Vu v. Liberty Mutual Insurance Company
Filing
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ORDER GRANTING DEFENDANT'S MOTION TO DISMISS 25 . (Illston, Susan) (Filed on 10/3/2018)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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TAM VU,
Plaintiff,
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Case No. 18-cv-03594-SI
ORDER GRANTING DEFENDANT'S
MOTION TO DISMISS
v.
LIBERTY MUTUAL INSURANCE
COMPANY, et al.,
Re: Dkt. No. 25
United States District Court
Northern District of California
Defendants.
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Defendant Liberty Mutual Insurance Company, Inc.’s (“LMIC”) motion to dismiss
plaintiff Tam Vu’s second amended complaint is set for hearing on October 5, 2018. Pursuant to
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Civil Local Rule 7-1(b), the Court determines that the motion is appropriate for resolution without
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oral argument, and VACATES the hearing. For the reasons set forth below, the Court GRANTS
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defendant's motion to dismiss, with leave to amend.
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BACKGROUND
The following facts are taken from the allegations in plaintiff Tam Vu’s Second Amended
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Complaint ("SAC"). Dkt. No. 23. Plaintiff Tam Vu is a resident of San Jose, California. SAC,
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¶1. Defendant Liberty Mutual Insurance Company, Inc. (“LMIC”) is a Massachusetts corporation.
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Defendant Liberty Insurance Corporation (“LIC”) is an Illinois corporation. SAC, ¶ 2-3; Dkt. No.
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24, ¶ 2-3. Plaintiff alleges that LIC and LMIC marketed plaintiff a home insurance policy that
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provided “complete coverage for [plaintiff’s] home’s physical structure, for other structures on the
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property, for damage to [her] personal belongings, and for loss of use resulting from a covered
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loss.” SAC, ¶ 14. Specifically, the policy guaranteed payment of up to $624,200 for repairs to the
home and “$458,150 for repairs or replacement of damaged property.” SAC, ¶ 16.
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Plaintiff alleges that in May 2018, her home sustained water damage to the point of
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uninhabitability “from a broken water line in her kitchen, causing damage throughout the first
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floor, and to personal property[.]” Id. at ¶ 17. Plaintiff states that she provided prompt notice to
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LIC, which assigned the claim number GK43030, and that she fulfilled all conditions necessary to
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receive payout of her insurance. Id. at ¶ 19. Plaintiff alleges LIC misrepresented pertinent facts
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and falsely claimed that the water damage resulted from “gradual or continuous water seepage
over a period of 14 days or more.” Id. at ¶ 21. Plaintiff further contends that LMIC and LIC
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United States District Court
Northern District of California
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failed to disclose benefits, coverage, and time limits, failed to detail the bases for denial of
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coverage, and to date have not paid the amount due on the policy. Id.
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Plaintiff filed two amended complaints, one as a matter of course, Dkt. No. 7, and one by
way of stipulation between the parties, Dkt. No. 18. Defendants filed a motion to dismiss the
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SAC, Dkt. No. 25, and plaintiff filed a timely reply. Dkt. No. 30.1
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LEGAL STANDARD
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Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint
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if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to
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dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its
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face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This “facial plausibility” standard
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requires the plaintiff to allege facts that add up to “more than a sheer possibility that a defendant
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In plaintiff’s SAC, she alleges the lawsuit should be assigned to the Oakland Division of
this district, because defendants’ regional claims office and the employees responsible for
handling plaintiff’s claim are located in Walnut Creek. SAC, ¶ 7. However, under Civil Local
Rule 3-2(d), actions arising in Alameda County may be assigned to either the San Francisco or the
Oakland Division.
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has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While courts do not require
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“heightened fact pleading of specifics,” a plaintiff must allege facts sufficient to “raise a right to
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relief above the speculative level.” Twombly, 550 U.S. at 544, 555.
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In deciding whether the plaintiff has stated a claim upon which relief can be granted, the
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court must assume that the plaintiff’s allegations are true and must draw all reasonable inferences
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in the plaintiff’s favor. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987).
However, the court is not required to accept as true “allegations that are merely conclusory,
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unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536
F.3d 1049, 1055 (9th Cir. 2008).
United States District Court
Northern District of California
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If the Court dismisses a complaint, it must decide whether to grant leave to amend. The
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Ninth Circuit has “repeatedly held that a district court should grant leave to amend even if no
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request to amend the pleading was made, unless it determines that the pleading could not possibly
be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.2000)
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(citations and internal quotation marks omitted).
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DISCUSSION
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Plaintiff’s only cause of action is for breach of the implied covenant of good faith and fair
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dealing. See SAC. Under California law, claims for breach of the duty of good faith and fair
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dealing, whether brought in the insurance context or otherwise, require the existence of a contract
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between a plaintiff and the defendant. Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 576 (1973); see
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also Minnesota Mut. Life Ins. Co. v. Ensley, 174 F.3d 977, 981 (9th Cir.1999) (holding insurance
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agents or brokers cannot be held liable for breach of the implied covenant of good faith and fair
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dealing because they are not parties to the insurance contract). “Only a party to an insurance
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contract may be held liable . . . for breach of the implied covenant of good faith and fair dealing.”
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Jones v. AIG Risk Mgmt., Inc., 726 F. Supp. 2d 1049, 1054 (N.D. Cal. 2010) (holding that the
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court will not subject AIG to liability where AIG played a role in handling the claim but the Policy
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“specifies that coverage was being provided by [signatory] only”); Wallis v. Centennial Ins. Co.,
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927 F. Supp. 2d 909, 915 (E.D. Cal. 2013) (holding that issuance of a policy, acceptance of
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premium for the policy, and accepting the duty to defend the plaintiff “cannot defeat what is
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indicated by the Policy itself”) (citation omitted).
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Plaintiff concedes that LMIC did not insure her home and is not a party to the Policy
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contract. However, plaintiff argues LMIC and LIC are alter egos of one another, or, in the
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alternative, that they are a single entity and therefore, LMIC is a proper party in this action. SAC,
¶ 10-11. LIC is a wholly owned and controlled subsidiary of LMIC, Dkt. No. 24, ¶ 11, and the
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United States District Court
Northern District of California
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Court will review LMIC’s liability under the alter ego theory. Sonora Diamond Corp. v. Superior
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Court, 83 Cal. App. 4th 523, 538 (2000) (holding that the alter ego doctrine is a mechanism for
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imposing liability on a parent company for the actions of its subsidiaries whereas single entity
liability applies to sister corporations).
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California law applies a two-part test for alter-ego liability: (1) “there is such a unity of
interest and ownership that the individuality, or separateness, of the [defendant] and corporation
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has ceased;” and (2) “the facts are such that an adherence to the fiction of the separate existence of
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the corporation would . . . sanction a fraud or promote injustice.” Wood v. Elling Corp., 20 Cal.3d
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353, 356 (1977) (quoted in Whitney v. Arntz, 320 F. App'x 799, 800 (9th Cir. 2009) (alterations in
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original); Williams v. Yamaha Motor Co., 851 F.3d 1015, 1021 (9th Cir. 2017). In “assessing
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whether there is unity of interest for the purposes of alter ego liability," courts typically consider
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the following nine factors:
[1] [T]he commingling of funds and other assets of the entities, [2] the holding out
by one entity that it is liable for the debts of the other, [3] identical equitable
ownership of the entities, [4] use of the same offices and employees, [5] use of one
as a mere shell or conduit for the affairs of the other, [6] inadequate capitalization,
[7] disregard of corporate formalities, [8] lack of segregation of corporate records,
and [9] identical directors and officers.
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Stewart v. Screen Gems-EMI Music, Inc., 81 F. Supp. 3d 938, 954 (N.D. Cal. 2015) (citation
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omitted). A court need not find that every factor is present and none are determinative. Johnson
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v. Serenity Transportation, Inc., 141 F. Supp. 3d 974, 985 (N.D. Cal. 2015). With regard to the
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second prong, the alter ego doctrine requires some showing of conduct “amounting to bad faith
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[that] makes it inequitable for the corporate owner to hide behind the corporate form.” Perfect 10,
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Inc. v. Giganews, Inc., 847 F.3d 657, 677 (9th Cir.), cert. denied, 138 S. Ct. 504, 199 L. Ed. 2d
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385 (2017) (quoting Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 539 (2000))
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(emphasis supplied).
The parties agree that the SAC alleges sufficient facts to satisfy the first element, unity of
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United States District Court
Northern District of California
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interest, at the pleadings stage. Dkt. No. 25 at 6. As to the second element, plaintiff claims
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injustice or fraud on the grounds that LMIC employees will not be subject to deposition, written
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discovery, or disclosures, and that the failure to include LMIC will negatively impact plaintiff’s
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potential punitive damages award. Dkt. No. 27 at 9. However, plaintiff makes no allegations that
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defendants’ conduct amounted to bad faith such that there is an inequitable result. Gerritsen v.
Warner Bros. Entm't Inc., 116 F. Supp. 3d 1104, 1143 (C.D. Cal. 2015) (“Bad faith is a critical
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factor in the [alter ego] analysis.”). See also Neilson v. Union Bank of California, N.A., 290 F.
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Supp. 2d 1101, 1117 (C.D.Cal.2003) (holding that “California courts generally require some
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evidence of bad faith conduct on the part of defendants before concluding that an inequitable
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result justifies an alter ego finding”) (citing Mid–Century Ins. Co. v. Gardner, 9 Cal. App. 4th
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1205, 1213 (1992) (“The purpose of the doctrine is not to protect every unsatisfied creditor, but
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rather to afford him protection, where some conduct amounting to bad faith makes it inequitable,
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under the applicable rule above cited, for the equitable owner of a corporation to hide behind its
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corporate veil”) (internal citation and quotation marks omitted)). Plaintiff’s complaint fails to
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identify bad faith on the part of LMIC. While plaintiff argues she should be able to conduct
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discovery to establish institutional bad faith by LMIC for her contractual claims, “a plaintiff must
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allege specifically both of the elements of alter ego liability, as well as facts supporting each.”2
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Neilson, 290 F.Supp.2d at 1116 (quoted in Sandoval v. Ali, 34 F. Supp. 3d 1031, 1040 (N.D. Cal.
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2014)).
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Because a showing of bad faith is required for alter ego liability, the Court GRANTS
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LMIC's motion to dismiss and GRANTS plaintiff leave to amend the complaint to plead sufficient
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facts to establish a facially plausible claim. If plaintiff chooses to amend her claims, she should
allege “facts which demonstrate that an adherence to the fiction of the separate existence of the
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corporation would . . . sanction a fraud or promote injustice.”
CONCLUSION
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United States District Court
Northern District of California
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For the foregoing reasons and for good cause shown, the Court hereby GRANTS
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defendant LMIC’s motion to dismiss with leave to amend. If plaintiff wishes to amend the
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complaint, plaintiff must file an amended complaint no later than October 19, 2018.
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IT IS SO ORDERED.
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Dated: October 3, 2018
______________________________________
SUSAN ILLSTON
United States District Judge
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Plaintiff alleges that inequity follows from the fact that “LMIC’s financial condition . . .
would justify a far higher punitive damages award in the event its conduct amounted to malice,
fraud, or oppression.” This Court is unconvinced this justifies the inequity necessary to satisfy the
second prong.
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