Judge: Barbara M. Scheper, Case: 21STCV00174, Date: 2023-11-09 Tentative Ruling

Case Number: 21STCV00174    Hearing Date: November 9, 2023    Dept: 30

Dept. 30

Calendar No.

Carlson vs. Farmers Insurance Exchange, et. al., Case No. 21STCV00174

Tentative Ruling re:  Defendants’ Motion for Summary Adjudication

            Defendants move for summary adjudication as to Plaintiff Douglas Carlson’s (Plaintiff) second cause of action for intentional misrepresentation and fourth cause of action for deceit. The motion is denied.

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party can show evidentiary support for a pleading or claim and if not to enable an order of summary dismissal without the need for trial. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 (Atlantic Richfield).) Code of Civil Procedure Section 437c, subdivision (c) “requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)

Once the moving party has met that burden, the burden shifts to the opposing party to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)

In 1984, Plaintiff and Defendants, a group of insurance companies, entered into a contract under which Plaintiff was appointed as an insurance agent for Defendants. (FAC ¶ 6.) Plaintiff “agreed to develop and solicit customers for Farmers insurance, to service those customers for Farmers in return for which Farmers would compensate [Plaintiff].” (FAC ¶ 6.) Plaintiff worked as an insurance agent under the contract from 1984 through 2019. (FAC ¶ 7.) In July 2019, Defendants held a meeting with Plaintiff in which they threatened termination based on Plaintiff’s failure to meet unspecified “business results.” (FAC ¶ 16.) In December 2019, Defendants informed Plaintiff that they would terminate Plaintiff’s agency within 90 days and buy out all of his business relationships. (FAC ¶ 18.)

Plaintiff alleges that Defendants, at all relevant times, informed exclusive agents and potential exclusive agents that “(1) once they become an established agency following a short period of probationary status they would have no sales goal for sales of insurance policies . . . (2) after becoming an established agency they would have no sales quota for sales of insurance policies . . . and (3) the decision of how large their agency should be once they became established year in and year out was within their discretion as independent business owners not requiring growth every single year.” (FAC ¶ 9.) Plaintiff alleges that these representations were false, and that Defendants failed to disclose to Plaintiff facts concerning their use of a sales quota system to terminate agents. (FAC ¶¶ 47, 56.)

Plaintiff’s fraud claims center around Defendants’ “Managing Underperforming Agents” (MUA) program, instituted sometime around 2017 or 2018. (DE, Ex. H-6, p. 86 [343].) The MUA program ranked all Farmers agents with three or more years of tenure based on metrics including the number of new business policies sold, the amount of premium for policies sold, and the change in policies in force (the number of policies an agent has). (DE, Ex. H-9, p. 82 [367].) Agents ranked below a certain cutoff were deemed “underperforming,” and were informed that “the continuation of your appointment agreement depends on your ability to immediately achieve a significant improvement in your agency’s business results.” (PE, Ex. L10 [214]; DE, Nagy Decl. ¶ 2, Ex. N-1 [7].)

As described by Jeffery Dailey, Defendants’ CEO, “the whole purpose of the MUA program was to manage underperforming agents out of Farmers because we had a goal from the board to grow our market share of insurance. . . . the whole purpose here was to remove agents who were not producing new business, and so the ranking is to get at the agents that weren’t producing new business.” (DE, Ex. H-7, pp. 49-50 [347].) In 2019, Defendants set the cutoff at the 11th percentile so that around 1000 agents would be designated “underperforming.” (Id. p. 51; PE, Ex. L9, p. 90 [199].) That year, Defendants planned that none of the “underperforming” agents would remain with Defendants by the end of the process; Defendants projected that all of those agents would either resign upon receiving the MUA notice, be acquired internally or externally during the MUA process, or be terminated at the end of the process. (PE, Ex. L7, p. 137 [140].) Plaintiff was informed that he was underperforming under the MUA program by manager Zoltan Nagy at the July 2019 meeting. (PE, Ex. L9, p. 62 [193]; DE, Nagy Decl. ¶ 2.)

Second Cause of Action for Fraudulent Misrepresentation

            The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) damages. (See Civil Code §1709.) “ ‘Promissory fraud’ is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud. [Citation.] An action for promissory fraud may lie where a defendant fraudulently induces the plaintiff to enter into a contract. [Citations.] In such cases, the plaintiff's claim does not depend upon whether the defendant's promise is ultimately enforceable as a contract.” (Agosta v. Astor (2004) 120 Cal.App.4th 596, 603.)

Plaintiff alleges under his claim for fraudulent misrepresentation, “Farmers intentionally and fraudulently represented that Plaintiff was not subject to any sales quota or sales goal for sale of insurance policies after the Defendants decided to initiate the secret sales quota program to terminate agents.” (FAC ¶ 47.)

Plaintiff has presented evidence of Defendants’ representations to him and other agents that they would not be subject to sales quotas or sales goals. Plaintiff states in his declaration that such representations were made to him by Zoltan Nagy at the July 2019 meeting. (PE, Carlson Decl. ¶¶ 1, 5.) Steve Aspel, who worked as a district manager for Defendants from 1996 through 2012, also states that agents and prospective agents were “explicitly told that they do not have any sales quotas or goals,” and that “[r]ecruits were regularly assured as part of the recruitment process that they not [sic] be required under their contracts to keep growing their business year after year once they attained a level of business satisfactory to their lifestyle.” (PE, Ex. L2 ¶ 3.) In discovery responses, Defendants represented that they did not instruct district managers to stop informing agents about the lack of sales quotas or sales goals from 2015 through 2019. (PE, Ex. L25 [432].)

            Defendants first argue that these representations were not false because the MUA program did not impose a “sales quota” or “sales goal.” While the evidence shows that agents who did not meet a certain level of sales performance would be subject to the MUA program and ultimately terminated (PE, Ex. L7, p. 137 [140]), Defendants contend that this was not a “sales quota” or “sales goal” because the threshold for underperforming agents was calculated relative to other agents’ performance, rather than being a pre-determined, fixed amount. The Court disagrees. The fact that the cutoff was tied to a percentile rather than a fixed amount is not inconsistent with interpreting the program as imposing a sales “quota” or “goal,” under the ordinary meaning of those words.

Defendants also cite Plaintiff’s deposition testimony that “[s]ales quota means … that the company wants you to write X amount of policies per month, make X amount of contacts … and if you … don’t meet those things, there will be consequences.” (DE, Ex. H-2, p. 167 [190].) This statement is not conclusive evidence as to the meaning of “quota,” and in any case the MUA program is consistent with Plaintiff’s definition; “X” here would simply be equal to the performance of the 11th percentile of all ranked agents.

Furthermore, fraud may be based on “ambiguous statements and half-truths. Thus a speaker may make a statement and know that it is open to two interpretations, one true and one false. The statement is actionable if the speaker intends that it be understood in its false sense or is indifferent to which way the statement is taken; a speaker who knowingly makes an ambiguous statement is obliged to take reasonable steps to ensure that the statement is understood accurately.” (Restatement (Third) Torts: Liability for Econ. Harm § 9, cmt. c (2020); see Friedman v. Medjet Assistance, LLC (C.D. Cal., Nov. 1, 2010) 2010 WL 11462853, at *14.)  Because Defendants have not shown that interpretating the MUA program as a “quota” or “goal” would be unreasonable, there is a triable issue of material fact as to whether Defendants’ representations concerning the lack of sales quotas or goals were false.

Defendants next argue that the representations were not actionable because its managers believed that their statements regarding the absence of sales quotas were true at the time they were made. This argument fails for the reasons discussed above; Defendants do not dispute that Zoltan Nagy told Plaintiff in July 2019 that agents do not have sales goals or quotas. (DE, Ex. H-2, p. 159; PE, Carlson Decl. ¶ 5.) Nagy was aware of the MUA program and the general criteria for deeming agents “underperforming.” (DE, Nagy Decl. ¶ 4.) The MUA program can reasonably be interpreted as imposing a sales goal or quota, and so there is a triable dispute as to whether Nagy knew that his representation was false or a “half-truth” that could be understood as false.

Fourth Cause of Action for Deceit

The required elements for fraudulent concealment are: “(1) concealment or suppression of a material fact; (2) by a defendant with a duty to disclose the fact to the plaintiff; (3) the defendant intended to defraud the plaintiff by intentionally concealing or suppressing the fact; (4) the plaintiff was unaware of the fact and would not have acted as he or she did if he or she had known of the concealed or suppressed fact; and (5) plaintiff sustained damage as a result of the concealment or suppression of the fact.” (Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 606.) Deceit includes “[t]he suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact.” (Civ. Code § 1710, subd. (3).)

            Plaintiff’s claim for deceit is based on the allegations that  “Farmers intentionally and fraudulently concealed and failed to disclose to Plaintiff the existence of the MUA program, the rankings being used in such program, the quotas created in order to terminate approximately 1000 agents annually. Such concealment and nondisclosure were made with the intent of causing Plaintiff to rely on statements denying the existence of the program and quotas.: (FAC ¶ 56.)

Plaintiff allegedly relied on Defendants’ concealment when he “did not structure his agency in a way to prevent Defendants use of sales quotas under the MUA program to take such customers against his will. Had Plaintiff known of the falsity of the statements . . . he would have taken actions such as merging with another agent or acquiring a smaller agency or realigning his agency into an agency offering other insurance policies not associated with Defendants prior to July of 2019.” (FAC ¶ 57.)

Defendants argue that they did not owe Plaintiff any duty to disclose facts because no fiduciary relationship existed between the parties. However, as Defendants acknowledge, “[a] duty to disclose may also arise in the so-called ‘half truth’ context—that is, when a speaker makes a representation which, though not false, he knows will be misleading absent full disclosure of additional facts known to him which qualify the initial representation.” (San Diego Hospice v. County of San Diego (1995) 31 Cal.App.4th 1048, 1055 fn. 4.) “In transactions which do not involve fiduciary or confidential relations, a cause of action for non-disclosure of material facts may arise [where] . . . the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead...” (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 132.) Here, there is a triable dispute as to whether Nagy’s July 2019 representations to Plaintiff regarding sales quotas were “likely to mislead” Plaintiff, given the existence and workings of the MUA program.

Defendants next argue that they did not intend to induce Plaintiff’s reliance because the goal of the MUA program was solely to improve underperforming agents’ business results. However, Plaintiff’s evidence shows a triable dispute as to whether the improvement of agents’ business was in fact the purpose of the program. Neal Bordenave, Plaintiff’s expert witness, opines that no reasonable insurer could have expected Plaintiff to achieve the results demanded in the MUA letter. (PE, Bordenave Decl. ¶ 17.) Bordenave further opines that the objective of the MUA program was not to improve agents’ sales, but “to capture accounts and redistribute policies of those agents to other agents at Farmers.” The program also benefited Defendants by allowing them “to significantly decrease the commissions they were required to pay for these accounts,” because a redistributed account would pay the newly assigned agent only 50% of the commission that it paid the original agent. (Ibid; PE, Ex. L11, p. 67 [221].) This evidence is sufficient to create a triable dispute as to Defendants’ intent in making the purported misrepresentations.

            Finally, Defendants argue that Plaintiff has not shown justifiable reliance on either Defendants’ alleged misrepresentations or concealment. Plaintiff’s own testimony and the testimony of his expert witness is sufficient to create a triable dispute on this issue. Plaintiff states that, had he known of the MUA program prior to 2019, “I would have engaged in a merger or acquisition path including acquiring producers to ensure that I would never fall below the number of agents or the percentage required.”  (PE, Carlson Decl. ¶ 7.) Bordenave agrees that Plaintiff could have improved his relevant business metrics for the MUA program through merger with or acquisition of other agencies. (PE, Bordenave Decl. ¶¶ 14-16.) While Defendants also argue that Plaintiff’s reliance was unreasonable as a matter of law because the parties’ agreement provided for no-cause termination, the Court previously rejected this argument in ruling on Defendants’ demurrer.