Vu v. Liberty Mutual Insurance Company, No. 3:2018cv03594 - Document 42 (N.D. Cal. 2018)

Court Description: ORDER DENYING DEFENDANT'S MOTION TO DISMISS 37 . (Illston, Susan) (Filed on 11/14/2018)
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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 TAM VU, Plaintiff, 8 9 10 11 Case No. 18-cv-03594-SI ORDER DENYING DEFENDANT’S MOTION TO DISMISS v. LIBERTY MUTUAL INSURANCE COMPANY, et al., Re: Dkt. No. 37 United States District Court Northern District of California Defendants. 12 13 Defendant Liberty Mutual Insurance Company, Inc.’s (“LMIC”) motion to dismiss plaintiff 14 Tam Vu’s third amended complaint is set for hearing on November 16, 2018. Pursuant to Civil 15 Local Rule 7-1(b), the Court determines that the motion is appropriate for resolution without oral 16 argument, and VACATES the hearing. For the reasons set forth below, the Court DENIES 17 defendant's motion to dismiss. 18 19 20 21 BACKGROUND The following facts are taken from the allegations in plaintiff Tam Vu’s Third Amended Complaint ("TAC"). Dkt. No. 33. Plaintiff is a resident of San Jose, California. TAC, ¶ 1. 22 Defendant LMIC is a Massachusetts corporation. Id., ¶ 2. Defendant Liberty Insurance Corporation 23 (“LIC”) is an Illinois corporation. Id., ¶ 3. The California Department of Insurance licenses both 24 LMIC and LIC. Id. at ¶ 2-3. Plaintiff alleges that LIC and LMIC marketed plaintiff a home 25 insurance policy that provided “complete coverage for [plaintiff’s] home’s physical structure, for 26 other structures on the property, for damage to [her] personal belongings, and for loss of use 27 28 resulting from a covered loss.” Id., ¶ 10. Specifically, the policy guaranteed payment of up to 1 2 $624,200 for repairs to the home and “$458,150 for repairs or replacement of damaged property.” Id., ¶ 12. 3 Plaintiff alleges that in May 2018, her home sustained water damage to the point of 4 uninhabitability “from a broken water line in her kitchen, causing damage throughout the first floor, 5 and to personal property[.]” Id. at ¶ 13. Plaintiff states that she provided prompt notice to “Liberty 6 Mutual,” presumably LMIC, which assigned plaintiff the claim number GK43030, and that she 7 8 United States District Court Northern District of California 9 fulfilled all conditions necessary to receive payout of her policy benefits. Id. at ¶ 14-15. Plaintiff alleges that her policy states the insurer is a non-existent entity- “Liberty Mutual 10 Insurance”- whereas in reality the insuring entity is LIC. Id. at ¶ 16-17. Plaintiff alleges LIC is a 11 wholly owned and controlled subsidiary of LMIC, and that LIC is a mere shell and conduit for the 12 affairs of LMIC. 13 14 Plaintiff alleges that LMIC employees were solely responsible for handling plaintiff’s claim, and that no employee, supervisor, or manager of LIC took part in investigating plaintiff’s claim. Id. 15 16 at ¶ 20-23. Plaintiff contends that LMIC employees failed to disclose benefits, coverage, and time 17 limitations, failed to detail the bases for denial of coverage, and to date have not paid the amount 18 due on the policy. Id. at ¶ 30. Plaintiff alleges LMIC employees allegedly violated 10 CCR 19 § 2695.7(d) and Insurance Code § 720.03(h) by concealing coverage, misrepresenting coverage, and 20 “failing to undertake a thorough, fair, and objective investigation of plaintiff’s claim.” Id., ¶ 30. 21 The Court granted defendant’s motion to dismiss plaintiff’s Second Amended Complaint, 22 Dkt. No. 25, on October 3, 2018. Plaintiff filed the TAC, Dkt. No. 33, on October 8, 2018. Currently 23 24 before the Court is defendant LMIC’s motion to dismiss plaintiff’s TAC, Dkt. No. 37. 25 26 LEGAL STANDARD 27 A complaint must contain “a short and plain statement of the claim showing that the pleader 28 is entitled to relief,” Fed. R. Civ. Pro. 8(a)(2), and a complaint that fails to do so is subject to 2 1 dismissal pursuant to Rule 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss, plaintiff must 2 allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 3 550 U.S. 544, 570 (2007). This “facial plausibility” standard requires the plaintiff to allege facts 4 that add up to “more than a sheer possibility that a Defendant has acted unlawfully.” Ashcroft v. 5 Iqbal, 129 S. Ct. 1937, 1949 (2009). While courts do not require “heightened fact pleading of 6 specifics,” a plaintiff must allege facts sufficient to “raise a right to relief above the speculative 7 8 United States District Court Northern District of California 9 level.” Twombly, 550 U.S. at 544, 555. “A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’” Iqbal, 556 U.S. at 678 (quoting 10 Twombly, 550 U.S. at 555). “Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid 11 of ‘further factual enhancement.’” Id. (quoting Twombly, 550 U.S. at 557). “While legal 12 conclusions can provide the framework of a complaint, they must be supported by factual 13 allegations.” Id. 14 In reviewing a Rule 12(b)(6) motion, a district court must accept as true all facts alleged in 15 16 the complaint and draw all reasonable inferences in favor of the plaintiff. See Usher v. City of Los 17 Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, a district court is not required to accept as 18 true “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable 19 inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). 20 21 DISCUSSION 22 The matter currently in dispute is whether plaintiff has alleged sufficient facts to assert a 23 24 theory of alter-ego liability. See Order Dkt. No. 32. Plaintiff argues LMIC and LIC are alter-egos 25 of one another. TAC, ¶ 24. “To justify piercing the corporate veil on an alter-ego theory in order 26 to hold a parent corporation liable for the acts or omissions of its subsidiary, a plaintiff must establish 27 two elements: (1) that there be such unity of interest and ownership that the separate personalities 28 of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of 3 1 the corporation alone, an inequitable result will follow.” Monaco v. Liberty Life Assur. Co., No. 2 C06-07021 MJJ, 2007 WL 420139, at *5 (N.D. Cal. Feb. 6, 2007) (citations and internal quotations 3 omitted). “Determining whether an alter-ego relationship exists depends on the circumstances of 4 each particular case and is considered an issue for the trier-of-fact.” Traynor v. Lexington Ins. Co., 5 6 No. 209CV02990FMCSSX, 2009 WL 10674942, at *2 (C.D. Cal. June 8, 2009) (citing Mid– Century Ins. Co. v. Gardner, 9 Cal. App. 4th 1205, 1212 (1992)). Underlying any court analysis of 7 8 United States District Court Northern District of California 9 alter-ego liability “is a general presumption in favor of respecting the corporate entity.” Calvert v. Huckins, 875 F. Supp. 674, 678 (E.D. Cal. 1995). 10 Here, defendant LMIC concedes that plaintiff pleads sufficient facts to withstand a motion 11 to dismiss on the unity of interest prong. Dkt. No. 37 at 16 (“LMIC agrees that the TAC alleges 12 facts that, when assumed to be true for the purposes of this Fed. Rule Civ. Proc. 12(b) motion, are 13 sufficient to satisfy the unity of interest element at the pleading stage, only.”). 14 Defendant argues plaintiff fails to satisfy the second prong of the alter-ego test. To satisfy 15 16 the inequitable result prong for alter-ego liability, “the plaintiff must show ‘specific manipulative 17 conduct’ by the parent toward the subsidiary which ‘relegate[s] the latter to the status of merely an 18 instrumentality, agency, conduit or adjunct of the former[.]” Monaco v. Liberty Life Assur. Co., No. 19 C06-07021 MJJ, 2007 WL 420139, at *5 (N.D. Cal. Feb. 6, 2007) (internal citations omitted). The 20 Court may consider the same variety of factors in making determinations on both prongs of the alter- 21 ego test. Traynor (citing Associated Vendors, Inc. v. Oakland Meat Co., Inc., 210 Cal. App. 2d 825, 22 838-40 (1962)). 23 24 The Court’s previous Order focused on inequity as demonstrated through a showing of bad 25 faith. In reviewing the allegations in the TAC, the Court focuses more broadly on the alleged 26 inequity on upholding the corporate structure of LMIC and its subsidiary, LIC. 1 Plaintiff claims two 27 28 1 “[W]hile California courts generally require evidence of some bad-faith conduct to fulfill 4 1 inequitable results will follow if LMIC and LIC are allowed to retain separate corporate structures. 2 TAC, ¶ 26. First, plaintiff contends dismissing LMIC will hamper discovery and trial needs. Id. at 3 ¶ 30. The Court is unconvinced this will lead to an inequitable result. The parties may subpoena 4 necessary parties regardless of LMIC’s presence in the instant action. Second, plaintiff alleges a 5 6 fraudulent allocation of labor—in essence, that LMIC has complete control over how claims under LIC policies are investigated, adjusted, and denied, and that LMIC purposefully creates a division 7 8 United States District Court Northern District of California 9 of labor to shield itself from liability. Id. at ¶ 30-31. Plaintiff alleges this corporate structure is tantamount to institutional bad faith and that upholding such a structure is inequitable because 10 decision making is at the LMIC level, and applies to all companies for which LMIC provides claims 11 investigation services. Id. 12 13 The allegations in the TAC sufficiently allege, at this stage of the pleadings, that it is plausible LIC is a mere instrument for shielding LMIC from liability. LMIC and its employees 14 handle the day to day operations, management, and claims handling for LIC policy-holders. See 15 16 TAC, ¶ 30; see also Dkt. No. 36, ¶¶ 19, 24 (LIC “has no direct employees responsible for 17 investigating and adjusting claims brought under California homeowners insurance policies”, and 18 no LIC employee trains others regarding adjustment and investigation.). Plaintiff claims “LIC 19 employees had no role whatsoever in [handling her] claim.” TAC, ¶ 30. In particular, plaintiff 20 claims that LMIC “exercised complete control over” her claim, and “[a]ll decisions were made, 21 ratified, and approved by employees, supervisors, and managing agents of LMIC.” Id. Plaintiff 22 alleges a plausible theory that LMIC and LIC breached the implied duty of good faith and fair 23 24 dealing by “engag[ing] in an illegal scheme to improperly hide coverage[] from California 25 26 27 28 the second prong of alter-ego liability, that bad-faith conduct must make it inequitable to recognize the corporate form.” Pac. Mar. Freight, Inc. v. Foster, No. 10-CV-0578-BTM-BLM, 2010 WL 3339432, at *7 (S.D. Cal. Aug. 24, 2010) (citing Gardner, 9 Cal.App.4th at 1213). 5 1 insured[.]”2 Id., ¶ 30. 2 Plaintiff also alleges that defendants comingle their assets. See Id., ¶ 24 (alleging, inter 3 alia, that LMIC and LIC file consolidated tax returns, share bank accounts, and “all profits are 4 passed to LMIC by way of a management agreement and debt structuring”). Furthermore, plaintiff 5 6 alleges defendants disregard corporate formalities by sharing boards, executives, management, and policies. Id. This Court finds that at this stage in the pleadings, plaintiff has sufficiently alleged a 7 8 9 plausible theory supporting LIC’s mere instrumentality. The Court DENIES defendant’s motion to dismiss the TAC. CONCLUSION 10 United States District Court Northern District of California 11 12 For the foregoing reasons and for good cause shown, the Court hereby DENIES defendant’s motion to dismiss the Third Amended Complaint. 13 14 15 IT IS SO ORDERED. 16 17 Dated: November 14, 2018 ______________________________________ SUSAN ILLSTON United States District Judge 18 19 20 21 22 23 24 25 26 27 28 The TAC claims that “[t]he means of that scheme include but are not limited to: hiding coverage[]; misrepresenting coverage[]; failing to investigate claims adequately; failing to use licensed experts; applying policy provisions improperly; denying claims without justification; [violation California law]; and forcing insured to file lawsuits to recover policy benefits[.]” TAC, ¶ 30. Plaintiff distinguishes between LMIC and LIC’s actions rather than collectively referring to defendants as “Liberty Mutual.” See TAC, ¶ 30; SAC, ¶ 21. LMIC employee Chukes’s email is registered to the domain. TAC, ¶ 30. 6 2