Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_08-cv-02558/USCOURTS-caed-2_08-cv-02558-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

DALE M. WALLIS, D.V.M., JAMES

L. WALLIS, and HYGIEIA

BIOLOGICAL LABORATORIES, INC.,

a California Corporation,

Plaintiffs,

 v.

CENTENNIAL INSURANCE COMPANY,

INC., a New York corporation,

ATLANTIC MUTUAL INSURANCE,

CO., INC., a New York

corporation, 

Defendants, /

AND RELATED COUNTERCLAIMS AND

THIRD-PARTY COMPLAINT.

 /

NO. CIV. 08-02558 WBS GGH

MEMORANDUM AND ORDER RE:

MOTION FOR JUDGMENT ON THE

PLEADINGS AND MOTION TO

STRIKE

----oo0oo----

Plaintiffs Dale M. Wallis (“Dr. Wallis”), James L.

Wallis (“Mr. Wallis”), and Hygieia Biological Laboratories Inc.

(“Hygieia”) brought this action against defendants Centennial

Insurance Company Inc. and Atlantic Mutual Insurance Co. Inc.

alleging breach of insurance contract, breach of the implied

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1 Defendants filed a motion to dismiss pursuant to

Federal Rule of Civil Procedure 12(b)(6) and 12(c) after they

filed their Answer. (See Docket Nos. 9-10.) Because a motion

pursuant to Rule 12(b) “shall be made before pleading,” the court

will construe defendants’ motion as a motion for judgment on the

pleadings under Rule 12(c). See Fed. R. Civ. P. 12(c), (h)(2).

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covenant of good faith and fair dealing, and breach of fiduciary

duty relating to plaintiffs’ veterinarian professional liability

insurance policy. Defendants now move for judgment on the

pleadings pursuant to Federal Rule of Civil Procedure 12(c) on

plaintiffs’ claim for breach of fiduciary duty.1 Defendants also

move to strike plaintiffs’ request for injunctive relief pursuant

to Federal Rule of Civil Procedure 12(f).

I. Factual and Procedural Background

Dr. Wallis is a research veterinarian. (Compl. ¶ 8.) 

Beginning in 1993, Dr. Wallis was involved in a lawsuit over the

intellectual property rights to a bovine vaccine she had

developed while working for Poultry Health Laboratories (“PHL”).

(Id. ¶¶ 11-14.) Several related lawsuits ensued, one of which

involved a complaint by Dr. Wallis against PHL and its

shareholders alleging that she had created the vaccine and that

PHL had defrauded her of her invention. (Id. ¶¶ 11-18.) In that

action, PHL filed a cross-complaint against Dr. Wallis, Mr.

Wallis, and Hygieia alleging unfair competition, interference

with contractual relations and prospective economic advantage,

misappropriation of trade secrets, and conversion. (Id. ¶ 19.)

Defendants in this case provided the defense to the PHL

cross-complaint under a reservation of rights pursuant to their

standard policy of veterinarian professional liability insurance

(“Policy”). (Id. ¶¶ 8, 21.) Dr. Wallis was the named insured

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under the Policy, and the Policy also covered Mr. Wallis and

Hygieia because of their relationship with Dr. Wallis. (Id. ¶

8.)

Due to defendants’ reservation of rights, plaintiffs

obtained counsel of their choice, and defendants proceeded to pay

the legal fees and costs incurred by plaintiffs’ counsel. (Id.

¶¶ 21-22.) However, defendants have allegedly begun “to impose

unreasonable and illegal limitations upon the fees and costs that

will be paid” and have “attempt[ed] to control the litigation by

refusing to abide by the terms of the Policy.” (Id. ¶¶ 22-23.)

Plaintiffs filed their Complaint in this case on

October 27, 2008, asserting diversity jurisdiction, 28 U.S.C. §

1332(a), and alleging breach of insurance contract, breach of the

implied covenant of good faith and fair dealing, and breach of

fiduciary duty. Presently before the court are defendants’

motion for judgment on the pleadings pursuant to Federal Rule of

Civil Procedure 12(c) on plaintiffs’ claim for breach of

fiduciary duty and defendants’ motion to strike plaintiffs’

request for injunctive relief pursuant to Federal Rule of Civil

Procedure 12(f).

II. Discussion

A. Motion for Judgment on the Pleadings

“Judgment on the pleadings is proper when the moving

party clearly establishes on the face of the pleadings that no

material issue of fact remains to be resolved and that it is

entitled to judgment as a matter of law.” Hal Roach Studios,

Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1550 (9th Cir.

1990). The standard applied to a motion for judgment on the

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pleadings under Federal Rule of Civil Procedure 12(c) is

“functionally identical” to the standard applied to motions under

Federal Rule of Civil Procedure 12(b)(6) for failure to state a

claim upon which relief can be granted. Dworkin v. Hustler

Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). “For

purposes of the motion, the allegations of the non-moving party

must be accepted as true, while the allegations of the moving

party which have been denied are assumed to be false.” Hal Roach

Studios, 896 F.2d at 1550. Judgment on the pleadings may be

granted as to fewer than all of the claims or as to part of a

claim. Fed. Election Comm’n v. Adams, 558 F. Supp. 2d 982, 987

(C.D. Cal. 2008) (citing Chi-Mil Corp. v. W.T. Grant Co., 70

F.R.D. 352, 358 (E.D. Wis. 1976)).

“Although an insurer may have special duties to an

insured, it is well-established that these duties do not give

rise to a fiduciary relationship.” Valley Air Conditioning &

Repair, Inc. v. Beneficial Life Ins. Co., No. 07-01087, 2007 WL

2758018, at *2 (E.D. Cal. Sept. 19, 2007) (Ishii, J.) (citing Vu

v. Prudential Prop. & Cas. Ins. Co., 26 Cal. 4th 1142, 1151

(2001)). Therefore, “Ninth Circuit courts, construing California

law,” have held that an insurer-insured relationship “does not

provide for an independent action for common law breach of

fiduciary duty.” Negrete v. Fid. & Guar. Life Ins. Co., 444 F.

Supp. 2d 998, 1003-04 (C.D. Cal. 2006) (citing Solomon v. N. Am.

Life & Cas. Ins. Co., 151 F.3d 1132, 1138 (9th Cir. 1998); Almon

v. State Farm Fire & Cas. Co., 724 F. Supp. 765 (S.D. Cal. 1989);

Kanne v. Conn. Gen. Life Ins. Co., 607 F. Supp. 899 (C.D. Cal.

1985)).

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While some courts have loosely asserted that “a first

party insurer owes a fiduciary duty to its insured,” See Estate

of Parker v. AIG Life Ins., 317 F. Supp. 2d 1167 (C.D. Cal.

2004), the overwhelming weight of authority indicates that such

is not the law of California. See Hassard, Bonnington, Roger &

Huber v. Home Ins. Co., 740 F. Supp. 789, 791 (S.D. Cal. 1990)

(“Despite the seeming trend of cases in California to analogize

the insurer-insured relationship to a fiduciary relationship, the

cases which have directly addressed this point have held that

this relationship does not produce a fiduciary duty.”); see also

Vu, 26 Cal. 4th at 1151; Love v. Fire Ins. Exchange, 221 Cal.

App. 3d 1136, 1148 (1990). Indeed, most courts have found that

“the sounder approach is for courts to analyze an insurer’s

alleged breach of its ‘fiduciary-like duties’ as a claim for

breach of the covenant of good faith and fair dealing.” Butler

v. Clarendon Am. Ins. Co., 494 F. Supp. 2d 1112, 1136 (N.D. Cal.

2007); see Alta Bates Summit Med. Ctr. v. United of Omaha Life

Ins. Co., No. 07-04224, 2009 WL 57108, at *4 (N.D. Cal. Jan. 8,

2009) (“‘[A]n insurer’s alleged breach of its “fiduciary-like

duties” is adequately redressed by a claim for breach of the

covenant of good faith and fair dealing implied in the insurance

contract.’” (quoting Tran v. Farmers Group, Inc., 104 Cal. App.

4th 1202, 1212 (2002))).

The few cases permitting insureds to bring claims for

breach of fiduciary duty against insurers have involved “the

formation of a fiduciary relationship based on other acts or

representations” that create “more than just an insurer-insured

relationship.” In re Conseco Ins. Co. Annuity Mktg. & Sales

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Practices Litig., No. 05-04726, 2007 WL 486367, at *7 (N.D. Cal.

Feb. 12, 2007); see Negrete, 444 F. Supp. 2d at 1004

(“[P]laintiffs allegations are sufficient to state [a] claim for

common law breach of fiduciary duty against defendant, in that

the relationship alleged is not simply that of an

insurer-insured, but rather one which may entail a fiduciary

duty.”). In this case, however, there is no allegation nor any

suggestion of any source of fiduciary obligation other than the

insurer-insured relationship. (See Compl. ¶ 43 (“By issuing the

Policy to plaintiffs and accepting premiums therefore, defendants

created a fiduciary relationship between themselves and

plaintiffs, and said fiduciary relationship existed at all times

relevant herein.”).) Accordingly, the court must grant

defendants’ motion for judgment on the pleadings on plaintiffs’

claim for breach of fiduciary duty.

B. Motion to Strike

Pursuant to Federal Rule of Civil Procedure 12(f), a

court “may strike from a pleading an insufficient defense or any

redundant, immaterial, impertinent, or scandalous matter.” Here,

defendants contend that the court should strike plaintiffs’

request for injunctive relief because the Complaint “fail[s] to

allege any facts to support such extraordinary relief.” (Mot.

Dismiss 5.) Specifically, defendants argue that the Complaint

merely alleges a “billing dispute” for which monetary damages

provide adequate relief. (Id. at 1, 5.)

A careful review of the Complaint, however, reveals

that plaintiffs have alleged more than a mere billing dispute

that can be remedied by money damages; the Complaint alleges that

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defendants have effectively used their financial position to

“control the selection of counsel . . . and to control the

[plaintiffs’ litigation] strategy.” (Compl. ¶ 26; see id. ¶¶ 34-

35 (“[P]laintiffs will be seeking injunctive relief to require

that . . . defendants stop imposing ‘billing guidelines’ . . .

and that defendants be prohibited from attempting to control the

defense strategies and litigation . . . .”).) Under the liberal

pleading requirements of Federal Rule of Civil Procedure 8(a),

plaintiffs’ allegations are sufficient to survive a motion to

strike their request for injunctive relief at this early stage in

the litigation.

While defendants correctly note that injunctive relief

requires “the likelihood of substantial and immediate irreparable

injury and the inadequacy of remedies at law,” Orantes-Hernandez

v. Thornburgh, 919 F.2d 549, 558 (9th Cir. 1990) (quoting LaDuke

v. Nelson, 762 F.2d 1318, 1324 (9th Cir. 1985)), this

determination is properly made “after a full adjudication of the

parties’ rights,” McKenney v. Hernandez, No. 07-1735, 2008 WL

4159621, at *9 (S.D. Cal. Sept. 8, 2008) (quoting Judge William

W. Schwarzer et al., California Practice Guide: Federal Civil

Procedure Before Trial § 13:11 (2008)); see id. (“The

pre-discovery period is not the appropriate time to decide

whether Plaintiff is entitled to a permanent injunction . . .

.”); see also Orantes-Hernandez, 919 F.2d at 558 (“[T]he

plaintiff seeking an injunction must prove the plaintiff’s own

case and adduce the requisite proof, by a preponderance of the

evidence, of the conditions and circumstances upon which the

plaintiff bases the right to and necessity for injunctive

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relief.”).

Further, defendants’ insistence that the Complaint must

allege “that plaintiffs are likely to prevail” on the merits

confuses preliminary injunctions with permanent injunctions. See

Haw. County Green Party v. Evans, No. 03-0078, 2003 WL 25289318,

at *2 (N.D. Cal. Jan. 24, 2003) (“The standard for a preliminary

injunction is essentially the same as for a permanent injunction

with the exception that the plaintiff must show a likelihood of

success on the merits rather than actual success.” (quoting Amoco

Prod. Co. v. Village of Gambell, Alaska, 480 U.S. 531, 546 n.12

(1987))). Although plaintiffs allege that “the conduct at issue

must be addressed in an expedited manner at the outset” (Compl. ¶

34), they have made no request for preliminary injunctive relief

at this time, and they may do so only by separate motion pursuant

to Federal Rule of Civil Procedure 65 and Eastern District Local

Rule 65-231.

Accordingly, the court must deny defendants’ motion to

strike plaintiffs’ request for injunctive relief.

IT IS THEREFORE ORDERED that defendants’ motion for

judgment on the pleadings on plaintiffs’ claim for breach of

fiduciary duty be, and the same hereby is, GRANTED; and

IT IS FURTHER ORDERED that defendants’ motion to strike

plaintiffs’ request for injunctive relief be, and the same hereby

is, DENIED.

DATED: February 3, 2009

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