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Mills v. Ramona Tire

December 5, 2007

HOWARD MILLS, SUPERINTENDENT OF INSURANCE OF THE STATE OF NEW YORK, AS REHABILITATOR OF A NEW YORK CORPORATION, PLAINTIFF,
v.
RAMONA TIRE, INC., A CALIFORNIA CORPORATION; HANSON & HALES, AN UNKNOWN BUSINESS ENTITY; AUTOMOTIVE SERVICES INSURANCE LIMITED, A GUERNSEY CORPORATION; AND DOES 1 THROUGH 50, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Marilyn L. Huff, District Judge United States District Court

FRONTIER RAMONA INSURANCE COMPANY IN TIRE, INC.'S ORDER DENYING MOTION TO REHABILITATION DISMISS PLAINTIFF'S FIRST, AMENDED COMPLAINT

On January 8, 2007, defendant Ramona Tire, Inc. ("Ramona") removed the case Frontier Insurance Company in Rehabilitation v. Ramona Tire, Inc., Case No. RIC459479, from the Superior Court of the State of California, County of Riverside, to this Court. (Doc. No. 1.) On October 19, 2007, plaintiff Howard Mills, Superintendent of Insurance of the State of New York, as Rehabilitator of Frontier Insurance Company ("Plaintiff"), filed a first amended complaint. (Doc. No. 25, see Doc. No. 23.)

The heart of this case is Plaintiff's allegation that Ramona defrauded Frontier Insurance Company ("Frontier") via Automotive Services Insurance Limited ("ASIL"), a captive re-insurance company created by Ramona. Plaintiff contends that Ramona purposefully under-capitalized ASIL so as to make it unable to comply with its contractual obligations to Frontier. (Id.) Based on this alleged wrong, the first amended complaint alleges seven claims for relief against Ramona, Hanson & Hales (a business entity of unknown form) and ASIL: (1) fraud; (2) false promise; (3) negligent misrepresentation; (4) unjust enrichment; (5) money had and received; (6) conspiracy; and (7) breach of contract.

On November 7, 2007, Ramona filed a motion to dismiss the first amended complaint for failure to plead fraud with particularity and failure to state a claim, pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. (Doc. No. 31.) On November 26, 2007, Plaintiff filed a response in opposition to Ramona's motion. (Doc. No. 33.) Ramona filed a reply on December 3, 2007. (Doc. No. 38.) The Court exercises its discretion to decide this matter on the papers, without oral argument, pursuant to Local Civil Rule 7.1(d)(1). For the following reasons, the Court denies Ramona's motion to dismiss the first amended complaint.

Background*fn1

Frontier, a California corporation, is an insurance company. (FAC ¶ 1.) In approximately 1999, Ramona contacted Frontier regarding obtaining a workers' compensation insurance policy covering Ramona's employees as well as employees of other entities controlled by or related to Ramona. (Id. ¶ 14; see FAC Ex. 2.) Under the policy issued to Ramona ("the Policy") Frontier agreed to pay workers' compensation claims made by Ramona. (Id. ¶ 18.)

In lieu of a "traditional" workers' compensation insurance policy, however, Ramona with the assistance of its attorneys Hanson & Hales created ASIL -- a company incorporated in Guernsey, one of the Channel Islands between England and France -- as a "captive" insurance company. (Id. ¶¶ 15, 16.) A captive insurance company is generally a subsidiary of an organization not in the insurance business; the captive's primary function is to insure some or all of the risks of its parent company. (Id. ¶ 15.) In order to implement this arrangement, effective May 1, 1999, Frontier entered into a reinsurance agreement with ASIL under which ASIL agreed to reimburse Frontier for the first $250,000 of any single claim made by Ramona Tire under the Policy. (FAC ¶ 17.) Frontier's agreement to insure Ramona was based on Ramona's promise that its captive ASIL would reimburse Frontier for the first $250,000 of any claim by Ramona. (Id. ¶ 19.)

Over the following five years Frontier paid to Ramona a total of $392,485.76 on 22 claims made under the Policy. (Id. ¶ 20.) Each time a claim was made, Frontier requested reimbursement from ASIL. (Id. ¶ 21.) The total amount for which Frontier sought reimbursement was $361,788 because one workers' compensation claim resulted in a payment of $278,000, which was $28,000 over the amount ASIL had agreed to reimburse for any single claim. (Id.) ASIL made two payments to Frontier, totaling $70,061.67. (Id. ¶ 22.) A balance remains for unreimbursed claims in the amount of $291,726.33. (Id.) Additionally, there are two open claims totaling $286,270. (Id. ¶ 23.) The total amount allegedly owed by ASIL to Frontier is $577,996.33. (Id.)

On January 26, 2006, Hanson & Hales wrote to Frontier on ASIL's behalf, offering to resolve the Frontier/ASIL dispute. (Id. ¶ 24.) Hanson & Hales stated that Frontier had failed to timely inform ASIL of certain claims and that ASIL refused to reimburse Frontier on those claims. (Id.) Frontier responded to Hanson & Hales on April 18, 2006, explaining that certain claims were delivered late to ASIL because Hanson & Hales "incorrectly stated the date of the incident in its tender letter on behalf of Ramona." (Id. ¶ 25.) Frontier demanded payment of $577,996 from ASIL. (Id.) On May 30, 2006, Hanson & Hales wrote Frontier a letter stating that Hanson & Hales did not represent ASIL. (Id. ¶ 26.) On July 18, 2006, ASIL informed Plaintiff that ASIL was underfunded by its shareholders and was incapable of paying the claims as promised. (Id. ¶ 27.)

Discussion

I. Motion to Dismiss Pursuant to Rule 9(b)

Rule 9(b) of the Federal Rules of Civil Procedure provides: "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." Fed. R. Civ. P. 9(b). However, Rule 9(b) neither requires nor permits the pleading of detailed evidentiary matter -- a plaintiff must simply identify "the circumstances constituting fraud" with sufficient particularity "so that the defendant can prepare an adequate answer." Walling v. Beverly Enterprises, 476 F.2d 393, 397 (9th Cir. 1973). Before deciding whether Plaintiff has complied with Rule 9(b), however, the Court must first determine which of Plaintiff's claims for relief are governed by that Rule.

When a plaintiff "allege[s] a unified course of conduct and rel[ies] entirely on that course of conduct as the basis of the claim[,] . . . . the claim is said to be 'grounded in fraud' or to 'sound in fraud,' and the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b)." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003). In other words, Rule 9(b) applies to any claim for which fraud is an "essential element." Id. at 1105. "Under California law, the 'indispensable elements of a fraud claim include a false representation, knowledge of its falsity, intent to defraud, justifiable reliance, and damages.'" Id. (internal quotations omitted).

Two of Plaintiff's claims -- fraud and false promise -- obviously are fraud claims governed by Rule 9(b). See Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996) ("'Promissory fraud' is a subspecies of the action for fraud and deceit."). Additionally, the Court concludes that Rule 9(b) governs Plaintiff's claim for negligent misrepresentation. Although Rule 9(b) ordinarily would not apply to a claim for negligent misrepresentation because knowledge of falsity and intent to defraud are not elements of such a claim, see Masters v. San Bernardino County Employees Retirement Assn., 32 Cal. App. 4th 30 (1995), here Plaintiff has pled that claim by (1) incorporating every previous allegation of the complaint, see FAC ¶ 51, including allegations that the defendants knew ASIL would not remain adequately capitalized; and (2) alleging that the defendants' conduct amounted to "an intentional misrepresentation, deceit, or concealment of a material fact known to the defendants." (See FAC ¶ 50.) Pled in this ...


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