Judge: Christian R. Gullon, Case: 23PSCV01184, Date: 2023-08-10 Tentative Ruling

Case Number: 23PSCV01184    Hearing Date: August 10, 2023    Dept: O

Tentative Ruling

(1)   DEFENDANTS STATE FARM GENERAL INSURANCE COMPANY AND REX HEYER’S NOTICE OF DEMURRER AND DEMURRER TO PLAINTIFF’S COMPLAINT is SUSTAINED with leave to amend as to the 4^th and 5^th COAs; leave to amend as to the 3^rd COA for UCL violation is TBD at the hearing as it appears to fail as a matter of law.

(2)   DEFENDANTS STATE FARM GENERAL INSURANCE COMPANY AND REX HEYER’S NOTICE OF MOTION AND MOTION TO STRIKE PORTIONS OF THE COMPLAINT is GRANTED in part with leave to amend (prejudgment interest 1^st COA), GRANTED in part without leave to amend (emotional distress as to the 4^th COA), DENIED in part (prejudgment interest as to the 6^th and 7^th COAs), MOOT in part (emotional distress and punitive damages as to the 5^th COA), and TBD (injunction and disgorgement of profits).

Background

This case pertains to insurance benefits. Plaintiff WENDY ZHENG alleges the following against Defendants STATE FARM GENERAL INSURANCE COMPANY (“State Farm”); REX HEYER (“Heyer”); and ECP CONSTRUCTION RESTORATION & REMODELS INC. (“ECP”): After Plaintiff’s property sustained water damage, she timely filed a claim with State Farm. State Farm hired ServPro’s to conduct mitigation and prepare a repair and restoration estimate (Complaint ¶17), but according to Plaintiff, that estimate was insufficient as evidenced by Plaintiff’s own public adjuster, Craig Bordon of ClaimsXP, and the estimate obtained from ARA Remodel Construction. (Complaint ¶¶17-18). Thereafter, State Farm obtained another estimate from its consultant contractor, ECP (Complaint ¶¶19, 20), but that estimate was also inadequate. In sum, Plaintiff alleges that, inter alia, breached the policy by failing to adjust Plaintiff’s claim properly and failing to communicate the status of the claim with Plaintiff.

On April 20, 2023, Plaintiff filed suit asserting the following causes of action (“COAs”):

On July 6, 2023, Defendants State Farm and Heyer (collectively, “Defendants” for purposes of this ruling) filed the instant demurrer with a motion to strike.

On July 28, 2023, Plaintiff filed her opposition to the demurrer and motion to strike.

On August 3, 2023, Defendants filed their reply.

Legal Standard

Defendants bring forth the demurrer pursuant to California Code of Civil Procedure (CCP) section 430.10 subdivision e. (See Notice of Demurrer p. 2.) In turn, subdivision e provides that a demurrer may be asserted when the pleading does not state facts sufficient to constitute a cause of action. (Code of Civ. Proc., §430.10 subds. (e).) Additionally, a demurrer tests the sufficiency of a pleading, and the grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters. (Code of Civ. Proc. § 430.30(a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Lastly, CCP section 430.41 requires the parties to meet and confer before the filing of a demurrer.[1]

Discussion

Defendants demur to the 3^rd, 4^th, and 5^th COAs for unfair business practices, negligent misrepresentation, and intentional misrepresentation, respectively. (Notice of Demurrer p. 2.)

The crux of the demurrer is that the complaint is that:

i.                 Plaintiff is asserting a non-viable claim for violation of unfair business practices and

ii.               The dispute is between Plaintiff and State Farm, not Heyer (the Proximity Claim Team Manager (Complaint ¶26)).[2]

The court will address each COA ad seriatim.

1.     3^rd COA for Unfair Business Practices Under Business and Professions (B&P) Code Section 17200, Et Seq

To state a cause of action under Business & Professions Code § 17200, a plaintiff must allege (1) a business practice, (2) that is unfair, unlawful or fraudulent; and (3) an authorized remedy.

As explained by the California Supreme Court in Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134:

An action under the UCL is not an all-purpose substitute for a tort or contract action.’ [citation omitted]. Instead, the act provides an equitable means through which both public prosecutors and private individuals can bring suit to prevent unfair business practices and restore money or property to victims of these practices. As we have said, the ‘overarching legislative concern [was] to provide a streamlined procedure for the prevention of ongoing or threatened acts of unfair competition.’ [Citation omitted]. Because of this objective, the remedies provided are limited. While any member of the public can bring suit under the act to enjoin a business from engaging in unfair competition, it is well established that individuals may not recover damages.’ [Citation].

(Id. at p. 1150) (emphasis added).

Plaintiff’s 3^rd COA is comprised of the following pertinent allegations:

Defendants unlawful and unfair business practices include, but are not limited to, (a) Defendants’ fraudulent inducement in claims processing by false representations, promises and assurances of protection and coverage, (b) Defendants’ demand and receiving insurance premiums from Plaintiff with promises and assurances of coverage and of prompt, fair, and reasonable claims processing, (c) Defendants’ unfair, unlawful, fraudulent, deceptive, misleading, and bad faith conduct in the investigation and adjustment of Plaintiff’s claim causing damage, harm, loss, emotional distress, anxiety, and discomfort to Plaintiff, and (d) Defendants’ unlawful acts and conduct are in violation of numerous sections of the California Insurance Code, the implied covenant of good faith and fair dealing and equity for defendants’ unfair income, profit, and gain for a covered loss. Plaintiff is informed and believes and thereon alleges, that other persons and entities have been or will be victimized by Defendants’ unfair and fraudulent tactics and unlawful business practices.

(Complaint ¶¶74, 75.)

In short, Plaintiff alleges that Defendants engaged in deceptive practices by not provide adequate insurance for losses to Plaintiff’s home. (Opp. p. 3:20-26.)

Defendants demur on the grounds that (a) Plaintiff has not alleged how she or members of the public have standing to assert this COA;[3] (b) Plaintiff’s allegations are conclusory/vague (i.e., what conduct violated the UCL and how said unfair competition caused her damages);[4] (c) Plaintiff cannot base her UCL COA on violations of insurance code section/California Code of regulations; and (d) the UCLA action fails because Plaintiff has an adequate remedy of law and, even assuming she didn’t, her request for injunctive relief is improper. (Demurrer pp. 4-6.)

As the point regarding what remedy available under the UCL has been made clear by the California courts, the court elects to begin its discussion on that point because it involves purely a question of law, making it more appropriate to determine the finality of a COA on a demurrer.[5]

As stated above, injunctive relief and restitution are the only remedies available under the UCL; damages cannot be recovered. (See Korea Supply Co., supra, 29 Cal.4th at p. 1144 [“While the scope of conduct covered by the UCL is broad, its remedies are limited. [Citation omitted]. A UCL action is equitable in nature; damages cannot be recovered.”]); see also Demurrer p. 5, citing to Prudential Home Mortgage Co. Inc. v. Superior Court (1998) 66 Cal.App.4th 1236, 1249 [when statutory remedies are adequate, equitable relief under the UCL is precluded]; see also Demurrer p. 5, citing Bank of the West v. Sup. Ct. (1992) 2 Cal.4th 1254, 1266 [Damages are not available under section 17203, which incorporates the broad, statutory definition of unfair competition. “The only nonpunitive monetary relief available under the Unfair Business Practices Act is the disgorgement of money that has been wrongfully obtained or, in the language of the statute, an order ‘[r]estor[ing] ... money ... which may have been acquired by means of ... unfair competition.’”]; see also Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.App.4th 163, 179 [Under the UCL, prevailing plaintiffs “are generally limited to injunctive relief and restitution.”].)

In Opposition, Plaintiff raises the following rebuttals:[6]

(i)              correcting Defendants’ unfair practices to conform to law and the expectations of California consumers (i.e., Defendants’ insureds) are not remedies afforded to Plaintiff through ordinary damages by way of their contract or tort claims (Opp. p. 6:9-18)[7]

(ii)            California law specifically authorizes a plaintiff in a first-party bad faith case to also seek injunctive relief (Opp. p. 6:19-28)

(iii)          Plaintiff is entitled to disgorgement of profits (Opp. p. 7:21-28).

(Opp. pp. 6-7.)

Here, the court is unpersuaded by Plaintiffs’ contentions.

First, Plaintiff’s very complaint belies her point that an adequate remedy at law is unavailable because she seeks special damages, general damages, compensatory damages, punitive damages/exemplary damages, attorney fees, and other costs. (See generally ‘Prayer for Relief’ section of the complaint.) The opposition too tacitly admits that monetary damages are enough, just not sufficient enough. (Opp. p. 7:19-20 [“Monetary damages alone are not adequate to prevent Defendants from committing these business practices.”], emphasis added.)

What is more, injunctive relief would be improper because Plaintiff has not alleged ongoing conduct that requires remediation; only a past failure to provide Plaintiff with the benefits and level of communication she sought.

Even assuming injunctive relief was appropriate, Plaintiff misconstrues the fundamental rule maintained by the California Supreme Court in Korea Supply that restitution under the UCL is only available to restore money or property that defendant wrongly took directly from the plaintiff or in which the plaintiff has a vested interest. Plaintiff relies upon Zhang v. Superior Court (2013) 57 Cal.4th 364 for the proposition that a UCL claim does not duplicate the contract and tort causes of action involved in a first-party bad faith cases even though damages are alleged and central to the claim, Zhang  is not instructive.[8] In Zhang, plaintiff sued her insurer under a commercial general liability policy covering her commercial property, asserting causes of action for breach of contract and bad faith, as well as a UCL claim. The specific issue before the California Supreme Court was “whether insurance practices that violate the UIPA can support a UCL action.” (Id. at p. 368.)[9]  The court in Zhang held that while a plaintiff may not use the UCL to “plead around” an absolute bar to relief, the UIPA does not immunize insurers from UCL liability for conduct that violates other laws in addition to the UIPA. (Ibid, emphasis added).

Here, for one (and as noted by Defendants in Reply), whereas the court held that plaintiff’s false advertising claim was a viable basis for her UCL cause of action here, there is no allegation of false advertising. (Id. at p. 378 [“As noted, Zhang's UCL claim is premised on allegations of false advertising. She contends California Capital misleadingly advertised that it would timely pay the true value of covered claims.”].) Next, the complaint is not predicated upon UIPA claim(s). In fact, the opposition makes this point clear: “nowhere in the Complaint are these Insurance Code sections discussed or alleged.” (Opp. p. 4:1-4; see also p. 4:9-10 [“Plaintiff does not rely upon Insurance Code section 790.03 as the basis for Defendants’ violation of UCL.”].)[10] Therefore, as Zhang pertained to facts wherein insurers engage in conduct that violates both the UIPA and obligations imposed by other statutes or the common law such that a UCL action may lie (id. at p. 384), the court adheres to the canon that the UCL permits only the far more limited relief of an injunction and restitution.

Lastly, to the extent that Plaintiff argues it is entitled to disgorgement of profits (i.e., “retention of the premiums and fees funds within this context amounts to unjust enrichment” (Opp. p. 7:26-27)), that argument also fails because Plaintiff’s characterization that mere unjust enrichment is sufficient is not the standard for disgorgement of profits. As clearly stated by the Korea Supply court, restitution is limited to either “money or property that defendants took directly from plaintiff” or “money or property in which [plaintiff] has a vested interest.” (Korea Supply, supra, 29 Cal.4th at pp. 1146-47.)[11] For example, disgorgement of profits exist in circumstances wherein a defendant is ordered to disgorge the rents collected on properties owned by a plaintiff (see e.g., People ex rel. Harris v. Aguayo (2017) 11 Cal.App.5th 1150) or wherein an employer is ordered to restore unpaid wages to its employees and former employees because once earned, those unpaid wages became property to which the employees were entitled (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163). Here, however, Plaintiff has not alleged nor is arguing that Defendants took money from Plaintiff.[12]

Thus, Plaintiff is not entitled to disgorgement of profits.

At most, what Plaintiff has alleged is a contractual expectation, which further evidences that these facts do not fall within the purview of the UCL.

Therefore, as both the complaint and opposition demonstrate that Plaintiff has an adequate remedy at law, the demurrer is sustained.

Though there is no legal viability for the COA, the court will hear from Plaintiff as to whether leave to amend should be granted as the issue. Based thereon, the court need not address Defendants’ other arguments pertaining to the 3^rd COA.

2.     Negligent Misrepresentation COA Against Heyer

The elements of negligent misrepresentation are: the misrepresentation of a past or existing material fact; without reasonable ground for believing it to be true; with intent to induce another's reliance on the fact misrepresented; justifiable reliance on the misrepresentation; and, resulting damage. (National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group Inc. (2009) 171 Cal.App.4th 35.

The pertinent allegations comprising this COA are that Heyer mispresented “to Plaintiff’s public adjuster that he acknowledged the oversights and errors by STATE FARM and its prior claims adjuster(s), and promising to resolve the claim in a timely manner by making subsequent payments that would cover the reasonable and actual cost of repairs for the damage to Plaintiff’s home caused by the subject water loss which were never paid” and that he “misrepresent[ed] to Plaintiff that it would pay at minimum the estimate prepared by its consulting contractor, ECP” but that Heyer “had no intention to resolve the claim and make subsequent payments as promised,” such that as a result of these alleged misrepresentations, “caus[ed] Plaintiff’s damages.” (Complaint ¶¶78-81.)

Defendants demur on two grounds:

(i)              an insured’s employees, absent extraordinary circumstances, cannot be sued[13]

(ii)            the COA fails to state sufficient facts.

Here, the court need not reach the issue of whether the suit against Heyer is appropriate as a matter of law because the complaint fails to set forth facts demonstrating reasonable reliance, or proximate causation of harm. Rather, the complaint makes the conclusory statement that Plaintiff justifiably reasonably relied on Heyer, Moreover, Plaintiff does not indicate how the alleged misstatements ultimately caused her to incur damages beyond claiming that she waited to hear back from Heyer and from State Farm. (Demurrer p. 10.) The opposition is silent as to these points.

Therefore, the court SUSTAINS the demurrer as to the 4^th COA for negligent misrepresentation with leave to amend.

3.     Intentional Misrepresentation

A fraud cause of action requires allegations of: (1) a representation of a material fact; (2) the representation must have been false; (3) the defendant must have known that the representation was false or must have made the representation recklessly without knowing whether it was true; (4) the defendant must have had the intent to defraud; (5) plaintiff must have been unaware of the falsity of the representation and acted in reliance upon the representation; and (6) plaintiff’s reliance upon the representation must have damaged plaintiff. (Handel v. U.S. Fid. & Guar. Co. (1987) 192 Cal.App.3d 684, 693-94.)

Here, for similar reasons stated above (i.e., paucity of ultimate facts regarding reliance on any purported misrepresentations and how such reliance caused damages), the demurrer is sustained. Moreover, the intentional misrepresentation COA fails for another reason: failure to plead intent. The intent not to perform must be shown at the time of the promise. (Demurrer p. 13, citing Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30-31.) Accordingly, Plaintiff must show that it was Heyer’s intent at the time his statements were made that State Farm would not perform pursuant to the terms of the contract, but Plaintiff has baldly asserted such intent. The opposition further evidences the lack of facts because it conclusively argues “[a]t the time Heyer made these representations he knew they were false, and that Heyer would not be covering the damages incurred by Plaintiff. At the time Heyer made these promises to Plaintiff, he had no intention of performing on the promise.” (Opp. p. 13:7-11.) In sum, the allegations (and arguments) are conclusory.

Therefore, the court SUSTAINS the demurrer as to the 5^th COA with leave to amend.[14]

Conclusion

Based on the foregoing, the demurrer is SUSTAINED with leave to amend as to the 4^th and 5^th COAs for negligent and intentional misrepresentation, respectively. The demurrer as to the 3^rd COA for violations of the UCL is sustained and leave to amend is TBD at the hearing contingent upon Plaintiff Counsel’s showing that the claim is viable as a matter of law.

II. Motion to Strike

Defendants seek to strike: (i) prejudgment interest; (ii) Plaintiff’s request for injunctive relief[15];(iii) emotional distress in connection with the 4^th COA for negligent misrepresentation;[16] (iv) emotional distress in connection with the 5^th COA for intentional misrepresentation;[17] and (v) punitive damages.[18]

a.     Prejudgment Interest

Defendants aver that prejudgment interest cannot be awarded if a genuine question as to the alleged damages claimed is based on factual uncertainty. (Motion p. 1, fn. 4 citing Highlands Ins. Co. v. Continental Cas. Co. (9th Cir. 1995) 64 F.3d 514, 521 [applying California Civil Code section 3287(a)];[19] see also Motion p. 1, fn. 5 citing Duale v. Mercedes-Benz USA, LLC (2007) 148 Cal.App.4th 718 [“[W]here the amount of damages cannot be resolved except by verdict or judgment, prejudgment interest is not appropriate [citation].”].)

According to Civil Code section 3287, subdivision (a): “a person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in the person upon a particular day, is entitled also to recover interest thereon from that day, except when the debtor is prevented by law, or by the act of the creditor from paying the debt.” (emphasis added). As observed by the Duale court:

[T]he test for recovery of prejudgment interest under [Civil Code] section 3287, subdivision (a) is whether defendant actually know[s] the amount owed or from reasonably available information could the defendant have computed that amount. [Citation.]” [Citations.] ‘The statute ... does not authorize prejudgment interest where the amount of damage, as opposed to the determination of liability, ‘depends upon a judicial determination based upon conflicting evidence and it is not ascertainable from truthful data supplied by the claimant to his debtor.’ [Citations.]” [Citation.] Thus, where the amount of damages cannot be resolved except by verdict or judgment, prejudgment interest is not appropriate. [Citation.]' [Citation.]’

(Duale, supra, 148 Cal.App.4th at p. 720) (italics original and emphasis added).

Here, applying these principles, though at first glance the amount of damages owed to Plaintiff by Defendants appears to be calculable prior to trial (i.e., based upon Defendants’ inspections of the Property, the documents and estimates Plaintiff submitted to Defendants to value the loss including photographs, and the estimate for the actual cost of repair to the Property (Complaint ¶14-21), the amount of benefits owed is in dispute. Indeed, the very purpose of this lawsuit is that the parties dispute the amount of damages; hence, Plaintiff’s desire for a jury trial to resolve those factual disputes regarding benefits owed. And if the amount were not in dispute (i.e., quantifiable), then the complaint would seek a specific amount of monetary damages, but the prayer for relief does not. Simply put, the fact that Plaintiff seeks a certain amount of damages/benefits does not afford itself to the conclusion that said amount is the amount that Plaintiff should and will be afforded. Thus, as the determination of damages (and whether benefits are owed) is in dispute, then prejudgment interest is not authorized.[20]

Therefore, the motion to strike punitive damages as to the 1^st COA for breach of contract GRANTED, with leave to amend.

The court DENIES the motion to strike prejudgment interest on the 6^th and 7^th COA because those COAs are asserted against ECP such that Defendants do not have standing to challenge prejudgment.[21]

Conclusion

Based on the foregoing, the Motion to Strike is GRANTED in part with leave to amend (prejudgment interest 1^st COA), GRANTED in part without leave to amend (emotional distress as to the 4^th COA), DENIED in part (prejudgment as to the 6^th and 7^th COAs), MOOT in part (emotional distress and punitive damages as to the 5^th COA), and TBD (injunction and disgorgement of profits).