Wells Fargo Bank, National Association v. Transamerica Life Insurance Company

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

ee eee CHRISTINA ASNYDER

Catherine Jeang Not Present N/A

Deputy Clerk Court Reporter / Recorder Tape No.

Attorneys Present for Plaintiffs: Attorneys Present for Defendants:

Not Present Not Present

Proceedings: (IN CHAMBERS) - DEFENDANT’S MOTION TO DISMISS

PLAINTIFF’S FIRST AMENDED COMPLAINT (Dkt. [ 23 ], filed

October 28, 2019)

I. INTRODUCTION

Plaintiff Wells Fargo Bank, National Association (“Wells Fargo”) filed this action

against defendant Transamerica Life Insurance Company on August 5, 2019. Dkt. 1.

Wells Fargo alleges that Transamerica wrongfully increased the monthly deduction rates

(‘MDRs”) of certain universal life insurance policies in violation of the terms of the

policies and various states’ laws. Id.

Transamerica filed the operative first amended complaint on October 28, 2019. Dkt.

22 (“FAC”). The FAC asserts claims for: (1) breach of contract: (2) contractual breach of

the implied covenant of good faith and fair dealing; (3) violation of the Pennsylvania

Insurance Bad Faith Statute (“Section 8371”); (4) violation of California’s Unfair

Competition Law (“UCL”): (5) violation of the Connecticut Unfair Trade Practices Act

(“CUTPA”):; (6) conversion; and (7) declaratory relief. See generally id.

Transamerica filed a motion to dismiss the FAC on November 22, 2019. Dkt. 23-1

(“Mot.”). Wells Fargo filed an opposition on December 20, 2019. Dkt. 24 (“Opp.”).

Transamerica filed a reply on January 10, 2020. Dkt. 26 (“Reply”).

The Court held a hearing on January 23, 2020. Having carefully considered the

parties’ arguments, the Court finds and concludes as follows.

II. BACKGROUND

Transamerica is an Iowa corporation with its principal place of business in Iowa.

FAC 46. Wells Fargo alleges that Transamerica is authorized to do (and does substantial)

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘Oo’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

business in California. FAC § 6. At issue in this case are certain universal life insurance

policies that Transamerica issued between 1990 and 2005. Id. 4 1.

Wells Fargo is a national banking association that maintains its principal place of

business in South Dakota. FAC § 5. Wells Fargo acts as the securities intermediary for 15

Transamerica universal life insurance policies. Id. 1. These policies range in face amount

from $400,000.00 to $35.5 million and were issued in California, Arizona, Connecticut,

Florida, Illinois, Michigan, Pennsylvania, and Texas. Id. { 11. Wells Fargo alleges that

all 15 policies “are contracts of adhesion in that they are form policies drafted by

Transamerica, . . . [all 15 [p]olicies are substantially similar and are subject to the same or

similar material terms and conditions.” Id. § 20.

Transamerica’s life insurance policies contain two components: (1) a “mortality”

component, for which Transamerica charges a cost to cover the risk of the insured’s death

(“the cost of insurance’); and (2) a “cash value” component, where premiums paid in

excess of the cost of insurance and other charges accumulate (“the Accumulation Value”)

and earn interest. FAC 412. Transamerica’s policies “unbundle” these two components

“to allow policyholders to choose whether to pay just enough premiums to cover the risk

of death (i.e., pay solely for the life insurance) or pay more (subject to certain limitations)

and build up a cash value that earns tax-deferred interest.” Id. Transamerica deducts funds

from the accounts through MDRs to cover the cost of insurance and other charges. Id. §

13. If the balance of a particular universal life insurance policy is insufficient to cover

these monthly charges, then the policy will enter a grace period and lapse unless additional

payments are made. Id.

Transamerica’s universal life insurance policies include both guaranteed and non-

guaranteed elements. FAC § 17. Guaranteed elements—including the guaranteed

minimum interest rate on which interest on the Accumulation Values accrue—are fixed

and determined at a specific time, such as when a given policy is issued. Id. Transamerica,

however, may adjust non-guaranteed elements, such as the MDRs, consistent with the

universal life insurance policy’s terms. Id.

Wells Fargo’s policies state that Transamerica “will determine the Monthly

Deduction Rate for each policy month at the beginning of that policy month,” or, in the

case of | policy, at the beginning of each year. FAC § 18. Wells Fargo alleges that at least

some of its policies provide that “[a|ny change in the Monthly Deduction Rates will be

prospective and will be subject to our expectations as to future cost factors. Such cost

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘Oo’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

factors may include, but are not limited to: mortality; expenses; interest; persistency; and

any applicable federal, state and local taxes.” FAC 4 18. Moreover, Wells Fargo’s policies

indicate that Transamerica “does not distribute past surplus or recover past losses by

changing the Monthly Deduction Rates.” Id, § 19 (internal alterations omitted). According

to Wells Fargo, then, the policies’ terms limit Transamerica’s ability to raise MDRs in two

critical aspects, such that: “(a) changes can only be based on Transamerica’s expectations

as to future cost factors; and (b) changes must be prospective in nature only (i.e.,

Transamerica cannot change rates to recover past losses (or distribute past surplus)).” Id.

21.

Wells Fargo alleges that Transamerica raised the MDRs on 10 of Wells Fargo’s

policies in 2016 and 2017 and on 5 of Wells Fargo’s policies in 2018. FAC § 23.

According to Wells Fargo, “Transamerica has never explained the methodology used to

determine each policy’s increase. However, recent calculations estimate that, on average,

Transamerica has increased the Monthly Deduction Rate on the Policies by between 10%

and 269%.” Id. Wells Fargo therefore contends that Transamerica’s MDR increases

“constitute| | express breaches of the [p]olicies,” as well as “breaches of both common law

and codified implied covenant of good faith and fair dealing and a violation of” various

states’ laws. Id. 4. Wells Fargo asserts that the purpose of these increases 1s to “force

Wells Fargo either to (a) pay exorbitant premiums that Transamerica knows would no

longer justify the ultimate death benefits or (b) lapse or surrender their policies, thereby

forfeiting the premiums paid by Wells Fargo . . . over the last decades.” Id. 4 56.

i. LEGAL STANDARDS

A. Rule 12(b)(2)

When a defendant moves to dismiss for lack of personal jurisdiction pursuant to

Federal Rule of Civil Procedure 12(b)(2), the “plaintiff bears the burden of establishing

that jurisdiction is proper.” Boschetto v. Hansing, 539 F.3d 1011, 1015 (9th Cir. 2008)

(citation omitted). Where, as here, the defendant’s motion is based on written materials

rather than an evidentiary hearing, “the plaintiff need only make a prima facie showing of

jurisdictional facts to withstand the motion to dismiss.” Brayton Purcell LLP v. Recordon

& Recordon, 606 F.3d 1124, 1127 (9th Cir. 2010) (quoting Pebble Beach Co. v. Caddy,

453 F.3d 1151, 1154 (9th Cir. 2006)). The plaintiff cannot simply rely on the “bare

allegations” of its complaint; however, uncontroverted allegations in the complaint must

be taken as true, and “[c]onflicts between parties over statements contained in affidavits

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

must be resolved in the plaintiff's favor.” Schwarzenegger v. Fred Martin Motor Co., 374

F.3d 797, 800 (9th Cir. 2004).

Generally, personal jurisdiction exists if: (1) it 1s permitted by the forum state’s long-

arm statute; and (2) the “exercise of that jurisdiction does not violate federal due process.”

Pebble Beach, 453 F.3d at 1154-55. “California’s long-arm statute is co-extensive with

federal standards, so a federal court may exercise personal jurisdiction if doing so comports

with federal constitutional due process.” Boschetto, 539 F.3d at 1015. “For a court to

exercise personal jurisdiction over a nonresident defendant, that defendant must have at

least ‘minimum contacts’ with the relevant forum such that the exercise of jurisdiction

“does not offend traditional notions of fair play and substantial justice.’” Schwarzenegger,

374 F.3d at 801 (quoting International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).

Depending on the nature of the contacts between the defendant and the forum state,

personal jurisdiction is characterized as either general or specific.

1. General Jurisdiction

“A court may assert general jurisdiction over foreign (sister-state or foreign-country)

corporations to hear any and all claims against them when their affiliations with the State

are so ‘continuous and systematic’ as to render them essentially at home in the forum

State.” Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)

(quoting International Shoe, 326 U.S. at 317). A corporation’s place of incorporation and

principal place of business are the paradigmatic bases for general jurisdiction. Daimler

AG v. Bauman, 571 US. 117, 137 (2014). Otherwise, “[t]he standard is met only by

“continuous corporate operations within a state [that are] thought so substantial and of such

a nature as to justify suit against [the defendant] on causes of action arising from dealings

entirely distinct from those activities.’” King v. Am. Family Mut. Ins. Co., 632 F.3d 570,

579 (9th Cir. 2011) (quoting International Shoe, 326 U.S. at 318). The standard for general

jurisdiction “is an exacting standard, as it should be, because a finding of general

jurisdiction permits a defendant to be haled into court in the forum state to answer for any

of its activities anywhere in the world.” Mavrix Photo, Inc. v. Brand Techs., Inc., 647 F.3d

1218, 1224 (9th Cir. 2011).

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘Oo’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

2. Specific Jurisdiction

A court may assert specific jurisdiction over a claim for relief that arises out of a

defendant’s forum-related activities. Rano v. Sipa Press, Inc., 987 F.2d 580, 588 (9th Cir.

1993). The test for specific personal jurisdiction has three parts:

(1) The defendant must perform an act or consummate a transaction within

the forum, purposefully availing himself of the privilege of conducting

activities in the forum and invoking the benefits and protections of its laws;

(2) The claim must arise out of or result from the defendant’s forum-related

activities; and

(3) Exercise of jurisdiction must be reasonable.

Id.; see also Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475—76 (1985). The plaintiff

bears the burden of satisfying the first two prongs, and if either is not satisfied, personal

jurisdiction is not established. Schwarzenegger, 374 F.3d at 802.

In contracts cases, courts conduct a “purposeful availment” analysis to determine the

first prong of the specific jurisdiction test. Id. Because a contract is “ordinarily but an

intermediate step serving to tie up prior business negotiations with future consequences

which themselves are the real object of the business transaction,” a court must evaluate

four factors to determine whether purposeful availment has occurred: (1) prior

negotiations, (2) contemplated future consequences, (3) the terms of the contract, and (4)

the parties’ actual course of dealing. Burger King, 471 U.S. at 478-79. A single contract

for the sale of goods to a plaintiff in the forum state may be sufficient for specific

jurisdiction over a defendant, but only where the contract creates a “substantial connection”

with the forum state. Boschetto, 539 F.3d at 1017. “The foreseeability of causing injury

in another state is not a sufficient basis on which to exercise jurisdiction,” without more.

Gray & Co. v. Firstenberg Mach. Co., Inc., 913 F.2d 758, 760 (9th Cir. 1990).

If the plaintiff establishes the first two prongs regarding purposeful availment and

the defendant’s forum-related activities, then it is the defendant’s burden to “present a

compelling case” that the third prong, reasonableness, has not been satisfied.

Schwarzenegger, 374 F.3d at 802 (quoting Burger King, 471 U.S. at 477). The third prong

requires the Court to balance seven factors: (1) the extent of the defendant’s purposeful

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

availment, (2) the burden on the defendant, (3) conflicts of law between the forum state

and the defendant’s state, (4) the forum’s interest in adjudicating the dispute, (5) judicial

efficiency, (6) the plaintiffs interest in convenient and effective relief, and (7) the existence

of an alternative forum. Roth v. Garcia Marquez, 942 F.2d 617, 623 (9th Cir. 1991).

B. Rule 12(b)(6)

A motion pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal

sufficiency of the claims asserted in a complaint. Under this Rule, a district court properly

dismisses a claim if “there is a ‘lack of a cognizable legal theory or the absence of sufficient

facts alleged under a cognizable legal theory.”” Conservation Force v. Salazar, 646 F.3d

1240, 1242 (9th Cir. 2011) (quoting Balisteri v. Pacifica Police Dep’t, 901 F.2d 696, 699

(9th Cir. 1988)). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does

not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds’ of his

“entitlement to relief’ requires more than labels and conclusions, and a formulaic recitation

of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 555 (2007) (internal citations omitted). “Factual allegations must be enough to

raise a right to relief above the speculative level.” Id. (internal citations omitted).

In considering a motion pursuant to Rule 12(b)(6), a court must accept as true all

material allegations in the complaint, as well as all reasonable inferences to be drawn from

them. Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998). The complaint must be read in

the light most favorable to the nonmoving party. Sprewell v. Golden State Warriors, 266

F.3d 979, 988 (9th Cir. 2001). However, “a court considering a motion to dismiss can

choose to begin by identifying pleadings that, because they are no more than conclusions,

are not entitled to the assumption of truth. While legal conclusions can provide the

framework of a complaint, they must be supported by factual allegations.” Ashcroft v.

Iqbal, 556 U.S. 662, 679 (2009); see Moss v. United States Secret Service, 572 F.3d 962,

969 (9th Cir. 2009) (“[F]or a complaint to survive a motion to dismiss, the non-conclusory

“factual content,’ and reasonable inferences from that content, must be plausibly suggestive

of a claim entitling the plaintiff to relief.”). Ultimately, “[d]etermining whether a

complaint states a plausible claim for relief will . . . be a context-specific task that requires

the reviewing court to draw on its judicial experience and common sense.” Igbal, 556 U.S.

at 679.

Unless a court converts a Rule 12(b)(6) motion into a motion for summary judgment,

a court cannot consider material outside of the complaint (e.g., facts presented in briefs,

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘Oo’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

affidavits, or discovery materials). In re American Cont’! Corp./Lincoln Sav. & Loan Sec.

Litig., 102 F.3d 1524, 1537 (9th Cir. 1996), rev’d on other grounds sub nom Lexecon, Inc.

v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998). A court may, however,

consider exhibits submitted with or alleged in the complaint and matters that may be

judicially noticed pursuant to Federal Rule of Evidence 201. In re Silicon Graphics Inc.

Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999); Lee v. City of Los Angeles, 250 F.3d 668,

689 (9th Cir. 2001).

As a general rule, leave to amend a complaint which has been dismissed should be

freely granted. Fed. R. Civ. P. 15(a). However, leave to amend may be denied when “the

court determines that the allegation of other facts consistent with the challenged pleading

could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well Furniture Co.,

806 F.2d 1393, 1401 (9th Cir. 1986): see Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir.

2000).

IV. DISCUSSION

A. Personal Jurisdiction

Transamerica first moves to dismiss Wells Fargo’s claims on the grounds that the

Court cannot exercise personal jurisdiction over Transamerica. Mot. at 12. According to

Transamerica, Wells Fargo’s “allegations are insufficient to establish general or specific

jurisdiction, and the FAC should be dismissed]|.|” Id. Wells Fargo does not contend that

the Court may exercise general jurisdiction over Transamerica. Opp. at 8 n.3. The Court

therefore proceeds to determine whether the Court may exercise specific personal

jurisdiction over Transamerica.

1. Purposeful Availment

The first prong of the specific jurisdiction analysis requires that a non-resident

defendant “purposefully avail [itself] of the privileges of conducting activities in the forum,

thereby invoking the benefits and protections of its laws|.]” In re W. States Wholesale Nat.

Gas Antitrust Litig., 715 F.3d 716, 741-42 (9th Cir. 2013) (internal citation omitted). For

a case sounding in contract, “[a] showing that a defendant purposefully availed [itself] . . .

typically consists of evidence of the defendant’s actions in the forum, such as executing or

performing a contract there.” Schwarzenegger, 374 F.3d at 802. “For tort-based claims,

the Ninth Circuit has stated that a court may exercise personal jurisdiction over a defendant

whose only contact with the forum state is the purposeful direction of a foreign act having

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

effect in the forum state.” Healthcare Ally Mgmt. of California, LLC v. Med. Mut. of

Ohio, No. 2:14-cv-09428-SJO-JEM, 2015 WL 12746216, at *5 (C.D. Cal. Jan. 26, 2015).

Wells Fargo alleges that, notwithstanding Transamerica’s Iowa citizenship,

Transamerica has purposely availed itself of the privileges of this forum. For example,

Wells Fargo alleges that Transamerica previously maintained an office in Los Angeles,

California; Transamerica housed its actuarial department in its Los Angeles office;

Transamerica registered with the California Secretary of State’s Office; and Transamerica

maintains a registered agent for service of process in Los Angeles, California. FAC 4 7.

In at least three other cases challenging Transamerica’s allegedly impermissible MDR

increases, the Court has found similar factors sufficient to conclude that Transamerica has

purposely availed itself of the privileges of doing business in California. See Brighton

Trustees v. Transamerica Life Ins. Co., No. 2:19-cv-04210-CAS-GJS, 2019 WL 6315541,

at *7 (C.D. Cal. Aug. 28, 2019); Hamra v. Transamerica Life Ins. Co., No. 2:18-cv-06262-

CAS-GJS, 2019 WL 468803, at *5 (C.D. Cal. Feb. 6, 2019); Feller v. Transamerica Life

Ins. Co., No. 2:16-cv-01378-CAS-AJW, 2017 WL 6453262, at *5 (C.D. Cal. Dec. 11,

2017).

Accordingly, the Court finds that Wells Fargo has made an adequate showing under

the purposeful availment prong sufficient to support the Court’s exercise of specific

personal jurisdiction over Transamerica.

2. Forum-Related Activities

The second prong of the specific personal jurisdiction analysis requires that

plaintiffs’ claims arise out of, or relate to, Transamerica’s forum-related activities. Picot

v. Weston, 780 F.3d 1206, 1211 (9th Cir. 2015) (anternal citation omitted). The Ninth

Circuit applies a “but for” test to determine whether claims relate to forum-related

activities. Monster Energy Co. v. Vital Pharm., Inc., No. 5:18-cv-01882-JGB-SHK, 2019

WL 2619666, at *7 (C.D. Cal. May 20, 2019) (citing Ballard v. Savage, 65 F.3d 1495,

1500 (9th Cir. 1995)). Under this test, the question is: but for Transamerica’s conduct in

California, would plaintiffs’ claims have arisen? As the Court has previously observed,

“any event in the causal chain leading to the plaintiff's injury 1s sufficiently related to the

claim to support the exercise of specific jurisdiction.” Feller, 2017 WL 6453262, at *6

(citing Dubose v. Bristol-Myers Squibb Co., No. 17-cv-00244-JST, 2017 WL 2775034, at

*3 (N.D. Cal. June 27, 2017)).

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

Transamerica contends that Wells Fargo cannot make the required showing of a

nexus between its claims and Transamerica’s contacts. Mot. at 14. That is because,

according to Transamerica, Wells Fargo “allege[s] no specific connection between the

conduct that allegedly harmed [it]|—the decisions to increase MDRs and subsequent

implementation of the increases—and California.” Id. Transamerica’s argument on this

basis 1s unavailing.

Here, Wells Fargo has presented a causal chain sufficient to establish a nexus

between its claims and Transamerica’s California contacts. Wells Fargo alleges that:

“Transamerica designated its Los Angeles office as either its home office or marketing

office in all of the Policies; Transamerica’s Los Angeles office housed its actuarial

department and priced most, if not all, the Policies; Transamerica’s Los Angeles employees

drafted the Policy forms, including language in dispute in this matter; Transamerica’s

office designed, prepared, issued, marketed, and received payments for most, if not all, of

the Policies; . . . Transamerica’s Los Angeles employees developed and evaluated the

Monthly Deduction Rate increases at issue here; and a Policy that is the subject of this

dispute was issued in California.” FAC § 8.These allegations are sufficient to establish, at

this juncture, that but-for Transamerica’s conduct in California, including the work of

Transamerica’s Los Angeles employees, Wells Fargo’s claims would not have arisen. See

LSH CO v. Transamerica Life Ins. Co., No. 2:18-cv-09711-SJO-KS, 2019 WL 3064422,

at *6 (C.D. Cal. Mar. 20, 2019) (finding sufficient nexus between plaintiffs’ claims related

to MDR increases and Transamerica’s contacts with California where fifteen of twenty-

two policies identified Los Angeles as Transamerica’s home office and remaining seven

identified Los Angeles as Transamerica’s marketing office); Feller, 2017 WL 6453262, at

*6 (finding sufficient nexus based, in part, on similar allegations regarding involvement of

former Los Angeles-based employees in Transamerica’s MDR increases).

Accordingly, the Court finds that there is “an affiliation between the forum and the

underlying controversy” sufficient to allow the Court to exercise specific personal

jurisdiction over Transamerica. Bristol-Myers Squibb Co. v. Superior Court of California,

San Francisco Cty., 137 S. Ct. 1773, 1780 (2017): accord Brighton Trustees, 2019 WL

6315541, at *8 (finding that plaintiffs challenging Transamerica’s MDR increases had

satisfied nexus requirement so as to allow the Court to exercise specific personal

jurisdiction over Transamerica).

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘Oo’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

3. Reasonableness

Wells Fargo has established the first two prongs regarding purposeful availment and

Transamerica’s forum-related activities. Therefore, it is Transamerica’s burden to “present

a compelling case that the exercise of jurisdiction would not be reasonable.”

Schwarzenegger, 374 F. 3d at 802 (quoting Burger King, 471 U.S. at 477). The third prong

requires the Court to balance several factors: (1) the extent of the defendant’s purposeful

availment; (2) the burden on the defendant; (3) conflicts of law between the forum state

and the defendant’s state: (4) the forum’s interest in adjudicating the dispute; (5) judicial

efficiency; (6) the plaintiff's interest in convenient and effective relief; and (7) the

existence of an alternative forum. Roth, 942 F.2d at 623.

Transamerica does not contend that exercising specific personal jurisdiction in the

Central District would not “comport with fair play and substantial justice.” See Mot. at

12-13; Reply at 1. This alone defeats Transamerica’s specific personal jurisdiction

challenge in light of plaintiffs’ prima facie showing regarding the first two prongs. See

LSH CO, 2019 WL 3064422, at *7 (finding that it would be reasonable to exercise specific

personal jurisdiction over Transamerica in the Central District in case challenging

Transamerica’s MDR increases because “Plaintiffs have met their burden of proving the

first two prongs of specific jurisdiction and Defendant does not contest the third.”); accord

Galaxia Elecs. Co. v. Luxmax, U.S.A., No. 2:16-cv-05144-JAK-GJS, 2017 WL 2903182,

at *10 (C.D. Cal. May 10, 2017) (denying motion to dismiss for lack of personal

jurisdiction where plaintiffs made prima facie showing under “the first two prongs of the

test for personal jurisdiction . . . [and] Defendants have made no such arguments” that

exercise of jurisdiction would not be reasonable).

Accordingly, the Court concludes that Transamerica has sufficient contacts with the

forum district, and litigating in the Central District of California, where a number of other

actions remain pending involving Transamerica and its purported MDR increases, would

not impose a considerable burden. See Hamra, 2019 WL 468803, at *6 (finding it would

be reasonable to exercise specific personal jurisdiction over Transamerica in the Central

District); Feller, 2017 WL 6453262, at *8 (same); Brighton Trustees, 2019 WL 6315541,

at *9 (same). The exercise of specific personal jurisdiction over Transamerica with respect

to Wells Fargo’s claims is proper under the Due Process Clause, and the Court DENIES

Transamerica’s motion to dismiss for lack of personal jurisdiction.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

B. Failure to State a Claim

1. Breach of Contract Claim

Wells Fargo’s breach of contract claim alleges that Transamerica materially

breached the policies’ terms in four respects: (1) by increasing the MDRs for reasons other

than changes to its future cost expectations; (2) by increasing the MDRs in an attempt to

circumvent the guaranteed minimum crediting rate; (3) by increasing the MDRs in an

attempt to recoup past losses and recover for shortfalls in expected revenues; and (4) by

imposing excessive cost of insurance rates, including by failing to lower these rates. FAC

{| 66(a)-(d). Transamerica moves to dismiss Wells Fargo’s claim, in part, insofar as it 1s

premised on Wells Fargo’s allegations that Transamerica increased the MDRs in an attempt

to circumvent the guaranteed minimum crediting rate. Mot. at 14.

To state a claim for breach of contract under California law, a party must plead: “(1)

the existence of the contract , (2) plaintiff's performance or excuse for nonperformance,

(3) defendant’s breach, and (4) the resulting damages to the plaintiff.” Oasis W_ Realty,

LLC v. Goldman, 51 Cal. 4th 811, 821 (2011) (internal citation omitted). At the pleading

stage, “|w|hen reviewing whether a plaintiff has properly stated a cause of action for breach

of contract, we must determine whether the alleged agreement is ‘reasonably susceptible’

to the meaning ascribed to it in the complaint.” Hervey v. Mercury Casualty Co., 185 Cal.

App. 4th 954, 964 (2010) (emphasis added) (citation omitted). “So long as the pleading

does not place a clearly erroneous construction upon the provisions of the contract, in

passing upon the sufficiency of the complaint, we must accept as correct plaintiff's

allegations as to the meaning of the agreement.” Marzec v. California Pub. Employees

Ret. Sys., 236 Cal. App. 4th 889, 909 (2015) (citing Aragon—Haas v. Family Security Ins.

Services, Inc., 231 Cal. App. 3d 232, 239 (1991)). Where the terms of the policy are

unambiguous, the Court will not infer a limitation on defendants which 1s not supported by

the language of the policy. See Croskey et al., Cal. Practice Guide: Insurance Litigation

(The Rutter Group 2015) 4 4:11 (“Clear and explicit’ policy language governs.”’) (quoting

Powerine Oil Co., Inc. v. Supt. Ct., 37 Cal. 4th 377, 390 (2005)).

Here, Wells Fargo alleges that Transamerica “has breached the Policies materially

.. . [including by] [i]ncreasing the Monthly Deduction Rate in an attempt to circumvent

the guaranteed minimum crediting rate[.]” FAC 66(b). Wells Fargo elsewhere equates

“crediting rate” with “interest rate.” See FAC § 59 (“If Transamerica was crediting

policyholder accounts with an interest rate higher than the 4% minimum guaranteed rate,

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Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

it could compensate for any reduction in interest it earns on policy accounts due to lower

interest rates by reducing the (non-guaranteed) crediting rate.” Wells Fargo further alleges

that “Transamerica is trying to do indirectly what it cannot do directly: it is using Monthly

Deduction Rates to achieve an interest crediting rate that is lower than the guaranteed

minimum interest crediting rate, which violates the Policies.” FAC 4 59.

The Court previously dismissed a breach of contract claim, similarly premised on

Transamerica’s alleged attempt to circumvent the guaranteed minimum interest rate, in

Brighton Trustees. There, institutional investor plaintiffs alleged that “Transamerica

materially breached the policies by increasing the Monthly Deduction Rates in an attempt

to circumvent the guaranteed minimum interest rate.” Brighton Trustees, 2019 WL

6315541, at *10 (anternal citations, quotation marks, and alterations omitted). The

investors contended that by increasing the MDRs by as much as 100%, “Transamerica has

used an increase in MDRs to do indirectly what it cannot do directly: it is using the Monthly

Deduction Rates to achieve an interest crediting rate that is lower than the guaranteed

minimum interest crediting rate, which violates the [investors’| Policies.” Brighton

Trustees, 2019 WL 6315541, at *10.

Wells Fargo cites to the Court’s previous decision in Feller for the proposition that

“af certain interest rate accruals are ‘guaranteed,’ a plausible reading of the policies is that

defendants may not directly offset them by increasing the MDR based on its interest

obligations.” Opp. at 10 (citing Feller v. Transamerica Life Ins. Co., No. 2:16-cv-01378-

CAS-AJW, 2016 WL 6602561, at *10 (C.D. Cal. Nov. 8, 2016)). Wells Fargo concedes,

however, that “the Court only applied this reasoning in Feller to policies that did not list

‘interest’ as a cost factor|.|” Id.

Wells Fargo attaches an exemplar policy to the FAC, and Wells Fargo alleges that

the exemplar policy provides that in setting MDRs, Transamerica may consider cost factors

“includ[ing] . . . mortality; expenses; interest; persistency; and any applicable federal state,

and local taxes.” FAC {| 18 (emphasis added). In at least four other cases involving

Transamerica’s MDR increases, the Court has already concluded that policies which

include this language cannot give rise to a breach of contract claim premised on a purported

attempt to circumvent minimum guaranteed interest rates. See EFG Bank AG, Cayman

Branch v. Transamerica Life Ins. Co., No. 2:16-cv-08104-CAS-AJW, 2017 WL 3017596,

at *7 (C.D. Cal. July 10, 2017) (‘the Court concludes that the Policies that list ‘interest’

among permissible “cost factors’ are not reasonably susceptible to an interpretation that

would preclude Transamerica from considering its interest obligations while setting

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MDRs.”); accord Brighton Trustees, 2019 WL 6315541, at *10; Feller, 2016 WL 6602561,

at *10; Thompson v. Transamerica Life Ins. Co., No. 2:18-cv-05422-CAS-GJS, 2018 WL

6790561, at *8 (C.D. Cal. Dec. 26, 2018).

Following the hearing, the parties submitted a joint statement to the Court on

February 10, 2020, clarifying that all fifteen policies at issue in this case “permit

Transamerica to consider ‘interest’ in setting MDRS.” Dkt. 28 at 2. Accordingly, the

Court DISMISSES Wells Fargo’s breach of contract claim, as alleged in §] 66(b) of the

FAC, without prejudice.

2. Section 8371 Claim

With respect to Wells Fargo’s policy that was issued in Pennsylvania, Wells Fargo

alleges that “Transamerica’s conduct constitutes bad faith breaches” in several respects,

including by: (1) “[clharging excessive Monthly Deduction Rates that deprived Wells

Fargo of the benefit of its actual policy account values;” (2) “[b]asing Monthly Deduction

Rates on considerations of interest income earned on policy accounts rather than mortality

profits:” and (3) “[u]Jsing its discretion over Monthly Deduction Rates to circumvent

contractual requirements for the guaranteed minimum crediting rate[.]” FAC § 85.

According to Wells Fargo, these breaches violate Section 8371, Pennsylvania’s insurance

bad faith statute, and give rise “to an award of punitive damages and court costs and

attorney fees against Transamerica.” Id. § 88.

“There is no common law remedy in Pennsylvania for a claim of bad faith against

insurers.” Hanover Ins. Co. v. Ryan, 619 F. Supp. 2d 127, 140 (E.D. Pa. 2007). Instead,

a statutory remedy exists whereby a court, after finding an insurer has acted in bad faith

towards an insured, may take all of the following actions: (1) award interest on the amount

of the claim from the date the claim was made by the insured in an amount equal to the

prime rate of interest plus 3%; (2) award punitive damages against the insurer; and (3)

assess court costs and attorney fees against the insurer. 42 Pa. Stat. and Cons. Stat. § 8371.

“Section 8371 does not define the specific acts that would establish “bad faith toward the

insured,’ but courts have subsequently determined several actions to constitute bad faith,

including: (1) a frivolous or unfounded refusal to pay; (2) a failure to investigate into the

facts; or (3) a failure to communicate with the insured.” Hanover Ins. Co., 619 F. Supp.

2d at 140. “Section 8371 is broadly construed to effectuate the purpose of the statute.”

Meyer v. Cuna Mut. Grp., No. 03-cv-602, 2007 WL 2907276, at *12 (W.D. Pa. Sept. 28,

2007). Thus, “Pennsylvania courts . . . have not strictly limited statutory bad faith to the

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literal denial of benefits.” Hilston v. Am. Gen. Life Ins. Co., 14-cv-7269, 2015 WL

2232986, at *4 (E.D. Pa. May 12, 2015).

Transamerica relies on Rancosky v. Washington Nat'l Ins. Co., 642 Pa. 153 (2017)

for the proposition that “[s]ince [Wells Fargo] does not allege a coverage dispute as

required by Rancosky, its Section 8371 claim fails.” Reply at 5 (emphasis added).

However, in Rancosky, the Supreme Court of Pennsylvania addressed the burden of proof

required to prevail on a bad faith claim where the bad faith claim was premised on a denial

of benefits. See Rancosky, 642 Pa. 156 (“Critically, when read in a vacuum, the plain

language of Section 8371 provides little guidance in answering the discrete legal question

raised herein, namely, the level of proof required to prevail in a bad faith claim.”)

(emphasis added). Even after Supreme Court of Pennsylvania’s 2017 decision in

Rancosky, courts have continued to recognize that Section 8371 extends beyond the

context of denial of benefits. See, e.g., Williams v. Liberty Mut. Ins., No. 17-cv-3862,

2018 WL 2332019, at *3 (E.D. Pa. May 23, 2018) (“Section 8371 is not restricted to an

insurer’s bad faith in denying a claim. An action for bad faith may extend to the insurer’s

investigative practices.”); accord Rosenthal v. Am. States Ins. Co., No. 1:18-cv-01755,

2019 WL 1354141, at *3 (M.D. Pa. Mar. 26, 2019) (“a plaintiff may also successfully

assert an action for an insurer’s bad faith in investigating a claim, such as a failure to

conduct a reasonable investigation based upon available information, and failure to

communicate with the claimant.”’).

Having determined that Wells Fargo’s bad faith claim does not fail simply because

Wells Fargo does not allege a denial of benefits, the Court must determine whether the

FAC states a claim pursuant to Pennsylvania law. The Court finds instructive two cases

interpreting Pennsylvania’s bad faith insurance statute. In Jacoby v. AXA Equitable Life

Ins. Co., a policyholder brought suit against an insurer regarding the insurer’s “Vanishing

Premium Policy,” which the policyholder alleged “meant that after nine annual payments,

the dividends earned would be used to pay all future premiums.” No. 13-cv-6511, 2014

WL 7058224, at *1 (E.D. Pa. Dec. 15, 2014). The policyholder alleged that one of the

insurer’s employees notified the policyholder by letter that after the policyholder had paid

the ninth payment, “no further premiums were due.” Id. However, the insurer

subsequently notified the policyholder “that the policy had been converted to a term policy

after the tenth premium payment was not paid,” that “the term policy expired,” and the

insurer “thereafter refused to reinstate the [p|olicy.” Id. With respect to the policyholder’s

bad faith claim, the court noted that the policyholder’s “allegations principally concern [the

insurer’s] conduct in connection with its discharge of obligations under the [p]olicy after

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purchase by the [i|nsured, which still may be an appropriate foundation for a bad faith

claim.” Jacoby, 2014 WL 7058224, at *4 (emphasis in original). Accordingly, the court

denied the insurer’s motion dismiss, concluding that the court “cannot dismiss [the

policyholder’s] bad faith claim at this early stage” and that “[flacts revealed in discovery

will inform . . . whether [the insurer] acted reasonably in discharging its obligations under

the [p]olicy.” Id.

In W. Chester Univ. Found. v. MetLife Ins. Co. of Connecticut, a purchaser of two

variable life insurance policies brought suit against the insurer, alleging that the insurer had

fraudulently represented that investments made using the purchaser’s initial out of pocket

premiums would yield returns sufficient to cover all future payments. 259 F. Supp. 3d 211,

214 (E.D. Pa. 2017). The purchaser alleged that it had relied on these representations in

purchasing the insurer’s policies, but that the insurer had “developed a vanishing premium

scheme for flexible premium variable life insurance policies and advanced the scheme

through misleading and false representations.” Id. The purchaser asserted a bad faith claim

pursuant to Section 8371 on the basis that the insurer “intentionally reduced its investment

return projections in order to conceal the risks associated with its vanishing premium

scheme and to secure additional premium payments on the [p]olicies.” Id. at 224. The

court noted that the purchaser “alleges that for years after the [p]olicies were sold, [the

insurer] manipulated its investment return projections to conceal the true nature of its

vanishing premium scheme.” Id. (emphasis in original). Thus, “[b]ecause the reach of §

8371 is broader that [the insurer] argues,” the court “[wa]s unwilling to dismiss [the

purchaser’s] bad faith claim at the pleading stage.” Id. The court determined that

“lwlhether the deceptive conduct alleged . . . arose in the context of [the insurer’s]

discharge of its obligations under the [p]olicies will become more apparent through fact

discovery. Because [the purchaser’s] bad faith claim satisfies the pleading standard, and

because it is not yet clear that [the insurer’s] claim is barred as a matter of law,” the court

concluded that dismissal of the bad faith claim was not appropriate at the pleading stage.

Id.

“Bad faith claims are fact specific and depend on the conduct of the insurer vis a vis

the insured.” Gold v. State Farm Fire & Cas. Co., 880 F. Supp. 2d 587, 598 (E.D. Pa.

2012). Because the Court cannot say, at this juncture, that Wells Fargo’s claim is barred

as a matter of law, consistent with Jacoby and W. Chester Univ. Found., the Court

concludes that Wells Fargo’s bad faith claim is more appropriately resolved on a motion

for summary judgment. Accordingly, the Court DENIES Transamerica’s motion to

dismiss Wells Fargo’s Section 8371 claim.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

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Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

3. CUTPA Claim

With respect to its policies issued in Connecticut, Wells Fargo asserts a CUTPA

claim against Transamerica. FAC 96-104. Wells Fargo relies on Transamerica’s

alleged violation of a different statute, the Connecticut Unfair Insurance Practices Act

(“CUIPA”), Conn. Gen. Stat. § 38a-815 et seq., as the basis for Wells Fargo’s CUTPA

claim. FAC § 98.

CUTPA prohibits the use of “unfair methods of competition and unfair or deceptive

acts or practices in the conduct of any trade or commerce.” Conn. Gen. Stat. § 42-110b(a).

“CUIPA defines ‘unfair methods of competition’ as applied to the insurance trade.” Tucker

v. Am. Int’] Grp., Inc., 179 F. Supp. 3d 224, 229 (D. Conn. 2016). However, “CUIPA does

not provide a private right of action.” Tyll v. Stanley Black & Decker Life Ins. Program,

403 F. Supp. 3d 27, 38 (D. Conn. 2019). As such, a “plaintiff may assert a private cause

of action based on a substantive violation of CUIPA through CUTPA’s enforcement

provision.” Karas v. Liberty Ins. Corp., 33 F. Supp. 3d 110, 117 (D. Conn. 2014). “To

succeed on such a CUTPA claim, a plaintiff must show that the defendant engaged in an

act prohibited by CUIPA’s substantive provisions, and that the act proximately caused the

harm alleged.” Belz v. Peerless Ins. Co., 46 F. Supp. 3d 157, 165 (D. Conn. 2014).

“Misrepresentations and false advertising of insurance policies” constitute “unfair methods

of competition and unfair and deceptive acts or practices” that violate CUIPA. Conn. Gen.

Stat. § 38a-816(1).

Transamerica seeks dismissal of Wells Fargo’s CUTPA claim on two bases: (1)

Wells Fargo does not allege that a CUTPA violation “occurred in Connecticut”; and (2)

Wells Fargo does not plausibly allege CUIPA violation, as is required to serve as the

“borrowed” law for the purposes of Wells Fargo’s CUTPA claim. Mot. at 18. The Court

addresses each of Transamerica’s contentions in turn.

a. Nexus to Connecticut

As a preliminary matter, Transamerica argues that Wells Fargo’s CUTPA claim

“fails because [Wells Fargo] does not allege that the claim is based on any conduct in

Connecticut.” Mot. at 19. That is because, according to Transamerica, “CUTPA claims

must be based on conduct that occurred within the State of Connecticut or [on a] violation

[that] is tied to a form of trade or commerce intimately associated with Connecticut, or if,

where Connecticut choice of law principles are applicable, those principles dictate

application of Connecticut law.” Id.

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Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

“TT |he plain language of CUTPA is directed at unfair competition taking place” in

Connecticut. Victor G. Reiling Assocs. & Design Innovation, Inc. v. Fisher-Price, Inc.,

406 F. Supp. 2d 175, 200 (D. Conn. 2005). In Connecticut Gen. Life Ins. Co. v. True View

Surgery Ctr. One, LP, another district court dismissed the plaintiff insurer’s CUTPA claim

because of a lack of nexus to Connecticut. 128 F. Supp. 3d 501, 513 (D. Conn. 2015).

There, Cigna, a Connecticut-based insurer, asserted a CUTPA claim against surgical

centers that were “out-of-network providers with whom Cigna has no contractual

relationship.” Id. at 505-06. Cigna alleged that the Texas-based surgical centers engaged

in an overbilling scheme, submitting inflated requests for rembursement with respect to

services that the surgical centers provided to Cigna’s insured at the centers’ Texas facilities,

pursuant to insurance policies that Cigna issued in Texas. Id. at 513. The surgical centers

argued that “the commercial relationship between defendants and their customers occurs

exclusively in Texas, and the sole contact with Connecticut is based on the coincidence

that the patients’ Texas insurance policies are administered by a company headquartered

in Connecticut.” Id. In response, Cigna contended that “the thousands of fraudulent

claims, related appeals, and other correspondence defendants directed to Cigna in

Connecticut demonstrates sufficient contact with Connecticut to state a CUTPA claim.”

Id. The court determined these allegations were insufficient to satisfy CUTPA’s

Connecticut-nexus requirement because “the allegations levied against the surgical centers

are based on their actions of inducing Cigna plan members to obtain treatment at their

facilities in Texas and rendering medical services at discounted rates to those plan members

at the facilities in Texas.” Id. Thus, “[w]hile Cigna received fraudulent bills at its

Connecticut headquarters, the alleged activity of the surgical centers that gives rise to a

potential CUTPA claim does not fall within the purview of a plain language reading of

[CUTPA].” Id.

Here, Wells Fargo alleges that “Transamerica’s Los Angeles employees developed

and evaluated the Monthly Deduction Rate increases at issue here[.|” FAC § 7. To some

extent, then, it appears that the conduct that is the subject of Wells Fargo’s claim occurred

outside Connecticut. On the other hand, Wells Fargo alleges that Transamerica issued the

three policies that are the subject of Wells Fargo’s CUTPA claim in Connecticut. Id. § 74.

Wells Fargo further argues that “Transamerica referenced the ‘original illustrations

provided at issue’ in its letter, which was in Connecticut for the Connecticut Policies; and

Wells Fargo’s predecessors-in-interest—the policy holders who received the Connecticut

Policies and corresponding illustrations issued in Connecticut—assigned their rights to

Wells Fargo.” Opp. at 17. Whether a sufficient nexus to Connecticut exists is a matter

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

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TRANSAMERICA LIFE INSURANCE COMPANY

more appropriately decided on a motion for summary judgment. At the pleading stage,

however, Wells Fargo’s allegations that Transamerica issued the three relevant policies in

satisfy CUTPA’s nexus requirement. See Conn. Gen. Stat. § 42-110a(4) (“‘Trade’ and

‘commerce’ means the advertising, the sale or rent or lease, the offering for sale or rent or

lease, or the distribution of any services and any property, tangible or intangible, real,

personal or mixed, and any other article, commodity, or thing of value in this state.”)

(emphases added).

b. CUIPA Through CUTPA Claim

Having determined that Wells Fargo has satisfied CUTPA’s nexus requirement, the

Court turns to the merits of Wells Fargo’s CUTPA claim. Here, Wells Fargo asserts a

CUTPA claim, based on Transamerica’s alleged violation of CUIPA, premised on

Transamerica’s purported misrepresentations and false advertising related to

Transamerica’s universal life insurance policies. The parties dispute what 1s required to

adequately allege “misrepresentations and false advertising” for CUIPA purposes.

According to Transamerica, “Connecticut and federal courts . . . have consistently

required a plaintiff alleging a CUIPA § 38a-816(1) violation through CUTPA to plead all

four [common law] negligent misrepresentation elements.” Reply at 7-8. Transamerica

relies on the Supreme Court of Connecticut’s opinion in Nazami v. Patrons Mut. Ins. Co.,

280 Conn. 619 (2006). There, the Supreme Court of Connecticut recognized “that CUTPA

affords a private cause of action to individuals . . . [and] that individuals may bring an

action under CUTPA for violations of CUIPA.” Id. at 625. The Court held that “[i}]n order

to sustain a CUIPA cause of action under CUTPA, a plaintiff must allege conduct that is

proscribed by CUIPA.” Id. Looking to Section 38a-816(1), the CUIPA provision which

prohibits “misrepresentations and false advertising,” the Court concluded that “the plaintiff

has failed to allege facts that constitute a misrepresentation under that statute.” Nazami,

280 Conn. at 625. That is because, “[t|raditionally, an action for negligent

misrepresentation requires the plaintiff to establish (1) that the defendant made a

misrepresentation of fact (2) that the defendant knew or should have known was false, and

(3) that the plaintiff reasonably relied on the misrepresentation, and (4) suffered pecuniary

harm as a result.” Id. at 626.

In response, Wells Fargo argues that “the Connecticut Supreme Court in Nazami did

not articulate a different CUTPA pleading requirement].|” Opp. at 16. Contrary to Wells

Fargo’s assertion, however, it appears that courts construing Section 38a-816(1) have

UNITED STATES DISTRICT COURT

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looked to the four negligent misrepresentation elements to determine whether, for CUIPA

purposes, sufficient “misrepresentations and false advertising” have been alleged. See,

e.g.. Ensign Yachts, Inc v. Arrigoni, No. 3:09-cv-209 (VLB), 2010 WL 918107, at *15 (D.

Conn. Mar. 11, 2010) (“In order to succeed on a ‘CUIPA through CUTPA’ claim under

this section, the plaintiff must allege and prove the four established elements of a negligent

misrepresentation claim].|”) (internal citation omitted).

The Court need not resolve the parties’ dispute at this juncture. To the extent that

Connecticut law requires Wells Fargo to satisfy the four negligent misrepresentation

elements in order to state a “CUIPA through CUTPA” claim based on “misrepresentations

and false advertising,” Wells Fargo does so here. For example, Wells Fargo alleges that

three of its policies were issued in Connecticut, and Transamerica’s policies allow

Transamerica to adjust the MDR subject to cost factors including: “mortality; expenses;

interest; persistency; and any applicable federal, state and local taxes.” FAC {J 18, 74.

Wells Fargo further alleges that all the policies at issue in this case provide that

Transamerica “does not distribute past surplus or recover past losses by changing the

Monthly Deduction Rates.” Id. 4 19 (internal alterations omitted). After Transamerica

began raising MDRs, Wells Fargo alleges that “Transamerica purported to justify these

increases by citing ‘current expectations regarding our future costs of providing this

coverage.”” Id. § 25. According to Wells Fargo, after other policyholders requested that

Transamerica identify the specific cost factors it relied upon in increasing the MDRs,

“Transamerica finally identified mortality . . . As expressly permitted by the Policy,

Transamerica increased the Monthly Deduction Rates as a result of this cost factor.” Id. §

28 (internal citation omitted). Despite these representations, however, Wells Fargo alleges

inter alia that “Transamerica implemented its Monthly Deduction Rate increases to recoup

lost profit expectations and boost its profit margins, rather than in response to projections

of future cost factors.” Id. | 30. Wells Fargo alleges that Transamerica represented to

policyholders, like Wells Fargo, that it would not raise MDRs in an attempt to recoup past

losses; that Transamerica increased the MDRs increases based on mortality and interest

considerations; and that, despite these representations, Transamerica did, in fact, raise

MDRs to recoup past losses. Therefore, Wells Fargo adequately alleges a

misrepresentation of fact.

Moreover, Wells Fargo’s allegations are sufficient to establish, at the pleading stage,

that Transamerica knew, or should have known, that these representations were false.

Relying in part on statistics from the National Center for Health Statistics, Wells Fargo

alleges that “mortality rates have improved steadily each year since the Policies were

UNITED STATES DISTRICT COURT

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Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

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issued.” FAC § 35. Wells Fargo further alleges that, consistent with this empirical

evidence and in contrast with Transamerica’s representations to policyholders that changes

in mortality rates informed the MDR increases, “Transamerica regularly informed

regulators through its filings that it had not observed a negative change in its mortality

experience.” Id. 42 (emphasis added). Accordingly, taken as true, these allegations

demonstrate that Transamerica “knew or should have known” that Transamerica’s

representations to policyholders were false.

To the extent that a “CUIPA through CUTPA” claim must satisfy the elements for

negligent misrepresentation, Wells Fargo’s allegations also satisfy the “detrimental

reliance” and “pecuniary harm” elements. Wells Fargo alleges that each of the

Accumulation Values of its Transamerica policies “functions as an investment vehicle and

is where excess premiums accumulate and earn . . . tax-deferred interest.” FAC 4 12.

Moreover, Wells Fargo contends that “the right to fund one’s policy as one chooses is an

expressly permitted right and benefit of the policies, including Wells Fargo’s Policies.” Id.

These allegations plausibly raise an inference that the ultimate entitlement holder of

Wells Fargo’s policies acquired the policies based on Transamerica’s representations as

reflected in the policies’ terms. Moreover, Wells Fargo asserts that “|a]s a direct and

proximate cause of the foregoing unfair methods of competition and unfair and deceptive

acts or practices with the respect to the Connecticut Policies, Wells Fargo has suffered and

will suffer an ascertainable loss of money or property.” Id. { 100. Elsewhere in the FAC,

Wells Fargo points to “the funds Transamerica deducted from its Accumulation Values in

excess of the amounts permitted by the terms of the Policies due to Transamerica’s

wrongful increases in Monthly Deduction Rates” as an example of the harm it has suffered

due to Transamerica’s alleged misconduct. See Id. § 106.

In accordance with the foregoing, the Court DENIES Transamerica’s motion to

dismiss Wells Fargo’s CUTPA claim.

4. Conversion Claim

Wells Fargo also asserts a claim for conversion against Transamerica. FAC □□ 105—

11. The gravamen of Wells Fargo’s conversion claim is that Wells Fargo “had a financial

interest in the funds that Transamerica deducted from its Accumulation Values in excess

of the amounts permitted by the terms of the Policies based upon the MDR increase. And

by increasing the MDR, Transamerica also interfered with that financial interest by making

Monthly Deductions in authorized amounts from the Accumulation Values.” Opp. at 18.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘Oo’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

California law recognizes “the tort of conversion . . . as the wrongful exercise of dominion

over personal property of another.” Voris v. Lampert, 7 Cal. Sth 1141, 1150 (2019)

(internal citation and quotation mark omitted). To establish a claim for conversion, a

plaintiff must establish the following elements: “(a) plaintiff's ownership or right to

possession of personal property, (b) defendant’s disposition of property in a manner

inconsistent with plaintiffs property rights, and (c) resulting damages.” Id. Transamerica

seeks dismissal of Wells Fargo’s conversion claim because, according to Transamerica,

Wells Fargo “does not allege an immediate nght of possession to the Accumulation Value

or any identifiable sum of money[.]”! Mot. at 21.

a. Identifiable Sum of Money

Pursuant to California law, “money cannot be the subject of an action for conversion

unless a specific sum capable of identification is involved.” Voris, 7 Cal. 5th at 1151.

There is no requirement, however, that “each coin or bill be earmarked.” Id. Based on

these requirements, Transamerica contends that dismissal of plaintiffs’ conversion claim 1s

proper “[b]ecause [p]laintiffs do not allege an immediate right of possession to an

identifiable sum of money]|.]” Mot. at 18 (emphasis added). Based on these requirements,

Transamerica contends that dismissal of Wells Fargo’s conversion claim is proper

“Tb]ecause [Wells Fargo] does not allege an immediate right of possession to . . . any

identifiable sum of money|.]” Mot. at 21 (emphasis added).

Here, Wells Fargo alleges that “it had a property interest in the funds Transamerica

deducted from its Accumulation Values in excess of the amounts permitted by the terms

of the Policies due to Transamerica’s wrongful increases in Monthly Deduction Rates.”

FAC § 106. Wells Fargo identifies each of the 15 policies at issue in this case by policy

number. See Dkt. 22-1, Exhibit 1. That is sufficient, at this juncture, to withstand a motion

to dismiss. See Lennard v. Yeung, No. 2:10-cv-09322-MMM-AGR, 2011 WL 13217784,

at *16 (C.D. Cal. June 7, 2011) (“[A]t this stage, plaintiffs need only describe the property

allegedly converted sufficiently that defendants can answer and develop a defense.”).

Transamerica does not appear to argue that the allegations in Wells Fargo’s FAC

fail to satisfy the “disposition of property” and “resulting damages” elements.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

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Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

b. Immediate Right to Possession

Transamerica next seeks dismissal of Wells Fargo’s conversion claim on the grounds

that the “FAC does not allege that [Wells Fargo] had a right of immediate possession of its

Policies’ Accumulation Values|.]” Reply at 9. Inresponse, Wells Fargo contends that “the

Policies, in fact, provide Wells Fargo with an immediate financial interest in its

Accumulation Values, albeit a limited one, by permitting Wells Fargo to choose to either

maintain a balance and accrue the guaranteed minimum interest or use that balance to pay

for the Policies’ premiums and expenses.” Opp. at 18 (emphasis added). According to

Wells Fargo, its “rights to the Accumulation Value balance may not be unfettered, [but]

they certainly exist and may be enforced immediately within the Policies’ limitations.” Id.

In Brighton Trustees, institutional investor plaintiffs asserted a claim for conversion

against Transamerica based on allegations that “Transamerica committed conversion by

deducting funds from plaintiffs’ Accumulation Values without permission.” 2019 WL

5784925, at *8 (internal alterations omitted). The investors’ then-operative complaint

alleged that “the Accumulation Value is paid out only upon the death of the insured, and a

policyholder cannot withdraw the Accumulation Value, except by terminating the policy

or reducing the death benefit by the same amount.” Id. at *10 (emphasis in original)

(internal alterations omitted). The Court dismissed the investors’ conversion claim without

prejudice because the investors “ha[d] not adequately alleged a ‘right to immediate

possession’ of the funds that form the basis for [the investors’] conversion claim.” Id.

Here, Wells Fargo relies on Welco Elecs., Inc. v. Mora, 223 Cal. App. 4th 202, 210

(2014), for the proposition that “there may be an action for conversion, not only of the

intangible rights represented by special instruments which give control, such as an

insurance policy, but also of such rights alone, as in the case of the corporate stock apart

from the certificate.” Opp. at 18 (internal alterations omitted). According to Wells Fargo,

then, “[b]y drawing upon the Accumulation Value for its unlawful MDR increases, . . .

Transamerica deprives Wells Fargo from using its Accumulation Value” to “choose to

either maintain a balance and accrue the guaranteed minimum interest or use that balance

to pay for the Policies’ premiums and expenses.” Opp. at 18.

Wells Fargo’s reliance on Welco, however, is misplaced. There, the Court of Appeal

determined that “Defendant wrongfully caused a charge to plaintiff's credit card account

by having a specific sum of money paid through defendant’s credit card terminal into

defendant’s bank account. Plaintiff had a property right in its credit card account because

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘Oo’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

plaintiff's interest was specific, plaintiff had control over its credit card account, and

plaintiff had an exclusive claim to the balance in the account.” Welco, 223 Cal. App. 4th

at 211 (emphasis added). To prevail on a claim for conversion, a plaintiff must establish

actual possession, or ownership with the right to immediate possession, of the thing

allegedly being converted. See □□ □□ Bailey, 197 F.3d 997, 1000 (9th Cir. 1999). Welco is

therefore inapposite because it 1s a case involving actual possession—in contrast, Wells

Fargo lacks actual possession because the funds that form the basis of Wells Fargo’s

conversion claim are “specific funds placed in the custody of Transamerica for the benefit

of Wells Fargo|.|” FAC 4 107.

Moreover, in Welco, the California Court of Appeal held that the fact that “the taking

was something that affected plaintiff's mghts with a third party does not mean that there

has not been a conversion of intangible property . . . [because] there can be a conversion of

intangible rights represented by special instruments such as a bank checkbook, insurance

policy, or stock certificate, all of which involve a taking by the defendant of the plaintiff's

property rights exercised through a third party.” Welco, 223 Cal. App. 4th at 212. In other

words, the Court of Appeal merely determined that the alleged misappropriation of credit

card information, which the Court of Appeal likened to “intangible property,” gave rise to

a claim for conversion where the information was used to wrongfully access the plaintiff's

funds. Here, the Court has already determined that Wells Fargo has sufficiently alleged a

cognizable property interest in the Accumulation Values sufficient to state a claim for

conversion. Accordingly, Welco is inapt.

Because Wells Fargo does not allege that it has actual possession of its

Accumulation Values or the funds in the Accumulation Values, Wells Fargo must allege

ownership with a right to immediate possession. See In re Bailey, 197 F.3d at 1000; accord

Yakima Co. v. Lincoln Gen. Ins. Co., 583 F. App’x 744, 747 (9th Cir. 2014) (“The district

court properly dismissed Yakima’s conversion cause of action because at the time of the

alleged conversion, Yakima did not have an immediate right to possession of the funds in

dispute.”) (emphasis added). The FAC is devoid of any allegations that Wells Fargo has a

right to immediate possession of the funds that form the basis for its conversion claim. As

such, the Court GRANTS Transamerica’s motion to dismiss Wells Fargo’s conversion

claim without prejudice.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘Oo’

No. 2:19-cv-06791-CAS(GJSx) Date February 12, 2020

Title WELLS FARGO BANK, NATIONAL ASSOCIATION v.

TRANSAMERICA LIFE INSURANCE COMPANY

V. CONCLUSION

In accordance with the foregoing:

1. The Court DENIES Transamerica’s motion to dismiss for lack of personal

jurisdiction;

2. The Court DISMISSES Wells Fargo’s breach of contract claim, as alleged in

{| 66(b) of the FAC, without prejudice;

3. The Court DENIES Transamerica’s motion to dismiss Wells Fargo’s Section

8371 claim;

4. The Court DENIES Transamerica’s motion to dismiss Wells Fargo’s CUTPA

claim:

5. The Court DISMISSES Wells Fargo’s conversion claim without prejudice.

Wells Fargo shall file a second amended complaint within thirty (30) days.

IT IS SO ORDERED.

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Initials of Preparer CM)