Aerojet Rocketdyne, Inc. v. Global Aerospace, Inc. ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 AEROJET ROCKETDYNE, INC., No. 2:17-cv-01515-KJM-AC 12 Plaintiff, 13 v. ORDER 14 GLOBAL AEROSPACE, INC., et al., 15 Defendants. 16 17 Defendant Global Aerospace, Inc. (“Global”) 1 moves, under Federal Rule of Civil 18 Procedure 12(c), for judgment on the pleadings of plaintiff Aerojet Rocketdyne, Inc.’s third cause 19 of action for violations of California Business and Professions Code 17200 et seq. (“UCL 20 claim”). In short, Global contends (1) the UCL claim fails as a matter of law because Aerojet is 21 precluded from seeking equitable relief where alternative remedies exist, and (2), as pled, the 22 second amended complaint contains insufficient allegations to satisfy the pleading standards 23 applicable to a claim under the UCL. For the reasons explained below, Global’s motion is 24 GRANTED in part and DENIED in part. 25 26 1 Consistent with the convention used throughout the court’s prior orders, the court refers 27 to Global Aerospace, Inc. (“Global”) as the representative defendant on behalf of the multiple members and co-insurers named as defendants in this action. See, e.g., ECF No. 231 at 1 n.1; see 28 also SAC ¶¶ 4–33 (listing defendant insurers). 1 I. BACKGROUND 2 Several of the court’s prior orders have thoroughly explained the history of this 3 dispute, see, e.g., ECF No. 231; therefore, the court only briefly summarizes details as relevant 4 here. This suit arises from two incidents involving non-party Orbital Sciences Corporation and 5 rocket engines Aerojet supplied to Orbital. Second Am. Compl. (“SAC”), ECF No. 149, ¶ 36. 6 First, on May 22, 2014, Orbital conducted a hot-fire acceptance test of rocket Engine E-17, 7 supplied by Aerojet, at the NASA Stennis Space Center. Id. During the test, the engine failed, 8 ultimately causing “substantial damage to the engine, the test facility, and ground equipment.” 9 Id. Second, on October 28, 2014, at the NASA Wallops Flight Facility, Orbital attempted to 10 launch its “Orbital Antares launch vehicle with cargo destined for the International Space 11 Station.” Id. The launch was powered by two engines supplied by Aerojet. Id. Fifteen seconds 12 into the launch, the vehicle exploded and impacted near the launch pad, causing destruction to the 13 launch vehicle, its cargo and “significant damage to the launch pad and associated facilities and 14 buildings.” Id. 15 Orbital threatened litigation, id. ¶¶ 42–43, but on September 21, 2015, Aerojet and 16 Orbital ultimately settled their dispute before litigation ensued, id. ¶ 48. Prior to finalizing 17 settlement, however, Aerojet sought insurance coverage from defendant Global for Orbital’s 18 threatened claims. Id. ¶ 44. Global was aware of the nature of Orbital’s claims and that Aerojet 19 would seek indemnification under the Global policy for the value of property damage included in 20 the Orbital settlement. Id. ¶¶ 44–47. Once Aerojet concluded the Orbital settlement agreement, it 21 “tendered the settlement to Global and requested Global reimburse Aerojet for amounts [] paid to 22 Orbital under the settlement.” Id. ¶ 50. Global denied Aerojet’s reimbursement request, claiming 23 the policy does not provide indemnification for “amounts [] paid to Orbital under the 24 settlement[.]” Id. ¶ 51. 25 On June 26, 2017, based on Global’s denial of its claim, Aerojet filed suit in Los 26 Angeles County Superior Court, and on July 20, 2017, Global timely removed to this court. Not. 27 of Removal, ECF No. 1. The operative second amended complaint makes three claims: 28 (1) breach of written insurance contract, (2) breach of implied covenant of good faith and fair 1 dealing, and (3) unfair competition in violation of California Business and Professions Code 2 section 17200 et seq. (“UCL claim”). SAC ¶¶ 54–79. The second amended complaint also seeks 3 various forms of relief, including, inter alia, compensatory and consequential damages, 4 restoration, restitution, preliminary and injunctive relief, and disgorgement of monies paid to 5 Global under the policy. Id. at 18, ¶¶ 1–11 (prayer for relief). 6 Here, Global moves for judgment on the pleadings under Federal Rule of Civil 7 Procedure 12(c) as to Aerojet’s UCL claim only. Mot., ECF No. 235. Aerojet opposes, Opp’n, 8 ECF No. 250, and Global has replied, Reply, ECF No. 253. On November 22, 2019, the court 9 heard oral argument on the motion. Counsel Rosemary Loehr and Milton Smith appeared on 10 behalf of Aerojet; counsel Mary Dow and Larry Golub appeared on behalf of Global defendants. 11 Thereafter, the court took the matter under submission for resolution by written order. The court 12 resolves the motion here. 13 II. LEGAL STANDARD 14 A. Rule 12(c) 15 Rule 12(c) of the Federal Rules of Civil Procedure provides that “[a]fter the 16 pleadings are closed—but early enough not to delay trial—a party may move for judgment on the 17 pleadings.” Fed. R. Civ. P. 12(c). A Rule 12(c) motion may raise the defense of failure to state a 18 claim upon which relief can be granted. Fed. R. Civ. P. 12(h)(2)(B). The same standard of 19 review applies to motions brought under Rule 12(c) or Rule 12(b)(6), and many of the same rules 20 delineated in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 21 U.S. 544 (2007), apply to Rule 12(c) motions. See Cafasso, U.S. ex rel. v. Gen. Dynamics C4 22 Sys., Inc., 637 F.3d 1047, 1054 n.4 (9th Cir. 2011) (“Rule 12(c) is ‘functionally identical’ to Rule 23 12(b)(6) . . . .”). 24 “Judgment on the pleadings is properly granted when there is no issue of material 25 fact in dispute, and the moving party is entitled to judgment as a matter of law.” Fleming v. 26 Pickard, 581 F.3d 922, 925 (9th Cir. 2009); Merchs. Home Delivery Serv., Inc. v. Frank B. Hall 27 & Co., 50 F.3d 1486, 1488 (9th Cir. 1995). “A dismissal may be affirmed only if it is clear that 28 no relief could be granted under any set of facts that could be proved consistent with the 1 allegations.” Turner v. Cook, 362 F.3d 1219, 1225 (9th Cir. 2004) (Rule 12(b)(6)) (internal 2 quotation marks and citation omitted). 3 In resolving a motion for judgment on the pleadings, the court “must accept all 4 factual allegations in the complaint as true and construe them in the light most favorable to the 5 non-moving party.” Fleming, 581 F.3d at 925. However, the court is not required to accept as 6 true “a legal conclusion couched as a factual allegation,” Papasan v. Allain, 478 U.S. 265, 286 7 (1986), quoted in Twombly, 550 U.S. at 555, or “allegations that contradict matters properly 8 subject to judicial notice” or material attached to or incorporated by reference into the complaint, 9 Sprewell v. Golden State Warriors, 266 F.3d 979, 988–89 (9th Cir. 2001). A court’s 10 consideration of documents attached to a complaint, documents incorporated by reference in the 11 complaint, or matters of judicial notice will not convert a motion to dismiss into a motion for 12 summary judgment. United States v. Ritchie, 342 F.3d 903, 907–08 (9th Cir. 2003); Parks Sch. of 13 Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). 14 B. Rule 9(b) 15 A claim grounded in fraud must be pleaded with the particularity required by 16 Federal Rule of Civil Procedure 9(b). Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 17 (2003). The Ninth Circuit has specifically held that Rule 9(b)’s heightened pleading standard 18 applies to claims of fraud under the UCL. Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th 19 Cir. 2009) (citing Vess, 317 F.3d at 1102–05). Aerojet’s UCL claim alleges, inter alia, that 20 Global conducted “fraudulent business practices within the meaning of Business & Professions 21 Code Section 17200.” SAC ¶ 76; see also id. ¶ 73 (“Global’s conduct . . . constitute[s] malice, 22 oppression and/or fraud.”). Accordingly, the entirety of Aerojet’s UCL claim sounds in fraud and 23 must satisfy the pleading requirements of Rule 9(b), which requires that a party “state with 24 particularity the circumstances constituting fraud or mistake,” including “the who, what, when, 25 where, and how” of the alleged fraudulent conduct.2 Vess, 317 F.3d at 1106 (quoting Cooper v. 26 2 At hearing, Aerojet argued Rule 9(b) applies only to the “fraudulent” prong of its UCL 27 claim, as the “unlawful” and “unfair” prongs are not grounded in fraud. This argument is unavailing. In Kearns, plaintiff-appellant advanced a similar argument, arguing that because 28 some of his claims were not grounded in fraud, Rule 9(b) should not apply. 567 F.3d at 1125. In 1 Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). In addition, Aerojet “‘must set forth what is false or 2 misleading about a statement, and why it is false.’” Id. (quoting Decker v. GlenFed, Inc. (In re 3 GlenFed, Inc. Sec. Litig.), 42 F.3d 1541, 1548 (9th Cir. 1994) (en banc)). 4 III. DISCUSSION 5 Global moves for judgment on the pleadings as to Aerojet’s UCL claim based on 6 two theories: (1) the UCL permits only equitable relief, and where alternative avenues of relief 7 exist, as here, a UCL claim fails as a matter of law; and (2) Aerojet fails to plead its UCL claim, 8 under any prong, with the particularity required by Rule 9(b) and Aerojet cannot amend its 9 complaint to cure these deficiencies. See generally Reply. In opposition, Aerojet contends the 10 UCL permits the alternative relief it seeks and the allegations in the complaint are pled with the 11 specificity necessary to state a claim under each of the UCL’s three prongs. See generally Opp’n. 12 Aerojet also asks the court to rely on evidence beyond the complaint and convert Global’s motion 13 to one for summary judgment. Id. at 2–3, 9 n.1. 14 Given its threshold nature, the court first addresses Aerojet’s request to convert 15 Global’s motion to one for summary judgment before reaching the merits of the parties’ 16 contentions. 17 A. Conversion of 12(c) Motion to Summary Judgment Motion 18 “[I]t is within the district court’s discretion whether to accept extra-pleading matter 19 on a motion for judgment on the pleadings and treat it as one for summary judgment or to reject it 20 and maintain the character of the motion as one under Rule 12(c).” 5C Charles A. Wright & 21 Arthur R. Miller, Federal Practice and Procedure § 1371 (3d ed. 2019); Hal Roach Studios, Inc. 22 v. Richard Feiner & Co., 896 F.2d 1542, 1550 (9th Cir. 1989) (in resolving motion under Rule 23 24 dispatching this argument, the court explained that while fraud itself may not be a necessary element under the UCL, when a complaint “allege[s] a unified course of fraudulent conduct and 25 rel[ies] entirely on that course of conduct as the basis of that claim[,] . . . the claim is said to be ‘grounded in fraud’ or to ‘sound in fraud[,]’” and the pleading, “as a whole” is subject to Rule 26 9(b). Id; see also Hadley v. Kellogg Sales Co., 243 F. Supp. 3d 1074, 1094 (N.D. Cal. 2017) 27 (“Where Plaintiff has alleged a ‘unified course of fraudulent conduct,’ Rule 9(b)’s particularity requirement applies to the unlawful and unfair prong of the UCL in addition to the above- 28 discussed fraudulent prong.” (citing Kearns, 567 F.3d at 1126–27)). 1 12(c), if “the district court goes beyond the pleadings to resolve an issue[,] such a proceeding 2 must properly be treated as a motion for summary judgment”). But, if such a conversion occurs, 3 the court “must give the parties notice and an opportunity to be heard on the summary judgment 4 question.” Wright & Miller, supra, § 1371. 5 Here, the court exercises its discretion and declines to convert Global’s motion to 6 one for summary judgment. As explained below, Global’s motion presents primarily legal 7 questions as to the viability of Aerojet’s claims and ability to recover under the UCL. It is, 8 therefore, unnecessary for the court to weigh the parties’ competing evidence when considering 9 these questions and declining to convert the motion will not prejudice Aerojet’s ability to rebut 10 Global’s assertions. Cf. Prianto v. Experian Info. Sols., Inc., No. 13-CV-03461-TEH, 2014 WL 11 3381578, at *8 (N.D. Cal. July 10, 2014) (declining plaintiff’s request to consider extrinsic 12 evidence because it was “irrelevant to the Court’s resolution of the prima facie question” at hand). 13 B. Viability of Aerojet’s UCL Claim 14 Turning to the UCL claim, California Business & Professions Code section 17200, 15 also known as the UCL, prohibits “any unlawful, unfair or fraudulent business act or practice 16 . . . .” Each UCL prong—unlawful, unfair and fraudulent—provides a separate and distinct 17 theory of liability. Lozano v. AT&T Wireless Servs., Inc., 504 F.3d 718, 731 (9th Cir. 2007). 18 Moreover, “[u]nder the UCL, [p]revailing plaintiffs are generally limited to injunctive relief and 19 restitution.’” Alvarez v. Chevron Corp., 656 F.3d 925, 933 n.9 (9th Cir. 2011) (some alterations 20 in original) (citing Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 21 179 (1999)). 22 Global first argues that Aerojet’s UCL claim must be dismissed as a matter of law 23 because Aerojet may not seek equitable relief where alternative relief, including monetary 24 damages, is awarded. Reply at 1–6; Mot. at 11–17. Global also contends, in the alternative, the 25 allegations in the second amended complaint do not support a claim under any of the UCL’s three 26 prongs. Reply at 6–10; Mot. at 6–11. The court addresses each argument in turn. 27 28 1 1. Equitable Relief Under the UCL 2 a) Adequate Alternative Remedies 3 Global contends that because the UCL provides for only injunctive or 4 restitutionary relief, Aerojet’s breach of contract and bad faith claims “provide it with an adequate 5 remedy at law that enable it to recover damages.” Reply at 2. For support, Global cites district 6 court opinions within the Ninth Circuit in which courts have dismissed UCL claims because 7 alternative remedies existed. Id. at 2–3 (collecting cases). Global also cites Korea Supply Co. v. 8 Lockheed Martin Corp., 29 Cal. 4th 1134 (2003), for the proposition that in insurance-dispute 9 actions, the UCL cannot be used as “an all-purpose substitute for a tort or contract action.” Id. at 10 3 (quoting Korea Supply Co., 29 Cal. 4th at 1150). 11 Aerojet contends its prayers for injunctive relief, that Global be enjoined from 12 engaging in wrongful and deceptive business practices, as well as for restitution, that Global be 13 required to disgorge all premiums paid under the policy, are permissible under the UCL, as are 14 alternative forms of relief. Opp’n at 10–16. 15 Although there are divergent views among district courts within the Ninth Circuit 16 on the issue of alternative theories of relief under the UCL, this court has previously taken the 17 position, as Aerojet notes, that there is “no basis in California or federal law for prohibiting the 18 pursuit of alternate remedies at th[e] early [pleading] stage,” and has “declin[ed] to dismiss 19 plaintiff[’s] equitable claims on this basis.” Espineli v. Toyota Motor Sales U.S.A., Inc., No. 20 2:17-CV-00698-KJM-CKD, 2018 WL 3769383, at *4 (E.D. Cal. Aug. 9, 2018) (collecting cases); 21 see also Copart, Inc. v. Sparta Consulting, Inc., 339 F. Supp. 3d 959, 1001 (E.D. Cal. 2018) 22 (explaining that prior to entry of judgment, plaintiff may elect to receive damages awarded at trial 23 or UCL restitution, but not both). Global provides no compelling reason for the court to alter its 24 position and confine Aerojet’s relief to damages alone at this juncture. 25 b) Injunctive Relief 26 Global also contends that Aerojet’s request for injunctive relief is impermissible 27 because it is retrospective, rather than prospective. Reply at 4. This contention lacks merit. On 28 its face, the second amended complaint seeks “preliminary and permanent injunctive relief 1 prohibiting Defendants from engaging in the wrongful practices, from continuing to make the 2 aforementioned misrepresentations, and from continuing to commit the aforementioned acts as 3 alleged in th[e] Complaint.” SAC ¶ 7 (prayer for relief). The complaint also alleges that Global 4 “continues to unreasonably deny its indemnity obligations under the Policies,” is “continuing to 5 engage in . . . misconduct . . . at the expense of its insureds” and Aerojet will continue to “incur 6 reasonable attorneys’ fees in order to enforce” its rights. Id. ¶¶ 78–79. 7 The complaint identifies the parties underwriting the policies at issue, the launch 8 incidents subject to the policies, the specific claims under the policies, the third-party settlement 9 informing the policy claims and the alleged violations effected through Global’s claim denials 10 under the policy. SAC ¶¶ 36–53. These allegations, although detailing a past wrong, provide 11 sufficient detail to support, by way of inference, an alleged practice of improper coverage denials 12 for purportedly justified claims. Although monetary damages ultimately may fully address 13 Aerojet’s harm experienced as a result of the policy, there is, at this stage, an ongoing, 14 prospective nature to its allegations given Global’s continued denial of coverage. At hearing, 15 Aerojet’s counsel clarified this aspect of the relief it seeks, in explaining that the assertion in 16 Aerojet’s opposition that it “will now seek an injunction requiring Global to amend its Claims 17 Manual” merely clarifies the injunctive relief sought in the complaint. 18 Taken together, and viewed in the light most favorable to Aerojet, the allegations 19 are sufficient to suggest a likelihood of future harm amenable to injunctive relief. See Bates v. 20 United Parcel Serv., Inc., 511 F.3d 974, 985 (9th Cir. 2007) (“The plaintiff must demonstrate that 21 he has suffered or is threatened with a concrete and particularized legal harm coupled with a 22 sufficient likelihood that he will again be wronged in a similar way.” (quotations and citations 23 omitted)); cf. Cunha v. IntelliCheck, LLC, 254 F. Supp. 3d 1124, 1140 (N.D. Cal. 2017) 24 (dismissing class action UCL claim for injunctive relief where plaintiff, a former employee, could 25 not establish, among other things, ongoing or future harm because plaintiff was no longer 26 employed by, and had no intent to return to, defendant employer; thus injunctive relief would be 27 of no personal benefit to plaintiff). 28 1 Global cites Silvercrest Realty, Inc. v. Great Am. E&S Ins. Co., No. SACV 11- 2 01197-CJC(ANx), 2012 WL 13028094, at *2 (C.D. Cal. Apr. 4, 2012), as addressing facts 3 analogous to those here. Mot. at 14. Silvercrest, however, is distinguishable. In Silvercrest, the 4 court dismissed the insured’s UCL claim for two reasons: (1) failure to plausibly allege lack of 5 adequate legal remedy, and (2) failure to allege threat of ongoing future harm beyond a single 6 denial of coverage. 2012 WL 13028094, at *2–3. The court here has rejected the first reason, as 7 explained above. As to the second reason, Silvercrest is distinguishable: the Silvercrest court 8 noted that, at first blush, the insured’s request for “restitution of premiums paid, attorney’s fees, 9 disgorgement of profits and other restitutionary remedies, injunctive relief, and/or costs” appeared 10 to satisfy the UCL’s equitable requirement; however, upon closer inspection, the insured’s 11 general allegations of mishandled claims failed to show the requisite ongoing harm necessary to 12 make out a claim for injunctive relief. Id. at *2–3. Here, in contrast, Aerojet alleges that Global 13 engages in a practice of improperly denying policy claims at the expense of its insured. SAC 14 ¶¶ 78–79. Unlike in Silvercrest, a core aspect of Aerojet’s claim is that Global is engaging in a 15 practice causing both past and future harm. Aerojet’s UCL claim is sufficiently prospective to 16 allow it invoke injunctive relief. 17 c) Disgorgement 18 Finally, Global’s assertion that the “disgorgement” Aerojet seeks is an improper 19 form of equitable relief also lacks merit. See Mot. at 12–14. As the opposition makes clear, 20 Aerojet not only seeks damages for unpaid claims, but also disgorgement of the premium 21 payments Global allegedly wrongfully obtained through agreeing to policy obligations it did not 22 intend to honor. Opp’n at 10, 14. Thus, when the complaint seeks disgorgement of funds 23 received through the policy, it is referencing funds Aerojet paid directly to Global based on a 24 false or deceptive premise. SAC ¶ 78. Restoration of funds obtained through such a transaction 25 is permitted under the UCL. Palmer v. Stassinos, 348 F. Supp. 2d 1070, 1088 (N.D. Cal. 2004) 26 (“The California Supreme Court has held that restitution under the UCL is limited to either 27 ‘money or property that defendants took directly from plaintiff’ or ‘money or property in which 28 [plaintiff] has a vested interest.’” (alteration in original) (citing Korea Supply Co., 29 Cal. 4th at 1 1146–47)), order clarified on reconsideration, 419 F. Supp. 2d 1151 (N.D. Cal. 2005); Krueger v. 2 Wyeth, Inc., 396 F. Supp. 3d 931, 954 (S.D. Cal. 2019) (“[T]he distinction between restitutionary 3 and non-restitutionary disgorgement turns on whether the money plaintiff seeks was obtained by 4 the defendant from the plaintiff in the first place. If so, disgorgement is restitutionary.” 5 (alteration in original) (quoting Kraus v. Trinity Mgmt. Servs., Inc., 23 Cal. 4th 116, 126 (2000))); 6 SkinMedica, Inc. v. Histogen Inc., 869 F. Supp. 2d 1176, 1184 (S.D. Cal. 2012) (“Restitutionary 7 disgorgement, which focuses on the victim’s loss, may be recovered under the UCL. This is 8 typified in situations ‘where the disgorged money or property [came] from the prospective 9 plaintiff in the first instance.’” (alteration in original) (citation omitted)). 10 Because Aerojet seeks return of premiums it paid directly to Global and Global 11 provides no response to this assertion, see generally Reply, Aerojet’s disgorgement request is 12 permitted under the UCL. See SkinMedica, Inc., 869 F. Supp. 2d at 1184–85 (“[N]onrestitution- 13 ary disgorgement, which focuses on the defendant’s gain and does not require that the plaintiff 14 suffered an identifiable loss, is not available under the UCL. Thus, disgorgement of profits is an 15 available remedy for an individual private plaintiff under the UCL only to the extent that it 16 constitutes restitution.”). 17 Disgorgement is limited, however, to the premiums Aerojet paid directly to 18 Global. It does not include attorneys’ fees Aerojet expended pursuing the return of those 19 premiums. Despite Aerojet’s assertions in its opposition, Opp’n at 16, and at hearing, the court is 20 unaware of any authority suggesting attorneys’ fees are permissibly included in a disgorgement 21 award of this nature. Aerojet cites to none. See generally id. Indeed, this request appears to run 22 counter to disgorgement’s general premise: that money or property once rightfully possessed by 23 one party, but now wrongfully obtained by another, be returned to its rightful owner. Korea 24 Supply Co., 29 Cal. 4th at 1149. 25 In sum, apart from the attorneys’ fees Aerojet seeks as part of its disgorgement 26 request, the general equitable relief it seeks is proper under the UCL. 27 28 1 2. Viability of Aerojet’s Claims Under “Unlawful” Prong 2 Because each prong under the UCL supports a distinct theory of liability, Kearns, 3 567 F.3d at 1127, each prong must be pled with specificity. Global argues Aerojet fails to state a 4 claim under the UCL’s “unlawful” prong because the statutory and regulatory provisions Aerojet 5 identifies as forming a basis for Global’s unlawful activity, namely California Insurance Code 6 section 790.03 and California Code of Regulations (“C.C.R.”) title 10, section 2695 et seq., 7 cannot ground a UCL claim. Reply at 8. Aerojet maintains that what constitutes unlawful 8 activity is broadly defined; therefore, the statute and regulation, as well as the common law duty 9 of good faith and fair dealing, are sufficient to state an unlawful prong claim. Opp’n at 3–7. 10 Here too Global’s arguments are unavailing. 11 “To state a claim under the unlawful prong of the UCL, a plaintiff must plead: 12 (1) a predicate violation, and (2) an accompanying economic injury caused by the violation.” 13 Shelton v. Ocwen Loan Servicing, LLC, No. 18-CV-02467-AJB-WVG, 2019 WL 4747669, at 14 *10 (S.D. Cal. Sept. 30, 2019). “By proscribing any unlawful business practice, the UCL 15 borrows violations of other laws and treats them as unlawful practices that the unfair competition 16 law makes independently actionable.” Alvarez v. Chevron Corp., 656 F.3d 925, 933 n.8 (9th Cir. 17 2011) (alterations and citations omitted). “Virtually any law—federal, state or local—can serve 18 as a predicate for an action under [the UCL].” Hadley v. Kellogg Sales Co., 243 F. Supp. 3d 19 1074, 1094 (N.D. Cal. 2017) (alteration in original) (quoting Smith v. State Farm Mut. Auto. Ins. 20 Co., 93 Cal. App. 4th 700, 718 (2001)). Where an “unlawful” claim sounds in fraud, it too must 21 meet Rule 9(b)’s pleading standards. Hadley, 243 F. Supp. 3d at 1094. 22 Here, the second amended complaint alleges Global’s “misrepresentations, unfair 23 claims handling, withholding of policy benefits, unreasonable delays causing damages, and other 24 bad faith misconduct violate other statutes including Business & Professions Code Section 1750, 25 et seq. and Insurance Code 790.03 and related regulations and/or provisions of the Insurance 26 Code . . . .” SAC ¶ 78. The complaint also alleges Global “had the duty to act fairly and in good 27 faith . . . in carrying out its responsibilities under the Policies,” including making good faith 28 coverage determinations under California’s Insurance Code Fair Claims Settlement Practices 1 Regulations (“FCSPR”) and other provisions, including Insurance Code sections 790.03(h)(2)–(6) 2 and (12)–(13) as well as 10 C.C.R. section 2695.7. Id. ¶ 68. 3 Global relies on Zhang v. Super. Ct., 57 Cal. 4th 364 (2013), for the proposition 4 that neither Insurance Code section 790.03, nor its enabling regulation, 10 C.C.R. section 2695.1, 5 can serve as the predicate offense for an “unlawfulness” claim under the UCL. Reply at 8. On 6 this score, Global is correct. In Zhang, the court specifically held that “[p]rivate UIPA3 actions 7 are absolutely barred; a litigant may not rely on the proscriptions of section 790.03 as the basis 8 for a[n] [unfairness] UCL claim.” Zhang, 57 Cal. 4th at 384; see also Lennane v. Am. Zurich Ins. 9 Co., No. 2:13-CV-02311 JAM AC, 2014 WL 546061, at *3 (E.D. Cal. Feb. 10, 2014) (“Zhang is 10 clear that a plaintiff may not use the UCL to plead around an absolute bar to relief.” (quotations 11 and alterations omitted)). Additionally, the regulations set forth in 10 C.C.R. section 2695.1 12 cannot be used as a predicate offense for an UCL claim of unlawfulness because those regulations 13 are promulgated under the auspices of Insurance Code section 790.03(h); thus, the regulations 14 create no private right of action under the UCL given its linkage with section 790.03, which itself 15 creates no private right of action. See 10 C.C.R. § 2695.1(a) (“The Insurance Commissioner has 16 promulgated these regulations . . . [t]o delineate certain minimum standards for the settlement of 17 claims, which when violated . . . constitute an unfair claims settlement practice within the 18 meaning of Insurance Code Section 790.03(h).”); see also Moradi–Shalal v. Fireman's Fund Ins. 19 Cos., 46 Cal. 3d 287 (1988) (holding that section 790.03(h) has no private right of action). 20 Global’s argument fails, however, regarding the viability of Aerojet’s 21 unlawfulness claim as predicated on the alleged violation of Global’s common law duty to act in 22 good faith. “Conduct that violates obligations imposed by common law [can] also be sufficient to 23 support a UCL claim under the unlawful prong.” Shelton v. Ocwen Loan Servicing, LLC, No. 18- 24 CV-02467-AJB-WVG, 2019 WL 4747669, at *10 (S.D. Cal. Sept. 30, 2019) (citing Newton v. 25 Am. Debt Servs., Inc., 75 F. Supp. 3d 1048, 1058 (N.D. Cal. 2014)); Zhang, 57 Cal. 4th at 380 26 (“[B]ad faith insurance practices may qualify as any of the three statutory forms of unfair 27 3 Insurance Code section 790 et seq. is commonly known as the Unfair Insurance Practices 28 Act or “UIPA.” See Zhang, 57 Cal. 4th at 368. 1 competition.”). “For a breach of contract to be the basis of a UCL claim, the breaching conduct 2 must also constitute conduct that is unlawful, unfair, or fraudulent.” Shelton, 2019 WL 4747669, 3 at *10. In other words, a breach of contract claim alone is an insufficient predicate for an 4 “unlawfulness” prong claim, Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1044 5 (9th Cir. 2010); however, that same breach of contract claim may possibly state a claim under the 6 UCL’s “unlawfulness” prong if flanked by allegations the conduct is also unlawful, unfair or 7 fraudulent, id. (citing approvingly Nat’l Rural Telecomms. Coop. v. DIRECTV, Inc., 319 8 F. Supp. 2d 1059, 1074–75 (C.D. Cal.2003) (violation of common law can support § 17200 claim, 9 provided offending conduct is also unlawful, unfair or fraudulent)). 10 Here, Aerojet sufficiently alleges conduct beyond the breach of contract itself, 11 with the specificity required by Rule 9(b), to plead that Global has violated its duty of good faith 12 and fair dealing. See SAC ¶ 69 (“Defendants unfairly, unreasonably, and without proper cause, 13 breached . . . their obligation to act fairly and in good faith” by “failing to indemnify Aerojet 14 under the Policies and reimburse all losses sustained . . . failing to conduct reasonable, prompt 15 and unbiased investigations . . . failing to communicate . . . refusing to make timely payments . . . 16 adopting unreasonable coverage-limiting interpretations . . . misrepresenting its coverage 17 obligations . . . [and] [t]aking [these] actions . . . to force Aerojet to forego benefits to which it is 18 entitled[.]”). In the insurance context, failure to operate in good faith is an unlawful practice. See 19 Benavides v. State Farm Gen. Ins. Co., 136 Cal. App. 4th 1241, 1249 (2006) (“In addition to the 20 duties imposed on the contracting parties by the express terms of their [insuring] agreement, the 21 law implies in every contract a covenant of good faith and fair dealing.”). Here, Aerojet’s 22 allegations suggest more than a simple breach of contract; they suggest Global is engaged in the 23 practice of avoiding its obligations under the policies it issues, and does so at the expense of the 24 parties with which it contracts. 25 Aerojet’s “unlawful” UCL claim survives because it alleges, with adequate 26 specificity, that Global breached its duty of good faith and fair dealing. 27 28 1 3. Viability of Aerojet’s Claims Under “Unfair” Prong 2 Global contends Aerojet’s allegations are insufficient under the UCL’s “unfair” 3 prong because Aerojet “has not alleged that Defendants’ actions violated a public policy, nor has 4 it tied its claim of unfairness to any antitrust law, constitutional or statutory provision, or 5 regulation carrying out such a statutory policy.” Mot. at 8. In opposition, Aerojet contends it 6 “plead[s] facts, and Global produced evidence in discovery, showing Defendants [sic] engaged in 7 unfair conduct.” Opp’n at 8. 8 In this respect, Global is correct. “A business practice is unfair within the meaning 9 of the UCL if it violates established public policy or if it is immoral, unethical, oppressive or 10 unscrupulous and causes injury to consumers which outweighs its benefits.” McKell v. Wash. 11 Mut., Inc., 142 Cal. App. 4th 1457, 1473 (2006). Although California courts are divided as to 12 what constitutes “unfair” conduct, see Cappello v. Walmart Inc., 394 F. Supp. 3d 1015, 1023 13 (N.D. Cal. 2019) (explaining that California courts will employ either “balancing test” or 14 “tethering test” to determine unfair conduct), the distinction is irrelevant here given the bare 15 allegations in the complaint. Aerojet’s only allegation of “unfair” conduct is that Global has 16 “placed their own interests ahead of their policyholder’s[.]” SAC ¶ 71. Aerojet’s opposition 17 effectively confirms the inadequacy of these allegations by pointing almost exclusively to 18 evidence produced during discovery, and not to allegations in the complaint itself. See Opp’n at 19 8–9. Because the court has declined to convert Global’s motion into one for summary judgment, 20 it does not consider the extrinsic evidence Aerojet proffers. Aerojet’s scant allegations of 21 Global’s unfair practices in the second amended complaint fail to satisfy Rule 9(b)’s heightened 22 pleading standard; thus, Aerojet fails to state a claim under the UCL’s unfair prong. 23 Because the instant complaint is Aerojet’s second amended pleading,4 the court 24 declines to grant Aerojet further leave to amend in order to adequately plead an unfair practice 25 claim under the UCL. See Foman v. Davis, 371 U.S. 178, 182 (1962); Grecia v. VUDU, Inc., No. 26 C-14-0775-EMC, 2015 WL 538486, at *10 (N.D. Cal. Feb. 9, 2015) (denying leave to amend 27 4 The original complaint appears at ECF No. 1, and the first amended complaint at ECF 28 No. 59. 1 where plaintiff “had ample opportunity over many months to allege a sufficiently pled claim. . . . 2 yet [failed] to do so”). 3 4. Viability of Aerojet’s Claim Under “Fraudulent” Prong 4 Finally, Global argues Aerojet’s allegations do not state a claim under the UCL’s 5 “fraudulent” prong because they lack the “who, what, when, where, and how” required by Rule 6 9(b). Reply at 6–7. Aerojet contends its fraud-based allegations are sufficiently pled, and here as 7 well points to additional facts revealed through discovery, particularly through the deposition of 8 Scott Ross, Global’s underwriter, to support its fraudulent-prong claim under the UCL. Opp’n at 9 9–10 (citing SAC ¶ 73; Ross Dep., Ex. D, ECF No. 250-1). Here again, Global is correct. 10 “To state a claim under the fraudulent prong of the UCL, ‘it is necessary only to 11 show that members of the public are likely to be deceived’ by the business practice or advertising 12 at issue.” Kowalsky v. Hewlett-Packard Co., 771 F. Supp. 2d 1156, 1159 (N.D. Cal. 2011) 13 (quoting In re Tobacco II Cases, 46 Cal. 4th 298, 312 (2009)). There can be a violation without 14 “actual deception, reasonable reliance and damage.” Daugherty v. American Honda Motor Co., 15 Inc., 144 Cal. App. 4th 824, 838 (2006). Still, in “alleging fraud or mistake, a party must state 16 with particularity the circumstances constituting fraud or mistake. Plaintiffs must include an 17 account of the time, place, and specific content of the false representations at issue. Additionally, 18 a plaintiff stating a claim under the ‘fraud’ prong must plead actual reliance.” In re Anthem, Inc. 19 Data Breach Litig., No. 15-MD-02617-LHK, 2016 WL 3029783, at *34 (N.D. Cal. May 27, 20 2016) (citations omitted). 21 In the second amended complaint, Aerojet alleges “Global’s conduct . . . 22 constituted an intentional misrepresentation and concealment of material facts known to 23 Defendants, all with the intent to deprive Aerojet of property [and] legal rights . . . such as to 24 constitute malice, oppression and/or fraud.” SAC ¶ 73. Aerojet also alleges Global 25 “misrepresented their coverage obligations under the Policies and consciously disregarded 26 Aerojet’s rights . . . to which it is entitled under the Policies.” Id. While these allegations, 27 identified by Aerojet in its opposition, see Opp’n at 9, signal fraud, they do not provide the 28 specificity required by Rule 9(b). The complaint does allege Global was “[m]isrepresenting its 1 coverage obligations under the Policies,” but does not specifically state what obligations were 2 misrepresented, through whom the misrepresentations were made, or the manner in which Aerojet 3 actually relied on the alleged misrepresentations. While the complaint suggests Aerojet agreed to 4 settle the pending Orbital dispute because it expected indemnification through the Global policy, 5 these allegations do not point to any material representation upon which Aerojet relied. See SAC 6 ¶¶ 44–53. If anything, the complaint suggests the opposite, saying Global consented to the 7 Aerojet-Orbital settlement, “while reserving its right to deny coverage.” Id. ¶ 46. Even 8 interpreting these allegations in the light most favorable to Aerojet, as the court must, they do not 9 meet the particularity demands of Rule 9(b). Aerojet cannot fill the gaps in its complaint by 10 pointing to statements by Global’s underwriter, Scott Ross, during his deposition. 11 These allegations, as pled, do not satisfy the “who, what, when, where, and how” 12 under Rule 9(b); therefore, the court dismisses the “fraudulent” prong of Aerojet’s UCL claim. 13 As with the “unfairness” prong of Aerojet’s UCL claim, given Aerojet’s prior opportunities to 14 amend, the court does not grant Aerojet a further opportunity to amend this claim. 15 In sum, the court GRANTS Global’s motion for judgment on the pleadings, 16 without leave to amend, as to the “unfair” and “fraudulent” prongs of Aerojet’s UCL claim, and 17 DENIES the motion as to the “unlawful” prong. The court also DENIES the motion to the extent 18 Global contends Aerojet is precluded from seeking equitable remedies here. 19 IV. CONCLUSION 20 For the reasons stated above, defendants’ motion for judgment on the pleadings, 21 ECF No. 234, is GRANTED in part and DENIED in part. Plaintiff may proceed on its UCL 22 claim under the “unlawful” prong, but its claims under the “unfair” and “fraudulent” prongs are 23 dismissed. 24 IT IS SO ORDERED. 25 DATED: July 9, 2020. 26 27 28