Judge: Gregory Keosian, Case: 23STCV12802, Date: 2023-11-01 Tentative Ruling

Case Number: 23STCV12802    Hearing Date: March 26, 2024    Dept: 61

Defendant Oakwood Construction and Restoration Services, Inc.’s Demurrer to the First Amended Complaint is SUSTAINED without leave to amend. Oakwood’s motion to strike is denied as moot.

Defendant Ed Carrasco’s Demurrer to the First Amended Complaint is SUSTAINED with leave to amend as to the third cause of action for negligent misrepresentation, and SUSTAINED without leave to amend as to the fifth and sixth causes of action for UCL violations and conspiracy. Carrasco’s motion to strike is denied as moot.

Defendant Allstate Insurance Company’s Motion to Strike Portions of the First Amended Complaint is GRANTED as to the prayer for punitive damages with leave to amend.

Defendant to give notice.

I.                DEMURRER

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., §§ 430.30, et seq.) In particular, as is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action. (See id. § 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) 39 Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. [Citation.]”)

“In determining whether the complaint is sufficient as against the demurrer … if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated.”  (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) Such demurrers “are disfavored, and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Mahan v. Charles W. Chan Insurance Agency, Inc. (2017) 14 Cal.App.5th 841, 848.)

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.)

1.     Oakwood Demurrer

Defendant Oakwood Construction and Restoration Services, Inc. (Oakwood) demurrers to the First Amended Complaint (FAC) of Plaintiff Tom Provost (Plaintiff). This court sustained Oakwood’s previous demurrer to the fourth, fifth, and sixth causes of action for intentional interference with contract, Unfair Competition, and civil conspiracy, on the grounds that Oakwood cannot be held liable for inducing a breach of contract through acts committed as an agent for Defendant Allstate Insurance Company (Allstate), the other party to the insurance contract. Additionally, Plaintiff’s unfair competition claim was determined to be infirm because Plaintiff could not allege conduct in violation of statute, conduct that was unfair, or conduct that was fraudulent under the Unfair Competition Law (UCL). Oakwood’s present demurrer to Plaintiff’s amended complaint raises the same arguments.

Nonparties to an insurance contract cannot be liable for either breach of that contract or for breach of the covenant of good faith and fair dealing. (See Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576.) “California courts have refused to extend liability for bad faith, the predominant insurer tort, to agents and employees of the insurer.” (Sanchez v. Lindsey Morden Claims Services, Inc. (1999) 72 Cal.App.4th 249, 254–255.) By the same token, only a “stranger” to a contract may be liable for intentionally interfering with that contract, and “a defendant who is not a party to the contract or an agent of a party to the contract is not immune from liability for intentional interference with contract by virtue of having an economic or social interest in the contract.” (Caliber Paving Company, Inc. v. Rexford Industrial Realty and Management, Inc. (2020) 54 Cal.App.5th 175, 187.)

In its previous ruling, this court relied on the above authority and it applied it to independent contractors providing services on an insurer’s behalf. The rule precludes “claims against the principal's subordinate employees and against agents retained by the principal to act as independent contractors . . . for conspiring to violate a duty peculiar to the principal.” (Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, 48.) The Complaint alleged that Oakwood prepared repair estimates for Allstate (Complaint ¶ 6) based not on genuine analysis but only “plugging numbers into software” (Complaint ¶ 32), and that in exchange for these “lowball” estimates, Allstate directed work and “supplemental payments” toward Oakwood that they would not have otherwise received. (Complaint ¶ 59.)

Plaintiff’s FAC now contains allegations in connection with those stated above, that Oakwood did not “act[] as Allstate’s agent[], and did not hold themselves out to be anything other than service providers in an arm’s length transaction with Allstate to generate and draft repair estimates for the claim, and for submission to the appraisal process.” (FAC ¶ 57.) Plaintiff elsewhere denies that Oakwood was “in an employment relationship, or any other relationship whereby Allstate had absolute control over their actions,” and that Oakwood “made decisions unilaterally to generate low ball repair estimates in the hopes of obtaining more work from Allstate.”  (FAC ¶ 63.)

These conclusory allegations are insufficient in light of the specific allegations establishing agency contained in the FAC, which also formed the basis for the order sustaining Oakwood’s prior demurrer. It is expressly alleged that Allstate “hired” Oakwood to conduct the repair estimates on Plaintiff’s claim and offered “supplemental payments” not offered to other independent contractors “as a direct result of Oakwood and Smith’s lowball estimates.” (FAC ¶ 63.) Although Plaintiff argues that they were hired as “independent unaffiliated contractors” (Ibid.), as noted in ruling on the prior demurrer, the fact that Oakwood was an independent contractor does not exclude it from agency, any more than it would exclude “an insurance adjusting firm, a law firm, and their respective employees.” (See Doctors' Co., supra, 49 Cal.3d at p. 48 fn. 4.)  “The same principles apply not only to attorneys but to other persons employed or retained by an insurer to discharge its duties under an insurance policy.” (Id. at p. 188.) Here, Plaintiff’s allegations expressly establish that Allstate retained Oakwood to discharge its duties under the insurance policy. Counter-allegations characterizing Oakwood’s wrongful lowballing as “unilateral” does not rebut the agency context in which such misconduct allegedly took place., Plaintiff’s attempt to argue that Oakwood did not undertake these actions as agents but for its own “financial gain” is also unavailing (Opposition at p. 10), as the only financial gain alleged is Oakwood’s continuing to receive work for Allstate, i.e. continuing the agency relationship. (FAC ¶ 63.)

As with the previous demurrer, the same arguments dispense with Plaintiff’s UCL claim. No claim for “unlawful” conduct serves as a predicate UCL violation here, since the statute that Plaintiff relies upon (Penal Code § 550) does not impose liability upon ““insurance companies and insurance company agents, affiliates, and exchanges.” (People ex rel. Alzayat v. Hebb (2017) 18 Cal.App.5th 801, 814.) Plaintiff’s attempt to limit the application of this holding to predicate violations under Insurance Code § 1871.7 is unpersuasive, as the holding is not based on the applicability of Penal Code § 550 to any section of the insurance code, but the applicability of section 550 in general; it forms no predicate violation under Insurance Code 1871.7 because insurance companies and their agents “[are] not subject to criminal liability under Penal Code section 550.” (Alzayat, supra, 18 Cal.App.5^th at p. 814; see also State of California ex rel. Nee v. Unumprovident Corp. (2006) 140 Cal.App.4th 442, 450 [analyzing language of Penal Code § 550].) For the same reason, it can form no predicate violation under the UCL.

Plaintiff’s attempts to plead under the other UCL prongs fare no better. There is no allegation of unfair practices under the UCL, which requires allegations that the wrongdoing alleged is “tethered to any underlying constitutional, statutory or regulatory provision, or that it threatens an incipient violation of an antitrust law, or violates the policy or spirit of an antitrust law.” (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1366 [applying test to consumer UCL cases].) Plaintiff makes no attempt to allege or argue that Oakwood’s conduct fit within this definition. Finally, no claim for a UCL violation based on fraud is alleged here, as a claim for fraudulent business practices under the UCL requires a showing of “actual reliance” on the alleged misrepresentation, and the Complaint does not allege that Plaintiff relied on Oakwood’s representations. (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 228.)

As to the sixth cause of action for conspiracy, Oakwood is correct that “[c]ivil conspiracy is not an independent tort.” (City of Industry v. City of Fillmore (2011) 198 Cal.App.4th 191, 211.) This claim is therefore properly dismissed.

The demurrer is therefore SUSTAINED without leave to amend. Defendant’s motion to strike is DENIED as moot.

2.     Carrasco Demurrer

Defendant Ed Carrasco (Carrasco) demurrers to the third, fifth, and sixth causes of action for negligent misrepresentation, UCL violations, and conspiracy.

“The elements of negligent misrepresentation are “(1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.” (National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 50.)

Carrasco argues, persuasively, that the FAC does not allege actual reliance on any misrepresentation made by him. The FAC alleges that Carrasco propounded a patently insufficient cost of repair for Plaintiff’s damaged property. (FAC ¶ 52.) But it also alleges that Plaintiff never relied on this estimate, but contested it from the moment he first received it. (FAC ¶ 14.)

Plaintiff does not allege a negligent misrepresentation claim.  The FAC alleges two false misrepresentations by Carrasco: that he misrepresented the repair estimate, and that he provided a phone number to his supervisor that “was not a general phone number and not a direct line to Romero.” (FAC ¶ 52.) Plaintiff alleges that in reliance on Carrasco’s representations, he “pursued the claim and submitted his own estimate, which Carrasco rejected.” (FAC ¶ 53.) But this allegation is self-contradictory, as Plaintiff’s preparation of his own counter-estimate is definitionally not reliance upon Carrasco’s own estimate. (FAC ¶ 53.) Indeed, Defendant is correct that Plaintiff’s specific account of his interactions with Carrasco demonstrate his facial resistance to Carrasco’s estimate. (FAC ¶ 14.) Moreover, Plaintiff’s allegation that Carrasco provided a wrong number for his supervisor does not state a basis for negligent misrepresentation liability, because Plaintiff does not allege why this misrepresentation is “material.” (National Union Fire Ins. Co. of Pittsburgh, PA, supra, 171 Cal.App.4th at p. 50.)

Plaintiff in opposition presents a number of other potential misrepresentations, which are not pleaded as misrepresentations in the FAC, or else not pleaded as misrepresentations that Plaintiff relied on, such as that Carrasco’s stated that he would undertake a “fair and truthful investigation” (alleged only as a duty in FAC ¶ 54); that Carrasco discounted the damage to the upstairs walls (disputed by Plaintiff from the beginning (FAC ¶¶ 13–14, 20); and that Carrasco told Plaintiff he could not switch to a new claims adjuster (which is not alleged to be false (FAC ¶ 22).) Plaintiff also argues reliance claims that do not appear in the FAC, such as that Plaintiff refrained from coordinating vendors in reliance on Carrasco’s representations. (Opposition at p. 3.) Plaintiff’s opposition does not state any reliance on a misrepresentation; only that Plaintiff suffered harm from Carrasco’s obstructionist conduct.

The demurrer is therefore SUSTAINED with leave to amend as to the third cause of action.

Carrasco’s arguments against the fifth cause of action for UCL violations and the sixth cause of action for conspiracy. Mirror the same arguments made by Oakwood, with the added contention that an employee such as Carrasco cannot be liable for conspiring with his employer. (Demurrer at pp. 13–17.)

These arguments are persuasive. The reasoning of People ex rel. Alzayat v. Hebb (2017) 18 Cal.App.5th 801, 814, applies to Carrasco as an employee of Allstate as well as Oakwood. (FAC ¶ 4.)  Nor has Plaintiff alleged unfair or fraudulent conduct against Carrasco. Again, “[c]ivil conspiracy is not an independent tort.” (City of Industry v. City of Fillmore (2011) 198 Cal.App.4th 191, 211.) And moreover, “[t]o hold that a subordinate employee of a corporation can be liable for conspiring with the corporate principal would destroy what has heretofore been the settled rule that a corporation cannot conspire with itself.” (Black v. Bank of America (1994) 30 Cal.App.4th 1, 6.) Plaintiff’s argument that Carrasco may be liable for conspiracy based on his independent financial gain once more proposes no more financial gain than the perpetuation of Carrasco’s employment relationship. (Opposition at pp. 7–8.)

The demurrer is SUSTAINED as to the fifth and sixth causes of action without leave to amend. Carrasco’s motion to strike the prayer for punitive damages is DENIED as moot.

II.             MOTION TO STRIKE

Any party, within the time allowed to respond to a pleading, may serve and file a notice of motion to strike the whole or any part thereof. (Code Civ. Proc., § 435(b)(1)). The notice of motion to strike a portion of a pleading shall quote in full the portions sought to be stricken except where the motion is to strike an entire paragraph, cause of action, count or defense. (California Rules of Court Rule 3.1322.)

The grounds for a motion to strike shall appear on the face of the challenged pleading or form any matter of which the court is required to take judicial notice. (Code Civ. Proc., § 437(a)). The court then may strike out any irrelevant, false, or improper matter inserted in any pleading and strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Code Civ. Proc., § 436.) When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend. (Perlman v. Municipal Court (1979) 99 Cal.App.3d 568, 575.)

Defendant Allstate Insurance Co. (Allstate) moves to strike the FAC’s prayer for punitive damages. (Motion at pp. 7–10.)

Punitive damages are allowed in non-contract cases when a defendant is guilty of “oppression, fraud, or malice . . . .” (Civ. Code § 3294.) The terms are defined as:

“Malice” means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.

“Oppression” means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights.

“Fraud” means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.

Something more than the mere commission of a tort is always required for punitive damages. (Taylor v. Superior Court (1979) 24 Cal.3d 890, 894.) Proof of negligence, gross negligence, or recklessness is insufficient to warrant an award of punitive damages. (Dawes v. Sup.Ct. (Mardian) (1980) 111 Cal.App.3d 82, 88–89.) Punitive damages may be recovered in an action for negligence or other nonintentional torts if the plaintiff pleads and proves that the defendant acted with the state of mind described as “conscious disregard” of the potential dangers to others. (Pfeifer v. John Crane, Inc. (2013) 220 Cal.App.4th 1270, 1299.) When malice is based on a defendant’s conscious disregard of Plaintiff’s rights, the conduct must be both despicable and willful. (College Hospital v. Superior Court (1994) 8 Cal.4th 794, 713 (“College Hospital”).)

The FAC alleges sufficient grounds for punitive damages against Allstate. The FAC allege that Allstate prepared a false and misleading estimate for the cost of repair to Plaintiff’s property without substantial basis or investigation, against the protestations of Plaintiff and retained specialists, based on a deliberate plan to thrust Plaintiff into a lengthy dispute resolution process rather than resolve the claim on a reasonable basis. (FAC ¶¶ 14–35.) The appraisal process resulted in an award in Plaintiff’s favor, which Allstate still has failed to honor. (FAC ¶¶ 37–40.)

Plaintiff does not, however, alleged authorization, direction, or ratification of this conduct by an officer, director, or managing agent of Allstate, as required under Civil Code § 3294, subd. (b).

Allstate’s motion to strike the prayer for punitive damages is therefore GRANTED with leave to amend.