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Brighton Trustees v. Transamerica Life Insurance Co.

United States District Court, C.D. California

November 4, 2019

BRIGHTON TRUSTEES, ET AL.
v.
TRANSAMERICA LIFE INSURANCE COMPANY

          Attorneys Present for Plaintiffs: Khai LeQuang David Gomez

          Attorneys Present for Defendants: Hutson Smelley

          Present: The Honorable CHRISTINA A. SNYDER Judge

          CIVIL MINUTES - GENERAL

         Proceedings: DEFENDANT'S MOTION TO DISMISS SECOND AMENDED COMPLAINT (Dkt. [ 42 ], filed September 25, 2019)

         I. INTRODUCTION AND BACKGROUND

         The Court previously set out the factual and procedural background of this case in its August 28, 2019 order. Accordingly, the Court only recites the background that gives rise to the present motion to dismiss.

         Plaintiffs Brighton Trustees, LLC ("Brighton"), Cook Street Master Trust ("Cook Street"), Diamond LS Trust ("Diamond LS"), and Bank of Utah filed this action against defendant Transamerica Life Insurance Company ("Transamerica") on May 15, 2019. Dkt. 1. On June 10, 2019, Brighton, Cook Street, Diamond LS, Bank of Utah, and additional plaintiffs. Cook Street Master Trust III and Wilmington Trust, National Association, filed a first amended complaint against Transamerica. Dkt. 14 ("FAC"). The FAC asserts claims for: (1) breach of contract; (2) contractual breach of the implied covenant of good faith and fair dealing: (3) tortious breach of the implied covenant of good faith and fair dealing; and (4) declaratory relief. Id.

         Transamerica moved to dismiss the FAC on July 10, 2019. Dkt. 28. On August 28, 2019, the Court granted, in part, and denied, in part, Transamerica's motion to dismiss. Dkt. 37. The Court denied Transamerica's motion to dismiss for lack of personal jurisdiction and for lack of standing. Id. The Court dismissed, without prejudice.

         plaintiffs' express breach of contract claim to the extent that it relied on an allegation that Transamerica breached plaintiffs' policies "by increasing the Monthly Deduction Rates in an attempt to circumvent the guaranteed minimum interest rate." Id. at 16 (internal punctuation omitted) (citing FAC ¶ 76(b)). The Court also dismissed, without prejudice, plaintiffs' claim for tortious breach of the implied covenant. Dkt. 37 at 21-23. The Court first noted that plaintiffs' claims were premised on allegations that "Transamerica's MDR increases deprived policyholders and owners [of] benefits in the form of the Accumulation Value and monthly accrual of guaranteed interest." Id. at 22. The Court concluded that Transamerica's deprivation of these benefits relates to the savings component of Transamerica's universal life insurance policies, rather than the insurance component, and therefore "do[es] not implicate the 'special relationship' between insureds and insurer that animate[s] the narrow exception providing a tort claim in the insurance context." Id. (citing EFG Bank AG. Cayman Branch v. AXA Equitable Life Ins. Co., 309 F.Supp.3d 89, 96 (S.D.N.Y. 2018)). To the extent that plaintiffs' claim for tortious breach of the implied covenant depended on allegations that "Transamerica breached the policies' terms when increasing the MDRs and that Transamerica increased the MDRs to cause policy lapses or surrenders before death benefits became due," the Court distinguished the plaintiffs in this case from the elderly insured plaintiffs to whom the Court extended the tort remedy in another case, Thompson v. Transamerica Life Ins. Co., No. 2:18-cv-05422-CAS-GJS, 2018 WL 6790561, (CD. Cal. Dec. 26, 2018). Dkt. 37 at 23.

         On September 11, 2019, Brighton Trustees, Cook Street Master Trust, Diamond LS Trust, and Bank of Utah (collectively, "plaintiffs") filed the operative second amended complaint against Transamerica.[1] Dkt. 40 ("SAC"). The SAC asserts claims against Transamerica for: (1) breach of contract; (2) contractual breach of the implied covenant of good faith and fair dealing; (3) tortious breach of the implied covenant of good faith and fair dealing; (4) conversion; and (5) declaratory relief. Id.

         Transamerica moved to dismiss the SAC on September 25, 2019. Dkt. 42-1 ("Mot."). Plaintiffs filed an opposition on October 11, 2019. Dkt. 43 ("Opp."). Transamerica filed a reply on October 21, 2019. Dkt. 44 ("Reply").

         The Court held a hearing on November 4, 2019. Having carefully considered the parties' arguments, the Court finds and concludes as follows.

         II. LEGAL STANDARD

         A motion pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the claims asserted in a complaint. Under this Rule, a district court properly dismisses a claim if "there is a 'lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.'" Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011) (quoting Balisteri v. Pacifica Police Dep't., 901 F.2d 696, 699 (9th Cir. 1988)). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the 'grounds' of his 'entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted). "Factual allegations must be enough to raise a right to relief above the speculative level." Id. (internal citations omitted).

         In considering a motion pursuant to Rule 12(b)(6), a court must accept as true all material allegations in the complaint, as well as all reasonable inferences to be drawn from them. Pareto v. FDIC 139 F.3d 696, 699 (9th Cir. 1998). The complaint must be read in the light most favorable to the nonmoving party. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). However, "a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009); see Moss v. United States Secret Service. 572 F.3d 962, 969 (9th Cir. 2009) ("[F]or a complaint to survive a motion to dismiss, the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief"). Ultimately, "[determining whether a complaint states a plausible claim for relief will... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679.

         As a general rule, leave to amend a complaint which has been dismissed should be freely granted. Fed.R.Civ.P. 15(a). However, leave to amend may be denied when "the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency." Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986); see Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000).

         III. DISCUSSION

         A. Breach of Contract Claim

         Plaintiffs allege that Transamerica breached plaintiffs' policies in four material respects. See SAC ¶ 84(a)-(d). Transamerica moves to dismiss, in part, plaintiffs' breach of contract claim to the extent it is premised on plaintiffs' allegation that Transamerica breached plaintiffs' policies "[b]y increasing the Monthly Deduction Rates in an attempt to circumvent the guaranteed minimum interest rate[.]" Mot. at 6; SAC ¶ 84(b).

         The Court previously dismissed plaintiffs' breach of contract claim to the extent that the claim was premised on an identical allegation in the FAC. Dkt. 37 at 16. Here, the SAC alleges that "any change in the Monthly Deduction Rates must be based on changes to Transamerica's expectations as to future cost factors, such as mortality, expenses, interest, persistency, and . . . taxes." SAC ¶ 13 (emphasis added). The two representative policies that plaintiffs attach to the SAC also include language expressly permitting Transamerica to consider "interest" when setting MDRs. See Dkt. 40-2, Exhibit 2 ("Diamond Doe Policy") at 58 ("Any Change in the Monthly Deduction Rates will be prospective and will be subject to our expectations as to future cost factors. Such cost factors may include, but are not limited to: mortality; expenses; interest persistency; and any applicable federal, state and local taxes.") (emphasis added); Dkt 40-4, Exhibit 4 ("Cook Street Doe Policy") at 95 (same). As the Court indicated in its previous order dismissing this claim, the Court has already determined, in other cases involving Transamerica's MDR increases, that this contractual language cannot give rise to a breach of contract claim because the language provides that Transamerica can consider its interest obligations while setting MDRs. See Dkt. 37 at 16-17; Thompson, 2018 WL 6790561, at *8 (finding that plaintiff "has failed to state a claim for liability [for breach of contract] based upon Transamerica's alleged considerations of its interest obligations in setting an MDR."); accord EFG Bank AG, Cayman Branch v. Transamerica Life Ins. Co., No. 2:16-cv-08104-CAS-AJW, 2017 WL 3017596, at *7 (CD. Cal. July 10, 2017); Feller v. Transamerica Life Ins. Co., No. 2:16-cv-01378- CAS-AJW, 2016 WL 6602561, at *10 (CD. Cal. Nov. 8, 2016). At least one other court has reached the same conclusion. LSH CO v. Transamerica Life Ins. Co., No. 2:18-cv-09711-SJO-KS, 2019 WL 3064422, at *8 (CD. Cal. Mar. 20, 2019) (finding that policy owners could not state claim for breach of contract against Transamerica based on Transamerica's alleged consideration of interest in setting MDRs because the policies "are not reasonably susceptible to [the policy owners'] interpretation of the term 'interest'[.]").

         Plaintiffs concede they have not included any additional allegations in the SAC in support of this claim that differ from those in the FAC. See Opp. at 3 n.1 ("Plaintiffs realleged their claim that Transamerica breached the express terms of the Policies by increasing MDRs in an attempt to circumvent the guaranteed minimum interest rate to preserve the claim for appeal."). Accordingly, the Court DISMIS ...


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