Peerless Insurance Company v. Cleer Gear LLC et al

Filing 32

ORDER GRANTING PLAINTIFF AND COUNTERDEFENDANT'S MOTION TO DISMISS COUNTERCLAIMANTS' THIRD, FOURTH, AND FIFTH COUNTERCLAIMS FOR RELIEF; AFFORDING COUNTERCLAIMANTS LEAVE TO FILE AMENDED COUNTERCLAIMS. Signed by Judge Maxine M. Chesney on July 23, 2014. (mmclc2, COURT STAFF) (Filed on 7/23/2014)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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For the Northern District of California

United States District Court

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PEERLESS INSURANCE COMPANY,
Plaintiff,

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No. C 14-0135 MMC
ORDER GRANTING PLAINTIFF AND
COUNTERDEFENDANT’S MOTION TO
DISMISS COUNTERCLAIMANTS’ THIRD,
FOURTH, AND FIFTH COUNTERCLAIMS
FOR RELIEF; AFFORDING
COUNTERCLAIMANTS LEAVE TO FILE
AMENDED COUNTERCLAIMS

v.
CLEAR GEAR, LLC; PETER TSOU dba
CLEAR GEAR

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Defendants.

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AND RELATED COUNTERCLAIMS.
/

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Before the Court is plaintiff/counterdefendant Peerless Insurance Company’s
(“Peerless”) motion, filed June 13, 2014, to dismiss defendants/counterclaimants Clear
Gear, LLC and Peter Tsou’s (collectively, “Clear Gear”) Third, Fourth, and Fifth
Counterclaims for Relief pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil
Procedure. Clear Gear has filed opposition, to which Peerless has replied. Having read
and considered the papers filed in support of and in opposition to the motion, the Court
rules as follows.1

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By order filed July 11, 2014, the Court took the matter under submission and
vacated the hearing noticed for July 18, 2014.

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A.

Third Counterclaim for Relief

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In this insurance coverage action, the Third Counterclaim for Relief asserts a claim

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of fraud in the form of both affirmative misrepresentations and concealment, and is

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premised on Peerless’s denial of insurance coverage. The Third Counterclaim is subject to

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dismissal for two reasons.

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First, to the extent the Third Counterclaim is based on false statements found in the

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contract itself, such statements only give rise to a fraud claim where the insured can show

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“the insurer did not intend to fulfill its representations as to coverage at the time the contract

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was entered into.” See Miller v. National American Life Ins. Co., 54 Cal. App. 3d 331, 338

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& n.4 (1976) (emphasis in original). Here, Clear Gear’s conclusory allegations of

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Peerless’s intent not to perform (see Counterclaim ¶¶ 42(B), 43(A)) are insufficient to

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support an inference of such intent. See, e.g., Sunnyside Development Co., LLC v. Opsys

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Ltd., 2005 WL 1876106, at *6 (N.D. Cal. Aug. 8, 2005) (dismissing fraud claim arising from

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breach of contract where plaintiff alleged failure to perform but complaint contained no facts

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to support inference of intent not to perform at time contract entered); Tenzer v.

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Superscope, Inc., 39 Cal. 3d 18, 30 (1985) (noting “something more than nonperformance

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is required to prove the defendant’s intent not to perform his promise”; listing, among

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circumstances tending to show scienter, insolvency, hasty repudiation of promise, and

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continued assurances after performance clearly not forthcoming).

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Second, to the extent the Third Counterclaim might be based on statements aside

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from those contained in the contract itself, the allegations contained therein lack the

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specificity required of fraud claims. (See, e.g. Counterclaim ¶ 42 (alleging affirmative

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misrepresentations occurred “[b]oth before the events that are the subject of the [underlying

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lawsuit], as well as afterward,” that “[t]he misrepresentations were made by various

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individuals that were empowered to speak on behalf of [plaintiff],” and that “[t]he

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misrepresentations were made both orally and in writing”)); Fed. R. Civ. Pro. 9(b); Cafasso,

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U.S. ex rel. v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1055 (9th Cir. 2011)

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(holding, under Rule 9(b), “pleading must identify the who, what, when, where, and how of
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the misconduct charged, as well as what is false or misleading about the purportedly

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fraudulent statement, and why it is false) (internal quotations, citation, and alteration

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omitted).

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Accordingly, defendants’ Third Counterclaim for Relief is subject to dismissal.

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B.

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The Fourth Counterclaim for Relief alleges a claim of negligent misrepresentation

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that is based exclusively on and incorporates by reference the same misrepresentations

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alleged in the Third Counterclaim for Relief (see Counterclaim ¶¶ 42, 55), which

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misrepresentations are alleged in the Fourth Counterclaim to have been “made without

Fourth Counterclaim for Relief

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reasonable grounds for believing them to be true” (see id. ¶ 56). Where a complaint

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“allege[s] a unified course of fraudulent conduct and rel[ies] entirely on that course of

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conduct as the basis of [a] claim,” such claim “is said to be ‘grounded in fraud’” and thus

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“must satisfy the particularity requirement of Rule 9(b).” See Kearns v. Ford Motor Co., 567

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F.3d 1120, 1126 (9th Cir 2009) (internal quotation and citation omitted). In this instance,

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Clear Gear’s Fourth Counterclaim is a claim “grounded in fraud,” see Kearns, 567 F.3d at

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1127; Cal. Civ. Code §§ 1709, 1710 (defining “fraudulent deceit” as including “[t]he

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assertion, as a fact, of that which is not true, by one who has no reasonable ground for

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believing it to be true”), and, as such, suffers from the same deficiencies as Clear Gear’s

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Third Counterclaim.

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Accordingly, defendants’ Fourth Counterclaim for Relief is subject to dismissal.

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C.

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The Fifth Counterclaim for Relief seeks to hold Peerless vicariously liable for the

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alleged negligence of Irene Herman and Irene Herman Insurance Services (collectively,

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“Herman”), the “insurance agents, brokers, [and] producers” (see Counterclaim ¶ 7) from

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whom Clear Gear alleges it “purchased the insurance policies at issue here” (see id. ¶ 13).

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Even assuming Clear Gear has sufficiently alleged a claim of negligence as to Herman,

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however, Clear Gear fails to plead such claim against Peerless, as Clear Gear fails to

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allege any facts to support a finding that an agency relationship existed between Herman

Fifth Counterclaim for Relief

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and Peerless. See, e.g., Mercury Ins. Co. V. Pearson, 169 Cal. App. 4th 1064, 1072

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(2008) (affirming dismissal of vicarious liability claim against insurer; holding “mere

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allegation” of agency insufficient); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (holding

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“legal conclusions” not supported by “factual allegations” fail to state claim upon which relief

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can be granted).

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Accordingly, defendants’ Fifth Counterclaim for Relief is subject to dismissal.
CONCLUSION

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For the reasons stated above:

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Peerless’s motion to dismiss is hereby GRANTED, and the Third, Fourth, and Fifth

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Counterclaims for Relief are hereby DISMISSED with leave to amend to cure the

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deficiencies described above.

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In the event Clear Gear wishes to file an Amended Counterclaim, it shall do so no

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later than August 6, 2014. In any such Amended Counterclaim, Clear Gear may amend

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only the Third through Fifth Counterclaims for Relief. Clear Gear may not add any new

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federal or state law claims, or add any new counterdefendant, without first obtaining leave

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of court. See Fed. R. Civ. P. 15(a)(2).

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IT IS SO ORDERED.

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Dated: July 23, 2014
MAXINE M. CHESNEY
United States District Judge

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