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Douglas J. Campion v. Old Republic Home Protection Company

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA


May 20, 2011

DOUGLAS J. CAMPION, PLAINTIFF,
v.
OLD REPUBLIC HOME PROTECTION COMPANY, INC., DEFENDANT.

The opinion of the court was delivered by: Jan M. Adler U.S. Magistrate Judge

ORDER DENYING PLAINTIFF'S MOTION FOR RECONSIDERATION OR, IN THE ALTERNATIVE, REQUEST FOR CLARIFICATION (DOC. NO. 58)

On February 3, 2011, Plaintiff Douglas J. Campion filed a Motion for Reconsideration or, in the Alternative, Request for Clarification of the Court's denial of Plaintiff's earlier motion for class certification. (Doc. No. 58.) Defendant Old Republic Home Protection Company, Inc. has filed a brief in opposition and Plaintiff has also filed a reply in support of his motion. (Doc. No. 61 and 62.) Pursuant to CivLR 7.1.d.1, the motion is suitable for disposition without oral argument.*fn1 After due consideration of the parties' briefs, the Court DENIES Plaintiff's motion.

I. LEGAL STANDARD

Plaintiff's motion is brought under CivLR 7.1.i.1 and the Court's "inherent power to reconsider and modify its interlocutory orders...." CivLR 7.1.i.1 allows a party to apply for reconsideration "[w]henever any motion or any application or petition for any order or other relief has been made to any judge and has been refused in whole or in part." The rule requires a party to show "what new or different facts and circumstances are claimed to exist which did not exist, or were not shown, upon such prior application." CivLR 7.1.i.1.*fn2 Although Plaintiff's request invokes CivLR 7.1.i.1 and the Court's inherent authority to modify prior orders, the parties agree reconsideration may be granted under standards applicable to a Fed. R. Civ. P. 59(e) post-judgment motion for reconsideration, which allows for reconsideration when "the district court (1) is presented with newly discovered evidence, (2) committed clear error or the initial decision was manifestly unjust, or (3) if there is an intervening change in controlling law," citing School Dist. No. 1J, Multnomah County, Or. v. AC and S, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993). A motion for reconsideration may not be used to get a second bite at the apple. It is not a method by which to raise arguments or present evidence for the first time when they could reasonably have been raised earlier [Id.; see also Kona Enterprises, Inc. v. Estate of Bishop, 229 F.3d 877. 890 (9th Cir. 2000)] or to reargue an issue [Am. Ironworks & Erectors, Inc. v. N. Am. Constr. Corp., 248 F.3d 892, 899 (9th Cir. 2001)].

Here, Plaintiff only invokes "clear error" as a basis for reconsideration, arguing the Court's prior decision was clearly erroneous on five counts. The Ninth Circuit has not defined a standard for "clear error," although it has been discussed by other circuits. As the Fifth Circuit Court of Appeals has observed, "[i]n the context of the law of the case doctrine, "clearly erroneous" is a very exacting standard. 'Mere doubts or disagreement about the wisdom of a prior decision of this or a lower court will not suffice for this exception. To be clearly erroneous, a decision must strike us as more than just maybe or probably wrong; it must be dead wrong.'" Hopwood v. Texas, 236 F3d 256, 273 (5th Cir. 2000) (citation omitted). The Seventh Circuit has also set a high standard for a party filing a motion for reconsideration on the basis of error, finding the movant must demonstrate a "wholesale disregard, misapplication, or failure to recognize controlling precedent." Oto v. Metro. Life Ins. Co., 224 F.3d 601, 606 (7th Cir. 2000).

II. DISCUSSION

The Court Did Not Misapply Dukes, Ignore Plaintiff's Evidence, or Rely Exclusively on Evidence Submitted by Defendant

In his first argument, Plaintiff contends the Court ignored his evidence that Defendant financially incentivizes its contractors to deprive class members of the benefits of their home warranty plans and instead relied exclusively on statistical evidence submitted by Defendant. Memorandum of Points & Authorities in Support of Motion for Reconsideration, p. 3. In doing so, Plaintiff submits the Court misinterpreted and misapplied Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010) and essentially conducted a mini-trial on Plaintiff's claims. The Court was, Plaintiff argues, "bound to take the substantive allegations of the complaint as true," pursuant to Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975). Id.

Plaintiff's argument the Court misinterpreted and misapplied Dukes rehashes his argument from the motion for class certification about the appropriate legal standard and is not a proper basis for reconsideration. Am. Ironworks & Erectors, Inc, 248 F.3d at 899. Furthermore, the Court did not, as Plaintiff posits, "ignore all of Plaintiff's evidence." To the contrary, the Court accepted Plaintiff's substantive allegations as true but determined that the claims were not capable of proof without examining class members' claims on an individualized basis. The order denying class certification is replete with citations and references to the Complaint, Plaintiff's arguments, and Plaintiff's evidence. See e.g., Order Denying Plaintiff's Motion for Class Certification and Defendant's Motion to Strike, p. 2, ln. 6-18; pp. 2-3, ln. 25-9; p. 6, ln. 22-26; p. 8, ln. 7-16; p. 9, ln. 7-14; pp. 10-11, ln. 28-7; pp. 13-14, ln. 13-12; pp. 15-16, ln. 25-3; p. 18, ln. 13-20; pp. 19-20, ln. 21-5; pp. 21-22, ln. 10-11; p. 25, ln. 14-19; pp. 26, ln. 21-27; p. 27, ln. 17-25; p. 28, ln. 11-15; p. 29, ln.11-12; p. 30, ln. 17-23; and pp. 31-32, ln. 23-3.

As the Court previously observed, although a court should not conduct a preliminary inquiry into the merits of a plaintiff's case when considering a motion for class certification, the Court must conduct a "rigorous analysis" to ensure the prerequisites of Rule 23(b) are actually satisfied, not just presumed from the pleadings. Dukes, 603 F.3d at 581. The "rigorous analysis" requirement is not, as Plaintiff posits, simply an interpretation of the Dukes case, but rather is derived from long-standing legal precedent. See Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 161 (1982).

In some instances, the pleadings will be sufficient to demonstrate whether a class should be certified, but often courts are required to look "behind the pleadings" even to issues overlapping with the merits of the underlying claims. Dukes, 603 F.3d at

See also Falcon, 457 U.S. 160 ("[s]ometimes the issues are plain enough from the pleadings to determine whether the interests of the absent parties are fairly encompassed within the named plaintiff's claim, and sometimes it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question.") The Court is not required to "unquestioningly accept a plaintiff's arguments as to the necessary Rule 23 determinations" and may consider facts that are relevant to the Rule 23 determination, even though the facts may also relate to the underlying merits of the case. Dukes, 603 F.3d at 586, 589.

In this case, it was necessary for the Court to probe behind the pleadings to make findings on the Rule 23 certification decision. Although the Court cited multiple reasons why individual issues overwhelmed issues that are common to the class, Plaintiff takes exception to the Court's consideration of statistical evidence proffered by Defendant regarding the handling of service claims. Memorandum of Points & Authorities in Support of Motion for Reconsideration, p. 5. This evidence, however, which was not disputed or challenged by Plaintiff at the time, was not used to evaluate or make a determination on the merits of Plaintiff's claims. The Court accepted Plaintiff's substantive allegations, but determined due to multiple factors that individual issues predominated in this case and, therefore, class certification was not appropriate.*fn3 Order Denying Plaintiff's Motion for Class Certification and Defendant's Motion to Strike, pp. 16, 19, 20, 26-27, 28-29. The fact that the Court considered uncontroverted evidence submitted by Defendant, which also overlaps with issues pertaining to the merits of the claim, in determining whether Plaintiff satisfied the requirements of Rule 23 is neither improper nor a basis for reconsideration.

The Court Did Not Ignore Plaintiff's Theory of the Case

Plaintiff's second argument is the Court committed clear error by focusing on Defendant's denial of claims and ignoring Plaintiff's theory of the case, which also consists of allegations that Defendant's wrongful business practices include:

1) contractors performing band-aid fixes rather than necessary but expensive repairs;

2) contractors gouging customers for non-covered portions of the claim and upselling them unnecessary and uncovered upgrades; and

3) contractors refusing to work on expensive jobs, requiring customers to resubmit claims and, often times, pay a second service call fee.

Memorandum of Points & Authorities in Support of Motion for Reconsideration, p. 6. Plaintiff claims the Court improperly accepted Defendant's argument that the case is about improper denial of claims when, in fact, he also claims that due to Defendant's wrongful business practices, the overwhelming majority of the putative class members were substantially worse off even when a claim was covered. Id. p. 7.

Contrary to Plaintiff's assertion, these allegations were not ignored and were, in fact, addressed in the underlying order. Order Denying Mot. For Class Certification, p. 8, ln. 7-16; p. 13, ln. 16-25, pp. 19-20, ln. 20-5. Plaintiff's argument for class certification essentially sought to have the Court presume Defendant's alleged unfair practices caused the class members harm.*fn4 As the Court explained, the mere existence of the system Plaintiff contends Defendant created "would not prove on a class-wide basis that claims were wrongfully denied or inappropriately handled." Id. p. 15, ln. 16-19, emphasis added.

As previously explained, under the class definition espoused by Plaintiff, individual inquiries and proof would be required to determine whether the alleged "unfair" conduct actually caused injury to each class member, as well as to determine appropriate restitution. Id. p. 20.Class members' individual claims for benefits would need to be examined to determine how they were administered, whether the class members were harmed as a result of Defendant's claims handling practices and, if so, how they were harmed. A class member's claim would need to be reviewed to determine whether it was honored or denied. If the claim was denied, further inquiry would need to be made as to whether the denial was legitimate, as Plaintiff concedes many were. On the other hand, even if the claim was honored, individualized inquiries would be necessary. Honored claims would need to be examined to determine whether a class member was in fact "substantially worse off even when a claim [wa]s 'covered.'" Memorandum of Points & Authorities in Support of Motion for Reconsideration, p. 7, ln. 6. Plaintiff's own experience demonstrates the need for individualized inquiries. He made two claims for benefits under his home warranty plan, the first of which -- concerning his garbage disposal -- was the impetus for this suit. He testified, however, that when he made a second claim (for problems with his electric range/oven) he received the benefit owed to him, and admitted he would not have sued Defendant had that been his only claim. Declaration of Tammy Boggs in Support of Opposition to Motion for Class Certification ("Boggs Dec."), Ex. B (Transcript of Deposition of Douglas J. Campion ("Campion Depo.") pp. 28-30; ln. 7-7). The inquiry into honored claims is further complicated, moreover, because Plaintiff alleges these class members may have been harmed in a variety of ways -- some through an inadequate band-aid fix, others through price gouging, and others by a contractor's unjustified refusal to perform expensive repairs. The circumstances of individual class member's claims would, therefore, need to be examined in order to prove Plaintiff's argument that class members were harmed by defendant's practices even when claims were covered.

Plaintiff Has Not Established a Basis to Reconsider Denial of Certification of the Breach of Contract Cause of Action

Plaintiff's third argument is that the Court committed clear error in concluding his proposed remedy for the Breach of Contract cause of action would require examination of too many individualized issues. Memorandum of Points & Authorities in Support of Motion for Class Certification, pp. 7-9. Plaintiff contends the amount of restitution to which each class member is entitled can be calculated by a claims administrator with a uniform measure of restitution. Id. p. 8. The formula he proposes was not advanced in his motion for class certification and, thus, is not an appropriate basis for reconsideration.*fn5 Furthermore, the Court's ruling on the contract-based causes of action was not only limited to the need for individualized inquiries in calculating the amount of restitution to which class members might be entitled. The Court also found individual issues predominated with regard to establishing whether a breach occurred. Order Denying Mot. For Class Certification, pp. 14-15. Although Plaintiff argues the Court committed clear error with regard to its analysis of the Breach of Implied Covenant of Good Faith and Fair Dealing cause of action, he does not challenge the Court's conclusion with regard to the Breach of Contract claim. There is, therefore, no basis to revisit the Court's denial of class certification for this cause of action.

Individualized Inquiries Are Necessary With Respect To Plaintiff's Claim For Breach Of The Implied Covenant

Plaintiff's fourth argument challenges the Court's denial of class certification of the cause of action for Breach of Implied Covenant of Good Faith and Fair Dealing. Memorandum of Points & Authorities in Support of Motion for Class Certification, pp. 9-11. Plaintiff argues the Court "conflated" the breach of contract claim with the breach of implied covenant claim, when in fact these are two distinct and separate causes of action that required separate analysis. Id. p. 9. Citing Schwartz v. State Farm Fire and Casualty Co. 88 Cal.App.4th 1329, 1399 (2001) and Carma Developers (Cal.), Inc. v. Marathon Development Cal. Inc., 2 Cal. 4th 342, 373 (1992), Plaintiff contends a claim for breach of the implied covenant of good faith and fair dealing does not require the breach of a specific contractual provision. Id. Thus, Plaintiff argues, even if individualized inquiries are necessary for Plaintiff's breach of contract claim, they are not necessary for the implied covenant claim because Defendant's policies "breached the implied covenant with respect to every class member who made a claim, regardless of whether Defendant ultimately covered the claim or not." Id. p. 9, ln. 18-24.

The failure of an insurer to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy may give rise to a cause of action for breach of the implied covenant of good faith and fair dealing. Fleming v. Safeco Ins. Co., 160 Cal. App. 3d 31, 38 (1984); Neal v. Farmers Ins. Exchange, 21 Cal. 3d 310 (1978). The covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct that frustrates the other party's rights to the benefits of the agreement. Love v. Fire Ins. Exchange, 221 Cal.App.3d 1136, 1153 (1990). In the context of insurance contracts, a cause of action may be sustained based on any number of practices such as such as delayed payment based on inadequate or tardy investigations or oppressive conduct by claims adjusters seeking to reduce the amounts legitimately payable. Id.

Such conduct, which may not necessarily constitute a breach of a specific contractual provision, frustrates the insured's right to receive the benefits of the contract. Id.

Plaintiff's claim that Defendant "breached the implied covenant with respect to every class member who made a claim, regardless of whether Defendant ultimately covered the claim or not," however, again glosses over the required element of causation. In order to prevail on a cause of action for breach of the implied covenant of good faith and fair dealing, an insured must establish its injury was proximately caused by the insurer's breach. See PPG Industries v. Transamerica Ins. Co., 20 Cal. 4th 310, 315 (1999); See also Neal, 21 Cal.3d at 925 (insurance company may be liable for "any damages which are the proximate result of that breach"); Brandt v. Superior Court, 37 Cal.3d 813, 817 (1985). As previously discussed herein and in the order denying Plaintiff's motion for certification, individualized inquiries and proof would be required to determine whether the alleged wrongful business practices actually caused injury to the class members.

The Court Did Not Commit Clear Error in Determining Proof of Class Members' Reliance on Defendant's False Advertising Requires Individualized Inquiries Plaintiff's final argument is the Court committed clear error in concluding Plain-tiff's false advertising claims required individualized inquiries into each class member's reliance on Defendant's representations because the Court considered evidence submitted by Defendant that most home warranty plans were purchased by someone other than the class member. Memorandum of Points & Authorities in Support of Motion for Reconsideration, p. 11. The Court did not, however, use this evidence to determine "Plaintiff could not prove that all class members received th[e] written materials," as Plaintiff claims. Id. The Court's inquiry was limited to determining whether Plaintiff had established a framework for proving reliance on a class-wide basis. Plaintiff claims the common framework for class-wide reliance was established by demonstrating that Defendant made false representations in uniform written materials. As explained in the order denying certification, this analysis does not hold up.

The fact that class members may have seen some, all or none of the alleged misrepresentations due to the varying ways in which they acquired their plans has never been in dispute. The Court was not required to turn a blind eye to this. Dukes, 603 F.3d at 581, 589. The key to establishing a framework for proving class-wide reliance with respect to Plaintiff's false advertising claim is not whether all class members ultimately received written materials, but whether they were exposed to the alleged misrepresentations prior to obtaining their plans. Plaintiff did not establish such a framework.

Plaintiff also argues that even if reliance can not be properly presumed for class members who received their warranty plan as part of a real estate transaction, the Court should have certified a subclass or new class consisting of all persons who purchased a plan directly from Defendant. Id. p. 12. This alternate class definition was not proposed by Plaintiff and he does not show how the Court committed clear error by not sua sponte crafting this alternate class definition.

The Order Denying Certification Does Not Preclude Plaintiff from Attempting to Modify the Proposed Class

Lastly, Plaintiff requests clarification that the order denying class certification is without prejudice "so that he can modify and renew his motion for class certification at a later date if circumstances warrant doing so." Id. p. 13. It is unclear as to whether Plaintiff, who states "it can sometimes take plaintiffs two, three, or even four bites at the class-certification apple to propose a class that meets Rule 23's requirements" intends to re-seek certification as to the previously proposed class or to modify his proposed class definition and then seek certification as to a new proposed class. The deficiencies as to the previously proposed class are such that they can not be cured by another motion under Fed. R. Civ. P. 23. The order is not, however, intended to preclude Plaintiff from seeking to modify the class definition and attempting to certify an alternate proposed class.


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