-SMS Deborde et al v. Allstate Insurance Company et al, No. 1:2011cv01464 - Document 11 (E.D. Cal. 2011)

Court Description: ORDER DENYING 8 Defendants' Motion to Dismiss Bower From the Complaint; ORDER DENYING Defendants' Motion for Summary Judgment on Behalf of Bower; and ORDER REMANDING CASE to Tulare County Superior Court, signed by District Judge Lawrence J. O'Neill on 10/5/2011. Copy of remand order mailed to other court. CASE CLOSED. (Jessen, A)

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-SMS Deborde et al v. Allstate Insurance Company et al Doc. 11 1 2 3 4 5 6 7 8 IN THE UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 MICHAEL DEBORDE, DEBORAH DEBORDE, CASE NO. CV-F-11-01464-LJO-SMS 12 Plaintiffs, ORDER ON MOTION TO DISMISS/ MOTION FOR SUMMARY JUDGMENT (Doc. 8) 13 14 15 16 17 vs. ALLSTATE INSURANCE COMPANY, DAVID BOWER dba Bower Insurance Group, and DOES 1 through 10, inclusive, Defendants. / INTRODUCTION 18 19 In this insurance reformation, breach of contract and bad faith action, defendants Allstate 20 Insurance Company (“Allstate”) and David Bower (“Bower”) seek to dismiss plaintiff Michael and 21 Deborah DeBorde’s (“the DeBordes”) complaint against Bower for failure to state a cognizable claim 22 for relief under Fed. R. Civ. P. 12(b)(6). In the alternative, they seek summary judgment for Bower. 23 This Court considered defendants’ motions on the record and without the October 11, 2011 hearing or 24 oral argument, pursuant to this Court’s Local Rule 230(g). For the reasons discussed below, this Court 25 DENIES defendants’ motions. 26 BACKGROUND 27 The Parties and Insurance Policy 28 The DeBordes are California residents. In 2004, they purchased a home in Dinuba, California. 1 Dockets.Justia.com 1 The home was a historic building built in or around 1880. When the DeBordes purchased the home, 2 they also purchased a homeowner’s insurance policy (“policy”) issued by Allstate, an Illinois 3 corporation. Bower owns and operates an insurance agency in Reedley, California, and assisted the 4 DeBordes in acquiring the policy. Bower told the DeBordes that he understood their needs for coverage 5 and that he had expertise in insuring residential property. After several inspections of the property, 6 Bower obtained an “Allstate Deluxe Policy” for the DeBordes and assured them that the policy was 7 sufficient to replace the property in the event of a loss. From 2004 until 2008, Bower inspected the 8 property and set the policy limits annually. In June 2008, a fire destroyed the DeBordes’ home. On the 9 date of the fire, the policy in force provided approximately $225,000 in building coverage. The cost to 10 replace the damaged property was more than $600,000. After the fire, Bower requested that Allstate 11 reform the policy limits. In August 2009, Allstate denied the reformation claim. 12 The DeBordes’ Claims 13 On July 18, 2011, the DeBordes filed a complaint in Tulare County Superior Court prior to 14 removal to this Court. The complaint alleged causes of action for (1) negligence, and (2) negligent 15 misrepresentation against Bower and Allstate. The complaint alleged causes of action for (3) 16 reformation, (4) breach of contract, and (5) breach of implied covenant of good faith and fair dealing 17 against Allstate. 18 Allstate’s Notice of Removal 19 On August 31, 2011, Allstate filed its notice to remove this action to this Court on grounds that 20 the joinder of Bower was “fraudulent and designed to attempt to prevent the removal of the Superior 21 Court Action to this Court . . . by the assertion of a sham claim against a resident defendant.” (Notice 22 of Removal, p. 3). In its removal notice, Allstate contends that the DeBordes failed to state a claim of 23 relief against Bower because Bower cannot be held personally liable for actions that occurred while he 24 was acting as an agent and representative of Allstate. (Notice of Removal, p. 3). Allstate contends that 25 Bower was fraudulently joined for diversity and removal purposes and that his presence should be 26 disregarded in determining jurisdiction. (Notice of Removal, p. 4). Allstate also argues in its removal 27 notice that the DeBordes cannot substantively state a claim against Bower because they have no factual 28 basis to support their claims for negligence and negligent misrepresentation. (Notice of Removal, p. 5). 2 1 Allstate’s Motions 2 On September 7, 2011, Allstate filed a motion to dismiss under Fed. R. Civ. P. 12(b)(6) (“Rule 3 12(b)(6)”) for failure to state a claim, or alternatively, a motion for summary judgment, on behalf of 4 Bower. In the Rule 12(b)(6) motion, Allstate contends that Bower is a sham defendant and was joined 5 to prevent removal. (Motion, p. 1). Allstate explains that the claims against Bower should be dismissed 6 because at all times Bower acted as a disclosed agent for Allstate and within the course and scope of that 7 agency thus, he incurred no individual liability to the DeBordes as a matter of law. (Motion, p. 1-2). 8 With regard to the motion for summary judgment, Allstate contends that Mr. DeBorde’s own admissions 9 show that there is no factual basis to support the DeBordes’ claims against Bower. (Motion, p. 2). 10 DISCUSSION 11 Motion to Dismiss 12 Fed. R. Civ. P. 12(b)(6) Motion to Dismiss Standards 13 A motion to dismiss pursuant to Fed R. Civ. P. 12(b)(6) is a challenge to the sufficiency of the 14 pleadings set forth in the complaint. A Fed. R. Civ. P. 12(b)(6) dismissal is proper where there is either 15 a “lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable legal 16 theory.” Balisteri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). In considering a motion 17 to dismiss for failure to state a claim, the court generally accepts as true the allegations of the complaint, 18 construes the pleading in the light most favorable to the party opposing the motion, and resolves all 19 doubts in the pleader's favor. Lazy Y. Ranch LTD v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008). 20 To survive a motion to dismiss, the plaintiff must allege “enough facts to state a claim to relief 21 that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial 22 plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable 23 inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 24 1949 (2009). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more 25 than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556). 26 “Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short 27 of the line between possibility and plausibility for entitlement to relief.’” Id. (quoting Twombly, 550 U.S. 28 at 557). 3 1 “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual 2 allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more 3 than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” 4 Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted). Thus, “bare assertions...amount[ing] 5 to nothing more than a ‘formulaic recitation of the elements’...are not entitled to be assumed true.” 6 Iqbal, 129 S. Ct. at 1951. A court is “free to ignore legal conclusions, unsupported conclusions, 7 unwarranted inferences and sweeping legal conclusions cast in the form of factual allegations.” Farm 8 Credit Services v. American State Bank, 339 F.3d 764, 767 (8th Cir. 2003) (citation omitted). Moreover, 9 a court “will dismiss any claim that, even when construed in the light most favorable to plaintiff, fails 10 to plead sufficiently all required elements of a cause of action.” Student Loan Marketing Ass'n v. Hanes, 11 181 F.R.D. 629, 634 (S.D. Cal. 1998). In practice, “a complaint . . . must contain either direct or 12 inferential allegations respecting all the material elements necessary to sustain recovery under some 13 viable legal theory.” Twombly, 550 U.S. at 562 (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 14 1101, 1106 (7th Cir. 1984)). 15 Sham Defendant/Fraudulent Joinder 16 Allstate contends that the DeBordes’ complaint should be dismissed against Bower because he 17 is a sham defendant and was joined to prevent removal. (Motion, p. 1). Allstate argues that the 18 DeBordes have failed to state a claim against Bower because Bower was acting within the course and 19 scope of his agency and thus, incurred no individual liability as a matter of law. (Motion, p. 1-2). 20 Fraudulently joined defendants will not defeat removal on diversity grounds. Ritchey v. Upjohn 21 Drug Co., 139 F.3d 1313, 1318 (9th Cir.), cert. denied, 525 U.S. 963, 119 S.Ct. 407 (1998). “Fraudulent 22 joinder is a term of art.” McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). “If a 23 plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according 24 to the well-settled rules of the state, the joinder is fraudulent and ‘the defendant’s presence in the lawsuit 25 is ignored for purposes of determining diversity.’” United Computer Systems, Inc. v. A.T. & T. Corp., 26 298 F.3d 756, 761 (9th Cir. 2002) (quoting Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 27 2001)). Joinder is fraudulent if there is no intention to get a joint judgment and there is no colorable 28 ground for claiming so. Lewis v. Time, Inc., 83 F.R.D. 455, 460 (E.D. Cal. 1979), aff’d, 710 F.2d 549. 4 1 However, there is no fraudulent joinder if the defendant’s assertions go to “‘the merits of the action as 2 an entirety, and not to the joinder; that is to say, it indicated that the plaintiff’s case was ill founded as 3 to all the defendants.’” Ritchey, 139 F.3d at 1318 (quoting Chesapeake & Ohio R. Co. v. Cockrell, 232 4 U.S. 146, 153-154, 34 S.Ct. 278 (1914)). 5 Allstate bears the burden to demonstrate Bower is a sham defendant: 6 The burden of proving a fraudulent joinder is a heavy one. The removing party must prove that there is absolutely no possibility that the plaintiff will be able to establish a cause of action against the in-state defendant in state court, or that there has been outright fraud in the plaintiff’s pleadings of jurisdictional facts. 7 8 9 Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir. 1983). 10 A court addressing a sham defendant does not “decide whether the plaintiff will actually or even 11 probably prevail on the merits, but look[s] only for a possibility that he may do so.” Dodson v. Spiliada 12 Maritime Corp., 951 F.2d 40, 42 (5th Cir. 1992). A court must not take “an overly mechanistic approach 13 to defendant’s fraudulent joinder claim.” Alderman v. Pitney Bowes Management Services, 191 14 F.Supp.2d 1113, 1116 (N.D. Cal. 2002). 15 Allstate contends that Bower has no personal liability to plaintiffs for acts committed within the 16 course and scope of his disclosed agency with Allstate. (Motion, p. 3). As a general rule, insurance 17 agents acting in their agency are not individually liable, rather, liability rests with the insurance company. 18 See Lippert v. Bailey, 241 Cal.App.2d 376, 382 (1966). Allstate maintains that the DeBordes are suing 19 Bower for acts done while performing the duties of an Allstate agent thus, only Allstate is liable. 20 (Motion, p. 5). 21 The DeBordes point out however, that there are two exceptions to the general rule set forth in 22 Lippert: (1) the “special duty” and (2) dual agency exceptions. Under the “special duty” exception, an 23 insurance agent can assume a “special duty” toward his insured by misrepresenting policy terms or extent 24 of coverage. Paper Savers, Inc. v. Nacsa, 51 Cal.App.4th 1090, 1096-97 (Cal. App. 2 Dist. 1996). Here, 25 the complaint provides that Bower told the DeBordes that he “obtained . . . [a] policy in an amount 26 sufficient to replace the property in the event of a loss.” (Complaint, p. 3). The complaint further 27 provides that, “[a]s of the date of the fire, the policy in force provided approximately $225,000 in 28 building coverage. The cost to replace the damaged property at the time of the fire was more than 5 1 $600,000[.]” (Complaint, p. 3). Thus, Bower appears to fall into an exception to the Lippert rule. 2 Accordingly, this Court cannot say that the DeBordes have “fail[ed] to state a cause of action against 3 [Bower, the] resident defendant.” United Computer Systems, Inc., 298 F.3d at 761. 4 In addition, the DeBordes point out, Bower assumed a “special duty” when he held himself out 5 as experienced in procuring insurance coverage and that his experience and knowledge would guarantee 6 replacement. (Opposition, p. 5-6). Under California law, an agent’s duty may arise when the agent 7 holds himself out as having expertise in a given field of insurance being sought by the insured. Macey 8 v. Allstate Property and Casualty Ins. Co., et al., 220 F.Supp.2d 1116, 1125-26 (N.D. Cal. 2002) (citing 9 Fitzpatrick v. Hayes, 57 Cal.App.4th 916, 927 (1st Dist. 1997)). The complaint provides that Bower told 10 the DeBordes that “he had expertise in insuring residential property.” (Complaint, p. 2). Thus, Bower 11 appears to fall into an exception to the Lippert rule. Accordingly, this Court cannot say that the 12 DeBordes have “fail[ed] to state a cause of action against [Bower, the] resident defendant.” United 13 Computer Systems, Inc., 298 F.3d at 761. 14 In Allstate’s reply, they contend that it is not settled under California law whether a “special 15 duty” exception to the Lippert rule exists. (Reply, p. 2). And that even if the exception does exist 16 whether an insurance agent assumes a “special duty” to an insured is a completely separate issue from 17 whether the agent would be personally liable for a breach of such duty. (Reply, p. 3). This court has 18 considered these arguments but points out that a court addressing a sham defendant does not “decide 19 whether the plaintiff will actually or even probably prevail on the merits, but look[s] only for a 20 possibility that he may do so.” Dodson, 951 F.2d at 42 (emphasis added). Accordingly, this Court 21 rejects Allstate’s arguments. 22 Motion for Summary Judgment 23 With regard to the motion for summary judgment, Allstate contends that there is no factual basis 24 to support the claims against Bower. Allstate contends that a recorded telephone conversation between 25 Michael DeBorde (“Mr. DeBorde”) and an Allstate claims representative contradicts the allegations in 26 the complaint. (Motion, p. 5). Specifically, Allstate points out that Mr. DeBorde admitted that he did 27 not recall requesting of Bower any particular type of coverage and did not recall talking to Bower about 28 his policy limits or any terms of the Policy. (Motion, p. 5-6). Allstate also alleges that Mr. DeBorde 6 1 admitted that he did not ask Bower whether he had any particular insurance expertise, including setting 2 policy limits. (Motion, p. 6). 3 “The court shall grant summary judgment if the movant shows that there is no genuine dispute 4 as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). 5 However, “[p]utting plaintiffs to the test . . . without ample opportunity for discovery is particularly 6 disfavored.” Texas Partners v. Conrock Co., 685 F.2d 1116, 1119 (9th Cir. 1982) (internal quotation 7 marks and citations omitted). Plaintiffs “should be afforded reasonable access to potentially favorable 8 information prior to the granting of summary judgment because on summary judgment all inferences to 9 be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the 10 summary judgment motion.” Id. at 1119 (internal citations omitted). Where a plaintiff demonstrates 11 “the possible existence of genuine issues of material fact” the disposition of the issues must await further 12 discovery. Id. at 1121. 13 The transcript of the recorded telephone conversation between Mr. DeBorde and the Allstate 14 claims representative fails to show that the DeBordes’ claim lacks a factual basis. When Mr. DeBorde 15 was asked whether he requested any particular type of coverage he said he did not but that he was under 16 the assumption that it was the deluxe policy which was the same policy he had on his prior house. 17 (Declaration, p. 8). When asked whether they discussed the policy limits, Mr. DeBorde said that he did 18 not remember but that he “kind of” remembered discussing the limits and that he was under the 19 assumption that the amount would cover everything because the amount discussed was “kind of what 20 it cost . . .to buy the property.” (Declaration, p. 8). 21 With regard to Bower’s expertise, Mr. Deborde admitted that he did not ask Bower whether he 22 had any particular insurance expertise or expertise in setting policy limits. (Declaration, p. 9, 17). 23 However, whether Mr. DeBorde asked is irrelevant. Under California law, the question is whether the 24 agent held himself out as having expertise in a given field of insurance sought by the insured. See 25 Fitzpatrick, 57 Cal.App.4th at 927. Moreover, as pointed out by plaintiffs, it is alleged that Bower 26 unilaterally set the limits and renewed the policy limits annually without the DeBordes’ authorization. 27 (Opposition, p. 10-11). Thus, there is a dispute of a material fact as to what Bower represented to the 28 DeBordes. Plaintiffs have shown the possibility of the “existence of genuine issues of material fact.” 7 1 Texas Partners, 685 F.2d at 1121. Accordingly, this Court denies Allstate’s motion for summary 2 judgment. 3 CONCLUSION AND ORDER 4 For the reasons discussed above, this Court: 5 1. VACATES the October 11, 2011 hearing on this motion; 6 2. DENIES defendants’ motion to dismiss Bower from the complaint; 7 3. DENIES defendants’ motion for summary judgment on behalf of Bower; and 8 4. REMANDS this action to Tulare County Superior Court. 9 10 IT IS SO ORDERED. 11 Dated: b9ed48 October 5, 2011 /s/ Lawrence J. O'Neill UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8

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