Minnesota Life Insurance Company v. Philpot et al
Filing
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ORDER Denying Defendant Fletcher's 84 Motion for Summary Judgment. Signed by Judge Barry Ted Moskowitz on 1/7/2013. (All non-registered users served via U.S. Mail Service)(rlu)
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UNITED STATES DISTRICT COURT
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SOUTHERN DISTRICT OF CALIFORNIA
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MINNESOTA LIFE INSURANCE
COMPANY,
Case No. 11cv00812 BTM (POR)
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ORDER DENYING DEFENDANT
FLETCHER’S MOTION FOR
SUMMARY JUDGMENT
Plaintiff,
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v.
BRIAN MICHAEL PHILPOT, et al.,
Defendants.
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Pending before the Court is Defendant Beverly Ann Fletcher’s motion for summary
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judgment (ECF No. 84). For the reasons set forth herein, the Court DENIES Defendant
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Fletcher’s motion for summary judgment.
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I. BACKGROUND
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Plaintiff Minnesota Life Insurance Company (“Minnesota Life” or “Plaintiff”) is a life
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insurance company. The present action arises out of an alleged fraudulent scheme,
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coordinated among the various defendants (insurance sales agents, their employers, and
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their funding entities), to elicit large sales commissions from Plaintiff for policies that were
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deliberately allowed to lapse, resulting in Plaintiff paying more in sales commissions than it
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earned in policy payments.
Defendant Fletcher was a sales agent with Marketing
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Partnerships, Inc., an insurance brokerage that sold life insurance policies, during the
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relevant time period.
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Plaintiff commenced this action on April 18, 2011. Defendants filed various motions
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to dismiss, and the Court issued an order on those motions on September 27, 2012
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(“September 27 order”). But while the motions to dismiss were under submission to the
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Court, Defendant Fletcher, who was among the defendants with a motion to dismiss
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pending, also filed a motion for summary judgment.
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Plaintiff has alleged ten causes of action as follows: (1) unfair competition in violation
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of California Business & Professions Code § 17200, et seq.; (2) breach of fiduciary duty; (3)
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breach of contract; (4) breach of the covenant of good faith and fair dealing; (5) fraud; (6)
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negligence; (7) unjust enrichment; (8) violation of 18 U.S.C. § 1962(c) (“civil RICO”) and
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1962(d) (“RICO conspiracy”); (9) declaratory relief; and (10) accounting. In the Court’s
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September 27, 2012 order, the Court dismissed Plaintiff’s claims for declaratory relief and
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an accounting, but all other claims remain.
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II. STANDARD
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Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil
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Procedure if the moving party demonstrates the absence of a genuine issue of material fact
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and entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322
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(1986). A fact is material when, under the governing substantive law, it could affect the
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outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Freeman
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v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). A dispute is genuine if a reasonable jury could
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return a verdict for the nonmoving party. Anderson, 477 U.S. at 248.
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A party seeking summary judgment always bears the initial burden of establishing the
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absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. The moving party
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can satisfy this burden in two ways: (1) by presenting evidence that negates an essential
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element of the nonmoving party’s case; or (2) by demonstrating that the nonmoving party
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failed to establish an essential element of the nonmoving party’s case on which the
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nonmoving party bears the burden of proving at trial. Id. at 322-23. “Disputes over irrelevant
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or unnecessary facts will not preclude a grant of summary judgment.” T.W. Elec. Serv., Inc.
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v. Pacific Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987).
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Once the moving party establishes the absence of genuine issues of material fact, the
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burden shifts to the nonmoving party to set forth facts showing that a genuine issue of
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disputed fact remains. Celotex, 477 U.S. at 314. The nonmoving party cannot oppose a
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properly supported summary judgment motion by “rest[ing] on mere allegations or denials
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of his pleadings.” Anderson, 477 U.S. at 256. When ruling on a summary judgment motion,
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the court must view all inferences drawn from the underlying facts in the light most favorable
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to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
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587 (1986).
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III. DISCUSSION
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At the outset, the Court notes that much of Defendant Fletcher’s motion for summary
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judgment reiterates arguments made in her motion to dismiss, which the Court has since
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ruled on. While Defendant Fletcher has reframed the arguments as Plaintiff being unable
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to provide admissible evidence for its claims rather than failing to state them, that does not
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affect the merits of her arguments.
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But one argument that Defendant Fletcher relied on extensively in both motions is that
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there was no enforceable contract between her and Plaintiff. In the Court’s September 27
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order, it declined to address this issue on the grounds that it was inappropriate in that
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procedural posture. But on a motion for summary judgment, the Court may consider facts
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outside the pleading, and therefore addresses the question of whether there was a valid
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contract.
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Defendant Fletcher argues that there is no enforceable written contract between
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herself and Plaintiff because the signature pages in the Broker Sales Contract included
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language that “You and We must sign two copies of the contract before it goes into effect.”
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(First Amended Complaint (“FAC”), Ex. B.) Plaintiff does not dispute that only one copy was
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signed. Instead, it argues that the requirement was not material to the contract, and since
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the parties otherwise acted in accordance with the contract, it is still a valid and enforceable
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contract.
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Under California law, courts should avoid interpreting contracts in a way that would
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make them “extraordinary, harsh, unjust, or inequitable.” Barroso v. Ocwen Loan Servicing,
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LLC, 208 Cal. App. 4th 1001, 1013 (2012) (citing Powers v. Dickson, Carlson & Campillo,
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54 Cal.App.4th 1102, 1111–1112 (1997)). In Barroso, the court was faced with the question
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of whether the defendant’s failure to sign and return the modification agreement precluded
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contract formation. As here, the agreement included language that it would not take effect
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unless that occurred. Id. at 1012. The court in Barroso declined to interpret the provision
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as a condition precedent, finding that such an interpretation would “violate the[] fundamental
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principles of contract interpretation,” under which courts ought to interpret contracts so as
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to make them “lawful, operative, definite, reasonable, and capable of being carried into
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effect, if it can be done without violating the intention of the parties.” Id. (internal quotations
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omitted). In particular, the Court noted the inequity that would result in interpreting the
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contract such that the defendant “would have sole control over the formation of the contract
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despite [the plaintiff’s] full performance, simply by refusing to return a signed copy to her.”
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Id. at 1013.
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For similar reasons, this Court declines to adopt the interpretation of the contract that
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Defendant Fletcher urges. To find that no contract has been formed based on a mere
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formality, where both parties have acted in accordance with the existence of a contract,
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would defy both justice and common sense. The Court holds that Plaintiff has established
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for this motion that a valid contract was formed between Plaintiff and Defendant Fletcher.
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The Court now turns to the specific causes of action.
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a.
Unfair competition
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Plaintiff’s first claim is for violation of California’s Unfair Competition Law (“UCL”). The
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UCL prohibits individuals and business organizations from engaging in any “unlawful, unfair
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or fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200. Defendant Fletcher
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argues that Plaintiff cannot provide admissible evidence as to its claim for violation of
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California’s Unfair Competition Law (“UCL”) because rebating is legal in California, and
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Defendant Fletcher did not conceal that she was offering rebates nor did she have a duty
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under the contract to disclose that she was doing so.
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Defendant Fletcher relies on Proposition 103 in arguing that rebating is legal in
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California. Proposition 103, enacted on November 9, 1988, repealed California’s anti-rebate
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law. However, it did so subject to several exceptions, including life insurance. See Cal. Ins.
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Code § 1861.13 (statute as enacted via Proposition 103 applies “to all insurance on risks or
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on operations in this state, except those listed in Section 1851”); id. at § 1851(b) (exempting
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life insurance). See also Calfarm Ins. Co. v. Deukmejian, 48 Cal. 3d 805, 812 n.1 (1989);
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Fairbanks v. Superior Court, 46 Cal. 4th 56, 65, 205 P.3d 201, 206 (2009) (“Proposition 103
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does not apply to life insurance...”). Thus, life insurance rebating is not lawful in California.
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In addition, as the Court noted in the September 27 order, the language of the UCL
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is extremely broad and sweeping, such that “a practice [may be] prohibited as ‘unfair’ or
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‘deceptive’ even if not ‘unlawful’ and vice versa.” Cel-Tech Commc’ns, Inc. v. L.A. Cellular
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Tel. Co., 20 Cal. 4th 163, 180 (1999) (citation and quotation marks omitted). As the Court
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found, “the wrongful commissions scheme, as alleged, is both unfair and fraudulent, even
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if not outright unlawful.” Order re Mot. Dismiss Sept. 27, 2012 (ECF No. 101) at 10. The
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same applies to whether Defendant Fletcher had a contractual duty to disclose. Regardless
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of whether she had an explicit obligation to do so under the contract, the scheme as alleged
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is unfair and deceptive, which is sufficient for a claim under the UCL. Therefore, the Court
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DENIES the motion for summary judgment as to Plaintiff’s first cause of action under the
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UCL.
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b.
Breach of fiduciary duty
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Since Defendant Fletcher’s defense to Plaintiff’s claim of breach of fiduciary duty rests
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entirely on her argument that there was no contract, the Court DENIES her motion for
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summary judgment as to Plaintiff’s second cause of action for the reasons above.
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c.
Breach of contract
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In addition to claiming that a contract was never formed, Defendant Fletcher argues
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that the contract “does not prohibit any of the activities allegedly constituting a breach of
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contract.” Def. Mot. for Summ. J. at 3. However, as explained in the Court’s September 27
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order, Plaintiff’s breach of contract claim “asserts breaches other than, and in addition to, the
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failure to abide by Plaintiff’s policies and procedures,” such as requiring sales agents to
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conduct business with honesty and integrity. Order re Mot. Dismiss at 6. “Consequently,
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even if the contracts expressly permitted rebating, Plaintiff’s breach of contract claim would
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survive.” Id. (emphasis in original).
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The Court therefore DENIES Defendant Fletcher’s motion for summary judgment as
to the third cause of action for breach of contract.
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d.
Breach of the covenant of good faith and fair dealing
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With regard to Plaintiff’s claim for breach of the covenant of good faith and fair
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dealing, Defendant Fletcher argues that Plaintiff alleges obligations beyond the specific
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terms of the contract and therefore cannot have any admissible evidence to prove this claim.
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However, the Court has already determined that what Plaintiff has alleged Defendants did
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“constitutes conduct that clearly undermines the purpose of the agency agreements, such
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that Plaintiff has properly stated a claim for breach of the implied covenant of good faith and
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fair dealing.” Order re Mot. Dismiss at 7. Therefore, the Court DENIES the motion as to
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Plaintiff’s fourth cause of action.
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e.
Fraud
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The elements of a claim for fraud under California law are: (1) a misrepresentation
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(or a failure to disclose by one who has a fiduciary duty to another), (2) of a material fact, (3)
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scienter, (4) reliance, and (5) damages. Alliance Mortgage Co. v. Rothwell, 10 Cal. 4th
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1226, 1239 (1995).
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Defendant Fletcher asserts, as she did in her motion to dismiss, that the intention of
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third parties (i.e., the policyholders) to allow the policies to lapse is not a “fact” capable of
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being misrepresented. However, as the Court stated in its earlier order, the misrepresented
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“fact” is not the state of mind of the policyholders, but rather “the statement that the allegedly
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fraudulent applications contained all material circumstances relevant to issuing the policy.”
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Order re Mot. Dismiss at 12. Defendant Fletcher also argues that nothing in the contract
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prohibited her from rebating or required her to disclose the rebating to Plaintiff. But as the
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Court found in its earlier order, “[t]his argument does not confront the substance of Plaintiff’s
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fraud allegations, as Plaintiff’s allegations of fraud are not limited to the mere failure to
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disclose the practices of rebating and premium financing.” Id. at 13. Therefore, the Court
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DENIES the motion as to Plaintiff’s fifth cause of action.
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f.
Negligence
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Since Defendant Fletcher’s defense to Plaintiff’s negligence claims rests entirely on
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her argument that there was no contract, the Court DENIES her motion for summary
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judgment as to the sixth cause of action.
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g.
Unjust enrichment
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With regard to Plaintiff’s claim for unjust enrichment, Defendant Fletcher argues, as
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she did in her motion to dismiss, that California law does not recognize such a claim.
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However, as the Court stated in its earlier order, unjust enrichment is synonymous with
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restitution, for which Plaintiff has stated a claim. Id. at 16.
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Defendant Fletcher also argues that Plaintiff’s claim for unjust enrichment is barred
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because “[a] party may not proceed on a quasi-contract theory for unjust enrichment where
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the subject matter that is the basis for the claim is governed by an express contract.” Def.
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Mot. Summ. J. (ECF No. 84-1) at 15 (citing California Med. Ass’n, Inc. v. Aetna U.S.
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Healthcare of California, Inc., 94 Cal. App. 4th 151, 172-73 (2001)). Plaintiff did not respond
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to this argument in its opposition, but the Court finds that Defendant Fletcher’s assertion that
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Plaintiff may not recover restitution if there is a valid contract is supported in the case law.
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See, e.g., Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1167 (9th Cir. 1996)
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(“[U]njust enrichment is an action in quasi-contract, which does not lie when an enforceable,
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binding agreement exists defining the rights of the parties.”); Klein v. Chevron U.S.A., Inc.,
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202 Cal. App. 4th 1342, 1388 (2012) (“A plaintiff may not, however, pursue or recover on a
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quasi-contract claim if the parties have an enforceable agreement regarding a particular
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subject matter.”).
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Under California law, it is well-established that a plaintiff may proceed to trial upon
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inconsistent causes of action. Grudt v. City of Los Angeles, 2 Cal. 3d 575, 586, 468 P.2d
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825, 830 (1970). The plaintiff may “introduce his evidence upon each and all of these
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causes of action, and the election or the decision as to which of them is sustained, is... a
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matter for the judge or jury.” Buck v. Cardwell, 161 Cal. App. 2d 830, 834, 327 P.2d 223,
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225-26 (1958). See also Tanforan v. Tanforan 173 Cal. 270, 274 (1916). Thus, even
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though Plaintiff may not recover under both a contract and quasi-contract theory, it is entitled
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to plead unjust enrichment in the alternative. The Court therefore DENIES Defendant
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Fletcher’s motion for summary judgment as to Plaintiff’s seventh cause of action for unjust
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enrichment.
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h.
RICO
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Defendant Fletcher argues that Plaintiff’s civil RICO claim under 18 U.S.C. § 1962(c)
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fails because Plaintiff has not alleged an enterprise separate from the persons involved.1
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“[T]o establish liability under § 1962(c) one must allege and prove the existence of
two distinct entities: (1) a ‘person’; and (2) an ‘enterprise’ that is not simply the same ‘person’
referred to by a different name.” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161
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But as the Supreme Court stated in Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158,
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163 (2001), “[t]he corporate owner/employee, a natural person, is distinct from the
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corporation itself, a legally different entity with different rights and responsibilities due to its
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different legal status. And we can find nothing in the [RICO] statute that requires more
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‘separateness’ than that.” Plaintiff has alleged that Defendant Fletcher was a sales agent
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associated with the Marketing Partnership Defendants enterprise, which is clearly sufficient
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to establish the requisite legal separateness between the two.
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Defendant Fletcher also argues that Plaintiff has not pleaded the predicate acts with
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sufficient particularity, but the Court already rejected this argument in its September 27, 2012
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order. See Order re Mot. Dismiss at 14. As to the 18 U.S.C. § 1962(d) claim for a RICO
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conspiracy, Defendant Fletcher argues that Plaintiff cannot prove a RICO conspiracy
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because it cannot prove the underlying civil RICO violations, but since the Court finds that
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Plaintiff has sufficiently alleged a claim for civil RICO violations, this argument must also fail.
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Therefore, the Court DENIES the motion as to Plaintiff’s eighth cause of action for civil RICO
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and RICO conspiracy.
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IV. CONCLUSION
For the reasons above, the Court DENIES Defendant Fletcher’s motion for summary
judgment.
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IT IS SO ORDERED.
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DATED: January 7, 2013
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BARRY TED MOSKOWITZ, Chief Judge
United States District Court
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