Unpublished Disposition, 937 F.2d 615 (9th Cir. 1991)

MEMORANDUM^* 

The plaintiffs below invested in real property securities through the Woodson Company, which is now bankrupt. They claimed that Firemans Fund Insurance Company, Woodson's insurer, refused to meet its insurance obligations to them, and/or helped to mislead them into believing that their investments were insured. They also contended that Firemans Fund was an alter ego of its parent company, American Express, which they joined as a defendant. They asserted claims based on negligent and intentional misrepresentation, fraud, breach of contract, the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. ("RICO"), and violations of various California statutory provisions. Appeal is not taken from the summary judgments in favor of both American Express and Firemans Fund. We affirm.

The Summary Judgment in Favor of Defendant American Express

Under California law, the corporate form will be disregarded when justice so requires, where two preconditions are satisfied. First, the principal and its alter ego must be found to have "such a unity of interest and ownership" that their "individuality, or separateness, ... has ceased." Minifie v. Rowley, 187 Cal. 481, 202 P. 673, 676 (1921). See United States v. Standard Beauty Supply Stores, Inc., 561 F.2d 774, 777 (9th Cir. 1977) (same, applying California law). Second, the situation must be such that to recognize the separateness of the entities in question would "sanction a fraud or promote injustice." Minifie, 202 P. at 676.

The plaintiffs have not submitted evidence that would show the existence of the control that they claim American Express exerted in these matters. They asked the district court to infer that American Express directed Firemans Fund's activities regarding the Woodson matter from evidence that American Express and Firemans Fund personnel met on several occasions with representatives of the California Department of Insurance. This evidence, however, does not offer any suggestion concerning what was discussed at these meetings, or support an inference that the Woodson matter was a focus of any of these meetings. It does not rebut the strong evidence that Firemans Fund functioned as a separate entity from American Express.

The plaintiffs have also not met the second prong of the alter ego test. Alter ego liability will be found only where the failure to do so would promote injustice. Minifie, 202 P. at 676. This requirement is set up in recognition of the purpose of the alter ego doctrine, which is to protect the victim of the corporate manipulation. Standard Beauty Supply Stores, 561 F.2d at 777. The required injustice, then, is not the injustice of allowing a party to escape liability for actions in which it may have been complicit, but rather the injustice of allowing a victim to go uncompensated because the perpetrator of the wrong hid behind an entity that was incapable of providing such compensation. See RRX Industries, Inc. v. Lab-Con, Inc., 772 F.2d 543, 545-46 (9th Cir. 1985) (alter ego will be found only where failure to do so will create a result that is unfair to the claimant); Gillis v. Jenkins Petroleum Process Co., 84 F.2d 74, 80 (9th Cir. 1936) ("corporate entity will be disregarded when necessary to prevent fraud upon a private party"). Because the plaintiffs here have not shown or even argued that they will not be able to collect a judgment if their claims run only against Firemans Fund, they cannot prevail in their alter ego claim.

The Plaintiffs' Request for Additional Time for Discovery

To survive a summary judgment motion based on the need for further discovery, a party must make clear to the court what information it seeks and how that information will help its case. Hall v. State of Hawaii, 791 F.2d 759, 761 (9th Cir. 1986). A generalized allegation that discovery would allow the party to "unearth more facts" does not suffice. Id. See Fed. R. Civ. P. 56(f). The amount of time that the opposing party has already had for discovery will also be relevant, and it is not an abuse of discretion to deny a request for additional discovery in response to a summary judgment motion where the opposing party has "had ample opportunity to conduct discovery." United States v. Wilson, 881 F.2d 596, 601 (9th Cir. 1989).

The district court did not abuse its discretion here. The plaintiffs have never explained what they expected further discovery to reveal. Furthermore, after examining volumes of documents and deposition testimony provided by American Express and Firemans Fund, the only real evidence to which they point that would support the conclusion that American Express controlled Firemans Fund is the publicly available information concerning the overlap between the directors of the two companies.

Scope of the Insurance Policy

In granting summary judgment in favor of defendant Firemans Fund against the plaintiffs, the district court concluded that the insurance policy did not cover their investments. On appeal, these investors argue that this reading of the policy was incorrect. They base their argument first on the assertion that the policy was required, as a matter of California law, to cover all investments with Woodson because it was offered in partial satisfaction of the bond that Woodson was required to post to secure a permit to conduct its business. Second, the plaintiffs argue that regardless of these statutory requirements, it is clear that the parties intended the insurance policy to cover all investments placed through Woodson.

To deal in real property securities, Woodson had to satisfy certain bond conditions. In recognition of the $6 million insurance policy that Woodson had through Firemans Fund, Woodson was permitted to avoid $1.8 million of its total bond requirement. This does not mean as a matter of law that the insurance covered all investors.

Plaintiffs contend that, regardless of what the contract specifically states, it should be interpreted to cover their investments because Woodson and Firemans Fund intended it to do so. Under California law, any ambiguity in an insurance contract is to be construed in favor of insurance. Hackenthal v. National Cas. Co., 189 Cal. App. 3d 1102, 234 Cal. Rptr. 853, 856 (1987). For this rule of construction to apply, however, there must be a genuine ambiguity in the policy. Id. Coverage will not be expanded by implication beyond the plain meaning of the policy's language. Id.

The policy at issue here specifically covers " [a]ny liability or obligation assumed by the Insured under Contract(s) of Guarantee relating directly to a promissory note secured by a Deed of Trust." It specifically excludes "any claim made by or on behalf of any person, firm or entity for any reason whatsoever that does not arise out of, thru, [sic] by virtue of or based upon the Contract(s) of Guarantee." Finally, it contains clauses specifying that the Contracts of Guarantee covered are only those that take the form of the documents attached to the insurance policy. Attached to the policy are copies of the forms that were issued to certain investors who are not parties to this appeal, but not to the appellants. Those forms require specific information concerning the investment to be filled in, and have a space at the end for the investor's signature and the signature of a Woodson representative. The policy thus makes clear that it only covers investors who are parties to an agreement that requires them to sign a specific type of document. The language of the policy is not amenable to a construction that would make it applicable to the appellants, who do not claim to have signed such a contract. The district court thus did not err in finding that the insurance policy, by its own terms, did not cover these investments.

Alleged Misrepresentations Regarding Insurance Coverage

The appellants correctly point out that under California law all persons owe a duty of care to the public, such that if it is foreseeable that harm will come from a third person as a result of a defendant's conduct, the defendant may be liable in negligence. Weirum v. RKO General, Inc., 15 Cal. 3d 40, 123 Cal. Rptr. 468, 471-72 (1975). While in general one has no duty to prevent harm by third persons, an exception lies where a negligence claim "is grounded upon an affirmative act of defendant which created an undue risk of harm." Id. at 473.

In the insurance contract Woodson specifically promised that the certificates of insurance would be issued only in conjunction with Contracts of Guarantee in the form appended to the policy. None of Woodson's public statements or advertisements revealed that certificates were being issued for investments other than the class specifically mentioned in the policy. The district court therefore correctly found that Firemans Fund breached no duty to those investors.

Appellants argue in the alternative that representations by Woodson can be attributed to Firemans Fund on an agency theory. Even if one accepts the appellants' assertion that Woodson became the agent of Firemans Fund when it received blank certificates, Woodson's alleged misrepresentations of the scope of coverage were unauthorized, and could have become acts of Firemans Fund only if Firemans Fund voluntarily accepted benefits from those acts. See Alvarado Community Hospital v. Superior Court, 173 Cal. App. 3d 476, 219 Cal. Rptr. 52, 54-55 (1985). The appellants can show only that these misrepresentations caused an increase in Woodson's business, thereby helping to assure that Woodson's premiums would be paid. This benefit, however, is not sufficiently specific to render Firemans Fund's voluntary acceptance of it a ratification of Woodson's misrepresentations. The district court therefore did not err in determining that Firemans Fund could not be held liable for any damage suffered by the appellants as a result of any representations made by Woodson concerning the scope of the insurance coverage.

Negligence Per Se

The plaintiffs claimed that, because Firemans Fund violated California Insurance Code Secs. 790.03(a) and 12640.03 et seq., Firemans Fund was negligent per se. The district court rejected this claim, finding that Firemans Fund had violated neither statutory provision. In their brief on appeal, the plaintiffs have raised only the section 790.03 claim.

Section 790.03 prohibits an insurer from making false representations concerning the terms of a policy. The plaintiffs' assert that Firemans Fund participated in or negligently permitted misrepresentations concerning the scope of Woodson's insurance coverage. As discussed above, even assuming that any such representations were made, they were not made by Firemans Fund nor did Woodson make them in a manner which would make Firemans Fund chargeable with knowledge of their content. The district court therefore correctly found no basis for liability in this statute.

The RICO Claim

To prevail on their RICO claims, the Antonius plaintiffs would have to show some level of involvement by Firemans Fund in the affairs of Woodson, the enterprise that they claim violated securities laws. Sun Savings and Loan Association v. Dierdorff, 825 F.2d 187, 194-95 (9th Cir. 1987). The district court correctly found that none of the allegations made by the Antonius plaintiffs could support a conclusion that Firemans Fund directly participated in Woodson's business. Most of those allegations involve the same contentions as those made to support the claims or negligence and misrepresentation. Viewing the evidence presented for these claims in the light most favorable to the plaintiffs, it cannot be said that Firemans Fund participated in any wrongdoing by Woodson.

A finding of liability on aiding and abetting or conspiracy theories would require, inter alia, that Firemans Fund knew of the wrong that Woodson was committing and understood its role in furthering that wrong. See Jett v. Sunderman, 840 F.2d 1487, 1495 (9th Cir. 1988). Firemans Fund did not possess the level of knowledge and intent required for such liability.

AFFIRMED.