Ruiz v. General Insurance Company of America ( 2020 )

1 2 3 UNITED STATES DISTRICT COURT 4 EASTERN DISTRICT OF CALIFORNIA 5 6 CASE: 1:20-cv-00218-AWI-EPG 7 MARTHA RUIZ, an individual, and YESENIA VERDUZCO, an individual, ORDER ON DEFENDANTS’ MOTION 8 TO DISMISS AND MOTION TO Plaintiffs, STRIKE THE COMPLAINT 9 v. 10 GENERAL INSURANCE COMPANY OF (Doc. No. 8) 11 AMERICA, a corporation, LIBERTY MUTUAL INSURANCE COMPANY, a 12 corporation and Does 1 through 10, 13 Defendants. 14 15 16 17 Plaintiffs Martha Ruiz and Yesenia Verduzco brought a claim for breach of the implied 18 covenant of good faith and fair dealing against General Insurance Company of America 19 (“General”) and Liberty Mutual Insurance Company (“LMIC” and together with General, 20 “Defendants”) alleging that Defendants failed, in bad faith, to make full payment under an 21 insurance policy on Plaintiffs’ home. Defendants brought a motion to dismiss the Complaint under 22 Rule 12(b)(6) of the Federal Rules of Civil Procedure,1 arguing that Plaintiffs failed to state a 23 claim and failed to allege that LMIC is General’s alter ego. Defendants further move the Court 24 under Rule 12(f) to strike all alter ego allegations in the Complaint. For the reasons set forth 25 below, the Court will grant Defendants’ motion to dismiss in its entirety, grant Plaintiffs leave to 26 amend, and deny Defendants’ motion to strike as moot. 27 1 SUMMARY OF ALLEGATIONS 2 As alleged in the Complaint, General is a New Hampshire corporation licensed to conduct 3 business in the State of California and LMIC is a Massachusetts corporation licensed by the 4 California Department of Insurance. Doc. No. 1 ¶¶ 2-3. General is sometimes referred to as a 5 “SAFECO Company.” Id. ¶ 3. 6 General issued a homeowner’s insurance policy (the “Policy”) to Plaintiffs that provided 7 up to $230,200 for repairs to Plaintiffs’ home, as well as $115,100 for replacement of personal 8 property and up to $46,040 for additional living expenses. Doc. No. 1 ¶ 8. Plaintiffs allege that 9 policies “underwritten by General are marketed and advertised as sold by Liberty Mutual, not the 10 true insuring entity, General.” and that the Policy “represents that the insurer is a non-existent 11 entity called ‘Safeco, a Liberty Mutual Company.’ ” Id. ¶¶ 13-14. 12 Plaintiffs promptly submitted a claim on the Policy (the “Claim”) after their home was 13 damaged by fire in February 2019. Doc. No. 1 ¶ 9. According to the Complaint, “LMIC 14 employees, supervisors, and managers were solely response for accepting, investigating and 15 adjusting” the Claim and “routinely represented they [we]re ‘Safeco’ or ‘General’ or ‘Liberty 16 Mutual’” in interactions with Plaintiffs and/or their agents. Id. ¶ 10. 17 Further, the Complaint alleges that, in processing the Claim, LMIC: (i) “faile[ed] to 18 conduct thorough, fair, and objective investigations of all bases the Claim”; (ii) “fail[ed] to 19 disclose benefits, coverages, and time limits that applied to the Claim”; (iii) “misrepresent[ed] and 20 conceal[ed] pertinent facts and coverages relating to the Claim”; (iv) “fail[ed] to pay or 21 unreasonably delay[ed] the payment of policy benefits due for repair to the dwelling, for personal 22 property and for additional living expenses relating to the Claim”; (v) “fail[ed] to set forth in any 23 denial letter a statement listing all bases for the denial of part of the claim and the factual and legal 24 bases for each reason given for the denial;” (vi) “fail[ed] to explain how it applied policy 25 exclusions to deny the claim in whole or in part”; and (vii) “violat[ed] Insurance Code § 26 790.03(h), and Fair Claims Settlement Practices Regulations §§ 2695.1 et seq.” Doc. No. 1 ¶ 25. 27 The Complaint also alleges that “LMIC, on behalf of General and many other insuring 1 provides claims investigation and adjusting services, is engaged in an illegal scheme to improperly 2 hide coverages from California insureds” and “to improperly deny fire loss claims brought under 3 California dwelling policies.” Doc. No. ¶ 22.k-1. 4 Finally, the Complaint alleges that “dividing insuring and claims handling functions” 5 between two entities, as Defendants allegedly have, is improper because doing so: increases 6 claims expenses and, therefore, premiums; reduces the asset size of insuring entities to avoid large 7 punitive damages awards; and improperly shields parent entities from discovery and liability. Doc. 8 No. 1 ¶ 23. 9 Based on these allegations, Plaintiffs allege a single claim for breach of the implied 10 covenant of good faith and fair dealing2 against General and LMIC. Doc. No. 1 ¶¶ 24-31. 11 LEGAL FRAMEWORK 12 Under Rule 12(b)(6), a claim may be dismissed for “failure to state a claim upon which 13 relief can be granted.” Fed.R.Civ.P. 12(b)(6). A dismissal under Rule 12(b)(6) may be based on 14 the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a 15 cognizable legal theory. See Mollett v. Netflix, Inc., 795 F.3d 1062, 1065 (9th Cir. 2015). In 16 reviewing a complaint under Rule 12(b)(6), all well-pleaded allegations of material fact are taken 17 as true and construed in the light most favorable to the non-moving party. Kwan v. SanMedica, 18 Int’l, 854 F.3d 1088, 1096 (9th Cir. 2017). However, complaints that offer no more than “labels 19 and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” 20 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Johnson v. Federal Home Loan Mortg. Corp., 793 21 F.3d 1005, 1008 (9th Cir. 2015). The Court is “not required to accept as true allegations that 22 contradict exhibits attached to the Complaint or matters properly subject to judicial notice, or 23 allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable 24 inferences.” Seven Arts Filmed Entm’t, Ltd. v. Content Media Corp. PLC, 733 F.3d 1251, 1254 25 (9th Cir. 2013). 26 // 27 2 For brevity, Plaintiffs’ claim for breach of the implied covenant of good faith and fair dealing is sometimes referred 1 To avoid a Rule 12(b)(6) dismissal, “a complaint must contain sufficient factual matter, 2 accepted as true, to state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678; 3 Mollett, 795 F.3d at 1065. “A claim has facial plausibility when the plaintiff pleads factual content 4 that allows the court to draw the reasonable inference that the defendant is liable for the 5 misconduct alleged.” Iqbal, 556 U.S. at 678; Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 6 2013). “Plausibility” means “more than a sheer possibility,” but less than a probability, and facts 7 that are “merely consistent” with liability fall short of “plausibility.” Iqbal, 556 U.S. at 678; 8 Somers, 729 F.3d at 960. 9 The Ninth Circuit has distilled the following principles for Rule 12(b)(6) motions: 10 First, to be entitled to the presumption of truth, allegations in a complaint or counterclaim may not simply recite the elements of a cause of action, but must 11 contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively. Second, the factual allegations that 12 are taken as true must plausibly suggest entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and 13 continued litigation. 14 Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir. 2014) (citation omitted). In assessing a motion 15 to dismiss, courts may consider documents attached to the complaint, documents incorporated by 16 reference in the complaint, or matters subject to judicial notice. In re NVIDIA Corp. Sec. Litig., 17 768 F.3d 1046, 1051 (9th Cir. 2014). If a motion to dismiss is granted, “[the] district court should 18 grant leave to amend even if no request to amend the pleading was made ....” Ebner v. Fresh, Inc., 19 838 F.3d 958, 962 (9th Cir. 2016). However, leave to amend need not be granted if amendment 20 would be futile or the plaintiff has failed to cure deficiencies despite repeated opportunities. 21 Garmon v. County of L.A., 828 F.3d 837, 842 (9th Cir. 2016). 22 DEFENDANTS’ MOTION TO DISMISS 23 Defendants argue that Plaintiffs have failed to state a bad faith claim against General or 24 LMIC because Plaintiffs set forth no facts showing that benefits were unreasonably withheld 25 under the Policy and instead rely entirely on “formulaic, wholly conclusory allegations that fail to 26 satisfy the most basic federal court pleading standards.” Doc. No. 8 at 9:10-13. Further, they argue 27 that Plaintiffs’ claim fails as to LMIC for the additional reason that LMIC was not a party to the 1 Part IV. B. 2 Plaintiffs argue in opposition that few facts are required to state their claim because federal 3 pleading standards are low and most relevant facts are uniquely in the possession of the 4 Defendants. Doc. No. 10, Part II. Further, they argue that allegations in the Complaint are 5 sufficient under relevant case law to show that LMIC was General’s alter ego when combined 6 with judicially noticeable facts showing that LMIC completely controlled General. Id., Part I. 7 The Court will first address the adequacy of the bad faith allegations and then turn to the 8 alter ego allegations. 9 1. Breach of the Implied Covenant of Good Faith and Fair Dealing 10 a. Legal Standard 11 Plaintiffs must prove each of three elements to make out a claim for breach of the implied 12 covenant of good faith and fair dealing in connection with the Policy: (1) that General 13 unreasonably deprived Plaintiffs of insurance benefits owed; (2) that such unreasonable conduct 14 was the proximate cause of the claimed damage; and (3) the amount or extent of damage. See 15 Cooper v. Travelers Indem. Co. of Illinois, 2002 WL 32775680, *5 (N.D. Cal. Nov. 4, 2002). The 16 test for bad faith, in other words, “is whether the insurer was unreasonable in denying coverage.” 17 Id. (citing Opsal v. United Services Auto. Assn., 2 Cal.App.4th 1197 (1991) and Guebara v. 18 Allstate Ins. Co., 237 F.3d 987, 995 (9th Cir. 2001)). “If an insurer denies coverage because of a 19 genuine dispute over coverage, the insurer does not act in bad faith.” Id. (citing Fraley v. Allstate 20 Ins. Co., 81 Cal.App.4th 1282 (2000), Guebara, 237 F.3d at 992-994 and Chateau Chamberay 21 Homeowners Ass’n v. Associated International Ins. Co., 90 Cal.App.4th 335 (2001)). 22 b. Discussion 23 The allegations in the Complaint relevant to Plaintiffs’ bad faith claim are as follows: 24 General issued an insurance policy for Plaintiffs’ property. Doc. No. 1 ¶ 7. Plaintiffs’ property was 25 damaged by fire and Plaintiffs timely submitted an insurance claim. Id. 1 ¶ 12. LMIC handled all 26 aspects of claim processing, id. ¶ 9, and “improperly denied parts of Plaintiffs’ Claim without 27 sufficient investigation and without communicating a sufficient basis for the denial in writing.” Id. 1 its employees,” “misrepresented coverages,” applied “policy provisions improperly” and so forth. 2 See Doc. No. 1 ¶ 22. 3 Plaintiffs contend that these allegations are “more than sufficient to state a claim for 4 insurance bad faith” because “[n]o heightened pleading standard applies” and Plaintiffs are 5 “obligated only to make Defendants aware of the nature of their allegations, and to permit Liberty 6 Mutual to conduct discovery and defend.” Doc. No. 10 at 9:14-20. Rule 12(b)(6), however, also 7 requires a plaintiff to plead “underlying facts” that allow “the court to draw the reasonable 8 inference that the defendant is liable for the misconduct alleged,” Iqbal, 556 U.S. at 678, and that 9 “plausibly suggest entitlement to relief, such that it is not unfair to require the opposing party to be 10 subjected to the expense of discovery and continued litigation.” Levitt, 765 F.3d at 1135. 11 Plaintiffs’ allegation that Defendants “improperly denied parts of Plaintiffs’ Claim” does nothing 12 more restate the first element of a bad faith claim, and Plaintiffs’ allegations about misrepresenting 13 coverage and such are largely cribbed from the California Code of Regulations and California 14 Insurance Code, with no meaningful reference to the events underlying this case. Compare, e.g., 15 Doc. No. 1 ¶ 22.i. to Cal. Ins. Code § 790.03(h). The Court agrees with Plaintiffs that pleading 16 with specificity is not required to state a bad faith claim, and Plaintiffs are no doubt correct that 17 Defendants are in possession of information relating to the Policy, the processing of the Claim and 18 possibly other aspects of this case that Plaintiffs themselves do not have. As the policyholders, 19 claimants and the putatively injured parties, however, Plaintiffs must know something about the 20 origins, processing and payment of their claim—like the nature of the losses suffered, the amount 21 of coverage sought, the amount of coverage provided, the timing of any payments and the reasons 22 (if any) provided for withholding payments—that bears on the plausibility assessment required 23 under Rule 12(b)(6). For whatever reason, no such facts are furnished in the Complaint and the 24 Court therefore finds that Plaintiffs have failed to state a claim for breach of the implied covenant 25 of good faith and fair dealing as to either of the Defendants. 26 2. Alter Ego Doctrine 27 The Complaint acknowledges that LMIC is not a party to the insurance contract in 1 13-16; see also, Doc. No. 11, Part I. In moving to dismiss, Defendants argue that Plaintiffs cannot 2 allege facts showing that LMIC is General’s alter ego because General is adequately capitalized 3 and engaged in a distinct line of business. Doc. No. 8, Part IV. B. Plaintiffs set forth additional 4 facts relating to the alter ego issue in their opposition and argue that the Court should adopt a 5 broad view of the alter ego doctrine in line with MGA Entertainment v. Hartford Ins. Group, 2012 6 WL 12894053 (C.D. Cal. 2012). No. 10, Part I. 7 a. Legal Standard 8 “The alter ego doctrine prevents individuals or [] corporations from misusing the corporate 9 laws by the device of a sham corporate entity formed for the purpose of committing fraud or other 10 misdeeds.” Sonoro Diamond Corp. v. Sup. Ct., 83 Cal.App.4th 523, 538 (2000); see also, 11 Gerritsen v. Warner Bros. Entm’t Inc., 116 F.Supp. 3d 1104, 1135–36 (C.D. Cal. 2015). 12 “Two elements must be present in order to find that one corporation is the alter ego of 13 another.” Calvert v. Huckins, 875 F.Supp. 674, 678 (E.D. Cal. 1995); see also, Monaco v. Liberty 14 Life Assur. Co., 2007 WL 420139, *5 (N.D. Cal. Feb. 6, 2007). “First, the parent must control ‘the 15 subsidiary to such a degree as to render the latter the mere instrumentality of the former.’ ” 16 Calvert, 875 F.Supp. at 674 (quoting Institute of Veterinary Pathology, Inc. v. California Health 17 Laboratories, Inc., 116 Cal.App.3d 111, 119 (1981)). “Second, because piercing the corporate veil 18 is a remedy founded on principles of equity, there must be enough evidence to support a finding 19 that failure to look past the corporate entity would “ ‘sanction a fraud or promote injustice.’ ” Id. 20 (quoting Marr v. Postal Union Life Ins. Co., 40 Cal.App.2d 673, 681 (1940) and Las Palmas 21 Associates v. Las Palmas Center Associates, 235 Cal.App.3d 1220, 1249 (1991)). 22 “Underlying both of these factors is a general presumption in favor of respecting the 23 corporate entity.” Calvert, 875 F. Supp. at 678. “Disregarding the corporate entity is recognized as 24 an extreme remedy” and “[c]ourts will pierce the corporate veil only in exceptional 25 circumstances.” Id. (quoting National Precast Crypt Co. v. Dy–Core of Pennsylvania, Inc., 785 26 F.Supp. 1186, 1192 (W.D.Pa.1992)) (internal quotation marks omitted). “Simply availing oneself 27 of the protections provided by corporate charters is not misconduct sufficient to justify a court in 1 1176 (C.D. Cal. 2016) (citation omitted). 2 “Whether to pierce the corporate veil [on an alter ego theory] is a factual inquiry that 3 should be done on a case-by-case basis,” Calvert, 875 F. Supp. at 678 (citing Keffer v. H.K. Porter 4 Co., Inc., 872 F.2d 60, 65 (4th Cir.1989)) and “[c]onclusory allegations of ‘alter ego’ status are 5 insufficient to state a claim.” Gerritsen, 116 F.Supp.3d at 1140-41; Monaco, 2007 WL 420139 at 6 *5. “[A] plaintiff must allege specific facts supporting both of the necessary elements.” Id. at 1136 7 (citations omitted). 8 b. Discussion 9 The Court will address each prong of the alter ego analysis—the “unity of interest” prong 10 and the “inequitable result” prong—in light of the foregoing case law. 11 i. “Unity of Interest” Prong 12 With respect to the “unity of interest” prong, the Complaint alleges that General, which is 13 sometimes referred to as a “SAFECO Company,” “is a New Hampshire corporation licensed to 14 conduct business in the State of California” and that LMIC “is a Massachusetts corporation 15 licensed by the California Department of Insurance.” Doc. No. 1 ¶¶ 2-3. Plaintiffs also allege that 16 General is the insurer that issued the Policy, id. ¶ 7, but that “LMIC employees, supervisors, and 17 managers were solely responsible for accepting, investigating and adjusting Plaintiffs’ [] claim for 18 benefits under the Policy” and that, in doing so, LMIC personnel “routinely represented that they 19 were ‘Safeco,’ ‘General’ or ‘Liberty Mutual.’ ” Id. ¶ 10. Similarly, the Complaint alleges that 20 “[p]olicies underwritten by General are marketed and advertised as sold by Liberty Mutual, not the 21 true insuring entity, General,” and that “[t]he Policy sold to Plaintiffs misleadingly represents that 22 the insurer is a non-existent entity called ‘Safeco, a Liberty Mutual Company.’ ” Id. ¶ 13-15. 23 Finally, the Complaint states that “LMIC has admitted and the federal courts have concluded that 24 [an insurance] carrier has a unity of interest with its subsidiaries.” Id. ¶ 16. 25 The factual allegations in the Complaint are plainly insufficient to satisfying the “unity of 26 interest” prong of the alter ego analysis. The Complaint shows that General and LMIC are distinct 27 entities in complementary lines of business, see Doc. No. 1 ¶ 22.l. (referring to General as an 1 General); ¶ 22.k.-l. (same), with no allegations at all regarding the organizational relationship 2 between General and LMIC aside from a few oblique paragraphs that could be read to imply that 3 General is an LMIC subsidiary of some sort. See, e.g., id. ¶¶ 16, 18, 20. The Court, therefore, 4 cannot infer from facts alleged in the Complaint that General is a “mere instrumentality” of 5 LMIC—or even that General is under LMIC’s control. See Calvert, 875 F.Supp. at 674. 6 Similarly, the Court sees no merit in Plaintiffs’ contention that “LMIC has admitted and 7 the federal courts have concluded that [an insurance] carrier has a unity of interest with its 8 subsidiaries.” Doc. No. 1 ¶ 16. General was not involved in the case on which that contention is 9 based (Tam Vu v. Liberty Mut. Ins. Co., No. 18-CV-03594-SI (N.D. Cal. 2018)); the court’s 10 analysis in Vu was limited to the second (“inequitable result”) prong of the alter ego analysis; and 11 LMIC’s only concession in Vu, after multiple rounds of pleading, was that the third amended 12 complaint “allege[d] facts that, when assumed to be true …, [we]re sufficient to satisfy the unity 13 of interest element at the pleading stage.” Vu is thus irrelevant to determining whether Plaintiffs 14 have adequately pled “unity of interest” between General and LMIC here. See Calvert, 875 15 F.Supp. at 678; see also Tomaselli v. Transamerica Ins. Co., 25 Cal.App.4th 1269, 1285 n.13 16 (1994) (“The factors which may show the ‘unity of interest’ issue vary according to each case and 17 are fact specific.” (citation omitted)). 18 In addition to the allegations in the Complaint, Plaintiffs make several factual assertions in 19 the opposition (based on documents for which Plaintiffs seek judicial notice) that could be 20 relevant to determining whether there is a “unity of interest” between General and LMIC, 21 including, for example, assertions that: General, has no employees; LMIC owns all of General’s 22 stock; General and LMIC share officers and directors; General and LMIC file joint tax returns; 23 and General and LMIC are party to investment, reinsurance and risk pooling arrangements which 24 serve to merge their income and liabilities. Doc. No. 10 at 10:15-11:15. 25 Defendants’ motion to dismiss, however, goes merely to the sufficiency of Plaintiffs’ 26 pleading and the Court sees no cause or justification for allowing Plaintiffs to amend the 27 Complaint through the opposition or for converting the instant motion to dismiss to a motion for 1 1993) (“The purpose of the motion to dismiss is to test the formal sufficiency of the pleadings that 2 constitute the claim. [citation] It is not ‘a procedure for resolving a contest about the facts or the 3 merits of the case.’ ” (quoting 5A Wright & Miller, Federal Practice and Procedure § 1356 4 (1990))). The Court, therefore, declines to consider the facts asserted for the first time in the 5 opposition, see Lorbeer Enterprises, LP v. Liberty Mut. Ins. Co., 2019 WL 4284514, *2 (C.D. Cal. 6 May 9, 2019) (rejecting alter ego arguments based on facts not alleged in the operative pleading), 7 and finds that Plaintiffs have failed to allege facts showing a “unity of interest” between General 8 and LMIC as required under the first prong of the alter ego analysis.3 9 ii. “Inequitable Result” Prong 10 As to the “inequitable result” prong of the alter ego analysis, Plaintiffs allege in a section 11 of the Complaint entitled “Inequitable Result if the Alter Ego Doctrine Is Not Applied” that the 12 adjusters who handled their claim “informed Plaintiffs and/or their agent in both written and oral 13 communications that they represented Liberty Mutual Insurance Company or Safeco, a Liberty 14 Mutual Company”; “never told Plaintiffs or their agent that they worked for or represented 15 General”; and that LMIC failed to “guide and train its employees” properly. Doc. No. 1 ¶ 22. 16 Plaintiffs further allege that LMIC “exercised complete control over the investigation and 17 adjusting of Plaintiffs’ Claim” and engaged “in a widespread scheme to both deny and underpay 18 fire loss claims” that included hiding coverage, misrepresenting coverage, failing to investigate 19 claims adequately, applying policy provisions improperly, denying claims without justification 20 and forcing insureds to file lawsuits to recover policy benefits. Id. Finally, Plaintiffs allege that 21 “LMIC employees and supervisors involved in the investigation of Plaintiffs’ Claim reside outside 22 California” and that “General has a small fraction of the assets of LMIC.” Id. 23 Plaintiffs argue, in essence, that an inequitable result would occur if LMIC were not treated 24 as General’s alter ego for purposes of liability on Plaintiffs’ bad faith claim because excluding 25 26 3 Plaintiff filed a request for judicial notice asking the Court to take notice of various financial statements and 27 government records. Doc. No. 8-1. Defendants, similarly, filed a request for judicial notice asking the Court to take notice of two financial statements and a reply memorandum from Vu. v. Liberty Insurance Company et al., Case No. 3:18-cv-03594-SI (N.D. Cal. 2018). As reflected in this Order, the Court did not have cause to rely on any of these 1 LMIC from the case would make discovery narrower and more cumbersome and potentially 2 reduce the size of a punitive damages award. Doc. No. 11, Part I.B. Further, Plaintiffs contend that 3 federal courts have already “held that [] an inequitable result will obtain if LMIC is not treated as a 4 single entity with its subsidiary companies” and argue that this Court should follow the holding in 5 MGA Entertainment that an inequitable result occurs where the party subject to bad faith liability 6 is not the party who did the acts giving rise to such liability. Id. at 20:23-24. 7 Defendants, for their part, dispute Plaintiffs’ assertion that federal courts have already 8 “held that [] an inequitable result will obtain if LMIC is not treated as a single entity with its 9 subsidiary companies” and argue that the view of the “inequitable result” prong set forth in MGA 10 Entertainment is “contrary to long-standing authority” showing that “California appellate courts 11 routinely find no inequitable result where … the facts demonstrate the subsidiary has sufficient 12 assets to satisfy any judgment against it.” Doc. No. 11 at 13:3-18. Further, they argue that 13 Plaintiffs fail to allege that General lacks sufficient assets to pay whatever compensatory and 14 constitutionally permissible punitive damages might be awarded in this case. Doc. No. 11, Part 15 III.A. Finally, they contend that difficulty in prosecuting an action “is not an inequitable result” 16 for purposes of the second prong of the alter ego analysis and that, in any event, the Federal Rules 17 of Civil Procedure allow Plaintiffs to secure the discovery required to prosecute this case properly 18 even if LMIC is not named as a defendant. Id., Part III.C. 19 The Court agrees with Defendants that Plaintiffs’ assertion that federal courts have already 20 found that LMIC must be treated as a single entity “with its subsidiary companies” carries no 21 weight. As noted above, General was not involved in the case on which that proposition is based, 22 and the law plainly requires a case-by-case application of the alter ego doctrine based on facts 23 specific to the entities involved. Gerritsen, 116 F. Supp. 3d at 1136. Further, it is not even clear in 24 this case that Plaintiffs have adequately alleged that General is an LMIC subsidiary. 25 The Court similarly agrees with Defendants that the reasoning in MGA Entertainment is 26 unpersuasive and inapplicable here. The application of the alter ego doctrine in MGA 27 Entertainment—where the court found that the “injustice” of holding an insurer “solely liable” for 1 “inequitable result” test—is predicated on protecting the defendant insurer from putative injustice. 2 See MGA Entm’t, Inc., 2012 WL 12894053 at *15. It is well-settled, however, that it is injustice 3 to the plaintiff—not injustice to a corporate defendant—that justifies application of the alter ego 4 doctrine. See Gerritsen, 116 F.Supp.3d at 1135–36 (“The alter ego doctrine arises when a plaintiff 5 comes into court claiming that an opposing party is using the corporate form unjustly and in 6 derogation of the plaintiff's interests.”); see also, Wady v. Provident Life & Accident Ins. Co. of 7 Am., 216 F.Supp.2d 1060, 1070 (C.D. Cal. 2002) (“A court will pierce the corporate veil only 8 where failure to do so ‘would be to defeat the rights and equities of third persons.’ ” (quoting 9 Kohn v. Kohn, 95 Cal.App.2d 708, 720 (1950)); Tomaselli, 25 Cal.App.4th at 1285 (“Alter ego is 10 a limited doctrine, invoked only where recognition of the corporate form would work an injustice 11 to a third person.” (citing 9 Witkin, Summary of Cal. Law (9th ed. 1989) Corporations, §§ 12–23, 12 pp. 524–537)). Indeed, the alter ego doctrine is, at bottom, about stripping defendants of 13 protections they otherwise enjoy by virtue of their corporate form. See Sonoro Diamond Corp., 83 14 Cal.App.4th at 538. Moreover, in contrast to MGA Entertainment, there is no allegation here that 15 LMIC acted “without authorization” from General in processing the Claim. Indeed, the Complaint 16 expressly alleges that General was in on LMIC’s “scheme to deny and underpay fire loss claims.” 17 Doc. No. 1 ¶ 22.t. Invoking the alter ego doctrine to protect General from injustice makes no sense 18 as a matter of law or fact (as alleged in the Complaint), and the Court therefore declines to extend 19 MGA Entertainment to this case. 20 Finally, the Court agrees with Defendants that Plaintiffs have failed to show that they 21 would suffer injustice in connection with either discovery or punitive damages if LMIC is not 22 included as a defendant on Plaintiffs’ bad faith claim. As Defendants point out, the Federal Rules 23 of Civil Procedure allow for robust discovery from non-parties, see Tam Vu v. Liberty Mut. Ins. 24 Co., 2018 WL 5982867, *3 (N.D. Cal. Nov. 14, 2018), and while Plaintiffs speculate that treating 25 General and LMIC as a single entity could increase the size of a punitive damages award, the 26 Court sees nothing supporting an inference that General alone would be unable to pay whatever 27 compensatory or punitive damages might properly be awarded in this case. Nor does the Court see 1 prospective punitive damages award would be proper when LMIC is not otherwise liable on 2 Plaintiffs’ claim. See Tomaselli, 25 Cal.App.4th at 1285-1286 (finding there was “nothing to 3 suggest how an ‘injustice’ would befall the [plaintiffs] if the punitive damage award were limited 4 to a percentage of appellant’s value rather than that of the parent company”). 5 Since the Complaint fails to allege facts showing that Plaintiffs would be prejudiced if 6 General and LMIC are allowed to maintain separate corporate identities for purposes of this 7 litigation, the Court finds that Plaintiffs have failed to satisfy the “inequitable result” prong of the 8 alter ego doctrine. 9 3. Conclusion Regarding Motion to Dismiss 10 For the foregoing reasons, the Court will grant Defendants’ motion to dismiss in its 11 entirety. Plaintiffs have not yet amended the Complaint and it is possible that the pleading defects 12 identified above could be remedied. The Court will therefore grant Plaintiffs leave to amend the 13 Complaint consistent with the analysis in this Order. Plaintiffs will be required to file their First 14 Amended Complaint, if at all, within 21 days of electronic service of this Order. 15 DEFENDANTS’ MOTION TO STRIKE 16 Defendants move the Court “to strike all of Plaintiffs’ alter-ego and single enterprise 17 claims and allegations on the basis that they fail to support any claim upon which relief can be 18 granted, and thus, are immaterial and/or impertinent.” Doc. No. 8 at 2:19-22; see Fed.R.Civ.P. 19 12(f). In light of the fact that the Court has granted Plaintiffs leave to amend the Complaint with 20 respect to alter ego allegations as well as the bad faith claim, the Court will deny Defendants’ 21 motion to strike as moot, without prejudice to bringing a motion to strike in connection with the 22 First Amended Complaint. 23 ORDER 24 Accordingly, IT IS HEREBY ORDERED that: 25 1. Defendants’ motion to dismiss (Doc. No. 8) is GRANTED in its entirety; 26 2. Defendants’ motion to strike is DENIED (Doc. No. 8) as moot; 27 3. Plaintiffs are granted LEAVE TO AMEND the Complaint consistent with the analysis UV ELOUWV TOE er POR Ve AY OT tt 1 set forth in this Order and may file a First Amended Complaint no later than 21 days 2 from the date of electronic service of this Order; and 3 5. If Plaintiffs fail to file a First Amended Complaint within 21 days of electronic service 4 of this Order, leave to amend shall automatically be withdrawn and this case will be 5 closed without further notice to the parties. 6 7 IS SO ORDERED. 9 PM ALLE ~_-SENIOR DISTRICT JUDGE 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28