Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-02197/USCOURTS-caed-2_05-cv-02197-4/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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This motion was determined suitable for decision without *

oral argument. L.R. 78-230(h). 

All subsequent references to “Rules” are to the Federal 2

Rules of Civil Procedure.

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

DON MAFFEI, Jr.; SHELLY MAFFEI; ) 02:05-cv-2197-GEB-EFB

RODNEY NEW; JUDITH ANN NEW; )

MIKE LUSK; CAROL ANN LUSK; )

JOHN BRICKERHOFF, )

)

Plaintiffs, )

)

v. ) ORDER 

*

)

ALLSTATE INSURANCE COMPANY; )

ALLSTATE PROPERTY AND CASUALTY )

INSURANCE COMPANY; ALLSTATE LIFE )

INSURANCE COMPANY, )

)

Defendants. )

)

Defendants move to dismiss the fraud claim of Plaintiffs Don

Maffei, Rodney New, Mike Lusk, and John Brickerhoff (“Plaintiffs”)

under Rule 12(b)(6) and Rule 9(b) of the Federal Rules of Civil

Procedure. Plaintiffs oppose the motion. 2

FACTUAL ALLEGATIONS IN THE COMPLAINT

Plaintiffs worked for Defendants Allstate Insurance Company,

Allstate Property and Casualty Insurance Company, and Allstate Life

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Insurance Company (“Defendants”) from approximately 1998 through 2005. 

(Pls.’ Second Am. Compl. ¶¶ 9-12, 38.) In 2001 and 2002, Defendants

instructed Plaintiffs to utilize certain practices to move insurance

policy holders from lower to higher mileage bands. (Id. ¶¶ 13, 18.) 

Defendants assured Plaintiffs “that the placement of a customer into

[a higher] mileage band rating [utilizing these practices] was legal

and proper as well as necessary to the success of the company.” (Id.

¶ 22.) Defendants subsequently learned these practices were illegal

and/or improper, but did not so inform Plaintiffs. (Id. ¶¶ 51-52.) 

In 2002, a lawsuit was filed against Defendants regarding

their mileage band practices, and the California Department of

Insurance subsequently investigated or was requested to investigate

Defendants. (Id. ¶¶ 28-29.) Defendants conducted their own

investigation into the mileage band practices in 2004, during which

corporate security interviewed Plaintiffs about whether they had moved

policy holders from lower to higher milage bands. (Id. ¶¶ 31-34.) 

Plaintiffs told corporate security they had moved policy holders

utilizing the practices endorsed by Defendants. (Id. ¶ 33.) In 2005,

Defendants informed Plaintiffs their employment was terminated “for

engaging in improper and/or illegal mileage band classification

practices, specifically that they were being terminated for ‘violating

company policy regarding mileage bands.’” (Id. ¶ 38.) 

PROCEDURAL BACKGROUND

In September 2005, Plaintiffs filed a Complaint against

Defendants asserting claims for wrongful termination in violation of

public policy, intentional infliction of emotional distress, and

fraud. (See Order, Jan. 26, 2006, at 3.) The fraud claim alleged

Defendants misrepresented the legality and/or propriety of the mileage

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The May 19 Order is amended nuc pro tunc to dismiss all 1

fraud allegations for emotional distress damages with prejudice

since such damages are barred by the Workers Compensation Act. See

Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393,

1401 (9th Cir. 1986) (dismissal with prejudice is appropriate if

the “allegation of other facts consistent with the challenged

pleading could not possibly cure the deficiency”). 

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band practices, then fired Plaintiffs for engaging in these practices,

thereby causing them to lose employment compensation and benefits and

suffer emotional distress. (See id. at 9.) Defendants subsequently

moved to dismiss the fraud claim. (See id. at 1.) An Order filed

January 26, 2006, (“January 26 Order”) found Plaintiffs had not

alleged a cognizable theory of detrimental reliance or damages

distinct from their terminations. (Id. at 10.) The January 26 Order

dismissed the fraud claim, but granted Plaintiffs leave to file an

amended complaint within twenty days. (Id. at 16.) 

In February 2006, Plaintiffs timely filed a First Amended

Complaint, in which they asserted the same fraud allegations, but also

alleged they suffered emotional and mental distress from participating

in the corporate security interviews. (See Order, May 19, 2006,

at 6.) Defendants again moved to dismiss the fraud claim. (See id.) 

An Order filed May 19, 2006, (“May 19 Order”) found the Workers

Compensation Act “bar[red] Plaintiffs from recovering any emotional

distress damages,” and observed the “remaining fraud allegations” were

“exactly the same as those dismissed by the January 26 Order for

failure to state a claim.” (Id. at 7.) The May 19 Order dismissed

the fraud claim, but granted Plaintiffs leave to file a second amended

complaint within ten days. (Id.) Plaintiffs timely filed a Second 1

Amended Complaint; Defendants now move to dismiss the fraud claim in

that pleading. 

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DISCUSSION

I. Rule 12(b)(6): Failure to State a Claim

When considering a Rule 12(b)(6) dismissal motion, all

material allegations in the complaint must be accepted as true and

construed in the light most favorable to the plaintiffs. Scheuer v.

Rhodes, 416 U.S. 232, 236 (1974); Cahill v. Liberty Mut. Ins. Co., 80

F.3d 336, 337-38 (9th Cir. 1996). In addition, the plaintiffs are

given the benefit of every reasonable inference that can be drawn from

the allegations in their complaint. Retail Clerks Int’l Ass’n v.

Shermahorn, 373 U.S. 746, 753 n.6 (1963). 

“A complaint may be dismissed as a matter of law for two

reasons: (1) lack of a cognizable legal theory or (2) insufficient

facts under a cognizable legal theory.” Robertson v. Dean Witter

Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984). “If a complaint

is dismissed for failure to state a claim, leave to amend should be

granted unless the court determines that allegation of other facts

consistent with the challenged pleading could not possibly cure the

deficiency.” Schreiber, 806 F.2d at 1401.

Defendants argue “Plaintiffs have merely added allegations

[in their Second Amended Complaint] that they suffered reputational

damage,” and “[t]his allegation of reputational harm does not remedy

the inherent problem with [their] fraud cause of action because they

still can show no detrimental reliance, and their damages still flow

from their terminations.” (Defs.’ Mot. at 5.) “[E]mployees can

maintain a cause of action for fraud against their employer only if

they allege . . . detrimental reliance, and . . . damages distinct

from the termination itself.” Zuniga v. Chugach Maintenance Services,

2006 WL 769317, *10 (E.D. Cal. 2006); Hunter v. Upright, Inc., 6 Cal.

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4th 1174, 1178, 1184 (1994) (finding a fraud claim “without substance”

because the plaintiff did not “rely to his detriment on the

misrepresentation” and his fraud damages “result[ed] from [the]

termination itself”); Lazar v. Rykoff-Sexton, Inc., 12 Cal. 4th 631,

643 (1996) (stating a “fraud claim cannot be pled [if] the element of

detrimental reliance [is] absent”); Lamke v. Sunstate Equipment Co.,

387 F. Supp. 2d 1044, 1050 (finding the plaintiff failed to state a

fraud claim because he did “not seek reliance damages unrelated to his

ultimate termination”). 

Defendants argue Plaintiffs could not have detrimentally

relied on the alleged misrepresentation “because the . . . fraud

occurred during the employment relationship,” and “led to . . .

[their] terminations.” (Defs.’ Mot. at 6.) Plaintiffs rejoin that

they detrimentally relied on Defendants’ assurances of the legality

and/or propriety of the mileage band practices because “it was upon

these assurances that Plaintiffs engaged in activity which led to the

accusations [of misconduct] against them.” (Pls.’ Opp’n at 3.) 

Defendants further contend “[t]he reputational damages alleged by the

Plaintiffs . . . flow from their terminations” and “remain

indistinguishable from their alleged termination damages.” (Defs.’

Mot. at 6-7.) Plaintiffs respond that “[t]he damage to [their]

integrity and reputation for participating in the [mileage band

practices] is distinct from [their] termination damages” because

“[e]ven if [they] had not been terminated, their reputations and

integrity would have suffered for their association with the

[practices] and for the allegations made during the investigation.” 

(Pls.’ Opp’n at 4.) 

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In their Second Amended Complaint, Plaintiffs allege

Defendants misrepresented the legality and/or propriety of the mileage

band practices, then terminated their employment for engaging in these

practices, thereby causing them to lose employment compensation and

benefits. (Pls.’ Second Am. Compl. ¶¶ 51-57.) As discussed in the

January 26 Order, these allegations do not establish a cognizable

theory of detrimental reliance because Defendants could have fired

Plaintiffs for a reason unrelated to their participation in the

mileage band practices, i.e. “Defendants ‘simply employed a falsehood

to do what [they] otherwise could have accomplished directly’ . . . .” 

(January 26 Order at 10 (quoting Hunter, 6 Cal. 4th at 1184).) In

addition, since Plaintiffs sustained a loss of wages and benefits as a

result of their terminations, these damages are not “distinct from the

termination itself.” (Id. (citing Lazar, 12 Cal. 4th at 643).) 

Consequently, these allegations in the Second Amended Complaint fail

to state a claim for fraud. 

However, Plaintiffs also allege that after Defendants

learned the mileage band practices were illegal and/or improper,

Defendants “placed the blame for said conduct on Plaintiffs,” thereby

causing them to suffer damage to their reputations and integrity. 

(Pls.’ Second Am. Compl. ¶¶ 52-57.) These allegations in the Second

Amended Complaint plead a cognizable theory of detrimental reliance

because Plaintiffs allege they would not have participated in the

mileage band practices had Defendants not assured them the practices

were legal and/or proper, and their participation in these practices

allegedly led to the accusations of misconduct against them. (See id.

¶¶ 51-52, 54.) Furthermore, since Plaintiffs assert they incurred

damage to their reputations and integrity because they participated in

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the mileage band practices and were accused of misconduct, Plaintiffs

would have sustained these damages irregardless of their terminations. 

(See id. ¶¶ 52, 57.) Therefore, these allegations in the Second

Amended Complaint seek damages distinct from the termination itself. 

Finally, Defendants argue “reputational damages are not

available in a fraud cause of action” because “damage resulting from

reliance on [a] misrepresentation must be pecuniary or property loss.” 

(Defs.’ Mot. at 7.) In support of their contention, Defendants cite

to a California treatise and assert their research revealed no

“California case in which a fraud claim was sufficiently plead when

the sole compensable damage was reputational injury.” (Id.) In

response, Plaintiffs argue reputational damages are recoverable in a

fraud cause of action under California Civil Code § 1709, which states

“[o]ne who willfully deceives another with intent to induce him to

alter his position to his injury or risk, is liable for any damage

which he thereby suffers.” 

The secondary authority Defendants cite in support of their

argument states that a fraud claim “typically” or “ordinarily” seeks

to recover pecuniary or property loss, but also explains that these

types of damages are not a necessary component of a fraud claim.

5 Witkin, Summary of California Law, Torts, §§ 816-817 (2005); see

also O’Hara v. Western Seven Trees Corp., 75 Cal. App. 3d 798, 805

(1977) (stating a “deceit action . . . commonly seeks to recover

pecuniary loss,” but that “there is no essential reason to prevent a

deceit action from being maintained . . . where other types of

interests are invaded”). Furthermore, although Defendants uncovered

no California cases that expressly allowed recovery of reputational

damages in a fraud action, Defendants cite no authority expressly

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prohibiting the recovery of such damages either. (See Defs.’ Mot.

at 7.) In fact, independent research reveals that several courts have

allowed plaintiffs in fraud actions to recover damages for various

types of non-pecuniary loss, thereby indicating reputational damages

would be similarly recoverable. See e.g. Work v. Cambell, 164 Cal.

343 (1912) (allowing a plaintiff in a fraud action to recover damages

for her husband deserting her); O’Hara, 75 Cal. App. at 805 (allowing

a plaintiff in a fraud action to recover for physical harm from an

assault); cf. Von Grabe v. Sprint PCS, 312 F. Supp. 2d 1285, 1311

(S.D. Cal. 2003) (refusing to strike fraud allegations seeking pain

and suffering damages since such damages “are recoverable . . . in [a]

tort action for deceit”). In light of the California statute that

allows a plaintiff to recover “any damage” resulting from a fraudulent

misrepresentation, Plaintiffs need not allege pecuniary or property

loss to state a claim for fraud and may recover damages solely for

reputational injury. See Cal. Civ. Code § 1709 (emphasis added); 

O’Hara, 75 Cal. App. at 805 (noting Cal. Civ. Code § 1709 “does not

limit recovery to pecuniary loss”). 

Therefore, Defendants’ Rule 12(b)(6) motion to dismiss

Plaintiffs’ fraud allegations for damage to their reputation and

integrity is denied, but their motion to dismiss the fraud allegations

for lost compensation and benefits damages is granted. Further, since

Plaintiffs have repeatedly failed to cure the identified deficiencies

in their fraud allegations, it has become apparent Plaintiffs cannot

allege “other facts consistent with the challenged pleading [that]

could . . . possibly cure the deficiency.” Schreiber, 806 F.2d

at 1401. Accordingly, the portion of Plaintiffs’ fraud claim seeking

damages for lost compensation and benefits is dismissed with

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prejudice. See id.; Foreman v. Davis,371 U.S. 178, 182 (1962)

(indicating dismissal without leave to amend is proper when a

plaintiff “repeated[ly] fail[s] to cure deficiencies by amendments

previously allowed”). 

II. Rule 9(b): Particularity Requirement

When pleading a fraud claim, “a plaintiff must satisfy the

demands of Rule 9(b) . . . , which states that ‘in all averments of

fraud or mistake, the circumstances constituting the fraud or mistake

shall be stated with particularity.’” Von Grabe, 312 F. Supp. 2d

at 1305. “Courts have explained this rule to require that claims of

fraud include the ‘who, what, when, where, and how’ of the alleged

misconduct.” Id. (citing Cooper v. Pickett, 137 F.3d 616, 627 (9th

Cir. 1997)). Consequently, fraud “claims must be ‘specific enough to

give defendants notice of the particular misconduct . . . so that they

can defend the charge.’” Id. (citing Vess v. Ciba-Geigy Corp., 317

F.3d 1097, 1108 (9th Cir. 2003)). 

Defendants argue Plaintiffs “fail to allege what false facts

were stated, by whom, to whom, when, what authority that person had,

how that person intended each Plaintiff to rely on the statements, or

how they were false.” (Defs.’ Mot. at 8.) However, in their Second

Amended Complaint, Plaintiffs allege “California Regional senior

management, including Hank Barge, Bob Baker, the Controller, and Denis

Shunta, [the] Product Manager, held meetings throughout the state

informing agents and managers of the reasoning for the mileage band

[practices] and the company’s position on the legality of the

program.” (Pls.’ Second. Am. Compl. ¶ 25.) Plaintiffs further allege

Defendants learned the mileage band practices were illegal and/or

improper, but withheld this information from Plaintiffs despite their

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duty to do so. (Id. ¶¶ 51, 56.) Plaintiffs also assert Defendants

knew that withholding this information “would lead to discipline” and

“would result in damage to Plaintiffs’ personal and professional

integrity . . . .” (Id. ¶ 53.) Consequently, Plaintiffs have

identified what false facts were allegedly stated, when and where the

false statements were made, who made the false statements, what

authority these people had, and how these people intended Plaintiffs

to rely on the false statements to their detriment. Since these

allegations are specific enough to give Defendants notice of their

alleged misconduct, their Rule 9(b) motion to dismiss for failure to

allege fraud with particularity is denied. 

CONCLUSION

For the stated reasons, Defendants’ Rule 12(b)(6) motion to

dismiss for failure to state a claim is granted in part and denied in

part, and their Rule 9(b) motion to dismiss for failure to plead with

particularity is denied. 

IT IS SO ORDERED. 

Dated: September 7, 2006

/s/ Garland E. Burrell, Jr.

GARLAND E. BURRELL, JR.

United States District Judge

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