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

Filing 53

ORDER by Judge Hamilton denying 34 Motion for Sanctions; granting 18 Motion to Dismiss and Motion to Strike. (pjhlc1, COURT STAFF) (Filed on 6/15/2012)

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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA,
Plaintiff,

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For the Northern District of California

United States District Court

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v.

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CENTEX HOMES, et al.,

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No. C 12-0371 PJH
ORDER GRANTING MOTION TO
DISMISS; ORDER GRANTING MOTION
TO STRIKE; ORDER DENYING MOTION
FOR RULE 11 SANCTIONS

Defendants.
_______________________________/

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Before the court is the motion of defendants Centex Homes (“Centex”) and

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Newmeyer & Dillon, LLP (“Newmeyer”), for an order dismissing the first amended complaint

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(“FAC”) filed by plaintiff Travelers Property Casualty Company of America (“Travelers”), for

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failure to state a claim and for lack of subject matter jurisdiction; motion for an order striking

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certain allegations in the FAC; and motion for an order awarding sanctions against

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Travelers and its counsel pursuant to Federal Rule of Civil Procedure 11. Having read the

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parties’ papers and carefully considered their arguments and the relevant legal authority,

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the court hereby GRANTS the motions to dismiss, and DENIES the motion for Rule 11

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sanctions.

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1.

Motion to dismiss for failure to state a claim

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A motion to dismiss under Rule 12(b)(6) tests for the legal sufficiency of the claims

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alleged in the complaint. Ileto v. Glock, Inc., 349 F.3d 1191, 1199-1200 (9th Cir. 2003).

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Review is limited to the contents of the complaint. Allarcom Pay Television, Ltd. v. Gen.

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Instrument Corp., 69 F.3d 381, 385 (9th Cir. 1995). To survive a motion to dismiss for

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failure to state a claim, a complaint generally must satisfy only the minimal notice pleading

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requirements of Federal Rule of Civil Procedure 8.
Rule 8(a)(2) requires only that the complaint include a “short and plain statement of

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the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Specific

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facts are unnecessary – the statement need only give the defendant “fair notice of the claim

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and the grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citing

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Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). All allegations of material fact

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are taken as true. Id. at 94. However, legally conclusory statements, not supported by

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actual factual allegations, need not be accepted. See Ashcroft v. Iqbal, 556 U.S. 662, 67879 (2009).

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For the Northern District of California

United States District Court

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A plaintiff's obligation to provide the grounds of his entitlement to relief “requires

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more than labels and conclusions, and a formulaic recitation of the elements of a cause of

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action will not do.” Twombly, 550 U.S. at 555 (citations and quotations omitted). A motion

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to dismiss should be granted if the complaint does not proffer enough facts to state a claim

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for relief that is plausible on its face. See id., at 558-59. “[W]here the well-pleaded facts do

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not permit the court to infer more than the mere possibility of misconduct, the complaint has

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alleged – but it has not ‘show[n]’ – ‘that the pleader is entitled to relief.’” Iqbal, 556 U.S. at

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679.

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In actions alleging fraud, “the circumstances constituting fraud or mistake shall be

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stated with particularity.” Fed. R. Civ. P. 9(b). Under Rule 9(b), the complaint must allege

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specific facts regarding the fraudulent activity, such as the time, date, place, and content of

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the alleged fraudulent representation, how or why the representation was false or

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misleading, and in some cases, the identity of the person engaged in the fraud. In re

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GlenFed Sec. Litig., 42 F.3d 1541, 1547-49 (9th Cir. 1994); see also Kearns v. Ford Motor

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Co., 567 F.3d 1120, 1124 (9th Cir. 2009).

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The court finds that the FAC fails to plead fraud with particularity, and that it must

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therefore be dismissed for failure to state a claim. Travelers has alleged no facts

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supporting its claims of misrepresentations, other than in the most general terms. In
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particular, Travelers has alleged no facts regarding the underlying actions, with the

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exception of the Kent action, which it concedes is not at issue in this case. It is not

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sufficient under Rule 9(b) to allege a “scheme to defraud,” without providing the necessary

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details of the alleged fraud. See Bly-Magee v. California, 236 F.3d 1014, 1018 (9th Cir.

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2001).

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The dismissal is with leave to amend. Travelers must identify the “who, what, when,

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where, and how” of the alleged fraud – that is, it must identify the underlying actions in

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which it claims to have been overcharged by Centex and/or Newmeyer, and must state

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when the overbilling occurred, and the circumstances of the overbilling.
For similar reasons, the court finds that the breach of fiduciary duty claim must be

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For the Northern District of California

United States District Court

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dismissed, because it is premised on a claim that Newmeyer overbilled on unidentified

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claims, under unidentified circumstances. The dismissal is with leave to amend, to allege

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facts supporting the claim of alleged overbilling. The court does not now decide whether

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the claim can proceed in light of Newmeyer’s argument that its interests were adverse to

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those of Travelers, and that it was not acting as counsel for Travelers. In the absence of a

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more definite statement of the claim, the court is unable to determine whether the claim is

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or is not viable.

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The court finds that the cause of action for reimbursement must also be dismissed.

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Travelers has not alleged facts showing that it honored its duty to immediately defend any

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specific third-party action “in its entirety;” that it paid money to defend claims that were not

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even potentially covered under its policy; or that it reserved its right to seek reimbursement

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as to the defense of any specific underlying action. To the extent that Travelers can plead

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the claim in accordance with this standard, the dismissal is with leave to amend. Otherwise

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the dismissal is with prejudice.

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2.

Motion to dismiss for lack of subject matter jurisdiction

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Federal courts are courts of limited jurisdiction, possessing only that power

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authorized by Article III of the United States Constitution and statutes enacted by Congress

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pursuant thereto. See Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986).
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Thus, federal courts have no power to consider claims for which they lack subject-matter

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jurisdiction. See Chen-Cheng Wang ex rel. United States v. FMC Corp., 975 F.2d 1412,

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1415 (9th Cir. 1992). The court is under a continuing duty to dismiss an action whenever it

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appears that the court lacks jurisdiction. Id.; see also Spencer Enters., Inc. v. United

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States, 345 F.3d 683, 687 (9th Cir. 2003); Attorneys Trust v. Videotape Computers Prods.,

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Inc., 93 F.3d 593, 594-95 (9th Cir. 1996).

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The burden of establishing that a cause lies within this limited jurisdiction rests upon

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the party asserting jurisdiction. Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S.

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375, 377 (1994). Thus, in the present action, Travelers bears the burden of demonstrating
that subject matter jurisdiction exists over this complaint. See, e.g., Tosco Corp. v.

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For the Northern District of California

United States District Court

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Communities for a Better Env't, 236 F.3d 495, 499 (9th Cir. 2001).

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The court finds that the FAC does not allege facts sufficient to establish that the

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amount in controversy is met. Argument made in opposition to a motion to dismiss cannot

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serve to establish subject matter jurisdiction. Accordingly, the complaint is dismissed. The

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dismissal is with leave to amend, to plead the necessary jurisdictional facts.

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3.

Motion to strike

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Federal Rule of Civil Procedure 12(f) provides that the court “may order stricken

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from any pleading any insufficient defense or any redundant, immaterial, impertinent, or

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scandalous matter.” Fed. R. Civ. P. 12(f). The function of a 12(f) motion to strike is to

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avoid the expenditure of time and money that must arise from litigating spurious issues by

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dispensing with those issues prior to trial . . . .” Whittlestone, Inc. v. Handi-Craft Co., 618

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F.3d 970, 973 (9th Cir. 2010) (quotation and citation omitted). In order to determine

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whether to grant a motion to strike under Rule 12(f), the court must determine whether the

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matter the moving party seeks to have stricken is (1) an insufficient defense; (2) redundant;

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(3) immaterial; (4) impertinent; or (5) scandalous. Id. at 973-74.

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Motions to strike are not favored and “should not be granted unless it is clear that

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the matter to be stricken could have no possible bearing on the subject matter of the

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litigation.” Colaprico v. Sun Microsystem, Inc., 758 F.Supp. 1335, 1339 (N.D. Cal. 1991).
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When a court considers a motion to strike, it “must view the pleading in a light most

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favorable to the pleading party.” In re 2TheMart.com, Inc. Sec Lit., 114 F Supp. 2d 955,

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965 (C.D. Cal. 2000). A court must deny the motion to strike if there is any doubt whether

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the allegations in the pleadings might be relevant in the action. Id. However, a motion to

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strike is proper when a defense is insufficient as a matter of law. Chiron Corp. v. Abbot

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Labs., 156 F.R.D. 219, 220 (N.D. Cal. 1994)

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The court finds that the allegations regarding the defense of the Kent action are

the alleged misrepresentations and overbilling in the Kent action in another lawsuit filed in

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this district. Thus, any claims in this case must be resolved without reference to the claims

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For the Northern District of California

immaterial to the present action, given Travelers’ concession that it is seeking damages for

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United States District Court

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asserted in connection with the defense of the Kent action, and must be stricken as

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immaterial.

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4.

Motion for Rule 11 sanctions

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“Rule 11 imposes a duty on attorneys to certify that they have conducted a

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reasonable inquiry and have determined that any papers filed with the court are well

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grounded in fact, legally tenable, and ‘not interposed for any improper purpose.’” Cooter &

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Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990). The main purpose of Rule 11 is to “deter

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baseless filings and curb litigation abuses.” Smith & Green Corp. v. Trustees of Constr.

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Indus. Laborers Health & Welfare Tr., 244 F.Supp. 2d 1098, 1103 (D. Nev. 2003); see also

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Rhinehart v. Stauffer, 638 F.2d 1169, 1171 (9th Cir. 1979).

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Rule 11 is limited to “pleadings, written motions, and other papers” filed with the

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court. It does not apply to other litigation conduct. Christian v. Mattel, Inc., 286 F.3d 1118,

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1131 (9th Cir. 2002). Where a complaint is the primary focus of Rule 11 proceedings,

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a district court must conduct a two-prong inquiry to determine (1) whether the
complaint is legally or factually baseless from an objective perspective, and
(2) if the attorney has conducted a reasonable and competent inquiry before
signing and filing it.” As shorthand for this test, we use the word “frivolous” to
denote a filing that is both baseless and made without a reasonable and
competent inquiry.

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Holgate v. Baldwin, 425 F.3d 671, 676 (9th Cir. 2005) (citations omitted).
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Centex and Newmeyer argue that sanctions should be imposed on Travelers and its

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counsel under Rule 11 because the breach of fiduciary claim alleged in the FAC lacks a

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legal or evidentiary basis, and is therefore “frivolous,” and because it was brought for the

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improper purpose of harassing opposing counsel.

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The motion is DENIED. As the court cannot at this point tell whether there is any

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legal or factual basis for the breach of fiduciary duty claim, it cannot determine whether it is

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frivolous or whether Traveler’s counsel conducted a reasonable or competent inquiry

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before filing it. As a general matter, however, the court notes that many many causes of

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action are dismissed from federal court cases for failure to state a claim, without the
defendant finding it necessary to file a motion for Rule 11 sanctions.

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For the Northern District of California

United States District Court

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5.

Conclusion

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In accordance with the foregoing, the motion to dismiss is GRANTED, with leave to

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amend as stated. The allegations regarding the defense of the underlying Kent action are

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ordered STRICKEN from the complaint. No new causes of action or new defendants may

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be added without leave of court. The second amended complaint shall be filed no later

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than July 13, 2012. The June 20, 2012 hearing date is VACATED.

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IT IS SO ORDERED.

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Dated: June 15, 2012
______________________________
PHYLLIS J. HAMILTON
United States District Judge

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