Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-01909/USCOURTS-cand-3_06-cv-01909-20/pdf.json

Nature of Suit Code: 443
Nature of Suit: Civil Rights Accommodations
Cause of Action: 42:1981 Housing Discrimination

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 Plaintiffs are “LaRell Franklin, individually and as executor and testamentary

trustee of the Estate of Maggie Ivory, LaRon Franklin, Deborah Spade, Lisa Lemmons,

Dorothy Sewell, as guardian of the estate of her wards, Amber Franklin, Deaneer Franklin

and Coti Alexander.” (See SAC ¶ 2.)

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

LaRELL FRANKLIN et al.,

Plaintiffs,

 v.

ALLSTATE CORPORATION et al.,

Defendants.

 /

No. C-06-1909 MMC

ORDER GRANTING IN PART AND

DENYING IN PART DEFENDANTS

RUST, ARMENIS & SCHWARTZ AND

SCOTT D. SCHWARTZ’S MOTION TO

DISMISS; DENYING MOTION FOR

MORE DEFINITIVE STATEMENT

(Docket No. 72)

Before the Court is the motion filed July 27, 2006 by defendants Rust, Armenis &

Schwartz and Scott D. Schwartz, Esq. (collectively, “Schwartz”) to dismiss the claims

asserted against them in plaintiffs’ Second Amended Complaint (“SAC”) pursuant to Rule

12(b)(6) of the Federal Rules of Civil Procedure, and for a more definite statement pursuant

to Rule 12(e). Plaintiffs1

 have filed opposition to the motion. Schwartz has filed a reply. 

Having considered the papers filed in support of and in opposition to the motion, the Court

finds the matter appropriate for resolution without oral argument, see Civil L.R. 7-1(b), and

rules as follows.

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BACKGROUND

The instant action arises out of an insurance dispute over coverage for fire damage

to residential property at 778 Lakeview Avenue in San Francisco (“Lakeview Property”).

According to plaintiffs, a fire occurred on March 1, 2005 around 4:00 p.m. at the

Lakeview Property. (See SAC ¶ 8.) Plaintiffs allege that Allstate Insurance Company

(“Allstate”) originally issued an insurance policy covering the Lakeview Property to

decedent Maggie Ivory (“Ivory”) in 1992. (See id. ¶ 4.) After Ivory’s death, LaRell Franklin

was appointed executor of the Ivory estate and the subject policy, Allstate Insurance

Company Deluxe Plus Homeowners Policy No. 37300564 (“Policy”), was reissued to him

on September 5, 2004 as personal representative of the Ivory estate. (See id. ¶ 4 and Ex.

A.) On November 25, 2004, the Policy was amended to change the named insured to

“LaRell Franklin, a single man.” (See id. ¶ 5 and Ex. A.) After the fire, LaRell Franklin filed

a claim for benefits under the Policy, and Allstate, in a letter dated March 10, 2006, denied

the claim. (See id. ¶¶ 12, 16 and Ex. B.) In said letter, Allstate concluded that “the insured[

] violated the ‘Concealment or Fraud’ provision of the policy by setting fire to the house;

submitting a false claim and testifying falsely regarding the fire and the claim at [his]

examinations under oath . . . [and] violated the ‘What You Must Do After A Loss’ and ‘Suit

Against Us’ provisions of the policy.” (See id. ¶ 16 and Ex. B at 1.) Plaintiffs are AfricanAmerican, (see id. ¶¶ 31, 38), and contend that Allstate’s claim denial was purposefully

motivated by the racial stigma attached to drug offenses by African Americans, (see id.

¶ 18).

With respect to Schwartz, plaintiffs allege that Schwartz drafted the abovereferenced letter denying the claim, and that Allstate and Schwartz “agreed to discriminate

against Plaintiffs on the basis of race to deny the fire loss claim for pretextual and false

reasons.” (See id. ¶ 16.) Specifically, Schwartz is alleged to have agreed (1) with Nicki

Nicolai (“Nicolai”) and George S. Alboff and EFI Global, Inc. (collectively, “EFI/Alboff”) to

ascribe a false and pretextual origin and cause to the fire, (see id. ¶ 17), (2) with Accredited

Home Lenders, Inc. (“Accredited”) to furnish Allstate with an excuse for denying the fire

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loss claim, specifically, that the Policy showed the named insured as “a single man” not as

“trustee” or “executor,” (see id.), (3) with Roy Granlund (“Granlund”) to report falsely that

LaRell Franklin was seen watching the Lakeview Property burn from a hill behind the

house, and that Dorothy Sewell and her sister Yvonne Sewell had accused LaRell Franklin

of committing arson and defrauding the heirs, (see id.); and (4) with Nicolai to deny the

claim on the basis of plaintiffs’ prior drug convictions and criminal offense histories, (see id.

¶ 18). 

Plaintiffs additionally allege that on August 5, 2005, Schwartz greeted LaRell and

LaRon Franklin with “facial expressions of disdain and contempt,” and that while waiting in

an office near LaRell Franklin’s deposition room, LaRon Franklin hear Schwartz mutter the

“n” word. (See id. ¶ 21.) Thereafter, plaintiffs allege, Schwartz, on September 19, 2005,

questioned Deborah Spade, employing questions that assumed facts known to be false

and again displaying “facial expressions of disdain and contempt.” (See id. ¶¶ 23, 24.) 

Further, according to plaintiffs, Schwartz, on October 18, 2005, obtained from electrical

engineer Jeffrey Goode (“Goode”) a report designed to contradict the SFFD arson

investigation report and to bolster the EFI/Alboff report. (See id. ¶ 27.) Plaintiffs further

allege that on December 5, 2005, Schwartz, in order to bolster the EFI/Alboff report,

arranged for Alboff to interview Lieutenant Mike Reynolds of the San Francisco Fire

Department (“SFFD”), who allegedly stated that the stairwell had the most extensive

damage and opined that “the fire started at the bottom of the stairs.” (See id. ¶ 28.) 

Finally, plaintiffs allege that Schwartz, together with Nicolai, Andrew Aspergren

(“Aspergren”) and Richard K. Reney (“Reney”), deliberately delayed a claim decision so

that plaintiffs’ living-expense benefits under the policy would expire and Allstate’s agent

could evict plaintiffs from their replacement housing. (See id. ¶ 29.)

Plaintiffs assert causes of action against Schwartz for (1) conspiracy to violate and

violation of 42 U.S.C. § 1981 (First Claim); (2) conspiracy to violate and violation of 42

U.S.C. § 1982 (Second Claim); (3) conspiracy to violate and violation of 42 U.S.C. § 3604

(Third Claim); (4) violation of 42 U.S.C. § 1985 (Fourth Claim); and (5) conspiracy to

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interfere and interference with plaintiffs’ prospective advantage and right to inherit under

California state law (Sixth Claim).

LEGAL STANDARD

Dismissal under Rule 12(b)(6) can be based on the lack of a cognizable legal theory

or the absence of sufficient facts alleged under a cognizable legal theory. See Balistreri v.

Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). Rule 8(a)(2) of the Federal Rules

of Civil Procedure requires only “a short and plain statement of the claim showing that the

pleader is entitled to relief.” See Fed. R. Civ. P. 8(a)(2). Consequently, “a complaint

attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations.” 

See Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1964 (2007). Nonetheless, “a

plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than

labels and conclusions, and a formulaic recitation of the elements of a cause of action will

not do.” See id. at 1965. “Factual allegations must be enough to raise a right to relief

above the speculative level[.]” Id. 

Generally, a district court, in ruling on a Rule 12(b)(6) motion, may not consider any

material beyond the pleadings. See Hal Roach Studios, Inc. v. Richard Feiner And Co.,

Inc., 896 F.2d 1542, 1555 n. 19 (9th Cir. 1990). Material that is properly submitted as part

of the complaint, however, may be considered. See id. Documents whose contents are

alleged in the complaint, and whose authenticity no party questions, but which are not

physically attached to the pleading, also may be considered. See Branch v. Tunnell, 14

F.3d 449, 454 (9th Cir. 1994). In addition, the Court may consider any document “the

authenticity of which is not contested, and upon which the plaintiff’s complaint necessarily

relies,” regardless of whether the document is referred to in the complaint. See Parrino v.

FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998). Finally, the Court may consider matters that

are subject to judicial notice. See Mack v. South Bay Beer Distributors, Inc., 798 F.2d

1279, 1282 (9th Cir. 1986).

In analyzing a motion to dismiss, the Court must accept as true all material

allegations in the complaint, and construe them in the light most favorable to the

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nonmoving party. See NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). 

The Court may disregard factual allegations if such allegations are contradicted by the facts

established by reference to exhibits attached to the complaint. See Durning v. First Boston

Corp., 815 F.2d 1265, 1267 (9th Cir. 1987). Conclusory allegations, unsupported by the

facts alleged, need not be accepted as true. See Holden v. Hagopian, 978 F.2d 1115,

1121 (9th Cir. 1992). Courts “are not bound to accept as true a legal conclusion couched as

a factual allegation.” See Bell Atlantic Corp. v. Twombly, 127 S.Ct. at 1965 (internal

quotation and citation omitted). 

DISCUSSION

A. Section 1714.10 Procedural Requirement

At the outset, Schwartz argues that plaintiffs’ complaint is “barred by failure to

comply with California Civil Code section 1714.10.” (See Motion at 7.) California Civil

Code § 1714.10, in relevant part, provides:

No cause of action against an attorney for a civil conspiracy with his or her

client arising from any attempt to contest or compromise a claim or dispute,

and which is based upon the attorney’s representation of the client, shall be

included in a complaint or other pleading unless the court enters an order

allowing the pleading that includes the claim for civil conspiracy to be filed

after the court determines that the party seeking to file the pleading has

established that there is a reasonable probability that the party will prevail in

the action.

Id. 

 “[F]ederal courts are to apply state substantive law and federal procedural law.” 

Hanna v. Plumer, 380 U.S. 460, 465 (1965); see, e.g., Shakey’s Inc. v. Covalt, 704 F.2d

426, 435 (9th Cir. 1983) (“The decision to hold an evidentiary hearing when making an

attorney’s fee award is a matter of procedure, and is therefore governed by federal law

under the Erie doctrine.”). In determining whether a particular statute is procedural rather

than substantive in nature, courts look to whether the statute “really regulates procedure,”

namely, “the judicial process for enforcing rights and duties recognized by substantive law

and for justly administering remedy and redress for disregard or infraction of them.” See

Hanna, 380 U.S. at 464; see, e.g., Naranjo v. The Salvation Army, 2006 WL 2711690, at *3

(N.D. Cal. 2006) (holding California Code of Civil Procedure § 425.14, which sets forth

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 Section 47(c), in relevant part, provides: “A privileged publication or broadcast is

one made . . . [i]n a communication, without malice, to a person interested therein, (1) by

one who is also interested, or (2) by one who stands in such a relation to the person

interested as to afford a reasonable ground for supposing the motive for the communication

to be innocent, or (3) who is requested by the person interested to give the information.” 

See Cal. Civ. Code § 47(c). 

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requirement that party obtain court approval prior to seeking punitive damages from

religious organizations, is procedural in nature because it neither contains substantive

elements of punitive damages claim nor limits recovery in any way); Jackson v. East Bay

Hospital, 980 F.Supp. 1341, 1352 (N.D. Cal. 1997) (holding California Civil Code § 425.13

to be procedural; finding statute’s requirement that party obtain court approval prior to

seeking punitive damages against health care provider constitutes, in essence, “method for

managing or directing a plaintiff’s pleadings, rather than a determination of substantive

rights”). 

In light of the above-cited authorities, the Court finds § 1714.10(a) to be procedural

in nature. As the California Court of Appeal has observed, the legislative purpose of 

§ 1714.10 is to “eliminate frivolous allegations that attorneys have conspired with their

clients,” see Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, et al., 107

Cal. App. 4th 54, 83 (2003), which purpose is “served by . . . a prefiling procedure to

determine whether the proposed conspiracy pleading is legally sufficient, and whether it is

supported by a sufficient prima facie showing of facts to sustain a favorable decision if the

evidence submitted by the petitioner is credited,” see id. (emphasis added); see also

Pavicich v. Santucci, 85 Cal. App. 4th 382, 394 (2000) (“Section 1714.10's procedural

hurdle seems aimed at situations where the attorney is acting in his or her official

capacity.”) (emphasis added). 

Accordingly, plaintiffs are not barred from bringing their claims herein by reason of

any failure to comply with the requirements of §1714.10.

B. Section 47(c) Privilege

Schwartz further argues that all of the communications referenced by plaintiffs in the

SAC are privileged under California Civil Code § 47(c).2

 (See Motion at 8.) Schwartz,

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however, cites no case holding federal claims of the nature alleged herein are subject to

dismissal under § 47(c), and as noted in the Court’s Order Granting in Part and Denying in

Part EFI and Alboff’s Motion to Dismiss (“EFI/Alboff Order”), filed concurrently herewith, 

the Court has located no case in which § 47(c) has been held to bar a federal claim. (See

EFI/Alboff Order at 6.) 

With respect to plaintiffs’ state law claim, § 47(c) is applicable unless the publication

or broadcast is made with malice. See Cal. Civ. Code § 47(c). “Malice,” within the

meaning of § 47(c), is “established by a showing that the publication was motivated by

hatred or ill will towards the plaintiff or by a showing that the defendant lacked reasonable

grounds for belief in the truth of the publication and therefore acted in reckless disregard of

the plaintiff’s rights.” See Noel v. River Hills Wilsons, Inc., 113 Cal. App. 4th 1363, 1370

(2003). If “malice is shown, the privilege is not merely overcome; it never arises in the first

instance.” See id. at 1368 (internal quotation and citation omitted). 

Here, plaintiffs allege that Schwartz and Nicolai agreed to ascribe a false origin to

the fire. Consequently, plaintiffs have sufficiently alleged that the communications at issue

were motivated by malice. See id. at 1370. 

 Accordingly, Schwartz is not entitled to dismissal predicated on the privilege

provided in § 47(c).

C. Civil Rights Violations

With respect to plaintiffs’ civil rights claims, Schwartz argues that (1) plaintiffs fail to

state a cause of action under §§ 1981, 1982 and 3604 because plaintiffs have no “contract

or property interest with” Schwartz, (see Motion at 9), and (2) the § 1985 claim fails

because plaintiffs have not alleged a right protected by that statute, (see id. at 10-12).

First, as discussed in the EFI/Alboff Order, persons other than parties to a contract

may be held liable under § 1981. (See EFI/Alboff Order at 7-8); see also Imagineering, Inc.

v. Kiewit Pacific Co., 976 F.2d 1303, 1313 (9th Cir. 1992) (“[C]ourts have not imposed a

privity of contract type requirement that would otherwise protect third parties from section

1981 liability.”). Accordingly, plaintiffs have adequately pleaded a claim against Schwartz

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under § 1981. 

With respect to plaintiffs’ claim under § 1982, as discussed in the EFI/Alboff Order,

plaintiffs need not allege that Schwartz was involved in plaintiffs’ inheritance, purchase,

lease, sale, holding or conveyance of the Lakeview Property; plaintiffs need allege only that

Schwartz impaired a real or personal property interest owned by plaintiffs. (See EFI/Alboff

Order at 8-9); see also City of Memphis v. Greene, 451 U.S. 100, 122 (1981) (noting

insurance contracts have been held to constitute property for purposes of § 1982). Here,

plaintiffs base their § 1982 claim on defendants’ interference with their interest in the Policy,

i.e., Allstate’s promise to pay benefits. (See SAC ¶¶ 38, 39.) As noted above, plaintiffs

allege that Schwartz participated in the racially-motivated impairment of said property

interest by ascribing a false origin to the fire and falsely reporting that certain individuals

had accused LaRell Franklin of arson. (See id. ¶¶ 17, 18.) Accordingly, the Court finds

plaintiffs have adequately pleaded a claim against Schwartz under § 1982.

Next, under § 3604, it is unlawful “[t]o discriminate against any person in the terms,

conditions, or privileges of sale or rental of a dwelling, or in the provision of services or

facilities in connection therewith, because of race, color, religion, sex, familial status, or

national origin.” See 42 U.S.C. § 3604(b). Plaintiffs allege the racially-discriminatory denial

of a homeowner’s insurance claim violates the Fair Housing Act because such insurance

permits the homeowner to rebuild and sell a home previously damaged. (See SAC ¶ 44.) 

Schwartz fails to address why his alleged participation in the racially discriminatory denial

of plaintiffs’ insurance claim does not violate § 3604.

Finally, Schwartz argues that § 1985 “does not apply to private contracts or rights

created by statutes.” (See Motion at 10.) In that regard, Schwartz relies on Benton v.

Cousins Prop., 230 F. Supp. 2d 1351 (N.D. Ga. 2002), in which the district court refused to

recognize a statutory right under § 1981 as a basis for a claim under § 1985(3), noting the

Supreme Court to date has recognized only two rights protected against interference under

§ 1985(3), namely, the right to be free from involuntary servitude and the right to interstate

travel. See id. at 1383-84.

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It is not clear, however, that the Supreme Court intended to restrict the application of

§ 1985(3) only to those rights. See, e.g., Bray v. Alexandria Women’s Health Clinic, 506

U.S. 263, 298 (1983) (Souter, J., concurring in part and dissenting in part) (“[I]f Congress

had meant to protect no federal constitutional rights outside those protected by the

Thirteenth Amendment, it is hard to see why the drafters would not simply have said so,

just as in the third and fourth clauses of § 1985(3). . . .”). In the absence of such restriction,

and as discussed in the EFI/Alboff Order, plaintiffs have alleged sufficient facts to support a

§ 1985 claim. (See EFI/Alboff Order at 10-13.)

Accordingly, Schwartz is not entitled to dismissal of plaintiffs’ claims alleging

violations of §§ 1981, 1982, 1985 and 3604.

D. Interference with Prospective Economic Advantage

Schwartz moves to dismiss plaintiffs’ claim for conspiracy to interfere and

interference with prospective economic advantage, on the ground plaintiffs fail to allege an

economic relationship between plaintiffs and Schwartz and fail to set forth a nonconclusory

factual basis for their allegations of conspiracy. (See Motion at 18.) Schwartz further

argues, citing Los Angeles Airways, Inc. v. Davis, 687 F.2d 321 (9th Cir. 1982), that even if

plaintiffs’ allegations are sufficient, an attorney cannot, under the circumstances alleged, be

held liable for interference.

As set forth in the EFI/Alboff Order, plaintiffs have adequately pleaded a claim for

interference with LaRell Franklin’s contractual relationship with Allstate. (See EFI/Alboff

Order at 13-14.) With respect to Schwartz, plaintiffs’ allegations as to the actions Schwartz

took during the course of the investigation, coupled with the allegations as to Schwartz’s

use of derogatory language, are sufficient to plead Schwartz’s participation in the alleged

conspiracy to interfere. As Schwartz points out, however, only LaRell Franklin is a party to

the contract at issue. Consequently, Schwartz is entitled to dismissal of plaintiffs’ claim for

interference with that economic relationship to the extent such claim is brought on behalf of

any plaintiff other than LaRell Franklin. See, e.g., Hatchwell v. Blue Shield of California,

198 Cal. App. 3d 1027, 1034 (1988) (holding “[s]omeone who is not a party to the contract

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has no standing to enforce the contract or to recover extra-contract damages for wrongful

withholding of benefits to the contracting party”; applying principle to tort claim based on

breach of contract).

As noted, Schwartz further argues that Davis bars any cause of action for

interference as against Schwartz. (See Motion at 19.) In Davis, the Ninth Circuit held that

an attorney business advisor’s conduct in inducing his corporation to breach its contract

was privileged. See Davis, 687 F.2d at 328. “The privilege exists when [an agent] induces

[his principal’s] breach of contract through lawful means in order to protect an interest that

has greater social value than the mere stability of the particular contract in question.” Id. at

325. Although “a person is not justified in inducing a contract simply because he . . . seeks

to further his own economic advantage at the expense of the other,” see Olivet v.

Frishchling, 104 Cal. App. 3d 831, 840 (1980), “where . . . an advisor is motivated in part by

a desire to benefit his principal, his conduct in inducing a breach of contract should be

privileged,” see Davis, 687 F.2d at 328. 

Here, plaintiffs allege that Schwartz was Allstate’s “investigation counsel” and that

he drafted the claim denial letter. (See SAC ¶¶ 14, 16.) Although there is no indication in

the SAC that Schwartz acted solely out of self-interest, plaintiffs, as noted, allege that

Schwartz was motivated by a racially-discriminatory animus. Under such circumstances, it

cannot be said that Schwartz acted “through lawful means,” see Davis, 687 F.2d at 325, or

that the interest Schwartz sought to protect had “a greater social value,” see id., than the

stability of the contract at issue.

Accordingly, Schwartz is not entitled to dismissal of plaintiffs’ sixth claim to the

extent it pleads interference with a contractual relationship on behalf of LaRell Franklin. As

discussed in the EFI/Alboff Order, however, Schwartz is entitled to dismissal of the sixth

claim, as to all plaintiffs, to the extent it is based on interference with plaintiffs’ inheritance. 

(See EFI/Alboff Order at 14.) 

CONCLUSION

For the reasons set forth above, Schwartz’s motion to dismiss is hereby GRANTED

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with respect to plaintiffs’ claim for conspiracy to interfere and interference with plaintiffs’

prospective economic advantage to the extent such claim is brought on behalf of any

plaintiff other than LaRell Franklin and GRANTED with respect to plaintiffs’ claim for

conspiracy to interfere and interference with their right to inherit; in all other respects the

motion is hereby DENIED and the motion for a more definite statement is hereby DENIED.

This order terminates Docket No. 72.

IT IS SO ORDERED.

Dated: July 3, 2007 

MAXINE M. CHESNEY

United States District Judge

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