Lincoln Benefit Life Company v. Alexander Dallal

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAR 1 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
LINCOLN BENEFIT LIFE COMPANY, No. 21-55152
Plaintiff-Appellee, D.C. No.
2:16-cv-09307-MWF-E
v.
ALEXANDER DALLAL, an individual; MEMORANDUM*
CLAIRE DALLAL, an individual,
Defendants-Appellants.
Appeal from the United States District Court
for the Central District of California
Michael W. Fitzgerald, District Judge, Presiding
Argued and Submitted February 16, 2022
Pasadena, California
Before: OWENS and MILLER, Circuit Judges, and CHRISTENSEN,** District
Judge.
Defendants-Appellants Alexander Dallal and Claire Dallal (“the Dallals”)
bring this appeal following an adverse jury verdict. The jury awarded Plaintiff-
Appellee Lincoln Benefit Life Company (“Lincoln”) $619,290.49 in compensatory
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Dana L. Christensen, United States District Judge for
the District of Montana, sitting by designation.
damages and $300,000 in punitive damages. The district court subsequently
resolved several outstanding equitable claims in favor of Lincoln. The Dallals
moved for a new trial, which the district court denied. The Dallals now appeal.
We have jurisdiction pursuant to 28 U.S.C § 1291, and, for the reasons stated
herein, affirm.
1. We review the district court’s exclusion of Dr. Chow as an expert
witness for an abuse of discretion. Kumho Tire Co., Ltd. v. Carmichael, 526 U.S.
137, 152 (1999). The Dallals’ expert witness disclosure as to Dr. Chow was
untimely and was never accompanied with a report satisfying the requirements of
Federal Rule of Civil Procedure 26(a)(2)(B). On appeal, the Dallals fail to
establish these defects were substantially justified or harmless. See Yeti by Molly,
Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001) (citing Fed. R.
Civ. P. 37(c)(1)). Accordingly, exclusion was well within the district court’s
discretion.
2. Because the Dallals did not object to the challenged jury instruction, we
review for plain error. Bearchild v. Cobban, 947 F.3d 1130, 1139 (9th Cir. 2020).
To prevail, the Dallals must show: (1) an error; (2) that was plain; (3) which
affected their substantial rights; and (4) “seriously affected the fairness, integrity,
or public reputation of judicial proceedings.” Id. They have not done so here.
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The parties agree that the three-year statute of limitations found in California
Code of Civil Procedure § 338(d) applies to Lincoln’s claims. This statute
incorporates the “discovery rule” to “fraud actions by statute,” Cansino v. Bank of
Am., 169 Cal. Rptr. 3d 619, 628 (Cal. Ct. App. 2014), providing that any “cause of
action . . . is not deemed to have accrued until the discovery, by the aggrieved
party, of the facts constituting the fraud or mistake,” California Civil Code §
338(d).
The discovery rule is an “important exception to the general rule of accrual
. . . [and] postpones accrual of a cause of action until the plaintiff discovers, or has
reason to discover, the cause of action.” Fox v. Ethicon Endo-Surgery, Inc., 110
P.3d 914, 920 (Cal. 2005). Under the discovery rule, the statute of limitations does
not begin to run when the last element occurs, but instead at the time the plaintiff
“at least suspects that someone has done something wrong to him.” Norgart v.
Upjohn Co., 981 P.2d 79, 88 (Cal. 1999) (alterations and citation omitted).
As to the discovery rule, the district court offered the following instruction:
Lincoln seeks damages for harm that Lincoln claims occurred before
December 16, 2013, the date that California law recognizes as
significant under the statute of limitations in this action.
To recover all of its damages, Lincoln must prove that, before
December 16, 2013, Lincoln did not know of facts that would have
caused a reasonable insurance company to suspect that it had suffered
harm that was caused by someone’s wrongful conduct.
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The Dallals challenge this instruction on two grounds, arguing: (1) that December
16, 2013 is the incorrect accrual date; and (2) the instruction insufficiently
instructed the jury on Lincoln’s obligation to act with reasonable diligence.
Neither contention rises to the level of plain error.
Lincoln filed suit on December 16, 2016. This means that under the three-
year statute of limitations established by California Code of Civil Procedure
section 338(d), it could only recover for fraudulent claims accruing on or after
December 16, 2013, unless the discovery rule applies. December 16, 2013 is the
controlling date for any statute of limitations defense raised in this case and the
Dallals offer no persuasive argument to the contrary.
As to the second point, to be sure, California’s discovery rule obligates
injured parties to act reasonably in uncovering injuries and diligently once they
suspect them. Fox, 110 P.3d at 920. The Dallals, however, attempt to contort this
standard into one obligating an insurer to presume it is being defrauded by its
insureds and investigate claims even in the absence of any evidence of
wrongdoing. This is simply not what the discovery rule requires. The jury was
correctly instructed.
3. We review challenges to a jury’s resolution of a question of fact for
substantial evidence. Mosesian v. Peat, Marwick, Mitchell & Co., 727 F.2d 873,
877 (9th Cir. 1984). Substantial evidence is “evidence adequate to support the
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jury’s conclusion, even if it is also possible to draw a contrary conclusion.”
Harper v. City of L.A., 533 F.3d 1010, 1021 (9th Cir. 2008) (citation omitted). We
do not “weigh the evidence” and instead “simply ask whether the plaintiff has
presented sufficient evidence to support the jury’s conclusion.” Id.Here, the jury’s conclusion as to the discovery rule was supported by
substantial evidence. Specifically, at trial the jury was presented with
overwhelming evidence that from 2004 to 2016 the Dallals systematically forged
hundreds of records indicating Mr. Dallal was severely physically and cognitively
incapacitated in order to wrongfully obtain insurance benefits. And during this
period Lincoln did not simply take the Dallals at their word but instead conducted
multiple independent nursing assessments during which Mr. Dallal feigned
incapacity. The jury’s verdict on this issue will remain undisturbed.
4. We review de novo whether a punitive damages award is excessive.
Cooper Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424, 436, 443 (2001).
The Dallals challenge the punitive damages award under both California law and
the United States Constitution. California law authorizes an award of punitive
damages when a plaintiff establishes by clear and convincing evidence the
defendant engaged in oppression, fraud, or malice. Kaffaga v. Estate of Steinbeck,
938 F.3d 1006, 1015–16 (9th Cir. 2019) (citing Cal. Civ. Code § 3294(a)). But
California law prohibits punitive damage awards that are “excessive as a matter of
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law or raise[] a presumption . . . of passion or prejudice.” Id. at 1018 (quoting
Adams v. Murakami, 813 P.2d 1348, 1350 (Cal. 1991)).
This state-law excessiveness analysis considers a variety of factors including
the reprehensibility of the defendants’ conduct, the relation between the
compensatory damages awarded and the harm suffered, and the award’s relation to
“the wealth of the particular defendant.” Neal v. Farmers Ins. Exch., 582 P.2d 980,
990 (Cal. 1978). California generally finds punitive damage awards exceeding “10
percent of the” defendant’s net worth excessive. Michelson v. Hamada, 36 Cal.
Rptr. 2d 343, 359 (Cal. Ct. App. 1994).
The framework under which California reviews punitive damage awards
remains constrained by the Constitution. State Farm Mut. Auto. Ins. Co. v.
Campbell, 538 U.S. 408, 416 (2003). Generally, a punitive damage award is
unconstitutional when it is “grossly excessive or arbitrary,” which requires a
consideration of three factors: “(1) the degree of reprehensibility of the defendant’s
misconduct; (2) the disparity between the actual or potential harm suffered by the
plaintiff and the punitive damages award; and (3) the difference between the
punitive damages awarded by the jury and the civil penalties authorized or
imposed in comparable cases.” Id. at 416, 418.
In this case, a punitive damages analysis under either California law or the
Constitution compels the same conclusion—the jury’s punitive damages award
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should remain undisturbed. Over the course of nearly a decade, the Dallals
systematically defrauded Lincoln out of hundreds of thousands of dollars in
insurance benefits by forging documents and having Mr. Dallal feign physical and
cognitive incapacity. The jury’s punitive damages award was half of the
compensatory award and a fraction of the Dallals’ $4,000,000 stipulated net worth.
Insurance fraud is serious misconduct, which could be met with both civil and
criminal penalties under California law. Cal. Penal Code § 550(a)(1), (5), (b)(1)–
(3), (c)(1), (3)–(4); Cal. Ins. Code § 1871.7(b). Ultimately, after considering the
requisite factors, we find no basis for disturbing the jury’s punitive damages award
under either California law or the Constitution.
5. The district court’s equitable cancellation of the Policy is reviewed for an
abuse of discretion. Winding Creek Solar LLC v. Peterman, 932 F.3d 861, 866
(9th Cir. 2019). For equitable relief to issue, the benefiting party must have no
adequate remedy at law and must suffer irreparable injury without it. Morales v.
Trans World Airlines, Inc., 504 U.S. 374, 381 (1992). Voiding contracts on the
basis of fraud has long been considered a proper exercise of equitable power. See
Phoenix Mut. Life Ins. Co. v. Bailey, 80 U.S. 616, 622 (1871); San Diego Flume
Co. v. Souther, 90 F. 164, 167 (9th Cir. 1898).
The district court did not abuse its discretion in voiding the policy. Its
conclusion that the Dallals’ fraud had irreparably damaged Lincoln’s ability to
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trust them, and that continuance of the policy would require the expenditure of a
disproportionate amount of resources, justifies the use of equitable powers in this
case. And because the parties agree Lincoln has no mechanism to cancel the
Policy absent equity, it lacks an adequate remedy at law. Cf. Mort v. United States,
86 F.3d 890, 892–93 (9th Cir. 1996). Even if the policy separately insured both
Mr. Dallal and Mrs. Dallal does not prevent a total cancellation of the policy
because the evidence established they were both active participants in the
fraudulent scheme. There was no abuse of discretion.
AFFIRMED.
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