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

Filing 66

MEMORANDUM and ORDER signed by Senior Judge William B. Shubb on 10/17/2017 re #62 Defendants' Motion to Dismiss: IT IS ORDERED that defendants' motion to dismiss plaintiffs' complaints be, and the same hereby is, GRANTED as to plaintiffs' RICO claims; GRANTED as to plaintiffs' attempts to invalidate the RPA on the theory that defendants violated Insurance Code section 11735; and DENIED in all other respects. (Kirksey Smith, K)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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----oo0oo---SHASTA LINEN SUPPLY, INC., on
CIV. NO. 2:16-00158 WBS AC
behalf of themselves and all
others similarly situated,
Plaintiffs,

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v.
APPLIED UNDERWRITERS, INC.;
APPLIED UNDERWRITERS CAPTIVE
RISK ASSURANCE COMPANY, INC.;
CALIFORNIA INSURANCE COMPANY;
and APPLIED RISK SERVICES,
INC.,

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Defendants.

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PET FOOD EXPRESS LTD., and
ALPHA POLISHING, INC. d/b/a
GENERAL PLATING CO., on
behalf of themselves and all
others similarly
situated,

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Plaintiffs,

CIV. NO. 2:16-01211 WBS AC
MEMORANDUM AND ORDER RE:
DEFENDANTS’ MOTION TO DISMISS

v.
APPLIED UNDERWRITERS, INC.;
APPLIED UNDERWRITERS CAPTIVE
RISK ASSURANCE COMPANY, INC.;
CALIFORNIA INSURANCE COMPANY;
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and APPLIED RISK SERVICES,
INC.,
Defendants.

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----oo0oo----

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Plaintiffs Shasta Linen Supply, (“Shasta”); Pet Food

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Express, Ltd. (“Pet Food”); and Alpha Polishing1 (collectively

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“plaintiffs”) initiated these actions2 against Applied

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Underwriters Inc. (“AU”); Applied Underwriters Captive Risk

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Assurance Company, Inc. (“AUCRA”); Applied Risk Services, Inc.

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(“ARS”); and California Insurance Company, Inc. (“CIC”)

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(collectively “defendants”)3 alleging that defendants

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fraudulently marketed and sold a workers’ compensation insurance

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program to them and other employers in violation of California

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and federal law.

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dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).

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(Defs.’ Mot. to Dismiss (Docket No. 62).)

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I.

Factual and Procedural Background

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Before the court is defendants’ Motion to

California requires that all employers purchase
workers’ compensation insurance coverage for employees that

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The amended complaint in the Pet Food action added
Alpha Polishing, Inc., as a new plaintiff.
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On July 6, 2017, the court entered an order
consolidating the actions for pre-trial purposes. (Shasta Docket
2:16-158 No. 59; Pet Food Docket 2:16-1211 No. 58.)
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AU is the parent company of AUCRA and ARS, and controls
CIC through another subsidiary. (SSAC ¶ 8, Ex. A, Ins. Comm’r’s
June 20 Decision & Order (“Comm’r’s Order”) at 9-10 (Shasta
Docket No. 56-1).
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suffer injury or death due to an occupational accident.

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Second Amended Compl. (“SSAC”) ¶ 3 (Shasta Docket No. 56); Pet

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Food Amended Compl. (“PFAC”) ¶ 3 (Pet Food Docket No. 54).)

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California Insurance Code also requires that all workers’

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compensation insurance policy forms, rates, and rating plans be

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filed for approval with the California Workers Compensation

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Insurance Rating Bureau (“the Bureau”) and approved by the

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California Department of Insurance.

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also California Insurance Code §§ 11658, 11735.)

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(Shasta

The

(SSAC ¶ 22; PFAC ¶ 23; see

Defendants allegedly marketed and sold a workers’

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compensation insurance program under the names EquityComp and

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SolutionOne (collectively “the program”) to plaintiffs and other

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California employers.

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this policy with the Bureau and got approval from the Department

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of Insurance.

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policies took effect for the plaintiffs, defendants allegedly

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required plaintiffs to sign a Reinsurance Participation Agreement

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(“RPA”).

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(SSAC ¶ 29; PFAC ¶ 30.)

(SSAC ¶ 30; PFAC ¶ 31.)

Defendants filed

After the program’s

(SSAC ¶¶ 28, 43; PFAC ¶¶ 29, 44.)
Plaintiffs allege that the RPA modified the terms of

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the existing insurance policies, including the rates, causing

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plaintiffs to incur significantly higher costs for the insurance

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program than defendants had marketed.

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Plaintiffs claim that defendants used the RPA to charge excessive

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rates and additional fees to plaintiffs and other program

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participants.

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deliberately misrepresented the costs of the program in their

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marketing materials to induce plaintiffs to rely on those costs

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and enter the program.

(SSAC ¶ 70; PFAC ¶ 74.)

Plaintiffs also allege that defendants

(SSAC ¶¶ 2, 5, 7; PFAC ¶¶ 2, 5, 7.)
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Additionally, plaintiffs claim that the RPA’s rates are

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void because, among other things, defendants did not file the

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rates with the Commissioner of the California Department of

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Insurance (“the Commissioner”) as required by California

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Insurance Code § 11735.4

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concede the RPA was not filed or approved by the Department of

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Insurance prior to its use.

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(SSAC ¶ 38; PFAC ¶ 39.)

Defendants

(SSAC ¶¶ 28, 34; PFAC ¶¶ 29, 35.)

On August 29, 2014, Shasta filed an administrative
appeal with the California Department of Insurance, challenging,

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among other things, the legality of the RPA.

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Comm’r’s Order.)

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of law because defendants did not file the RPA with the

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Commissioner thirty days prior to when it was to take effect, as

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required by § 11735.

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(SSAC ¶ 8, Ex. A,

Shasta argued that the RPA was void as a matter

(Id. at 2.)

On January 26, 2016, Shasta brought an action in this

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court alleging fraud and unfair competition against defendants

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for their marketing and sale of the insurance program and RPA.

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(Shasta Compl. (Shasta Docket No. 1).)

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Shasta again argued that the RPA was void because defendants did

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not file it with the Commissioner prior to it taking effect,

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thereby violating § 11735.

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billing plaintiff under the void RPA constituted fraud and was an

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unfair business practice.

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dismiss the complaint to the extent it relied on § 11735, arguing

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that a rate is legal unless and until the Commissioner holds a

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hearing and disapproves the rate, pursuant to § 11737.

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(Id. ¶ 3.)

(Id. ¶ 4.)

With respect to the RPA,

Shasta argued that

Defendants moved to

(Defs.’

All statutes referenced are from the California
Insurance Code unless stated otherwise.
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June 13, 2016 Mot. to Dismiss at 6 (Shasta Docket No. 17).)
On June 20, 2016, the court granted defendants’ motion

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to dismiss to the extent Shasta relied on § 11735, stating that

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“a rate that has not been filed as required by § 11735 is not an

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unlawful rate unless and until the Commissioner conducts a

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hearing and disapproves the rate.”

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20 Order”) at 4 (Shasta Docket No. 30).)

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alleged that the Commissioner had held a hearing and disapproved

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the RPA, the court concluded that plaintiff did not plausibly

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allege that the RPA was void.

(June 20, 2016 Order (“June
Because Shasta had not

(Id.)

On the same day as the court’s order of dismissal, the

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Commissioner issued a Decision and Order in Shasta’s

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administrative case, holding that the RPA must be filed and

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approved by the Commissioner pursuant to § 11735 before use.

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(SSAC ¶ 8, Ex. A, Comm’r’s Order.)

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file the RPA before it took effect, the Commissioner stated, the

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“RPA is void as a matter of law.”

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Commissioner’s Order, Shasta filed a motion for reconsideration

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of the June 20 Order granting the motion to dismiss.

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Docket No. 33.)

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reconsideration, holding that the Commissioner’s Order did not

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control this court and that the court’s previous June 20 Order

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was not clearly erroneous.

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(Shasta Docket No. 47).)

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Because defendants did not

(Id.)

Based on the

(Shasta

The court denied Shasta’s motion for

(Mem. and Order Re: Mot. for Recons.

Pet Food filed a separate class action against

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defendants in state court asserting claims for unfair

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competition, rescission, declaratory relief, and fraud.

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action was removed to federal court on March 29, 2016.
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The
(Pet Food

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Docket No. 1.)

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to dismiss the Pet Food complaint to the extent it sought to

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invalidate the RPA on the ground that it is an unfiled rate or

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rating plan in violation of § 11735.

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The court denied defendants’ motion to dismiss as moot because

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Pet Foot’s complaint did not rely on § 11735.

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Dismiss (Pet Food Docket No. 35).)

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Defendants, as they had in the Shasta case, moved

(Pet Food Docket No. 15.)

(Order Re: Mot. to

On June 21, 2017, the plaintiffs in both actions filed
amended complaints that are nearly identical.

The complaints

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assert claims under the federal Racketeer Influence Corrupt

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Organizations (“RICO”) statue, 18 U.S.C. § 1962; under the

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California Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code

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§ 17200; and for unjust enrichment.

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II.

Legal Standard

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On a Rule 12(b)(6) motion, the inquiry before the court

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is whether, accepting the allegations in the complaint as true

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and drawing all reasonable inferences in the plaintiff’s favor,

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the plaintiff has stated a claim to relief that is plausible on

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its face.

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plausibility standard is not akin to a ‘probability requirement,’

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but it asks for more than a sheer possibility that a defendant

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has acted unlawfully.”

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when the plaintiff pleads factual content that allows the court

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to draw the reasonable inference that the defendant is liable for

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the misconduct alleged.”

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pleaded complaint may proceed even if it strikes a savvy judge

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that actual proof of those facts is improbable.”

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v. Twombly, 550 U.S. 544, 556 (2007).

See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

Id.

Id.

“The

“A claim has facial plausibility

Under this standard, “a well-

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Bell Atl. Corp.

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III.

Discussion
A.

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Racketeer Influenced and Corrupt Organizations Claim
To state a RICO claim, plaintiffs must allege (1) the

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conduct of (2) an enterprise that affects interstate commerce (3)

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through a pattern (4) of racketeering activity or collection of

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unlawful debt.

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must be the proximate cause of harm to the victim.

Holmes v.

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Sec. Inv’r Prot. Corp., 503 U.S. 258, 268 (1992).

Defendants’

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motion only challenges whether the complaints (1) sufficiently

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plead an enterprise and (2) allege a specific intent to defraud

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as required to plead mail and wire fraud as “racketeering

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activity.”

18 U.S.C. § 1962(c).

In addition, the conduct

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1.

Enterprise

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Pursuant to RICO, it is “unlawful for any person

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employed by or associated with any enterprise engaged in. . .

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interstate or foreign commerce, to conduct or participate,

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directly or indirectly, in the conduct of such enterprise’s

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affairs through a pattern of racketeering activity.”

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1962(c).

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partnership, corporation, association, or other legal entity, and

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any union or group of individuals associated in fact although not

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a legal entity.”

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of persons associated together for a common purpose of engaging

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in a course of conduct.”

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576, 583 (1981).

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18 U.S.C. §

An “enterprise” is defined as “any individual,

18 U.S.C. § 1961(4).

It may include “a group

United States v. Turkette, 452 U.S.

To establish liability under § 1962(c), the plaintiff

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“must allege and prove the existence of two distinct entities:

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(1) a ‘person’; and (2) an ‘enterprise’ that is not simply the
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same ‘person’ referred to by a different name.”

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Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001).

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define their enterprise, known as the AU RPA Enterprise, as an

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“association-in-fact.”

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AU RPA Enterprise, as pled, satisfies the elements of an

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associated-in-fact enterprise, but instead question whether

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plaintiffs have been able to sufficiently allege distinctiveness

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between the RICO persons and the enterprise.

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Cedric Kushner
Plaintiffs

Defendants do not challenge whether the

The “enterprise” at issue consists of the four

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corporate defendants themselves and five individuals associated

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with those companies.

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name all members of an associated-in-fact enterprise as

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individual RICO persons, River City Mkts., Inc. v. Fleming Foods

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W., Inc., 960 F.2d 1458, 1461–62 (9th Cir. 1992), but must

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establish that those individual members are “separate and

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distinct” from the enterprise they collectively form, Living

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Designs, Inc. v. E.I. Dupont de Nemours & Co., 431 F. 3d 353, 361

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(9th Cir. 2005).

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(SSAC ¶ 73; PFAC ¶ 77.)

A plaintiff may

Defendants argue that the companies are essentially

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indistinguishable from one another, and thus they cannot form an

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enterprise that is distinct from the corporations themselves.

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(Defs.’ Mem. of P. & A. at 17.)

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corporations are named as defendants and RICO persons does not

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necessarily mean that a distinct RICO enterprise has not been

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alleged.

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for the purpose of conducting the affairs of the AU RPA

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Enterprise, thereby creating an enterprise that exists separately

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from the businesses of the four companies.

However, that the four

Plaintiffs allege that the corporations came together

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(Pls.’ Mem. of P. &

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A. at 16.)
The Ninth Circuit has indicated that an enterprise

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consisting of related but legally distinct entities likely does

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satisfy the distinctiveness requirement.

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Corp., 978 F. 2d 1529, 1534 (9th Cir. 1992) (when determining

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whether these entities are distinct, “the only important thing is

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that [the enterprise] be either formally. . . or practically. . .

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separable from the individual.”

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while the companies may not be practically separate, they have

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Sever v. Alaska Pulp

(citations omitted)).

Here,

maintained their formal, legal separation.
However, the Ninth Circuit has not explicitly addressed

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whether legal separation is sufficient to satisfy the

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distinctiveness requirement, and district courts within the

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circuit remain split on the question of what is required to show

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distinctness.

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separation of the defendant entities satisfies the RICO

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distinctiveness requirement.”

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Civ. No. 2:13-8833 CAS, WL 93363, at *7 (C.D. Cal. Jan. 5, 2015);

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see also Monterey Bay Military Hous., LLC v. Pinnacle Monterey

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LLC, 116 F. Supp. 3d 1010, 1046 (N.D. Cal. 2015), order vacated

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in part on reconsideration on other grounds, Civ. No. 14-3953

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BLF, WL 4624678 (N.D. Cal. Aug. 3, 2015) (“Defendants cannot shed

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their other corporate distinctions when it suits them,

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particularly where it is alleged that the separate corporate

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entities were critical in carrying out the racketeering

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activity.”); Negrete v. Allianz Life Ins. Co. of N. Am., 926 F.

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Supp. 2d 1143, 1151 (C.D. Cal. 2013) (finding that the “formal

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separation [of parent and subsidiary companies] is alone

Some courts conclude that “the formal, legal

Waldrup v. Countrywide Fin. Corp.,

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sufficient to support a finding of distinctiveness”).

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require “something more” than mere legal distinctiveness, like

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different or uniquely significant roles in the enterprise.

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e.g., In re Countrywide Fin. Corp. Mortg. Mktg. & Sales Practices

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Litig., 601 F. Supp. 2d 1201 (S.D. Cal. 2009).

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Others

See,

Here, plaintiffs have plausibly pled that each

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subsidiary had a distinct role in the enterprise.5

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78; PFAC ¶ 77-82.)

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for the program that itself articulates how operating through

(SSAC ¶ 73-

Additionally, defendants received a patent

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separate companies facilitated the AU Program scheme.

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37, Ex. E, “Reinsurance Participation Plan,” Patent No. 7,908,157

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B1 (Docket No. 54-5).)6

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is not sufficient, the plaintiffs have been able to plead that

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each of the four corporate entities played a unique role in the

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enterprise, thus satisfying the “something more” standard.

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(SSAC ¶

Accordingly, even if legal separateness

Defendants further argue that an enterprise must be not
only different than the “persons” alleged to have committed the

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In the complaints, plaintiffs state that “[d]efendants’
decision to sell the illegal workers’ compensation insurance
Program as separate corporate forms, and via the AU RPA
Enterprise rather than through divisions of AU, facilitated and
made possible the unlawful activity because separating the
regulatory approval of the GC policies filed by CIC from the rest
of the AU Program, including the RPA, enabled AU to circumvent
the necessary regulatory checks-and-balances needed in
comprehensive state workers’ compensation systems. . . .It also
enabled Defendants to trick employers as to the legality of the
Program being offered.” (SSAC ¶¶ 77-78; PFAC ¶¶ 81-82.)
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The court may consider the patent because plaintiffs
attached it to their complaint. See Lee v. City of Los Angeles,
250 F. 3d 668, 689 (9th Cir. 2001)(stating that a court may
consider material which is properly submitted as part of the
complaint).
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RICO violation, but also different than the conduct that makes up

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the alleged pattern of racketeering activity.

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Circuit has rejected the latter requirement.

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Microsoft Corp., 486 F. 3d 547, 549 (9th Cir. 2007) (rejecting

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the obligation for a separate structure distinct from the

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racketeering activity).

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the distinctiveness requirement.

However, the Ninth
See, e.g., Odom v.

Accordingly, plaintiffs have satisfied

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2.

Racketeering Activity

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Racketeering activity is any act indictable under the

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several provisions of Title 18 of the United States Code,

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including the predicate acts alleged by plaintiffs in this case:

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mail fraud, 18 U.S.C. § 1341, and wire fraud, 18 U.S.C. § 1343.

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Cohen v. Trump, Civ. No. 10-940 GPC WVG, WL 690513, at *3 (S.D.

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Cal. Feb. 21, 2014).

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are: (1) the existence of a scheme to defraud; (2) the use of the

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mails or wires to further the scheme; and (3) a specific intent

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to defraud.

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751 F. 3d 990, 998 (9th Cir. 2014).

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specific intent to deceive or defraud only needs to be alleged

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generally.

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factual circumstances of the fraud itself must be alleged with

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particularity, the state of mind--or scienter--of the defendants

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may be alleged generally”).

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plaintiffs must first prove “the existence of a scheme which was

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reasonably calculated to deceive persons of ordinary prudence and

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comprehension,” and then, “by examining the scheme itself” the

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court may infer defendants’ specific intent to defraud.

The elements of mail fraud or wire fraud

Eclectic Props. E., LLC v. Marcus & Millichap Co.,
The third requirement of a

Odom, 486 F. 3d at 554 (explaining that “while the

To satisfy this requirement,

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United

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States v. Green, 745 F. 2d 1205, 1207 (9th Cir. 1984) (citations

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omitted).

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Here, plaintiffs allege that defendants developed a

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scheme to conceal the true nature of the insurance program from

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regulators so that defendants could burden employers, like the

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plaintiffs, with oppressive and unconscionable terms.

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PFAC ¶ 6.)

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the plaintiffs into believing the program was legal, and

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deceptively failed to explain how the program operated.

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(SSAC ¶ 6;

The complaints further allege that defendants misled

(SSAC ¶¶

42-55; PFAC ¶¶ 43-56.)

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However, plaintiffs concede that defendants disclosed

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in program documents that the RPA was not a filed retrospective

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rating plan, and detailed how the profit sharing program would

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work.

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described in detail, in a publicly available patent, how the

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program would operate.

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even gone as far as to patent their planned methodology.”

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¶ 36; PFAC ¶ 37.)

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(SSAC ¶ 52; PFAC ¶ 53.)

Additionally, defendants

As plaintiffs explain, “[d]efendants have
(SSAC

Moreover, while the RPA was never officially filed with

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the Department of Insurance, it does appear that the Department

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was aware of the RPA’s existence.

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Department explained that,

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In its 2013 report, the

The EquityComp product is sold with an
accompanying Profit Sharing Plan through the
Company’s affiliate, Applied Underwriters
Captive Risk Assurance, Company, Inc.
(AUCRA). AUCRA then enters into a
Reinsurance Participation Agreement with the
insured in order to form a segregated
protective cell by which the insured shares
in a portion of the premiums and losses
between the Company and the insured
protected cell.
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(Defs.’ Req. for Judicial Notice in Supp. of Mot. to

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Dismiss, Ex. 9 (Docket No. 61-1).)7

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infer that defendants actively concealed the structure of the

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insurance program or the existence of the RPA from regulators,

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plaintiffs, or the public generally.

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plausible

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alternative explanation” for the behavior.

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679.

is

that

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defendants simply did not think the RPA needed to be filed.

This

if

Here,

the

the

allegations

“obvious

why

An intent to defraud is not

give

rise

alternative

defendants

to

an

“obviously

Iqbal, 556 U.S. at

explanation”

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explanation

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insurance program’s structure and the existence of the RPA in

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documents that were provided to plaintiffs and in a publicly

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available patent, and yet did not file the RPA.

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clarifies

From this, the court cannot

explicitly

described

the

The Ninth Circuit has explained that “defendants’

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provision of adverse information to the public by way of

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disclosures negates an inference that they acted with an intent

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to defraud.”

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1425 (9th Cir. 1994)(citations omitted).

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fact knew that the RPA needed to be filed, then publicly

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disclosing the fact that it was unfiled would constitute adverse

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information.

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regarding the RPA, including that fact that it was not filed,

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both directly with plaintiffs and in a publicly available patent,

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they have been able to refute any inference of fraud.

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In re Worlds of Wonder Sec. Litig., 35 F. 3d 1407,
Here, if defendants in

Thus, because defendants shared information

The court takes judicial notice of the existence of
this report, which is an official record, and the fact that these
statements were made by the Department, thereby putting the
Commissioner on notice as to the RPA. However, the court does
not take notice of the truth of the facts asserted within the
report. See Lee, 250 F. 3d at 689.
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Accordingly, plaintiffs have not sufficiently alleged a

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plausible basis to infer a specific intent to defraud, and their

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RICO claim must be dismissed.

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even if plaintiffs were given leave to amend the court cannot see

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how they would be able to plead facts to create a plausible

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inference that defendants intended to conceal the structure of

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the program and thereby defraud plaintiffs.

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A.

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Given the existence of the patent,

California Unfair Competition Law
1.

Standing

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Plaintiffs assert a claim for injunctive relief and

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restitution under the UCL, Cal. Bus. & Prof. Code § 17200, et

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seq.

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either of these remedies, and thus have failed to plead a viable

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UCL claim.

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able to show (1) that he or she has suffered an “injury in fact,”

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(2) that the injury is “fairly traceable” to the challenged

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conduct, and (3) that it is “likely”, as opposed to “merely

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speculative,” that the injury will be redressed by a favorable

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decision.

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(1992).

Defendants argue that plaintiffs lack standing to seek

A plaintiff has Article III standing if he or she is

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61

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a.

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Injunctive Relief

Plaintiffs originally requested an order enjoining

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defendants’ allegedly unlawful business practices.

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PFAC ¶ 155.)

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(SSAC ¶ 151;

To establish standing to seek prospective

The court addresses the issue of whether plaintiffs
have standing to seek an injunction because the parties briefed
this topic at length. However, the court notes that at oral
arguments plaintiffs stated that they were not seeking an
injunction but instead wanted a declaratory judgment stating that
the RPA and entire program were void. In determining whether
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injunctive relief, plaintiff must show, in addition to the

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requirements listed above, that the harm suffered is “concrete

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and particularized” and there must be a “sufficient likelihood

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that [he or she] will again be wronged in a similar way.”

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of Los Angeles v. Lyons, 461 U.S. 95, 111 (1983).

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City

Defendants argue that because plaintiffs admittedly do

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not intend to participate in defendants’ insurance program in the

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future, they are unable to allege a real and immediate threat of

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future injury.

However, the purportedly unlawful RPAs that have

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already been issued to plaintiffs allow defendants to continue

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billing, collecting, and holding plaintiffs’ monies well past the

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present date.

13

Phillips v. Apple, Inc., the court dismissed the plaintiffs’

14

claim for injunctive relief because they had not offered any

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“reason for the Court to find a likelihood of future harm.”

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No. 15-04879 LHK, WL 1579693, at *9 (N.D. Cal. Apr. 19, 2016).

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However, in this case, the existence of the operative contract

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creates a real and immediate threat of repeated injury for the

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plaintiffs.

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defendants’ program in order to be harmed in the future.

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Additionally, the Consent Order and Settlement

(SSAC ¶¶ 37, 40, 55; PFAC ¶¶ 38, 41, 56.)

In

Civ.

Plaintiffs need not make a future purchase of

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plaintiffs have standing to seek declaratory relief, “the
question in each case is whether the facts alleged, under all the
circumstances, show that there is a substantial controversy,
between parties having adverse legal interests, of sufficient
immediacy and reality to warrant the issuance of a declaratory
judgment.” Golden v. Zwickler, 394 U.S. 103, 108 (1969). Here,
because the existing RPA is still being enforced, there is
sufficient immediacy and reality. Accordingly, plaintiffs have
standing to seek declaratory relief.
15

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Agreement9 settled all regulatory issues going forward.

2

these documents, while they affect the defendants’ ability to

3

sell future policies, do not affect the current RPA that has been

4

issued to plaintiffs.

5

consent order, AUCRA would stop issuing new RPAs but could

6

continue to administer and inforce RPAs.”

7

6 (Shasta Docket No. 62).)

8

injury from future programs, plaintiffs still face a real and

9

immediate threat of injury from the RPA that has already been

However,

Defendants concede that “pursuant to the

(Defs.’ Mot to Dismiss

Thus, while there may be no risk of

10

issued to them.

11

standing in order to seek injunctive relief.10

12

Accordingly, plaintiffs have established

b.

13

Restitution

In order to have standing to seek restitution, a

14

plaintiff must “(1) establish a loss or deprivation of money or

15

property sufficient to qualify as injury in fact, i.e., economic

16

injury, and (2) show that that economic injury was the result of,

17

i.e., caused by, the unfair business practice.”

18

Super. Ct., 51 Cal. 4th 310, 322 (2011).

19

allege that they expended money because of the defendants’ acts

20

of unfair competition, they need not prove compensable loss.

21

Monarch Plumbing Co., Inc. v. Ranger Ins. Co., Civ. No. 2:06-1357

22
23
24
25
26
27
28

9

Kwikset Corp v.

While plaintiffs must

The court takes judicial notice of the Consent Order
and Settlement Agreement because they are public records whose
existence “can be accurately and readily determined from sources
whose accuracy cannot readily be questioned.” See Fed. R. Civ.
P. 201(b). Additionally, plaintiffs refer to the Settlement
Agreement in their Amended Complaint and it forms the basis of
one or more of their claims. As such, even if it were not an
official record, the court could take judicial notice of it. See
United States v. Ritchie, 342 F. 3d 903, 908 (9th Cir. 2003).
10

See footnote 8.
16

1

WBS KJM, WL 2734391 at *6 (E.D. Cal. Sept. 25, 2006)(standing

2

established where plaintiffs alleged injury in form of higher

3

insurance premiums).

4

to prove a right to damages (or, here, restitution), that does

5

not demonstrate that [they] lack standing to argue for [their]

6

entitlement to them.”

7

758, 789 (2010).

8
9

While plaintiffs “may ultimately be unable

Clayworth v. Pfizer, Inc., 49 Cal. 4th

Here, plaintiffs allege that “[t]he RPA, as enforced by
Defendants, resulted in significant premiums, fees, charges,

10

and/or penalties to Plaintiff[s] and Class members in excess of

11

those advertised during the marketing of the program or that

12

would have been paid in the absence of Defendants’ wrongful

13

conduct.”

14

required to prove the specific amount they overpaid as a result

15

of defendants’ conduct at the pleading stage, plaintiffs’

16

allegation, albeit general, is sufficient to establish standing

17

to make a claim for restitution.

18

(SSAC ¶ 140; PFAC ¶ 144.)

Because plaintiffs are not

Plaintiffs may only recover the portion of the funds

19

that defendants have retained as a result of the alleged unfair,

20

fraudulent, or unlawful business practice.

21

II, 240 Cal. App 4th 779, 802 (4th Dist. 2015).

22

are asking for exactly that--for “full restitution of all

23

monetary sums unlawfully obtained by defendants.”

24

PFAC ¶ 147).

25

only to the return of money or property that was once in the

26

possession of [a plaintiff].”

27

Martin Corp., 29 Cal. 4th 1134, 1149 (2003).

28

also allows a plaintiff to recover money or property in which

In re Tobacco Cases
Here, plaintiffs

(SSAC ¶ 143;

Restitution, “as used in the UCL, is not limited

Korea Supply Co. v. Lockheed

17

Rather, restitution

1

plaintiff has a vested interest.

2

ownership interest in “any profits [the defendant] may have

3

gained through interest or earnings on the plaintiffs’ money that

4

[defendant] wrongfully held.”

5

Cal. App. 4th 889, 915 (4th Dist. 2007).

6

seeking disgorgement of profits earned by defendants as a result

7

of their alleged unlawful collection and retention of monies.

8

Because the Juarez court clarifies that plaintiffs may have an

9

ownership interest in this form of money, plaintiffs have

10

Id.

Plaintiffs may have an

Juarez v. Arcadia Fin., Ltd., 152
Here, plaintiffs are

standing to seek restitution.

11

The court may, at a later stage, ultimately determine

12

that plaintiffs would have suffered the same harm whether or not

13

defendants had complied with the law, and thus find that

14

plaintiffs are not entitled to restitution.

15

stage plaintiffs have sufficiently pled their right to

16

restitution.

17

2.

18

Unlawful Conduct
a.

19

However, at this

“Borrowing” Insurance Code § 11658

The UCL forbids unlawful, unfair, and fraudulent

20

business practices.

(Cal. Bus. & Prof. Code § 17200.)

21

Plaintiffs allege that defendants violated § 1165811 by failing to

22
23
24
25
26
27
28

11

Section 11658(a) states: “A workers’ compensation
insurance policy or endorsement shall not be issued by an insurer
to any person in this state unless the insurer files a copy of
the form or endorsement with the rating organization pursuant to
subdivision (e) of Section 11750.3 and 30 days have expired from
the date the form or endorsement is received by the commissioner
from the rating organization without notice from the
commissioner, unless the commissioner gives written approval of
the form or endorsement prior to that time.”
18

1

file the RPA with the Bureau or receive approval from the

2

California Department of Insurance, thereby engaging in an

3

unfair, unlawful, and/or fraudulent business practice.

4

11658(a) does not provide a private right of action.

5

Ins. Exch. v. Super. Ct., 137 Cal. App. 4th 842, 850 (2d Dist.

6

2006)(“a statute creates a private right of action only if the

7

statutory language or legislative history affirmatively indicates

8

such an intent”).

9

private cause of action, but rather attempt to “borrow” §

10

Section
See Farmers

However, plaintiffs do not purport to state a

11658(a) to satisfy the “unlawful” prong of the UCL.

11

The Ninth Circuit has held that a violation of a

12

section of the California Insurance Code may be “borrowed” to

13

make a claim under the UCL.

14

Co., 225 F.3d 1042, 1048 (9th Cir. 2000).

15

serve as the predicate for a Business and Professions Code

16

section 17200 action; it may be. . . civil or criminal, federal,

17

state or municipal, statutory, regulatory, or court-made.”

18

Gafcon, Inc. v. Ponsor & Assocs., 98 Cal. App. 4th 1388, 1425 n.

19

15 (4th Dist. 2002).

20

“[i]t does not matter whether the underlying statute also

21

provides for a private cause of action; section 17200 can form

22

the basis for a private cause of action even if the predicate

23

statute does not.”

24

Chabner v. United of Omaha Life Ins.
“Virtually any law can

The Chabner court further clarified that

225 F.3d at 1048.

A plaintiff cannot “plead around an absolute bar to

25

relief simply by recasting the cause of action as one for unfair

26

competition.”

27

narrow.

28

must actually ‘bar’ the action or clearly permit the conduct.”

Id.

(citations omitted).

But this limit is

To prevent an action under the UCL, “another provision

19

1

Hauk v. JP Morgan Chase Bank USA, 552 F.3d 1114, 1122 (9th Cir.

2

2009).

3

cases in which the courts did not allow plaintiffs to borrow a

4

violation of Insurance Code § 790 to form the basis of a UCL

5

claim.

6

before Chabner, in which the court explicitly held that “even

7

assuming that [previous cases] prevent causes of action based on

8

section 790.03(f), it does not necessarily follow that they also

9

prevent causes of action based on” other sections of the

Defendants cite to a number of California Court of Appeal

However, all of the cases cited by defendants occurred

10

Insurance Code.

225 F.3d at 1049.

Because there is nothing that

11

bars the borrowing of § 11658 for the purposes of a UCL claim,

12

plaintiffs may borrow that section to use as the basis of their

13

UCL claim.

14

interpretation, which allows an Insurance Code violation to be

15

borrowed to make a UCL claim, absent a contrary ruling by the

16

California Supreme Court.

17

06-1150 WBS GG, 2007 WL 1723617, at *3 (E.D. Cal. June 11, 2007).

Moreover, this court is bound by the Ninth Circuit’s

See, e.g., Johnson v. Barlow, Civ. No.

18

b.

Sections 11375 and 11737

19

The court previously dismissed Shasta’s claims “to the

20

extent that plaintiff seeks to invalidate the RPA on the theory

21

that defendants violated California Insurance Code § 11735.”12

22

(June 20 Order at 5.)

23

Commissioner had not conducted a hearing and disapproved of the

24

RPA’s rates.

25

12

26
27
28

At the time of the court’s ruling, the

The court explained that using a rate that was not

Section 11735(a) states: “Every insurer shall file with
the commissioner all rates and supplementary rate information
that are to be used in this state. The rates and supplementary
rate information shall be filed not later than 30 days prior to
the effective date. Upon application by the filer, the
commissioner may authorize an earlier effective date.”
20

1

filed pursuant to Ҥ 11735 is not an unlawful rate unless and

2

until the Commissioner conducts a hearing and disapproves the

3

rate.”

(Id.)

4

The day the court issued the order, the Commissioner

5

issued its Decision and Order, finding that defendants’ RPA was

6

in fact unfiled and therefore void as a matter of law.

7

Order.)

8

claims the court previously dismissed, but, in light of the

9

Commissioner’s ruling, the complaints now explicitly state that

10

the Commissioner has conducted a hearing and disapproved of the

11

RPA under § 11735.

12

(Comm’r’s

Plaintiffs’ amended complaints now re-allege the same

(SSAC ¶¶ 8, 56-58; PFAC ¶¶ 8, 57-59.)

Shasta previously filed a motion for reconsideration in

13

light of the Commissioner’s Order, and this court denied the

14

motion, holding that “the Commissioner’s Order does not control

15

this court.”

16

Order stated that failure to file the RPA pursuant to section

17

11735 “renders the plan[] unlawful.”

18

That interpretation directly conflicts with this court’s June 20

19

Order, which held that a rate does not become unlawful unless and

20

until the Commissioner acts to disapprove it.

21

4.)

22

maintains the position, as it has in previous rulings, that under

23

section 11737, an unfiled rate is not unlawful per se.

24

(Mem. and Order Re: Mot. for Recons. at 11)

The

(Comm’r’s Order at 62).

(June 20 Order at

The court again disagrees with the Commissioner and

Further, the Commissioner did not conduct a formal rate

25

disapproval hearing pursuant to § 11737(d).

26

disapprove a rate, the Commissioner must first “serve notice on

27

the insurer of the intent to disapprove and shall schedule a

28

hearing to commence within 60 days of the date of the notice.”
21

In order to legally

1

Cal. Ins. Code § 11737(d).

2

protocol.

3

disapproved of the RPA’s rates, the disapproval would be

4

prospective only, see Cal. Ins. Code § 11737(g), and apply only

5

to RPAs issued after June 20, 2016.

6

fall into that category.

7

The Commissioner did not follow this

Even assuming the Commissioner had properly

The Plaintiffs’ RPAs do not

Plaintiffs have not successfully argued that the

8

Commissioner’s Order constituted a rate disapproval hearing

9

within the meaning of section 11737 that rendered the RPA

10

retroactively unlawful.

11

previous dismissal remains applicable and defendants’ reliance on

12

the prior ruling is appropriate.

13

again grant defendants’ motion to dismiss plaintiffs’ claims to

14

the extent they seek to declare defendants’ use of the RPA was

15

illegal on the theory that defendants failed to comply with §

16

11735.

17

B.

Thus, the court’s reasoning for its

Accordingly, the court will

Unjust Enrichment

18

California courts are divided with regard to whether

19

unjust enrichment is a freestanding cause of action or simply a

20

general principle that underlies various legal doctrines and

21

remedies.

22

finding that unjust enrichment is not a freestanding cause of

23

action.

24

(9th Cir. 2009).

25

for unjust enrichment may still be maintained as an independent

26

claim for quasi-contract.

27

3d 753, 762 (9th Cir. 2015).

28

restitution is based on the theory that a defendant “has been

The Ninth Circuit has followed the latter approach,

See Bosinger v. Belnden CDT, Inc., 358 F. App’x 812, 815
However, it has since clarified that a claim

Astiana v. Hain Celestial Grp., 783 F.
A claim for quasi-contract seeking

22

1

unjustly conferred a benefit through mistake, fraud, coercion, or

2

request.”

3

648, 661 (4th Dist. 2011) (“Common law principles of restitution

4

require a party to return a benefit when the retention of such

5

benefit would unjustly enrich the recipient; a typical cause of

6

action involving such remedy is ‘quasi-contract.’”).

7

Id.; see also Munoz v. MacMillan, 195 Cal. App. 4th

Defendants argue that plaintiffs cannot plead a claim

8

for quasi-contract because a valid express contract exists.

9

However, “where the defendant obtained a benefit from the

10

plaintiff by fraud, duress, conversation, or similar conduct. . .

11

the plaintiff may choose not to sue in tort, but instead to seek

12

restitution on a quasi-contract theory.”

13

123 Cal. App. 4th 379, 388 (1st Dist. 2004).

14

McBride v. Boughton,

In Astiana, the plaintiff alleged that she was entitled

15

to relief because the defendant had “‘enticed’ plaintiffs to

16

purchase their products through ‘false and misleading’ labeling,

17

and that [defendant] had been unjustly enriched as a result.”

18

Astiana, 783 F.3d at 762.

19

straightforward statement is sufficient to state a quasi-contract

20

cause of action.”

21

“[d]efendants were unjustly enriched when they deceptively sold

22

Plaintiffs and Class members the illegal [insurance] program and

23

received and retained the benefits.”

24

Opp’n to Defs.’ Mot. to Dismiss at 25 (Docket No. 63); SSAC ¶¶ 2,

25

6, 10, 153-156; PFAC ¶¶ 2, 6, 10, 157-160.)

26

statement is sufficient to state a quasi-contract cause of

27

action.

28

enrichment claim as a claim for quasi-contract and deny the

Id.

The Ninth Circuit held that “this

Here, plaintiffs allege that

(Pls.’ Mem. of P. & A. in

As in Astiana, this

Accordingly, the court will construe plaintiffs’ unjust

23

1

motion to dismiss as to this claim.

2

IT IS THEREFORE ORDERED that defendants’ motion to

3

dismiss plaintiffs’ complaints be, and the same hereby is,

4

GRANTED as to plaintiffs’ RICO claims; GRANTED as to plaintiffs’

5

attempts to invalidate the RPA on the theory that defendants

6

violated Insurance Code section 11735; and DENIED in all other

7

respects.

8

Dated:

October 17, 2017

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