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October 28, 1992


The opinion of the court was delivered by: ROBERT F. PECKHAM


 Defendants Thomas LeDuc, Tom LeDuc Agency, Steven Tarnofsky, Steven Tarnofsky Insurance Services, Inc., Alan Sepanski, and Royal Brown bring this motion to dismiss all nine of the claims in plaintiff's complaint. The motion is brought under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted.


 Plaintiff Kentucky Central is a life insurance company. Defendants (except defendant Brown) were agents of Kentucky Central who solicited and sold life insurance policies for Kentucky Central until their contracts were terminated in August 1991. Defendant Brown is a life insurance agent authorized to sell life insurance on behalf of companies other than Kentucky Central, including The Mutual Group ("TMG").

 Kentucky Central originally brought this action in state court in Sacramento against former Kentucky Central agents, including Tarnofsky and LeDuc, for their alleged participation in a campaign of misrepresentation regarding the financial condition of Kentucky Central. The campaign, claimed Kentucky Central, was designed to induce Kentucky Central policyholders to replace their policies with policies from other insurance companies. LeDuc and Tarnofsky then filed civil RICO actions against Kentucky Central in this court, alleging that Kentucky Central engaged in fraudulent investment practices, failed to disclose its financial instability, attempted to silence Kentucky Central agents and others from revealing these facts, and forced LeDuc and Tarnofsky to resign as a result of these improper activities. Kentucky Central then dismissed the state court action without prejudice and brought an action in this court under diversity jurisdiction asserting essentially the same claims as those pled in the previous state action. Kentucky Central brought its case to this court in order to have all three actions before a single judge, as the company claims that the agents' RICO actions are a defensive reaction to the state court litigation. This third action has been related to the two RICO suits.

 Kentucky Central alleges that defendants have used the fact of Kentucky Central's rating reduction and setbacks in Kentucky Central's mortgage and real estate portfolio to make misleading and false allegations about Kentucky Central's financial condition. Kentucky Central claims that defendants have seized upon the downgrading and have attempted to create panic among policyholders by causing them to believe that Kentucky Central would be "the next Executive Life." Kentucky Central alleges that in the spring or summer of 1991, defendant LeDuc embarked upon a scheme to build an agency relationship with a different life insurance company, TMG. LeDuc allegedly recruited agents of Kentucky Central and encouraged them to cancel or borrow against their Kentucky Central policies and replace them with policies issued by TMG and other insurance companies. According to Kentucky Central, the activities of defendants have caused the replacement of hundreds of policies by insureds who obtained their Kentucky Central policies through plaintiffs and other agents.

 Specifically, Kentucky Central alleges: 1) defendants engaged in unlawful "twisting" in violation of Insurance Code section 781; 2) defendants engaged in intentional interference with Kentucky Central's prospective economic advantage with policyholders and agents; 3) defendants engaged in intentional interference with Kentucky Central's contractual relationships with policyholders and agents; 4) by committing its misrepresentations, defendants engaged in unfair competition in violation of Insurance Code section 790.03(a); 5) defendants (except Brown) have breached their contracts (agent and agency agreements) with Kentucky Central, entitling Kentucky Central to recovery of commissions under the contracts; 6) plaintiffs are entitled to a declaratory judgment declaring that Kentucky Central is entitled to terminate defendants' (except Brown's) rights to renewal commissions under the contracts; 7) defendants have committed unfair competition in violation of Business & Professions Code section 17203 and are thus entitled to restitution of profits, gains, and commissions obtained by defendants as a result of the unfair competition; 8) plaintiffs are also entitled to injunctive relief under section 17203 as a result of this unfair competition; and 9) defendant LeDuc committed defamation by publishing a letter in June 1992 containing false statements about Kentucky Central.

 In their motion to dismiss, defendants allege that plaintiffs have failed to state a claim as to each of these allegations, as follows: 1) no private cause of action exists under Insurance Code section 781, and even so plaintiffs have not alleged a "knowing" violation of section 781; 2) & 3) the competition was privileged; 4) no private cause of action exists under Insurance Code section 790.03, and even so plaintiffs have not alleged a "knowing" violation of section 790.03; 5) the contractual provision at issue is void as against public policy; 6) plaintiff's request for declaratory relief is invalid as it does not allege a present or future controversy; 7) & 8) there is no private cause of action under section 781 or section 790.03(a), and therefore Business and Professions Code section 17203 is inapplicable; and 9) defendant LeDuc's statements were absolutely privileged under the judicial proceedings privilege or qualifiedly privileged under the matters of public interest or interested persons privilege.


 A. Standard for Motion to Dismiss

 In considering defendant's motion to dismiss under Rule 12(b)(6), this court must presume that the plaintiff's allegations are true and grant the motion only if it appears "beyond doubt" that the plaintiff can prove no set of facts entitling it to relief. Sun Savings & Loan Assoc. v. Dierdorff, 825 F.2d 187, 191 (9th Cir. 1987); Federal Savings & Loan Ins. Corp. v. Musacchio, 695 F. Supp. 1053, 1058 (N.D. Cal. 1988). Motions to dismiss will therefore be viewed with disfavor under this liberal standard. Intake Water Co. v. Yellowstone River Compact Comm., 590 F. Supp. 293 (D. Mont. 1983), aff'd, 769 F.2d 568 (9th Cir. 1984), cert. denied, 476 U.S. 1163, 90 L. Ed. 2d 729, 106 S. Ct. 2288 (1985). A complaint may be dismissed as a matter of law for two reasons: (1) lack of a cognizable legal theory, or (2) insufficient facts under a cognizable theory. 2A J. Moore, Moore's Federal Practice P 12,08, at 2271 (2d ed. 1982), cited in Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984). To dismiss, "it must appear to be a certainty that the plaintiff would not be entitled to relief under any set of facts that could be proved." Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir. 1987).

 B. Insurance Code claims (claims 1 & 4)

 1. Violation of Insurance Code section 781 (claim 1)

 a. Private right of action?

 California Insurance Code section 781 prohibits "twisting" in the insurance business. Section 781 provides, in relevant part:

 A person shall not make any representation or comparison of insurers or policies to an insured which is misleading, for the purpose or inducing or tending to induce him to lapse, forfeit, change or surrender his insurance, whether on a temporary or permanent plan.

 Cal. Ins. Code § 781 (West's 1972).

 The Insurance Code does not contain an express private right of action for violations of section 781. The Code does include a criminal penalty and an administrative procedure allowing the Insurance Commissioner to suspend an agent's license or an insurer's certificate of authority for violation of section 781. See Ins. Code §§ 782, 783, 783.5. Defendants therefore argue that plaintiffs may not assert a private right of action for violation of section 781.

 Defendants rely on the absence of any express provision in the Code and on the California Supreme Court's decision in Moradi-Shalal v. Fireman's Fund Ins. Co., 46 Cal. 3d 287, 250 Cal. Rptr. 116, 758 P.2d 58 (1988). *fn1" Moradi-Shalal held that no private civil cause of action exists under Insurance Code section 790.03(h), an entirely different section of the Insurance Code. The case overruled the Supreme Court's earlier decision in Royal Globe Ins. Co. v. Sup. Ct., 23 Cal. 3d 880, 153 Cal. Rptr. 842, 592 P.2d 329 (1979), which held that a private litigant could bring an action to impose civil liability on an insurer for violating section 790.03(h). Section 790.03(h), enacted in 1971, prohibits engaging in unfair claims settlement practices, i.e. refusals on the part of insurers to settle claims or misrepresentations of terms of policies to claimants. Section (h) derives from the National Association of Insurance Commissioners' Model Unfair Claims Practices Act (hereinafter Model Act). These types of actions are not at issue in Kentucky Central's complaint against its former agents. By contrast, Section 781, enacted in 1935, deals with the sale of insurance policies and prohibits misrepresentations of the terms of insurance policies for purposes of inducing policyholders to change policies.

 Despite the different subject matters and purposes of these two sections, defendants contend that the rationale of Moradi-Shalal extends to bar private causes of action under section 781. The decision in Moradi-Shalal, however, turned on the history of the Model Act and on policy considerations unique to private actions under section 790.03(h). First, the court's review of the history of the Model Act demonstrated that the N.A.I.C. had not intended to create a private right of action for unfair claims settlement practices and that 17 of the 19 states that had faced the issue had refused to recognize a private right of action. Moradi-Shalal, 250 Cal. Rptr. at 121-24. The court was also concerned that Royal Globe had promoted multiple litigation (an initial suit against the insured and then a second suit against the insurer for bad faith refusal to settle), escalated insurance costs, and created a conflict of interest for the insurer between protecting itself from the third-party claimant and protecting the interests of the insured. Moradi-Shalal, 250 Cal. Rptr. at 124-25. Neither the history nor the policy considerations underlying section 790.03(h) apply to section 781. Allowing a private party to sue for misrepresentations would not promote multiple litigation, raise insurance costs, or create a conflict of interest.

 Under The Restatement (2d) of Torts, section 874A, courts may imply a right of action from a statute if the plaintiff can show 1) that she was within the group of persons for whose benefit the legislation was adopted, and 2) that the interest invaded, the resulting harm, and the cause of the harm were all within the purview of the legislative provision. Rest. (2d) Torts § 874A, comment i. According to the Restatement:

 When a legislative provision protects a class of persons by prescribing or requiring certain conduct but does not provide a civil remedy for the violation, the court may, if it determines that the remedy is appropriate in furtherance of the purpose of the legislation and needed to assure the effectiveness of the provision, accord to an injured member of the class a right of action, using a suitable existing tort action or a new cause of action analogous to an existing tort action.

 See, e.g., Middlesex Ins. Co. v. Mann, 124 Cal. App. 3d 558, 177 Cal. Rptr. 495, 502-503 (1981) (civil action in tort may lie for damages proximately resulting from an insurance company's breach of fiduciary duty imposed by the Insurance Code); United Farm Workers of America, AFL-CIO v. Superior Court for the County of Kern, 47 Cal. App. 3d 334, 120 Cal. Rptr. 904 (1975) (allowing a private plaintiff to bring a cause of action for damages for violation of Labor Code provisions prohibiting misrepresentation in labeling and sale, despite the fact that the Labor Code provisions provided only criminal penalties). "'Violation of a statute embodying a public policy is generally actionable even though no specific remedy is provided in the statute; any injured member of the public for whose benefit the statute was enacted may bring an action.'" United Farm Workers, 120 Cal. Rptr. at 910, quoting Wetherton v. Growers Farm Labor Assn., 275 Cal. App. 2d 168, 79 Cal. Rptr. 543, 546 (1969).

 Neither the legislative history nor the case law under section 781 indicates whether the statute is designed to protect insurance companies such as Kentucky Central. Thus, we must rely on the language of the statute itself. Section 781 clearly protects policyholders from misleading statements by insurance companies and agents. By prohibiting those misrepresentations designed to induce policyholders to replace their policies with different carriers, section 781 also protects insurance companies from agents who commit fraudulent practices. The very language of the statute supports this interpretation.

 The terms of the statute prohibit misrepresentation designed to induce policyholders to replace their policies with policies from other insurance carriers. Kentucky Central has alleged misrepresentation resulting in the replacement of hundreds of policies by ...

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