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Chong v. State Farm Mutual Automobile Insurance Co.

April 7, 2006

KATHLEEN CHONG, AN INDIVIDUAL ON BEHALF OF HERSELF, ALL OTHERS SIMILARLY SITUATED AND ON BEHALF OF THE GENERAL PUBLIC, PLAINTIFF,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, DEFENDANT



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

ORDER DENYING DEFENDANT'S MOTIONS TO DISMISS AND STRIKE

Defendant State Farm Mutual Automobile Insurance Company ("Defendant") moves to dismiss Plaintiff's Complaint for failure to state a claim upon which relief can be granted. Alternatively, Defendant moves to strike Plaintiff's class allegations. Plaintiff Kathleen Chong ("Plaintiff") opposes. The Court decides the matter on the papers submitted and without oral argument pursuant to Civil Local Rule 7.1(d.1). For the reasons outlined below, the Court DENIES Defendant's motions.

I. BACKGROUND

All of the facts discussed below are taken from Plaintiff's First Amended Complaint ("FAC") and assumed to be true. Plaintiff purchased automobile insurance from Defendant which provided first-party coverage for medical payments up to $5,000. After Plaintiff suffered unspecified injuries in an automobile accident with a third party, Defendant paid $5,000 towards Plaintiff's medical bills. Plaintiff pursued a claim against the third party with whom she had the accident and ultimately received a settlement of $65,000. To obtain that settlement, she paid approximately $28,000 in attorney fees and costs. Although Defendant knew about Plaintiff's action against the third-party tortfeasor, Defendant elected not to participate in it.

Plaintiff's policy provides that if she recovers damages from a liable party and Defendant has paid medical expenses under the policy's medical payments coverage, Defendant is entitled to a portion of Plaintiff's recovery. Specifically, the policy provides that Defendant is entitled to reimbursement for the lesser of either (1) the total amount of medical payments it made or (2) the amount by which Plaintiff's total recovery, including the benefits Defendant paid her under the medical payments coverage, exceeds her reasonable medical expenses. After Plaintiff recovered from the liable third party, Defendant sought reimbursement for 100% of the $5,000 it had paid in medical payments.

Plaintiff asserts that Defendant improperly sought reimbursement despite the fact that her net recovery after taking into account her attorney fees and costs was far below the amount she needed to make her whole. According to Plaintiff, Defendant's actions violate California's common law make whole rule. Plaintiff asserts that Defendant's improper application of its reimbursement provisions affects a broad class of California policyholders and she brings this putative class action asserting an unfair business practices claim and a number of common law claims on their behalf. Defendant now moves to dismiss or in the alternative to strike Plaintiff's class allegations.

II. LEGAL STANDARD

A. MOTION TO DISMISS

Rule 12(b)(6) allows a court to dismiss a complaint upon a finding that the plaintiff has failed to state a claim upon which relief may be granted. Fed.R.Civ.P. 12(b)(6). A 12(b)(6) motion tests a complaint's legal sufficiency. See Navarro v. Block, 250 F.3d 729, 732 (9th Cir.2001). Thus, dismissal is proper only where the plaintiff's complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory. See id. "[I]f as a matter of law 'it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations,' a claim must be dismissed ... whether it is based on an outlandish legal theory or a close but ultimately unavailing one." Neitzke v. Williams, 490 U.S. 319, 326-27, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989) (citations omitted). Thus, a court should not dismiss a complaint "unless it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); see also Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir.1995). Finally, a court must accept the complaint's allegations as true and construe the complaint in the light most favorable to the plaintiff. See Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 338 (9th Cir.1996).

B. MOTION TO STRIKE

Rule 12(f) provides that a federal court may strike from the pleadings any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter. Fed.R.Civ.P. 12(f). The function of a motion to strike is to avoid the unnecessary expenditures that arise throughout litigation by dispensing of any spurious issues prior to trial. Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir.1983). Rule 12(f) motions "are generally regarded with disfavor because of the limited importance of pleading in federal practice, and because they are often used as a delaying tactic." Neilson v. Union Bank of Cal., N.A., 290 F.Supp.2d 1101, 1152 (C.D.Cal.2003). Thus, courts generally grant a motion to strike only where "it is clear that the matter to be stricken could have no possible bearing on the subject matter of the litigation." LeDuc v. Kentucky Cent. Life Ins. Co., 814 F.Supp. 820, 830 (N.D.Cal.1992).

III. DISCUSSION

Defendant moves to dismiss Plaintiff's complaint in its entirety. Defendant contends that Plaintiff's complaint fails to state a claim because 1) California courts do not routinely follow a blanket make whole rule and 2) no California case, including those that adopt some form of the make whole rule, has ever held that a policyholder's payment of attorney fees to secure a damage recovery from a third party means the policyholder has not been made whole and that the carrier is therefore not entitled to reimbursement. Defendant also argues that the make whole rule, if it exists in California, is only a default rule and that its reimbursement provision changes it. Alternatively, Defendant moves to strike Plaintiff's class allegations, arguing that the individualized inquiry required to determine if each class member has been made whole makes this dispute inappropriate for class treatment.

Plaintiff counters that her allegations regarding the make whole rule track a version of the rule that is well-established in California. Plaintiff acknowledges that the parties can contract around the make whole rule, but argues that Defendant's reimbursement provision is insufficiently specific to do so here. Plaintiff also argues that her FAC's unfair business practices claim meets the pleading standard set forth by the applicable California cases discussing such claims in the context of the make whole rule. Finally, Plaintiff asserts that her class definition is narrowly tailored ...


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