Cumis Insurance Society, Inc. v. CU Pacific Audit Solutions, LLC

Filing 110

ORDER GRANTING MOTION TO DISMISS SECOND AMENDED THIRD-PARTY COMPLAINT AS TO OTS EMPLOYEES FEDERAL CREDIT UNION re 78 Motion to Dismiss. Signed by JUDGE LESLIE E. KOBAYASHI on 06/30/2015. Third-Party Defendant OTS Employees Federal Credit Union's Motion to Dismiss Second Amended Third-Party Complaint as to OTS Employees Federal Credit Union, filed February 9, 2015, is HEREBY GRANTED. This Court DIRECTS the Clerk's Office to terminate OTS as a party o n July 24, 2015, unless Defendant/Third-Party Plaintiff CU Pacific Audit Solutions files a motion for reconsideration of this Order by July 17, 2015. (eps)CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
)
)
)
)
Plaintiff,
)
)
vs.
)
)
CU PACIFIC AUDIT SOLUTIONS,
)
LLC,
)
)
Defendant/Third)
Party Plaintiff,
)
)
vs.
)
DONA TAKUSHI, JENNY NISHIDA, )
)
NICOLE CHEUNG and OTS
)
EMPLOYEES FEDERAL CREDIT
)
UNION,
)
)
Third-Party
)
Defendants.
_____________________________ )
CUMIS INSURANCE SOCIETY,
INC.,

CIVIL NO. 14-00140 LEK-BMK

ORDER GRANTING MOTION TO DISMISS SECOND AMENDED
THIRD-PARTY COMPLAINT AS TO OTS EMPLOYEES FEDERAL CREDIT UNION
Before the Court is Third-Party Defendant OTS Employees
Federal Credit Union’s (“OTS”) Motion to Dismiss Second Amended
Third-Party Complaint as to OTS Employees Federal Credit Union
(“Motion”), filed on February 9, 2015.

[Dkt. no. 78.]

Defendant/Third-Party Plaintiff CU Pacific Audit Solutions
(“CU Pacific”) filed its memorandum in opposition on April 8,
2015, and OTS filed its reply on April 15, 2015.
91.]

[Dkt. nos. 90,

This matter came on for hearing on April 29, 2015.

After

careful consideration of the Motion, supporting and opposing

memoranda, and the arguments of counsel, OTS’s Motion is HEREBY
GRANTED for the reasons set forth below.
BACKGROUND
The relevant factual and procedural background of this
case is set forth in this Court’s November 30, 2014 Order
Granting OTS Employees Federal Credit Union Motion to Dismiss
(“11/30/14 Order”).

[Dkt. no. 59.1]

In the 11/30/14 Order, this

Court: 1) found that Plaintiff CUMIS Insurance Society, Inc.
(“CUMIS”) “has conventional subrogation rights as to the amount
of the loss payment, and OTS has released its claims as to all
other losses and expenses beyond the payment amount which OTS
incurred — or may incur — as a result of the Former Employees’
alleged conduct[;]”2 and 2) concluded that “CUMIS now has the
same rights that OTS had[, and] CUMIS is the real party in
interest in this case[.]”

2014 WL 6749229, at *5.

Based on these findings and conclusions, this Court:
-dismissed with prejudice Count I of the Amended Third Party
Complaint,3 which alleged that CU Pacific is entitled to
recover from OTS based upon indemnity, contribution,

1

The 11/30/14 Order is also available at 2014 WL 6749229.

2

The “Former Employees” are Third-Party Defendants
Dona Takushi (“Takushi”), Jenny Nishida (“Nishida”), and
Nicole Cheung (“Cheung”). For a description of OTS’s loss, the
payment that CUMIS made on OTS’s insurance claim for the loss,
and CUMIS’s claims in the instant case against CU Pacific, see
the 11/30/14 Order, 2014 WL 6749229, at *1-2.
3

CU Pacific filed the Amended Third Party Complaint on
May 22, 2014. [Dkt. no. 18.]
2

reimbursement and/or equitable subrogation (“Third-Party
Count I”); id. at *2, *5;
-dismissed without prejudice Count II of the Amended Third Party
Complaint (“Third-Party Count II”), giving CU Pacific leave
to clarify that the count alleges an affirmative
misrepresentation claim, rather than what should be a
defense to CUMIS’s claims; id.; and
-dismissed with prejudice Count III of the Amended Third Party
Complaint (“Third-Party Count III”), which alleged that
OTS’s negligent failure to follow CU Pacific’s
recommendations in the audit reports was the legal cause of
any injuries and/or damages to OTS and/or CUMIS, id. at *2,
*6.
CU Pacific filed its Second Amended Third Party
Complaint on January 7, 2015.

[Dkt. no. 60.]

It alleges: a

claim for indemnity, contribution, reimbursement and/or equitable
subrogation against the Former Employees (“Amended Third-Party
Count I”); and a misrepresentation claim against OTS (“Amended
Third-Party Count II”).

Amended Third-Party Count II emphasizes

that Takushi, “as Manager, President and Chief Executive Officer
of OTS,” signed each of the Management Representation Letters
that OTS executed for each of the audits that CU Pacific
performed, and that she “had actual, implied or apparent
authority” to sign each letter on OTS’s behalf.
14.]

[Id. at ¶¶ 9-

Further, Amended Third-Party Count II alleges that “OTS

and/or its agent Takushi knew or reasonably should have known
that one or more of the representations made in the Management
Representation Letters were false.”

3

[Id. at ¶ 17.]

In the instant Motion, OTS urges this Court to dismiss
Amended Third-Party Count II pursuant to Fed. R. Civ. P. 12(b)(6)
because: 1) the claim is improper under Fed. R. Civ. P. 14(a);
2) even if CU Pacific can bring the claim under Rule 14(a), it is
improper because CUMIS stands in the shoes of OTS; 3) even if
this Court rejects OTS’s procedural arguments, Amended ThirdParty Count II fails to state a cognizable claim for the recovery
of attorneys’ fees pursuant to Uyemura v. Wick, 57 Haw. 102, 551
P.2d 171 (1976); and 4) the claim fails as a matter of law
because OTS is not vicariously liable for the alleged
misrepresentations that Takushi made to CU Pacific because she
made them outside of the scope of her employment.

Further, OTS

argues that the dismissal should be with prejudice.
DISCUSSION
I.

Fed. R. Civ. P. 14(a)
Rule 14 governs the impleader of third parties.

Rule 14(a)(1) states:
A defending party may, as third-party plaintiff,
serve a summons and complaint on a nonparty who is
or may be liable to it for all or part of the
claim against it. But the third-party plaintiff
must, by motion, obtain the court’s leave if it
files the third-party complaint more than 14 days
after serving its original answer.
Rule 14(a)(4) states: “Any party may move to strike the thirdparty claim, to sever it, or to try it separately.”

4

OTS argues that this Court should follow the analysis
in Uldricks v. Kapaa 382 LLC, Civil No. 07-00117 JMS/KSC, 2007 WL
2694409 (D. Hawai`i Sept. 11, 2007), which addressed, inter alia,
a third-party fraudulent misrepresentation claim.

In Uldricks,

this district court stated:
A third-party claim “may be asserted only
when the third party’s liability is in some way
dependant on the outcome of the main claim and the
third party’s liability is secondary or
derivative.” United States v. One 1977 Mercedes
Benz, 450 SEL, 708 F.2d 444, 452 (9th Cir. 1983).
Impleader is most commonly used for claims
against a third party for indemnification,
subrogation, breach of warranty, or contribution
among joint tortfeasors. See Mantic Ashanti’s
Cause v. Cumming Family Trust, 2007 WL 1558620, at
*3 (S.D. Cal. May 25, 2007). “The crucial
characteristic of a Rule 14 claim is that
defendant is attempting to transfer to the
third-party defendant the liability asserted
against him by the original plaintiff. The mere
fact that the alleged third-party claim arises
from the same transaction or set of facts as the
original claim is not enough.” Stewart v.
American Int’l Oil & Gas Co., 845 F.2d 196, 200
(9th Cir. 1988) (quoting Wright & Miller, 6 Fed.
Prac. & Proc. § 1446 at 257 (1971 ed.)). “It is
not sufficient that the third-party claim is a
related claim; the claim must be derivatively
based on the original plaintiff’s claim.” One
1977 Mercedes Benz, 450 SEL, 708 F.2d at 452.
“It need not be shown that the third party
defendant is automatically liable if the defendant
loses the underlying lawsuit. It is sufficient if
there is some possible scenario under which the
third party defendant may be liable for some or
all of the defendant’s liability to plaintiff.”
FDIC v. Loube, 134 F.R.D. 270, 272 (N.D. Cal.
1991).
Id. at *3.

OTS emphasizes that, in Uldricks, the district court
5

ruled that the third-party complaint was improper because it did
“‘not alleg[e] that third-party defendants share fault, but that
third-party defendants were completely at fault.

A third-party

plaintiff cannot boot-strap a defense to fraud into a case for
joint tortfeasor liability.’”

[Mem. in Supp. of Motion at 9

(quoting Uldricks, 2007 WL 2694409, at *4).]

OTS argues that,

like the third-party claims in Uldricks, CU Pacific’s third-party
claim against it “relate[s] to, but [is] not derivative of,”
CUMIS’s claims against CU Pacific.

[Id.]

This Court finds that the case law regarding motions
for leave to file a third-party complaint is instructive on the
issue of whether Rule 14(a) allows CU Pacific to pursue its
third-party misrepresentation claim against OTS.

This district

court has stated:
“The decision whether to permit impleader is
left to the discretion of the trial court.” Irwin
v. Mascott, 94 F. Supp. 2d 1052, 1056 (N.D. Cal.
2000). “[A] court, called upon to exercise its
discretion as to impleader, must balance the
desire to avoid circuity of actions and to obtain
consistent results against any prejudice that the
plaintiff might suffer from complications of the
case.” Id. at 1056 (quoting Somportex Ltd. v.
Philadelphia Chewing Gum Corp., 453 F.2d 435, 439
n.6 (3d Cir. 1971), cert. denied, 405 U.S. 1017,
92 S. Ct. 1294, 31 L. Ed. 2d 479 (1972)).
In determining whether to allow a third-party
complaint, courts will typically balance the
policy of liberally allowing third-party practice
with the possibility of prejudice to the plaintiff
and the third-party defendant, the complication of
the issues at trial posed by the third-party
complaint, the merits of the third-party
6

complaint, and any additional costs that might be
incurred by the parties as a result of the
third-party complaint. Id. at 1056. . . .
Kauhako v. Hawaii Bd. of Educ. Dep’t of Educ., Civil No. 13–00567
DKW–BMK, 2014 WL 3845793, at *1 (D. Hawai`i July 11, 2014).

This

Court concludes that it has the discretion to allow CU Pacific’s
third-party claim against OTS to proceed because doing so would
avoid circuity of actions and promote consistent results.

In

addition, it would not unduly prejudice the original plaintiff,
CUMIS.

This Court therefore rejects OTS’s argument that Amended

Third-Party Count II is an improper third-party claim for
purposes of Rule 14(a).
II.

Subrogation
OTS next argues that Amended Third-Party Count II is

improper because CUMIS stands in OTS’s shoes, and therefore
CU Pacific can assert misrepresentation as a defense to CUMIS’s
claims.

This Court agrees.
As previously noted, this Court ruled in the 11/30/14

Order that CUMIS, the subrogee-insurer, has the same rights that
OTS had, i.e., CUMIS stands in OTS’s shoes.

As noted in the

11/30/14 Order, “‘[i]n a subrogation suit, a tortfeasor may
assert against the insurer any defense which the tortfeasor could
have asserted against the insured.’”

2014 WL 6749229, at *5

(quoting State Farm Fire & Cas. Co. v. Pac. Rent–All, Inc., 90
Hawai`i 315, 329, 978 P.2d 753, 767 (1999)).

7

Insofar as

CU Pacific can assert all defenses it would have asserted against
OTS against OTS’s subrogee, CUMIS, this Court CONCLUDES that
CU Pacific fails to state a plausible misrepresentation claim
against OTS.

See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(“To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” (quoting Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955 (2007))).

Thus,

Amended Third-Party Count II fails to state a claim upon which
relief can be granted.

See Fed. R. Civ. P. 12(b)(6).

This Court has already given CU Pacific the opportunity
to amend its third-party complaint so that it could attempt to
state a misrepresentation claim against OTS that is separate and
distinct from the defenses that CU Pacific can assert against
CUMIS.

Based upon CU Pacific’s failure to cure the defect, and

based upon the factual allegations in the parties’ current
pleadings, this Court CONCLUDES that it is not possible for
CU Pacific to cure the defect through further amendment.

Amended

Third-Party Count II is therefore DISMISSED WITH PREJUDICE.4

4

See

Insofar as this Court has dismissed Amended Third-Party
Count II on the ground that CU Pacific must raise OTS’s alleged
misrepresentations as a defense to CUMIS’s claims, this Court
does not need to address the other arguments that OTS raised in
the Motion. The remaining arguments relate to the merits of the
misrepresentation allegations, and the parties must address such
issues in the context of a properly raised misrepresentation
defense.
8

Sonoma Cnty. Ass’n of Retired Emps. v. Sonoma Cnty., 708 F.3d
1109, 1117-18 (9th Cir. 2013) (“As a general rule, dismissal
without leave to amend is improper unless it is clear, upon de
novo review, that the complaint could not be saved by any
amendment.” (brackets, citation, and internal quotation marks
omitted)).
CONCLUSION
On the basis of the foregoing, Third-Party Defendant
OTS Employees Federal Credit Union’s Motion to Dismiss Second
Amended Third-Party Complaint as to OTS Employees Federal Credit
Union, filed February 9, 2015, is HEREBY GRANTED.

This Court

DIRECTS the Clerk’s Office to terminate OTS as a party on
July 24, 2015, unless Defendant/Third-Party Plaintiff CU Pacific
Audit Solutions files a motion for reconsideration of this Order
by July 17, 2015.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, JUNE 30, 2015.

/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge

CUMIS INSURANCE SOCIETY, INC. VS. CU PACIFIC AUDIT SOLUTIONS,
LLC; CIVIL 14-00140 LEK-BMK; ORDER

9