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CLARK v. ALLSTATE INS. CO.

July 27, 2000

JOHN T. CLARK, PLAINTIFF,
V.
ALLSTATE INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Whelan, District Judge.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO STRIKE

This matter comes before the Court on a motion to strike filed by Defendant Allstate Insurance Company ("Allstate"). Plaintiff John T. Clark ("Plaintiff") opposes. Both parties are represented by counsel.

I. BACKGROUND

On April 7, 2000 Plaintiff commenced this action in San Diego Superior Court against Allstate alleging claims for breach of contract and breach of the implied covenant of good faith and fair dealing. On May 31, 2000 Allstate timely removed this case to district court. (See Not. of Removal ¶ 1).

On June 8, 2000 Allstate filed a motion to strike pursuant to Rule 12(f) of the Federal Rules of Civil Procedure. Plaintiff filed its opposition on July 17, 2000 and Allstate replied on July 24, 2000. The Court thereafter took the motion under submission and issues this Order on the papers submitted pursuant to Civil Local Rule 7.1.d.1.*fn1

II. DISCUSSION

Allstate's motion seeks to strike (1) Plaintiffs prayer for punitive damages and (2) Plaintiffs attorney's fees request arising under his breach of contract claim. The Court will address each argument in turn.

1. MOTION TO STRIKE PUNITIVE DAMAGES PRAYER

Allstate's motion first seeks an order striking any references in Plaintiffs Complaint to punitive damages. Allstate contends the conclusory allegations and facts pled in Plaintiffs' Complaint are inadequate to establish entitlement to punitive damages under California law.

Under California law, when a defendant "has been [found] guilty of oppression, fraud, or malice," the court may award punitive damages. See Cal. Civ. Code § 3294. "Malice" is defined as "conduct which is intended to cause injury to the plaintiff" or "despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others." Id. § 3294(c)(1). "Oppression" is defined as "despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights." Id. § 3294(c)(2). A plaintiff may collect punitive damages for an insurer's breach of the implied covenant of good faith and fair dealing where the plaintiff also establishes the requirements of Section 3294. See, e.g., PPG Indus., Inc. v. Transamerica Ins. Co., 20 Cal.4th 310, 319, 975 P.2d 652, 658, 84 Cal.Rptr.2d 455, 461 (1999); Egan v. Mutual of Omaha, Ins. Co., 24 Cal.3d 809, 820-822, 620 P.2d 141, 147-48, 169 Cal.Rptr. 691, 696-698 (1979).

Allstate points to several California decisions that subject punitive damage prayers to a heightened pleading standard. These decisions generally require a plaintiff to allege specific evidentiary facts to support allegations of malice, oppression or fraudulent intent. See, e.g., Smith v. Superior Court, 10 Cal.App.4th 1033, 1041-42, 13 Cal.Rptr.2d 133, 136 (1992); Brousseau v. Jarrett, 73 Cal.App.3d 864, 872, 141 Cal.Rptr. 200, 205 (1977); Lehto v. Underground Constr. Co., 69 Cal.App.3d 933, 944, 138 Cal.Rptr. 419, 426 (1977); G.D. Searle & Co. v. Superior Court, 49 Cal.App.3d 22, 122 Cal.Rptr. 218 (1975). Citing these cases, Allstate argues that Plaintiff "must allege specific facts that actually show oppression, fraud or malice to support the punitive damages claim." (Def.'s Mot. at 5 (emphasis in original)). Allstate claims Plaintiffs Complaint does not provide the factual specificity required by California law, requiring the Court to strike the prayer for punitive damages.

Allstate is wrong.

It is well-established that federal courts sitting in diversity must apply state substantive law and federal procedural rules. See Computer Economics, Inc. v. Gartner Group, Inc., 50 F. Supp.2d 980, 986 (S.D.Cal. 1999) (citing Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938)). Where state law directly conflicts with applicable provisions of the Federal Rules of Civil Procedure, federal courts must apply the Federal Rules — not state law. Id. (citing Hanna v. Plumer, 380 U.S. 460, 471, 85 S.Ct. 1136, 1143-44, 14 L.Ed.2d 8 (1965)).*fn2

Although Section 3294 provides the governing substantive law for punitive damages, California's heightened pleading standard irreconcilably conflicts with Rules 8 and 9 of the Federal Rules of Civil Procedure — the provisions governing the adequacy of pleadings in federal court. See, e.g., Bureerong v. Uvawas, 922 F. Supp. 1450, 1480 (C.D.Cal. 1996). Specifically, Rule 8(a) requires only that Plaintiffs Complaint include "a short and plain statement of the claim showing that [Plaintiff] is entitled to relief, and . . . a demand for judgment for the relief [he] seeks." Fed.R.Civ.P. 8(a). The second sentence of Rule 9(b) further provides that "[m]alice, intent, knowledge, and other conditions of mind of a person may be averred generally." Fed.R.Civ.P. 9(b). As interpreted by the Ninth Circuit, this provision "does not require `any particularity in connection with an averment of intent, knowledge or condition of the mind.'" In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547 (9th Cir. 1994) (en banc) (quoting Walling v. Beverly Enters., 476 F.2d 393, 397 (9th Cir. 1973)) (emphasis in GlenFed); Gottreich v. San Francisco Inv. Corp., 552 F.2d 866, 866-67 (9th Cir. 1977) (sustaining conclusory allegation that defendants "knew" their representations were false as sufficient to plead element of fraudulent intent). Rules 8(a) and 9(b) therefore preclude district courts from applying a heightened pleading for allegations of malice or fraudulent intent. Cf. Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 168, 113 ...


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