under the language of section 11737, an unfiled 8 rate is not unlawful per se. Cal. Ins. Code Thus, the court’s June 20 Order does not “abrogate” or It merely Plaintiff, of course, continues to contend that an 9 10 unfiled rate is unlawful per se under section 11735. (See Pl.’s 11 Reply at 6.) 12 nevertheless fails to show clear error in the court’s alternative 13 reading. 14 disapprove a rate if the insurer fails to comply with the filing 15 requirements under Section 11735” and “may affirm, modify, or 16 reverse” a rate after an appeal and hearing. 17 11737(a), (f) (emphases added). 18 the commissioner disapproves a rate, the commissioner shall issue 19 an order specifying . . . that rate shall be discontinued for any 20 policy issued or renewed after a date specified in the order.” 21 Id. § 11737(g). 22 rate is not unlawful unless and until the Commissioner holds a 23 hearing, disapproves the rate, and issues an order discontinuing 24 the rate. To the extent that reading is plausible, plaintiff Section 11737 states that “[t]he commissioner may Cal. Ins. Code § It further provides that “[i]f Thus, section 11737 provides that an unfiled Nothing in section 11737 renders unfiled rates unlawful 25 26 per se. Section 11735, meanwhile, states that insurers “shall 27 file” their rates, but is silent on whether they may use unfiled 28 12 1 rates.6 2 Because section 11737 supports the court’s 3 interpretation of section 11735, that interpretation does not 4 constitute “clear error.” 5 (declining to find “clear error” where the “question [was] a 6 debatable one”); In re Cement Antitrust Litig. (MDL No. 296), 688 7 F.2d 1297, 1305 (9th Cir. 1982) (“[W]hen a district court is 8 faced with two plausible interpretations of a statute that has 9 not been construed by an appellate court, it would be difficult Cf. McDowell, 197 F.3d at 1255 10 in one sense to characterize either interpretation as ‘clearly 11 erroneous.’”); Willis v. Mullins, No. CIV-F-04-6542 AWI GSA, 809 12 F. Supp. 2d 1227, 1233 (E.D. Cal. 2011) (Ishii, J.) (“Although 13 the definition of clear error we have employed in differing 14 contexts varies to some extent, it generally allows for reversal 15 only where the court of appeals is left with a ‘definite and firm 16 conviction’ that an error has been committed.” (internal citation 17 omitted)). Because the Commissioner’s Order does not constitute 18 19 “an intervening change in controlling law” and because the 20 court’s June 20 Order was not a “clear error,” the court will 21 22 23 24 25 26 27 28 6 Plaintiff also cites section 2509.32 of title 10 of the California Code of Regulations in support of its interpretation of the Insurance Code. (See Pl.’s Reply at 6.) But nothing in that regulation contradicts the court’s reading of section 11735. All it does is repeat section 11735’s requirement that an insurer file its rates with the Commissioner 30 days before their effective date. See 10 CCR § 2509.32(a). It states that “no insurer shall issue a workers’ compensation insurance policy unless the policy is first approved by the Commissioner,” id., but that obligation exists under section 11658, which is not at issue in this motion. 13 1 deny plaintiff’s motion for reconsideration. It should be noted that neither this Order nor the June 2 3 20 Order bars plaintiff from arguing that defendants’ use of the 4 RPA was illegal on grounds other than violation of section 11735. 5 If plaintiff successfully argues that the RPA violated section 6 11658, or that the Commissioner’s Order constituted a rate 7 disapproval hearing within the meaning of section 11737 that 8 rendered the RPA retroactively unlawful, for example, the court 9 may still rule that the RPA was void with respect to plaintiff 10 and other putative class members. IT IS THEREFORE ORDERED that plaintiff’s motion for 11 12 reconsideration of the court’s June 20, 2016 Order be, and the 13 same hereby is, DENIED without prejudice as to attempts by 14 plaintiff to invalidate the Reinsurance Participation Agreement 15 on grounds other than the theory that defendants violated 16 California Insurance Code section 11735. 17 Dated: October 17, 2016 18 19 20 21 22 23 24 25 26 27 28 14

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