Judge Elaine W. Mandel, Case Number: 23SMCV00235, Date: 2024-12-09 Tentative Ruling

Judge: Elaine W. Mandel, Case: 23SMCV00235, Date: 2024-12-09 Tentative Ruling

Case Number: 23SMCV00235 Hearing Date: December 9, 2024 Dept: P

Tentative Ruling

Hughes v. Shekhtman, Case no. SMCV00235

Hearing date December 9, 2024

Defendants General Insurance Co. and Safeco Insurance Co. Demurrer to SAC

Defendants YS Insurance and Yuliya Shekhtman’s Demurrer to SAC

Plaintiff Hughes sues defendants Shekhtman, YS Insurance, Safeco Insurance Company of America (“Safeco”) and General Insurance Company of America (“General”) for professional negligence, negligent misrepresentation and professional misconduct arising from defendants’ issuance and subsequent cancellation of an insurance policy covering plaintiff’s property. Plaintiff previously sued defendant General, a subsidiary of Safeco, in federal court over the same policy dispute for breach of contract. The federal court granted summary judgment against plaintiff, and General was successful on appeal.

Plaintiff now sues General, Safeco, and plaintiff’s former insurance agency YS Insurance and its owner Shekhtman. Defendants General and Safeco demur to the SAC’s second, third and fifth COAs on the grounds that plaintiff’s claims are barred by res judicata. Defendants YS and Shekhtman demur separately to the entire SAC and all COAs on the grounds that plaintiff’s claims were litigated in federal court, and findings of fact were made as to causation, preventing plaintiff from stating facts sufficient to constitute a COA. Plaintiff opposes. Defendants request judicial notice. Defendants YS and Shekhtman offer evidentiary objections.

Defendants’ Requests for Judicial Notice

Defendants General and Safeco request judicial notice of 21 judicial documents, records of court and decisions of court arising from plaintiff’s previous actions against defendants. Judicial notice of records of this court or of any court of the United States is proper under Cal. Evid. Code §§452 and 453. GRANTED.

Defendants YS and Shekhtman request judicial notice of 9 documents; 7 documents, records and orders arising from plaintiff’s previous actions against defendants General and Safeco; the latest information statement filed by YS and the fictitious business name statement filed by YS. Judicial notice of records of this court or of any court of the United States is proper under Cal. Evid. Code §§452 and 453. Judicial notice of actions by the legislative, judicial or executive branches of this state is proper. GRANTED.

Defendants YS Insurance and Shekhtman’s Evidentiary Objections to the Declaration of Plaintiff’s Counsel Gruzman

Defendants YS and Shekhtman offer 12 evidentiary objections. Objections 1-7, 9-12 SUSTAINED (impermissible extrinsic evidence), objection 8 SUSTAINED (impermissible legal argument).

Defendants General and Safeco’s Demurrer to the SAC

Under California law, collateral estoppel or issue preclusion applies (i) after the final adjudication (ii) of an identical issue (iii) actually litigated and necessarily decided in the first suit and (iv) asserted against one who was a party in the first suit or one in privity with that party. Lucido v. Superior Court (1990) 51 Cal.3d 335, 341. Res judicata or claim preclusion applies when an earlier suit (i) reached a final judgment on the merits, (ii) involved the same claims or causes of action, and (iii) involved the same parties or their privies. Zevnik v. Superior Ct. (2008) 159 Cal.App.4th 76, 82. The doctrine also applies equally to claims based on the same operative facts that could have been, but were not, asserted in the prior lawsuit. Id.

Defendants demur to plaintiff’s SAC on the grounds plaintiff’s claims are barred by res judicata, collateral estoppel and claim-splitting doctrines, so cannot form the basis for COAs. Defendants argue the claims for negligence, negligent misrepresentation and fraud arise from the same facts litigated in the previous federal actions.

The SAC alleges “defendants concealed that they never sent the policy applications to plaintiff and that she never signed them.” RJN exh. 19, paras. 38-40. The SAC further alleges “new expert evidence supports that she [plaintiff] did not receive the applications by email, and thus, never signed and returned them.” RJN exh. 19, para. 37.

In the federal actions, the district court adjudicated the following: (1) on 12/4/20 and 12/16/20, plaintiff submitted insurance applications for the property through her agent; (2) plaintiff provided the information for the applications in telephone interviews conducted by her agent at YS Insurance; (3) plaintiff did not correct any representations in her applications and that she reviewed and electronically signed them. RJN exh. 8, pp. 1-2; exh. 9, pp. 1-2. In its memorandum affirming both judgments, the Ninth Circuit noted the evidence showed plaintiff understands, reads and writes English, and she received and signed the applications before they were submitted. RJN, exh. 13, p. 4. Based on the foregoing, collateral estoppel prevents plaintiff from challenging the findings or outcomes of the federal actions.

Plaintiff argues the instant case arises from a theory of respondeat superior, which was a claim not previously litigated. Defendants argue the facts alleged by plaintiff are the same facts previously litigated in the federal actions, and merely changing the legal theory does not defeat res judicata. Defendants are correct; plaintiff was at liberty to raise the respondeat superior claims in the federal action, and such claims arise from the same core nucleus of facts that have already been decided. The rule against claim-splitting requires plaintiff to have raised these claims in the federal action.

Plaintiff alleges new facts have arisen demonstrating extrinsic fraud. Plaintiff alleges newly discovered transcripts of phone calls demonstrating defendant YS and Safeco knew of critical failings in plaintiff’s insurance application but issued coverage regardless. Plaintiff offers the declaration of counsel Gruzman to introduce said transcripts; this is improper. Extrinsic evidence may not be considered on demurrer. Plaintiff has not sought judicial notice of this evidence, and judicial notice cannot be granted, as the facts are not reasonably undisputable. Plaintiff is limited to the allegations in the SAC, nothing more.

Plaintiff’s allegations in the SAC arise from the same set of facts litigated in the federal action. Res judicata bars a subsequent suit involving the same “transactional nucleus of facts” and “primary rights.” Wade v. Ports America Mgmt. Corp. (2013 218 Cal.App.4th 648, 657. General was party to the federal actions, and Safeco has privity as General’s parent company, allowing both defendants the protections of res judicata. Plaintiff’s claims as alleged against General and Safeco are barred and cannot form the basis of COAs in the instant action. Defendants General and Safeco’s demurrer to the SAC is SUSTAINED with leave to amend.

Defendants YS Insurance and Shekhtman’s Demurrer to the SAC

In testing the sufficiency of a pleading, a demurrer must admit the truth of all material facts properly pled and matters which may be judicially noticed. See Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal. App. 4th 471, 495. “The plaintiff has the burden of showing that the facts pleaded are sufficient to establish every element of the cause of action and overcoming all of the legal grounds.” Martin v. Bridgeport Community Assn., Inc. (2009) 173 Cal. App. 4th 1024, 1031. A demurrer should be sustained without leave to amend where there is no reasonable probability that the defect can be cured. Vater v. Glenn (1958) 49 Cal. 2d 815, 821.

Defendants argue Shekhtman is an improper party as a matter of law. Plaintiff alleges she engaged with YS Insurance in preparing the insurance applications. SAC paras. 14-15. Plaintiff fails to allege any direct business interactions with Shekhtman and alleges all interactions plaintiff had with defendants was in the scope of business with YS Insurance. SAC para. 27. Defendants argue YS Insurance is a separate business entity. “[C]orporate entities are presumed to have separate existences and the corporate form will be disregarded only when the ends of justice require this result.” Laird v. Capital Cities (1998) 68 Cal. App. 4th 727, 737. Plaintiff fails to make the necessary allegations to bring claims against Shekhtman in her individual capacity.

Defendants argue the federal actions decided the matters of the insurance applications’ preparation, review and signature against plaintiff, so plaintiff cannot establish the elements of causation for any of the first four COAs. Plaintiff alleges defendants: “… offered and sold to plaintiff a Safeco homeowners insurance policy which defendants knew or should have known would not and did not cover properties located in proximity to a brush area such as plaintiff’s property in Malibu; … failed to supervise their employees resulting in incorrect information entered into [plaintiff’s] application for insurance; … concealed and/or misinformed Plaintiff regarding their errors and omission coverage.” SAC, para. 16.

The federal courts made factual findings that plaintiff admitted she had insurance coverage, she made unilateral misrepresentations to defendants and plaintiff was the cause in fact of her own damages, rather than misrepresentations by defendants. See RJN exhs. E-G. Plaintiff is collaterally estopped from challenging the federal courts’ findings. Plaintiff cannot establish causation for the SAC’s first through fourth causes of action as pled.

Defendants argue the fraud claim fails because it is premised on plaintiff not having signed the insurance applications, despite the federal court finding that plaintiff did sign the application. Plaintiff alleges new expert evidence shows she did not sign the applications. SAC para. 37. This is contrary to the federal court findings. RJN exh. E, p. 2. Plaintiff cannot establish damages for the fifth COA for fraud.

Defendants YS Insurance and Shekhtman’s demurrer to the SAC is SUSTAINED with leave to amend.