Rierson v. Meritplan Ins. Co.

Filed 8/14/06 Rierson v. Meritplan Ins. Co. CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, J. Richard Haden, Judge. Affirmed in part and reversed in part.

Sandra Rierson alleges that after 21st Century Insurance Company decided to exit the California homeowners insurance market, defendants Meritplan Insurance Company, Balboa Insurance Company and Newport Insurance Company (collectively, defendants) sent insurance policies, along with solicitations for insurance that were disguised as invoices for money already due, to her and other similarly situated homeowners.

Rierson, acting on behalf of herself and all other similarly situated individuals, brought a complaint against defendants, asserting that they engaged in "solicitation billing" and "cramming" in violation of Civil Code^[1] sections 1716 and 1584.5. Rierson also alleged causes of action for breach of contract, violation of Insurance Code section 481.5, unjust enrichment, violation of the covenant of good faith and fair dealing, unfair competition, and false advertising, based upon the same conduct. The defendants responded by filing a demurrer and motion to strike, arguing, on several bases, that sections 1716 and 1584.5 did not apply.

The court sustained the defendants' demurrer, without leave to amend, as to all but two causes of action. The parties later settled those remaining claims, and Rierson dismissed them, allowing a final judgment to be entered and allowing her to appeal the claims dismissed by the court.

On appeal Rierson asserts the court erred in dismissing her claims under sections 1716 and 1584.5 because (1) the court's ruling conflicted with the text and legislative history of section 1716 as it covered not only "phony" invoices, but those for actual products; and (2) the ruling conflicted with the text and legislative history of section 1584.5, as homeowners insurance policies are included within the definition of "goods, wares, merchandise and services" under section 1584.5. Rierson also asserts that the court erred in dismissing her remaining claims.

We conclude that the defendants' solicitations were within the scope of section 1716, and therefore the court erred in dismissing the fourth cause of action, which alleged a violation of that statute. We further hold that the court erred in dismissing the fifth cause of action for unjust enrichment, seventh cause of action for unfair competition and eighth cause of action for false advertising. Accordingly, we reverse the judgment as to those causes of action. In all other respects, the judgment is affirmed.

FACTUAL AND PROCEDURAL BACKGROUND

Because we as the reviewing court are assessing the propriety of the court's ruling on defendants' demurrer, and we treat the demurrer as admitting all material facts properly pleaded (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank)), we take the factual background from the material facts alleged in Rierson's complaint. We do not, however, assume the truth of contentions, deductions or conclusions of law. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.)

A. The Complaint

Rierson filed a verified complaint in January 2003. However, the complaint was amended twice, with the second amended complaint filed in August 2003. The second amended complaint (complaint) is the operative pleading in this matter.

The complaint alleged Rierson was seeking relief on behalf of herself and others similarly situated and that she adequately represented a class of individuals and entities, numbering approximately 74,000 individuals, who were solicited by defendants. Rierson alleges that in connection with the cessation of homeowners insurance operations by 21st Century in California, defendants sent to Rierson (and the class) unsolicited homeowners insurance policies and bills or invoices that were in fact a solicitation for an order.

In her first cause of action, Rierson alleged that defendants violated section 1584.5 by sending her an unsolicited policy of insurance. Thereafter, defendants sent Rierson bill statements and requests for payment for the policy. Defendants thereafter cancelled the policy for nonpayment of premiums prior to the end of the effective date of the policy. After cancellation, defendants sent Rierson an additional bill for the period of coverage prior to cancellation, and Rierson paid that bill. Under section 1584.5, Rierson sought an injunction prohibiting defendants from engaging in those types of activities and sought attorney fees and costs.

In the second cause of action, Rierson alleged a breach of contract by defendants when they cancelled the insurance policy because the delivery of the unsolicited policy was deemed an unconditional gift under section 1584.5, and no premiums were due. In the third cause of action, Rierson alleged a violation of Insurance Code section 481.5, which requires an insurer, upon cancellation of a policy, to return any unearned premium to the insured.

In the fourth cause of action Rierson alleged a violation of section 1716, asserting that, without any request by Rierson, defendants sent her and her putative class "multiple bills, invoices, and statements of account due." Despite the fact that she did not owe any money to defendants, the invoices "were deliberately designed by defendants to be identical to and to look precisely like those bills sent by defendants to their existing, paying customers." Rierson alleged that the invoices "would cause a reasonable recipient to believe that payment was legally required." However, they did not contain any of the items required by section 1716. Rierson alleged that she and the other members of her class suffered damages as a result of the invoices by (1) paying higher insurance premiums as a result of the cancellation of the policy by defendants; (2) reading and investigating the invoices and expending postage, paper, ink, electricity, and other costs in responding to them; and (3) paying "inflated premiums and noncompetitive prices for coverage."

The complaint's fifth cause of action for unjust enrichment alleged that as a result of the defendants' conduct sending the unsolicited policies and misleading invoices, it would be "inequitable that defendants should retain those sums paid by Rierson and the other class members for the period between when the Policy was issued and when it was cancelled . . . ." The sixth cause of action for violation of the implied covenant of good faith and fair dealing alleged that by virtue of the previously specified wrongdoing of defendants, they "violated the implied covenant of good faith and fair dealing contained in each of the policies issued to Rierson and the class."

In the seventh cause of action for unfair competition Rierson alleged, in addition to the previous allegations of wrongdoing by defendants, various misrepresentations made by defendants concerning the insurance coverage to be provided and the price of that coverage. In the eighth cause of action for false advertising, Rierson incorporated all the previous allegations of wrongdoing alleged in the complaint.

B. The Demurrer and Motion To Strike

Defendants filed a demurrer and motion to strike Rierson's complaint. The demurrer argued that (1) section 1584.5 did not apply to insurance, which is not "goods, wares, merchandise, or services"; (2) even if section 1584.5 applied, Rierson would only be entitled to a free policy, subject to the insurer's right to cancel for nonpayment of the premium; (3) section 1716 did not apply because defendants' bills were not solicitations masquerading as invoices but true invoices for an insurance policy actually sent to Rierson; and (4) Rierson had no claim under section 1716 because she suffered no damages as she did not pay the invoices. Defendants argued that this required dismissal of all but Rierson's fifth cause of action for unjust enrichment and seventh cause of action for unfair competition, as all remaining claims were based upon alleged violations of sections 1584.5 and/or 1716. Defendants conceded that Rierson had adequately pleaded her fifth and seventh causes of action to the extent they sought damages for her payment of an invoice for a two-week period of time after defendants sent a notice of cancellation of the policy. Defendants also requested the court to strike several paragraphs of the complaint.

C. Court's Ruling

The court ruled that defendants' demurrer was "sustained without leave to amend as to all but the 5th and 7th [causes of action] for unjust enrichment and violation of the unfair competition law." In doing so, the court found no violation of section 1584.5 because an insurance policy "does not fit the statutory language concerning receipt of 'goods, wares, merchandise, or services.'" The court found that the claim for violation of section 1716 failed as a matter of law because the invoices defendants sent "were not phony as they are real bills for a real insurance policy which [Rierson] could choose to accept."

D. Settlement of "Two Week" Claim

Subsequent to the court's ruling on the demurrer, Rierson settled her claims that were based upon her allegedly having to pay an invoice for a two week period of time after defendants sent a notice of cancellation as to the policy, described by Rierson as the "Two Week Claim," and agreed to dismiss those claims. The settlement agreement also allowed Rierson to pursue an appeal of her remaining claims that had been dismissed by the court on defendants' demurrer─claims that she described in the settlement agreement as the "One Year Claim," under which she claimed the "[d]efendants are obligated to provide her, and others similarly situated, a financial benefit equivalent to one year's worth of insurance coverage, statutory damages of three times the sum solicited by [d]efendants, punitive damages, equitable relief, interest, attorney's fees, and costs."

DISCUSSION

I. STANDARD OF REVIEW

A demurrer tests the legal sufficiency of the complaint. (Blank, supra, 39 Cal.3d at p. 318.) Therefore, we review the complaint de novo to determine whether it contains sufficient facts to state a cause of action. (Hill v. Miller (1966) 64 Cal.2d 757, 759.) As stated, ante, "[w]e treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law." (Serrano v. Priest (1971) 5 Cal.3d 584, 591.) However, we may also consider, as a ground for the demurrer, any matter that we must or may judicially notice under Evidence Code sections 451 or 452. (Code Civ. Proc., § 430.30, subd. (a).)

II. ANALYSIS

Rierson asserts the court erred in dismissing her claims brought under sections 1716 and 1584.5 because (1) the court's ruling conflicted with the text and legislative history of section 1716 as it covered not only "phony" invoices, but those for actual products; and (2) the ruling conflicted with the text and legislative history of section 1584.5 as homeowners insurance policies are included within the definition of "goods, wares, merchandise, or services" as used in that statute. Rierson also contends the court erred in dismissing her remaining claims. We conclude that the court erred in finding that Rierson's claims did not fall within the meaning of section 1716, and therefore erred in dismissing the fourth cause of action. We further hold that the court erred in dismissing the fifth cause of action for unjust enrichment, the seventh cause of action for unfair competition and eighth cause of action for false advertising. Accordingly, we reverse the judgment as to those causes of action. In all other respects, the judgment is affirmed.

A. Section 1716

1. The solicitations fall within the terms of section 1716

Section 1716, subdivision (a) provides: "It is unlawful for a person to solicit payment of money by another by means of a written statement or invoice, or any writing that reasonably could be considered a bill, invoice, or statement of account due, but is in fact a solicitation for an order, unless the solicitation conforms to subdivisions (b) to (f), inclusive." (Italics added.) Subdivisions (b) through (f) require such solicitations to contain a notice or disclaimer alerting the consumer that the item is not an invoice but a solicitation. One permissible notice, contained in section 1716, subdivision (b) provides: "THIS IS NOT A BILL. THIS IS A SOLICITATION. YOU ARE UNDER NO OBLIGATION TO PAY THE AMOUNT STATED ABOVE UNLESS YOU ACCEPT THIS OFFER."

The plain language of section 1716 does not limit its reach only to those invoices that are for services or goods that the sender never intends to provide even if the invoice is paid. Rather it applies to all invoices that are disguised solicitations, whether or not a product or service will be provided. The language nowhere states it is limited to "fake" or "phony" invoices. Rather it applies not only to documents that "reasonably could be considered" a bill or invoice, but actual bills or invoices.

The sample notice contained in section 1716 also compels this conclusion. That notice states that the receiving party is under "no obligation to pay the amount stated unless you accept this offer." (Italics added, capitalization omitted.) The emphasized language anticipates a situation where there is an offer for an actual product or service, which may be accepted by paying the invoice.

Finally, to the extent section 1716 could be construed as limited to fake or phony invoices or bills, the solicitation alleged in the complaint fits that condition. It was fake or phony because it was not an actual invoice. No contract had been agreed to between the parties, and nothing was owing to the defendants. Therefore, the mailing was a fake or phony invoice because it was in actuality a solicitation, not an invoice or a bill.

Defendants assert that the legislative history of section 1716, as well as a comparable federal statute upon which section 1716 was modeled, compel the conclusion that the narrow interpretation given by the court was correct. This contention is unavailing.^[2]

The first principle of statutory construction is that to ascertain the Legislature's intent, we turn initially to the words of the statute, and if "'the statutory language is clear and unambiguous, there is no need for construction and courts should not indulge in it. [Citation.] The plain language of the statute establishes what was intended by the Legislature.'" (People v. Statum (2002) 28 Cal.4th 682, 689-690.) Thus, because the statutory language of section 1716 is clear, we need not resort to the legislative history of section 1716.

Moreover, even if the language of section 1716 were not clear, and we were required to consider the legislative history of that section, both that history and the federal statute upon which section 1716 was modeled demonstrate that the court erred in finding the defendants' invoices were not covered by section 1716.

As originally enacted, section 1716 provided in part:

"It shall be unlawful for any person to solicit payment of money by another by means of a statement or invoice, or any writing that could reasonably be interpreted as a statement or invoice, for goods not yet ordered or for services not yet performed and not yet ordered." (Stats. 1967, ch. 346, p. 1545, § 1, italics added.)

Thus, because the original language of section 1716 spoke of goods or services "not yet ordered" or "not yet performed," it envisioned not merely fraudulent statements or invoices where no goods or services would ever be provided, but also situations where the solicitor fully intended to provide a service or good but had not done so at the time the invoice or statement was sent.

The legislative history surrounding section 1716's enactment in 1967 also compels this result. Senate Bill No. 400, under which section 1716 was originally enacted, was aimed at halting a particular type of consumer fraud. The author was targeting solicitations, in the form of invoices, for listings in directories. As the Postal Inspector for San Francisco stated before the Assembly Committee on the Judiciary, in support of Senate Bill No. 400: "[Senate Bill No.] 400 is especially relevant to promotions involving solicitations for listings in so-called classified directories. . . . [¶] These solicitations are addressed to businesses, large and small, schools, hospitals, churches, doctors, attorneys, etc., throughout the United States and heavily within the state of California. The solicitations vary somewhat in format, but they emphasize the following: A firm name similar to a legitimate concern, the appearance of an invoice, the implication of a preexisting business relationship, the suggestion of yellow pages in the telephone book or a similar legitimate directory, a sense of urgency, e.g., 'Pay this amount by June 30, 1967, by closing date,' and usually a one-piece document with instructions to return it with the remittance, leaving no voucher with the remitter." (James V. P. Conway, Postal Inspector in Charge, San Francisco, statement re Sen. Bill No. 400 to Assem. Com. on Judiciary (1967 Reg. Sess.) May 26, 1967, pp. 1-2.) The postal inspector further detailed that "[a]ll the operations encountered by the Inspection Service do produce a directory of sorts. Most of them print and distribute about 3,000 copies on a non-scheduled distribution basis." (Id. at p. 2.)

Thus, Senate Bill No. 400 was targeting misleading solicitations in the form of invoices that were, at least in most cases, for an actual product, albeit of little value, in exchange for payment. The Legislature was not simply targeting solicitations disguised as invoices where the company sending them would take a consumer's money and give nothing in return.

Section 1716 was amended in 1978 to strengthen its provisions by (1) requiring the disclaimer to be in font at least 10 points larger than the rest of the text; (2) making a violation of that section a misdemeanor; and (3) adding a civil penalty of up to $10,000 for each improper solicitation. (Sen. Com. on Judiciary, Rep. on Assem. Bill No. 2677 (1977-1978 Reg. Sess.) as amended May 31, 1978, p. 1.) The central concern to be addressed by Assembly Bill No. 2677 was expressed as solicitations that appear to be invoices or billing statements "from companies who print business directories. Such invoices . . . were actually solicitations for advertisements and copies of the directories." (Sen. Com. on Judiciary, Rep. on Assem. Bill No. 2677, supra, p. 2.) This central concern of the amendment was also expressed in the enrolled bill report of the Department of Banking that stated: "This form of solicitation is a popular form of fraud against businesses, generally most active during the month of December when the year's end and Christmas create more activity in the accounting departments. If the invoice is not paid, businesses are called by people representing themselves as members of a certain minority, ethnic, or religious group and try to pres[s]ure the person for payment of an unsolicited ad in a 'minority' directory or magazine, which when published, often consists of articles plag[i]arized from legitimate relig[i]ous or ethnic publications." (Cal. Dept. of Banking, Enrolled Bill Report on Assem. Bill No. 2677 (1977-1978 Reg. Sess.) Aug. 14, 1978.) A Senate Finance, Insurance and Commerce Committee Report attached a copy of an example of the type of solicitation they were attempting to combat. That solicitation, in the form of an invoice, provided that if it was paid, the receiving party would receive a half-page ad in the "Continental Business and Financial Directory" and a "right to purchase the directory upon publication" at a reduced price. (Sen. Finance, Insurance, and Commerce Com. Rep., Analysis of Assem. Bill No. 2677 (1977-1978 Reg. Sess.) Apr. 7, 1978, attachment.) Thus, the main concern of the Legislature in amending and strengthening section 1716 was again to combat a common solicitation invoice that actually offered a product in exchange for payment.

The author of Assembly Bill No. 2677, Assemblyman Jim Ellis, declared: "There is no legitimate reason for a solicitation to take the form of an invoice. It is an obvious attempt to catch a bookkeeper off-guard and deceive them into paying for a service that has not yet been performed or ordered." (Assemblyman Jim Ellis, news release re Assem. Bill No. 2677, Mar. 9, 1978, italics added.) Again, the evil to be prevented was not only fraudulent invoices that would give nothing in return for payment, but those that requested payment before a service was performed or ordered.

In 1995, a federal district court in Los Angeles struck down section 1716 as preempted by title 39 of the United States Code section 3001(d), which also prohibited solicitations disguised as invoices unless there was a prominent notice or disclaimer informing the consumer that the document was not an invoice. (Sen. Com. on Judiciary, Rep. on Sen. Bill No. 1530 (1995-1996 Reg. Sess.) Mar. 18, 1996, pp. 5-6.) The federal court held that section 1716 was preempted as it provided for a different disclaimer or notice, and thus solicitors could not comply with both federal and state law. (Ibid.) In response, Senate Bill No. 1530 was introduced to amend section 1716 to make the required disclaimer or notice consistent with that required by title 39 of the United States Code section 3001(d). (Sen. Rules Com., Off. of Sen. Floor Analyses, Analysis of Sen. Bill No. 1530 (1995-1996 Reg. Sess.) as amended June 6, 1996, p. 2.)

Defendants cite to the legislative history for this amendment in support of their contention that section 1716 only applies to "fraudulent" bills. For example, a Senate Rules Committee analysis contains the following language:

"Section 1716 of the Civil Code, prohibits the sending of 'phony bills' - written solicitations that look like they are bills and invoices for goods already delivered or services already rendered, which in fact are simply offers to purchase goods or services which have not already been purchased or rendered." (Sen. Rules Com., Off. of Sen. Floor Analyses, Analysis of Sen. Bill No. 1530, supra, at p. 2, italics added.)

As can be seen, the definition of "phony bills" given in that Senate analysis actually supports the conclusion that section 1716 was not intended to prohibit only those solicitations where no service or product would ever be provided. That definition includes solicitations where the "goods or services . . . have not already been purchased," indicating that if the invoice is paid, a service or product may be provided. The definition of "phony bills" includes all "written solicitations that look like they are bills or invoices," exactly the type of solicitations alleged in Rierson's complaint.

Defendants also point to the following language in that Senate analysis, indicating the Los Angeles District Attorney's Office's reason for sponsoring the bill:

"'Mail order con artists, claiming to sell goods or services (many of which do not exist), print up large quantities of solicitations carefully crafted to mimic invoices or bills. These "phony bills" are sent out in mass mailings, counting that at least a few busy office managers or secretaries will pay the "bills" without noticing that nothing is actually due at all.'" (Sen. Rules Comm., Off. of Sen. Floor Analyses, Analysis of Sen. Bill No. 1530, supra, at p. 4, italics added.)

Again, however, the use of the phrase "phony bills" only indicates they are not legitimate bills that are sent after a product or service has been purchased, but ones where in reality, "nothing is actually due at all." Further, the statement that the solicitations are for goods or services, "many of which do not exist," indicates an intent to also cover those situations where the products and services do exist.

Defendants assert we should look to federal case law interpreting 39 United States Code section 3001(d) in assessing the scope of Civil Code section 1716 since, after the 1996 amendment, section 1716 was patterned after that federal statute. (See People ex rel. Mosk v. National Research Co. of Cal. (1962) 201 Cal.App.2d 765, 773 ["In view of the similarity of language and obvious identity of purpose of the two statutes, decisions of the federal court on the subject are more than ordinarily persuasive"].)

Title 39 of the United States Code section 3001(d) provides:

"(d) Matter otherwise legally acceptable in the mails which─[¶] (1) is in the form of, and reasonably could be interpreted or construed as, a bill, invoice, or statement of account due; but [¶] (2) constitutes, in fact, a solicitation for the order by the addressee of goods or services, or both; [¶] is nonmailable matter, shall not be carried or delivered by mail, and shall be disposed of as the Postal Service directs, unless such matter bears on its face, in conspicuous and legible type in contrast by typography, layout, or color with other printing on its face, in accordance with regulations which the Postal Service shall prescribe─[¶] (A) the following notice: 'This is a solicitation for the order of goods or services, or both, and not a bill, invoice, or statement of account due. You are under no obligation to make any payments on account of this offer unless you accept this offer.'; or [¶] (B) in lieu thereof, a notice to the same effect in words which the Postal Service may prescribe."

Defendants assert that in United Commercial Ins. Services v. U.S. Postal Service (D.D.C. 1986) 650 F.Supp. 592 (United Commercial), a federal district court determined that the insurance solicitations in that case were not within the scope of title 39 of the United States Code section 3001(d). However, United Commercial does not support defendants' position that their solicitations were, as a matter of law, outside the scope of section 1716, or its federal counterpart. There, the district court found, not on a demurrer but after a trial that, based upon the nature of the solicitation for an insurance policy involved in that case, did not run afoul of 39 of the United States Code section 3001(d). (United Commercial, supra, 650 F.Supp. at pp. 594-599.) However, the federal district court found that title 39 United States Code section 3001(d) did not apply, not because the solicitation was for an actual insurance policy, but because "even to the most casual observer the mailing does not look like an invoice or bill." (United Commercial, supra, 650 F.Supp. at p. 594.) Here, by contrast, Rierson has alleged that defendants "solicited payment of money from Rierson and each class member by means of a written statement or invoice, and writings that could be reasonably considered a bill, invoice, or statement of account due, but were in fact solicitations for an order." These allegations, which we must accept as true for the purposes of reviewing the trial court's decision, are sufficient to bring defendants' solicitations within section 1716.

Defendants also assert that section 1716 is inapplicable because the invoices were for the renewal of already existing policies, not solicitations for new ones. However, this contention fails for a couple of reasons. First, defendants never made this contention on their demurrer at the trial court level. Accordingly, they cannot make this argument for the first time on appeal. (Bardis v. Oates (2004) 119 Cal.App.4th 1, 13, fn. 6.)

Second, Rierson's complaint does not allege that the invoices were for renewals, it alleges they were for new policies that defendants were soliciting under the guise of invoices, which made it appear that money was owed for an existing policy. Defendants cite to paragraphs 8 through 10 of the complaint to support their argument that the invoices were for renewals of existing policies, but those paragraphs do not allege that fact. Thus, we cannot consider, upon our review of the court's order sustaining defendants' demurrer, an allegation that the invoice solicitations were actually policy renewals.

However, this does not end our analysis of whether Rierson has adequately pleaded a claim under section 1716, as defendants contend on appeal, as they did in their demurrer, that she has not pleaded any cognizable damages she suffered as a result of receiving the solicitations.

2. Defendants' "lack of cognizable damages" argument

Although the court did not rule on this alternative ground for their demurrer, defendants renew their contention on appeal that Rierson has not alleged in the complaint any cognizable damages to support her claim of a violation of section 1716. We conclude that Rierson adequately alleged damages in her complaint and thus defendants' alternative argument supporting the demurrer as to the section 1716 claim lacks merit.

First, although it is ordinarily the case that we may uphold a court's order if it is correct on any ground, even one not considered by the court, it is not appropriate to consider defendants' lack of cognizable damages argument on this appeal when the court did not base its order on that ground. Because the court did not sustain defendants' demurrer on this ground, it also did not consider whether there were grounds to amend the complaint to more adequately allege damages as to the section 1716 claim. In such circumstances, our upholding of the sustaining of a demurrer without leave to amend would be improper. (See Aubrey v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 970-971.) Moreover, Rierson has adequately alleged damages in her section 1716 claim.

Section 1716, subdivision (g) grants a private right of action to those individuals or entities who suffer damage as a result of a solicitor's noncompliance with that statute: "Any person damaged by noncompliance with this section, in addition to other remedies, is entitled to damages in an amount equal to three times the sum solicited."

In the second amended complaint, Rierson added paragraph 33 to her fourth cause of action to allege various damages she allegedly suffered as a result of defendants' alleged violation of section 1716. Defendants take issue with these claims, asserting that none of these claimed damages are cognizable under section 1716. This contention is unavailing. In paragraph 33(a) of the complaint, Rierson alleges that she and the potential class members were damaged by "higher insurance premiums and other costs, that resulted from cancellation of the [p]olicy by defendants." Defendants attack this damage allegation by arguing that such damages were caused by cancellation of the policy, not the solicitation invoices. However, these allegations must be accepted as true for the purposes of reviewing the court's order. What actions of defendants─the sending of invoices, the issuance of policies and subsequent cancelling of them, or all of these combined─resulted in Rierson's damages is a factual question that cannot be resolved on demurrer.

Moreover, defendants ignore the damages allegations in paragraph 34, which claim "statutory damages in an amount equal to three times the sum solicited by defendants pursuant to [section 1716, subdivision (g)] . . . ." These damages allegations are sufficient, for pleading purposes, to defeat defendants' demurrer.

Defendants assert, however, that a prerequisite to obtaining those statutory damages under section 1716, subdivision (g) is an allegation that Rierson was "damaged by noncompliance with" section 1716. Defendants assert that the only damage she allegedly suffered was the payment of one invoice for a two-week period after defendants had mailed a cancellation of her policy, and that she has settled and released that claim. This contention is unavailing.

First, as discussed above, Rierson adequately alleged damages in the form of higher premiums. Rierson also asserts that the settlement agreement did not bar pursuit of her "One Year Claim," which itself contains the claim for statutory damages under section 1716, subdivision (g). Because interpretation of the terms of the settlement agreement is a factual dispute involving matters outside the complaint and, indeed, matters occurring after the court's ruling on defendants' demurrer, it cannot form the basis for sustaining defendants' demurrer.

B. Section 1584.5

Rierson asserts that the court erred in finding that defendants' invoices and insurance policies did not fall within the terms of section 1584.5 because they are not "goods, wares, merchandise, or services." We reject this contention.

Section 1584.5 provides in part:

"No person, firm, partnership, association, or corporation, or agent or employee thereof, shall, in any manner, or by any means, offer for sale goods, wares, merchandise, or services, where the offer includes the voluntary and unsolicited sending or providing of goods, wares, merchandise, or services not actually ordered or requested by the recipient, either orally or in writing. The receipt of any goods, wares, merchandise, or services shall for all purposes be deemed an unconditional gift to the recipient who may use or dispose of the goods, wares, merchandise, or services in any manner he or she sees fit without any obligation on his or her part to the sender or provider. [¶] If, after any receipt deemed to be an unconditional gift under this section, the sender or provider continues to send bill statements or requests for payment with respect to the gift, an action may be brought by the recipient to enjoin the conduct, in which action there may also be awarded reasonable attorney's fees and costs to the prevailing party." (Italics added.)

Insurance does not constitute "goods, wares or merchandise" under section 1548.5. The phrase "goods, wares or merchandise" is a phrase that, taken together, means tangible personal property offered for sale in trade or commerce. (In re Holmes (1921) 187 Cal. 640, 643-644.)^[3] In In re Holmes, the California Supreme Court analyzed these terms and concluded they are synonyms: "The word 'goods' is defined in Webster's New International Dictionary as 'movables; household furniture; personal or movable estate; wares; merchandise; commodities bought and sold by merchants and traders.' The earliest definition of the word 'goods' is to be found in Bailery's Large Dictionary, issued in 1732, which defines it as 'merchandise.' Samuel Johnson, the next English lexicographer, defined 'goods' as 'movables in a house; wares; freight; merchandise.' The term 'wares' is also defined in the dictionaries as a synonym of 'merchandise,' while the term 'merchandise' is defined by Webster and the other lexicographers as 'the objects of commerce; whatever is usually bought and sold in trade, or market, or by merchants; wares, goods, commodities.'" (In re Holmes, supra, 187 Cal. at p. 643.)

Uniform Commercial Code section 2105, subdivision (1) similarly defines "goods" as follows:

"'Goods' means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Division 8) and things in action."

Civil Code section 1761, subdivision (a) defines goods as "tangible chattels."

Insurance, however, is not tangible personal property. It is "a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event." (Ins. Code, § 22.) Thus, insurance cannot be considered "goods, wares or merchandise" under Civil Code section 1584.5.

A closer issue is whether insurance constitutes a "service" under section 1584.5. The ordinary definition of a "service" is "an act done for the benefit of or at the command of another." (Webster's 3d New Internat. Dict. (1974) p. 2075.) Similarly, Black's Law Dictionary defines a "service" as any "duty or labor to be rendered by one person to another." (Black's Law Dict. (6th ed. 1990) p. 1368, col. 1.) Thus, under these broad definitions, the provision of insurance could be deemed a "service."

However, even if insurance could be considered a "service" within the meaning of section 1584.5, no services were actually sent or delivered to Rierson. At most what was sent was an offer to insure, which Rierson could accept by paying the premium. At most, she received an offer of future services. Such an offer does not fall within the terms of section 1584.5. It is only the actual delivery of unsolicited services that section 1584.5 covers.

This conclusion is bolstered by cases interpreting title 39 of the United States Code section 3009, the federal counterpart to Civil Code section 1584.5. That federal statute prohibits the unsolicited sending of "merchandise," which, as with Civil Code section 1584.5, may be treated as a gift by the consumer:

"(a) Except for (1) free samples clearly and conspicuously marked as such, and (2) merchandise mailed by a charitable organization soliciting contributions, the mailing of unordered merchandise or of communications prohibited by subsection (c) of this section constitutes an unfair method of competition and an unfair trade practice in violation of section 45(a)(1) of title 15. [¶] (b) Any merchandise mailed in violation of subsection (a) of this section, or within the exceptions contained therein, may be treated as a gift by the recipient, who shall have the right to retain, use, discard, or dispose of it in any manner he sees fit without any obligation whatsoever to the sender. . . . [¶] (c) No mailer of any merchandise mailed in violation of subsection (a) of this section, or within the exceptions contained therein, shall mail to any recipient of such merchandise a bill for such merchandise or any dunning communications." (39 U.S.C. § 3009.)

The Ninth Circuit Court of Appeals, interpreting this statute, affirmed the dismissal of a claim that sending an insurance policy and application violated title 39 of the United States Code section 3009. In doing so, the Ninth Circuit stated: "[T]he insurance policy forwarded by the appellee is no more than an offer to sell insurance. No insurance coverage could arise until the recipient completed the application and forwarded it with the premium amount. [Citation.] Thus, we hold that such an unaccepted offer to insure is not merchandise in the meaning of [title] 39 [United States Code section] 3009 and therefore does not result in free insurance coverage for the recipients of [appellee's] solicitation." (Kipperman v. Academy Life Ins. Co. (9th Cir. 1977) 554 F.2d 377, 381.)

Similarly in Kashelkar v. Rubin & Rothman (S.D.N.Y. 2000) 97 F.Supp.2d 383, the court dismissed a claim that the sending of a "live check" that stated that by executing it and depositing it, the recipient accepted the terms of the sender's offer to open a line of credit, violated title 39 United States Code section 3009: "The Complaint does not plead a violation of [title] 39 [United States Code section] 3009 by [Defendant] because that statute concerns the mailing of unsolicited merchandise to customers, not unsolicited offers of credit. [Defendant] did not send Plaintiff any merchandise─it sent him an offer to open a line of credit, which he was free to accept or reject. To accept, Plaintiff had to endorse and deposit the check which had been sent to him. The federal courts have held that this statute, by its terms, does not apply to such offers." (Kashelkar v. Rubin & Rothman, supra, at p. 395, citing Kipperman v. Academy Life Ins. Co., supra, 554 F.2d 377.)

Similarly, in this case the most defendants provided to Rierson was an offer to sell her insurance. No insurance could arise unless she paid the premium, which she admittedly did not.

A review of the legislative history for section 1584.5 also confirms that the defendants' solicitations are not covered by that section. Under the common law of contracts, the mailing of merchandise to customers was considered an offer to buy and, while mere retention of the unordered merchandise was not enough to imply acceptance, the recipient's use of the merchandise was such an exercise of dominion over the goods as to imply an acceptance, obligating him or her to pay. (See Calamari & Perillo, Law of Contracts, 4th ed. (West Group 1998) § 2.19, fn. 16 ["At common law the recipient is an involuntary bailee and is required to keep the goods for a reasonable time before discarding them"]; Rest.2d, Contracts, § 69(2) ["an offeree who does any act inconsistent with the offeror's ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable"].)

The legislative history for Assembly Bill No. 77, under which section 1584.5 was enacted in 1969, reveals that the statute was designed to combat this unfair sales practice of sending consumers unsolicited goods, wares or merchandise,^[4] and obligating them to return the product or take other affirmative steps to avoid being charged:

"Presently, individuals receiving unsolicited merchandise may either return the merchandise, at their own expense, or hold the items for the sender to pick up. The State Attorney General's Office notes that many individuals are not aware that these two alternatives are available and pay rather than return the goods. The State Attorney General also notes that payment is prompted by coercive collection notices." (Sen. Com. on Judiciary, Analysis of Assem. Bill No. 77 (1969 Reg. Sess.) p. 2.)

In 1985 section 1584.5 was amended to add the term "services" to that statute. The legislative history for that amendment also stressed that section 1584.5's purpose was to protect consumers from mailers of unsolicited goods or services who attempt to place the burden of avoiding a charge on the consumer:

"This bill is sponsored by its author to address the situation whereby a person is signed up and billed for a service by default, that is, as a result of their failing to take affirmative action to decline a proffered service." (Assem. Consumer Protection Com. coms., Assem. Bill. No. 781 (1984-1985 Reg. Sess.) March 28, 1985, p. 1, underscoring omitted.)

We do not have such a situation here. There is no allegation in the complaint that by sending invoices defendants imposed an obligation on the recipients to take affirmative steps to avoid liability. Simply doing nothing would lead only to a cancellation of the policy for nonpayment. The legislative history of section 1584.5 thus supports the conclusion that defendants' mailings did not fall under section 1584.5, as they were not the type of solicitations the statute was enacted to prevent.

Rierson asserts that the legislative history of the 1985 amendment to section 1584.5, which, as discussed, ante, added the term "services" to that statute, demonstrates that defendants' mailings were intended to be covered. Specifically, Rierson points out that the word "services" was added to the statute based upon the experience of a constituent of the bill's author, who received an unsolicited credit protection policy:

"This problem was raised by one of the author's constituents who received a notice from a credit card registration/protection service company stating that unless the constituent affirmatively acted by mailing in a form declining the service (which they allegedly had been receiving for free for 1 year) the service would continue and the constituent's credit card account would be charged an annual fee." (Assem. Consumer Protection Com. coms., Assem. Bill. No. 781, supra, at p. 2.)

Rierson contends that this shows that services such as that offered by defendants by their mailing invoices and policies are covered by section 1584.5. However, this actually supports the conclusion that section 1584.5 is not implicated by defendants' actions. The above cited legislative history shows that the targeted business had already begun providing a "service" and the consumer had to take affirmative action to prevent his or her credit card account from being charged. Again, that is not the situation presented in this case.

In sum, defendants' solicitations are not covered by section 1584.5.

C. Rierson's Other Causes of Action

Rierson asserts that, in addition to erring in sustaining defendants' demurrers to her first cause of action brought under section 1584.5 and the fourth cause of action brought under section 1716, the court also erred when it dismissed her second cause of action for breach of contract, third cause of action for violation of Insurance Code section 481.5, fifth cause of action for unjust enrichment, sixth cause of action for breach of the implied covenant of good faith and fair dealing, seventh cause of action for unfair competition and eighth cause of action for false advertising. We conclude that the court erred in dismissing Rierson's fifth cause of action for unjust enrichment, seventh cause of action for unfair competition and eighth cause of action for false advertising.

Because we have held that the court properly sustained defendant's demurrer to the first cause of action brought under section 1584.5, any common law claims that were predicated exclusively upon that claim also fail. The second cause of action for breach of contract rests exclusively upon Rierson's claim that, under section 1584.5, the policies were deemed a "gift," with premiums "deemed paid," and therefore defendants breached the insurance policies by cancelling them for nonpayment. Thus, the second cause of action was properly dismissed by the court.

Rierson contends, however, that the court erred in dismissing claims based upon section 1584.5 because they were predicated not only upon that section, but also upon a violation of federal law, specifically title 39 of the United States Code section 3009. However, as we have discussed, ante, cases interpreting that federal statute demonstrate that the defendants' solicitations do not fall under that statute. Further, it matters not whether, as Rierson claims, the court did not analyze that statute in sustaining defendants' demurrer. We will affirm an appealed judgment if it is correct on any ground, even one not considered by the court. (Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, 610.)

The third cause of action is brought under Insurance Code section 481.5, which requires an insurer, upon cancellation of a policy, to return any unearned premiums to the insured.^[5] This cause of action thus appears to be based on Rierson's previous allegation in the first cause of action, incorporated by reference into the third cause of action, that under section 1584.5, she is "deemed" to have paid the premium, and thus, after defendants cancelled the policy, she is entitled to a refund. Accordingly, this cause of action was properly dismissed as well because it was predicated upon the validity of the section 1584.5 claim.

The fifth cause of action for unjust enrichment alleges that it would be "inequitable that defendants should retain those sums paid by Rierson and other class members for the period between when the Policy was issued and when it was cancelled . . . ." As discussed, ante, although Rierson settled her "Two Week Claim," there is a dispute as to the meaning and scope of that settlement as to the "One Year Claim" that is beyond the proper reach of this demurrer, and therefore we must reverse the dismissal of this claim as well.

The sixth cause of action for breach of the implied covenant of good faith and fair dealing merely alleges that by virtue of the previously specified wrongdoing of defendants, they "violated the implied covenant of good faith and fair dealing contained in each of the policies issued to Rierson and the class." This cause of action thus is based upon the allegation that defendants should not have cancelled Rierson's policy for nonpayment of the premium because the policy was deemed a gift and she thus did not need to pay any premium. Accordingly, this cause of action was properly dismissed as being predicated upon section 1584.5.

The seventh cause of action for unfair competition and the eighth cause of action for false advertising incorporate by reference the previous allegations of the complaint. Thus, to the extent they are based upon the alleged violation of section 1716, dismissal of these claims must be reversed. It should also be noted, as Rierson points out, actions brought under Business and Professions Code sections 17200 et seq. and 17500 et seq. are not dependent upon defendants' actions being "unlawful" under either section 1716 or section 1584.5. (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 949-950.) Thus, whether or not she stated valid claims under those sections, her seventh and eighth causes of action would still stand if the facts supporting her sections 1716 and 1584.5 claims otherwise meet the requirements of Business and Professions Code sections 17200 et seq. and 17500 et seq.

Defendants point out that Business and Professions Code sections 17200 et seq. and 17500 et seq., as amended by Proposition 64, now require that Rierson has "suffered injury in fact and has lost money or property as a result of" the unfair competition or false advertising she alleges. (Bus. & Prof. Code, §§ 17204, 17535.) Furthermore, defendants note that although Rierson's complaint was filed before Proposition 64 was passed in the November 2, 2004 general election, this court has held that its new restrictions on standing apply retroactively to all pending actions. (Huntingdon Life Sciences, Inc. v. Stop Huntingdon Animal Cruelty USA, Inc. (2005) 129 Cal.App.4th 1228, 1260-1262.) While this appeal was pending the California Supreme Court held, in Californians for Disability Rights v. Mervyn's, LLC (July 24, 2006, S131798) __ Cal.4th __ [2006 Cal. Lexis 8774] that the amendments apply retroactively to pending actions.

Reiterating its argument with regard to the section 1716 claim, defendants contend that because Rierson has not alleged any cognizable damages, her seventh and eighth causes of action fail. However, as we have already concluded that Rierson adequately pleaded damages in her section 1716 claim, this assertion lacks merit.

DISPOSITION

The judgment is reversed as to the fourth, fifth, seventh and eighth causes of action. In all other respects, the judgment is affirmed. Parties to pay their own costs on appeal.

NARES, Acting P. J.

WE CONCUR:

McDONALD, J.

McINTYRE, J.

Publication courtesy of San Diego free legal advice.

Analysis and review provided by Santee Property line Lawyers.

^[1] All further statutory references are to the Civil Code unless otherwise specified.

^[2] We grant Rierson's request that we take judicial notice of certain portions of the legislative history of sections 1716 and 1584.5, and also take judicial notice on our own motion of other portions of those legislative histories not provided by Rierson.

^[3] When enacted in 1969, the legislative history for section 1584.5 pointed to In re Holmes, supra, 187 Cal. 640, and California's Uniform Commercial Code, section 2105, subdivision (1) for the definition of "goods, wares, and merchandise." (Legis. Counsel's Dig., Assem. Bill No. 77 (1969 Reg. Sess.) attachment, p. 3.)

^[4] When enacted in 1969, section 1584.5 did not contain the term "services."

^[5] Insurance Code section 481.5 provides in part: "Whenever a policy of personal lines insurance terminates for any reason, or there is a reduction in coverage, the insurer shall tender the gross unearned premium resulting from the termination, or the amount of the unearned premium generated by the reduction in coverage, resulting from the termination, or the amount of the unearned premium generated by the reduction in coverage, to the insured."