Judge: Jon R. Takasugi, Case: 23STCV12560, Date: 2023-10-18 Tentative Ruling

Case Number: 23STCV12560    Hearing Date: January 8, 2024    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

            Defendant AIS’s demurrer is OVERRULED. AIS’s motion to strike is DENIED.  

            On 5/31/2023, Plaintiffs Symptom Media, LLC, Matthew L. Rubin, and Andrew L. Rubin (collectively, Plaintiffs) filed suit against United States Liability Insurance Company, Mount Vernon Fire Insurance Company, Snapp & Associates Insurance Services, LLC (SNAPP), Alkeme Insurance Services, Inc., and Robin Niehaus (collectively, Defendants). On 11/7/2023, Plaintiffs filed a first amended complaint (FAC) alleging: (1) breach of fiduciary duty; (2) negligence; (3) negligent misrepresentation; (4) intentional misrepresentation; (5) breach of contract; (6) tortious breach of the implied covenant of good faith and fair dealing; and (7) declaratory relief.

            Now, Defendant Alkeme Insurance Services (AIS or Defendant) demurs to Plaintiff’s FAC.

Factual Background

            This is an insurance broker liability case. More specifically, this case is brought by three insured against their insurance broker and liability insurer(s) on the grounds that they were misled by their brokers as to the meaning of a “Shareholder Endorsement Exclusion” in their Policy. Plaintiffs allege that based on these misrepresentations, they were denied coverage by the Insurer Defendants, and have suffered damage as a result.

Discussion

            AIS argues that Plaintiffs cannot resolve the deficiency previously raised in their original demurrer, i.e., that Plaintiffs cannot state a claim against it because it played no role in the events supporting this claim, and because Plaintiffs are mistaken that it has any interest in, or ownership of, SNAPP.

            AIS argues that Plaintiff’s allegation are uncertain and insufficient to show that AIS is a successor-in-interest to SNAPP. In particularly, AIS argues:

The Court should sustain AIS’ Demurrer to the FAC with prejudice. First, Plaintiffs did not fix their flawed successor theory. Instead, Plaintiffs newly allege all “Alkeme Defendants” are liable as successors. Vague and ambiguous group pleading is not enough. Several companies are named “Alkeme,” and there are several companies under the “Alkeme” holding company. What “Alkeme” are Plaintiffs referring to? The FAC does not answer this question. Plaintiffs also remain unable to support their successor-theory against AIS. Plaintiffs simply conclude “on information and belief” that AIS acquired SNAPP. Information and belief are not enough to overcome straightforward, judicially noticeable facts. SNAPP was at the time, and remains today, its own entity. AIS never purchased SNAPP. AIS does not control SNAPP. Moreover, even if AIS purchased SNAPP (it did not) that is still not enough. Plaintiffs must show that either AIS expressly or implicitly assumed SNAPP’s debts, AIS is a mere continuation of SNAPP, SNAPP and AIS merged into one entity, or SNAPP fraudulently transferred its assets to AIS to evade liability. None of this occurred, and Plaintiffs do not and cannot show that it did. Plaintiffs also do not state viable claims for relief against AIS.

            (Motion, 5: 24-6:9.)

            However, first, the Court accepts well-pled allegations as true at the pleading stage. Second, while Plaintiff’s allegations are based on information and belief, they allege specific facts which lead them to believe that their allegations are factual. (FAC ¶¶ 7-10.) “Plaintiff may allege on information and belief any matters that are not within his personal knowledge, if he has information leading him to believe that the allegations are true.” (Pridonoff v Balokovich (1951) 36 Cal.2d 788, 792.) Third, while Defendant requests judicial notice of documents to refute Plaintiffs ‘allegations, judicial notice may only be taken of “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 753.) Here, the documents do not unequivocally establish that AIS cannot be a successor-in-interest to SNAPP, and this issue is reasonably subject to dispute. Accordingly, judicial notice of the truth of these documents is not appropriate here. Fourth, and finally, while Plaintiffs now allege conduct by all “Alkeme Defendants,” Plaintiffs has alleged facts which could show that this generalized grouping of Defendants are collective successors in interest. (FAC ¶¶ 9-10.) Whether or not this is, in fact, the case, is a factual determination not properly made at this stage.

            AIS also argues that even if Plaintiffs have adequately pled a successor relationship, successors are only liable for the torts of their predecessors in circumstances not alleged here. More specifically, California law provides that when a corporation purchases the principal assets of another corporation, “the purchaser does not assume the seller’s liabilities unless (1) there is an express or implied agreement of assumption, (2) the transaction amounts to a consolidation or merger of two companies, and/or (3) the purchasing corporation is a mere continuation of the seller; or (4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller’s debts. (Ray v. Alaad Corp. (1977) 19 Cal.3d 22, 28.) 

            However, Plaintiffs does allege these facts, though based on information and belief. (See e.g. FAC, at ¶¶ 9, 10.) While the Court understands Defendant’s contention that these allegations are not robustly supported by additional facts, this overstates Plaintiff’s obligations at the pleading stage. It would be a nearly insurmountable hurdle for Plaintiff to be required to allege the specific facts of a corporate consolidation or merger which it was not a party to at the pleading stage. This is contemplated by the discovery process.

            Having concluded that sufficient facts have been alleged that could show a successor-in-interest relationship and successor liability, the Court turns to the sufficiency of the individual claims.

            AIS argues that: (1) Plaintiffs fail to meet the heightened pleading standards for intentional and negligent misrepresentation; (2) Plaintiffs fiduciary breach and negligence claims because Plaintiffs cannot show the requisite element of duty; and (3) Plaintiffs’ intentional tort claims fail because the FAC pleads inconsistent, contradictory facts.

            As to the first contention, the Court disagrees. While Defendants argue that Plaintiffs have not alleged the “who, what, when, where” to support a fraud claim, Plaintiffs claims here against SNAPP are based on a theory of successor-liability. The “significant principle” for successor liability is that “the separate entities may be disregarded and the new corporation held liable for the obligations of the old.” (Cleveland v. Johnson (2012) 209 Cal. App. 4th 1315, 1334.) Here, SNAPP has answered the Complaint, and thus has not challenged the sufficiency of the allegations of fraud against it. Given this, Plaintiffs need not allege the specifics of “who, what, when, where” against Defendant here, because its liability is premised on allegations that the prior entity, SNAPP, engaged in the fraudulent conduct.

For the same reason, the Court similarly disagrees with the second contention. Plaintiffs need not show that AIS owed them a duty of care. Rather, it is sufficient for them to allege the prior entity, SNAPP, owed such a duty. As already noted, SNAPP has answered the FAC and does not challenge the sufficiency of the allegations against it.

Finally, as for the fourth contention, the Court disagrees. Defendant argues that Plaintiffs are alleging contradictory facts by simultaneously alleging: “the Exclusion is ambiguous, and that a reasonable interpretation of the Exclusion should provide that Plaintiffs have coverage with respect to claims at issue in this action” (FAC ¶ 28) and that it was confirmed that “…there would be coverage for the company/shareholders but NOT for the shareholder with more than 10% ownership.” (FAC, at ¶ 27.) However, these are not contradictory. Plaintiffs allege that they were knowingly misled to believe that they had coverage, and that it was reasonable for them to believe that they had coverage based on the agreement language.

Based on the foregoing, Defendant’s demurrer is overruled.

Motion to Strike

            Defendant moves to strike Plaintiffs’ prayer for punitive damages. As set forth above, the Court overruled Defendant’s demurrer to Plaintiffs’ fraud causes of action. Accordingly, Plaintiffs have necessarily set forth sufficient facts which could show malice, fraud or oppression. (Civ. Code § 3294.)

It is so ordered.

Dated:  January    , 2024

   Hon. Jon R. Takasugi
   Judge of the Superior Court

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