Sanders v. The Choice Manufacturing Company, Inc. et al

Filing 40

ORDER by Judge Samuel Conti denying 33 Motion for Leave to File; granting in part and denying in part 18 Motion to Dismiss; granting in part and denying in part 21 Motion to Dismiss (sclc1, COURT STAFF) (Filed on 11/30/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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THOMAS SANDERS,

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Plaintiff,

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v.

United States District Court

For the Northern District of California

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THE CHOICE MANUFACTURING
COMPANY, INC.; NRRM, LLC; and
DOES 3 through 50, inclusive,

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Case No. 11-3725 SC
ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS'
MOTIONS TO DISMISS

Defendants.

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I.

INTRODUCTION
Plaintiff Thomas Sanders ("Plaintiff") brings this putative

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class action against The Choice Manufacturing Company, Inc.

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("Choice"), NRRM, LLC ("NRRM"), and Does 3 through 50.

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NRRM (collectively, "Defendants") have moved to dismiss Plaintiff's

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First Amended Complaint ("FAC").

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("Choice MTD").

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("Opp'n to NRRM MTD"), 28 ("Opp'n to Choice MTD"), 29 ("NRRM

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Reply"), 30 ("Choice Reply").1

Choice and

ECF Nos. 18 ("NRRM MTD"), 21

These motions are fully briefed.

ECF Nos. 25

For the reasons set forth below,

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Plaintiff filed a motion for leave to file a surreply, attaching
a surreply brief, arguing that further briefing was necessary to
address arguments raised for the first time by NRRM in its reply
brief. ECF No. 33 ("Surreply"). As the Court declines to address
the new arguments in NRRM's reply, Plaintiff's motion to file a
surreply is DENIED as moot. See Adriana Intl. Corp. v. Lewis &
Co., 913 F.2d 1406, 1417 n.12 (9th Cir. 1990) (issues raised for
the first time in a reply brief need not be considered). Many of
the new arguments raised in NRRM's reply are substantially similar

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the Court GRANTS in part and DENIES in part Defendants' motions to

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dismiss.

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II.

BACKGROUND
As it must on a motion to dismiss brought under Federal Rule

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of Civil Procedure 12(b)(6), the Court takes as true all well-

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pleaded factual allegations in Plaintiff's FAC.

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California resident, NRRM is a Missouri limited liability company,

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and Choice is a New Jersey corporation with its principal place of

United States District Court

For the Northern District of California

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business located in New Jersey.

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Plaintiff is a

ECF No. 1 ("Not. of Removal") Ex.

1 ("FAC") ¶¶ 14, 15, 17.
NRRM contacted Plaintiff in July 2007 about purchasing

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Choice's automotive additive ("the Choice additive") for the price

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of $1,993.

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product warranty (the "Policy" or "Policies") that warrants against

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damage to the moving parts of a vehicle's engine and transmission

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caused by failure of the Choice additive.

Id. ¶ 31.

The Choice additive came with a limited

Id.; Choice RJN2 Ex. 2

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to those raised in Choice's opening brief. Choice's arguments and
Plaintiff's response to those arguments are addressed below.
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Choice filed a request for judicial notice ("RJN"), asking the
Court to take judicial notice of a number of exhibits. ECF No. 22
("Choice RJN"). Choice later filed a RJN in support of its reply
brief. ECF No. 31 ("Choice Reply RJN"). Plaintiff has not opposed
either RJN. Under Rule 201 of the Federal Rules of Evidence, a
court may take judicial notice of facts generally known within the
territorial jurisdiction of the trial court or capable of accurate
and ready determination by resort to sources whose accuracy cannot
reasonably be questioned. A court may also take judicial notice of
a document if the plaintiff's claim depends on the contents of the
document, and the parties do not dispute the authenticity of the
document. Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).
However, the Court may not take judicial notice of the truth of the
facts recited within a judicially noticed document. Lee v. City of
Los Angeles, 250 F.3d 668, 688–90 (9th Cir. 2001). The Court
GRANTS Choice's RJNs, but limits its review of the exhibits
accordingly.
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("Policy") at 1-2.

The Policy does not apply when the purchaser

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fails to satisfy certain maintenance requirements, such as changing

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the vehicle's engine oil every four months or four thousand miles.

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Policy at 2.
Plaintiff believed he was purchasing an extended automobile

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warranty rather than a limited product warranty.

FAC ¶¶ 31-32.

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Plaintiff alleges that NRRM never informed him that it was selling

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an additive warranty rather than an extended automobile warranty.

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Id. ¶ 31.

Plaintiff further alleges that he would have never

United States District Court

For the Northern District of California

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purchased the Choice additive from NRRM had he known what he was

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truly buying.

Id. ¶¶ 31-32.

In or around September 2010, Plaintiff's vehicle's transfer

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case failed.

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under the Policy sometime thereafter.

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claim on the grounds that Plaintiff had not satisfied his

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maintenance obligations under the Policy with respect to oil

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changes.

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obligations because "at no time subsequent to his purchase of the

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Policy was Plaintiff ever provided a copy of the terms and

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conditions associated with the Policy."

Id.

Id. ¶ 36.

Plaintiff filed a repair claim with Choice
Id.

Choice rejected the

Plaintiff alleges he was unaware of his maintenance

Id.

In March 2011, Plaintiff commenced this putative class action

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in California Superior Court.

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subsequently filed his FAC in Superior Court on May 23, 2011.

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at 1.

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Not. of Removal.

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Not. of Removal ¶ 1.

Plaintiff
FAC

Choice removed the action to federal court on July 28, 2011.

The gravamen of the FAC is that Defendants were prohibited

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from selling the Policies to Plaintiff and the putative class

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members under Sections 116.5 ("Section 116.5"), 700 ("Section

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700"), and 12800 et seq. ("Sections 12800-12865") of the California

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Insurance Code.

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United States District Court

For the Northern District of California

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Section 116.5 provides:

An express warranty warranting a motor vehicle lubricant,
treatment, fluid, or additive that covers incidental or
consequential damage resulting from a failure of the
lubricant, treatment, fluid, or additive, shall
constitute automobile insurance, unless all of the
following requirements are met:
(a) The obligor is the primary manufacturer of the
product. . . .
(b) The [Insurance] commissioner has issued a written
determination that the obligor is a manufacturer as
defined in subdivision (a). . . .
(c) The agreement covers only damage incurred while the
product was in the vehicle.
(d) The agreement is provided automatically with the
product at no charge.

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Cal. Ins. Code § 116.5.

Pursuant to Section 116.5(b), the

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Department of Insurance ("DOI") has issued a written determination

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that Choice is a "primary manufacturer of the product" as defined

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by Section 116.5(a).

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no person may sell automobile insurance in this state without

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holding a certificate from the California Insurance Commissioner

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("Section 700 certificate").

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Plaintiff alleges that the Policies constitute automobile insurance

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because they fail to meet all of the conditions set forth in

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Section 116.5 and that neither NRRM nor Choice maintains a Section

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700 certificate.

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the Policies constitute vehicle service contracts ("VSC") under

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Section 12800(c)(1) and that NRRM is not a qualified seller of VSCs

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under Section 12800(f)(1).

See Choice RJN Exs. 1, 3.

Under Section 700,

See Cal. Ins. Code § 700(a).

See FAC ¶¶ 6, 23.

Plaintiff further alleges that

Id. ¶¶ 25-30.

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Plaintiff asserts five causes of action.

Plaintiff's first

sale of the Policies to Plaintiff and other putative class members

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is unlawful pursuant to Insurance Code Sections 116.5, 700, and

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12800 et seq.

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Policies are voidable and that Plaintiff and the putative class

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members are entitled to restitution for all monies paid to

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Defendants.

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rescission asserts that the Policies are null and void and that

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United States District Court

cause of action for declaratory relief asserts that Defendants'

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For the Northern District of California

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Plaintiff and the putative class are entitled to rescission and

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restitution.

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Defendants violated the Consumer Legal Remedies Act ("CLRA"), Cal.

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Civ. Code § 1770 et seq., by failing to represent that the Policies

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"were in fact Additive Policies and not extended warranties," and

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that NRRM was prohibited by law from selling the Policies and

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Choice was prohibited from acting as the obligor under the

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Policies.

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violation of the False Advertising Law, Cal. Bus. & Prof. Code §

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17500 et seq.

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violation of the California Unfair Competition Law ("UCL"), Cal.

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Bus. Cal. Bus. & Prof. Code § 17200 et seq., asserts that

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Defendants engaged in unlawful conduct because they were prohibited

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from selling the policies under Section 700 of the Insurance Code.

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Id. ¶¶ 69-73.

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FAC ¶ 55.

Id.

Plaintiff seeks a declaration that the

Similarly, the second cause of action for

Id. ¶¶ 56-59.

Id. ¶¶ 60-65.

The third cause of action asserts that

The fourth cause of action asserts a

Id. ¶¶ 66-68.

The fifth cause of action for

Choice and NRRM have each moved to dismiss all five causes of

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action.

NRRM has also moved to dismiss Plaintiff's class action

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allegations.

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III. LEGAL STANDARD
A motion to dismiss under Federal Rule of Civil Procedure

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12(b)(6) "tests the legal sufficiency of a claim."

Navarro v.

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Block, 250 F.3d 729, 732 (9th Cir. 2001).

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on the lack of a cognizable legal theory or the absence of

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sufficient facts alleged under a cognizable legal theory."

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Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.

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1988).

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should assume their veracity and then determine whether they

"Dismissal can be based

"When there are well-pleaded factual allegations, a court

United States District Court

For the Northern District of California

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plausibly give rise to an entitlement to relief."

Ashcroft v.

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Iqbal, 129 S. Ct. 1937, 1950 (2009).

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court must accept as true all of the allegations contained in a

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[claim] is inapplicable to legal conclusions.

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of the elements of a cause of action, supported by mere conclusory

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statements, do not suffice."

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Twombly, 550 U.S. 544, 555 (2007)).

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complaint or counterclaim must be both "sufficiently detailed to

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give fair notice to the opposing party of the nature of the claim

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so that the party may effectively defend against it" and

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"sufficiently plausible" such that "it is not unfair to require the

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opposing party to be subjected to the expense of discovery."

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v. Baca, 633 F.3d 1191, 1204 (9th Cir. 2011).

However, "the tenet that a

Threadbare recitals

Id. (citing Bell Atl. Corp. v.
The allegations made in a

Starr

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IV.

DISCUSSION
Plaintiff does not oppose Defendants' motions to dismiss as to

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his second cause of action for rescission and fourth cause of

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action for violations of the False Advertising Law.

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Choice MTD at 13, 22.

See Opp'n to

Accordingly, the Court DISMISSES Plaintiff's

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second and fourth causes of action WITHOUT LEAVE TO AMEND.

The

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Court addresses Plaintiff's remaining causes of action below.

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A.

DOI Approval

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Choice argues that this action should be dismissed because the

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DOI has already determined that Choice is an approved product

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warrantor under Section 116.5.

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Court to take judicial notice of the DOI's website and a letter

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from the DOI, both stating that, pursuant to Section 116(b), the

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Insurance Commissioner has issued written determination that Choice

Choice MTD at 13.

Choice asks the

Id. at 15;

United States District Court

For the Northern District of California

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is a "manufacturer" as defined by Section 116.5(a).

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Choice RJN Exs. 1, 3.

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determination that Choice is a manufacturer as defined by Section

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116.5(a) is not dispositive of whether the Policy meets the other

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elements of Section 116.

The Plaintiff responds that the DOI's

Opp'n to Choice MTD at 10-11.

The Court agrees with Plaintiff.

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Even if the Court were to

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take judicial notice of the documents cited by Choice, there is no

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indication that the DOI has determined that the Policy meets all of

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the requirements set forth by Section 116.5.3

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is no indication that the DOI has determined that the Policy

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"covers only damage incurred while the product was in the vehicle"

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or that the Policy was "provided automatically with the product at

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no extra charge."

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at this stage, the Court declines to find that the DOI has

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determined that the Policy satisfies the requirements of Section

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116.5.

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For example, there

See Cal. Ins. Code § 116.5(c)-(d).

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Accordingly,

In its reply brief, Choice also argues that the DOI must have
found that the Policy met the requirements of Section 116.5 as the
Policy was submitted to the DOI for approval in 2004. Reply at 3;
Reply RJN Ex. B. This argument is also unpersuasive. While DOI
was possibly aware of the Policy, there is no indication that DOI
actually approved it.
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B.

Primary Jurisdiction

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Choice also argues that dismissal is warranted because the DOI

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has "primary jurisdiction" over Plaintiff's claims.

Choice MTD at

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13-14.

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stay or dismiss a case pending action by an administrative agency

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vested with the power to resolve underlying issues in the case.

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See Farmers Ins. Exch. v. Super. Ct., 2 Cal. 4th 377, 394 (Cal.

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1992).

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administrative expertise and ensure uniform application of

Under the doctrine of primary jurisdiction, a court may

Courts generally invoke the doctrine to take advantage of

See id. at 391.

Choice argues that the DOI has

United States District Court

For the Northern District of California

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regulatory laws.

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"both administrative expertise on section 116.5 and familiarity

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with Choice's product warranty that this Court does not."

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MTD at 15.

Choice

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Plaintiff responds that dismissal is inappropriate under the

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California Court of Appeal's decision in Aicco, Inc. v. Insurance

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Company of North America, 90 Cal. App. 4th 579 (Cal. Ct. App.

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2001).

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decides to invoke the doctrine of primary jurisdiction, the proper

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procedure is not to dismiss the action, but to stay it, pending the

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administrative body's resolution of the issues within its

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jurisdiction."

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doctrine of primary jurisdiction was not applicable in that case

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"since the administrative bodies ha[d] already rendered whatever

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decision might be relevant to the . . . suit."

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Id. at 11-12.

In Aicco, the court held that "if a court

90 Cal. App. 4th at 594.

The court found that the

Id. at 595.

The Court agrees with Plaintiff and declines to invoke the

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doctrine of primary jurisdiction.

The Court is reluctant to stay

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this action pending a determination by the DOI since there is no

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indication that the DOI has taken up or will take up the issue.

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Nor is it clear how Plaintiff or the Court could possibly bring the

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matter before the DOI.

pending before the DOI does not foreclose the application of the

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primary jurisdiction doctrine.

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However, the two authorities on which Choice relies are inapposite

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since, in both cases, the matters at issue had already been taken

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up by an administrative agency.

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Inc., No. 02-5438 SC, 2009 U.S. Dist. Lexis 39318, at *15 (N.D.

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United States District Court

Choice argues that the lack of an administrative action

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For the Northern District of California

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Cal. Apr. 24, 2009), this Court invoked the doctrine of primary

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jurisdiction to stay and later dismiss an action where "the sole

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relief that Plaintiffs [were] requesting (i.e., enforcement of the

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City's sign regulations) [was] already being carried out by a City

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agency that exists for this specific purpose."4

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Jonathan Neil & Associates, Inc. v. Jones, 33 Cal. 4th 917, 936-37

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(Cal. 2004), the California Supreme Court stayed an action pending

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final resolution of a dispute which was currently before the DOI.

See Choice Reply at 14-15.

In Reudy v. Clear Channel Outdoor,

Likewise, in

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Choice also argues that the DOI "is actively bringing

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enforcement actions against purported product warrantors whose

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warranties do not satisfy section 116.5."

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However, it does not appear that any of these enforcement actions

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involves Choice, NRRM, or the Policy at issue in this case.

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Choice Reply RJN Ex. A.

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irrelevant to the Court's determination of whether to invoke the

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doctrine of primary jurisdiction in the instant action.

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Choice Reply at 14.

See

Accordingly, Choice's argument is

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Further, the Court later clarified that dismissal was based on
the doctrine of equitable abstention as the Ninth Circuit held that
primary jurisdiction is an improper ground for a dismissal with
prejudice. See Reudy v. Clear Channel Outdoor, Inc., No. 02-5438
SC, 2010 U.S. Dist. LEXIS 130295, at *3-4 (N.D. Cal. Nov. 29,
2010).
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For the foregoing reasons, the Court declines to invoke the

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doctrine of primary jurisdiction.

If Defendants later present

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evidence that there is a pending action before the DOI concerning

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the underlying Policy at issue in this dispute, the Court would be

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willing to reconsider its decision on the matter.

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C.

Section 116.5

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NRRM argues that all of Plaintiff's claims fail because the

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Policy complies with each of the requirements of Section 116.5.

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NRRM MTD at 6-12.

The Court finds that resolution of this issue

United States District Court

For the Northern District of California

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involves factual determinations which are not appropriate on a

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motion to dismiss.

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The parties' dispute over whether the Policy and the Choice

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additive meet the criteria set forth in Section 116.5 involves a

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variety of factual issues.

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Policy does not cover damage resulting from a failure of the

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additive, as required by Section 116.5, because (1) "the additives

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are only added to the vehicles once . . . then leave the vehicle

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due to dissipation, molecular breakdown, and/or fluid replacement .

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. . long before the expiration of the Policy;" and (2) the Choice

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additive cannot possibly help the performance of the transmission,

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which is covered under the Policy, because the additive is added to

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the radiator, which is part of the vehicle's cooling system.

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23(b), (d).

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argues that, absent a radiator flush (which was not alleged by

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Plaintiff), the Choice additive will remain in an engine for the

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duration of the Policy.

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the additive improves the performance of the transmission by

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helping the engine run cooler.

For example, Plaintiff alleges that the

NRRM takes issue with these allegations.

NRRM MTD at 11.

First, NRRM

NRRM further argues that

Id. at 11-12.

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FAC ¶

Even if NRRM's

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assertions were true, they depend on factual findings which are

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inappropriate at the pleading stage.

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Plaintiff also alleges that Section 116.5(d) was not satisfied

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because the Policy was not "provided automatically with the [Choice

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additive] at no extra charge."

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that the Choice additive costs $1,993 while comparable additives

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are sold at retail stores for $25.

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price of the Choice additive is actually $1,993 and that Plaintiff

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cannot specifically allege that it is worth anything less than the

FAC ¶ 23(e).

Id.

NRRM responds that the

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United States District Court

For the Northern District of California

NRRM MTD at 12.

Plaintiff points out

price he paid for it.

Again, the Court is

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unwilling to resolve such factual disputes on a motion to dismiss.

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Accordingly, the Court declines to find that the Policy

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satisfies the conditions set forth in Section 116.5 because such a

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determination necessarily involves factual determinations which are

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inappropriate for resolution at the pleadings stage.

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may raise these issues again on a motion for summary judgment when

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the Court may properly consider the relevant facts.

The parties

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D.

CLRA (Third Cause of Action)

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Choice argues that Plaintiff's third cause of action for

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violation of the CLRA fails because, under Fairbanks v. Superior

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Court, 46 Cal. 4th 56 (Cal. 2009), the CLRA does not apply to

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insurance.

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does not meet the statutory exception set forth in section 116.5 of

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the Insurance Code and, consequently, Defendants were engaged in

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the sale of insurance.

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CLRA does not apply to insurance, Plaintiff's third cause of action

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fails as a matter of law.

Choice MTD at 21.

Plaintiff alleges that the Policy

See FAC ¶ 24.

Choice reasons that if the

Choice MTD at 21-22.

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The Court agrees.

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The CLRA provides that it is unlawful to engage in certain

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"unfair methods of competition" in connection with "the sale or

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lease of goods or services."

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statute defines "goods" as "tangible chattels bought or leased for

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use primarily for personal, family, or household purposes,

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including certificates or coupons exchangeable for these goods."

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Id. § 1761(a).

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for other than a commercial or business use, including services

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furnished in connection with the sale or repair of goods."

United States District Court

For the Northern District of California

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Cal. Civ. Code § 1770(a).

The

It defines "services" as "work, labor, and services

Id. §

1761(b).

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In Fairbanks, the California Supreme Court affirmed the

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dismissal of an action brought under the CLRA alleging deceptive

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and unfair practice in the marketing and administration of life

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insurance policies.

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insurance is not a good or service as those terms are defined by

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the CLRA.

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contractual obligation to pay money under a life insurance policy

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is not work or labor, nor is it related to the sale or repair of

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any tangible chattel."

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legislative history supported its conclusion.

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CLRA was adapted from a model law that defined the term services to

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include insurance, but the legislature chose to omit this reference

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to insurance when it enacted the law.

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that the legislature had expressly defined the term service to

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include insurance in other statutes but elected not to do so for

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the purposes of the CLRA.

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46 Cal. at 60.

Id. at 60-61.

The court reasoned that life

The court stated that "[a]n insurer's

Id. at 61.

The Court found that the CLRA's

Id.

Id. at 61-62.

The

The court also noted

Id. at 62.

Plaintiff argues that Fairbanks is inapposite because the
holding of that case was limited to life insurance policies.

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Opp'n

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to Choice MTD at 19-20.

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insurance is not "related to the sale or repair of any tangible

3

chattel," the product warranty at issue here is.

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Court disagrees.

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comparing its text to that of similar statutes, the Fairbanks court

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concluded that the legislature did not intend for the CLRA to

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encompass the sale of insurance.

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Fairbanks court did not limit its reasoning to actions brought in

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connection with the sale of life insurance.

United States District Court

Id. at 20.

The

Analyzing the CLRA's legislative history and

See 46 Cal. at 60-62.

The

The Court finds that the CLRA does not apply to actions

10
For the Northern District of California

Plaintiff contends that, while life

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brought in connection with the sale of insurance.

Accordingly, the

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Court DISMISSES Plaintiff's third cause of action for violation of

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the CLRA.

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CLRA claim fails as a matter of law.

Dismissal is WITHOUT LEAVE TO AMEND because Plaintiff's

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E.

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Choice argues that Plaintiff's first cause of action for

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declaratory relief is barred because the California Insurance Code

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does not provide for a private right of action.

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7-13.

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agrees with Choice and finds that Plaintiff's claim for declaratory

21

relief is barred as a matter of law.

Declaratory Relief (First Cause of Action)

See Choice MTD at

Plaintiff does not offer a coherent response.5

The Court

"[A] private right of action exists only if the language of

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the statute or its legislative history clearly indicates the

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Legislature intended to create such a right to sue for damages."

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Vikco Ins. Servs., Inc. v. Ohio Indemnity Co., 70 Cal. App. 4th 55,

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62 (Cal. Ct. App. 1999).

"If the Legislature intends to create a

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As discussed in Section IV.F.1 below, Plaintiff does address the
Insurance Code's lack of a private cause of action in the context
of his claim for UCL violations.
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private cause of action, we generally assume it will do so

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directly[,] . . . in clear,

3

Id. at 62-63 (internal quotation marks and citations omitted).

4

Plaintiff's claim for declaratory relief is predicated on

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violations of sections 116.5, 700, and 12800-12865 of the Insurance

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Code.

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the putative class "are entitled to a declaration . . . that

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Defendant[s'] transacting of any business with respect to the

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Policies is independently unlawful pursuant to both California

See FAC ¶ 55.

understandable, unmistakable terms."

Specifically, Plaintiff alleges that he and

United States District Court

For the Northern District of California

10

Insurance Code Section 116.5 and Section 700; and California

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Insurance Code Section 12800 et seq."

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of these sections does not include "clear, understandable,

13

unmistakable terms" authorizing a private right of action.

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116.5 provides that additive warranties do not constitute

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automobile insurance if certain conditions are met.

The statute

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does not provide for any type of liability at all.

The provisions

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of both Sections 700 and 12800-65 indicate that the legislature

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intended for the state to manage enforcement.

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provides that persons who sell insurance without first obtaining

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proper authorization may be punished through imprisonment or a fine

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not exceeding $100,000, or both.

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that persons who provide VSC forms to sellers without complying

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with other provisions of the statute may be imprisoned or subject

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to a fine of up to $500,000, or both.6

Id.

The statutory language

Section

Section 700(b)

Similarly, Section 12845 states

Both Sections 700(b) and

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6

Further, nothing in the legislative history of these sections
indicates that the California legislature intended to create a
private right of action. Section 116.5 was enacted in 1999, has
been amended at least three times since, and has never included any
relevant language concerning liability.
See Choice RJN Ex. 4
(Leg. History of Cal. Ins. Code § 116.5). Section 700 has been
amended at least eight times since its enactment in 1935, and at no
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1

12845 provide that the Insurance Commissioner may seek an

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injunction in a court of competent jurisdiction to enforce the

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provisions.

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Plaintiff's first cause of action for declaratory relief fails

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as a matter of law.

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based solely on three sections of the Insurance Code which do not

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provide for a private right action.

8

DISMISSES Plaintiff's first cause of action WITHOUT LEAVE TO AMEND.

9

United States District Court

For the Northern District of California

10

F.

The Court may not grant declaratory relief

Accordingly, the Court

UCL Violations (Fifth Cause of Action)

In Plaintiff's fifth cause of action for UCL violations, he

11

alleges that Defendants' "marketing, advertising, publicity,

12

promotional efforts, sales, administration, and acting as obligor

13

under the Policies" amount to unfair competition and unlawful

14

practices because the Policies constitute automobile insurance or

15

VSCs and Defendants were not licensed to sell such products under

16

Sections 700 or 12800-12865.

17

dismiss Plaintiff's UCL claim on the grounds that (1) the Insurance

18

Code does not provide for a private right of action, and (2)

19

Plaintiff fails to plead fraud with particularity.

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21

1.

FAC ¶¶ 71-72.

Defendants move to

Private Right of Action

As with Plaintiff's claim for declaratory relief, Choice moves

22

to dismiss Plaintiff's UCL cause of action on the grounds that

23

Sections 116.5, 700, and 12800-12865 do not provide for a private

24

right of action.

25

finds that the text and legislative history of these provisions

26

show that they do not create private rights of action.

As discussed in Section IV.E supra, the Court

Plaintiff

27
28

time in its history did it provide for a private right of action.
See id. Ex. 5 (Leg. History of Cal. Ins. Code § 700). Section
12845 was enacted in 2003 and has never included a private right of
action. See id. Ex. 5 (Leg. History of Cal. Ins. Code § 12845).
15

1

argues that a private citizen may utilize the UCL to enforce the

2

provisions of a statute, even where the underlying statute does not

3

expressly provide for a private right of action.

4

MTD at 7.

5

claim for violation of the Unfair Insurance Practices Act ("UIPA").

6

Choice Reply at 7.

7

have held that the UIPA does not provide for a private right of

8

action and that a plaintiff may not plead around this bar by

9

recasting a UIPA claim as a UCL claim.

Opp'n to Choice

Choice responds that Plaintiff's UCL claim is actually a

Choice points out that the California courts

Choice Reply at 7-8.

United States District Court

For the Northern District of California

10

Alternatively, Choice argues that the Insurance Code provisions

11

challenged by plaintiff are "so substantially similar to the UIPA,

12

which does not allow private rights of action, that they should be

13

treated the same for Plaintiff's UCL claim."

Id. at 9.

14

The UCL can form the basis for a private cause of action, even

15

where the predicate statute does not provide for a private cause of

16

action.

17

1042, 1048 (9th Cir. 2000); Stop Youth Addiction, Inc. v. Lucky

18

Stores, Inc., 17 Cal. 4th 553, 573 (Cal. 1998).

19

are limits on the causes of action that can be maintained under

20

section 17200."

21

cannot form the basis for a cause of action where the predicate

22

statute actually bars the action or expressly permits the

23

challenged conduct.

24

private right of action where the statutory scheme provides for

25

penal remedies.

26

Stevens v. Super. Ct., 75 Cal. App. 4th 594, 605 (Cal. Ct. App.

27

1999).

28

private plaintiffs may use the UCL to enforce other provisions in

See Chabner v. United of Omaha Life Ins. Co., 225 F.3d

Chabner, 225 F. 3d at 1048.

Id.

However, "[t]here

Specifically, the UCL

A statute does not necessarily bar a

See Stop Youth Addiction, 17 Cal. 4th at 572;

As Plaintiff points out, a number of courts have held that

16

1

the Insurance Code requiring persons selling insurance to acquire a

2

license from the state.

3

4th 466, 478 (Cal. Ct. App. 2006) (plaintiff could bring UCL action

4

to enforce section 1635(h) of the Insurance Code); Stevens, 75 Cal.

5

App. 4th at 605 (plaintiff could bring a UCL claim for violation of

6

section 1631 of the insurance code).

See Wayne v. Staples, Inc., 135 Cal. App.

In Moradi Shalal v. Fireman's Fund Insurance Companies, 46

7
8

Cal. 3d 287, 304-05 (Cal. 1988), the California Supreme Court held

9

that the UIPA did not create a private cause of action against

United States District Court

For the Northern District of California

10

insurers who violate its provisions.

The UIPA prohibits, among

11

other things, "making or disseminating . . . any statement

12

containing any assertion, representation or statement with respect

13

to the business of insurance . . . which is untrue, deceptive, or

14

misleading."

15

plead around Moradi Shalal, by recasting a claim for a UIPA

16

violation as a UCL cause of action.

17

Super. Ct., 10 Cal. 4th 257, 283-284 (Cal. 1995).

18

Textron Financial Corp. v. National Union Fire Insurance, 118 Cal.

19

App. 4th 1061, 1070 (Cal. Ct. App. 2004), the court found that

20

Moradi Shalal barred a UCL claim alleging that the insurer had used

21

misleading documents and misrepresented the terms of its insurance

22

policies and its obligations under them.

23

these types of activities were covered by the UIPA.7

Cal. Ins. Code. § 790.03(b).

A plaintiff may not

See Mfrs. Life Ins. Co. v.
For example, in

The Court reasoned that
Id.

24
25
26
27
28

7

The California Court of Appeals rejected the court's holding in
Textron in Zhang v. Superior Court, 178 Cal. App. 4th 1081, 1089-90
(Cal. Ct. App. 2010). In Zhang, the court held that Moradi Shalal
only bars a UCL claim where "plaintiff relies on conduct that
violates the [UIPA] but is not otherwise prohibited." 178 Cal.
App. 4th at 1088 (emphasis in the original). However, the
California Supreme Court recently granted review in Zhang. See
Zhang v. Super. Ct., 225 P.3d 1080 (Cal. 2010). Thus, at this
17

1

The Court finds that Plaintiff may state a UCL claim for

2

violations of Section 116.5, 700, and 12800-12865.

Choice does not

3

point to any language in these sections that expressly bars a

4

plaintiff from bringing a private right of action.

5

780(b) and 12845 do provide that violators may be fined or

6

imprisoned, they do not state that these remedies are exclusive.

7

See Stop Youth Addiction, 17 Cal. 4th at 572.

8

Choice's argument that Plaintiff is impermissibly attempting to

9

plead around Moradi Shalal by framing his UIPA claim as a claim for

While sections

The Court rejects

United States District Court

For the Northern District of California

10

UCL violations.

11

any statement containing any assertion with respect to the business

12

of insurance . . . is untrue, deceptive, or misleading."

13

Code. § 790.03(b).

14

Plaintiff's UCL claim is based is broader than "untrue, deceptive,

15

or misleading" statements.

16

that Defendants' acts constituted unlawful business practices

17

because they sold and acted as obligor under the Policy without

18

first obtaining a license or certificate from the DOI.

19

71-72.

20

2.

The UIPA prohibits "making or disseminating . . .

Cal. Ins.

The allegedly actionable conduct on which

The crux of Plaintiff's UCL claim is

See FAC ¶¶

Particularity Requirements

21

Both Choice and NRRM argue that Plaintiff's UCL claim fails

22

for the additional reason that the FAC fails to plead fraud with

23

particularity in accordance with Rule 9(b) of the Federal Rules of

24

Civil Procedure.

25

Plaintiff responds that his UCL claim is based on Defendant's

26

allegedly unlawful conduct, not fraud, and, consequently, Rule

27

9(b)'s heightened pleading standards are inapplicable.

Choice MTD at 19-21; NRRM MTD at 13-15.

Opp'n to

28
time, Zhang is no longer good law, and the Court declines to follow
it.
18

1

Choice MTD at 17-18; Opp'n to NRRM Opp'n at 9.

2

Plaintiff contends that his UCL claim is predicated on the theory

3

that Defendants' sale of the Policy was unlawful because the Policy

4

constituted automobile insurance pursuant to Section 116.5 and

5

Defendants failed to obtain a proper license to sell such insurance

6

pursuant to Section 700.

7

Plaintiff's UCL claim to the extent that it is based on fraud.

8

However, the Court DENIES Defendants' motion to dismiss Plaintiff's

9

UCL claim to the extent the claim is based on Defendants' allegedly

United States District Court

For the Northern District of California

10

Id.

Specifically,

Accordingly, the Court DISMISSES

unlawful sale of insurance without a license.

11

G.

12

Finally, NRRM moves to dismiss the class allegations in the

Class Allegations

13

FAC.

NRRM MTD at 15-20.

NRRM argues that, under Federal Rule of

14

Civil Procedure 23(b)(3), individualized factual issues preclude

15

class certification in the instant action.

16

Specifically, NRRM argues that the following facts would vary among

17

class members:

18

personal sales experience with NRRM, (3) reliance on NRRM's

19

representations, and (4) desire for rescission or restitution.

20

at 17-20.

Id. at 16.

(1) knowledge about product warranties, (2)

Id.

Plaintiff responds that NRRM's arguments are based on an

21
22

erroneous reading of the FAC.

23

argues that this action is not based on misrepresentations made by

24

Defendants, but on Defendants' sale of the Policy without a

25

license.

26

sale of the Policy would not vary among the putative class members.

27

Id.

28

class members may not want rescission or restitution fails because

Id.

Opp'n to NRRM at 10-11.

Plaintiff

Plaintiff contends the issue of the legality of the

Plaintiff further argues that Defendants' contention that some

19

1

(1) "consumers do not buy illegal products" and (2) under Yokoyama

2

v. Midland National Life Insurance Company, 594 F.3d 1087, 1094

3

(9th Cir. 2010), individualized damages do not preclude class

4

certification.
The Court agrees with Plaintiff and finds that an evaluation

5
6

of his class action allegations is inappropriate at this time.

7

NRRM's arguments concerning Plaintiff's class action allegations,

8

in large part, misread the FAC.8

9

class allegations through a motion for class certification, after

Further, courts generally review

United States District Court

For the Northern District of California

10

the defendant has answered the complaint and some discovery has

11

occurred.

12

614-15 (N.D. Cal. 2007).

13

for class certification is not before the Court, no answer has been

14

served, and there is no indication that any discovery has taken

15

place.

In the instant action, Plaintiff's motion

Accordingly, the Court DENIES NRRM's motion to dismiss

16
17

See In re Wal-Mart Stores, Inc., 505 F. Supp. 2d 609,

Plaintiff's class action allegations.

18
19

V.

CONCLUSION
For the foregoing reasons, the Court GRANTS in part and DENIES

20
21

in part the motions to dismiss brought by Defendants The Choice

22

Manufacturing Company, Inc. and NRRM, LLC.

23

WITHOUT LEAVE TO AMEND Plaintiff Thomas Sanders' first cause of

24

action for declaratory relief, second cause of action for

25

rescission, third cause of action for violations of the CLRA, and

26

fourth cause of action for violations of the False Advertising Law.

27

The Court also DISMISSES Plaintiff's fifth cause of action for

28

8

The Court DISMISSES

Indeed, NRRM appears to have abandoned its arguments concerning
Plaintiff's class action allegations in its reply brief.
20

1

violations of the UCL to the extent that it is based in fraud, but

2

the Court DENIES Defendants' motions to dismiss this cause of

3

action to the extent it is based on Defendants' allegedly unlawful

4

sale of the Policy without a license.

5

allegations remain undisturbed.

Plaintiff's class action

6
7

IT IS SO ORDERED.

8
9

United States District Court

For the Northern District of California

10

Dated: November 30, 2011
UNITED STATES DISTRICT JUDGE

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