Judge: Mel Red Recana, Case: 21STCVC03986, Date: 2024-05-20 Tentative Ruling
All rulings shown here are TENTATIVE ONLY, and thus oral argument WILL be heard. All Counsel are still required to attend.
Case Number: 21STCVC03986 Hearing Date: May 20, 2024 Dept: 45
Hearing
date: 05/20/2024
Moving
Party: Defendants
Lucky’s Two-Way Radios, Inc.; Buddy Corporation; and
James A Kay Jr.
Responding
Party: Relator
Frank J. Cannata
Motion: Defendant’s Defendants’
Demurrer to Relator’s First Amended Complaint
The Court
considered the moving papers, opposition, and reply. Defendants’ Demurrer to Relator’s
First Amended Complaint is SUSTAINED with 20 days leave to amend.
Background
This case stems from accusations of insurance
fraud. On February 1, 2021, Frank J. Cannata (Relator) filed a Complaint
against three defendants: (1) Lucky’s Two-Way Radios, Inc.; (2) Buddy
Corporation; (3) and James A. Kay Jr (collectively Defendants). The Complaint
alleges that Defendants violated the California Insurance Frauds Prevention Act
(IFPA or INS §1871.7). On February 9, 2023, Relator filed the operative First
Amended Complaint (FAC). The violations are grounded in Plaintiff’s allegations
that Defendants owned several pieces of defunct electronic equipment. (FAC,
pgs. 5-7.) The Defendants allege that this equipment was stolen by Relator,
this allegation in and of itself is the basis for a separate case, Lucky’s
Two-Way Radios, Inc., et al. vs. Frank J. Cannata, Los Angeles Superior
Court Case No. LC106864 (hereinafter, Case No. LC106864). (See Defendants’
Request for Judicial Notice, Exh. 1.) Per Plaintiff, after Defendants reported
the theft, they claimed that the value of the loss was $881,190.43. Plaintiff
alleges that this value is grossly inflated and constitutes fraud upon
Defendants’ insurer Hartford Fire Insurance Company, as the fair market value
of the missing electronics is less than $20,000.00. (FAC, ¶ 29.) Relator then
filed suit.
The
motion now before the Court is Defendants’ Demurrer to the FAC. Relator opposes
the Demurrer, and Defendants file a reply.
Requests for
Judicial Notice
Both parties file requests for judicial
notice. Upon their moving papers, Defendants request that this Court judicially
notice the following:
1.
Declaration of Levi Lesches, filed
in Lucky’s Two-Way Radios, Inc., et al. vs. Frank J. Cannata, Los
Angeles Superior Court Case No. LC106864
2.
Original Complaint to this action
3.
The FAC to this action.
Pursuant
to CEC § 452(d)(1), item one is judicially noticed. However, because the Court by
necessity refers to all prior complaints in the action, items two and three
need not be judicially noticed.
Relator
requests that the Court take judicial notice of the same latter two items, the
Court declines this request for the same reason noted above.
Discussion
Legal Standard
and Analysis for Meet and Confer
“Before filing a demurrer…the
demurring party shall meet and confer in person or by telephone with the party
who filed the pleading that is subject to demurrer for the purpose of
determining whether an agreement can be reached that would resolve the
objections to be raised in the demurrer.” (Code Civ. Proc. §430.41(a).) Defendants
provide the Declaration of Timothy D. McGonigle which states that the parties
exchanged emails, but the Court sees no details stating that the parties
conferred telephonically or in-person. However, per Code Civ. Proc. §430.41(a)(4),
“A determination by the court that the meet and confer process was insufficient
shall not be grounds to overrule or sustain a demurrer.” Therefore, the Court
turns its attention to the Demurrer.
Legal Standard
for Demurrer
“[A] demurrer tests the legal
sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015)
235 Cal.App.4th 385, 388.) A demurrer can be used only to challenge defects
that appear on the face of the pleading under attack or from matters outside
the pleading that are judicially noticeable. (See Donabedian v. Mercury Ins.
Co. (2004) 116 Cal.App.4th 968, 994 [in ruling on a demurrer, a court may
not consider declarations, matters not subject to judicial notice, or documents
not accepted for the truth of their contents].) For purposes of ruling on a
demurrer, all facts pleaded in a complaint are assumed to be true, but the
reviewing court does not assume the truth of conclusions of law. (Aubry v.
Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 967.)
Analysis for
Demurrer
Defendants’ primary argument upon
Demurrer is that Relator does not have appropriate standing to bring this
action because Relator did not comply with INS §1871.7(h)(2). Relator argues
that because of the wording of the statute, that this section does not apply to
him. For the reasons discussed below, the Court disagrees and sustains the
Demurrer with 20 days leave to amend.
a) Requirements of INS §1871.7(h)(2)
The parties contentions surround
whether Relator was required to provide the information within this suit to the
district attorney or the insurance commissioner before filing an action under
INS §1871.7 in Court. INS §1871.7 or IFPA is a law with the purpose of
supplementing government efforts to fight insurance fraud. (People ex rel.
Strathmann v. Acacia Research Corp. (2012) 210 Cal.App.4th 487,
504.) Under INS §1871.7(h)(2), there is a jurisdictional requirement. In
pertinent part, the section states:
“No court shall have jurisdiction over an action under this section based
upon the public disclosure of allegations or transactions in a criminal, civil,
or administrative hearing in a legislative or administrative report, hearing,
audit, or investigation, or from the news media, unless the action is brought
by the Attorney General or the person bringing the action is an original source
of the information.” INS §1871.7(h)(2)(A)
“For purposes of this paragraph, “original source” means an individual
who has direct and independent knowledge of the information on which the
allegations are based and has voluntarily provided the information to the
district attorney or commissioner before filing an action under this
section that is based on the information.” INS § 1871.7(h)(2)(B)
The jurisdictional requirement is to
prevent “parasitic” actions where opportunists simply take advantage of public
information without contributing to the exposure of the frau. (People ex
rel. Allstate Ins. Co. v. Weitzman (2003) 107 Cal.App.4th 534,
564, “Allstate”.) As relevant here, Relator concedes that he is not an
“original source” within the meaning of the statute (see Opposition Papers,
4:3-4), nor did Relator allege in the FAC to provide the district attorney or
the insurance commissioner with information regarding the allegations before
this filing. Instead, Relator contends that INS § 1871.7(h)(2) does not apply
because Relator is not basing the action on publicly disclosed documents. Therefore,
the inquiry before the Court is whether the documents used, namely documents
filed in Case No. LC106864, have been publicly
disclosed for purposes of INS § 1871.7(h)(2). As explained below, this
Court answers that inquiry in the affirmative.
b) Public Disclosure
Although INS § 1871.7(h)(2) does not
provide a definition for “public disclosure”, case law provides guidance.
Relator implores the Court to look to Mao’s Kitchen, Inc. v. Mundy
(2012) 209 XCal.App.4th 132 (“Mundy”) as persuasive
authority. In Mundy the Court of Appeal reviewed a case where a
restaurant patron brough an action against the owner under the Americans with
Disabilities Act and the Unruh Civil Rights Act. The owner filed a
cross-complaint alleging violations of the California False Claims Act (CFCA).
Relator argues that the case is analogous and encourages the court to implicate
the public-disclosure bar of INS § 1871.7(h)(2) only if (1) there has been a
disclosure in a public fashion and (2) if the disclosure came from a criminal,
civil, or administrative hearing in a legislative or administrative report,
hearing, audit or investigation. (Opposition Papers, 5:6-11.) The Court
declines to apply this two-part test as Relator’s reliance on Mundy is
misplaced.
First, Mundy was interpreting
a separate act, the CFCA. The Court notes that although INS § 1871.7(h)(2)(A)
mirrors the relevant section of the CFCA - GOV§ 12651(e)(d)(3)(A) - their
applications are not always the same. The CFCA aims to protect California
workers giving them the right to file a “qui tam” lawsuit against an
employer committing fraud with respect to government funds, whereas IFPA
specifically targets insurance fraud.
Second, Mundy itself was
explicit in noting that “…courts have held that discovery materials filed
with the court are publicly disclosed. (See United States ex rel. Kreindler
& Kreindler v. United Technologies Corp. (2d Cir.1993) 985 F.2d 1148,
1158 [“[I]nformation was publicly disclosed because it was available to anyone
who wished to consult the court file.”]).”
Relator presents one more argument
concerning the interpretation of INS §1871.7(h)(2)(A), specifically the syntax.
Relator points the Court to the first sentence of INS § 1871.7(h)(2)(A): “No
court shall have jurisdiction over an action under this section based upon the
public disclosure of allegations or transactions in a criminal, civil, or
administrative hearing in a legislative or administrative report,
hearing, audit, or investigation.” (emphasis added.) Relator argues that the
word “in” is significant in that it signifies that the criminal, civil, or
administrative hearing, must occur in a legislative or administrative report.
Simply put, Relator argues that public disclosure only occurs in proceedings
where the government is a party. The Court is unpersuaded. Relator provides no authority
supporting such an interpretation of INS § 1871.7(h)(2)(A) in this manner,
indeed, not all insurance fraud involves a government agency.
With this in mind, we turn to the
facts before the Court.
c) The documents Relator relied on were publicly
disclosed, therefore Relator’s suit is barred
There is no dispute between the
parties that the facts represented by Relator in the FAC are based off of
filings in Case No. LC106864. Additionally, neither
party contends that these foundational filings in Case No. LC106864 were under
seal. Therefore, under Mundy these documents would therefore be
considered “publicly disclosed”. This subsequently means that Relator was
subject to the requirement under INS
§1871.7(h)(2)(A) to provide the
information within this suit to the district attorney or the insurance
commissioner before filing this action or be the “original source”. Because
neither of those prerequisites have been met, the suit is barred.
Legal Standard
and Analysis for Leave to Amend
Leave
to amend must be allowed where there is a reasonable possibility of successful
amendment. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [court shall not
“sustain a demurrer without leave to amend if there is any reasonable
possibility that the defect can be cured by amendment”]. As there may be
reasonable possibility of successful amendment, the Court grants leave to
amend.
Conclusion
Defendants’
Demurrer to Relator’s First Amended Complaint is SUSTAINED with
20 days leave to amend.
It is so ordered.
Dated: May 20, 2024
_______________________
Mel Red Recana
Judge of the
Superior Court