Judge Michael Shultz, Case Number: 23STCV23340, Date: 2025-05-22 Tentative Ruling

23STCV23340 People of the State of California ex rel. Aegis Security Insurance Company v. Marc Owens, et al.

[TENTATIVE] ORDER OVERRULING DEMURRER BY DEFENDANTS, STEPHEN M. MADDEN, PROPERTY DAMAGE INSURANCE CLAIM SPECIALISTS, LLC, TO THE SECOND AMENDED COMPLAINT (Res. No. -0824) [1]

[TENTATIVE] ORDER OVERRULING DEMURRER BY STACY MONAHAN TUCKER, MONAHAN TUCKER LAW, GLENN R. KANTOR, TIMOTHY J. ROZELLE, AND KANTOR & KANTOR, TO THE SECOND AMENDED COMPLAINT AND DENYING THE MOTION TO STRIKE (Res. No. -6344)

The second amended complaint (“SAC”) filed on June 25, 2024, alleges Defendants, comprised of attorneys, a public adjuster, and a construction company, among others, presented false and fraudulent insurance claims to Aegis Security Insurance Company (“Aegis”) for losses that homeowners, Marc Owens and Wendee Owens, (collectively “Owens”) sustained due to the 2018 Camp Fire. Defendants allegedly violated the Insurance Frauds Prevention Act (“IFPA”) under Insurance Code § 1871.7 (b) and Penal Code sections 549 and 550.

The alleged public adjuster Defendants, Stephen J. Madden, Property Damage Insurance Claim Specialists, LLC (“PDIC”), and David McNamara[2] (collectively “Defendants”) allege that both causes of action are barred by the three-year statute of limitations. Plaintiff did not allege facts to support delayed discovery. Defendants argue that causes of action are also barred by the litigation privilege. Plaintiff did not allege fraud with specificity. The alleged facts do not support the elements for each claim.

Plaintiff argues that claims under IFPA are excepted from the litigation privilege. Plaintiff adequately alleged delayed discovery. Plaintiff alleges overt acts committed by each Defendant that fall within the limitations period that tolls accrual of the claims.

The SAC goes to great lengths to described with specificity the statements, writings, dates, and circumstances of each alleged misrepresentation to meet pleading requirements for fraud.

A demurrer tests the sufficiency of a complaint as a matter of law and raises only questions of law. (Schmidt v. Foundation Health (1995) 35 Cal.App.4^th 1702, 1706.) In testing the complaint’s sufficiency, the court must assume the truth of the properly pleaded factual allegations as well as Facts that can be reasonably inferred from those expressly pleaded facts. The court may also consider matters properly subject to judicial notice. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

The court may not consider contentions, deductions, or conclusions of Fact or law. (Moore v. Conliffe (1994) 7 Cal.4^th 634, 638.) Plaintiff is required to allege Facts sufficient to establish every element of each cause of action. (Rakestraw v. California Physicians Service (2000) 81 Cal.App.4^th 39, 43.) Where the complaint fails to state facts sufficient to constitute a cause of action, courts should sustain the demurrer. (Code Civ., Proc., § 430.10(e); Zelig v. County of Los Angeles (2002) 27 Cal.4^th 1112, 1126.)

Sufficient Facts are the essential facts of the case “with reasonable precision and with particularity that is sufficiently specific to acquaint the defendant with the nature, source, and extent of his cause of action.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 643-644.) Whether the Plaintiff will be able to prove the pleaded facts is irrelevant. (Stevens v. Superior Court (1986) 180 Cal.App.3d 605, 609–610.)

A demurrer may also be sustained if a complaint is “uncertain.” Uncertainty exists where a complaint’s Factual allegations are so confusing, they do not sufficiently apprise a defendant of the issues it is being asked to meet. (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2; Civ., Code Proc., § 430.10(f).)

Plaintiff insured the homeowners, the Owen Defendants .[3] (SAC, ¶8.) Four months after Owens signed the policy, a faulty electric transmission line started a fire which spread to the town of Paradise (the “Camp Fire.”) (SAC, ¶ 66.) The Owens property burned to the ground, resulting in a total loss. (SAC ¶ 67.) Owens submitted claims for loss with Aegis, pursuant to the terms of the policy. (SAC ¶ 68.) Owens contracted with the public adjuster defendants (demurring parties, herein) to assist Owens in documenting their loss to be presented to Aegis. (SAC ¶76.)

Aegis paid the entirety of the policy limits for dwelling coverage totaling $1,126,679.37. (SAC, ¶ 81.) Owens and Public Adjusters continued to submit claims for additional insurance coverage. (SAC, ¶ 83.) Plaintiff alleges that Defendants collectively engaged in a scheme to prepare and present knowingly false and fraudulent statements and writings in support of Owens’ fraudulent claim for insurance benefits that included a calculation of the “living” square footage to include basement square footage although Defendants allegedly knew that these areas were not living spaces. (SAC 3:9; ¶ 32-33.) Aegis alleges numerous other misrepresentations Defendants made including about the value of personal property and Defendants’ double billing. (SAC 34-35.)

In pertinent part, Ins. Code § 1871.7 bars the knowing procurement of clients to perform or obtain services or benefits under a contract of insurance “or that will be the basis for a claim against an insured individual or their insurer.”(Ins. Code, § 1871.7 subd. (a).) The statute is designed to prevent and punish the making of fraudulent claims to insurance companies. (State of California ex rel. Nee v. Unumprovident Corp. (2006) 140 Cal.App.4th 442, 449.) The Penal Code criminalizes knowingly assisting or conspiring with any person to present false or fraudulent claims for loss or injury under an insurance contract. (Pen. Code, § 550 subd. (a); Pen. Code, § 549.) Plaintiff alleges two counts for violations of the foregoing statutes.

Defendants make the identical arguments with respect to both causes of action to demonstrate that Plaintiff’s claims are barred or fail to state Facts sufficient to state a cause of action. The analysis below applies equally to both causes of action.

An action under section 1871.7 “may not be filed more than three years after the discovery of the facts constituting the grounds for commencing the action." (Ins. Code, § 1871.7 subd. (l)(1).) “Inquiry notice” of a false claim is sufficient to trigger the running of the statute of limitations. (State of California ex rel. Metz v. CCC Information Services, Inc. (2007) 149 Cal.App.4th 402, 417.) Plaintiff must have reasonable suspicion, which exists when the plaintiff has notice or information of “circumstances to put a reasonable person on inquiry.” (Id.) To avoid the statute of limitations, "the plaintiff is required to establish facts not only showing that he was not negligent in failing to make an earlier discovery, but also that he had no actual or presumptive knowledge of Facts sufficient to put him on inquiry.” (Merchants' Ice & Cold Storage Co. v. Globe Brewing Co. (1947) 78 Cal.App.2d 618, 623.)

Defendants argue that Aegis was on inquiry notice about the misrepresentation relating to square footage as early as February 2020 wherein Madden sent a letter on February 20, 2020, disputing the square footage on which Aegis relied in calculating replacement value.

Defendants argue that a February 20, 2020, letter to Aegis disputing the property square footage on which Aegis relied because of August 15, 2018 inspection report prepared by Aegis that failed to include the basement in calculating living space . (Dem. 16:8.) Defendants argue that Aegis was on inquiry notice that the Owens claim was false and fraudulent at that time. (Dem. ¶ 14.)

Contrary to Defendants’ argument, and as Aegis argues, the 2020 letter does no more than dispute Aegis’ living space calculation given Aegis inspection report two years earlier. These allegations, on its face do not “clearly and affirmatively” establish that Aegis was on inquiry notice at that point.

Secondly, the complaint alleges at least 12 different types of false and fraudulent claims made by Defendants in addition to the inclusion of the basement as livable space, for example, that Defendants made claims on non-existent items, inflated the value of real and personal property and its parts, engaged in double billing, and represented that the contract of insurance was incorrect. (SAC ¶¶ 33-35.)

Defendants argue that the alleged Facts and all documents filed with the complaint, beginning with Madden’s February 20, 2020, letter disputing Aegis’ calculation of living space are protected by the litigation privilege as they are made in anticipation of litigation. Defendants argue that Madden’s letter stated that Owens would consider the possibility of litigation, if necessary, but have requested resolution of the dispute without litigation. (Dem. ¶ 14:21-27.)

The litigation privilege codified at Civil Code § 47 immunizes from suit communications that are made in "any (1) legislative proceeding, (2) judicial proceeding, (3) in any other official proceeding authorized by law, or (4) in the initiation or course of any other proceeding authorized by law … ." (Civ. Code, § 47(b).) As Plaintiff’s case authority shows, the litigation privilege does not apply to a more specific statute such as the IFPA because "application of the privilege would render the specific provision ‘significantly or wholly inoperable.’" (People ex rel. Alzayat v. Hebb (2017) 18 Cal.App.5th 801, 808.)

Defendants argue that the complaint alleges wrongdoing “en masse” and “lumps” all Defendants together such that Defendants have no way of knowing whether demurring parties actually engaged in the conduct or assisted and conspired with the many other defendants allegedly engaging in the misconduct. (Dem. ¶ 15:23-16:4.)

The heightened pleading requirements that apply to fraud claims apply equally to claims under the IFPA. (People ex rel. Allstate Ins. Co. v. Discovery Radiology Physicians, P.C. (2023) 94 Cal.App.5th 521, 548 ["As in any action sounding in fraud, an IFPA action must be pleaded with particularity. ‘In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] ... ‘This particularity requirement necessitates pleading Facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645, 49 Cal.Rptr.2d 377, 909 P.2d 981.)"].)

Contrary to Defendants’ arguments, the complaint is specifically alleged against demurring parties. Plaintiff specifically identifies the demurring parties’ referrals to other parties (identified by name), the date they were made, and that Defendants prepared two replacement cost estimates which contained false statements (SAC ¶ 33.) Plaintiff alleges how the attorney defendants joined in these efforts in preparing false statements to obtain more money. (SAC, ¶93.) The complaint goes on at length describing the alleged misrepresentations, the parties who made them, when and in what manner. (SAC, ¶ 94-98.) Moreover, the SAC was filed with five volumes of documentary evidence to support the alleged misrepresentations.

Based on the foregoing, Defendants’ demurrer is OVERRULED. Defendants are ordered to file their answer within 30 days.

[TENTATIVE] ORDER OVERRULING DEMURRER BY STACY MONAHAN TUCKER, MONAHAN TUCKER LAW, GLENN R. KANTOR, TIMOTHY J. ROZELLE, AND KANTOR & KANTOR’S DEMURRER TO THE SECOND AMENDED COMPLAINT AND DENYING THE MOTION TO STRIKE (Res. No. -6344)

Demurring parties, (“Attorney Defendants” ), argue that Plaintiff failed to allege compliance with Civ. Code, § Code § 1714.10 applicable to conspiracy claims; Plaintiff cannot proceed on a conspiracy claim against counsel without petitioning the court for leave to do so and showing a probability of prevailing on the merits. Defendants also argue that the claims are barred by the litigation privilege and are barred because evidence that the Attorney Defendants need to defend themselves is protected from disclosure by the attorney-client privilege, which is held by the Owens defendants, who did not waive the privilege.

The Attorney Defendants separately move to strike alter ego allegations connecting Defendants, Stacy Monahan Tucker, and Monahan Tucker Law (“MTL”) and Doe defendants because the allegations are conclusory.

Plaintiff argues that the allegations against the Attorney Defendants are based on their own preparation and presentation of documents and their own independent duty not to violate the Penal Code or commit fraud. Plaintiff does not have to allege compliance with Civ. Code, § 1714.10.

Plaintiff argues the litigation privilege does not apply to claims under the IFPA. The attorney-client privilege does not apply because Owens waived their attorney-client privilege. The claims fall squarely within the crime-fraud exception to nondisclosure.

With respect to the motion to strike, alter ego claims need only allege ultimate Facts.

Defendants contend that the IFP claims are no more than a “garden-variety” malicious prosecution claim. Plaintiff must show a likelihood of succeeding on the merits. This is not an “independent duty” case, because Defendants’ duty is owed to its clients. Plaintiff did not allege that the Attorney Defendants acted outside the scope of their representation of Owens.

The SAC alleges that Defendants acted within the course and scope of their representation of clients, which is protected by the litigation privilege. Even if this is an IFPA case, the court can and should apply the litigation privilege.

The bases for demurrer are limited by statute and may be sustained for reasons including failure to state facts to state a cause of action and uncertainty. (Code Civ. Proc., § 430.10.) A demurrer “tests the sufficiency of a complaint as a matter of law and raises only questions of law.” (Schmidt v. Foundation Health (1995) 35 Cal.App.4th 1702, 1706.) The court must assume the truth of (1) the properly pleaded Factual allegations; (2) facts that can be reasonably inferred from those expressly pleaded; and (3) judicially noticed matters. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The court may not consider contentions, deductions, or conclusions of fact or law. (Moore v. Conliffe (1994) 7 Cal.4th 634, 638.)

All that is required is to "set forth the essential facts of plaintiff's case with reasonable precision and with particularity sufficiently specific to acquaint defendant of the nature, source, and extent of the cause of action.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 643–644.)

A motion to strike is limited to matters that appear on the face of the pleading or on any matter of which the court can take judicial notice. (Code Civ. Proc., § 437.) The court may strike out any irrelevant, false, or improper matter inserted in any pleading; or strike all or any part of the pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (Code Civ. Proc. §436 subd. (a)-(b).)

The statute requires a Plaintiff to first petition the court to permit a claim for civil conspiracy against an attorney if the claim is based upon the attorney’s representation of the client. It states the following:

"No cause of action against an attorney for a civil conspiracy with his or her client arising from any attempt to contest or compromise a claim or dispute, and which is based upon the attorney's representation of the client, shall be included in a complaint or other pleading unless the court enters an order allowing the pleading that includes the claim for civil conspiracy to be filed after the court determines that the party seeking to file the pleading has established that there is a reasonable probability that the party will prevail in the action." (Civ. Code, § 1714.10 subd. (a).)

However, the section does not apply “to a cause of action against an attorney for a civil conspiracy with his or her client, where (1) the attorney has an independent legal duty to the plaintiff, or (2) the attorney's acts go beyond the performance of a professional duty to serve the client and involve a conspiracy to violate a legal duty in furtherance of the attorney's financial gain." (Civ. Code, § 1714.10 subd. (c).)

The SAC alleges that on November 9, 2020, the Attorney Defendants filed a lawsuit on behalf of Owens styled Marc Owens, et al. v. Aegis Security Insurance Company et al, Butte County Superior Case No. 20CV02212 (the “Litigation.”) (SAC ¶ 133.) Throughout the Litigation, and in addition to reasserting the false representations presented before the Litigation, Owens, with the assistance of the Attorney Defendants, prepared and presented false testimony and writings in an effort to conceal the true nature of the claim and extent of the Owens’ loss. (SAC 133.) In the Litigation, Owens, aided and abetted by the Attorney Defendants, adopted Estimate No. 2 as the replacement cost for the Property. (SAC ¶ 193 [italics added].)

Liability against Attorney Defendants does not depend solely on acts that arose out of Attorney Defendants representation of their clients. The alleged facts support the exception to the statute which does not apply if the attorney is violating an independent legal duty owed to the plaintiff. (Klotz v. Milbank, Tweed, Hadley & McCloy (2015) 238 Cal.App.4th 1339, 1351 ["An independent legal duty may also arise when an attorney engages in conduct that goes ‘way beyond the role of [a] legal representative.’ … Attorneys are expected to stay within the bounds of law in representing their clients and advising about an appropriate course of action... .”].)

An attorney has an independent legal duty to refrain from defrauding nonclients, for example, "a conspiracy claim may be brought where a corporation and its attorney conspire to conceal from potential investors that other investors have threatened litigation against the venture.” (Id.)

Plaintiff alleges that Attorney Tucker and MTL “solicited, and/or accepted Defendants’ business” with knowledge that Defendants intended to prepare and present false and fraudulent claims to Plaintiff. (SAC 8:24-28; 9:14-24.) Attorney Kanto, manager and owner of K&K law firm, allegedly engaged in the same conduct. (SAC 10:4-11.)

The alleged facts do not fall squarely within the ambit of section 1714.10 subd. (a), but does fall within the exception articulated in subpart (c).

Defendants argue that the alleged facts describe acts that Defendants took during the course of litigation against RNIA and Aegis. (Dem. 14:14-19.) The foregoing references to the SAC, however, do not explicitly describe communications during the Litigation. Defendants are alleged to have made false claims before the litigation in violation of their independent duty to refrain from presenting fraudulent claims to Plaintiff.

Defendants argue that they cannot defend against Plaintiff’s claims without violating their duty of confidentiality owed to the clients. Under those circumstances, Plaintiff’s claims against Attorney Defendants cannot proceed. (Dem. 15:7-13.) If the claims against Attorney Defendants cannot be fully established without breaching the attorney-client privilege, “the suit must be dismissed in the interest of preserving the privilege. (General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, 1190.)

It is premature to address this issue at this stage of the proceeding – “in a challenge to the facial sufficiency of the complaint." (Id. ["Rather, in the usual case, whether the privilege serves as a bar to the plaintiff's recovery will be litigated and determined in the context of motions for protective orders or to compel further discovery responses, as well as at the time of a motion for summary judgment."].) General Dynamics “underlin[ed] the fact that such drastic action will seldom if ever be appropriate at the demurrer stage of litigation.” (Id.)

Moreover, Plaintiff represents that Owens, who are now dismissed, waived the attorney client privilege. (Mauceri decl., ¶ 3, Ex. A.) Defendants have not addressed the waiver of attorney-client privilege in the reply. While the court cannot consider facts extrinsic to the complaint, the existence of a dispute regarding waiver demonstrates why this issue cannot be resolved at the demurrer stage.

Defendants move to strike the alter ego allegations on grounds Plaintiff has not alleged facts to support the two elements necessary to pierce the corporate veil. To establish alter ego liability, Plaintiff must prove two elements: (1) the existence of a unity of interest and ownership such that the individuality of the person and corporation has ceased, and (2) an adherence to the fiction of separateness would sanction a fraud or promote injustice. (Thomson v. L. C. Roney & Co. (1952) 112 Cal.App.2d 420, 428.)

Liability based on an alter ego theory is not itself a claim for substantive relief, but rather a procedural claim “to disregard the corporate entity as a distinct defendant and to hold the alter ego individuals liable on the obligations of the corporation where the corporate form is being used by the individuals to escape personal liability, sanction a fraud, or promote injustice." (Hennessey's Tavern, Inc. v. American Air Filter Co. (1988) 204 Cal.App.3d 1351, 1359.

The procedural claim does not require specific factual allegations in order to raise the issue as “it is not a substantive claim for relief." (Id. at 1358.) It can be raised affirmatively in the complaint or negatively in the answer and can be alleged in a conclusory fashion (Id.) Even when not affirmatively alleged, the issue may be resolved at trial, or at a separate hearing to determine the identity of the judgment debtor. (Id.; (Los Angeles Cemetery Ass'n v. Superior Court of Los Angeles County (1968) 268 Cal.App.2d 492, 494.)

While Plaintiff is not required to affirmatively allege alter ego liability, Plaintiff has alleged facts to support such liability against the Tucker Defendants. (SAC ¶ 28-30.)

Based on the foregoing, the Attorney Defendants’ demurrer to the SAC is OVERRULED. The motion to strike is DENIED. Defendants are ordered to file an answer within 30 days.

[1] The demurring parties are referred to as Defendants, “demurring parties”, or the “public adjusters.”

[2] The court’s file reflects that Defendant McNamara was removed from the action and is no longer named as of June 25, 2024.

[3] The Owens defendants were dismissed on April 30, 2025.