Allstate Insurance Co. et al v. Lighthouse Law P.S., Inc. et al

Filing 99


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1 2 3 4 5 6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 7 8 9 ALLSTATE INSURANCE CO., et al.,, Plaintiffs, 10 Case No. C15-1976RSL v. 11 12 LIGHTHOUSE LAW P.S., INC., et al., Defendants. 13 ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT 14 15 This matter comes before the Court on “Defendant Lighthouse Law P.S., Inc. and 16 Thammalaiviroj’s Motion to Dismiss Plaintiffs’ Amended Complaint.” Dkt. # 56.1 Plaintiffs 17 Allstate Insurance Co., Allstate Indemnity Co., Allstate Fire & Casualty Insurance Co., and 18 Allstate Property and Casualty Insurance Co. (together, “Allstate”) allege that defendants Patty 19 Thammalaiviroj, an attorney licensed in California, and Chong “Joseph” Kim, a non-lawyer 20 residing in Washington State, created and operated a sham law firm, defendant Lighthouse Law 21 P.S., Inc. (“Lighthouse”), for the purpose of profiting from fraudulent insurance claims. 22 23 After this Court dismissed Allstate’s original complaint with leave to amend, Dkt. # 47, Allstate filed an amended complaint, Dkt. # 52, naming additional defendants and elaborating on 24 25 26 1 Defendants Chong “Joseph” Kim and Jane Doe Kim also moved to dismiss Allstate’s amended complaint, Dkt. # 59, but on December 20, 2016, the parties stipulated to dismissal of all claims against the Kims with prejudice, Dkt. # 92. Accordingly, the Kims’ motion to dismiss is DENIED as moot. 27 28 ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 1 1 the factual allegations underlying its claims. Defendants Lighthouse and Thammalaiviroj 2 (“Defendants”) again move to dismiss, arguing that Allstate’s amended complaint still fails to 3 state a claim. Having reviewed the memoranda, declarations, and exhibits submitted by the 4 parties, the Court finds as follows. 5 I. 6 Failure to State a Claim Federal pleading rules require a complaint to include “a short and plain statement of the 7 claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). This requirement 8 serves to “give the defendant fair notice of what the claim is and the grounds upon which it 9 rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007) (internal marks and citation 10 omitted). Although the complaint’s factual allegations need not be detailed, they must 11 sufficiently state a “plausible” ground for relief. Id. at 544. “A claim has facial plausibility 12 when the plaintiff pleads factual content that allows the court to draw the reasonable inference 13 that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 14 (2009). The plausibility standard is met when a complaint alleges “more than a sheer possibility 15 that a defendant has acted unlawfully.” Id. “Dismissal is proper only where there is no 16 cognizable legal theory or an absence of sufficient facts alleged to support a cognizable legal 17 theory.” Taylor v. Yee, 780 F.3d 928, 935 (9th Cir. 2015). Dismissal without leave to amend is 18 proper “only if it is absolutely clear that the deficiencies of the complaint could not be cured by 19 amendment.” Grogan v. Health Officer of Cty. of Riverside, 221 F.3d 1348 (9th Cir. 2000) 20 (quotation marks and citation omitted). 21 When deciding a Rule 12(b)(6) motion to dismiss, the Court may not consider any 22 materials other than the pleadings, Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 23 2001), and may disregard any materials improperly submitted, see Swedberg v. Marotzke, 339 24 F.3d 1139 (9th Cir. 2003). All well-pleaded allegations of material fact are accepted as true and 25 are construed in the light most favorable to the non-moving party. Manzarek v. St. Paul Fire & 26 Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). 27 28 ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 2 1 A. Washington Consumer Protection Act 2 Allstate alleges that Defendants violated Washington’s Consumer Protection Act 3 (“CPA”), RCW 19.86 et seq., by engaging in deceptive trade practices for financial gain. 4 Specifically, Allstate claims that Defendants violated the CPA by “trafficking in insurance 5 claims” and by presenting material misrepresentations in insurance settlement demands. Dkt. 6 # 52, ¶¶ 78, 94. Defendants move to dismiss this claim on the grounds that Allstate’s amended 7 complaint fails to allege a causal link between Defendants’ alleged wrongdoing and Allstate’s 8 monetary loss, and that in any event Allstate lacks standing to bring a CPA claim. Dkt. # 56 at 9 11-13. 10 Washington law empowers private plaintiffs to bring CPA claims where a defendant’s 11 bad acts cause injuries to the plaintiff and risk injury to the public. See Indoor 12 Billboard/Washington, Inc. v. Integra Telecom of Washington, Inc., 162 Wn.2d 59, 73 (2007). 13 A private CPA action may be brought by a party who is not in a consumer relationship with the 14 defendant, Panag v. Farmers Ins. Co. of Wash., 166 Wn.2d 27, 43–44 (2009), so long as the 15 plaintiff successfully pleads five elements: (1) an unfair or deceptive act or practice; (2) that 16 occurred in trade or commerce; (3) a public interest was implicated; (4) the plaintiff’s business 17 or property was injured; and (5) the unfair or deceptive act caused the injury suffered, Indoor 18 Billboard, 162 Wn.2d at 73. The causation prong requires the defendant’s act to be the 19 proximate cause of the plaintiff’s injury, “mean[ing] a cause which in a direct sequence 20 unbroken by any superseding cause, produces the injury event complained of and without which 21 such injury event would not have happened.” Schnall v. AT&T Wireless Servs., Inc., 171 22 Wn.2d 260, 278 (2011) (internal marks omitted) (quoting 6 Washington Practice: Washington 23 Pattern Jury Instructions: Civil 15.01, at 181 (5th ed. 2005)). An insurance company has 24 standing to bring a CPA claim against a party that submits false information in connection with 25 an insurance claim. State Farm Fire & Cas. Co. v. Hyunh, 92 Wn. App. 454, 458–62 (1998). 26 Allstate has successfully pled the elements of its CPA claim. The amended complaint 27 28 ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 3 1 alleges that Defendants operated a sham law firm in order to profit from insurance proceeds, 2 which Allstate paid as a result of Defendants’ illegal solicitation of insurance claimants and 3 Defendants’ knowing material misrepresentations (including misrepresenting a sham law firm as 4 a legitimate one) in its settlement demands. Dkt. # 52, ¶¶ 5, 31, 32, 33, 45–75, 77, 88, 89, 91, 5 92, 94. Defendants contest only the causation element, which Allstate has sufficiently pled: 6 Allstate’s monetary loss would not have occurred absent Defendants’ alleged trafficking and 7 misrepresentations, as Allstate would not have agreed to settle the insurance claims had it known 8 that the claimants were represented by a sham law firm. See Panag, 166 Wn.2d at 64. 9 Moreover, the facts as alleged do not suggest that Allstate’s monetary loss is attributable to any 10 superseding cause. See Schnall, 171 Wn.2d at 278. And Washington law provides that Allstate 11 has standing to bring this CPA claim. See Hyunh, 92 Wn. App. at 458–62. Defendants’ motion 12 to dismiss Allstate’s CPA claim is denied. 13 B. Common Law Fraud 14 Allstate alleges that Defendants committed fraud by misrepresenting material facts during 15 the submission of settlement demands, including misrepresenting Thammalaiviroj and Kim as 16 Washington-licensed attorneys and Lighthouse as a legitimate law firm. Dkt. # 52, ¶¶ 96–115. 17 Allstate also specifically alleges that Lighthouse knowingly incorporated a chiropractor’s false 18 billing statements into its settlement demands. Dkt. # 52, ¶ 100. Defendants move to dismiss 19 this claim on the grounds that Allstate’s amended complaint fails to state this fraud claim against 20 each defendant with sufficient particularity. Dkt. # 56 at 13–17. 21 The federal rules require parties to “state with particularity the circumstances constituting 22 fraud or mistake.” Fed. R. Civ. P. 9(b). To satisfy that standard, a plaintiff “must set forth more 23 than the neutral facts necessary to identify the transaction. The plaintiff must set forth what is 24 false or misleading about a statement, and why it is false.” In re GlenFed, Inc. Sec. Litig., 42 25 F.3d 1541, 1548 (9th Cir. 1994). A fraud complaint may not “lump multiple defendants 26 together”; rather, a plaintiff must “differentiate [its] allegations when suing more than one 27 28 ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 4 1 defendant.” Destfino v. Rieswig, 630 F.3d 952, 958 (9th Cir. 2011). Under Washington law, a 2 fraud claim must include: (1) representation of an existing fact; (2) materiality; (3) falsity; (4) the 3 speaker’s knowledge of its falsity; (5) intent of the speaker that it should be acted upon by the 4 plaintiff; (6) plaintiff’s ignorance of its falsity; (7) plaintiff’s reliance on the truth of the 5 representation; (8) plaintiff’s right to rely upon it; and (9) damages suffered by the plaintiff. 6 Stiley v. Block, 130 Wn.2d 486, 505 (1996). 7 Allstate’s amended complaint meets the heightened Rule 9(b) pleading standard. Where 8 several defendants are sued in connection with an alleged fraudulent scheme, “there is no 9 absolute requirement that . . . the complaint must identify false statements made by each and 10 every defendant,” as each conspirator may be performing different tasks to bring about the 11 desired result. Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (quoting Beltz Travel 12 Serv., Inc., v. Int’l Air Transp. Ass’n, 620 F.2d 1360, 1367 (9th Cir. 1980)). Rather, a plaintiff 13 must, at a minimum, “identify the role of each defendant in the alleged fraudulent scheme.” 14 Swartz, 476 F.3d at 765 (quoting Moore v. Kayport Package Express, Inc., 885 F.2d 531, 541 15 (9th Cir. 1989)). Allstate attributes specific misconduct to each of the named defendants, and 16 accordingly meets the particularity requirement of Rule 9(b). 17 As to Defendant Thammalaiviroj, the complaint alleges that Defendant Thammalaiviroj is 18 not licensed to practice law in Washington state, but that, together with a non-lawyer, she 19 formed a California law firm that held itself out to be a Washington professional corporation 20 doing business in King County, Washington. Dkt. # 52, ¶¶ 3, 4, 17, 47, 48, 49. Allstate further 21 alleges that it believed this law firm’s legal services were provided by Washington-licensed 22 attorneys bound by the Washington Rules of Professional Conduct, and that it relied on this 23 misrepresentation in making payments to the firm. Dkt. # 52, ¶¶ 97–115. The complaint also 24 alleges that Defendant Thammalaiviroj received over $12,500 in profits from the law firm’s 25 business between 2012 and 2015. Dkt. # 52, ¶ 39, 40, 41. 26 As to Defendant Lighthouse, the complaint repeatedly alleges that the law firm operated 27 28 ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 5 1 illegally and profited from insurance settlements that Allstate paid in reliance on the firm’s 2 misrepresentations regarding its ownership. Dkt. # 52, ¶¶ 32, 33, 36, 43, 52, 72, 97–100. 3 The above allegations are “specific enough to give defendants notice of the particular 4 misconduct which is alleged.” Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001) 5 (quotation marks and citation omitted). Accordingly, the amended complaint states a fraud 6 claim against Defendants with sufficient particularity, and Defendants’ motion to dismiss this 7 claim is denied. 8 C. 9 Allstate alleges that Defendants violated portions of Washington’s Criminal Profiteering Washington Criminal Profiteering Act 10 Act under RCW 9A.82.060 by trafficking in insurance claims and by engaging in the unlawful 11 practice of law, and under RCW 9A.82.080 by investing illegal profits back into the illegal 12 enterprise. Dkt. # 52, ¶¶ 118–135. The Criminal Profiteering Act combats organized crime by 13 prohibiting the intentional organizing of three or more people “with the intent to engage in a 14 pattern of criminal profiteering activity.” RCW 9A.82.060. The statute defines such a pattern as 15 the commission of at least three predicate offenses within a five-year period. RCW 16 9A.82.010(12). Listed predicate offenses include trafficking in insurance claims, as defined in 17 RCW 48.30A.015, and the unlawful practice of law, as defined in RCW 2.48.180. RCW 18 9A.82.010(4)(ee), -(ff). The statute also makes it illegal for a person to invest any proceeds from 19 a pattern of criminal activity in real property or in the “operation of any enterprise.” RCW 20 9A.82.080(1)(a). The Criminal Profiteering Act includes a private right of action for a party 21 who sustains injury to its business or property by violations of RCW 9A.82.060 or RCW 22 9A.82.080. RCW 9A.82.100(1)(a). Defendants move to dismiss these claims on the grounds 23 that the amended complaint fails to allege sufficient facts demonstrating either trafficking or the 24 unlawful practice of law. Dkt. # 56 at 17–20.2 25 26 2 Defendants also argue that Allstate has failed to plead any facts supporting an inference of intent. Dkt. # 56 at 18. But Allstate has specifically alleged intentional misrepresentation and 27 28 ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 6 1 Allstate’s amended complaint sufficiently alleges that a pattern of criminal profiteering 2 activity occurred. The complaint, taken as true, alleges that Defendants started an illegal law 3 firm, procured clients in an illegitimate manner, and, posing as a legitimate firm, submitted over 4 two hundred false claims and then profited from them. Dkt. # 52, ¶¶ 3, 5, 31–33, 37–133.3 As 5 described below, the amended complaint plausibly alleges the predicate offenses underlying this 6 pattern of criminal profiteering in violation of RCW 9A.82.060. 1. 7 8 9 Insurance Trafficking The first predicate in this case, Washington’s insurance trafficking statute, prohibits service providers from knowingly accepting or making payments related to the referral of an 10 insurance claimant. RCW 48.30A.015. Service providers include, among other things, persons 11 who are involved in preparing, processing, presenting, or negotiating insurance claims. RCW 12 48.30A.010. Allstate’s amended complaint specifically alleges that Defendants paid individuals, 13 some now named as defendants, to refer insurance claimants to Lighthouse, a service provider. 14 Dkt. # 52, ¶¶ 53–57, 63–67, 69, 88, 118, 122–24. The amended complaint sufficiently alleges 15 trafficking in insurance claims. 2. 16 17 Unlawful Practice of Law The second alleged predicate, Washington’s statute governing the unlawful practice of 18 law, prohibits persons not licensed to practice law in Washington (“non-lawyers”) from 19 engaging in certain activities. RCW 2.48.180. These activities preclude a non-lawyer from 20 holding herself out as entitled to practice law, holding an investment or ownership interest in a 21 business that practices law, or sharing legal fees with a Washington-licensed attorney. Id. 22 Allstate’s amended complaint states a plausible claim regarding the unlawful practice of 23 24 25 26 trafficking by Defendants, Dkt. # 52, ¶¶ 118, 122, 126, and the facts alleged, taken as true, give rise to a reasonable inference of intentional conduct. See Iqbal, 556 U.S. at 678. 3 Moreover, unlike Allstate’s original complaint, the amended complaint successfully alleges that more than three individuals took part in Defendants’ alleged scheme. 27 28 ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 7 1 law. Allstate alleges that Defendant Thammalaiviroj and Mr. Kim owned Lighthouse despite 2 lacking Washington bar licenses. Dkt. # 52, ¶¶ 2–4, 17–19, 31, 52. Allstate also alleges that 3 Ms. Kim, a non-lawyer, maintained an ownership interest in Lighthouse. Dkt. # 52, ¶¶ 60, 61, 4 71. Those facts, taken as true, allow for a “reasonable inference” that the Defendants are liable 5 as alleged. Iqbal, 556 U.S. at 678. Allstate has sufficiently alleged the unlawful practice of law. 3. 6 7 RCW 9A.82.080 Allstate claims that Defendants violated RCW 9A.82.080 by receiving profits from the 8 alleged pattern of criminal racketeering and then investing those profits back into the illegal 9 operation. Dkt. # 52, ¶ 132. Defendants argue that Allstate’s claim is too vague, Dkt. # 56 at 17, 10 and, absent any concrete allegations underlying this conclusory claim, the Court agrees. Still, 11 Allstate’s successful allegations of insurance trafficking and unlawful practice of law 12 sufficiently state a claim under 9A.82.060. 13 Defendants’ motion to dismiss Allstate’s Criminal Profiteering Act claim is denied. 14 D. 15 Allstate’s amended complaint alleges that Defendants were unjustly enriched when Unjust Enrichment 16 Defendants received payment from Allstate for fraudulent insurance claims. Dkt. # 52, 17 ¶¶ 137–44. The parties agree on the basic showing required to make an unjust enrichment claim 18 in Washington: (1) a benefit was conferred by the plaintiff to the defendant; (2) the benefit was 19 received at the plaintiff’s expense; and (3) it would be unjust for the defendant to keep the 20 benefit under the circumstances. Young v. Young, 164 Wn.2d 477, 484 (2008). An action for 21 unjust enrichment is “the method of recovery for the value of [a] benefit retained absent any 22 contractual relationship because notions of fairness and justice require it.” Id. Defendants claim 23 that the amended complaint fails to show a causal link between Defendants’ alleged misconduct 24 and Allstate’s monetary loss. Dkt. # 59 at 17.4 As explained above, see supra Part I.A 25 26 4 Defendants also argue that the amended complaint fails to allege that Defendant Thammalaiviroj received any of the proceeds in her personal capacity, Dkt. # 56 at 21, but the amended 27 28 ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 8 1 (evaluating Allstate’s claim under the Washington Consumer Protection Act), Allstate’s 2 amended complaint sufficiently alleges facts suggesting that Allstate would not have paid out 3 over $600,000 in insurance settlements absent Defendants’ material misrepresentations. 4 Accordingly, Defendants’ motion to dismiss this claim is denied. 5 6 7 For the foregoing reasons, Defendants’ motions to dismiss for failure to state a claim, Dkt. ## 56, 59, are DENIED. 8 9 DATED this 24th day of January, 2017. 10 11 12 A Robert S. Lasnik United States District Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 complaint specifically alleges that Defendant Thammalaiviroj personally received $12,500 in profits, Dkt. # 52, ¶¶ 39–41. 27 28 ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 9

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