Pet Food Express Ltd. v. Applied Underwriters Inc. et al

Filing 148

ORDER signed by Senior Judge William B. Shubb on 09/11/19 GRANTING Defendants' 138 Motion for Summary Judgment; DENYING Plaintiff's 139 Motion for Partial Summary Judgment. CASE CLOSED (Benson, A.)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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----oo0oo----

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PET FOOD EXPRESS, LTD.,
Plaintiff,

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No. 2:16-CV-01211 WBS AC

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

MEMORANDUM AND ORDER RE:
CROSS MOTIONS FOR SUMMARY
JUDGMENT

Defendant.

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----oo0oo---Plaintiff Pet Food Express, Ltd. (“Pet Food”) filed

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this lawsuit against defendant Applied Underwriters, Inc.

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(“Applied Underwriters”), Applied Underwriters Captive Risk

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Assurance Company, Inc. (“Captive Risk Assurance”), and

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California Insurance Company (“California Insurance”)

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(collectively, “Applied”), alleging that defendants unlawfully

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marketed and sold workers’ compensation insurance to California

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employers in violation of California’s Unfair Competition Law.
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Before the court is Defendants’ Motion for Summary Judgment,

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(Defs.’ Mot. for Summ. J. (“DMSJ”) (Docket No. 139)), and

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plaintiff’s Motion for Partial Summary Judgment, (Pl.’s Mot. for

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Partial Summ. J. (“PMSJ”) (Docket No. 138-1)).

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I.

Factual and Procedural Background

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California requires that all employers purchase

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workers’ compensation insurance to cover employees’ work-related

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injuries.

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all workers’ compensation insurance policy forms, rates, and

Cal. Lab. Code § 3700.

The state also requires that

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rating plans be filed for approval with the California Workers

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

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by the California Department of Insurance (“CDI”).

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Am. Compl. (“PFAC”) ¶ 3 (Docket No. 54); see also Cal. Ins. Code

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§§ 11658, 11735.)

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(Pl.’s First

Defendants filed a workers’ compensation insurance

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program known as EquityComp (“Program”) with the Bureau and

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received approval from the Department of Insurance.

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Defendants thereafter marketed and sold the Program to plaintiff.

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(PFAC ¶ 30.)

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plaintiff, defendants required the plaintiff to enter a

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Reinsurance Participation Agreement (“RPA”).

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DMSJ at 4.) Importantly, the parties agree that the RPA is “not a

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filed retrospective rating plan.”

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Mot. for Summ. J. (“PRSJ”) at 4, ¶ 17.)

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(PFAC ¶ 31.)

After the Program’s policies took effect for the

(PFAC ¶¶ 29, 44;

(Pl.’s Reply in Opp. to Defs.’

Captive Risk Assurance is structured as a segregated

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cell reinsurance facility.

(PRSJ at 3, ¶7.)

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structure, instead of pooling its risk, each Program participant

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has a separate underwriting account (or “cell”).
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Under this

(PRSJ at 3, ¶

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7.)

Under the RPA, the employer agrees to maintain a capital

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account in its segregated cell.

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participant also agrees to maintain reserves in its cell after

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the RPA’s three-year active term expires.

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reserve amount is adjusted periodically as claims develop.

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at 4.)

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advance, “loss development factors” or “LDF’s” (i.e.,

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multipliers) are applied to claims to estimate their final cost.

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(PRSJ at 3, ¶ 9.)

(PRSJ at 3, ¶8.)

Each Program

(PRSJ at 4, ¶11.)

The

(DMSJ

Because the ultimate claims costs cannot be known in

LDFs reduce over time until their effect on

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the cost (and therefore the amount in the cell) reaches zero and

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the cell is closed.

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closed, the employer’s ultimate cost is calculated using the

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RPA’s formulas and, depending on the claims experience, the

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employer could receive a profit sharing distribution under the

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RPA, also called a “rebate.”

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Applied may, “in its sole discretion,” hold the money in the cell

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account up to “7 years after the expiration of the policies.”

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(PMSJ at 14.)

(DMSJ at 4.)

When the segregated cell is

(PRSJ at 4, ¶ 14.)

Under the RPA,

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On June 20, 2016, in an administrative action

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challenging Applied’s RPA, the California Insurance Commissioner

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(“Commissioner”) issued a Decision and Order, holding that the

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RPA must be filed and approved by the Commissioner pursuant to

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Insurance Code § 11735.

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Underwriters, Inc., 2:16-158 WBS AC, 2016 WL 6094446, at *5 (E.D.

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Cal. Oct. 17, 2016).

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before it took effect, the Commissioner found that the “RPA is

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void as a matter of law.”

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See Shasta Linen Supply, Inc. v. Applied

Because defendants did not file the RPA

Id. at *2.

In the wake of that administrative proceeding,
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defendants developed an agreement that could be sold and marketed

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with the CDI’s approval.

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differences between the unfiled and the filed RPAs, “none of them

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changes the structure, material terms, or financial results to

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the participant.”

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Decl. Ex. 5 (Docket No. 139-6).)

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(DMSJ at 5.)

While there are

(Fein Decl., Defs.’ Mot. for Summ. J., Medlong

Pet Food filed a class action complaint against

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defendants asserting claims for unfair competition, rescission,

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declaratory relief, and fraud.

On June 21, 2017, plaintiff filed

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an amended complaint asserting additional claims under the

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federal Racketeer Influenced and Corrupt Organizations (“RICO”)

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Act, 18 U.S.C. § 1962; under the California Unfair Competition

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Law (“UCL”), Cal. Bus. & Prof. Code § 17200, and for quasi-

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contract.

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amended complaint alleging breach of contract.

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Countercl., at 30, ¶ 24 (Docket No. 76).)

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Defendants in turn filed a counterclaim to plaintiff’s
(Defs.’ Answer,

Defendants subsequently moved to dismiss the amended

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complaint.

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and denied the motion to dismiss in all other respects.

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and Order Re: Defs.’ Mot. to Dismiss at 24 (Docket No. 65).)

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With respect to plaintiff’s UCL claim based on Insurance Code §

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11735, the court found that an unfiled rate is not unlawful per

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se and determined that the Commissioner did not conduct the

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requisite formal rate disapproval hearing.

(Id. at 20-22.)

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Plaintiff then moved to certify the class.

(Docket No. 116.)

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This court subsequently denied the motion to certify on

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superiority grounds.

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(Docket No. 61.)

The court dismissed the RICO claims
(Mem.

(Id.)

The claims remaining are Pet Food’s UCL claims for
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unfair competition and unjust enrichment, and defendant’s

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counterclaim for breach of contract.

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Commissioner’s administrative decision and two subsequent

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California Courts of Appeal cases to argue that the RPA is an

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illegal program.

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defendant’s sale of this allegedly illegal program violates UCL

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Section 17200.

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amount of money left in its segregated cell” account.

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Supp. of Mot. Partial Summ. J. at 2 (Docket No. 138-1).)

(PMSJ at 5.)

(PMSJ at 3.)

Plaintiff relies on the

According to plaintiff,

Pet Food seeks restitution in “the
(Mem. in
This

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money consists of funds that Pet Food “has paid Defendants for

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the EquityComp plans.”

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Lim in Opp. to Defs.’ Mot. for Summ. J., at 2 (Docket No. 141-

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1).)

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Id.

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Insurance’s contract with Pet Food and allege that Pet Food

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remains liable for premiums, taxes, and assessments under the

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purchased policies.

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(Docket No. 76).)

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(Witriol Decl., Decl. of Terri Witriol

Plaintiff also seeks a return on investment of these funds.
In contrast, defendants seek to enforce California

(Defs.’ Answer, Countercl., at 30, ¶ 24

Defendants now seek summary judgment under Federal Rule

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of Civil Procedure 56, on the grounds that plaintiff lacks

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standing to sue under the UCL.

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partial summary judgment on the grounds that (1) the unfair

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competition claim is valid as a matter of law because the RPA is

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illegal; (2) defendants are collaterally estopped from litigating

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that illegality; (3) plaintiff is entitled to restitution as a

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matter of law; (4) the restitution must include a return on

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investment on those funds; and (5) no contract exists between

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California Insurance and Pet Food.

(DMSJ at 16.)

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Plaintiff seeks

(PMSJ at 1-2.)

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II.

Legal Standard

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Summary judgment is proper “if the movant shows that

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there is no genuine dispute as to any material fact and the

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movant is entitled to judgment as a matter of law.”

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P. 56(a).

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of the suit, and a genuine issue is one that could permit a

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reasonable jury to enter a verdict in the non-moving party’s

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favor.

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(1986).

Fed. R. Civ.

A material fact is one that could affect the outcome

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

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The party moving for summary judgment bears the initial

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burden of establishing the absence of a genuine issue of material

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fact and can satisfy this burden by presenting evidence that

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negates an essential element of the non-moving party’s case.

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Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986).

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Alternatively, the movant can demonstrate that the non-moving

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party cannot provide evidence to support an essential element

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upon which it will bear the burden of proof at trial.

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inferences drawn from the underlying facts must, however, be

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viewed in the light most favorable to the party opposing the

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motion.

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U.S. 574, 587 (1986).

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III.

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Id.

Any

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475

Defendants’ Motion for Summary Judgment
A.

Standing to Sue Under the UCL
California’s Unfair Competition Law (“UCL”) protects

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consumers and competitors from unfair competition, defined

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broadly to include “any unlawful, unfair or fraudulent business

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act or practice.”

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proceeds in this case under only the “unlawful” prong of the

(Cal. Bus. & Prof. Code § 17200.)

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Pet Food

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statute.

(Pl.’s Mem. in Opp. to Summ. J. at 3 (Docket No 141).)

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“By proscribing ‘any unlawful’ business practice, ‘[Business and

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Professions Code] section 17200 “borrows” violations of other

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laws and treats them as unlawful practices’ that the [UCL] makes

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independently actionable.”

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App. 4th 1373, 1382–83 (4th Dist. 2010) (citing Cel–Tech

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Commc’ns, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th

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163, 180 (1999)).

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for the interests of itself, its members or the general public”

Hale v. Sharp Healthcare, 183 Cal.

The UCL initially permitted “any person acting

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to bring a private suit.

Kwikset Corp. v. Superior Court, 51

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Cal. 4th 310, 321 (2011).

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64 (Gen. Elec. (Nov. 2, 2004)), which amended the UCL to grant

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standing to assert a claim only to certain public officials and

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to private plaintiffs who can demonstrate that he or she “has

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suffered injury in fact” and “has lost money or property as a

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result of” the unfair competition alleged.

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158 Cal. App. 4th 847, 852 (4th Dist. 2008).

In 2004, voters approved Proposition

Hall v. Time Inc.,

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Injury in Fact

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The “injury in fact” language in Proposition 64

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incorporates the federal meaning of the phrase.

Kwikset, 51 Cal.

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4th at 322; Prop.64, §1, subd. (e) (requiring injury in fact

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“under the standing requirements of the United States

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Constitution”).

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injury-in-fact requirement where he or she has suffered a

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“distinct and palpable injury” or “[a]n actual or imminent

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invasion of a legally protected interest, in contrast to an

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invasion that is conjectural or hypothetical.”

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App. 4th at 853 (citing Black’s Law Dict. 801 (8th ed. 2004)).

Under federal law, a plaintiff satisfies the

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Hall, 158 Cal

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Loss of money or property, as required under Proposition 64, is

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one of many injuries that can satisfy the injury-in-fact

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requirement.

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consider the “substantially narrower” Proposition 64 loss

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requirement in conjunction with the injury-in-fact requirement.

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Id. at 324.

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

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

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

Kwikset, 51 Cal 4th at 324.

Courts therefore

To establish standing to sue under the UCL, a

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

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Id. at

323.

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2.

Loss of Money or Property

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To establish standing, Proposition 64 requires a

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plaintiff to show that it “lost money or property.”

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Cal. App. 4th at 852.

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plaintiff now must demonstrate some form of economic injury.”

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Kwikset, 51 Cal 4th at 323.

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is “[a]n undesirable outcome of a risk; the disappearance or

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diminution of value, [usually] in an unexpected or relatively

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unpredictable way.”

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Black’s Law Dict. 963 (8th ed. 2004)).

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where the person paid with money, without more, does not

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constitute a loss.

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1583, 1592 (4th Dist. 2008).

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Hall, 158

“The plain import of this is that a

For purposes of UCL standing, a loss

Hall, 158 Cal. App. 4th at 853 (citing
A purchase or transaction

Peterson v. Cellco P’ship, 164 Cal. App. 4th

The undisputed facts here are insufficient to find an

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economic loss because Pet Food has failed to show that the price

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or quality of the insurance coverage differed from the

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expectations Pet Food held when entering the contract.
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In this

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line of cases, courts consistently refuse to find economic loss

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where plaintiffs did not allege that “they could have bought the

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same insurance for a lower price” or that “they were dissatisfied

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with the insurance or were uninformed of its price.”

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Peterson, 164 Cal. App. 4th at 1591-92; see, e.g., Hall, 158 Cal.

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App. 4th at 855 (finding no injury where plaintiffs did not

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allege that they “did not want the [product], the [product] was

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unsatisfactory, or the [product] was worth less than what the

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plaintiff paid for it.”); Medina v. Safe-Guard Prods., Int’l.,

See

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Inc., 164 Cal. App. 4th 105, 114 (4th Dist. 2008) (finding no

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injury where plaintiff “has not alleged that he didn’t want

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[insurance] coverage in the first place, or that he was given

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unsatisfactory service or has had a claim denied, or that he paid

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more for coverage than it was worth”); Demeter v. Taxi Comp.

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Servs., Inc., 21 Cal. App. 5th 903, 916-17 (2d Dist. 2018)

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(finding no injury where plaintiff did not show “that the service

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he purchased . . . was somehow not up to par” or that “the amount

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he paid for his . . . membership was more than it was worth”);

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Gaines v. Home Loan Ctr., Inc., No. SACV08667JSTRNBX, 2011 WL

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13182970, at *5 (C.D. Cal. Dec. 22, 2011) (finding no injury

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where plaintiff could not “explain what Plaintiff expected to

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receive but did not from the . . . transaction”).

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Here, Pet Food does not allege, nor do the undisputed

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facts suggest, that Pet Food was dissatisfied with either the

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price or the coverage.

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not shown that it could have obtained the same insurance at a

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lower price.

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not be part of a proposed revised class of allegedly injured

With respect to the price, Pet Food has

To the contrary, Pet Food admitted that it could

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Program participants because it did not pay more than the

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guaranteed cost policy premiums (i.e., the premiums that do not

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vary as claims come in).

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Cl. Cert. at 3:13-15 (Docket No. 126-1) (“[O]nly those employers

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who paid more than the [guaranteed cost] policy premiums would be

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putative class members.

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member . . ., while . . . [Pet Food] would not.”).)

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Food’s initial concern about the Program was that the Program

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should be cheaper “despite the fact that it was saving money”

(Pl’s. Positions Re Renewed Mot. for

As a result, Alpha would be a class
Indeed, Pet

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compared to other programs.

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10 (Docket No. 139-6)).

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allegation, this court can infer that Pet Food could not have

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paid less for the same insurance elsewhere.

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(Decl. Terrance Lim, Ex. 3 at 249:9-

Because Pet Food has not disputed this

Pet Food also cannot establish a loss with respect to

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Applied’s policy because Pet Food received “the bargained for

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insurance at the bargained for price.”

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App. 4th at 1591.

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subpar.

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policy –- Pet Food’s total payment minus the amount Applied is

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eventually required to return to Pet Food (i.e., the “rebate”) --

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was not what Pet Food anticipated.

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renewed the policy, plaintiff had “a clear understanding” of the

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parameters and the maximum cost under the policy (Decl. Terrance

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Lim, Ex. 3 at 249:9-10 (Docket No. 139-6)).

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had enough information to dispute the price but did not.

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Peterson, 164 Cal. App. 4th at 1591-92 (considering lack of

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pricing information as a source of loss).

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Cf. Peterson, 164 Cal.

Pet Food does not allege that the coverage was

Pet Food also has not alleged that the price of the

Indeed, by the time Pet Food

Pet Food therefore

Pet Food’s only allegation of loss is the money
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Cf.

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currently sitting in the segregated cell account.

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however, is not a loss because Pet Food fully expected not to

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possess this money today.

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of money for a period of time does not constitute a loss.

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Peterson, 164 Cal. App. 4th at 1592 (rejecting the view that a

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person has lost money merely because the money is “no longer in

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their possession”) (citing Hall, 158 Cal. App. 4th at 853).

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This amount,

The mere parting with the possession

Further, under the UCL, the diminution of value must be
unexpected or unpredictable to constitute a loss.

Id. (citing

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Hall, 158 Cal. App. 4th at 853).

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agreement, Applied’s retention of the money in the account was

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not unexpected.

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Food was to maintain a capital account in its segregated cell.

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(Pl.’s Reply to Separate Statement in Opp. to Defs.’ Mot. for

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Summ. J. at 3, ¶8 (Docket No. 141-2).)

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dispute that the RPA permits Applied, “in its sole discretion,”

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to hold the money “3 years after all claims have closed or 7

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years after the expiration of the policies.”

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Partial Summ. J. at 14 (Docket No. 138-1).)

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terms of the contract, Pet Food should have expected not to see

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the money in the segregated cell account until 2023 at the latest

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-- seven years after the policy was to expire.1

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Under the terms of the

The parties agree that, under the Program, Pet

Pet Food also does not

(Pl’s Mot. for
Based on the express

The parties’ understanding of the agreement confirms

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this expectation.

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Chief Financial Officer, “money overpaid” by Pet Food had to

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remain in the account “according to the agreement.”

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According to Ms. Terri Witriol, Pet Food’s

(Decl. of

The 2012-2015 policy expired on October 1, 2016.
Mot. for Partial Summ. J. at 14 (Docket No. 138-1).)
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(Pl’s

1

Terri Witriol Lim in Opp. to Defs.’ Mot. For Summ. J., at 2

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(Docket No. 141-1).)

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Executive Officer, knew by 2014 that the Program would take long

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to grant the rebate.

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No. 139-6)).

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regardless because it was Pet Food’s “best option at the time.”

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(Id. at 309.)

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Indeed, Mr. Terrance Lim, Pet Food’s Chief

(Decl. Terrance Lim, Ex. 3 at 270 (Docket

But in 2015, Pet Food chose to renew the agreement

Pet Food has not established “what Plaintiff expected
to receive but did not from the . . . transaction.”

Cf. Gaines

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v. Home Loan Ctr., Inc., No. SACV08667JSTRNBX, 2011 WL 13182970,

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at *5 (C.D. Cal. Dec. 22, 2011).

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Pet Food’s expectations from the beginning because Pet Food could

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not have obtained the policy for a lower price elsewhere, did not

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have issues with the coverage, and did not make payments it did

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not expect to make when Pet Food entered into the contract.

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Peterson, 164 Cal. App. 4th at 1591-92.

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exactly what he bargained for” and did not incur an economic

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loss.

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2009 WL 3178066, at *3 (C.D. Cal. Sept. 29, 2009).

Cf.

The transaction conformed to

Cf.

Plaintiff therefore “got

Baggett v. Hewlett-Packard Co., No. SACV070667AGRNBX,

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3.

Illegality as an Injury Per Se

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Proposition 64 imposed “additional requirements on

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plaintiffs beyond merely having suffered an ‘unlawful, unfair or

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fraudulent business act or practice.’”

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at 115.

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property as a result of the act or practice.”

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Medina, 164 Cal. App. 4th

Plaintiffs must show that they also “lost money or
Id.

The Ninth Circuit, albeit in an unpublished memorandum

27

decision, has held that the purchase of goods that a defendant

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“is legally not allowed to sell in the form being offered” alone
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1

may constitute both an unlawful practice and a loss for purposes

2

of UCL standing.

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49 (9th Cir. 2018) (e.g., unapproved drugs).

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involving “voidable service contracts” do not give rise to the

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same inference of loss.

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Franz v. Beiersdorf, Inc., 745 F. App’x 47, 48By contrast, cases

Id.

Although the Franz court did not say much more, the

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court’s distinction between the cases that merit an inference of

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loss, and those that do not, still relies on the plaintiff’s

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expectations, and the plaintiff’s allegations regarding the value

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and the price of the product.

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unlawful purchase of a drug lacking FDA approval constituted a

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loss under the UCL.

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North Hollywood.

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Medrazo, defendant sold plaintiffs a motorcycle without a legally

15

required label that disclosed the amount charged above the

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suggested retail price, the cost for the assembly, and the cost

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of optional accessories included in the price, among other costs.

18

Id. at 23.

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information label, they overpaid for the motorcycle.

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court thus found economic loss because the plaintiffs paid more

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than they would have paid had defendant complied with the law.

22

Similarly, because the illegal product in Franz “should not have

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been in the market” in any form, 745 F. App’x at 48, any payment

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is more than plaintiff would have paid had defendant complied

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with the law.

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follows that any payment for such a product constitutes an

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economic loss.

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In Franz, the court found that the

The court relied only on Medrazo v. Honda of

205 Cal. App. 4th 1 (2d Dist. 2012).

In

Because plaintiffs did not have the pricing

This is true for all illegal products.

Id.

The

So it

In contrast, when the product or service sold is legal,
13

1

but the contract is flawed, the purchaser does not automatically

2

satisfy the economic loss requirement because the court cannot

3

infer that the plaintiff would have paid less had the defendant

4

complied with the law.

5

the market, enforcing the contract may still convey the value the

6

parties intended it to convey at a legally fair price.

7

Medina, 164 Cal. App. 4th at 114 (placing the burden on plaintiff

8

to allege a lower value where insurance seller was unlicensed);

9

Peterson, 164 Cal. App. 4th at 1591 (same).

10

Because the product can legally exist in

In such a case, the

burden to prove a loss falls on the plaintiff.

11

Cf.

Id.

The Franz court’s inference that the purchase of an

12

illegal product constitutes a loss therefore applies only when

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the underlying product sold is illegal.

14

voidable service contracts do not necessarily result in an

15

economic loss, the court cited Medina v. Safe-Guard Products, 164

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Cal. App. 4th 105 (4th Dist. 2008), and Demeter v. Taxi Computer

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Services, 21 Cal. App. 5th 903 (2d Dist. 2018).

18

cases are instructive here.

19

insurer, was not licensed to sell insurance, did not file its

20

contracts with the Insurance Commissioner, and did not insure its

21

contracts obligations.

22

insurer.”

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found that the object of the “illegal contract” –- the provision

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of insurance coverage –- was lawful.

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then found that plaintiff did not incur an economic loss because

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plaintiff did not allege dissatisfaction with the coverage or the

27

price of the policy.

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not illegal, plaintiff bore the burden of establishing loss.

For its proposition that

Both of these

In Medina, the defendant, an

“In short, [defendant] was not a licensed

Medina, 164 Cal. App. 4th at 113.

Id. at 114.

14

The court first

Id. at 110-112.

The court

Because the product sold was

1

The court in Demeter arrived at the same result.

In

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Demeter, defendant provided talent listing services without

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procuring the bond California's talent services law requires.

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in Medina, the court first found that the defendant’s services

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were not an “illegal operation” despite the defendant’s

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noncompliance with the law.

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The court subsequently found no economic loss because plaintiff

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did not show “that the service he purchased . . . was somehow not

9

up to par” or that “the amount he paid for his . . . membership

As

Demeter, 21 Cal. App. 5th at 913.

10

was more than it was worth.”

Id. at 916-917.

Again, because the

11

services sold could exist in the market legally, the plaintiff

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was required to allege dissatisfaction with the service or the

13

price.

14

Here, Pet Food argues that because the RPA was an

15

allegedly illegal contract, any payment of the RPA ought to

16

constitute an economic loss.

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or voidable is a different question from whether the subject

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matter of the agreement is illegal.

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4th at 110-112 (distinguishing the “object” of the contract from

20

the legality of the contract).

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But whether a contract is illegal

See Medina, 164 Cal. App.

Pet Food’s participation in the RPA alone does not

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establish a loss because the subject matter of the agreement --

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insurance coverage through a captive reinsurance cell -- is not

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illegal.

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show that the differences between the unfiled RPA and the

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approved RPA are immaterial, as they do not “change[] the

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structure, material terms, or financial results to the

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participant.”

Applied has provided undisputed expert testimony to

(Fein Decl., Defs.’ Mot. for Summ. J., Medlong
15

1

Decl. Ex. 5 (Docket No. 139-6).)

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evidence to the contrary.

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that, even if the sale of the RPA was illegal, the contents of

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the agreement were not.

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Pet Food has not provided any

The undisputed facts thus establish

Moreover, the unfiled status of the RPA does not make

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the rate unlawful per se.

The Commissioner’s order in the

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administrative appeal found that the RPA between the parties was

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void and unenforceable because it was not filed with the Bureau.

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In the Matter of the Appeal of Shasta Linen Supply, Inc.,

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Decision of the California Department of Insurance, File AHB-WCA-

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14-31 (hereinafter “Order”).

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the Order “does not control this court” and declared its

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disagreement with the Commissioner, holding instead that “an

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unfiled rate is not unlawful per se.”

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6094446, at *5 (citing Dyna-Med, Inc. v. Fair Emp’t & Hous. Com.,

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43 Cal. 3d 1379, 1388 (1987)).

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This court thereafter ruled that

Shasta Linen, 2016 WL

Plaintiffs now offer two California Courts of Appeal

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cases to prove the illegality of the arrangement, Luxor Cabs,

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Inc. v. Applied Underwriters Captive Risk Assurance Co., 30 Cal.

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App. 5th 970 (1st Dist. 2018), and Nielsen Contracting, Inc. v.

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Applied Underwriters, Inc., 22 Cal. App. 5th 1096 (4th Dist.

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2018).

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only that the delegation clause and the arbitration provision in

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the RPA are void.

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dispute resolution provisions of the RPA.

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determined that the rate was unlawful as a result of it not being

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filed.

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possibility of Applied selling the RPA legally (i.e., a filed and

Neither case is applicable here.

The Luxor court decided

The Nielsen court likewise analyzed only the
Neither court

More importantly, neither court foreclosed the

16

1

approved version of the RPA).

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Even if the cases did stand for the proposition that

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the RPA is illegal in its totality, the contract is not

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necessarily void because “the effect of the illegality depends on

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the facts and equities of the particular case.”

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Johnson, 192 Cal. App. 3d 551, 558 (2d Dist. 1987).

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the court opined that “holding an insurance contract void because

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the insurer was not licensed is about the worst possible remedy

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for the illegality of the insurer’s unlicensed status,” 164 Cal.

See Johnson v.
In Medina,

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App. 4th at 111, and the same logic applies here. “[I]nsurance

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contracts are legally unique.”

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materialized and claims have been filed, “[a] policyholder . . .

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cannot, by definition, obtain a substitute [policy] in the

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marketplace.”

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result in the consumer bearing the entirety of the loss, so “in

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the insurance context, not to enforce the contract would be to

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reward the violation of the law.”

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Id.

Id.

After risks have

Finding an insurance policy to be void would

Id. at 112.

Absent allegations that the object of the contract --

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insurance coverage through a captive reinsurance cell –- is

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illegal, the court can “preserve[] and enforce[] any lawful

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portion of a parties’ contract that feasibly may be severed.”

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Medina, 164 Cal. App. 4th at 112.

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taint of illegality was the unlicensed status of the insurer

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itself,” the court found the contract valid as to the lawful

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object of the contract: insurance coverage. Id.

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Medina, the only basis for the allegations of the illegality of

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the RPA is Applied’s failure to file the agreement with the

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Bureau.

In Medina, “where the only

Just as in

The alleged illegality of the contract does not taint
17

1

the lawful object of the contract, so even if the RPA is void and

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unlawful, the service it provides is not.

3

Because the underlying service of the RPA is not

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illegal, Pet Food’s transaction under the RPA is not an economic

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loss per se.

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economic loss through dissatisfaction with the service or the

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price.

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has not offered any other theory of loss and therefore lacks

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standing to sue under the UCL.2

Pet Food therefore bears the burden of showing

As discussed above, Pet Food has done neither.

Pet Food

Accordingly, the court will

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grant summary judgment to defendants.

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VI.

Plaintiff’s Motion for Partial Summary Judgment

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Having determined that the RPA is not illegal as a

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matter of law, the issues remaining under Plaintiff’s Motion for

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Partial Summary judgment are (1) whether plaintiff is entitled to

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restitution, (2) whether plaintiff is entitled to a return on

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investment of the funds in the segregated cell account, and (3)

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whether a contract exists between Pet Food and California

18

Insurance.

19

the UCL, the court need not determine at this time whether

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restitution and a return on investment are the appropriate

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remedies for the alleged UCL violation.

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the breach of contract claim in the alternative, should the RPA

23

be deemed void or unenforceable. (Defs.’ Answer, Countercl., at

24

30, ¶ 23 (Docket No. 76).)

25

court also need not decide whether a contract exists between Pet

Because Pet Food does not have standing to sue under

Further, Applied pleaded

Because the RPA is not void, the

26
27
28

Because, as a matter of law, Pet Food did not lose
money or property under the UCL, the court need not decide the
causation prong of the standing test.
18
2

1

Food and California Insurance.

2

IT IS THEREFORE ORDERED that defendants’ Motion for

3

Summary Judgment (Docket No. 139) be, and the same hereby is,

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GRANTED.

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IT IS FURTHER ORDERED that plaintiff’s Motion for

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Partial Summary Judgment (Docket No. 138) be, and the same hereby

7

is, DENIED.

8

Dated:

September 11, 2019

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