Harper Construction Company, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA

[7] 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA [10] 11 HARPER CONSTRUCTION Case No. 18-cv-00471-BAS-NLS COMPANY, INC.; HARPER [12] MECHANICAL CONTRACTORS, LLC, ORDER: [13] Plaintiffs, (1) GRANTING IN PART AND [14] v. DENYING IN PART DEFENDANT’S 15 MOTION FOR JUDGMENT ON THE NATIONAL UNION FIRE INSURANCE PLEADINGS (ECF No. 43); AND 16 COMPANY OF PITTSBURGH, PA, 17 Defendant. (2) GRANTING IN PART AND DENYING IN PART PLAINTIFFS’ [18] MOTION FOR LEAVE TO AMEND 19 (ECF No. 44) [20] AND RELATED COUNTERCLAIM [21] 22 There are two motions presently before the Court—Defendant’s Motion for 23 Judgment on the Pleadings and Plaintiffs’ Motion for Leave to Amend. (Mot. for J. on the 24 Pleadings (“Def.’s Mot.”), ECF No. 43; Mot. for Leave to Amend (“Pls.’ Mot.”), ECF No. 25 44.) The Court finds these motions suitable for determination on the papers submitted and 26 without oral argument. See Fed. R. Civ. P. 78(b); Civ. L.R. 7.1(d). For the following 27 reasons, the Court orders that Defendant’s Motion be GRANTED IN PART AND [28] 1 DENIED IN PART and that Plaintiffs’ Motion be GRANTED IN PART AND DENIED 2 IN PART. 3 I. BACKGROUND 4 The Court has set forth the detailed background of this case in its Order Granting 5 Partial Summary Judgment and will only address those facts that are relevant to the motions 6 presently before the Court. (See Partial Summ. J. Order at 2–7, ECF No. 30.) Plaintiff 7 Harper Construction Company, Inc., and Plaintiff Harper Mechanical Contractors, LLC, 8 (hereafter “Plaintiffs”) constructed a multi-million-dollar training facility for the U.S. 9 Army. Within two years of the project’s completion, the Government discovered defects 10 in the facility, and demanded that Plaintiffs investigate the defects and perform any 11 necessary repairs on the facility. Plaintiffs obliged the Government’s request and incurred 12 approximately $2 million in costs in the process. National Union Fire Insurance Company 13 of Pittsburgh, PA (“Defendant”) issued Harper Construction a commercial general liability 14 policy that also named the other Plaintiff, Harper Mechanical, as an insured. Plaintiffs 15 filed a claim with Defendant on April 2, 2015, and received a denial from it on March 27, 16 2017. 17 Plaintiffs filed suit against Defendant in California state court on January 30, 2018, 18 alleging both contract and fraud claims. (Compl., ECF No. 1-2.) Defendant answered 19 Plaintiffs’ Complaint in state court and subsequently removed the suit to this Court on 20 March 5, 2018. (Pls.’ Opp’n, Ex. 1, ECF No. 45-1; Notice of Removal, ECF No. 1.) On 21 August 27, 2018, Defendant moved for partial summary judgment, asking this Court to 22 grant summary judgment with respect to Plaintiffs’ contract claims. (ECF No. 16-1.) The 23 Court granted summary judgment on Plaintiffs’ claims for breach of contract, breach of the 24 implied covenant of good faith and fair dealing, and declaratory relief on March 28, 2019. 25 (Partial Summ. J. Order at 31.) The parties now bring separate motions for judgment on 26 the pleadings and leave to amend. The Court will consider each of these motions in turn. [28] 1 II. DEFENDANT’S MOTION FOR JUDGMENT ON THE PLEADINGS 2 In its Motion for Judgment on the Pleadings, Defendant asks this Court to dismiss 3 Plaintiffs’ remaining causes of action for intentional misrepresentation, negligent 4 misrepresentation, and promise without intent to perform, as well as Plaintiffs’ claim for 5 punitive damages. (See Def.’s Mot. at 6, 8, 21–22.) Additionally, Defendant seeks 6 judgment on the pleadings for its claims for declaratory relief in its Counterclaim against 7 Plaintiffs. (Id. at 21; see Countercl. ¶¶ 42–44, 45–47, 51–53, ECF No. 4.) Defendant 8 makes two main arguments regarding Plaintiffs’ remaining causes of action. (See Def.’s 9 Mot. at 8–21.) First, Defendant argues that the Court’s order granting its Motion for Partial 10 Summary Judgment means that Plaintiffs’ claims fail as a matter of law. (See id. at 8–17.) 11 Second, Defendant argues that Plaintiffs’ Complaint does not meet the heightened pleading 12 standard required for fraud claims by Federal Rule of Civil Procedure 9(b). (See id. at 17– 13 21.) Similarly, Defendant seeks judgment on the pleadings for the first, second, and fourth 14 causes of action for declaratory relief in its Counterclaim on the grounds that “the Court 15 has already ruled in [Defendant’s] favor on all relevant legal issues in granting the [partial 16 summary judgment motion].” (Id. at 21.) The Court will consider each of these issues in 17 turn. 18 A. Legal Standard 19 Under Federal Rule of Civil Procedure 12(c), “[a]fter the pleadings are closed—but 20 early enough not to delay trial—a party may move for judgment on the pleadings.” 21 “Judgment on the pleadings is properly granted when, accepting all factual allegations in 22 the complaint as true, there is no issue of material fact in dispute, and the moving party is 23 entitled to judgment as a matter of law.” Chavez v. United States, 683 F.3d 1102 , 1108 24 (9th Cir. 2012) (internal quotation marks and brackets omitted) (quoting Fleming v. 25 Pickard, 581 F.3d 922, 925 (9th Cir. 2009). “When a party invokes Rule 12(c) to raise the 26 defense of failure to state a claim, the motion faces the same test as a motion under Rule 27 12(b)(6).” Landmark Am. Ins. Co. v. Navigators Ins. Co., 354 F. Supp. 3d 1078 , 1081 28 (N.D. Cal. 2018). 1 A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency” of the claims 2 asserted in the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). The court 3 must accept all factual allegations pleaded in the complaint as true and must construe them 4 and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. 5 Liberty Mut. Ins. Co., 80 F.3d 336 , 337–38 (9th Cir. 1996) (citing Nat’l Wildlife Fed’n v. 6 Espy, 45 F.3d 1337 , 1340 (9th Cir. 1995)). To avoid a Rule 12(b)(6) dismissal, a complaint 7 need not contain detailed factual allegations; rather, it must plead “enough facts to state a 8 claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544 , 570 9 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows 10 the court to draw the reasonable inference that the defendant is liable for the misconduct 11 alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556 ). 12 B. Applicability of Previous Order 13 Defendant’s primary argument supporting its Motion for Judgment on the Pleadings 14 is that the Court’s Order Granting Partial Summary Judgment necessarily means that 15 Plaintiffs’ remaining claims fail as a matter of law. (See Def.’s Mot. at 8–17.) The essence 16 of Defendant’s argument is that all of Plaintiffs’ claims contain a requirement of 17 “justifiable reliance” and that this Court’s Order “finds that Harper did not reasonably rely 18 on National Union’s conduct in expecting coverage.” (Id. at 8; see id. at 9.) In Defendant’s 19 view, “the Court’s determination therefore similarly applies to the elements of the 20 remaining causes of action requiring reasonable reliance on misrepresentation.” (Id.) In 21 effect, Defendant asks the Court to apply its previous Order to Plaintiffs’ Complaint and 22 rely on it in dismissing all remaining claims. (See id. at 8–17.) 23 However, Defendant moved for judgment on the pleadings—not summary 24 judgment. Federal Rule of Civil Procedure 12(d) states that “[i]f, on a motion under Rule 25 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the 26 court, the motion must be treated as for summary judgment under Rule 56.” The Ninth 27 Circuit has reiterated that “[j]udgment on the pleadings is limited to material included in 28 the pleadings” and that the decision whether to convert a motion for judgment on the 1 pleadings into one for summary judgment lies within the court’s discretion. Yakima Valley 2 Mem’l Hosp. v. Wash. State Dep’t of Health, 654 F.3d 919 , 925 n.6 (9th Cir. 2011) 3 (citations omitted). Further, as the Court has already noted, the judgment on the pleadings 4 standard requires the Court to “accept[] all factual allegations in the complaint as true” and 5 “construe[] [them] in the light most favorable to the nonmoving party.” Chavez, 683 F.3d 6 at 1108 (internal quotation marks and brackets omitted); Cahill, 80 F. 3d at 338 (citing 7 Nat’l Wildlife Fed’n v. Espy, 45 F.3d 1337 , 1340 (9th Cir. 1995)). 8 In addition, Plaintiffs’ fraud claims were not before the Court when it considered 9 Defendant’s Motion for Partial Summary Judgment. (See Def.’s Mot. for Partial Summ. 10 J., ECF No. 16; Partial Summ. J. Order.) Rather, that motion centered on Plaintiffs’ 11 contract claims. (See id.) Though Defendant argues that the Court’s conclusions regarding 12 Plaintiffs’ contract claims apply to Plaintiffs’ tort claims, the Court did not make any such 13 determination in its previous order.1 (Def.’s Mot. at 8–17; see Def.’s Mot. for Partial 14 Summ. J.; Partial Summ. J. Order.) 15 As a result, the Court cannot consider its Order Granting Partial Summary 16 Judgment—or the evidence that supported this Order—without converting Defendant’s 17 Motion to a motion for summary judgment. In its Reply, Defendant requests that its Motion 18 be converted if the Court feels it is necessary. (See Def.’s Reply at 6 n.1.) While there is 19 little doubt that a motion for summary judgment is the more appropriate procedure for 20 addressing these issues, since the decision whether to convert the Motion is discretionary, 21 the Court declines Defendant’s invitation. See Yakima, 654 F.3d at 925 n.6; Fed. R. Civ. 22 P. 12 (d). The parties agreed to stay discovery while Defendant moved for partial summary [24] 1 Additionally, Defendant argues that the Court should apply its previous order to this motion 25 under the law of the case doctrine. (See Def.’s Reply at 4–5.) However, “[l]aw of the case does not reach a matter that was not decided.” 18B Wright & Miller, Fed. Prac. & Proc. § 4478 (2d ed. 2019); see also 26 Quern v. Jordan, 440 U.S. 332 , 347 n.18 (1979) (“The doctrine of law of the case comes into play only with respect to issues previously determined.”). Here, the Court’s order addressed Plaintiffs’ contract 27 claims, not their tort claims. (See Partial Summ. J. Order.) As a result, the law of the case doctrine does not cover Plaintiffs’ tort claims because they were not “previously determined.” See Quern, 440 U.S. at 28 1 judgment. (Pls.’ Mot. at 3 (citing Pls.’ Mot., Ex. 1 ¶ 10).) As such, Plaintiffs have not had 2 the benefit of conducting any discovery on the merits of their fraud claims and did not have 3 fair notice that Defendant would move against these claims before the start of discovery. 4 Therefore, the Court will consider Defendant’s Motion strictly within the confines of the 5 judgment on the pleadings standard, though the Court notes that Defendant is not 6 foreclosed from raising these arguments on a motion for summary judgment. Accordingly, 7 the Court rejects Defendant’s argument that Plaintiffs’ remaining claims fail because 8 Plaintiff cannot demonstrate justifiable reliance or that Defendant made false 9 representations in light of the Court’s prior order. 10 C. Rule 9(b) 11 In the alternative, Defendant argues that Plaintiffs’ claims for intentional 12 misrepresentation, negligent misrepresentation, and promise without intent to perform fail 13 to meet the heightened pleading standard required by Federal Rule of Civil Procedure 9(b) 14 and should therefore be dismissed.2 (Def.’s Mot. at 17.) Rule 9(b) states: “In alleging 15 fraud or mistake, a party must state with particularity the circumstances constituting fraud 16 or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be 17 alleged generally.” Fed. R. Civ. P. 9(b). Rule 9(b)’s heightened “particularity” standard 18 applies whenever fraud is alleged. See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097 , 19 1103–05 (9th Cir. 2003). However, if a plaintiff alleges “some fraudulent and some non20 fraudulent conduct,” then “only the allegations of fraud are subject to Rule 9(b)’s 21 heightened pleading requirements.” Id. at 1104 . The Ninth Circuit has noted that Rule 22 9(b) has three primary purposes. See Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th [23] 2 Plaintiffs argue that Defendant has waived its right to challenge Plaintiffs’ Complaint under Rule [24] 9(b) because Defendant “answered [Plaintiffs’] Complaint without ever raising this Rule 9(b) issue.” 25 (Pls.’ Opp’n. at 9.) Plaintiffs support this argument by citing to various district court decisions. (See id.) Defendant counters by arguing that it answered in state court rather than federal court and that the cases 26 cited by Plaintiffs are inapposite “because they discuss raising a Rule 9(b) defense in a motion for summary judgment, not a motion for judgment on the pleadings.” (Def.’s Reply at 6 (footnote omitted).) 27 While the Court cautiously views the notion that a pleading standard like the one espoused in Rule 9(b) can be waived, it need not decide that issue in this case because the Court concludes Plaintiffs’ allegations [28] 1 Cir. 2009). First, Rule 9(b) seeks to ensure that defendants have sufficient notice of what 2 they must defend against. See id.; Vess, 317 F.3d at 1106 (citations omitted). Second, Rule 3 9(b) aims to protect defendants from unnecessary reputational harm that may result from 4 fraud allegations. See Kearns, 567 F.3d at 1125 . Third, it is designed to prevent the 5 unilateral imposition of “enormous social and economic costs absent some factual basis.” [6] Id. (quoting In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1405 (9th Cir. 1996)). 7 “To properly plead fraud with particularity under Rule 9(b), ‘a pleading must 8 identify the who, what, when, where, and how of the misconduct charged, as well as what 9 is false or misleading about the purportedly fraudulent statement, and why it is false.’” 10 Davidson v. Kimberly-Clark Corp., 873 F.3d 1103, 1110 (9th Cir. 2017) (quoting Cafasso 11 v. Gen. Dynamics C4 Sys., 637 F.3d 1047, 1055 (9th Cir. 2011)).3 12 1. Intentional Misrepresentation and Promise Without Intent to 13 Perform 14 Defendant argues that the Complaint’s “allegations do not provide the requisite 15 details regarding the specific content of the misrepresentations in the correspondence 16 between Harper and National Union. Harper also fails to specifically allege the time these 17 alleged misrepresentations were made.” (Def.’s Mot. at 20.) Plaintiffs contest these 18 arguments. (See Pls.’ Opp’n at 9–11, ECF No. 45.) They argue that their allegations are 19 “more than adequate to put [Defendant] on notice of” their claims. (Id. at 10.) Further, [21] 3 Defendant argues that there are additional pleading requirements for a “corporate defendant” 22 and cites to authority from the Central District of California as support. (Def.’s Mot. at 18 (citing UMG Recordings, Inc. v. Global Eagle Entm’t, Inc., 117 F. Supp. 3d 1092, 1107 (C.D. Cal. 2015)).) The Court 23 notes that UMG Recordings cited to a case from the Northern District of California, which in turn cited to a California Court of Appeal case. See Flowers v. Wells Fargo Bank, N.A., No. C 11-1315 PJH, 2011 WL 24 2748650, at *6 (N.D. Cal. July 13, 2011); Tarmann v. State Farm Mut. Auto. Ins., 2 Cal. App. 4th 153 , 25 157 (1991). The relevant state court decision specifies additional requirements for pleading fraud against a corporation under California law. Tarmann, 2 Cal. App. 4th at 157 (collecting cases). However, the 26 Ninth Circuit has held “that Rule 9(b)’s particularity requirement applies to state-law causes of action,” and that “the Rule 9(b) requirement that the circumstances of the fraud must be stated with particularity 27 is a federally imposed rule.” Vess, 317 F.3d at 1103 (quoting Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985)). As a result, the Court does not consider California’s specificity requirements in determining [28] 1 Plaintiffs contend that Defendant’s appraisal of the claims can be inferred “because 2 [Defendant] filed an answer and moved for summary judgment on [Plaintiffs’] cause of 3 action for declaratory relief which was based on the same or similar allegations.” (Id.) 4 The Court finds that Plaintiffs have met Rule 9(b)’s pleading requirements for the 5 following reasons. In asserting their claim for intentional misrepresentation, Plaintiffs use 6 ten paragraphs to detail their allegations. (See Compl. ¶¶ 46, 47(a)–(c), 48–52.) In these 7 allegations Plaintiffs meet the “who, what, when, where, and how” requirements of Rule 8 9(b). (See id.) See Davidson, 873 F.3d at 1110 (citations omitted); Kearns, 567 F.3d at 9 1124 (quoting Vess, 317 F.3d at 1106 ). For example, Plaintiffs identify “the who”— 10 “Defendant and its employee, Patrick Espey”—several times in their allegations. (See 11 Compl. ¶¶ 47, 47(a), 47(b), 47(c).) Plaintiffs also identify the “what” by asserting that 12 Defendant “misrepresented the coverage afforded under the policy,” that Defendant “knew 13 that the representations were false at the time they were made,” and that “Defendant 14 promised to pay sums which Plaintiffs became legally obligated to pay as damages . . . and 15 further promised to defend Plaintiffs in any claim or suit against them on account of such 16 property damage, bodily injury, or personal injury.” (Id. ¶ 47(a).) Further, Plaintiffs allege 17 “Defendant knew that Plaintiffs had purchased the Policy . . . for the purpose of coverage 18 for losses such as the U.S. Government’s Demand” and that “Defendant misrepresented 19 the scope of coverage at the time that Plaintiffs purchased the Policy.” (Id.) Additionally, 20 Plaintiffs allege that “Defendant . . . misrepresented that [it] was conducting a thorough, 21 fair, and unbiased investigation” into Plaintiffs’ insurance coverage “for over two-and-a22 half years.” (Id. ¶ 47(b).) Plaintiffs also contend that these misrepresentations respectively 23 occurred either “at the time” of purchase of the Policy, (id. ¶ 47(a)), or “during the time 24 between Plaintiffs’ tender of the Demand and the March 27, 2017 disclaimer of coverage,” 25 (id. ¶ 47(c)). These allegations support the “when” requirement. 26 Finally, Plaintiffs assert that “[t]he misrepresentations are verbal, written, and/or 27 implied by conduct of Defendant and its employee, Patrick Espey,” that “Patrick Espey 28 requested updates on the amount of the costs Plaintiff Harper Construction incurred,” and 1 that “Patrick Espey also advised Jeffrey Harper at Harper Construction that he was working 2 on obtaining policy benefits.” (Compl. ¶ 47(a), (c).) These allegations satisfy the “where” 3 and “how” requirements. The Court also finds that the three purposes of Rule 9(b) as stated 4 by the Ninth Circuit in Kearns v. Ford Motor Co. would not be undermined by a finding 5 that Plaintiffs have “state[d] with particularity the circumstances constituting fraud or 6 mistake.” See 567 F.3d at 1125 ; Fed. R. Civ. P. 9(b). 7 With respect to Plaintiffs’ claim for promise without intent to perform, Plaintiffs rely 8 on many of the same allegations they expressed in their claim for intentional 9 misrepresentation. (Compare Compl. ¶ 47(c), with id. ¶ 61.) For example, Plaintiffs’ 10 assertion of the “who . . . when, where, and how” of the alleged misrepresentation is largely 11 identical between the two claims. (See id.) The only substantive difference between 12 Plaintiffs’ respective pleading of these requirements is that Plaintiffs supplement the 13 “when” by stating “[a]t the time Plaintiffs purchased the Policy or Policies, Plaintiffs were 14 unaware of Defendant’s intention not to perform.” (Id. ¶ 60.) Thus, the Court’s 15 determination regarding Plaintiffs’ pleading of these requirements in their claim for 16 intentional misrepresentation applies with equal force to Plaintiffs’ claim for promise 17 without intent to perform. 18 With respect to the remaining requirement, the “what,” Plaintiffs allege: “Defendant 19 issued the Policy or Policies without intending to perform obligations due under the Policy 20 or Policies. Defendant’s intent not to perform at the time the Policy or Policies were issued 21 is inferable from the manner in which Defendant and its employee, Patrick Espey, handled 22 Plaintiffs’ claim.” (Compl. ¶ 60.) In their Opposition, Plaintiffs emphasize Rule 9(b)’s 23 statement that “[m]alice, intent, knowledge, and other conditions of a person’s mind may 24 be alleged generally” and provide precedent from the Fourth Circuit as support. (See Pls.’ 25 Opp’n at 9, 10 (citing Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 , 780 26 (4th Cir. 1999).) However, the Ninth Circuit has “held that the plausibility analysis of 27 Twombly and Iqbal applies equally to Rule 9 as it does to Rule 8.” Eclectic Props. E., LLC 28 v. Marcus & Millichap Co., 751 F.3d 990 , 995 n.5 (9th Cir. 2014) (quoting Cafasso, at 1 1055). As a result, “although the language of Rule 9 poses no barrier in itself to general 2 pleading of fraudulent intent, Twombly and Iqbal’s pleading standards must still be applied 3 to test complaints that contain claims of fraud.” Id. Thus, the relevant question is whether 4 Plaintiffs’ allegations “plausibly give rise to an entitlement to relief.” See Ashcroft, 556 5 U.S. at 679; see also Twombly, 550 U.S. at 555 (stating that pleadings “require[] more than 6 labels and conclusions, and a formulaic recitation of the elements of a cause of action will 7 not do” (citing Papasan v. Allain, 478 U.S. 265, 286 (1986))). The Court also notes the 8 Ninth Circuit’s requirement that when a plaintiff and defendant both set forth plausible 9 explanations, “[p]laintiff’s complaint may be dismissed only when defendant’s plausible 10 alternative explanation is so convincing that plaintiff’s explanation is implausible.” Starr 11 v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). After considering the foregoing principles 12 and evaluating Plaintiffs’ pleading, the Court concludes that Plaintiffs’ assertions in 13 Paragraph 60 of their Complaint plausibly allege the “what” requirement and meet the 14 requirements of Rule 9(b) and Twombly and Iqbal. (See Compl. ¶ 60.) See Davidson, 873 15 F.3d at 1110; Fed R. Civ. P. 9(b); see also Twombly 544 U.S. at 555–56; Iqbal, 556 U.S. 16 at 679 . Accordingly, Defendant’s Motion for Judgment on the Pleadings with respect to 17 Plaintiffs’ claims for intentional misrepresentation and promise without intent to perform 18 is DENIED. 19 2. Negligent Misrepresentation 20 In addition to their claims for intentional misrepresentation and promise without 21 intent to perform, Plaintiffs allege negligent misrepresentation in their Complaint. (Compl. 22 ¶¶ 53–58.) Defendant argues that Rule 9(b)’s “particularity” standard applies to claims of 23 negligent misrepresentation. (Def.’s Mot. at 18–19.) Defendant supplies several district 24 court cases to support this argument and states that the Ninth Circuit has not addressed the 25 applicability of Rule 9(b) to this type of claim.4 (See id.) [26] 27 4 While the Court is unaware of a published Ninth Circuit opinion addressing this issue, it does note a relevant unpublished decision, Puri v. Khalsa, 674 F. App’x 679 (9th Cir. 2017). In Puri, the Ninth [28] 1 Plaintiffs disagree, countering that “the Ninth Circuit reversed the dismissal of a 2 claim for failure to satisfy Rule 9(b) because it was error to apply a heightened pleading 3 standard to allegations that the defendant ‘“negligently” failed to disclose’ information.” 4 (Pls.’ Opp’n at 12 (quoting Vess, 317 F.3d at 1106 ).) In Vess, the Ninth Circuit “reverse[d] 5 the district court’s dismissal of the entirety of Vess’s complaint” under Rule 9(b) because 6 “many of Vess’s allegations describe[d] non-fraudulent conduct.” 317 F.3d 1106 . 7 However, the Court need not determine whether the Vess court held that Rule 9(b) is 8 inapplicable to claims of negligent misrepresentation because the Court finds that 9 Plaintiffs’ pleading of negligent misrepresentation meets Rule 9(b)’s requirements. 10 Recall that under Rule 9(b) “a pleading must identify the who, what, when, where, 11 and how of the misconduct charged.” Davidson, 873 F.3d at 1110 (quoting Cafasso, 637 12 F.3d at 1055). As was the case with Plaintiffs’ claim of promise without intent to perform, 13 Plaintiffs’ allegations of the “who . . . when, where, and how of the misconduct charged” 14 for their negligent misrepresentation claim are identical to Plaintiffs’ allegations for their 15 intentional misrepresentation claim. See id. (Compare Compl. ¶¶ 47(a)–(c), 48, with id. 16 ¶¶ 54(a)–(c), 55.) Since the Court found these allegations were satisfactory for Plaintiffs’ 17 other claims, that conclusion applies here as well. See supra Section II.C.1. That leaves 18 the “what” as the only particularity requirement for the Court to consider here. The 19 Complaint states that: [20] Plaintiffs are informed and believe and thereon allege that Defendant and its 21 employee, Patrick Espey, made representations regarding the coverage 22 afforded under the Policy or Policies, as well as the terms and conditions therein, without reasonable grounds for believing them to be true. The 23 misrepresentations are verbal, written, and/or implied by the conduct of 24 Defendant and its employee, Patrick Espey. 25 (Compl. ¶ 54.) Additionally, Plaintiffs allege that: [26] Defendant misrepresented the scope of coverage at the time that Plaintiffs 27 purchased the Policy or Policies. Defendant knew that Plaintiffs purchased the Policy or Policies for the purpose of coverage for losses such as the U.S. [28] 1 the benefits under the Policy or Policies would be paid and sold Plaintiffs the Policy or Policies anyway for a substantial premium(s). [2] 3 (Id. ¶ 54(b).) These allegations are “specific enough to give defendants notice of the 4 particular misconduct which is alleged to constitute the fraud charged so that they can 5 defend against the charge and not just deny that they have done anything wrong.” See Bly6 Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001) (quoting Neubronner v. Milken, [7] 6 F.3d 666, 672 (9th Cir. 1993)). Accordingly, Defendant’s Motion for Judgment on the 8 Pleadings with respect to Plaintiffs’ negligent misrepresentation claim is DENIED. 9 D. Defendant’s Counterclaim 10 Defendant also moves for judgment on the pleadings for three of the causes of action 11 for declaratory relief it raised in its Counterclaim.5 (Def.’s Mot. at 21.) Plaintiffs appear 12 to have neglected to respond to Defendant’s Motion. (See Pls.’ Opp’n.) Under the Ninth 13 Circuit’s standard, “a plaintiff is not entitled to judgment on the pleadings when the answer 14 raises issues of fact that, if proved, would defeat recovery. Similarly, if the defendant raises 15 an affirmative defense in his answer it will usually bar judgment on the pleadings.” Gen. 16 Conference Corp. of Seventh-Day Adventists v. Seventh Day Adventist Congregational 17 Church, 887 F.2d 228, 230 (9th Cir. 1989) (citation omitted). Here, Plaintiffs’ Answer 18 raises forty affirmative defenses, including failure to state a claim and statute of limitations. 19 (See Pls.’ Answer at 14–23, ECF No. 11.) As a result, it would be inappropriate for the 20 Court to grant Defendant’s motion. See Gen. Conference of Seventh-Day Adventists, 887 21 F.2d at 230; see also Pit River Tribe v. BLM, 793 F.3d 1147, 1159 (9th Cir. 2015). 22 Accordingly, Defendant’s Motion for Judgment on the Pleadings for its Counterclaim is 23 DENIED. [25] 5 Defendant once again relies on the Court’s Order Granting Partial Summary Judgment as the 26 main support for its argument that it is entitled to judgment on the pleadings for its Counterclaim. (See Def.’s Mot. at 21.) The Court has already determined that it will not consider the Order and its underlying 27 evidence on a motion for judgment on the pleadings and declined the opportunity to convert this motion into one for summary judgment. See supra Section II.B. The Court again declines to consider the Order [28] 1 E. Punitive Damages 2 Finally, Defendant challenges the sufficiency of Plaintiffs’ pleading of punitive 3 damages. (Def.’s Mot. at 21.) Defendant argues that Plaintiffs only plead “conclusory 4 allegations without any facts to support [their] assertion.” (Id. at 22.) When a defendant 5 seeks the dismissal of a prayer for relief, a motion under Federal Rule of Civil Procedure 6 12(f) is ordinarily the appropriate procedural tool. See Mat-Van, Inc. v. Sheldon Good & 7 Co. Auctions, LLC, No. 07-cv-912-IEG (BLM), 2007 WL 2206946 , at *7 (S.D. Cal. July 8 27, 2007). However, when a defendant challenges the sufficiency of the underlying 9 allegations that support punitive damages, Rule 12(b)(6) is the correct procedural tool. Id. 10 at *7 n.11 (citing Parker v. Fid. Sec. Ins. Co., No. CIV F 06-654 AWI DLB, 2006 WL 11 2190956, at *5–6 (E.D. Cal. Aug 1, 2006)). 12 Plaintiffs respond that they have alleged sufficient facts to support their claims for 13 fraud and that therefore their assertion of punitive damages is also sufficient. (Pls.’ Opp’n 14 at 12.) In their Complaint, Plaintiffs seek punitive damages under California Civil Code 15 Section 3294. (Compl. ¶¶ 52, 65.) Section 3294 provides that a plaintiff may recover 16 punitive damages “where it is proven by clear and convincing evidence that the defendant 17 has been guilty of oppression, fraud, or malice.” Cal. Civ. Code § 3294 (a). However, this 18 is not the only requirement under California law that must be met to qualify for punitive 19 damages here. See, e.g., id. § 3294(b). A request for punitive damages against a 20 corporation must include allegations relating to the corporation’s officers, directors, or 21 managing agents. See id. Further, “a company simply cannot commit willful and malicious 22 conduct–only an individual can.” Taiwan Semiconductor Mfg. Co. v. Tela Innovations, 23 Inc., No. 14-cv-00362-BLF, 2014 WL 3705350 , at *6 (N.D. Cal. July 24, 2014). To this 24 effect, the California Court of Appeal has held that “the oppression, fraud, or malice must 25 be perpetrated, authorized, or knowingly ratified by an officer, director, or managing agent 26 of the corporation.” Wilson v. S. Cal. Edison Co., 234 Cal. App. 4th 123, 164 (2015) (citing [27] Cal. Civ. Code § 3294 (b)). [28] 1 Plaintiffs seek punitive damages for two of their remaining claims––intentional 2 misrepresentation and promise without intent to perform––and set forth the same set of 3 allegations for both claims. (Compl. ¶¶ 52, 65.) Those allegations state the following: [4] Plaintiffs are informed and believe and thereon allege that the conduct of 5 Defendant was done with a conscious disregard of Plaintiffs’ rights and with 6 the intent to vex, injure, or annoy Plaintiffs so as to constitute oppression, fraud, malice and despicable conduct under California Civil Code §3294, 7 entitling Plaintiffs to punitive damages in an amount appropriate to set an 8 example of Defendant. 9 (Id. ¶¶ 52, 65.) Clearly, Plaintiffs have not made any allegations describing or relating to 10 the conduct of “an officer, director, or managing agent of” Defendant. See Cal. Civ. Code 11 § 3294(b). As such Plaintiffs have failed to plead information necessary to sustain a claim 12 for punitive damages. See Taiwan Semiconductor Mfg. Co., 2014 WL 3705350 , at *6 13 (“Plaintiff’s failure, then, to include the names or titles of any individual actor is a fatal 14 defect in its pleading of ‘willful and malicious’ conduct.” (citing Xerox Corp. v. Far W. 15 Graphics, Inc., No. C-03-4059-JFPVT, 2004 WL 2271587 , at *2 (N.D. Cal. Oct. 6, 16 2004))). Finally, “[c]ourts have discretion to grant leave to amend in conjunction with 17 12(c) motions, and may dismiss causes of action rather than grant judgment.” Carmen v. 18 San Francisco Unified Sch. Dist., 982 F. Supp. 1396, 1401 (N.D. Cal. 1997) (quoting 19 Moran v. Peralta Cmty. Coll. Dist., 824 F. Supp. 891, 893 (N.D. Cal. 1993)). Because it 20 is possible that Plaintiffs may be able to allege facts to support punitive damages, and 21 Plaintiffs have not previously amended their pleading, the Court grants Plaintiffs leave to 22 amend this claim. 23 Accordingly, Defendant’s Motion for Judgment on the Pleadings with respect to 24 Plaintiffs’ claim for punitive damages is GRANTED. However, the Court also grants 25 Plaintiffs LEAVE TO AMEND their assertion of punitive damages. 26 III. PLAINTIFFS’ MOTION FOR LEAVE TO AMEND 27 Plaintiffs seek leave to add a reformation claim to their Complaint. (Pls.’ Mot. at 1, 28 4–6, ECF No. 44; Pls.’ Proposed First Am. Compl. (“FAC”) at 19, 20–21, ECF No. 44– 1 2.) Defendant opposes Plaintiffs’ Motion on two relevant grounds. (See Def.’s Opp’n, 2 ECF No. 46.) First, Defendant claims that Plaintiffs’ reformation claim is barred by the 3 applicable statute of limitations. (Id. at 6–10.) Second, Defendant argues that Plaintiffs’ 4 Motion is futile in that their proposed amended complaint fails to state a claim. (Id. at 10– 5 16.) 6 A. Legal Standard 7 Under Federal Rule of Civil Procedure 15(a)(1), a plaintiff may amend its complaint 8 once as a matter of course within specified time limits. “In all other cases, a party may 9 amend its pleading only with the opposing party’s written consent or the court’s leave. The 10 court should freely give leave when justice so requires.” Id. 15(a)(2). 11 Nevertheless, “[i]n deciding whether justice requires granting leave to amend, 12 factors to be considered include the presence or absence of undue delay, bad faith, dilatory 13 motive, repeated failure to cure deficiencies by previous amendments, undue prejudice to 14 the opposing party and futility of the proposed amendment.” Moore v. Kayport Package 15 Express, 885 F.2d 531 , 538 (9th Cir. 1989) (citing Foman v. Davis, 371 U.S. 178 , 182 16 (1962)). Further, the court has discretion when considering the aforementioned factors. 17 See Nat’l Council of La Raza v. Cegavske, 800 F.3d 1032, 1045 (9th Cir. 2015). “Futility 18 of amendment can, by itself, justify the denial of a motion for leave to amend.” Bonin v. 19 Calderon, 59 F.3d 815, 845 (9th Cir. 1995). Finally, “[l]eave to amend need not be given 20 if a complaint, as amended, is subject to dismissal.” Moore, 885 F.2d at 538 (citing Pan21 Islamic Trade Corp. v. Exxon Corp., 632 F.2d 539, 545 (5th Cir. 1980)). 22 B. Futility 23 Defendant challenges Plaintiffs’ Motion on the grounds that their proposed 24 amendment is time-barred and futile. (See Def.’s Opp’n at 6–18.) Because Defendant does 25 not address the other factors under Rule 15, the Court will only consider Plaintiffs’ Motion 26 in light of Defendant’s challenges. Defendant’s arguments are appropriately considered 27 together under the futility factor. See Moore, 885 F.2d at 538; Wheeler v. City of Santa 28 Clara, 894 F.3d 1046 , 1059–60 (finding that denial of leave to amend when a claim was 1 time-barred was appropriate because “amending the complaint would have been futile”). 2 (See Def.’s Opp’n at 6–16.) The Court will consider each argument in turn. 3 1. Statute of Limitations 4 California law provides for a three-year statute of limitations in claims for fraud or 5 mistake. See Cal. Civ. Proc. Code § 338 (d). Further, the same section of the Code of Civil 6 Procedure specifies that “[t]he cause of action in that case is not deemed to have accrued 7 until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.” [8] Id. Both parties agree that this is the applicable statute of limitations; however, the parties 9 disagree as to when the claim accrued. (See Def.’s Opp’n; Pls.’ Reply.) Defendant argues 10 that Plaintiffs “should have discovered the underlying facts giving rise to [their] claim 11 during the effective dates of the policy in 2008” and that Plaintiffs’ claim is time-barred as 12 a result. (Def.’s Opp’n at 8.) In response, Plaintiffs contend that “the claim for reformation 13 did not accrue until [Plaintiffs] had some reason to believe that mistake or fraud occurred, 14 i.e. when [Defendant] denied the claim.” (Pls.’ Reply at 4.) Under this theory, Plaintiffs’ 15 claim would have accrued in 2017, making it timely. (See id. at 1.) See Cal. Civ. Proc. 16 Code § 338(d). 17 The California Court of Appeal has provided several on-point precedents that 18 address the issue of accrual. For example, in North Star Reinsurance Corp. v. Superior 19 Court, the Court of Appeal discussed accrual in the context of a reformation claim 20 grounded in mistake. See 10 Cal. App. 4th 1815, 1817 (1992). In that case, the Court of 21 Appeal found that the plaintiff’s reformation claim accrued on the date that it received a 22 letter from the insurance company that notified the plaintiff of the insurance company’s 23 reservation of rights with respect to the plaintiff’s claim and set forth the relevant policy 24 language containing the disputed exclusions. See id. at 1822–23; see also Butcher v. Truck 25 Ins. Exch., 77 Cal. App. 4th 1442, 1470 (2000) (indicating that the plaintiffs had no reason 26 to investigate their insurance policy until they needed it); Sully-Jones Contractors, Inc. v. 27 Am. Safety Indem. Co., No. 08-CV-1976 BEN (AJB), 2010 WL 1839116 , at *7 (S.D. Cal. 28 May 6, 2010) (noting that “the earliest that Plaintiff may had reason to investigate coverage 1 under the policies [was] when it repaired the alleged defects,” but declining to grant 2 summary judgment on the statute of limitations issue). 3 Although Plaintiffs do not include any dates in their proposed cause of action for 4 reformation, they do incorporate all of their previous allegations into their claim. 5 (Proposed FAC ¶ 66.) After reviewing Plaintiffs’ Complaint, the Court notes that 6 Plaintiffs’ factual allegations in Paragraph 23 are relevant to the statute of limitations issue. 7 (See id. ¶ 23.) In Paragraph 23, Plaintiffs allege that “[w]ith Defendant’s knowledge and 8 consent, Plaintiffs continued to investigate the Demand and performed repairs to property 9 damage to the Project.” (Id.) Further, Plaintiffs assert that “[o]n or about March 27, 2017, 10 Defendant National Union provided Plaintiffs with its first and only coverage position, 11 which disclaimed coverage under a ‘Reservation of Rights.’” (Id.) The latter allegation is 12 analogous to the set of circumstances in North Star, and in that case the California Court 13 of Appeal found that the cause of action accrued when the plaintiff received a letter from 14 the insurance company disclaiming coverage. See 10 Cal. App. 4th at 1822–23. As a 15 result, Plaintiffs’ allegations in Paragraph 23 function as an assertion that Plaintiffs’ cause 16 of action accrued “[o]n or about March 27, 2017.” See id. (See Proposed FAC ¶ 23.) 17 Further, since a challenged motion for leave to amend operates like a motion to dismiss, 18 the Court accepts all factual allegations in the proposed amended complaint as true and 19 construes them in the light most favorable to Plaintiffs for the purposes of their Motion. 20 See Cahill, 80 F.3d at 337–38; see also Marucci Sports, LLC v. Nat’l Collegiate Athletic 21 Ass’n, 751 F.3d 368, 379 (5th Cir. 2014) (“An amendment is futile if it would fail to survive 22 a Rule 12(b)(6) motion.”); Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 , 1051– 23 52 (9th Cir. 2003) (noting that there is a presumption in favor of granting leave to amend 24 absent an obvious impediment to the viability of the amended pleading). Therefore, the 25 Court finds that Defendant’s statute of limitations argument does not bar Plaintiffs’ 26 reformation claim with respect to this Motion for Leave to Amend. [28] 1 2. Failure to State a Claim 2 Defendant also challenges Plaintiffs’ Motion for Leave to Amend on the grounds 3 that Plaintiffs’ proposed amendment fails to state a claim. (See Def.’s Opp’n at 10–16.) 4 Specifically, Defendant alleges that Plaintiffs have set forth insufficient facts to state a 5 claim for reformation based on fraud, mutual mistake, or unilateral mistake. (See id.) As 6 part of this argument, Defendant contends that Plaintiffs’ pleading of reformation should 7 be subject to the heightened standards of Rule 9(b). (See id. at 11.) The Court agrees. 8 Rule 9(b) applies to allegations regarding “fraud or mistake.” Fed. R. Civ. P. 9(b); see also 9 James River Ins. Co. v. Andrade & Assocs., No. SACV 10-00318 DOC (ANx), 2010 WL 10 11595834, at *5–6 (C.D. Cal. Oct. 26, 2010) (applying Rule 9(b) to reformation claim 11 involving unilateral mistake). 12 Beginning with Plaintiffs’ claim for reformation based on fraud, they allege the 13 following: 14 The above-described failure of the Policy or Policies to reflect the true intent of the parties resulted from Defendant’s false representation to Plaintiffs [15] and/or Plaintiffs’ insurance broker that the Policy embodied their intent. 16 Defendant knew that Plaintiffs purchased the Policy or Policies for the purpose of coverage for claims such as the U.S. Government’s Demand. [17] Defendant misrepresented the scope of coverage at the time that Plaintiffs 18 purchased the Policy or Policies. 19 (Proposed FAC ¶ 70.) Plaintiffs also incorporate their previous allegations, including those 20 for fraud, into the claim for reformation. (See id. ¶ 66.) As previously noted, in order “[t]o 21 properly plead fraud with particularity under Rule 9(b), ‘a pleading must identify the who, 22 what, when, where, and how of the misconduct charged, as well as what is false or 23 misleading about the purportedly fraudulent statement, and why it is false.’” Davidson, [24] 873 F.3d at 1110 (quoting Cafasso, 637 F.3d at 1055 ). Recalling the Court’s determination 25 that Plaintiffs’ allegations of fraud satisfied Rule 9(b) in Section II.C.1 of this order, the 26 Court finds that the underlying allegations incorporated into Plaintiffs’ claim for 27 reformation are sufficiently pleaded with particularity. Given this determination, the Court 28 concludes that all of the factors laid out by the Ninth Circuit in Davidson except the “what” 1 have been satisfied by the incorporated allegations. See 873 F.3d at 1110 . Further, the 2 Court finds that by specifically alleging that Defendant was aware of Plaintiffs’ intentions 3 in obtaining the coverage, and that “Defendant misrepresented the scope of coverage,” 4 Plaintiffs’ allegations in Paragraph 70 meet the remaining “what” requirement to comply 5 with Rule 9(b). (Proposed FAC ¶ 70.) Accordingly, Plaintiffs’ Motion for Leave to Amend 6 with respect to their claim for reformation based on fraud is GRANTED. 7 Finally, the Court also considers Plaintiffs’ claim for reformation based upon 8 bilateral or unilateral mistake. (Proposed FAC ¶ 71.) This claim reads as follows: 9 Alternatively, the above-described failure of the Policy or Policies to reflect the true intent of the parties resulted from the parties’ mistake, either bilateral [10] or unilateral. It was not the result of any failure of a legal duty on the part of 11 Plaintiffs. 12 (Id.) These conclusory allegations do not satisfy Rule 9(b)’s particularity requirements. 13 See James River, 2010 WL 11595834 , at *5–6 (rejecting conclusory reformation claim that 14 alleged insurance policy contained unilateral mistake). Nor do these allegations even 15 satisfy Rule 12(b)(6)’s standard. See Iqbal, 556 U.S. at 678 (“Threadbare recitals of the 16 elements of a cause of action, supported by mere conclusory statements, do not suffice.”). 17 Accordingly, the Court concludes that if this claim were to proceed as part of an operative 18 pleading, it would be “subject to dismissal.” See Moore, 885 F.2d at 538 (citation omitted). 19 Therefore, Plaintiffs’ Motion for Leave to Amend with respect to their claim for 20 reformation based upon mistake is DENIED WITHOUT PREJUDICE. 21 IV. CONCLUSION 22 In light of the foregoing, the Court GRANTS IN PART AND DENIES IN PART 23 Defendant’s Motion for Judgment on the Pleadings (ECF No. 43) and GRANTS IN PART 24 AND DENIES IN PART Plaintiffs’ Motion for Leave to Amend (ECF No. 44). The Court 25 GRANTS Defendant’s Motion with respect to Plaintiffs’ claim for punitive damages; 26 however, the Court GRANTS Plaintiffs LEAVE TO AMEND this claim. The Court 27 DENIES Defendant’s Motion with respect to all other claims raised. The Court also 28 GRANTS Plaintiffs’ Motion with respect to their proposed claim for reformation based on 1 |/fraud. However, the Court DENIES Plaintiffs’ Motion with respect to their claim for 2 ||reformation based on mistake WITHOUT PREJUDICE. 3 If Plaintiffs choose to amend their complaint, they must do so no later than April 4 ||24, 2020. The amended complaint must not include any new allegations except for where 5 ||the Court granted Plaintiffs leave to amend regarding their punitive damages claim and 6 || their proposed reformation claim based on fraud. Notwithstanding the fact that Plaintiffs 7 || may choose to file an amended complaint, the Court ORDERS the parties to proceed with 8 || discovery on Plaintiffs’ remaining claims. The parties shall contact the Magistrate Judge 9 || for a new scheduling order by April 17, 2020. 10 IT IS SO ORDERED. [11] 12 ||DATED: April 9, 2020 (pil A (Lyphan 13 United States District Judge [28] _oN-