City of Escondido v. General Reinsurance Corporation

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8 UNITED STATES DISTRICT COURT

9 SOUTHERN DISTRICT OF CALIFORNIA

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11 CITY OF ESCONDIDO, Case No. 19cv868-MMA (BGS)

12 Plaintiff,

ORDER GRANTING GENESIS

13 v. MANAGEMENT AND INSURANCE

SERVICES CORPORATION’S

14 GENERAL REINSURANCE

MOTION TO DISMISS

CORPORATION and GENESIS

15

MANAGEMENT AND INSURANCE

16 SERVICES CORPORATION, [Doc. No. 18]

17 Defendants.

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19 GENERAL REINSURANCE

CORPORATION,

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Counter Claimant,

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v.

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CITY OF ESCONDIDO,

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Counter Defendant.

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26 On April 4, 2019, Plaintiff City of Escondido (“Plaintiff” or “City”) filed a

27 Complaint for breach of contract, breach of the implied covenant of good faith and fair

28 dealing, and declaratory relief in San Diego County Superior Court against Defendants

1 General Reinsurance Corporation (“GRC”) and Genesis Management and Insurance

2 Services Corporation (“Genesis”). Doc. No. 1-2.1 Defendants removed the action to this

3 Court on May 9, 2019. Doc. No. 1.

4 On May 23, 2019, Plaintiff filed the First Amended Complaint (“FAC”), adding

5 causes of action for concealment and negligent misrepresentation. Doc. No. 8 (“FAC”).

6 Genesis then moved to dismiss the FAC pursuant to Federal Rule of Civil Procedure

7 12(b)(6). Doc. No. 10-1. On August 29, 2019, the Court granted Genesis’s motion to

8 dismiss without prejudice and with leave to amend. Doc. No. 16 at 15.

9 On September 3, 2019, Plaintiff filed the operative Second Amended Complaint

10 (“SAC”) asserting causes of action for (1) breach of contract; (2) breach of the implied

11 covenant of good faith and fair dealing; (3) concealment; (4) negligent misrepresentation;

12 (5) false promise; and (6) declaratory relief. Doc. No. 17 (“SAC”). Genesis now moves

13 to dismiss Plaintiff’s claims pursuant to Federal Rule of Civil Procedure 12(b)(6). Doc.

14 No. 18. For the following reasons, the Court GRANTS Genesis’s motion.

15 I. BACKGROUND2

16 GRC is an insurance company and Genesis is a wholly owned subsidiary of GRC.

17 SAC ¶¶ 1–2. From February 1, 1990 to May 15, 1994, Defendants insured Plaintiff “for

18 workers’ compensation payments to Plaintiff’s covered employees and allocated

19 investigation, adjustment[,] and legal expenses . . . .” Id. ¶ 8. Plaintiff alleges that the

20 insurance policy was issued by GRC, but that it “was directed by [D]efendants solely to

21 Genesis with respect to claims, questions[,] and reimbursement requests involving the

22 policy,” and “was directed by [D]efendants to submit all its claims status reports solely to

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25 1 All citations refer to the pagination assigned by the CM/ECF system.

26 2 Because this matter is before the Court on a motion to dismiss, the Court must accept as true the

allegations set forth in the complaint. See Hosp. Bldg. Co. v. Trs. of Rex Hosp., 425 U.S. 738, 740

27 (1976). Additionally, given the parallels between the FAC and the SAC, the Court repeats the

background section provided in the Court’s previous dismissal order where appropriate. See Doc. No.

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1 Genesis representatives . . . .” Id. ¶ 2. According to Plaintiff, it only communicated with

2 Genesis, who was the “sole decision maker and entirely controlled whether or not

3 reimbursements were to be issued to [Plaintiff] under the policy.” Id. “Over the course

4 of more than 15 years in dealing with [Plaintiff] concerning the policy, GRC and Genesis

5 acted jointly through Genesis, with Genesis conducting all the communications with

6 [Plaintiff] concerning the policy” such that “Genesis is the alter ego of GRC.” Id. ¶ 2, 3.

7 Plaintiff alleges that the policy requires Defendants to indemnify Plaintiff when its

8 expenditures on a worker’s compensation claim falling within the policy period exceed

9 the policy’s $250,000 self-insured retention. Id. ¶ 8. During the policy period, Plaintiff

10 “paid or incurred liability to pay workers’ compensation claims plus allocated

11 investigation, adjustment[,] and legal expenses in excess of $250,000” on three claims:

12 (1) GRC claim number 6040678 for claimant Paula Westenberger (“Westenberger

13 Claim”); (2) GRC claim number 6037896 for claimant Aida Faeldan (“Faeldan Claim”);

14 and (3) GRC claim number 6034852 for claimant Michael Gain (“Gain Claim”)

15 (collectively, the “Three Underlying Claims”). Id. ¶ 10.

16 Plaintiff timely submitted requests for indemnity to Defendants for amounts in

17 excess of $250,000 for each of the Three Underlying Claims. Id. ¶ 11. Each time,

18 Plaintiff alleges Defendants “refused to pay [Plaintiff] and . . . adopted a pattern and

19 practice of wrongful and bad faith claims evaluations, during which [D]efendants have

20 withheld benefits under the pretext of continuing to investigate while they assert a variety

21 of challenges and excuses . . . .” Id. Additionally, “[D]efendants have refused to

22 reasonably and timely investigate, refused to provide legitimate, reasonable[,] or accurate

23 reasons for their refusal to provide benefits owed, and have unreasonably withheld

24 benefits owed to Plaintiff.” Id. ¶ 12.

25 A. The Westenberger Claim

26 Mrs. Westernberger injured her low back on July 30, 1993, while working as an

27 employee of Plaintiff. Id. ¶ 16, 17. She became temporarily totally disabled due to

28 increased pain. Id. ¶ 17. When conservative treatment proved ineffective, Mrs.

1 Westenberger underwent several failed back surgeries. Id. ¶¶ 16–17. In December 1995,

2 Mrs. Westenberger began working at the City Heights Town Council (“CHTC”). Id. ¶

3 19. When her pain increased, she was referred to a pain management specialist, which

4 included a series of back injections to alleviate back pain. Id. She also received a right

5 hip injection, which caused complications necessitating a right hip replacement. Id. ¶ 16.

6 As a result, Mrs. Westenberger developed a left foot deformity requiring multiple

7 surgeries. Id. “These surgeries were complicated by the development of reflex

8 sympathetic dystrophy (‘RSD’).” Id. ¶ 22. “[S]he was diagnosed with left foot

9 neurologic problems and complex regional pain syndrome (‘CRPS’). Id. ¶ 16. Mrs.

10 Westenberger’s worker’s compensation case determined that her “right hip replacement,

11 left foot deformity, left foot neurological problems, and CRPS were all causally related to

12 her industrial injury suffered while working [for Plaintiff].” Id. Thus, Plaintiff was

13 responsible for paying for Mrs. Westenberger’s treatment for these conditions. Id.

14 During the worker’s compensation proceeding, Plaintiff sought a right of

15 contribution against CHTC and its insurer for costs associated with Mrs. Westenberger’s

16 right hip problems and right hip replacement. Id. ¶ 34. Ultimately, 50% of Mrs.

17 Westenberger’s right hip problems were apportioned to the 1993 back injury, and 50%

18 were apportioned to her full-time work at CHTC. Id. ¶ 35. However, CHTC “is a non-

19 profit community advocacy group with no assets and it had no worker’s compensation

20 insurance” during the time Mrs. Westenberger was working full-time. Id. ¶ 37. Thus,

21 Plaintiff, with Defendants’ concurrence, abandoned the contribution claim. Id. As a

22 result, Defendants purportedly knew that Plaintiff faced “near certain joint and several

23 liability” for the costs of Mrs. Westenberger’s past and future treatment that would likely

24 exceed $1 million. Id. ¶ 31.

25 In 2011, Defendants authorized Plaintiff to offer a structured settlement of $1.25

26 million to Mrs. Westenberger. Id. The “Compromise and Release” would release

27 Plaintiff from further disability payments and any obligation to pay for Mrs.

28 Westenberger’s future medical care. Id. Genesis advised Plaintiff that it would initially

1 fund all components of the settlement, but that Genesis would reimburse Plaintiff for

2 “each such settlement payment after [Plaintiff] submitted a request for reimbursement to

3 Genesis.” Id. ¶ 80. Mrs. Westenberger rejected the offer because she believed her future

4 medical care would exceed the settlement amount. Id. ¶ 31.

5 In May 2012, Plaintiff and Mrs. Westenberger entered into a “Stipulation with

6 Request for Award.” Id. ¶ 25. “Defendants authorized and approved of [Plaintiff]

7 entering into [the] ‘Stipulation with Request for Award’ which stated [Plaintiff] was

8 liable for all future medical care for [Mrs. Westenberger’s] ‘low back, hips, left foot,

9 psyche, and RSD . . . .’” Id. ¶ 31.

10 Plaintiff alleges that Geneis’s actions were part of a scheme where Genesis would

11 give authorization for settlement and then refuse reimbursement:

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13 The scheme works like this: the City was instructed to keep Genesis

apprised of claims and obtain Genesis’[s] approval before settling any claim

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that would trigger payment of any benefits under the Policy, which it did.

15 Genesis approves the settlement, the City settles, but then GRC/Genesis

refuse to pay and raise knowingly false excuses for denying coverage. To

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escape liability, GRC says it never approved the settlement, and Genesis

17 says it never had authority to approve the settlement and owes no duty of

care to the City. With respect to the Westenberger claim, Genesis approved

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the City’s settlement and promised the City it would be reimbursed for its

19 settlement payments to Westenberger. However, GRC/Genesis have refused

to reimburse the City. Genesis states it did not have authority to approve the

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settlement. GRC seeks to pretend it is a separate entity from Genesis that

21 did not know what Genesis knew and did not authorize or ratify the things

that Genesis did. GRC claims it was not advised and did not know about the

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Westenberger claim or the proposed settlement, although Genesis was fully

23 informed of all material facts related to the Westenberger claim. GRC states

the City’s payments to Westenberger were unauthorized, not related to

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Westenberger’s industrial injury and thus not covered under the Policy.

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26 Id. ¶ 3; see also ¶¶ 62–68, 70–78, 80–82. “Prior to 2012[,] Defendants reimbursed

27 [Plaintiff] approximately $800,000 on the Westenberger claim.” Id. ¶ 32. However,

28 “[s]ubsequent to the May 2012 Stipulation with Request for Award[,] Defendants made

1 only a single reimbursement in 2015 and in 2018 Defendants began raising numerous

2 objections to [Plaintiff’s] additional reimbursement requests.” Id. Plaintiff alleges that

3 the “objections are meritless and are based upon false and intentionally inaccurate

4 grounds as well as knowing misrepresentations of California law and the terms of the

5 Policy.” Id.; see also id. ¶¶ 32–45, 68 (listing examples of Defendants’ objections).

6 B. The Faeldan Claim

7 On September 1, 1993, Ms. Faeldan “experienced right arm and elbow pain in

8 connection with pushing a steel cabinet file and lifting boxes of police files” while

9 working as a data entry operator for Plaintiff’s Police Department. Id. ¶ 46.

10 Conservative treatment minimally improved her pain and Ms. Faeldan returned to work

11 with limited use of her right arm. Id. She then developed pain in her left arm and elbow

12 from overuse. Id. Ms. Faeldan “eventually had surgery on her left elbow[ and] was

13 diagnosed with bilateral carpal tunnel syndrome[ and] myofascial pain syndrome.” Id.

14 She “received psychiatric treatment in connection with her injuries and inability to

15 work.” Id.

16 In June 2008, Defendants issued Plaintiff a check for $8,132.18 to reimburse

17 Plaintiff for the amounts expended in excess of the policy’s retention on the Faeldan

18 claim. Id. ¶ 47. Years later, Plaintiff began making monthly life pension payments to

19 Ms. Faeldan pursuant to an earlier stipulation and award. Id. ¶ 48. These payments

20 exceeded the policy’s retention on the Faeldan claim. Id. Plaintiff made numerous

21 reimbursement requests to Defendants for these payments to no avail. Id. ¶ 49.

22 C. The Gain Claim

23 On May 16, 1993, Mr. Gain was working as a fire investigator for Plaintiff “when

24 he fell through the second story of a fire damaged building, suffering significant injuries

25 to his neck, low back, right shoulder, and right knee.” Id. ¶ 51. As of 2008, “Defendants

26 had reimbursed Plaintiff approximately $133,000,” but determined that they overpaid

27 Plaintiff by $58,000. Id. Plaintiff “issued a check to Defendants in 2009 for

28 $58,481.75.” Id. After 2009, Plaintiff has paid over $17,000 in life pension payments to

1 Mr. Gain. Id. ¶ 52. For several years, Plaintiff has submitted proper reimbursement

2 requests for these life pension payments but has not received any reimbursement from

3 Defendants. Id. ¶ 53. Most of these requests have been ignored, “except for once when

4 Defendants incorrectly asserted the retention had not been exceeded.” Id. Defendants

5 ignored Plaintiff’s response with documentation showing the exceeded retention. Id. In

6 August 2017, Defendants asked for more information regarding a reimbursement request.

7 Id. After receiving the information, Defendants did not reimburse Plaintiff. Id. Since

8 then, all of Plaintiff’s requests and e-mails to Defendants have been ignored. Id.

9 II. LEGAL STANDARD

10 A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro

11 v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A pleading must contain “a short and plain

12 statement of the claim showing that the pleader is entitled to relief . . . .” Fed. R. Civ. P.

13 8(a)(2). However, plaintiffs must also plead “enough facts to state a claim to relief that is

14 plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); Fed. R. Civ.

15 P. 12(b)(6). The plausibility standard thus demands more than a formulaic recitation of

16 the elements of a cause of action, or naked assertions devoid of further factual

17 enhancement. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Instead, the complaint “must

18 contain sufficient allegations of underlying facts to give fair notice and to enable the

19 opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir.

20 2011).

21 In reviewing a motion to dismiss under Rule 12(b)(6), courts must assume the truth

22 of all factual allegations and must construe them in the light most favorable to the

23 nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996).

24 The court need not take legal conclusions as true merely because they are cast in the form

25 of factual allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987).

26 Similarly, “conclusory allegations of law and unwarranted inferences are not sufficient to

27 defeat a motion to dismiss.” Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998).

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1 Additionally, allegations of fraud or mistake require the pleading party to “state

2 with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b).

3 The context surrounding the fraud must “be ‘specific enough to give defendants notice of

4 the particular misconduct . . . so that they can defend against the charge and not just deny

5 that they have done anything wrong.’” Kearns v. Ford Motor Co., 567 F.3d 1120, 1124

6 (9th Cir. 2009) (quoting Bly–Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)).

7 “‘Averments of fraud must be accompanied by “the who, what, when, where, and how”

8 of the misconduct charged.’ A party alleging fraud must ‘set forth more than the neutral

9 facts necessary to identify the transaction.’” Kearns, 567 F.3d at 1124 (first quoting Vess

10 v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003); and then quoting In re

11 GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994)), superseded by statute on

12 other grounds.

13 Where dismissal is appropriate, a court should grant leave to amend unless the

14 plaintiff could not possibly cure the defects in the pleading. Knappenberger v. City of

15 Phoenix, 566 F.3d 936, 942 (9th Cir. 2009).

16 III. DISCUSSION

17 A. Claims Based on Contract

18 In its previous order granting dismissal, the Court held that Plaintiff failed to allege

19 breach of contract, breach of the implied covenant of good faith and fair dealing, and

20 declaratory relief based on breach of contract because it had “not adequately pled facts to

21 find Genesis liable under either an alter ego theory of liability or a joint venture theory.”

22 Doc. No. 16 at 10–11. Now, Genesis argues that Plaintiff alleges no contractual

23 relationship and Plaintiff’s liability theories remain insufficient. Doc. No. 18-1 at 9.

24 Plaintiff responds that it has alleged sufficient facts under California law to support

25 liability under both theories. Doc. No. 20 at 11–16.

26 1. Existence of a Contract

27 The first element for a California breach of contract claim is “the existence of a

28 contract.” EPIS, Inc. v. Fidelity & Guaranty Life Ins. Co., 156 F. Supp. 2d 1116, 1124

1 (N.D. Cal. 2001) (citing Reichert v. General Ins. Co., 68 Cal. 2d 822, 830 (Cal. 1968)).

2 A defendant must have been a consenting party to the contract at issue to be liable for

3 breach of contract and breach of the implied covenant of good faith and fair dealing.

4 Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 576 (1973) (holding that the non-insurer

5 defendants were not parties to the insurance contract and cannot be liable for breach of

6 the implied covenant of good faith and fair dealing); Minnesota Mut. Life Ins. Co. v.

7 Ensley, 174 F.3d 977, 981 (9th Cir. 1999) (holding that “an insurance agent cannot be

8 held liable for breach of contract or breach of the implied covenant of good faith and fair

9 dealing because he is not a party to the insurance contract”).

10 Here, the Court found—and the parties do not appear to now dispute—that Genesis

11 was not a party to the contract. See Doc. No. 16 at 8. However, Plaintiff argues in its

12 opposition brief that Genesis can be liable under alter ego or joint venture theories. Doc.

13 No. 20 at 10.

14 2. Alter Ego Liability

15 The alter ego doctrine permits courts to disregard the distinction between a

16 corporation and its owner and to extend liability to the owner for the acts of the

17 corporation. Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 538

18 (2000). To establish a party as the alter ego of a corporation, two requirements must be

19 met: (1) “there must be such a unity of interest and ownership between the corporation

20 and its equitable owner that the separate personalities of the corporation and the

21 shareholder do not in reality exist[;]” and (2) “there must be an inequitable result if the

22 acts in question are treated as those of the corporation alone.” Id.; see also United States

23 v. Boyce, 38 F. Supp. 3d 1135, 1154–55 (C.D. Cal. 2014) (quoting In re Schwarzkopf,

24 626 F.3d 1032, 1038 (9th Cir. 2010)). Conclusory allegations of alter ego status are

25 insufficient to state a claim. See Hokama v. E.F. Hutton & Co., Inc., 566 F. Supp. 636,

26 647 (C.D. Cal. 1983). In assessing unity of interest, courts consider several factors,

27 including

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1 inadequate capitalization, commingling of funds and other assets of the two

entities, the holding out by one entity that it is liable for the debts of the

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other, identical equitable ownership in the two entities, use of the same

3 offices and employees, use of one as a mere conduit for the affairs of the

other, disregard of corporate formalities, lack of segregation of corporate

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records, and identical directors and officers.

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6 Virtualmagic Asia, Inc. v. Fil-Cartoons, Inc., 99 Cal. App. 4th 228, 245 (2002) (citations

7 omitted). “No single factor is determinative, and instead a court must examine all the

8 circumstances to determine whether to apply the doctrine.” Id.

9 i. Initial Considerations

10 As a threshold matter, Genesis argues that Plaintiff is attempting to rely upon

11 “‘reverse’ alter ego liability of imposing liability on the corporation for the liability of the

12 shareholder [which] is not permitted under California law for corporate shareholders.”

13 Doc. No. 18-1 at 9–10. California courts have held that “reverse veil piercing may be

14 available.” Curci Investments, LLC v. Baldwin, 14 Cal. App. 5th 214, 224 (2017)

15 (distinguishing Postal Instant Press, Inc. v. Kaswa Corp., 162 Cal. App. 4th 1510 (2008)

16 when the entity that may be pierced was an LLC and given the specific facts surrounding

17 the relationship between the entity and the individual). However, this is not a reverse

18 alter ego situation “by which the corporate veil is pierced to permit a third party creditor

19 to reach corporate assets to satisfy claims against an individual shareholder.” Postal

20 Instant Press, Inc., 162 Cal. App. 4th at 1513 (emphasis added); see also Curci

21 Investments, LLC, 14 Cal. App. 5th at 221. There is no claim against an individual

22 shareholder; rather, Plaintiff alleges that “Genesis is a wholly owned subsidiary of GRC,”

23 and seeks to pierce the corporate veils of both entities to treat them as a single entity.

24 SAC ¶ 2; Doc No. 20 at 10.3 The alter ego theory of liability is available to treat a

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3 Plaintiff requests the Court take judicial notice of GRC’s answer to the SAC. Doc. No. 20 at 10 n.2;

27 Doc. No. 20-1. Genesis does not appear to object in its reply brief. The Court DENIES Plaintiff’s

request to judicially notice GRC’s answer, as it did not rely on it in ruling on the instant motion to

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1 corporation and its wholly owned subsidiary as a single entity to prevent abuse of the

2 corporate form. Davidson v. Seterus, Inc., 21 Cal. App. 5th 283, 305 (2018) (citing

3 Sonora Diamond Corp., 83 Cal. App. 4th at 538). Therefore, alter ego liability is

4 available to Plaintiff if it sufficiently pleads the two requirements detailed supra: “unity

5 of interest and ownership” and “inequitable result.”

6 ii. Unity of Interest Requirement

7 The Court first turns to whether Plaintiff pleaded sufficient facts in its SAC to

8 allege unity of interest and ownership.

9 In its previous Order, the Court found that Plaintiff sufficiently alleged the conduit

10 factor. See Doc. No. 16 at 9.

11 For the commingled funds factor, Plaintiff alleges Genesis and GRC “refer[] to

12 payment of policy benefits as ‘our excess dollars,’” “pool their assets for the purposes of

13 investment,” “file a consolidated tax return,” and “loan each other funds.” SAC ¶ 3.

14 Genesis argues that “pooled” does not equate to “commingled,” “which implies a

15 difficulty in segregating them.” Doc. No. 18-1 at 10. “Courts find that a plaintiff has

16 sufficiently demonstrated commingling where the evidence shows that the related

17 companies transfer assets among themselves for no ascertainable reason.” Stewart v.

18 Screen Gems-EMI Music, Inc., 81 F. Supp. 3d 938, 954 (N.D. Cal. 2015). Additionally,

19 the commingling of funds must indicate a unity of interest and disregard for corporate

20 separateness. Cf. Tomaselli v. Transamerica Ins. Co., 25 Cal. App. 4th 1269, 1285

21 (1994) (“[A]re corporate assets commingled, does the parent company merely use the

22 corporate shell of the subsidiary to obtain goods and services for the parent company?”).

23 Plaintiff’s allegations indicate ascertainable reasons for joining funds—investments,

24 taxes, and loans to ensure liquidity and capitalization—that serve a common purpose for

25 both entities. As Plaintiff presents its allegations, the pooled funds do not appear to be a

26 means to use one of the corporate entities as a shell. Rather, the pooling appears to be a

27 normal characteristic of corporate ownership and does not illustrate “evidence of

28 manipulative control by the parent of its subsidiaries.” Gerritsen v. Warner Bros. Entm’t

1 Inc., 116 F. Supp. 3d 1104, 1138 (C.D. Cal. 2015) (quoting Inst. of Veterinary Pathology,

2 Inc. v. California Health Labs., Inc., 116 Cal. App. 3d 111, 120 (1981)). Thus, the Court

3 finds Plaintiff has not sufficiently alleged commingling of funds.

4 Plaintiff does not allege inadequate capitalization. Rather, its allegations suggest

5 adequate capitalization: “GRC and Genesis loan each other funds so either can reduce its

6 level of short-term investments yet allow either to retain sufficient liquidity to pay current

7 obligations.” SAC ¶ 3. However, Plaintiff argues in opposition to the motion that there

8 was a “de facto zero capitalization for insureds’ claims against these entities in that

9 insureds face an inability to recover at all for the wrongdoing committed by Genesis for

10 which GRC is shielded by its separate corporate veil.” Doc. No. 20 at 12. Plaintiff’s

11 argument both misconstrues the inadequate capitalization factor and runs counter to its

12 own allegations. Inadequate capitalization exists when an entity lacks the means to

13 satisfy existing and potential creditors. See Jack Farenbaugh & Son v. Belmont Constr.,

14 Inc., 194 Cal. App. 3d 1023, 1034 (1987); see also B. Planning Financial-Control

15 Structure, Cal. Prac. Guide Corps. Ch. 3-B (“[T]he corporation must be capitalized . . . in

16 an amount that is ‘adequate’ to give it independent substance in relation to third party

17 obligations likely to be incurred in connection with the corporation’s business.”). Despite

18 Plaintiff arguing that its specific claims are not capitalized, Plaintiff has not shown that

19 Genesis cannot meet its general debt obligations as they become due. Rather, the loans

20 between Genesis and GRC demonstrate that it is adequately capitalized to meet its

21 obligations. SAC ¶ 3. Thus, the Court finds Plaintiff has not sufficiently alleged

22 inadequate capitalization.

23 As to the identical directors and officers factor, Plaintiff alleges the following:

24 “The majority of Genesis’[s] officers and directors are also officers and/or directors of

25 GRC and Genesis’[s] President/CEO reports directly to GRC’s President/CEO.

26 Genesis’[s] current President/CEO was previously GRC’s Global Claims Manager.

27 GRC’s CEO/President prior to 2015 previously served as President/CEO of Genesis.” Id.

28 (emphasis added). Genesis argues that Plaintiff’s own allegations show that Genesis and

1 GRC do not have identical directors and officers. Doc. No. 18-1 at 11. Thus, this factor

2 weighs in favor of Genesis given that Plaintiff does not allege identical directors and

3 officers. See Virtualmagic Asia, Inc., 99 Cal. App. 4th at 245; Sonora Diamond Corp.,

4 83 Cal. App. 4th at 539.

5 Plaintiff does not allege Genesis held itself out as liable for GRC’s debts, a

6 disregard of corporate formalities, or a lack of segregation of corporate records. Thus,

7 the Court finds these factors weigh toward not finding an unity of interest between

8 Genesis and GRC.

9 As to the same offices and employees factor, Plaintiff alleges that “GRC and

10 Genesis share the same headquarters in Stamford, Connecticut.” SAC ¶ 3. Plaintiff is

11 silent as to whether the two entities share any other offices besides their headquarters. As

12 to similar employees, Plaintiff alleges that “[a] number of the claims people with whom

13 [Plaintiff] corresponded via Genesis email addresses were simultaneously employees of

14 GRC.” Id. Given that Plaintiff points to only a common out-of-state headquarters—and

15 is silent as to other offices—and alleges vaguely that “[a] number” of employees are

16 shared between Genesis and GRC, the Court finds this factor only weakly supports

17 Plaintiff.

18 Therefore, after assessing the various factors, the Court finds Plaintiff fails to plead

19 a unity of interest between Genesis and GRC.

20 iii. Inequitable Result Requirement

21 The Court next turns to whether Plaintiff pleaded sufficient facts in its SAC to

22 allege whether a fraud or other inequitable result would occur if the underlying

23 allegations are attributed to GRC alone.

24 Genesis argues “[t]here is no evidence that GRC is incapable of paying any

25 judgment against it.” Doc. No. 18-1 at 11; Doc. No. 21 at 5. Genesis further argues, as a

26 matter of agency, that Plaintiff “has already admitted that Genesis is GRC’s claim

27 handling representative, a fact GRC does not dispute. If Genesis made representations in

28 the course of its handling of [Plaintiff’s] claims, GRC is legally liable for those

1 representations as Genesis’s principal.” Doc. No. 18-1 at 12 (citing Daniels v. Select

2 Portfolio Servicing, Inc., 246 Cal. App. 4th 1150, 1178 (2016)); see also SAC ¶ 4

3 (“[Plaintiff] was directed by defendants solely to Genesis with respect to claims,

4 questions and reimbursement requests involving the policy.”). Plaintiff points to a

5 scheme to show an inequitable result. See SAC ¶ 3; Doc. No. 20 at 13–15. Plaintiff

6 alleges that

7

8 GRC has engaged in a scheme to avoid liability to the City for the claims

alleged herein whereby Genesis purports to have full authority to conduct all

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claims handling transactions for GRC, including authorizations to settle with

10 promises to pay, performs all functions, all communications and directions

to the City, all decision making, all approvals of payments, and all denials of

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coverage. GRC and Genesis then seek to shield themselves from liability for

12 bad faith breach of contract and fraud by hiding behind their separate

corporate veils with each of them denying responsibility so the City cannot

13

recover for their bad faith and fraud including punitive damages.

14

15 SAC ¶ 3. Given the alleged principal-agent relationship between GRC and Genesis, the

16 Court finds that an inequitable result would not follow if the acts in question were

17 attributed to only to Genesis.

18 Therefore, the Court finds Plaintiff fails to plead an inequitable result would occur

19 if the underlying allegations are attributed to GRC alone.

20 iv. Conclusion

21 Accordingly, the Court finds that Plaintiff has not alleged sufficient facts in its

22 SAC to pierce Genesis’s corporate veil to hold GRC liable for Plaintiff’s underlying

23 allegations. “Alter ego is an extreme remedy, sparingly used” and should be “approached

24 with caution.” Davidson, 21 Cal. App. 5th at 306 (quoting Las Palmas Assocs. v. Las

25 Palmas Ctr. Assocs., 235 Cal. App. 3d 1220, 1249 (1991)); Sonora Diamond Corp., 83

26 Cal. App. 4th at 539 (citing Calvert v. Huckins, 875 F. Supp. 674, 678 (E.D. Cal. 1995).

27 Plaintiff fails to show that this extreme remedy is warranted.

28 3. Joint Venture Liability

1 Courts apply the joint venture doctrine to hold each joint venture member liable in

2 tort and contract when three elements are met: (1) “the members must have joint control

3 over the venture (even though they may delegate it)”[;](2) the members “must share the

4 profits of the undertaking”[;] and (3) “the members must each have an ownership interest

5 in the enterprise.” Jeld-Wen, Inc. v. Superior Court, 131 Cal. App. 4th 853, 872 (2005).

6 Plaintiff fails to allege joint control by Genesis and GRC. Rather, Plaintiff appears

7 to allege a principal-agent relationship where Genesis acted as the main contact regarding

8 the policy agreement between GRC and Plaintiff. See SAC ¶¶ 2–3; SAC Ex. 1. Plaintiff

9 argues that the fact that a majority of the officers and directors are identical establishes

10 joint control. Doc. No. 20 at 16; see also SAC ¶ 3. However, overlap in directors does

11 not constitute facts showing that both Genesis and GRC controlled the venture; instead, it

12 merely suggests a level of control of Genesis as a “wholly owned subsidiary of GRC.”

13 SAC ¶ 2.

14 To support the shared profitability element, Plaintiff alleges “Genesis instructed

15 [Plaintiff] that any proposed settlement of a worker’s compensation claim that involved

16 ‘our excess dollars’ required Genesis’[s] approval.” Id.; see also id. ¶ 3. As presently

17 pleaded, vague “our excess dollars” does not allege shared profits as opposed to the

18 workings of the principal-agent relationship. Plaintiff further alleges the entities “pool

19 their assets for purposes of investment and they file a consolidated tax return.” SAC ¶ 3.

20 Joint investments alone do not sufficiently demonstrate that the entities share the profits

21 given that, as presently pleaded, “neither had an interest in the payments received by the

22 other.” Connor v. Great W. Sav. & Loan Ass’n, 69 Cal. 2d 850, 863(1968). Although the

23 allegations show where the money came from, they do not allege the ultimate result of

24 the investment—the distribution of the investment.

25 Accordingly, because Plaintiff fails to allege shared profits or losses or that

26 Genesis and GRC exercise equal authority and control over the conduct of each other,

27 Plaintiff fails to allege sufficient facts to support a joint venture theory of liability.

28 4. Conclusion

1 Based on the foregoing, the Court finds that Plaintiff has not pleaded sufficient

2 facts to find Genesis liable under either an alter ego theory of liability or a joint venture

3 theory. Plaintiff has failed to plausibly allege that Genesis could be held liable for breach

4 of contract, breach of the implied covenant of good faith and fair dealing, and declaratory

5 relief based on breach of contract. The Court GRANTS Genesis’s motion to dismiss

6 these contract-based causes of action without prejudice and with leave to amend.

7 B. Claims Sounding in Fraud

8 1. Negligent Misrepresentation

9 In its previous order granting dismissal, the Court found that “Plaintiff has

10 sufficiently alleged that Genesis owed a duty to communicate accurate information,” but

11 the Court ultimately found that “Plaintiff has not sufficiently alleged that Genesis made a

12 misrepresentation.” Doc. No. 16 at 13, 14. The Court reasoned that the “allegations do

13 not make clear whether Genesis represented to Plaintiff that it would reimburse Plaintiff

14 for payments made pursuant to any settlement offer authorized by Genesis or only for

15 payments made pursuant to the 2011 settlement offer.” Id. at 14. Now, Genesis argues

16 that Plaintiff has not corrected this deficiency by removing the allegation regarding

17 reliance on the 2011 representation and replacing it “with the contrary statement that

18 Genesis specifically and separately ‘authorized’ the 2012 settlement.” Doc. No. 18-1 at

19 14. Plaintiff responds that there is no inconsistency; instead, it argues that it alleges

20 authorization of a second settlement in 2012 after the first 2011 settlement. See Doc. No.

21 20 at 18.

22 Under California law, the elements of negligent misrepresentation are

23

24 (1) a misrepresentation of a past or existing material fact, (2) without

reasonable grounds for believing it to be true, (3) with intent to induce

25

another’s reliance on the fact misrepresented, (4) ignorance of the truth and

26 justifiable reliance thereon by the party to whom the misrepresentation was

directed, and (5) damages.

27

28

1 Fox v. Pollack, 181 Cal. App. 3d 954, 962 (1986).

2 As a preliminary matter, the Court is not persuaded by Genesis’s argument that the

3 allegations in the FAC and SAC are inconsistent. Plaintiff may allege reliance on

4 Genesis’ 2011 representation “that it would reimburse [P]laintiff for payments made

5 pursuant to a settlement reached with Mrs. Westenberger,” FAC ¶¶ 75–76, also applied to

6 the 2012 settlement because such a promise—as the Court understands it—would not

7 necessarily be exclusive to the 2011 settlement and thus could apply beyond it or,

8 additionally, be a separate representation. See Doc No. 16 at 14 (noting the lack of

9 clarity of the nature of the promise); Doc. No. 20 at 18; infra Sections III.B.1–3 (noting

10 the continued lack of clarity). Moreover, the Court observes that Plaintiff’s allegations in

11 its SAC pertain to representations made over authorization to approve the 2012

12 settlement and not representations that Genesis itself would reimburse Plaintiff based on

13 representations made in May 2011. Compare SAC ¶ 73 (“Genesis represented that . . . it

14 had authority to approve [Plaintiff’s] entering into the 2012 Stipulation with Request for

15 Award.”), with FAC ¶ 75 (“[I]n May of 2011 Genesis represented to [P]laintiff that it

16 would reimburse [P]laintiff for payments made pursuant to a settlement reached with

17 Mrs. Westenberger which was authorized in advanced by Genesis.”).

18 Plaintiff alleges four representations that it claims are not true. SAC ¶¶ 73–74.

19 Plaintiff claims

20

21 Genesis represented that (1) it had authority to approve the City’s entering

into the 2012 Stipulation with Request for Award; (2) that Genesis agreed

22

that the City was liable under Worker’s Compensation Law for the future

23 medical care for Mrs. Westenberger’s hips, left foot, psyche, and RSD

because these injuries/conditions could be attributed to her 1993 City injury;

24

(3) that Genesis agreed that any payments by the City for such medical care

25 was required by California’s Worker’s Compensation Laws and was

therefore covered under the Policy; and (4) that Genesis agreed the

26

contribution claim was properly discontinued.

27

28

1 Id. ¶ 73. Genesis argues Plaintiff fails to plead with specificity under Rule 9(b). See

2 Doc. No. 18-1 at 14. Both parties fail to cite to case law indicating that negligent

3 misrepresentation falls under the gamut of Rule 9(b)’s heightened pleading standard. The

4 Court notes conflicting, nonbinding authority on whether Rule 9(b) applies to negligent

5 misrepresentation. Compare Petersen v. Allstate Indem. Co., 281 F.R.D. 413, 417 (C.D.

6 Cal. 2012), with Zetz v. Bos. Sci. Corp., 398 F. Supp. 3d 700, 713 (E.D. Cal. 2019). The

7 Ninth Circuit—in unpublished cases—has applied both approaches. Compare Kelley v.

8 Rambus, Inc., 384 F. App’x 570, 573 (9th Cir. 2010) (holding that Plaintiff’s fraud and

9 negligent misrepresentation claims failed to meet the Rule 9(b) standard), with Miller v.

10 Int’l Bus. Machines Corp., (IBM), 138 F. App’x 12, 17 (9th Cir. 2005) (reversing a

11 district court’s dismissal of a negligent misrepresentation claim because it satisfied Rule

12 8(a) and was “not a fraud claim.”).

13 Sitting in diversity, the Court finds that Rule 9(b) applies because negligent

14 misrepresentation substantially “sound[s] in fraud” under California law. Daniels, 246

15 Cal. App. 4th at 1166 (citing Chapman v. Skype Inc., 220 Cal. App. 4th 217, 231 (2013)).

16 Therefore, the Court will apply Rule 9(b) to determine procedurally whether “the

17 circumstances of the fraud” are pleaded with particularity. Vess, 317 F.3d at 1103; see

18 also Fed. R. Civ. P. 9(b); Kearns, 567 F.3d at 1124.

19 In its prior Order, the Court previously questioned “whether Genesis represented to

20 Plaintiff that it would reimburse Plaintiff for payments made pursuant to any settlement

21 offer authorized by Genesis or only for payments made pursuant to the 2011 settlement

22 offer.” Doc. No. 16 at 14. Now, Plaintiff argues that Genesis authorized the 2012

23 settlement. Doc. No. 20 at 18. Plaintiff alleges “Defendants authorized and approved of

24 [Plaintiff’s] entering into this ‘Stipulation with Request for Award’ which stated

25 [Plaintiff] was liable for all future medical care for her ‘low back, hips, left foot, psyche,

26 and RSD . . . .’” SAC ¶ 31; see also id. ¶¶ 40, 42, 44, 62. Plaintiff claims “Genesis

27 analyzed counsel’s reports, advised [Plaintiff] it agreed with counsel, and authorized

28 [Plaintiff] to enter into the Stipulation with Request for Award with Mrs. Westenberger,

1 which [Plaintiff] did on or about May 30, 2012.” Id. ¶ 63; see also id. ¶ 70, 72. Plaintiff

2 pleads that Genesis would “handle[]” the “funding/reimbursement” aspects of the 2012

3 settlement. Id. ¶ 71.

4 Plaintiff fails to plead with sufficient particularity whether Genesis itself would

5 reimburse Plaintiff under the 2012 settlement. In answering the question presented by

6 the Court in its order dismissing the cause of action with leave to amend, Plaintiff appears

7 to shift the thrust of the alleged misrepresentation to Genesis’s authority to approve

8 settlement. Compare SAC ¶ 73 (“Genesis represented that . . . it had authority to approve

9 [Plaintiff’s] entering into the 2012 Stipulation with Request for Award.”), with FAC ¶ 75

10 (“[I]n May of 2011 Genesis represented to [P]laintiff that it would reimburse [P]laintiff

11 for payments made pursuant to a settlement reached with Mrs. Westenberger which was

12 authorized in advanced by Genesis.”). Although Plaintiff pleads that Genesis made the

13 representation of such authority, Plaintiff lacks any facts surrounding the alleged

14 authorization and related alleged misrepresentations. The Court is left without the details

15 surrounding “‘the who, what, when, where, and how’ of the misconduct charged.”

16 Kearns, 567 F.3d at 1124 (quoting Vess, 317 F.3d at 1106). If Plaintiff provides such

17 context in the exhibits attached to its opposition brief, the Court does not consider the

18 exhibits because a district court’s review on a Rule 12(b)(6) motion to dismiss is “limited

19 to the complaint.” Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) (quoting

20 Cervantes v. City of San Diego, 5 F.3d 1273, 1274 (9th Cir. 1993), overruled on other

21 grounds by Galbraith v. Cnty. Of Santa Clara, 307 F.3d 1119, 1125–26 (9th Cir. 2002).

22 Additionally, Genesis argues in its reply brief that “even if Genesis had represented

23 that the 2012 settlement was ‘authorized,’ then it would have been conveying GRC’s

24 authorization as GRC’s claim representative, and not misrepresenting anything.” Doc.

25 No. 21 at 8. However, Plaintiff alleges that Genesis negligently misrepresented its

26 settlement approval authority, and the Court has already noted that an agent owes a duty

27 of care to third parties in the business context. See Doc. No. 16 at 12 (referring to Bock v.

28 Hansen, 225 Cal. App. 4th 215, 230 (2014) and Friedman v. Merck & Co., 107 Cal. App.

1 4th 454, 481 (2003)). Thus, any principal-agent relationship between Genesis and GRC

2 does not necessarily foreclose Genesis’s liability for negligent misrepresentation.

3 Accordingly, the Court GRANTS Genesis’s motion to dismiss Plaintiff’s negligent

4 misrepresentation cause of action without prejudice and with leave to amend.

5 2. Concealment

6 In its previous order granting dismissal, the Court found that “Plaintiff’s claim for

7 fraudulent concealment is deficient” because Plaintiff “fail[ed] to plead . . . with the

8 specificity required by Rule 9(b).” Doc. No. 16 at 14, 15. Now, Genesis argues the

9 SAC’s “facts are insufficient to establish a duty to disclose”; thus, Plaintiff lacked a

10 reasonable basis to rely on any silence by Genesis. Doc. No. 18-1 at 16; see also Doc.

11 No. 21 at 9. Genesis also notes that Plaintiff fails to allege reliance on Genesis’s silence

12 and damages. Doc. No.18-1 at 17, 20; see also Doc. No. 21 at 10. Plaintiff disputes

13 Genesis’s argument. Specifically, it responds that Genesis had a duty to disclose and that

14 it “justifiably relied on Genesis’s approval of the settlement and acquiescence in the

15 discontinuance of the contribution claim because [Plaintiff] had no way of knowing the

16 concealed facts” and “it was justifiable to rely on Genesis’s acquiescence in the decision

17 to discontinue the potential contribution claim against Westenberger’s other employer.”

18 Doc. No. 20 at 24.

19

20 The required elements for fraudulent concealment are (1) concealment or

suppression of a material fact; (2) by a defendant with a duty to disclose the

21

fact to the plaintiff; (3) the defendant intended to defraud the plaintiff by

22 intentionally concealing or suppressing the fact; (4) the plaintiff was

unaware of the fact and would not have acted as he or she did if he or she

23

had known of the concealed or suppressed fact; and (5) plaintiff sustained

24 damage as a result of the concealment or suppression of the fact.

25

26 Hambrick v. Healthcare Partners Med. Grp., Inc., 238 Cal. App. 4th 124, 162 (2015)

27 (quoting Graham v. Bank of America, N.A., 226 Cal. App. 4th 594, 606 (2014)). A claim

28 for concealment must be pleaded with specificity under Rule 9(b). See Kearns, 567 F.3d

1 at 1126–27. A plaintiff alleging concealment must plead enough facts “demonstrating

2 that the defendant was under a legal duty to disclose those facts.” Los Angeles Mem’l

3 Coliseum Com. v. Insomniac, Inc., 233 Cal. App. 4th 803, 831 (2015) (citing OCM

4 Principal Opportunities Fund, L.P. v. CIBC World Markets Corp., 157 Cal. App. 4th

5 835, 845 (2007), as modified (Dec. 26, 2007).

6 To meet the first element (concealment), Plaintiff alleges that

7

8 Genesis intentionally concealed from the City the following: (1) that it did

not have authority to approve the City’s entering into the 2012 Stipulation

9

with Request for Award; (2) that Genesis believed the City was not liable

10 under Workers Compensation law for the future medical care for Mrs.

Westenberger’s hips, left foot, psyche, and RSD because these

11

injuries/conditions could not be attributed to her 1993 City injury; (3) that

12 Genesis believed any payments by the City for such medical care were not

required by California’s Worker’s Compensation Laws and were therefore

13

not covered under the Policy; and (4) that Genesis believed the contribution

14 claim was meritorious and had value.

15

16 SAC ¶ 65. As with the negligent misrepresentation cause of action, Plaintiff fails to

17 provide the requisite specificity. Despite concealment resting partly on omission,

18 Plaintiff must still plead with particularity. See Kearns, 567 F.3d at 1126. To plead

19 concealment with particularity, Plaintiff must describe not just the content of the

20 omission but also “where the omitted information should or could have been revealed . . .

21 [and] provide representations that plaintiff relied.” Asghari v. Volkswagen Grp. of Am.,

22 Inc., 42 F. Supp. 3d 1306, 1325 (C.D. Cal. 2013) (quoting Eisen v. Porsche Cars N. Am.,

23 Inc., No. CV 11-9405 CAS FEMX, 2012 WL 841019, at *3 (C.D. Cal. Feb. 22, 2012)).

24 Although Plaintiff’s SAC details the content of the omission, it lacks the surrounding

25 context. For example, Plaintiff fails to provide the Court with the individual(s) at

26 Genesis who provided the authority (the “who”), the details of what the representation of

27 authority consisted (the “what”), when the authority was provided (the “when”), and the

28

1 documents stating that it had authority and where the omitted information should or could

2 have been disclosed (the “where”).

3 As to the second element (duty), Plaintiff alleges “Genesis had a duty to disclose

4 the above facts to [Plaintiff] because, as alleged above, Genesis and [Plaintiff] had a

5 long-term transactional relationship whereby Genesis handled every aspect of

6 [Plaintiff’s] claims for coverage in excess of its retention.” SAC ¶ 66. It further avers

7 that the relationship imported “a duty not to make representations to [Plaintiff] and

8 conceal facts that materially qualify the facts or are likely to mislead [Plaintiff]” and a

9 duty to disclose facts that Plaintiff “did not know and could not reasonably discover.” Id.

10 California courts have held the following:

11

12 There are four circumstances in which nondisclosure or concealment may

constitute actionable fraud: (1) when the defendant is in a fiduciary

13

relationship with the plaintiff; (2) when the defendant had exclusive

14 knowledge of material facts not known to the plaintiff; (3) when the

defendant actively conceals a material fact from the plaintiff; and (4) when

15

the defendant makes partial representations but also suppresses some

16 material facts.

17

18 Los Angeles Mem’l Coliseum Com., 233 Cal. App. 4th at 831 (quoting LiMandri v.

19 Judkins, 52 Cal. App. 4th 326, 336 (1997)). Each of the nonfiduciary circumstances

20 “presupposes the existence of some other relationship between the plaintiff and

21 defendant in which a duty to disclose can arise.” LiMandri, 52 Cal. App. 4th at 336–37

22 (emphasis added). Regardless of Plaintiff asserting an insurer-insured relationship where

23 Genesis acted as an agent, this relationship is merely a condition precedent. Plaintiff

24 must still plead facts indicating one of the circumstances provided supra. Given the

25 Court’s analysis with the first element and the parallels in the facts needed to support this

26 second element, the Court finds Plaintiff has not pleaded sufficient facts under Rule 9(b)

27 to show whether Genesis had a duty to disclose. Even under the “special and heightened

28 duties” of the insurer-insured relationship and associated agents, Bock, 225 Cal. App. 4th

1 at 229 (quoting Vu v. Prudential Prop. & Cas. Ins. Co., 26 Cal. 4th 1142, 1151 (2001)),

2 Genesis fails to provide the surrounding context of the concealed information.

3 Accordingly, the Court GRANTS Genesis’s motion to dismiss Plaintiff’s

4 concealment cause of action without prejudice and with leave to amend.

5 3. False Promise

6 Plaintiff’s SAC adds a false promise cause of action. SAC ¶¶ 79–82. Namely,

7 Plaintiff alleges Genesis falsely promised “[Plaintiff] would be promptly reimbursed for

8 each such settlement payment after [Plaintiff] submitted a request for reimbursement to

9 Genesis. . . . in connection with settlement of the Westenberger claim.” Id. ¶ 80; see also

10 Id. ¶ 3. As with the concealment claim, Genesis argues that Plaintiff fails to allege

11 justifiable reliance and damages. Doc. No. 18-1 at 20. Plaintiff responds that it properly

12 alleged a cause of action for false promise. Doc. No. 20 at 25–27.

13 Under California law, the elements of false promise are as follows: “(a)

14 misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of

15 falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance;

16 and (e) resulting damage.” Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996) (quoting

17 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 676).

18

19 To maintain an action for deceit based on a false promise, one must

specifically allege and prove, among other things, that the promisor did not

20

intend to perform at the time he or she made the promise and that it was

21 intended to deceive or induce the promisee to do or not do a particular thing.

22

23 Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. App. 4th 153, 159 (1991) (citing Hills

24 Trans. Co. v. Southwest Forest Industries, Inc., 266 Cal. App. 2d 702, 708 (1966); Regus

25 v. Schartkoff, 156 Cal. App. 2d 382, 389 (1957)). A claim for false promise must be

26 pleaded with specificity under Rule 9(b). First Advantage Background Servs. Corp. v.

27 Private Eyes, Inc., 569 F. Supp. 2d 929, 939 (N.D. Cal. 2008)

28

1 Plaintiff’s false promise allegations lack the specificity required under Rule 9(b).

2 Although formally designated as an additional cause of action, it contains allegations

3 from the FAC. See, e.g., FAC ¶ 75. In its previous Order, the Court cautioned Plaintiff

4 that its allegations did “not make clear whether Genesis represented to Plaintiff that it

5 would reimburse Plaintiff for payments made pursuant to any settlement offer authorized

6 by Genesis or only for payments made pursuant to the 2011 settlement offer.” Doc. No.

7 16 at 14. Plaintiff has failed to provide the requisite clarity.4 Relatedly, Plaintiff does not

8 allege the entire “‘who, what, when, where, and how’ of the misconduct charged.”

9 Kearns, 567 F.3d at 1124 (quoting Vess, 317 F.3d at 1106). As Genesis highlights,

10 Plaintiff does not detail who at Genesis made the representation, when the representation

11 was made, where the representation was made, or how it was made. See Doc. No. 18-1 at

12 21. The Court is only left with the promise itself (the “what”); however, the “what” itself

13 lacks specificity as to whether the promise pertained to any settlement offer or only to the

14 2011 settlement offer. See Doc. No. 16 at 14.

15 Accordingly, the Court GRANTS Genesis’s motion to dismiss Plaintiff’s false

16 promise cause of action without prejudice and with leave to amend.

17 / / /

18 / / /

19 / / /

20

21

22 4 Plaintiff argues the following in its opposition brief:

23 Genesis misrepresents the allegations as to the false promise at page 20 where it says the

only misrepresentation alleged as a ‘false promise’ is Genesis’s prior promise to

24

reimburse Escondido for the C&R settlement that was rejected by Westenberger. That is

25 simply false, and the court must look at the actual allegations, which clearly state Genesis

promised to reimburse the City for the 2012 settlement.

26

Doc. No. 20 at 26 (citing SAC ¶¶ 79–82). Despite its argument, Plaintiff has not pleaded as such in its

27 SAC. Plaintiff’s allegations remain unclear. Although Plaintiff alleges it “relied on this promise in

entering into the May 2012 Stipulation with Request Award,” SAC ¶ 81, Plaintiff fails to plead to what

28

1 IV. CONCLUSION

2 For the foregoing reasons, the Court GRANTS Genesis’s motion. Although

3 || Plaintiff has failed to adequately plead its claims against Genesis, it is not clear that it

4 || would be unable to do so if given leave to amend. Accordingly, dismissal is without

5 || prejudice and with leave to amend one final time. See Knappenberger, 566 F.3d at 942.

6 || Plaintiff must file a third amended complaint, if any, on or before January 10, 2020.

7 IT ISSO ORDERED.

8

9 || Dated: December 18, 2019

10 pth LIne hillr

11 Hon. Michael M. Anello

12 United States District Judge

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