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Kaui Scuba Center, Inc. v. Padi Americas

July 13, 2011

KAUI SCUBA CENTER, INC.
v.
PADI AMERICAS, INC., ET AL.



The opinion of the court was delivered by: The Honorable David O. Carter, Judge

#:1924

CIVIL MINUTES - GENERAL

Title:

Julie Barrera Not Present Courtroom Clerk Court Reporter

ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS: NONE PRESENT NONE PRESENT PROCEEDING (IN CHAMBERS): ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS AND DENYING MOTION TO STRIKE AS MOOT

Before the Court are six related motions to dismiss and/or strike the class allegations from Plaintiff Kaui Scuba Center, Inc.'s ("Plaintiff") Second Amended Complaint ("SAC"). Specifically, these motions include: Lexington Insurance Company's ("Lexington") Motion to Dismiss (Doc. No. 71) and Motion to Strike (Doc. No. 68), York Risk Services Group, Inc.'s ("York") Motion to Dismiss (Doc. No. 72), Vicencia & Buckley Insurance Services, Inc.'s ("V&B") Motion to Dismiss (Doc. No. 69), PADI Risk Purchasing Group Inc.'s Motion to Dismiss (Doc. No.70)*fn1 , and PADI Americas, Inc. and PADI Worldwide Corporation's Motion to Dismiss, or in the alternative, to Strike the Class allegations (Doc. No. 73).*fn2

The Court finds this matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; L.R. 7-15. After considering the moving, opposing and reply papers, and for the reasons stated below, the Court hereby GRANTS the Motions to Dismiss. Lexington's Motion to Strike is DENIED

I. BACKGROUND

For the last several years, Plaintiff owned and maintained a PADI-certified dive shop in Hawaii. (SAC ¶¶ 3, 15.) One of the requirements of certification is maintaining insurance, which Plaintiff bought from PADI, through V&B, PADI's approved broker. (Id. ¶ 3.) Plaintiff asserts that because PADI is the largest company in the world from which to obtain certification, most dive shop owners purchase PADI-sponsored insurance. (Id. ¶ 16.) In purchasing commercial general liability ("CGL") and property damage ("PD") insurance for dive shop owners, PADI and V&B represent that insurance is provided by Lexington, a licensed insurance company. (Id.) In reality, PADI owns several insurance policies through Lexington, with PADI as the named insured, and dive shop owners named as additional insureds. (Id. ¶ 17.) The Lexington policies require PADI to pay the first $300,000 directly to the injured dive shop, allegedly making PADI, not Lexington, the primary "insurer" for this amount.

Plaintiff alleges that PADI is not licensed to act as an insurance company in any state, nor does it carry mandated financial reserves. (Id.) In the event of losses to multiple dive shops, PADI will not have sufficient funds to cover the losses. (Id.) Plaintiff was told that its insurance coverage would be provided by Lexington, and paid full market value for the policy. (Id.) Plaintiff alleges it was overcharged because coverage by PADI, which is unlicensed, is worth far less than coverage by Lexington, a legitimate insurance company. (Id.) V&B and York, as broker and adjustor, respectively, further perpetrate this scheme by adding "an air of legitimacy" to the transaction. (Id. ¶ 18.) PADI, V&B, York, and Lexington all fail to disclose the true nature of this scheme to dive shop owners. (Id.¶ 17.)

On March 10 and March 15, 2011, the Court granted V&B, York, and Lexington's earlier motions to dismiss, and Plaintiff was granted leave to amend its complaint. (Doc. Nos. 54, 55.) On April 6, 2011, Plaintiff filed its SAC, on behalf of itself and other dive shops that have acquired insurance through PADI and V&B. The SAC alleges claims for: (1) Breach of Contract (Rescission) (against V&B and all PADI Defendants); (2) Breach of Contract (Damages) (against V&B and all PADI Defendants); (3) Money Had and Received (against V&B and all PADI Defendants); (4) Breach of Contract (against V&B) (5) Breach of Fiduciary Duty (against V&B); (6) Negligence (against V&B); (7) Intentional Misrepresentation (against all Defendants); (8) Negligent Misrepresentation (against all Defendants); (9) violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO") (against all Defendants); (10) False Advertising ("FAL") (Cal. Bus. & Prof. Code § 17500) (against V&B and all PADI Defendants); and (11) Fraudulent and Deceptive Business Practices ("UCL") (Cal. Bus. & Prof. Code § 17200) (against V&B and all PADI Defendants).

II. LEGAL STANDARD

A. Rule 12(b)(6)

Under Federal Rule of Civil Procedure 12(b)(6), a complaint must be dismissed when a plaintiff's allegations fail to state a claim upon which relief can be granted. Dismissal for failure to state a claim does not require the appearance, beyond a doubt, that the plaintiff can prove "no set of facts" in support of its claim that would entitle it to relief. Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1968 (2007) (abrogating Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99 (1957)). In order for a complaint to survive a 12(b)(6) motion, it must state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009). A claim for relief is facially plausible when the plaintiff pleads enough facts, taken as true, to allow a court to draw a reasonable inference that the defendant is liable for the alleged conduct. Id. at 1949. If the facts only allow a court to draw a reasonable inference that the defendant is possibly liable, then the complaint must be dismissed. Id. Mere legal conclusions are not to be accepted as true and do not establish a plausible claim for relief.

at 1950. Determining whether a complaint states a plausible claim for relief is a context-specific task requiring the court to draw on its judicial experience and common sense. Id.

In evaluating a 12(b)(6) motion, review is "limited to the contents of the complaint." Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). However, exhibits attached to the complaint, as well as matters of public record, may be considered in determining whether dismissal was proper without converting the motion to one for summary judgment. See Parks School of Bus., Inc. v. , 51 F.3d 1480, 1484 (9th Cir. 1995); Mack v. South Bay Beer Distribs., Inc., 798 F.2d 1279, 1282 (9th Cir. 1986). Further, a court may consider documents "on which the complaint 'necessarily relies' if: (1) the complaint refers to the document; (2) the document is central to the plaintiff's claim; and (3) no party questions the authenticity of the copy attached to the 12(b)(6) motion." Marder v. , 450 F.3d 445, 448 (9th Cir. 2006). "The Court may treat such a document as 'part of the complaint, and thus may assume that its contents are true for purposes of a motion to dismiss under Id.

B. Rule 9(b)

Under Federal Rule of Civil Procedure 9(b), a plaintiff must plead each of the elements of a fraud claim with particularity, i.e., a plaintiff "must set forth more than the neutral facts necessary to identify the transaction." Cooper v. Pickett, 137 F.3d 616, 625 (9th Cir. 1997) (emphasis in original). In other words, fraud claims must be accompanied by the "who, what, when, where, and how" of the fraudulent conduct charged. Vess v. Ciba-Geigy Corp., USA, 317 F.3d 1097, 1106 (9th Cir. 2003). A pleading is sufficient under Rule 9(b) if it identifies the circumstances constituting fraud so that a defendant can prepare an adequate answer from the allegations. Moore v. Kayport Package Express, , 885 F.2d 531, 540 (9th Cir. 1989). While statements of the time, place, and nature of the alleged fraudulent activities are sufficient, mere conclusory allegations of fraud are insufficient. Id.

III. DISCUSSION

A. Standing

Defendantsargue that the SAC must be dismissed in its entirety because Plaintiff lacks standing and/or fails to allege any damages. (Doc. Nos. 69-1 at 5-6, 70-1 at 6-7, 71-1 at 8, 72 at 22, 73-1 at 16-17.) Specifically, Defendants argue that Plaintiff lacks standing to sue because no injury in fact is alleged. Defendants contend that the alleged harm of being overcharged for insurance premiums, based solely on PADI's unlicensed status, is not actionable under Medina v. Safe-Guard Prods., Int'l, , 164 Cal. App. 4th 105, 114 (2008). While Medina found that the plaintiff did not suffer any harm because of the insurer-defendant's unlicensed status, the court relied on the fact that the plaintiff did not allege that he paid more for the coverage than what it was worth because of the unlicensed status. Id. Here, Plaintiff alleges a loss based on paying higher premiums than what the policies were worth because PADI in not a licensed insurer. (SAC ¶ 20 ("Plaintiff paid full, fair market value for insurance premiums and coverage by a licensed insurer and received coverage worth far less, as the market value for insurance from an unlicensed company is worth considerably less and possibly zero.").)

Where a consumer alleges that he or she paid more for a product than they otherwise might have, had the product been labeled accurately, the ...


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