Travelers Property Casualty Company of American v. Centex Homes et al

Filing 150

ORDER by Judge Samuel Conti granting (132) Motion to Dismiss; denying (133) Motion to Strike ; granting in part and denying in part (134) Motion to Dismiss in case 3:12-cv-00371-SC; granting (47) Motion to Dismiss; denying (48) Motion to Strike ; granting in part and denying in part (49) Motion to Dismiss in case 3:13-cv-00088-SC (sclc1, COURT STAFF) (Filed on 8/26/2013)

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IN THE UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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Northern District of California

United States District Court

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TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA,

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Plaintiff,
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v.
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CENTEX HOMES, NEWMEYER &
DILLION, RGL INC., RGL
FORENSICS, and DOES 1 through 10
inclusive,
Defendants.

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AND RELATED COUNTERCLAIMS.

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Case Nos. 12-0371-SC, 130088-SC
Related Case: 11-3638-SC
ORDER (1) GRANTING
CENTEX'S MOTION TO
DISMISS, (2) DENYING
CENTEX'S MOTION TO STRIKE,
AND (3) GRANTING IN PART
AND DENYING IN PART N&D'S
MOTION TO DISMISS

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I.

INTRODUCTION

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Insurer Travelers Property Casualty Company of America

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("Travelers") brings these two related actions, case numbers 12-

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0371 (the "'371 Action") and 13-0088 (the "'88 Action"), against

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its insured Centex Homes ("Centex"); Centex's counsel, Newmeyer &

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Dillion, LLP ("N&D"); and RGL Inc. and RGL Forensics (collectively

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("RGL"), Centex's claims administrator.

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Fourth Amended Complaint ("4AC") in the '371 Action and a First

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Amended Complaint ("1AC") in the '88 Action.

Travelers recently filed a

The legal claims and

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theories asserted in both complaints are identical and the

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underlying facts are substantially similar.

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motion to dismiss and a motion to strike the 4AC and 1AC.

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Nos. 47 ("Centex MTD"), 48 ("Centex MTS").1

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Centex's motions and filed a motion to dismiss of its own.

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("N&D MTD").

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for determination without oral argument per Civil Local Rule 7-

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1(b).2

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motion to dismiss, DENIES Centex's motion to strike, and GRANTS in

United States District Court

For the Northern District of California

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Centex has filed a
Dkt.

N&D has joined
Dkt. 49

All three motions are fully briefed and appropriate

For the reasons set forth below, the Court GRANTS Centex's

part and DENIES in part N&D's motion to dismiss.

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II.

BACKGROUND
Centex is a general contractor that builds homes throughout

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California.

Centex's contractors have taken out insurance policies

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with Travelers which name Centex as an additional insured.

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last several years, homeowners have brought a number of

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construction defect suits against Centex in connection with the

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work of its contractors.

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Travelers, giving rise to a series of legal disputes about the

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scope of Travelers' duty to defend and duty to indemnify.

In the

Centex tendered these actions to

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In both the '371 and '88 Actions, Travelers alleges that

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Defendants engaged in a fraudulent scheme to overbill insurers for

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the cost of Centex's legal fees in connection with the underlying

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All relevant documents have been filed to the dockets of both the
'88 Action and '371 Action. For the sake of clarity and brevity,
the Court refers only to the docket in the '88 Action.
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Dkt Nos. 52 ("Opp'n to Centex MTS"), 54 ("Opp'n to N&D MTD"), 55
("Opp'n to Centex MTD"), 56 ("Reply ISO Centex MTD"), 57 ("Reply
ISO N&D MTD"), 58 ("Reply ISO Centex MTS"). The Court looks to the
content of the briefs rather than the captions, as the two
sometimes do not match.

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construction defect actions.

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asserted are the same in both actions.

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alleges that Defendants fraudulently misrepresented (1) N&D's

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hourly rates, (2) the scope of Centex's tenders, and (3) other

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carriers' agreements to participate in Centex's defense.

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The general allegations and claims
In both actions, Travelers

The instant motions focus on the first category of alleged

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misrepresentations, so the Court takes a moment to describe it in

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more detail.

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Centex a reduced hourly rate, but charged Travelers a higher rate

According to the 1AC and 4AC, N&D allegedly charged

United States District Court

For the Northern District of California

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once the insurer agreed to participate in Centex's defense.

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Travelers' allegations are based in part on the May 11, 2011

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deposition testimony of Centex's general counsel, Jarrett Coleman

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("Coleman").

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the pleadings, this informal agreement was a way for Centex to

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provide N&D with an advance pending Travelers' assumption of its

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duty to defend.

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because N&D was essentially creating two sets of bills and because

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there was no written or oral agreement obligating Centex to pay

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N&D's full fees, the arrangement is fraudulent.

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According to the deposition transcript attached to

1AC Ex. C.

However, Travelers alleges that

The underlying construction defect actions in the '371 and '88

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Actions overlap, though there are some differences.

The underlying

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cases in the 1AC in the '88 Action are the Acupan, Adams, Adkins,

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Ahlberg, Akin, Bennett, Bradley, Cappawana, Cartmill, Cooley,

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Conner, Deusenberry, Mir Ali, Mira Loma, Redig, Redhawk, Spicer,

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Spivak, and Yunker actions.

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'371 Action are the Adams, Adkins, Agles, Ahlberg, Akin, Allie,

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Balangue, Bradley, Briseno, Cooley, Garvey, Johnson, Spicer, and

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Tapia actions.

The underlying cases in the 4AC in the

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As to the procedural history, the '371 Action was filed in

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January 2012, and was originally assigned to Judge Hamilton, who

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ruled on several motions to dismiss before transferring the case to

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the undersigned.

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Action, Travelers filed the '88 Action in January 2013.

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was initially assigned to Judge Tigar.

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'371 Action and the '88 Action were related to an earlier case that

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Travelers had filed against Centex, which was pending before the

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undersigned.

United States District Court

For the Northern District of California

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Rather than amending its pleading in the '371
The case

In April 2013, both the

The undersigned now presides over all three cases.

On May 30, 2013, after the reassignments, the undersigned

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ruled on motions to dismiss, strike, and amend in both the '371

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Action and the '88 Action.

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Order").

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No. 43.

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motions to dismiss already filed in the '371 Action, the Court

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opted not to allow Travelers to consolidate its pleadings.

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Travelers subsequently filed a 4AC in the '371 Action and 1AC in

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the '88 Action.

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violation of the Unfair Competition Law ("UCL"), Cal. Bus. & Prof.

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Code § 17200 et seq.; breach of fiduciary duty; reimbursement; and

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accounting.

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amended pleadings.

Dkt. Nos. 41 ("'371 Order"), 42 ("'88

The Court also consolidated the actions for trial.

Dkt.

However, in light of the multiple rounds of pleading and

Both pleadings assert causes of action for fraud;

Centex and N&D now move to dismiss and strike the

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III. LEGAL STANDARD
A Rule 12(b)(6) motion to dismiss "tests the legal sufficiency

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of a claim."

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

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"Dismissal can be based on the lack of a cognizable legal theory or

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the absence of sufficient facts alleged under a cognizable legal

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theory."

Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699

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(9th Cir. 1988).

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a court should assume their veracity and then determine whether

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they plausibly give rise to an entitlement to relief."

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Iqbal, 556 U.S. 662, 664 (2009).

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

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is inapplicable to legal conclusions.

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elements of a cause of action, supported by mere conclusory

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statements, do not suffice."

"When there are well-pleaded factual allegations,

Ashcroft v.

However, "the tenet that a court

Threadbare recitals of the

Id. at 663 (citing Bell Atl. Corp. v.

United States District Court

For the Northern District of California

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Twombly, 550 U.S. 544, 555 (2007)).3

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complaint must be both "sufficiently detailed to give fair notice

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to the opposing party of the nature of the claim so that the party

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may effectively defend against it" and "sufficiently plausible"

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such that "it is not unfair to require the opposing party to be

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subjected to the expense of discovery."

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1191, 1204 (9th Cir. 2011).

The allegations made in a

Starr v. Baca, 633 F.3d

Pursuant to Federal Rule of Civil Procedure 12(f), the Court

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may strike from a pleading "any redundant, immaterial, impertinent,

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or scandalous matter."

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avoid spending time and money litigating spurious issues."

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v. AT&T Pension Ben. Plan-Nonbargained Program, 718 F. Supp. 2d

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1167, 1170 (N.D. Cal. 2010).

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the means to excise improper materials from pleadings, such motions

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are generally disfavored because the motions may be used as

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delaying tactics and because of the strong policy favoring

"The purposes of a Rule 12(f) motion is to
Barnes

"While a Rule 12(f) motion provides

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Travelers' discussion of the relevant legal standard relies on
Conley v. Gibson, 355 U.S. 41 (1957), and its progeny, and ignores
the sea change brought about by Iqbal and Twombly. See Opp'n to
Centex MTD at 7-8.

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resolution on the merits."

Id.

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IV.

DISCUSSION
For the purposes of the instant motions, the 1AC in the '88

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Action and the 4AC in the '371 Action are identical in most

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relevant respects.

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actions interchangeably or jointly.

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Court addresses the pending motions in the following order: (1)

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Centex's motion to dismiss, (2) Centex's motion to strike, and (3)

United States District Court

For the Northern District of California

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Accordingly, the parties often refer to the
The Court does the same.

The

N&D's motion to dismiss.

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A.

Centex's Motion to Dismiss

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Centex moves to dismiss Travelers' claims for violation of the

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UCL and fraud.

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extent that they are predicated on the Bennett, Mir Ali, Mira Loma,

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Spicer, and Yunker actions.

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turn.
1.

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It also moves to dismiss Travelers' claims to the

The Court addresses each argument in

UCL

The UCL prohibits all unlawful, unfair, or fraudulent conduct.

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See Cal. Bus. & Prof. Code § 17200.

Each prong can be a separate

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cause of action.

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App. 4th 1544, 1554 (Cal. Ct. App. 2007).

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4AC expressly identify the prong or prongs under which Travelers is

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suing.

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under any prong of the UCL.

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the plausibility of Travelers' UCL claims, the Court addresses

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Travelers' argument that Centex's motion to dismiss the UCL claims

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is barred by the law of the case.

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///

Berryman v. Merit Prop. Mgmt., Inc., 152 Cal.
Neither the 1AC nor the

Centex argues that the facts alleged do not support a claim
Centex MTD at 7-10.

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Before turning to

i.

1

Law of the Case

Travelers argues that Centex previously raised identical

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arguments concerning its UCL claim when Centex moved to dismiss

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Travelers' Third Amended Complaint in the '371 Action, and that

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Judge Hamilton necessarily rejected those arguments when she denied

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Centex's motion to dismiss.

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further argues that the law of the case doctrine, which generally

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precludes a court from reopening previously decided issues, now

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bars the Court from revisiting the plausibility of its UCL

Opp'n to Centex MTD at 8-9.

See id.

Travelers

Centex

United States District Court

For the Northern District of California

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allegations in both the '371 and '88 Actions.

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responds that the law of case favors taking up its arguments, since

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the undersigned previously addressed the viability of Travelers'

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UCL claims when it ruled on Centex's prior motion to dismiss in the

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'88 Action.4

Reply ISO Centex MTD at 9-10.

The Court finds that the law of the case does not preclude it

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from considering Centex's arguments.

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Hamilton never directly addressed Centex's arguments in favor of

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dismissing Travelers' UCL claims.

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Travelers points out, the law of the case doctrine applies to

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issues decided explicitly or by necessary implication in a court's

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previous disposition, thus Judge Hamilton need not have directly

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ruled on an argument to establish the law of the case.

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Salt Co. v. United States, 55 F.3d 1388, 1393 (9th Cir. 1995).

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However, Travelers has placed the Court in a unique position by

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filing duplicative actions that assert the same claims and the same

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legal theories against the same parties based on the same facts.

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As an initial matter, Judge

See '371 Action Dkt. No. 87.

As

See Leslie

In opposing Centex's earlier motion to dismiss in the '88 Action,
Travelers neglected to mention Judge Hamilton's earlier ruling in
the '371 Action. See Dkt. No. 17.

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To the extent that the undersigned's May 30 Order in the '88 Action

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is inconsistent with Judge Hamilton's prior order in the '371

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Action -- and the Court does not think that it is -- the Court must

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now provide some clarity and consistency on the issue since the two

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cases have been consolidated for trial.

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turns to the merits of Centex's arguments.
ii.

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Unlawful Conduct

Centex argues that Travelers cannot assert a claim under the

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Accordingly, the Court

unlawful prong of the UCL since Travelers has yet to allege an

United States District Court

For the Northern District of California

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unlawful action.

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under the unlawfulness prong by pleading that a business practice

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violates a predicate law.

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Cellular Tel. Co., 20 Cal. 4th 163, 180 (Cal. 1999).

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opposition brief, Travelers argues that it intends to assert a

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predicate violation of California Rule of Professional Conduct 4-

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200.

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not appear anywhere in the pleadings, Travelers argument fails for

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a number of reasons.

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nor RGL are members of the Bar, they do not have an obligation to

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comply with the California Bar's Rules of Professional Conduct.

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Centex MTD at 7-8.

A plaintiff can state a claim

See Cel-Tech Commc'ns, Inc. v. L.A.

Opp'n to Centex at 12.

In its

Setting aside that this claim does

As an initial matter, since neither Centex

As to N&D, the Rules of Professional Conduct do not constitute

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predicate laws for the purposes of the UCL.

First, the Rules are

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not laws.

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intended to create new civil causes of action."

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a violation of the Rules could serve as a predicate act, Travelers

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has not alleged such a violation.

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attorney from charging an "unconscionable fee."

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unconscionability, the bar considers "[t]he amount of the fee in

Indeed, Rule 1-100(A) provides: "These rules are not
Moreover, even if

Rule 4-200(A) prohibits an

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In determining the

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proportion to the value of the services performed," and "[t]he

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informed consent of the client to the fee."

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4-200(B).

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$240 to $515, are hardly disproportionate, and there is no

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indication that N&D failed to secure the informed consent of

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Centex.

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Cal. R. Prof. Conduct

Here, N&D's rates for attorneys, which range from around

Accordingly, Travelers' UCL claim for unlawful conduct is

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DISMISSED WITH PREJUDICE in both the '371 Action and the '88

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Action.
iii. Unfair Conduct

United States District Court

For the Northern District of California

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11

The standards applicable to a UCL unfairness cause of action

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are something of a moving target, even for California's appellate

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courts.

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230, 252 (Cal. Ct. App. 2011) (reviewing California appellate

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courts' differing standards for UCL unfairness); Bardin v.

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Daimlerchrysler Corp., 136 Cal. App. 4th 1255, 1261 (Cal. Ct. App.

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2006) (same, and asking California Legislature or Supreme Court to

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clarify standard).

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test" and the "tethering test" for unfair conduct.

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See Boschma v. Home Loan Ctr., Inc., 198 Cal. App. 4th

Travelers now attempts to invoke the "balancing

The former test involves "balancing the harm to the consumer

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[or victim] against the utility of the defendant's practice."

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Lozano v. AT&T Wireless Servs., Inc., 504 F.3d 718, 735 (9th Cir.

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2007).

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conduct "threatens an incipient violation of an antitrust law, or

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violates the policy or spirit of one of those laws because its

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effects are comparable to or the same as a violation of the law, or

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otherwise significantly threatens or harms competition."

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20 Cal. 4th at 187.

Under the latter test, the plaintiff must show that unfair

Cel-Tech,

In other words, "the public policy which is a

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1

predicate to a consumer unfair competition action under the

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'unfair' prong of the UCL must be tethered to specific

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constitutional, statutory, or regulatory provisions."

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Cal. App. 4th at 1260-61.

Bardin, 136

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The Court agrees with Centex that Travelers cannot state a

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claim under the balancing test because Travelers is not a consumer.

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See Lozano, 504 F.3d at 735-736 (finding California courts have

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rejected the balancing test in suits involving unfairness to the

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defendant's competitors but have yet to reach a consensus in the

United States District Court

For the Northern District of California

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consumer action context).

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Defendants' actions raise insurance rates for consumers is far too

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tenuous to be plausible.

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Moreover, Travelers' theory that

As to the tethering test, Travelers has yet to enunciate how

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its claims are tethered to a specific constitutional, statutory, or

15

regulatory provision.

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tethered to California Rule of Professional Conduct 4-200 fails for

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the reasons outlined in Section IV.A.1.ii supra.

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appears to argue that its claims are tethered to California's

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policy against insurance fraud.

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However, under this theory, Travelers' unfairness claim rises and

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falls with its fraud claims and is therefore duplicative and

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unnecessary.

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Travelers' argument that its claims are

Travelers also

See Opp'n to Centex MTD at 15.

Moreover, to the extent that Travelers' UCL unfairness claim

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is not predicated on its allegations of fraud, that claim is

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arguably inconsistent with California public policy.

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Superior Court, 16 Cal. 4th 35 (Cal. 1997), the California Supreme

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Court laid out a comprehensive framework for when and how an

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insurer may seek reimbursement from its insured for defense costs.

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In Buss v.

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Travelers cannot circumvent the Buss framework by bringing a UCL

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unfairness claim.

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Defendants engaged in unfair business practices by asserting

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Centex's rights under the Travelers' policies.

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Nor can Travelers plausibly assert that

In sum, Travelers is either conflating UCL unfairness with

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fraud or attempting to bring a Buss claim for reimbursement under

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the guise of the UCL unfairness prong.

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for UCL unfairness fails.

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WITH PREJUDICE.
iv.

United States District Court

For the Northern District of California

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In either case, its claim

Accordingly, that claim is DISMISSED

Fraudulent Conduct

For the purposes of the UCL, "a fraudulent business practice

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is one that is likely to deceive members of the public."

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AT&T Wireless Servs., Inc., 177 Cal. App. 4th 1235, 1255 (Cal. Ct.

14

App. 2009) (quotations omitted).

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fraud claim fails because Travelers has not alleged a fraudulent

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act or practice that affects the general public.

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Morgan v.

Centex argues that Travelers' UCL

Centex's argument has merit.

Centex MTD at 10.

As the Central District of

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California held in Watson Laboratories, Inc. v. Rhone-Poulenc

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Rorer, Inc.: "Though many courts have described the scope of

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business activities prohibited by § 17200 in sweeping terms, there

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is no case authority that 'fraudulent' business acts are separately

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actionable by business competitors absent a showing that the

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public, rather than merely the plaintiff, is likely to be

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deceived."

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Nat'l Rural Telecomm. Co-op. v. DIRECTV, Inc., 319 F. Supp. 2d

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1059, 1078 (C.D. Cal. 2003) ("Sophisticated companies, like

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Plaintiffs here, are not members of the 'general public.'").

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178 F. Supp. 2d 1099, 1121 (C.D. Cal. 2001); see also

As Travelers points out, the UCL expressly allows for actions

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1

by private corporations.

See Cal. Bus. & Prof. Code §§ 17201,

2

17204.

3

show that the alleged wrongdoing has some impact on the general

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public.

5

not alleged that Defendants made any statements to the public, let

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alone engaged in an action which was likely to deceive members of

7

the public.

8

to vindicate its contractual and reimbursement rights against its

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insured and its insured's representatives.

However, both private individuals and corporations must

See Watson, 178 F. Supp. 2d at 1121.

Here, Travelers has

Rather, Travelers is trying to use the UCL fraud prong

This it cannot do.5

United States District Court

For the Northern District of California

10

Accordingly, Travelers' claim for UCL fraud, along with

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Travelers' other UCL claims are DISMISSED WITH PREJUDICE in both

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the '88 and '371 Actions.
2.

13

Fraud

In its May 30 Order in the '88 Action, the Court dismissed

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15

Travelers' claim for fraud to the extent that it was based on

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allegations that N&D overbilled Travelers for attorney time after

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May 11, 2011.

18

Coleman revealed N&D and Centex's allegedly illicit rate agreement

19

in a deposition taken by Travelers on May 11, Travelers could not

20

have reasonably relied on the allegedly fraudulent invoices sent

21

after May 11.

The Court reasoned that because

Id. at 7-9.

In connection with the prior Order, Travelers argued that it

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23

'88 Order at 19.

could still assert a fraud claim based on overbilling for non-

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25
26
27
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5

Even if Travelers did have standing to bring a UCL fraud claim,
it has failed to plead justifiable reliance as to N&D invoices
filed after May 11, 2011. As explained in the '88 Order and in
Section IV.A.2 infra, Travelers was aware of N&D and Centex's
alleged overbilling scheme as early as May 11, 2011, when it was
disclosed at the Coleman deposition. Contrary to Travelers'
argument, it must still show reliance to establish UCL fraud. See
In re Tobacco II Cases, 46 Cal. 4th 298, 306 (Cal. 2009).

12

1

attorney time because Coleman's deposition did not reveal that

2

Centex and Newmeyer were overbilling for paralegals, law clerks,

3

and in-house experts.

Id. at 9.

The Court disagreed, holding:

4
[I]n light of Travelers' allegations regarding Mr.
Coleman's testimony about Newmeyer's attorney rates,
it is implausible that Travelers was unaware of this
alleged overbilling scheme when Travelers paid the
invoices submitted by Newmeyer after May 11, 2011.
The deposition transcript attached to the Complaint
shows that Mr. Coleman testified that Centex agreed to
front a portion of Newmeyer's rates.
Based on this
testimony, Travelers had reason to believe that Centex
was paying a fraction of all of the rates charged by
Newmeyer. At the very least, Travelers had reason to
investigate the matter before paying any invoices
submitted
by
Newmeyer
after
the
May
11,
2011
deposition.

5
6
7
8
9

United States District Court

For the Northern District of California

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11
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13

Id.

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reasonably relied on N&D and Centex's misrepresentations regarding

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non-attorney time billed after May 11, 2011.

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filed order, the Court found that Travelers' fraud claim in the

17

'371 Action failed on the same grounds.

The Court granted Travelers leave to amend to show how it

In a concurrently

'371 Order at 14-15.

18

In the 4AC and 1AC, Travelers once again alleges that it

19

learned of the allegedly fraudulent billing scheme during the May

20

11, 2011 deposition of Coleman.

21

guidance set forth in the Court's May 30 Orders, Travelers also

22

alleges that it deposed Coleman again on February 28, 2012.

23

this deposition, Coleman was asked about the discounted rate for

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paralegal work.

25

don't think there's a discount for paralegals.

26

and back and double check."

27

that testimony, it "believed that the hourly rate N&D billed

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Travelers for work performed by paralegals, law clerks[,] and in-

In attempt to comply with the

1AC Ex. E at 21.

Id.

During

Coleman responded: "You know, I
I'd have to go back

Travelers alleges that, based on

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1

house experts reflected the actual amount that N&D charged Centex

2

for such work."

Id. ¶ 20.

3

The Court finds that these new allegations fail to show that

4

Travelers reasonably relied on N&D invoices for non-attorney time

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submitted after May 11, 2011.

6

Travelers did not take any action to investigate N&D's allegedly

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fraudulently billing scheme until nine months after Coleman's first

8

deposition.

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payments during this nine-month period or even questioned N&D about

The facts alleged demonstrate that

There is no indication that Travelers withheld

United States District Court

For the Northern District of California

10

its invoices.

11

relied on N&D's rate representations when it had reason to

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investigate them, but continued to pay N&D's invoices without

13

question for almost a year.

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testimony was equivocal.

15

Centex was offered a discounted rate for non-attorney time.

16

Rather, he merely testified that he could not comment on the

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practice with any certainty.

18

Travelers cannot plausibly claim that it reasonably

Moreover, Coleman's February 2012

Coleman did not expressly deny that

For these reasons, Travelers' fraud claim is DISMISSED WITH

19

PREJUDICE to the extent that it is predicated on N&D invoices for

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attorney and non-attorney time submitted after May 11, 2011.

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3.

The Bennett, Mir Ali, Mira Loma, Spicer and Yunker
Actions

22
23

Centex argues that Travelers' claims regarding the Bennett,

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Mir Ali, Mira Loma, Spicer and Yunker Actions are barred because

25

the parties previously stipulated to the dismissal of these claims

26

with prejudice.

27

concedes that it is not seeking relief in connection with these

28

underlying actions.

Centex MTD at 18.

Opp'n at 21.

14

In its opposition, Travelers

After the motion to dismiss was

1

fully briefed, Travelers stipulated to strike all references to

2

these actions from its 1AC and 4AC.

3

appears that the dispute over these actions is now moot.

4

extent that it is not, the Court dismisses Travelers' claims in

5

both the '88 and '371 Actions, to the extent that they are

6

predicated on the Bennett, Mir Ali, Mira Loma, Spicer and Yunker

7

actions.

Dkt. No. 63.

Accordingly, it
To the

8

B.

Centex's Motion to Strike

9

Centex moves to strike allegations relating to (1) the Spicer

United States District Court

For the Northern District of California

10

action, and (2) Defendants' alleged scheme to overbill for attorney

11

time after May 11, 2011.

12

relief pertaining to the Spicer Action.

13

event, the parties have since stipulated to strike the Spicer

14

allegations.

15

the Spicer allegations is DENIED as moot.

16

Travelers concedes that is not seeking

Dkt. No. 63.

Opp'n to MTS at 7.

In any

Accordingly, Centex's motion to strike

As to the motion to strike allegations regarding post-May 11

17

invoices, Centex appears to proceed under the assumption that

18

Travelers can continue to pursue dismissed claims until the

19

allegations underlying those claims are struck from the pleadings.

20

That is simply not true.

21

unnecessary and time-consuming exercise of going through the

22

pleadings line-by-line and striking particular factual allegations

23

when the Court has already ruled on the merits of Travelers' claims

24

for relief.

25

invoices may support other claims that remain in the action, the

26

Court declines to disturb them.

27
28

The Court declines to go through the

Since the allegations regarding the post-May 11

The purpose of a motion to strike is "to avoid spending time
and money litigating spurious issues."

15

Barnes, 718 F. Supp. 2d at

1

1170.

The instant motion to strike does the opposite and is

2

therefore DENIED.

3

C.

N&D's Motion to Dismiss

4

Travelers' remaining claims against N&D are breach of

5

fiduciary duty, accounting, and fraud.

6

the claims for breach of fiduciary duty and accounting on the

7

ground that such claims are barred by the California Court of

8

Appeal's recent decision in J.R. Marketing, L.L.C. v. Hartford

9

Casualty Insurance Co., 216 Cal. App. 4th 1444 (Cal. Ct. App.

United States District Court

For the Northern District of California

10

N&D now moves to dismiss

2013).6

11

In J.R. Marketing, the defendant insurer, Hartford, refused to

12

defend or indemnify the plaintiff insured in an underlying lawsuit.

13

216 Cal. App. 4th at 1449.

14

Squire Sanders L.L.P. ("Squire") to defend it in the underlying

15

action and bring suit against Hartford for coverage.

16

summary adjudication, the trial court found that the insured was

17

entitled to Cumis counsel from the date it tendered the underlying

18

action.7

19

could not invoke certain provisions of California Civil Code

20

section 2860, which cap the amount of fees payable to Cumis

21

counsel, since Hartford had breached and continued to breach its

22

defense obligations.

23

Cumis counsel, and the underlying litigation was resolved.

24

6

25
26
27
28

Id. at 1449.

The insured hired the law firm of

Id.

On

The trial court also found that Hartford

Id. at 1450.

Squire took on the role of
Id. at

N&D also argues that Travelers' UCL claim against it is barred by
J.R. Marketing. However, the Court has already dismissed that
claim on other grounds. See Section IV.A.1 supra. Both parties
agree that J.R. Marketing has no bearing on Travelers' fraud claim
against N&D.
7

In California, an insured is entitled to independent counsel,
a.k.a. Cumis counsel, where a conflict exists because of an
insurer's control over the litigation. See Cal. Civ. Code § 2860.

16

1

1452.

The insured then submitted Squire's invoices to Hartford,

2

and Hartford paid them.

3

complaint against the insureds and Squire, seeking reimbursement of

4

all unreasonable or unnecessary fees and costs paid to Squire.

Id.

Thereafter, Hartford filed a cross-

Id.

On appeal, the court found that Hartford did not have a right

5
6

to seek reimbursement from Squire.

The court reasoned that

7

California law clearly barred an insurer in breach of its duty to

8

defend from imposing on its insured its own choice of counsel.

9

at 1458.

Id.

The court stated that it was taking the law "one step

United States District Court

For the Northern District of California

10

further" by holding that an insurer in breach of its duty to defend

11

also could not maintain a direct suit against its insured's

12

independent counsel for unreasonable or unnecessary fees.

13

court reasoned: "Retroactively imposing the insurer's choice of fee

14

arrangement for the defense of the insured by means of a post-

15

resolution quasi-contractual suit for reimbursement against the

16

insured's separate counsel . . . runs counter to these Cumis-scheme

17

principles[.]"

18

where the insurer is not in breach of its duty to defend, [Cumis]

19

counsel still owes very few duties directly to the insurer given

20

the lack of an attorney-client relationship between them

21

Id. at 1457 n.10.

Id. at 1457-58.

Id.

The

The court also noted that "even

. . . ."

22

Further, the court held that there was no basis for a

23

restitution claim: "Squire did not confer any benefit upon

24

Hartford.

25

.

26

this fact."

27

dismissed because it was simply an extension of Hartford's

28

reimbursement cause of action.

Rather, Squire conferred a benefit on its clients . . .

That Hartford paid Squire for those services does not change
Id. at 1459.

Hartford's claim for accounting was also

Id. at 1460 n.12.

17

The court

1

declined to reach the issue of whether an insurer in breach of its

2

duty to defend could pursue a claim for fraudulent billing against

3

Cumis counsel.

Id. at 1460.

In light of J.R. Marketing, the Court finds as follows.

4
5

Travelers cannot maintain an action for breach of fiduciary duty or

6

accounting against N&D in connection with any legal services

7

rendered by N&D prior to Travelers' agreement to provide Centex

8

with a defense in each underlying action.

9

acknowledgement of its duty to defend, N&D could not have plausibly

Prior to Travelers'

United States District Court

For the Northern District of California

10

owed Travelers a fiduciary duty, since during this period, N&D's

11

sole duty was to Centex.

12

conclusory allegations to the contrary need not be taken as true.

13

See, e.g., 1AC ¶¶ 185 (attorney-client relationship existed "as a

14

matter of law"), 186 ("N&D . . . owed fiduciary duties to both

15

Centex and Travelers").

16

confer a benefit on Travelers during this period, Travelers cannot

17

maintain an action for accounting, which is simply an extension of

18

a claim for restitution or reimbursement.

19

Cal. App. 4th at 1640 n.12.

Under Iqbal and Twombly, Travelers'

Likewise, since N&D did not directly

See J.R. Marketing, 216

However, the Court declines to dismiss Travelers' claims for

20
21

breach of fiduciary duty and accounting as they relate to legal

22

work performed by N&D after Travelers agreed to provide Centex with

23

a defense in the underlying actions.

24

two clients: Centex and Travelers.

25

Co., 157 Cal. App. 3d 59, 76 (Cal. Ct. App. 1984) (attorney

26

retained by insurer to defend insured has two clients).

27

never appointed as Cumis counsel, J.R. Marketing is not on point

28

here.

During this period, N&D had

See Purdy v. Pac. Auto. Ins.

As N&D was

N&D argues that whether or not N&D was Cumis counsel is

18

1

irrelevant, since Travelers, like Hartford, breached its duty to

2

defend.

3

cannot conclude from the facts pled that Travelers breached its

4

duty to defend in each of the underlying construction defect

5

actions.8

However, the Court has yet to make such a finding, and it

Accordingly, N&D's motion to dismiss is GRANTED in part and

6
7

DENIED in part.

In both the '88 and '371 Actions, Travelers'

8

claims for accounting and breach of fiduciary duty are DISMISSED

9

WITH PREJUDICE as to N&D to the extent that those claims relate to

United States District Court

For the Northern District of California

10

legal work performed by N&D prior to Travelers' agreement to

11

provide Centex with a defense in the underlying actions.

12

///

13

///

14

///

15

///

16

///

17

///

18

///

19

///

20

///

21

///

22

///

23

///

24

///

25
26
27
28

8

The Court has addressed Centex's assertion that Travelers
breached its duty to defend in many of the underlying actions at
issue here in a related case, Travelers Property Casualty Company
of America v. Centex Homes, Case No. 11-3638-SC. As the parties
have not discussed how the orders filed in the related case impact
the instant actions, neither will the Court.

19

1
2

V.

CONCLUSION
The following conclusions relate to both the '88 and '371

3

Actions.

Centex's motion to dismiss is GRANTED.

Travelers' UCL

4

claims are DISMISSED WITH PREJUDICE as to all Defendants, as are

5

Travelers' claims for fraud to the extent that they are predicated

6

on N&D invoices submitted after May 11, 2011.

7

DISMISSES WITH PREJUDICE Travelers' claims to the extent that they

8

are predicated on the Bennett, Mir Ali, Mira Loma, Spicer and

9

Yunker Actions.

The Court also

Centex's motion to strike is DENIED.

N&D's motion

United States District Court

For the Northern District of California

10

to dismiss is GRANTED in part and DENIED in part.

The Court

11

DISMISSES WITH PREJUDICE Travelers' claims for accounting and

12

breach of fiduciary duty as to N&D, but only to the extent that

13

those claims relate to legal work performed by N&D prior to

14

Travelers' agreement to provide Centex with a defense in the

15

underlying actions.

16
17

IT IS SO ORDERED.

18
19
20

Dated: August 26, 2013
UNITED STATES DISTRICT JUDGE

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