Alden v. Superior Court

Filed 10/30/07 Alden v. Superior Court CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

ORIGINAL PROCEEDINGS in mandate. Robert L. Hess, Judge. Petition granted.

Nick A. Alden for Petitioner.

No appearance for Respondent.

P. K. Schrieffer, Paul K. Schrieffer, Rena M. Stone; Walker Wilcox Matousek, Mark D. Wilcox and Eric D. Blanchard for Real Party in Interest.

INTRODUCTION

Petitioner Eric Alden seeks mandamus to review the trial courts order striking the prayer for punitive damages and the allegations supporting the prayer from his third amended complaint (TAC). Because we conclude the seventh cause of action alleges facts sufficient to support the prayer for punitive damages, we issue the writ and order the trial court to vacate its order.

BACKGROUND

Petitioner seeks review of the trial courts order striking punitive damages from the TAC, on motion of real party in interest, defendant Landmark American Insurance Company (Landmark).[1] Landmark moved to strike the prayers for punitive damages, and several conclusions, including the following in paragraph 79 of the TAC: Landmark has acted wrongfully, unreasonably, maliciously, oppressively, despicably, and in conscious disregard of Plaintiffs rights.

The trial court granted the motion December 1, 2006, and petitioner filed a petition for writ of mandate. We requested Landmark to file a preliminary response. Upon reviewing the response and petitioners reply, we issued an alternative writ as to the seventh cause of action only (the Fraser action), requiring the superior court to vacate its order granting the motion to strike, or to show cause why the writ of mandate should not issue. We temporarily stayed all trial court proceedings until further order.

In allegations incorporated into all causes of action, the TAC avers that Landmark provides errors and omissions insurance coverage to corporate officers and directors, and provided such a policy to Case Financial, Inc. (Case Financial). From the time the policy was issued in 2002 until early 2004, petitioner was the chief executive officer (CEO), president and a member of the board of directors of Case Financial.

The TAC alleges that on May 25, 2004, Nancy Fraser filed an action against Case Financial, alleging breach of contract, fraud and other wrongs. One year later, when Fraser discovered the insolvency of Case Financial, she added petitioner as a defendant. Petitioner answered the complaint and notified Landmark. Landmark confirmed coverage, but refused to allow petitioner to retain his attorney-father to represent him, although Landmark did not undertake the defense. The TAC alleges that Landmarks refusal to allow petitioner to retain independent counsel at Landmarks expense was unreasonable, without justification and done in bad faith.[2]

The TAC alleges petitioners discovery efforts succeeded in causing Fraser to dismiss petitioner with prejudice from her action on December 20, 2005. Approximately one week later, Fraser dismissed her action against Case Financial, allegedly as a result of payment by Landmark. When petitioner tendered his attorney fees and defense costs of $49,000 to Landmark for reimbursement, it offered to pay $22,500, allegedly on the basis of take it or leave it. The TAC alleges that when petitioner moved the trial court for an award of attorney fees and costs against Case Financial, Landmark financed Case Financials opposition to the motion. The trial court granted the motion and entered judgment against Case Financial for fees and costs in the sum of $33,924.23. The TAC alleges that, despite petitioners demand, Landmark refused to pay the award, based upon its misrepresentation that the terms of the policy did not obligate it to do so.[3] It is alleged that Case Financial continues to be insolvent.

The TACs first and second causes of action seek declaratory relief -- a declaration of petitioners rights and Landmarks duties under the policies, the first with regard to the Fraser lawsuit, and the second with regard to the Canadian Commercial Workers Industry Pension Plan (CCWIPP) lawsuit. The third and fourth causes of action seek damages for breach of contract with regard to the denial of policy benefits relating to the Fraser and CCWIPP lawsuits. The seventh and eighth causes of action seek damages for breach of the implied covenant of good faith and fair dealing in the respective lawsuits.[4]

The following allegations of the TAC relate to punitive damages with regard to the Fraser lawsuit:

29. . . . Landmark misrepresented the terms of the policy, taking the position that the only insuring agreement between Landmark and plaintiff [is found under section I.A.]. Thus, for plaintiff to state a valid cause of action for breach of contract, he must establish coverage, or a potential for coverage, under Section I.A. Landmark knew, but failed to disclose that Section I.B. of the Policy also provides coverage. Landmarks argument was a total misrepresentation of the terms of the policy.

[] . . . []

79. . . . Landmark has acted wrongfully, unreasonably, maliciously, oppressively, despicably, and in conscious disregard of Plaintiffs rights [as] follow[s]:

a. . . .  Landmark fraudulently promised to insure Plaintiff and to fully undertake the defense, or advance the costs of said defense, to protect against actions such as the Fraser Actions, without any intention of performing such promise;

. . . 

c. . . . Landmark refused to provide a reasonable interpretation of its policy as applied to Plaintiffs claim, and has acted solely to place its own financial interests above the interests of Plaintiff, its insured.

d. . . . Landmark has adopted an illogical and nonsensical interpretation of its policy in its effort to deprive Plaintiff of his rights under the policy;

[] . . . []

81. . . . Landmarks conduct . . . was calculated with the intent to harass and annoy Plaintiff and to force Plaintiff to submit to the unreasonable and unjustified position taken by Landmark, and was conducted to deprive Plaintiff of the rights and benefits to which he is entitled under the policy . . .[,] with the conscious and reckless disregard of the consequences to Plaintiff and of Plaintiffs rights . . . . [Fn. omitted.]

DISCUSSION

Petitioner contends the trial court erred in granting Landmarks motion to strike the punitive-damage prayer and related allegations. In order to survive a motion to strike an allegation of punitive damages, the ultimate facts showing an entitlement to such relief must be pled by a plaintiff. [Citations.] In passing on the correctness of a ruling on a motion to strike, judges read allegations of a pleading subject to a motion to strike as a whole, all parts in their context, and assume their truth. [Citations.] In ruling on a motion to strike, courts do not read allegations in isolation. [Citation.] We review an order striking punitive damages allegations de novo. [Citation.] (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.)

Although we review the complaint de novo, the trial courts reasoning is helpful in focusing on the issue in this case. The trial court granted Landmarks motion because [t]he specific allegations to support punitive damages are insufficient, being mostly conclusory . . . . (Italics added.) It is the general rule that a complaint must contain only allegations of ultimate facts as opposed to allegations of evidentiary facts or of legal conclusions or arguments. [Citation.] (Burke v. Superior Court (1969) 71 Cal.2d 276, 279, fn. 4; 4 Witkin, Cal. Procedure (4th ed. 1997) Pleading, 339, pp. 436-438; Code Civ. Proc.,  425.10, subd. (a)(1).) However, a complaint is not insufficient simply because ultimate facts are intermingled with conclusions of law. (Krug v. Meeham (1952) 109 Cal.App.2d 274, 277.) Nor is it proper to strike a prayer for punitive damages simply because the averments of the complaint are mostly conclusory and subject to being stricken. (See Perkins v. Superior Court (1981) 117 Cal.App.3d 1, 6 (Perkins).)

What is important is that the complaint as a whole contain sufficient facts to apprise the defendant of the basis upon which the plaintiff is seeking relief. [Citations.] The stricken language must be read . . . in the context of the facts alleged in the rest of petitioners complaint. Taken in context, the words wrongfully and intentionally [may] describe a knowing and deliberate state of mind from which a conscious[] disregard of petitioners rights might be inferred -- a state of mind which would sustain an award of punitive damages. [Citations.] (Perkins, supra, 117 Cal.App.3d at p. 6.) Similarly, [t]he allegation that defendants were guilty of oppression, fraud, and malice . . . is not objectionable when sufficient facts are alleged to support the allegation. [Citation.] (Id. at pp. 6-7.)

As a preliminary matter, we note the seventh cause of action -- for tortious breach of the implied covenant of good faith and fair dealing by Landmark in the Fraser matter -- was not stricken or dismissed.[5] Thus, we begin with a complaint that sufficiently alleges a wrong for which punitive damages may be recovered. (See generally Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 43-44.)[6]

The elements of an insurance bad faith cause of action are as follows: (1) benefits due under the policy . . . have been withheld; and (2) the reason for withholding benefits [was] unreasonable or without proper cause. [Citations.](Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1151.) In order to recover punitive damages, a plaintiff must prove more than the two elements comprising a cause of action for bad faith; the bad faith must be shown to have been conducted with oppression, fraud or malice. (Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 462-463; see Civ. Code, 3294, subd. (a).)[7] The definitions of oppression, fraud or malice are as follows: (1) Malice means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others. [] (2) Oppression means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that persons rights. [] (3) Fraud means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury. ( 3294, subd. (c).)

With these definitions in mind, we turn to Landmarks alleged conduct. Ordinarily, we treat conclusions -- that conduct was wrongful, fraudulent, unreasonable, malicious, oppressive and despicable -- as surplusage, and disregard them. (See Berman v. Bromberg (1997) 56 Cal.App.4th 936, 945.) However, we liberally construe and treat as true all of the complaints material factual allegations, including facts that may be implied or inferred from those expressly alleged. [Citation]. (Amarel v. Connell (1988) 202 Cal.App.3d 137, 141; see Code Civ. Proc., 452.) Thus, as petitioners use of fraudulent occasionally appears to mean false, we do not disregard it on those occasions.

In paragraph 29, relating to the Fraser action, petitioner alleges that Landmark denied coverage based upon one provision of the policy while concealing the fact that coverage was available under another provision. The allegation of a fraudulent promise in paragraph 79 fairly avers that Landmark falsely promised to comply with policy provisions requiring Landmark to indemnify and defend, without any intention of performing the promise. Further, paragraph 79 avers that Landmark maintained a false interpretation of the policy in order to prevent petitioners recovery of benefits. Paragraph 81 alleges that Landmarks false construction of the policy was undertaken with a conscious disregard of petitioner rights, and with the intent to harass and annoy petitioner to the extent necessary to cause him to submit to Landmarks false construction, thereby depriving him of policy benefits.

Relying on Smith v. Superior Court (1992) 10 Cal.App.4th 1033, (Smith), and Brousseau v. Jarrett (1977) 73 Cal.App.3d 864 (Brousseau), Landmark contends there exists a heightened standard for pleading punitive damages, which requires something more than alleging facts amounting to oppression, malice or fraud. The authorities upon which Landmark relies did not impose a heightened standard of pleading, and neither authority limits the general rule that factual allegations in pleadings must be liberally construed. (See Code Civ. Proc., 452.) The courts in Smith and Brousseau held that conclusory allegations do not transform negligence into an intentional tort. (See, e.g., Smith, at pp. 1041-1042 [allegation that defendants unintentional conduct was intentional, knowing, malicious, fraudulent, false and deceitful, held insufficient]; Brousseau, at pp. 869, 872 [medical malpractice cause of action sounded in negligence, which does not support a prayer for punitive damages].)[8]

Landmark suggests that pleading malice requires an averment of facts showing despicable conduct. However, there are two prongs to the definition of malice, and the two prongs are in the disjunctive: Malice means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others. ( 3294, subd. (c)(1), italics added.) Despicable conduct is a required element of the conscious disregard prong of malice.  (Ibid; College Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 725.) The first prong -- intent to injure the plaintiff -- carries no such requirement. ( 3294, subd. (c)(1).) The facts we have summarized sufficiently allege malice under the first prong of the definition -- conduct intended to cause injury to petitioner. They allege that Landmark harassed and annoyed petitioner by taking false and unreasonable positions on policy construction with the intent to deprive him of policy benefits. (See 3294, subd. (c)(1).)

Petitioner contends the facts are also sufficient to allege fraud under the definition of section 3294. We agree. The facts alleged are a sufficient averment that Landmark intentionally misrepresented or concealed a material fact known to it, with the intention of depriving petitioner of his legal rights or otherwise causing him injury. (See 3294, subd. (c)(1).)

Landmark contends the TACs averment of fraud is identical to that found insufficient in Smith, where the plaintiff alleged negligent legal representation, and then alleged: [D]efendants . . . misrepresented and fraudulently concealed the true nature of the representation being afforded by . . . defendants and that plaintiffs legal interests and rights were being protected, when in fact, they were not. The defendants conduct . . . was intentional, knowing, malicious, fraudulent, false and deceitful. (Smith, supra, 10 Cal.App.4th at p. 1036.) The appellate court found such conclusions added nothing to a cause of action in negligence. (Id. at pp. 1035, 1041-1042.) We agree with the court in Smith that alleging that an attorney concealed the fact his representation would be negligent fails to amount to fraud as defined in section 3294, subdivision (c)(3). Here, however, the TAC has pleaded insurance bad faith -- an intentional tort -- not simply negligence, as in Smith.

Citing Lehto v. Underground Constr. Co. (1977) 69 Cal.App.3d 933 (Lehto), Landmark contends that fraud, for purposes of section 3294, must be alleged with particularity. In Lehto, a general allegation that the defendant acted fraudulently was held insufficient to support a prayer for punitive damages. The court quoted Witkins discussion of the requirements for pleading a cause of action for common law fraud: It is essential that the facts and circumstances which constitute the fraud should be set out clearly, concisely, and with sufficient particularity to apprise the opposite party of what he is called on to answer, and to enable the court to determine whether, on the facts pleaded, there is any foundation, prima facie at least, for the charge of fraud. (Lehto, at p. 944; see 5 Witkin, Cal. Procedure (4th ed. 1997) Pleading, 669, p. 125, quoting Scafidi v. Western Loan & Bldg. Co. (1946) 72 Cal.App.2d 550, 558.)

We do not disagree with the courts holding in Lehto that it is insufficient simply to allege that the defendant acted fraudulently; however, its reliance on the pleading requirements for a common law cause of action for fraud suggests those requirements are identical when alleging fraud in support of a prayer for punitive damages. (See Lehto, supra, 69 Cal.App.3d at p. 944.) They are not. The elements of a fraud cause of action are: (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or scienter); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage. [Citation.] (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974.) The elements required for the recovery of punitive damages do not include reliance or separate damage.[9] (See 3294, subd. (c); Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2007)  11:24, p. 11-8.) For purposes of punitive damages, section 3294 requires: (1) a material fact known to the defendant; (2) an intentional misrepresentation or concealment of that fact, or other deceit concerning the fact, (3) made with the intent to deprive the plaintiff of property or legal rights, or otherwise to injure the plaintiff. ( 3294, subd. (c).)

The TAC alleged that in the Fraser action, Landmark falsely promised to indemnify and defend petitioner, misrepresented to petitioner the applicable policy provision, and continued to maintain a false construction of the policy -- all to prevent petitioners recovery of benefits due under the policy. We conclude the seventh cause of action sufficiently alleges that Landmarks bad faith breach of contract was undertaken by means of misrepresentation or concealment of a material fact, or by other deceitful means. (See 3294, subd. (c).) Thus, the motion to strike should not have been granted.[10]

DISPOSITION

The alternative writ is discharged. A peremptory writ of mandate shall issue directing the trial court to vacate its order granting Landmarks motion to strike, and issue a new and different order denying the motion as to the seventh cause of action and the prayer. Petitioner shall have his costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

MANELLA, J.

We concur:

EPSTEIN, P. J. SUZUKAWA, J.

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[1] Landmark filed demurrers with its motion to strike. The demurrer to the 10th cause of action was sustained without leave to amend, and petitioner consented to the sustaining of the demurrers to the fifth and sixth causes of action without leave to amend. Those orders are not at issue here.

[2] At oral argument, Landmarks counsel suggested that a refusal to allow an insured to be represented by a parent should be deemed reasonable as a matter of law. Counsel cited no authority for such a proposition, and we are aware of none.

[3] Petitioner represents that approximately two months prior to filing the petition, he was able to recover most of the amount of the judgment from Case Financial, by means of a writ of execution. As the petition was filed more than one year after Landmark allegedly first refused payment of petitioners attorney fees and costs, the amount of damages recoverable may be affected by such payment, but the bad faith cause of action is not eliminated. (See McCormick v. Sentinel Life Ins. Co. (1984) 153 Cal.App.3d 1030, 1050-1051.)

[4] The ninth cause of action names Case Financial, and is not at issue here.

[5] Landmark contends a demurrer was sustained to the Fraser claim, but does not cite to the record, and we find no such order in the record. The trial court overruled all demurrers not expressly sustained. The demurrer to the seventh cause of action was not expressly sustained. Thus, it was overruled.

[6] Accordingly, we decline the invitation by both parties to construe the policy language as providing or not providing the benefits claimed by petitioner.

[7] All further statutory references are to the Civil Code unless otherwise noted.

[8] Section 3294 requires a heightened standard of proof : punitive damages may be recovered only where it has been proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice . . . . ( 3294, subd. (a).)

[9] Of course, a plaintiff must prove damage caused by the underlying tort before he or she may obtain an award of punitive damages. (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 530-531.)

[10] We did not issue an alternative writ as to the eighth cause of action, because petitioner did not make as strong a case for the sufficiency of the allegations regarding the CCWIPP matter. At oral argument, counsel for appellant asked the court to consider a deposition taken after we issued the alternative writ, representing that the deposition brought out additional facts to justify amending the eighth cause of action. We decline to do so. Code of Civil Procedure section 473 provides that amendment of pleadings is a matter of discretion to be determined in the first instance by the trial court pursuant to a motion for leave to amend. (Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.)