Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_16-cv-00158/USCOURTS-caed-2_16-cv-00158-5/pdf.json

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

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

SHASTA LINEN SUPPLY, INC., a 

California corporation, on 

behalf of itself and all 

others similarly situated, 

Plaintiff,

v.

APPLIED UNDERWRITERS, INC., a 

Nebraska corporation; APPLIED 

UNDERWRITERS CAPTIVE RISK 

ASSURANCE COMPANY, a British 

Virgin Islands company; 

CALIFORNIA INSURANCE COMPANY, 

a registered California 

insurance company; APPLIED 

RISK SERVICES, INC., a 

Nebraska corporation,

Defendants.

CIV. NO. 2:16-158 WBS AC

MEMORANDUM AND ORDER RE: MOTION 

FOR RECONSIDERATION

----oo0oo----

Plaintiff Shasta Linen Supply filed this action against

defendants Applied Underwriters (“AU”), Applied Underwriters

Captive Risk Assurance Company (“AUCRA”), Applied Risk Services 

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(“ARS”), and California Insurance Company (“CIC”),

1 alleging that 

defendants fraudulently marketed and sold a workers’ compensation 

insurance program to it and other employers in violation of 

California law. (First Am. Compl. (“FAC”) at 15-22 (Docket No. 

5).) Presently before the court is plaintiff’s motion for 

reconsideration of the court’s June 20, 2016 Order (“June 20 

Order”) partially granting defendants’ motion to dismiss. (Pl.’s 

Mot. for Reconsideration (“Pl.’s Mot.”) (Docket No. 33).)

I. Factual and Procedural Background

Defendants allegedly marketed and sold a workers’ 

compensation insurance program--the EquityComp program--to 

plaintiff and other California employers. (FAC ¶¶ 17, 57.) Four 

days after the EquityComp policies took effect for plaintiff, 

defendants allegedly required plaintiff to sign, pursuant to 

EquityComp “practices and procedures,” a Reinsurance 

Participation Agreement (“RPA”) which modified the terms of 

existing EquityComp policies, including their rates. (Id. ¶¶ 2, 

24, 44, 46.)

On August 29, 2014, plaintiff filed an administrative 

appeal with the California Department of Insurance, challenging, 

among other things, the legality of the RPA. (Pl.’s Request for 

Judicial Notice (“RJN”) Ex. A, Ins. Comm’r’s June 20 Decision & 

Order (“Comm’r’s Order”) at 4 (Docket No. 34-1).2) Plaintiff

 

1 AU is the parent company of AUCRA and ARS, and controls 

CIC through another subsidiary. (Pl.’s Request for Judicial 

Notice Ex. A, Ins. Comm’r’s June 20 Decision & Order at 9-10

(Docket No. 34-1).)

2 The court takes judicial notice of the Commissioner’s 

Order because it is a public record whose existence “can be 

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argued that the RPA was void as a matter of law because 

defendants did not file the RPA with the Commissioner thirty days 

prior to when it was to take effect, as required under California 

Insurance Code section 11735.3 (Id. at 2.)

Section 11735 provides that “[e]very insurer shall file 

with the commissioner all rates and supplementary rate 

information that are to be used in this state . . . not later 

than 30 days prior to the effective date.” Cal. Ins. Code 

§ 11735(a). Section 11737 states that “[t]he commissioner may 

disapprove a rate if the insurer fails to comply with the filing 

requirements under Section 11735.” Id. § 11737(a). 

Policyholders harmed by the application of an insurance rate may

file an administrative appeal with the Commissioner under section 

11737. Id. § 11737(f). The Commissioner may then “affirm, 

modify, or reverse" the rate after a hearing on the matter. Id. 

On January 26, 2016, plaintiff brought an action in 

this court alleging fraud and unfair competition against 

defendants for their marketing and sale of EquityComp and its

RPA. (Compl. (Docket No. 1).) With respect to the RPA, 

plaintiff again argued that the RPA was void because defendants 

did not file it with the Commissioner prior to its effectuation,

pursuant to section 11735. (Id. ¶ 3.) Billing plaintiff under 

 

accurately and readily determined from sources whose accuracy 

cannot reasonably be questioned.” See Fed. R. Evid. 201(b)(2);

Interstate Nat. Gas Co. v. S. Cal. Gas Co., 209 F.2d 380, 385 

(9th Cir. 1953) (stating that federal courts may take judicial 

notice of administrative agency records).

3 Unless otherwise specified, all statutes referenced in 

this Order are from the California Insurance Code.

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the void RPA, plaintiff argued, constituted fraud and unfair 

business practice. (Id. ¶ 4.) Defendants moved to dismiss that 

argument to the extent it relied on section 11735, arguing that a 

rate is legal unless and until the Commissioner holds a hearing 

and disapproves the rate, pursuant to section 11737. (Docket No. 

17 at 6.) 

On June 20, 2016, the court granted defendants’ motion

to the extent plaintiff relied on section 11735, stating that “a 

rate that has not been filed as required by § 11735 is not an 

unlawful rate unless and until the Commissioner conducts a 

hearing and disapproves the rate” pursuant to section 11737. 

(June 20, 2016 Order (“June 20 Order”) at 4 (Docket No. 30).) 

Because plaintiff did not allege that the Commissioner held a 

hearing and disapproved the RPA, the court concluded, it did not 

plausibly allege that the RPA was void. (Id. at 4-5.)

On the same day, the Commissioner of the California 

Department of Insurance (“Commissioner”) issued a Decision & 

Order in plaintiff’s administrative case (“Commissioner’s 

Order”), holding that the RPA “must be filed and approved by the 

Commissioner pursuant to [section] 11735 before use in this 

State.” (Comm’r’s Order at 62.) Because defendants did not file 

the RPA before it took effect, the Commissioner stated, the “RPA 

is void as a matter of law.” (Id. at 65-66.)

Based on the Commissioner’s Order, plaintiff now moves

this court to reconsider its June 20 Order pursuant to Federal 

Rule of Civil Procedure 60(b)(6). Plaintiff requests that the 

court issue a new order finding that it may base its unfair 

competition claim “on [defendants’] failure to file the RPA in 

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violation of § 11735.” (Pl.’s Mot., Mem. (“Pl.’s Mem.”) at 6.)

II. Legal Standard

Though plaintiff moves under Rule 60(b),4 its motion is 

more appropriately considered under Rules 54(b) and 59(e). 

Rule 60(b) applies only to “final judgment[s], 

order[s], or proceeding[s]. United States v. Martin, 226 F.3d 

1042, 1048 n.8 (9th Cir. 2000) (“Rule 60(b) . . . applies only to 

motions attacking final, appealable orders.”); Sch. Dist. No. 5 

v. Lundgren, 259 F.2d 101, 104 (9th Cir. 1958) (Rule 60(b)

“applies only to judgments, orders, or proceedings which are 

‘final.’”). The Ninth Circuit defines such judgments, orders, 

and proceedings as “those which terminate the litigation in the 

district court subject only to the right of appeal.” Corn v. 

Guam Coral Co., 318 F.2d 622, 629 (9th Cir. 1963). The June 20 

Order did not terminate plaintiff’s case in this court. (June 20 

Order at 5 n.4 (noting that plaintiff’s claims may proceed on

non-dismissed grounds).)

Rule 54(b), by contrast, authorizes district courts to 

“revise[]” interlocutory orders--orders that “adjudicate[] fewer 

than all the claims or the rights and liabilities of fewer than 

all the parties”--before entry of a judgment ending a case in its 

 

4 Plaintiff also cites Local Rule 230(j) as a basis for 

its motion. (Pl.’s Mot. at 2.) Under that rule, plaintiff must 

show that “new or different facts or circumstances are claimed to

exist which did not exist or were not shown upon such prior 

motion” and explain “why [such] facts or circumstances were not 

shown at the time of the prior motion.” E.D. Cal. L.R. 

230(j)(3)-(4). Plaintiff has satisfied Rule 230(j) by showing

that the Commissioner’s Order, the basis for plaintiff’s pending 

motion, was not issued when the parties briefed and argued 

defendants’ motion to dismiss. (Pl.’s Mem. at 6.)

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entirety. Fed. R. Civ. P. 54(b). Additionally, Rule 59(e) 

authorizes district courts to “alter or amend a judgment,” Fed. 

R. Civ. P. 59(e), including appealable interlocutory orders, 

Balla v. Idaho State Bd. of Corr., 869 F.2d 461, 466 (9th Cir. 

1989) (“[T]he word ‘judgment’ [as used in the Federal Rules of 

Civil Procedure] encompasses . . . appealable interlocutory 

orders.”). The court’s June 20 Order is an interlocutory order 

because it merely dismissed plaintiff’s reliance on section 11735

while leaving other grounds for its claims open. (See June 20 

Order at 5.) Accordingly, the court construes plaintiff’s motion 

as being brought under Rules 54(b) and 59(e).

The standard of review for motions to reconsider is the 

same under both rules. Lal v. Felker, No. 2:07-CV-2060 KJM EFB, 

2014 WL 3362353, at *1 (E.D. Cal. July 8, 2014) (Mueller, J.) 

(“The standards [for motions to reconsider under Rules 54 and 59] 

are the same . . . Courts rely on Rule 59 cases when discussing 

the standard for Rule 54 motions.”); see also Cachil Dehe Band of 

Wintun Indians of Colusa Indian Cmty. v. California, No. CIV.S04-2265 FCD KJM, 649 F. Supp. 2d 1063, 1069 (E.D. Cal. 2009) 

(Damrell, J.) (relying on Rule 59 cases in discussing Rule 54 

motion to reconsider); Drover v. LG Elecs. USA, Inc., No. 2:12-

CV-510 JCM VCF, 2013 WL 632103 (D. Nev. Feb. 19, 2013) (same).

Motions for reconsideration “are directed to the sound 

discretion of the court.” Riley v. Giguiere, No. CIV.S-06-2126 

LKK KJM, 631 F. Supp. 2d 1295, 1310 (E.D. Cal. 2009) (Karlton, 

J.); see also McDowell v. Calderon, 197 F.3d 1253, 1256 (9th Cir. 

1999) (reviewing district court’s denial of reconsideration for 

abuse of discretion). They are an “extraordinary remedy,” one

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that should be used “sparingly in the interests of finality and 

the conservation of judicial resources.” Kona Enters. v. Estate 

of Bishop, 229 F.3d 877, 890 (9th Cir. 2000). Plaintiff may not 

use a motion to reconsider “to raise arguments or present 

evidence for the first time when they could reasonably have been 

raised earlier in the litigation.” Marlyn Nutraceuticals, Inc. 

v. Mucos Pharma GmbH & Co., 571 F.3d 873, 880 (9th Cir. 2009) 

(citing Kona Enters, 229 F.3d at 890). 

Against this backdrop, the Ninth Circuit has held that 

“[r]econsideration is appropriate if the district court (1) is 

presented with newly discovered evidence, (2) committed clear 

error or the initial decision was manifestly unjust, or (3) if 

there is an intervening change in controlling law.” Sch. Dist. 

No. 1J, Multnomah Cty., Or. v. ACandS, Inc., 5 F.3d 1255, 1263 

(9th Cir. 1993); see also Smith v. Clark Cty. Sch. Dist., 727 

F.3d 950, 955 (9th Cir. 2013) (holding the same); Nunes v.

Ashcroft, 375 F.3d 805, 807 (9th Cir. 2004) (holding the same). 

“There may also be other, highly unusual, circumstances 

warranting reconsideration.” Sch. Dist. No. 1J, 5 F.3d at 1263.

Here, plaintiff does not present new factual evidence 

or highly unusual circumstances warranting reconsideration of the 

June 20 Order. Instead, plaintiff argues that the Commissioner’s 

Order is a change “in controlling authority . . . meriting 

reconsideration by this court.” (Pl.’s Mem. at 6.) Plaintiff

also continues to contend that the court’s June 20 Order was in 

error. (See Pl.’s Reply at 6-10 (Docket No. 41).)

///

///

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III. Discussion

A. The Commissioner’s Order is Not Controlling Law

The Commissioner’s Order interpreted section 11735 to 

require that the RPA “be filed and approved by the Commissioner 

pursuant to [section] 11735 before use in [California].” 

(Comm’r’s Order at 62.) “Failure to do so,” according to the 

Commissioner, “renders the plan[] unlawful.” (Id.) That 

interpretation stands in direct conflict with this court’s June 

20 Order, which held that “a rate that has not been filed as 

required by § 11735 is not an unlawful rate unless and until the 

Commissioner conducts a hearing and disapproves the rate.” (June 

20 Order at 4.) The court must decide, therefore, whether the 

Commissioner’s Order constitutes “controlling law” as to compel 

reconsideration of its June 20 Order.

As an initial matter, federal courts must apply state 

substantive law when sitting on diversity jurisdiction. See Erie 

R. Co. v. Tompkins, 304 U.S. 64, 92 (1938). Federal courts in 

this and other circuits have held that administrative deference 

is a substantive question. See Alvarez v. IBP, Inc., 339 F.3d 

894, 911 (9th Cir. 2003) (applying Washington law in deciding 

whether deference is owed to Washington agency’s interpretation 

of state statute), aff’d, 546 U.S. 21 (2005); Ernie Haire Ford, 

Inc. v. Ford Motor Co., 260 F.3d 1285, 1293 (11th Cir. 2001)

(“[I]f Florida courts must defer to agency interpretations when 

construing Florida substantive law, then we must do the same.”); 

Keys v. Safeway Ins. Co., No. 2:07-CV-372 KS MTP, 2011 WL 577357, 

at *6 (S.D. Miss. Feb. 9, 2011) (applying Mississippi law in 

deciding whether deference is owed to Mississippi agency’s 

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interpretation of state statute). Because this case arises under 

diversity jurisdiction, (FAC at ¶ 7), the court will apply 

California law in deciding whether the Commissioner’s Order is 

“controlling law.”

The California Supreme Court has held that while “an 

agency[’s] interpretation of the meaning and legal effect of a 

statute is entitled to consideration and respect by the courts,” 

the “courts are the ultimate arbiters of the construction of a 

statute.” Yamaha Corp. of Am. v. State Bd. of Equalization, 19 

Cal. 4th 1, 7, 17 (1998); see also California Assn. of Psychology 

Providers v. Rank, 51 Cal. 3d 1 (1990) (holding the same), as 

modified on denial of reh’g (Sept. 20, 1990); Dyna–Med, Inc. v. 

Fair Employment & Housing Com., 43 Cal.3d 1379, 1389 (1987) (“The 

final meaning of a statute . . . rests with the courts.”); Morris 

v. Williams, 67 Cal.2d 733, 748, (1967) (“[F]inal responsibility 

for the interpretation of the law rests with the courts.”). 

In keeping with that principle, California courts are 

instructed to “independently judge the text of the statute,” even 

where an agency has interpreted its meaning. Yamaha, 19 Cal. 4th 

at 7. An agency’s interpretation is only “one among several 

tools available to the court” in construing a statute. Id. 

“Depending on the context, [an agency’s interpretation] may be 

helpful, enlightening, even convincing.” Id. at 7-8. It is not

controlling, however. Dyna-Med, Inc. v. Fair Employment & Hous. 

Com., 43 Cal. 3d 1379, 1388 (1987) (holding that while agency 

interpretation of statutes may be “entitled to great weight,” 

they are “not controlling”); Sheet Metal Workers Int’l Ass’n, 

Local Union No. 104 v. Rea, 153 Cal. App. 4th 1071, 1080 (1st 

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Dist. 2007) (holding the same), as modified (Aug. 29, 2007); Am. 

Nat. Ins. Co. v. Low, 84 Cal. App. 4th 914, 924 (2d Dist. 2000)

(holding the same); see also Diablo Valley Coll. Faculty Senate 

v. Contra Costa Cmty. Coll. Dist., 148 Cal. App. 4th 1023, 1034 

(1st Dist. 2007) (responding to argument that agency 

interpretation “is controlling unless it is plainly erroneous” by 

noting that such rule “appears to be precluded by Yamaha”).

This is particularly true in the context of 

administrative interpretations, which, unlike quasi-legislative 

rules, “do[] not implicate the exercise of a delegated lawmaking 

power,” but merely “represents the agency’s view of the statute’s 

legal meaning and effect, questions lying within the 

constitutional domain of the courts.” Yamaha, 19 Cal. 4th at 11. 

Indeed, the California Supreme Court has held that such 

interpretations, “however ‘expert’” they may be, “command[] a 

commensurably lesser degree of judicial deference” than quasilegislative rules, id. at 11, which are themselves not 

controlling either, see Dyna-Med, 43 Cal. 3d at 1388 (“The 

contemporaneous construction of a new enactment by the 

administrative agency charged with its enforcement [is] not 

controlling . . . .”).

In bringing a motion for reconsideration, plaintiff 

seeks an “extraordinary remedy,” one that compromises “the 

interests of finality and the conservation of judicial 

resources.” Kona Enters, 229 F.3d at 890. Hoping to obtain such 

relief, plaintiff directs the court’s attention to the 

Commissioner’s Order, which was issued without quasi-legislative 

procedures after the court decided defendants’ motion to dismiss. 

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(See Pl.’s Mem. at 5-6.) The authorities discussed above make 

clear that the Commissioner’s Order does not control this court.

5

Because the Commissioner’s Order does not control this court, it 

does not constitute “an intervening change in controlling law.”

B. The Court’s June 20 Order is not Clearly Erroneous

Plaintiff continues to argue that the court’s June 20 

Order is erroneous. (See Pl.’s Reply at 6-10.) It contends that 

section 11735’s “initial filing and waiting requirement is not 

abrogated solely because the Commissioner may reject or 

disapprove a rate that is actually filed” under section 11737. 

(Id. at 2.) “Nowhere in Section 11735,” plaintiff notes, “does 

it state that the threshold filing requirement is set aside 

unless and until the Commissioner acts to ‘disapprove’ the 

unfiled rate.” (Id. at 6.)

As a threshold matter, this argument mischaracterizes

the court’s June 20 Order. In that order, the court held that “a 

rate that has not been filed as required by § 11735 is not an 

unlawful rate unless and until the Commissioner conducts a 

hearing and disapproves the rate.” (June 20 Order at 4.) That 

an insurer may lawfully use an unfiled rate does not mean that it 

 

5 That the Commissioner designated his ruling 

“precedential” under California Government Code § 11425.60(b)

does not alter the court’s analysis. That provision merely 

allows agencies to designate decisions as precedent. Cal. Gov. 

Code § 11425.60. It does not require courts to follow such 

precedent. See State Bldg. & Const. Trades Council of Cal. v. 

Duncan, 162 Cal. App. 4th 289, 300 (1st Dist. 2008) (agency 

precedents “can be relied upon in subsequent determinations”

(emphasis added)); Sheet Metal Workers, 153 Cal. App. 4th at 1085 

(“[A]n administrative decision may . . . be expressly relied on 

as precedent [if] so designated by the agency.” (emphasis 

added)).

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may do so without being subject to recourse. Section 11737 

provides a procedure for parties like plaintiff to appeal such 

rates to the Commissioner who, after a hearing, “may affirm, 

modify, or reverse [the] action” of the insurer. Cal. Ins. Code 

§ 11737. Thus, the court’s June 20 Order does not “abrogate” or 

“set aside” section 11735, as plaintiff suggests. It merely 

recognizes that under the language of section 11737, an unfiled 

rate is not unlawful per se.

Plaintiff, of course, continues to contend that an 

unfiled rate is unlawful per se under section 11735. (See Pl.’s 

Reply at 6.) To the extent that reading is plausible, plaintiff 

nevertheless fails to show clear error in the court’s alternative 

reading. Section 11737 states that “[t]he commissioner may

disapprove a rate if the insurer fails to comply with the filing 

requirements under Section 11735” and “may affirm, modify, or 

reverse” a rate after an appeal and hearing. Cal. Ins. Code § 

11737(a), (f) (emphases added). It further provides that “[i]f 

the commissioner disapproves a rate, the commissioner shall issue 

an order specifying . . . that rate shall be discontinued for any 

policy issued or renewed after a date specified in the order.” 

Id. § 11737(g). Thus, section 11737 provides that an unfiled 

rate is not unlawful unless and until the Commissioner holds a 

hearing, disapproves the rate, and issues an order discontinuing 

the rate.

Nothing in section 11737 renders unfiled rates unlawful

per se. Section 11735, meanwhile, states that insurers “shall 

file” their rates, but is silent on whether they may use unfiled 

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rates.

6

Because section 11737 supports the court’s 

interpretation of section 11735, that interpretation does not 

constitute “clear error.” Cf. McDowell, 197 F.3d at 1255 

(declining to find “clear error” where the “question [was] a 

debatable one”); In re Cement Antitrust Litig. (MDL No. 296), 688 

F.2d 1297, 1305 (9th Cir. 1982) (“[W]hen a district court is 

faced with two plausible interpretations of a statute that has 

not been construed by an appellate court, it would be difficult 

in one sense to characterize either interpretation as ‘clearly 

erroneous.’”); Willis v. Mullins, No. CIV-F-04-6542 AWI GSA, 809 

F. Supp. 2d 1227, 1233 (E.D. Cal. 2011) (Ishii, J.) (“Although 

the definition of clear error we have employed in differing 

contexts varies to some extent, it generally allows for reversal 

only where the court of appeals is left with a ‘definite and firm 

conviction’ that an error has been committed.” (internal citation 

omitted)).

Because the Commissioner’s Order does not constitute 

“an intervening change in controlling law” and because the 

court’s June 20 Order was not a “clear error,” the court will 

 

6 Plaintiff also cites section 2509.32 of title 10 of the 

California Code of Regulations in support of its interpretation 

of the Insurance Code. (See Pl.’s Reply at 6.) But nothing in 

that regulation contradicts the court’s reading of section 11735. 

All it does is repeat section 11735’s requirement that an insurer 

file its rates with the Commissioner 30 days before their 

effective date. See 10 CCR § 2509.32(a). It states that “no 

insurer shall issue a workers’ compensation insurance policy 

unless the policy is first approved by the Commissioner,” id., 

but that obligation exists under section 11658, which is not at 

issue in this motion.

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deny plaintiff’s motion for reconsideration. 

It should be noted that neither this Order nor the June 

20 Order bars plaintiff from arguing that defendants’ use of the 

RPA was illegal on grounds other than violation of section 11735. 

If plaintiff successfully argues that the RPA violated section 

11658, or that the Commissioner’s Order constituted a rate 

disapproval hearing within the meaning of section 11737 that 

rendered the RPA retroactively unlawful, for example, the court 

may still rule that the RPA was void with respect to plaintiff 

and other putative class members.

IT IS THEREFORE ORDERED that plaintiff’s motion for 

reconsideration of the court’s June 20, 2016 Order be, and the 

same hereby is, DENIED without prejudice as to attempts by 

plaintiff to invalidate the Reinsurance Participation Agreement 

on grounds other than the theory that defendants violated

California Insurance Code section 11735.

Dated: October 17, 2016

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