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

Filing 99

ORDER DENYING DEFENDANTS' MOTIONS 56 59 TO DISMISS PLAINTIFFS' AMENDED COMPLAINT by Judge Robert S. Lasnik.(RS)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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ALLSTATE INSURANCE CO., et al.,,
Plaintiffs,

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Case No. C15-1976RSL
v.

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LIGHTHOUSE LAW P.S., INC., et al.,
Defendants.

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ORDER DENYING DEFENDANTS’
MOTIONS TO DISMISS
PLAINTIFFS’ AMENDED
COMPLAINT

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This matter comes before the Court on “Defendant Lighthouse Law P.S., Inc. and

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Thammalaiviroj’s Motion to Dismiss Plaintiffs’ Amended Complaint.” Dkt. # 56.1 Plaintiffs

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Allstate Insurance Co., Allstate Indemnity Co., Allstate Fire & Casualty Insurance Co., and

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Allstate Property and Casualty Insurance Co. (together, “Allstate”) allege that defendants Patty

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Thammalaiviroj, an attorney licensed in California, and Chong “Joseph” Kim, a non-lawyer

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residing in Washington State, created and operated a sham law firm, defendant Lighthouse Law

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P.S., Inc. (“Lighthouse”), for the purpose of profiting from fraudulent insurance claims.

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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

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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.

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ORDER DENYING DEFENDANTS’ MOTIONS
TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 1

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the factual allegations underlying its claims. Defendants Lighthouse and Thammalaiviroj

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(“Defendants”) again move to dismiss, arguing that Allstate’s amended complaint still fails to

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state a claim. Having reviewed the memoranda, declarations, and exhibits submitted by the

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parties, the Court finds as follows.

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I.

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Failure to State a Claim
Federal pleading rules require a complaint to include “a short and plain statement of the

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

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serves to “give the defendant fair notice of what the claim is and the grounds upon which it

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rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007) (internal marks and citation

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omitted). Although the complaint’s factual allegations need not be detailed, they must

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sufficiently state a “plausible” ground for relief. Id. at 544. “A claim has facial plausibility

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when the plaintiff pleads factual content that allows the court to draw the reasonable inference

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that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678

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(2009). The plausibility standard is met when a complaint alleges “more than a sheer possibility

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that a defendant has acted unlawfully.” Id. “Dismissal is proper only where there is no

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cognizable legal theory or an absence of sufficient facts alleged to support a cognizable legal

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theory.” Taylor v. Yee, 780 F.3d 928, 935 (9th Cir. 2015). Dismissal without leave to amend is

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proper “only if it is absolutely clear that the deficiencies of the complaint could not be cured by

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amendment.” Grogan v. Health Officer of Cty. of Riverside, 221 F.3d 1348 (9th Cir. 2000)

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(quotation marks and citation omitted).

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When deciding a Rule 12(b)(6) motion to dismiss, the Court may not consider any

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materials other than the pleadings, Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir.

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2001), and may disregard any materials improperly submitted, see Swedberg v. Marotzke, 339

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F.3d 1139 (9th Cir. 2003). All well-pleaded allegations of material fact are accepted as true and

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are construed in the light most favorable to the non-moving party. Manzarek v. St. Paul Fire &

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Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).

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ORDER DENYING DEFENDANTS’ MOTIONS
TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 2

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A.

Washington Consumer Protection Act

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Allstate alleges that Defendants violated Washington’s Consumer Protection Act

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(“CPA”), RCW 19.86 et seq., by engaging in deceptive trade practices for financial gain.

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Specifically, Allstate claims that Defendants violated the CPA by “trafficking in insurance

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claims” and by presenting material misrepresentations in insurance settlement demands. Dkt.

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# 52, ¶¶ 78, 94. Defendants move to dismiss this claim on the grounds that Allstate’s amended

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complaint fails to allege a causal link between Defendants’ alleged wrongdoing and Allstate’s

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monetary loss, and that in any event Allstate lacks standing to bring a CPA claim. Dkt. # 56 at

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11-13.

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Washington law empowers private plaintiffs to bring CPA claims where a defendant’s

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bad acts cause injuries to the plaintiff and risk injury to the public. See Indoor

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Billboard/Washington, Inc. v. Integra Telecom of Washington, Inc., 162 Wn.2d 59, 73 (2007).

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A private CPA action may be brought by a party who is not in a consumer relationship with the

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defendant, Panag v. Farmers Ins. Co. of Wash., 166 Wn.2d 27, 43–44 (2009), so long as the

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plaintiff successfully pleads five elements: (1) an unfair or deceptive act or practice; (2) that

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occurred in trade or commerce; (3) a public interest was implicated; (4) the plaintiff’s business

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or property was injured; and (5) the unfair or deceptive act caused the injury suffered, Indoor

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Billboard, 162 Wn.2d at 73. The causation prong requires the defendant’s act to be the

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proximate cause of the plaintiff’s injury, “mean[ing] a cause which in a direct sequence

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unbroken by any superseding cause, produces the injury event complained of and without which

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such injury event would not have happened.” Schnall v. AT&T Wireless Servs., Inc., 171

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Wn.2d 260, 278 (2011) (internal marks omitted) (quoting 6 Washington Practice: Washington

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Pattern Jury Instructions: Civil 15.01, at 181 (5th ed. 2005)). An insurance company has

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standing to bring a CPA claim against a party that submits false information in connection with

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an insurance claim. State Farm Fire & Cas. Co. v. Hyunh, 92 Wn. App. 454, 458–62 (1998).

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Allstate has successfully pled the elements of its CPA claim. The amended complaint

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ORDER DENYING DEFENDANTS’ MOTIONS
TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 3

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alleges that Defendants operated a sham law firm in order to profit from insurance proceeds,

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which Allstate paid as a result of Defendants’ illegal solicitation of insurance claimants and

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Defendants’ knowing material misrepresentations (including misrepresenting a sham law firm as

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a legitimate one) in its settlement demands. Dkt. # 52, ¶¶ 5, 31, 32, 33, 45–75, 77, 88, 89, 91,

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92, 94. Defendants contest only the causation element, which Allstate has sufficiently pled:

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Allstate’s monetary loss would not have occurred absent Defendants’ alleged trafficking and

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misrepresentations, as Allstate would not have agreed to settle the insurance claims had it known

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that the claimants were represented by a sham law firm. See Panag, 166 Wn.2d at 64.

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Moreover, the facts as alleged do not suggest that Allstate’s monetary loss is attributable to any

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superseding cause. See Schnall, 171 Wn.2d at 278. And Washington law provides that Allstate

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has standing to bring this CPA claim. See Hyunh, 92 Wn. App. at 458–62. Defendants’ motion

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to dismiss Allstate’s CPA claim is denied.

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B.

Common Law Fraud

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Allstate alleges that Defendants committed fraud by misrepresenting material facts during

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the submission of settlement demands, including misrepresenting Thammalaiviroj and Kim as

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Washington-licensed attorneys and Lighthouse as a legitimate law firm. Dkt. # 52, ¶¶ 96–115.

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Allstate also specifically alleges that Lighthouse knowingly incorporated a chiropractor’s false

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billing statements into its settlement demands. Dkt. # 52, ¶ 100. Defendants move to dismiss

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this claim on the grounds that Allstate’s amended complaint fails to state this fraud claim against

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each defendant with sufficient particularity. Dkt. # 56 at 13–17.

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The federal rules require parties to “state with particularity the circumstances constituting

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fraud or mistake.” Fed. R. Civ. P. 9(b). To satisfy that standard, a plaintiff “must set forth more

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than the neutral facts necessary to identify the transaction. The plaintiff must set forth what is

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false or misleading about a statement, and why it is false.” In re GlenFed, Inc. Sec. Litig., 42

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F.3d 1541, 1548 (9th Cir. 1994). A fraud complaint may not “lump multiple defendants

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together”; rather, a plaintiff must “differentiate [its] allegations when suing more than one

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ORDER DENYING DEFENDANTS’ MOTIONS
TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 4

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defendant.” Destfino v. Rieswig, 630 F.3d 952, 958 (9th Cir. 2011). Under Washington law, a

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fraud claim must include: (1) representation of an existing fact; (2) materiality; (3) falsity; (4) the

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speaker’s knowledge of its falsity; (5) intent of the speaker that it should be acted upon by the

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plaintiff; (6) plaintiff’s ignorance of its falsity; (7) plaintiff’s reliance on the truth of the

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representation; (8) plaintiff’s right to rely upon it; and (9) damages suffered by the plaintiff.

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Stiley v. Block, 130 Wn.2d 486, 505 (1996).

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Allstate’s amended complaint meets the heightened Rule 9(b) pleading standard. Where

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several defendants are sued in connection with an alleged fraudulent scheme, “there is no

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absolute requirement that . . . the complaint must identify false statements made by each and

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every defendant,” as each conspirator may be performing different tasks to bring about the

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desired result. Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (quoting Beltz Travel

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Serv., Inc., v. Int’l Air Transp. Ass’n, 620 F.2d 1360, 1367 (9th Cir. 1980)). Rather, a plaintiff

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must, at a minimum, “identify the role of each defendant in the alleged fraudulent scheme.”

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Swartz, 476 F.3d at 765 (quoting Moore v. Kayport Package Express, Inc., 885 F.2d 531, 541

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(9th Cir. 1989)). Allstate attributes specific misconduct to each of the named defendants, and

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accordingly meets the particularity requirement of Rule 9(b).

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As to Defendant Thammalaiviroj, the complaint alleges that Defendant Thammalaiviroj is

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not licensed to practice law in Washington state, but that, together with a non-lawyer, she

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formed a California law firm that held itself out to be a Washington professional corporation

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doing business in King County, Washington. Dkt. # 52, ¶¶ 3, 4, 17, 47, 48, 49. Allstate further

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alleges that it believed this law firm’s legal services were provided by Washington-licensed

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attorneys bound by the Washington Rules of Professional Conduct, and that it relied on this

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misrepresentation in making payments to the firm. Dkt. # 52, ¶¶ 97–115. The complaint also

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alleges that Defendant Thammalaiviroj received over $12,500 in profits from the law firm’s

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business between 2012 and 2015. Dkt. # 52, ¶ 39, 40, 41.

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As to Defendant Lighthouse, the complaint repeatedly alleges that the law firm operated

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ORDER DENYING DEFENDANTS’ MOTIONS
TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 5

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illegally and profited from insurance settlements that Allstate paid in reliance on the firm’s

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misrepresentations regarding its ownership. Dkt. # 52, ¶¶ 32, 33, 36, 43, 52, 72, 97–100.

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The above allegations are “specific enough to give defendants notice of the particular

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misconduct which is alleged.” Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)

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(quotation marks and citation omitted). Accordingly, the amended complaint states a fraud

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claim against Defendants with sufficient particularity, and Defendants’ motion to dismiss this

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claim is denied.

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C.

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Allstate alleges that Defendants violated portions of Washington’s Criminal Profiteering

Washington Criminal Profiteering Act

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Act under RCW 9A.82.060 by trafficking in insurance claims and by engaging in the unlawful

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practice of law, and under RCW 9A.82.080 by investing illegal profits back into the illegal

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enterprise. Dkt. # 52, ¶¶ 118–135. The Criminal Profiteering Act combats organized crime by

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prohibiting the intentional organizing of three or more people “with the intent to engage in a

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pattern of criminal profiteering activity.” RCW 9A.82.060. The statute defines such a pattern as

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the commission of at least three predicate offenses within a five-year period. RCW

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9A.82.010(12). Listed predicate offenses include trafficking in insurance claims, as defined in

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RCW 48.30A.015, and the unlawful practice of law, as defined in RCW 2.48.180. RCW

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9A.82.010(4)(ee), -(ff). The statute also makes it illegal for a person to invest any proceeds from

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a pattern of criminal activity in real property or in the “operation of any enterprise.” RCW

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9A.82.080(1)(a). The Criminal Profiteering Act includes a private right of action for a party

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who sustains injury to its business or property by violations of RCW 9A.82.060 or RCW

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9A.82.080. RCW 9A.82.100(1)(a). Defendants move to dismiss these claims on the grounds

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that the amended complaint fails to allege sufficient facts demonstrating either trafficking or the

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unlawful practice of law. Dkt. # 56 at 17–20.2

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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

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ORDER DENYING DEFENDANTS’ MOTIONS
TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 6

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Allstate’s amended complaint sufficiently alleges that a pattern of criminal profiteering

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activity occurred. The complaint, taken as true, alleges that Defendants started an illegal law

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firm, procured clients in an illegitimate manner, and, posing as a legitimate firm, submitted over

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two hundred false claims and then profited from them. Dkt. # 52, ¶¶ 3, 5, 31–33, 37–133.3 As

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described below, the amended complaint plausibly alleges the predicate offenses underlying this

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pattern of criminal profiteering in violation of RCW 9A.82.060.
1.

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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

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insurance claimant. RCW 48.30A.015. Service providers include, among other things, persons

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who are involved in preparing, processing, presenting, or negotiating insurance claims. RCW

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48.30A.010. Allstate’s amended complaint specifically alleges that Defendants paid individuals,

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some now named as defendants, to refer insurance claimants to Lighthouse, a service provider.

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Dkt. # 52, ¶¶ 53–57, 63–67, 69, 88, 118, 122–24. The amended complaint sufficiently alleges

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trafficking in insurance claims.
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Unlawful Practice of Law

The second alleged predicate, Washington’s statute governing the unlawful practice of

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law, prohibits persons not licensed to practice law in Washington (“non-lawyers”) from

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engaging in certain activities. RCW 2.48.180. These activities preclude a non-lawyer from

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holding herself out as entitled to practice law, holding an investment or ownership interest in a

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business that practices law, or sharing legal fees with a Washington-licensed attorney. Id.

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Allstate’s amended complaint states a plausible claim regarding the unlawful practice of

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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.
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Moreover, unlike Allstate’s original complaint, the amended complaint successfully alleges that
more than three individuals took part in Defendants’ alleged scheme.

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ORDER DENYING DEFENDANTS’ MOTIONS
TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 7

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law. Allstate alleges that Defendant Thammalaiviroj and Mr. Kim owned Lighthouse despite

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lacking Washington bar licenses. Dkt. # 52, ¶¶ 2–4, 17–19, 31, 52. Allstate also alleges that

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Ms. Kim, a non-lawyer, maintained an ownership interest in Lighthouse. Dkt. # 52, ¶¶ 60, 61,

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71. Those facts, taken as true, allow for a “reasonable inference” that the Defendants are liable

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as alleged. Iqbal, 556 U.S. at 678. Allstate has sufficiently alleged the unlawful practice of law.
3.

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RCW 9A.82.080

Allstate claims that Defendants violated RCW 9A.82.080 by receiving profits from the

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alleged pattern of criminal racketeering and then investing those profits back into the illegal

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operation. Dkt. # 52, ¶ 132. Defendants argue that Allstate’s claim is too vague, Dkt. # 56 at 17,

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and, absent any concrete allegations underlying this conclusory claim, the Court agrees. Still,

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Allstate’s successful allegations of insurance trafficking and unlawful practice of law

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sufficiently state a claim under 9A.82.060.

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Defendants’ motion to dismiss Allstate’s Criminal Profiteering Act claim is denied.

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D.

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Allstate’s amended complaint alleges that Defendants were unjustly enriched when

Unjust Enrichment

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Defendants received payment from Allstate for fraudulent insurance claims. Dkt. # 52,

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¶¶ 137–44. The parties agree on the basic showing required to make an unjust enrichment claim

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in Washington: (1) a benefit was conferred by the plaintiff to the defendant; (2) the benefit was

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received at the plaintiff’s expense; and (3) it would be unjust for the defendant to keep the

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benefit under the circumstances. Young v. Young, 164 Wn.2d 477, 484 (2008). An action for

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unjust enrichment is “the method of recovery for the value of [a] benefit retained absent any

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contractual relationship because notions of fairness and justice require it.” Id. Defendants claim

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that the amended complaint fails to show a causal link between Defendants’ alleged misconduct

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and Allstate’s monetary loss. Dkt. # 59 at 17.4 As explained above, see supra Part I.A

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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

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ORDER DENYING DEFENDANTS’ MOTIONS
TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 8

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(evaluating Allstate’s claim under the Washington Consumer Protection Act), Allstate’s

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amended complaint sufficiently alleges facts suggesting that Allstate would not have paid out

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over $600,000 in insurance settlements absent Defendants’ material misrepresentations.

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Accordingly, Defendants’ motion to dismiss this claim is denied.

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For the foregoing reasons, Defendants’ motions to dismiss for failure to state a claim,
Dkt. ## 56, 59, are DENIED.

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DATED this 24th day of January, 2017.

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A

Robert S. Lasnik
United States District Judge

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complaint specifically alleges that Defendant Thammalaiviroj personally received $12,500 in profits,
Dkt. # 52, ¶¶ 39–41.

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ORDER DENYING DEFENDANTS’ MOTIONS
TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT - 9