Bosa Development California, Inc. et al v. Liberty Mutual Fire Insurance Company et al

Filing 18

ORDER Denying Motion to Dismiss (Doc. No. #4 ). Signed by Judge M. James Lorenz on October 26, 2017. (dsn)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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BOSA DEVELOPMENT CALIFORNIA,
INC., et al.,

ORDER DENYING DEFENDANT'S
MOTION [Doc. 4] TO DISMISS

Plaintiffs,

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Case No.: 3:17-cv-00945-L-BGS

v.

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LIBERTY MUTUAL FIRE INSURANCE
COMPANY,

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Defendant.

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Pending before the Court is Defendant Liberty Mutual Life Insurance Company’s

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motion to dismiss Plaintiffs’ complaint. Pursuant to Civil Local Rule 7.1(d)(1), the Court

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decides the matter on the papers submitted and without oral argument. For the foregoing

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reasons, the Court DENIES Defendant’s motion to dismiss.

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3:17-cv-00945-L-BGS

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I.

BACKGROUND
This case arises out of an insurance dispute. Plaintiffs Bosa Development

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California I (“Bosa 1”) and Bosa Development California II (“Bosa II”, collectively,

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“Plaintiffs”) are real estate developers and general contractors. Using the labor of

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subcontractors, Plaintiffs built three high rise residential towers in downtown San Diego

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and one in Irvine (“the Projects). Plaintiffs then sold all of the individual residential units

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in the Projects to purchasers and created homeowners’ associations that assumed

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ownership over common areas.

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In connection with the Projects, Plaintiffs obtained three liability insurance policies

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from Defendant Liberty Mutual Fire Insurance Company (“Defendant”). Under these

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policies, Defendant insured Plaintiffs and any other enrolled contractors or subcontractors

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against certain losses incurred in connection with the development and construction of

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the Projects. Each policy provided for a $500,000 deductible, which was to apply on a

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“per occurrence” basis to both defense and indemnity expenditures. The parties also

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executed a “Deductible Collateral Agreement”, which provided that Plaintiffs pay

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$4,620,000 into a “Cash Collateral Fund.” The Cash Collateral Fund is managed by

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Defendant, who holds the money in trust for Plaintiffs. Under the Deductible Collateral

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Agreement, Defendant was entitled to “draw down” the Cash Collateral Fund to cover

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deductible expenses and “claims handling expense charges” of $2,085, on a “per claim”

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basis. The Deductible Collateral Agreement obligates Defendant to return to Plaintiffs

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any residual balance left in the Cash Collateral Fund as soon as practicable upon the

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expiration of risk of the need to pay further policy deductibles.

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Each of the homeowners’ associations has sued Plaintiffs for construction defects

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resulting from alleged negligent development and/or construction. Defendant defended

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and indemnified Plaintiffs against these suits. In the process, Defendant drew down the

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Cash Collateral Fund a total of $2,008,340, encompassing a $500,000 deductible and a

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$2,085 claims handling expense charge for each of the four lawsuits. About twenty three

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Individual homeowners and insurers of individual homeowners have also filed claims
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against Plaintiffs complaining of construction defects stemming from the negligent

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development and construction of each Project.

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The insurance policies define the term “occurrence” to include “continuous and

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repeated exposure to the same general harmful conditions.” Given this policy provided

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definition, Plaintiffs allege that California law provides there can only be four

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occurrences at issue here: the negligent development and construction of each of the four

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Projects. If only four occurrences are at issue, it would follow that Plaintiffs needed only

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pay four separate deductibles. However, Plaintiffs allege that Defendant has

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implemented a “Multiple Occurrences Policy” pursuant to which “(1) each separate

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defect category in a given construction defect case constitutes a separate occurrence; (2)

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defects arising out of construction work performed by a separate subcontractor

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constitutes a separate occurrence; and (3) each separate lawsuit or claim arising out of the

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same construction project constitutes a separate occurrence.” (Compl. ¶ 112.) As a result

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of this policy, Plaintiffs allege Defendant has wrongfully collected more than the

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$2,000,0001 in deductible fees to which it is entitled.

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On April 3, 2013, Defendant filed a declaratory relief action against Plaintiffs and

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others arising out of the same transactions as the present case. Liberty Life Fire Ins. Co.

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v. Bosa Dev. California II, Inc., 3:17-cv-00666-L-BGS. On the same day, Plaintiffs filed

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the present action against Defendant in state court. Plaintiffs’ complaint alleges (1)

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breach of contract; (2) a right to declaratory relief; (3) breach of the implied covenant of

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good faith and fair dealing; (4) fraud; (5) conversion; (6) civil theft; (7) violation of

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California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq. (“UCL”);

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(8) a right to an accounting; and (10) a right to money had and received. (Compl. [Doc.

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1-2].) Defendant removed to Federal Court and, pursuant to the low number rule, the

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Clerk of Court transferred the removed action to the same docket as Defendant’s earlier

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4 occurrences times $500,000 deductibles.
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filed declaratory action. Defendant now moves to dismiss the Complaint as to the UCL

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cause of action only. (MTD [Doc. 4].) Plaintiffs oppose. (Opp’n [Doc. 14].)

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II.

LEGAL STANDARD
A motion to dismiss under Fed. R. Civ. P. 12(b)(6) tests the complaint’s

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sufficiency. See N. Star Int’l v. Ariz. Corp. Comm’n., 720 F.2d 578, 581 (9th Cir. 1983).

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In ruling on a Rule 12(b)(6) motion, the court must assume the truth of all factual

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allegations and “construe them in the light most favorable to [the nonmoving party].”

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Gompper v. VISX, Inc., 298 F.3d 893, 895 (9th Cir. 2002). “While a complaint attacked

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by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a

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plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more

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

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action will not do.” Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1964-65 (2007) (internal

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citations and quotation marks omitted). Instead, the allegations in the complaint “must be

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enough to raise a right to relief above the speculative level.” Id. at 1965. A complaint

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may be dismissed as a matter of law either for lack of a cognizable legal theory or for

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insufficient facts under a cognizable theory. Robertson v. Dean Witter Reynolds, Inc.,

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749 F.2d 530, 534 (9th Cir. 1984).

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As a general matter, courts may not consider material outside the complaint when

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ruling on a motion to dismiss. Hal Roach Studios, Inc. v. Richard Feiner & Co., 896

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F.2d 1542, 1555 n.19 (9th Cir. 1990). However, courts may consider documents

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specifically identified in the complaint whose authenticity is not questioned by the

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parties. Fecht v. Price Co., 70 F.3d 1078, 1080 n.1 (9th Cir. 1995) (superseded by

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statutes on other grounds). Moreover, courts may consider the full text of those

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documents, even when the complaint quotes only selected portions. Id. The court may

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also consider material properly subject to judicial notice without converting the motion

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into one for summary judgment. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994).

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III.

DISCUSSION
Defendant argues that the Court should dismiss Plaintiffs’ UCL Claim because (1)

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Plaintiffs have not properly alleged Defendant engaged in unfair competition and (2)

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even if Defendant engaged in unfair competition, Plaintiffs are not entitled to any of the

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remedies provided by the UCL. Neither argument is persuasive.

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The UCL broadly prohibits “unfair competition”, which consists of any unlawful,

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unfair, or fraudulent business act or practice. Cal. Bus. & Prof. Code § 17200. A

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plaintiff need only allege one of the three proscribed types of unfair completion to sustain

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a UCL Claim. Davis v. HSBC Bank Nevada, 691 F.3d 1152, 1168 (9th Cir. 2012). As to

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the unlawful prong, the UCL is a derivative claim that borrows other laws and provides

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distinct remedies for their violation. “Virtually any state, federal, or local law can serve

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as the predicate for” a UCL claim. People ex rel. Bill Lockyer v. Fremont Life Ins. Co,

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104 Cal. App. 4th 508, 515 (2002).

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Here, Plaintiffs allege, among other things, that Defendant’s practice of

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overcharging deductible fees under its Multiple Occurrences Policy violates California’s

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common law prohibiting conversion and civil theft. In their motion to dismiss,

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Defendant presents no argument suggesting Plaintiffs have not properly stated these

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claims. Accordingly, the Court finds Defendant has failed to demonstrate that Plaintiffs

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have not properly alleged a predicate act of unfair completion.

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Next, Defendant argues that, even if Plaintiffs have properly alleged a predicate act

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of unfair completion, the UCL claim must nevertheless fail because Plaintiffs are not

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entitled to any UCL provided remedy. Generally speaking, a prevailing UCL plaintiff is

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only entitled to injunctive relief and/or restitution, but not damages or attorneys’ fees.

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Zhang v. Superior Court, 57 Cal. App. 4th 364, 371 (2013). As to restitution, the UCL

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provides that a court may return to a plaintiff any money that a defendant wrongfully

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took from the plaintiff through a predicate act of unfair competition. Cal. Bus. & Prof.

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Code § 17203. Here, Plaintiffs allege that, through conversion and civil theft, Defendant

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has taken more money from them than the parties’ agreements permit. If Plaintiffs
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prevail, it seems likely that they would be entitled to recover these funds as restitution.

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Accordingly, the Court finds Defendant has failed to establish as a matter of law that

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Plaintiff could not feasibly obtain any relief available under the UCL.

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IV.

CONCLUSION & ORDER

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For the foregoing reasons, the Court DENIES Defendant’s motion to dismiss.

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Furthermore, no later than fourteen days after the entry of this order, the parties shall

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either file a non-opposition to the consolidation of the present action and Defendant’s

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earlier filed complaint seeking declaratory relief (3:17-cv-00945-L-BGS) or show cause

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as to why the Court should not consolidate the two cases.

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IT IS SO ORDERED.

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Dated: October 26, 2017

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