Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_13-cv-02476/USCOURTS-caed-2_13-cv-02476-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF CALIFORNIA 

MARY LOU VILLA, 

Plaintiff, 

v. 

ALLSTATE INSURANCE COMPANY, 

a CORPORATION, and DOES 1 

through 20, inclusive, 

Defendants. 

No. 2:13-cv-02476-MCE-EFB 

MEMORANDUM AND ORDER 

Plaintiff Mary Lou Villa (“Plaintiff”) instituted the present lawsuit against Defendant 

Allstate Insurance Company ( “Defendant” or “Allstate”) on grounds that Allstate has 

improperly withheld payments owed pursuant to a wrongful death judgment obtained 

against Allstate’s insured, Janet Sartain, following a jury trial. Plaintiff further asserts that 

Allstate wrongfully refused to settle Plaintiff’s wrongful death claims within the policy 

limits available under the Allstate policy. Allstate now moves to dismiss Plaintiff’s 

Complaint under Federal Rule of Civil Procedure 12(b)(6) on grounds that the Complaint 

fails to state a claim against Allstate on which relief can be granted. Alternatively, 

Allstate seeks summary judgment under Rule 56. For the reasons set forth below, 

Allstate’s Motion will be denied. 

/// 

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BACKGROUND 

This case arises from a wrongful death lawsuit filed by Plaintiff following the 

April 4, 2009, murder of her son, Alexander Villa, by Alexander’s father, Gerardo Villa. In 

addition to suing Gerardo Villa, Plaintiff’s lawsuit also named Janet Sartain as a 

defendant on grounds that Ms. Sartain failed to warn Alexander of his father’s alleged 

violent propensities. At the time of Alexander’s death, Janet Sartain was an insured 

person under a policy of homeowners insurance by Allstate that included liability 

coverage of $100,000 per occurrence. Pursuant to that policy, Allstate undertook the 

defense of Ms. Sartain in Plaintiff’s wrongful death action. 

According to the present Complaint, Plaintiff made two separate offers to settle 

her claims against Janet Sartain within the applicable $100,000 policy limit in 2012 and 

2013, respectively. Pl.’s Compl., ¶¶ 6-7. After Allstate declined those demands, Plaintiff 

went to trial and, on March 28, 2013, obtained a judgment against Ms. Sartain for 

$408,304, plus costs and interest. Id. at ¶ 8. 

Ms. Sartain subsequently filed a request for new trial on April 24, 2013, and after 

that request was denied, she filed a notice of appeal on or about July 8, 2013. Id. at 

9-10, 12-13. Ms. Sartain’s appeal was dismissed on August 22, 2013, and the 

underlying verdict against Ms. Sartain became final on August 30, 2013. Thereafter, on 

September 13, 2013, Allstate issued a check to Plaintiff and to her attorney for 

$100,000, but did not remit payment for the remainder of the $408,304 judgment levied 

against Ms. Sartain. Moreover, Allstate tendered no payment for the $118,290.73 

awarded to Plaintiff or for interest, which Plaintiff claims is payable on the entire 

judgment amount at the rate of ten percent from February 12, 2012, when Plaintiff made 

a statutory demands to settle within Allstate’s policy limits in accordance with California 

Code of Civil Procedure section 998. 

Plaintiff filed the present complaint in state court on September 18, 2013, alleging 

causes of action against Allstate for violations of California Insurance Code section 

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11580 and for breach of the implied covenant of good faith and fair dealing. Allstate 

removed the complaint from the Sacramento County Superior Court to this Court on 

November 27, 2013, citing diversity of citizenship under 28 U.S.C. § 1441(a) as the basis 

for federal jurisdiction. The instant motion follows. 

STANDARD 

Federal Rule of Civil Procedure 12(b)(6)1, as indicated above, authorizes the 

Court to dismiss a complaint for “failure to state a claim upon which relief can be 

granted.” In ruling on a motion to dismiss brought under Rule 12(b)(6), however, all 

allegations of material fact must be accepted as true and construed in the light most 

favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 

(9th Cir. 1996). Dismissal under Rule 12(b)(6) may nonetheless be indicated where a 

complaint lacks any “cognizable legal theory” or where there is an “absence of sufficient 

facts alleged to support a cognizable legal theory.” Navarro v. Block, 250 F.3d 729, 732 

(9th Cir. 2001). While detailed factual allegations are not necessary to survive a motion 

to dismiss, “a plaintiff’s obligation to provide the grounds of his entitlement to relief 

requires more than labels and conclusions, and a formulaic recitation of the elements of 

a cause of action will not do.” Bell Atl Corp. v. Twombly, 550 U.S. 544, 555 (2007). 

Generally, a court cannot consider material outside the complaint (like facts 

presented in briefs, declarations and discovery materials) in ruling on a motion to dismiss 

brought under Rule 12(b)(6). Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 

925 (9th Cir. 2001). A court can, however, augment the facts and inferences from the 

body of the complaint with “data points gleaned from documents incorporated by 

reference into the complaint, matters of public record, and facts susceptible to judicial 

notice.” Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir. 2011); Coto Settlement v. 

 1

 All further references to “Rule” or “Rules” are to the Federal Rules of Civil Procedure unless 

otherwise indicated. 

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Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010). Otherwise, as Rule 12(d) provides, if 

“matters outside the pleadings are presented to and not excluded by the court, [a 

12(b)(6) motion] must be treated as one for summary judgment under Rule 56.” 

As indicated above, while Allstate’s motion here is ostensibly brought as a motion 

to dismiss under Rule 12(b)(6), it is alternatively made by way of summary judgment 

under Rule 56. In addition to the allegations set forth in the Complaint itself, both sides 

ask the Court to judicially notice, pursuant to Federal Rule of Evidence 201, certain court 

records generated in the underlying wrongful death lawsuit. Those requests are 

unopposed and are granted. As matters properly subject to judicial notice, they do not 

require that this motion be converted from a motion to dismiss to a motion for summary 

judgment. In addition to requesting judicial notice, however, both sides have also 

submitted declarations with attached exhibits. While the declaration submitted by 

Allstate seeks simply to authenticate the $100,000 check issued to Plaintiff on 

September 9, 2013, in partial satisfaction of the judgment rendered against Ms. Sartain 

in the underlying action, and to establish that the check was endorsed and cashed 

shortly thereafter (a matter about which there appears to be no dispute), the declaration 

submitted by Plaintiff’s counsel, Robert Merritt, is far more extensive and includes 

detailed allegations with respect to Allstate’s failure to pay costs, as well as its alleged 

obligation to pay interest at the rate of ten percent by giving Allstate’s failure to accept a 

California Code of Civil Procedure section 998 Offer to Compromise in 2012. 

Mr. Merritt’s declaration also attaches correspondence between him and Ms. Sartain’s 

assigned defense counsel, Bradley Thomas. All these matters go well beyond the scope 

of a Rule 12(b)(6) motion to dismiss and because they figure in the Court’s analysis as 

set forth below, this matter is properly viewed as a motion for summary judgment 

pursuant to Rule 56. 

The Federal Rules of Civil Procedure provide for summary judgment when “the 

movant shows that there is no genuine dispute as to any material fact and the movant is 

entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. 

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Catrett, 477 U.S. 317, 322 (1986). One of the principal purposes of Rule 56 is to 

dispose of factually unsupported claims or defenses. Celotex, 477 U.S. at 325. 

 In a summary judgment motion, the moving party always bears the initial 

responsibility of informing the court of the basis for the motion and identifying the 

portions in the record “which it believes demonstrate the absence of a genuine issue of 

material fact.” Celotex, 477 U.S. at 323. If the moving party meets its initial 

responsibility, the burden then shifts to the opposing party to establish that a genuine 

issue as to any material fact actually does exist. Matsushita Elec. Indus. Co. v. Zenith 

Radio Corp., 475 U.S. 574, 586-87 (1986); First Nat’l Bank v. Cities Serv. Co., 391 U.S. 

253, 288-89 (1968). 

 In attempting to establish the existence or non-existence of a genuine factual 

dispute, the party must support its assertion by “citing to particular parts of materials in 

the record, including depositions, documents, electronically stored information, 

affidavits[,] or declarations . . . or other materials; or showing that the materials cited do 

not establish the absence or presence of a genuine dispute, or that an adverse party 

cannot produce admissible evidence to support the fact.” Fed. R. Civ. P. 56(c)(1). The 

opposing party must demonstrate that the fact in contention is material, i.e., a fact that 

might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, 

Inc., 477 U.S. 242, 248, 251-52 (1986); Owens v. Local No. 169, Assoc. of W. Pulp and 

Paper Workers, 971 F.2d 347, 355 (9th Cir. 1987). The opposing party must also 

demonstrate that the dispute about a material fact “is ‘genuine,’ that is, if the evidence is 

such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 

477 U.S. at 248. In other words, the judge needs to answer the preliminary question 

before the evidence is left to the jury of “not whether there is literally no evidence, but 

whether there is any upon which a jury could properly proceed to find a verdict for the 

party producing it, upon whom the onus of proof is imposed.” Anderson, 477 U.S. at 251 

(quoting Improvement Co. v. Munson, 81 U.S. 442, 448 (1871)) (emphasis in original). 

As the Supreme Court explained, “[w]hen the moving party has carried its burden under 

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Rule [56(a)], its opponent must do more than simply show that there is some 

metaphysical doubt as to the material facts.” Matsushita, 475 U.S. at 586. Therefore, 

“[w]here the record taken as a whole could not lead a rational trier of fact to find for the 

nonmoving party, there is no ‘genuine issue for trial.’” Id. 87. 

 In resolving a summary judgment motion, the evidence of the opposing party is to 

be believed, and all reasonable inferences that may be drawn from the facts placed 

before the court must be drawn in favor of the opposing party. Anderson, 477 U.S. at 

255. Nevertheless, inferences are not drawn out of the air, and it is the opposing party’s 

obligation to produce a factual predicate from which the inference may be drawn. 

Richards v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244-45 (E.D. Cal. 1985), aff’d, 

810 F.2d 898 (9th Cir. 1987). 

ANALYSIS 

A. California Insurance Code § 11580 

California Insurance Code § 11580 permits a party who has obtained a judgment 

against an insured tortfeasor to maintain a direct action against the insurer providing 

liability insurance “on the policy and subject to its terms and conditions.” Cal. Ins. Code 

§ 11580(b)(2). This makes the judgment creditor “a third party beneficiary of the 

insurance contract between the insurer and insured.” Murphy v. Allstate Ins. Co., 17 Cal. 

3d 937, 943 (1976). 

 According to Defendant, because Plaintiff “has already received the policy limits 

of $100,000 from Allstate,” no claim under § 11580 can be maintained. Defs.’ Mot., 

4:20. In opposition, however, Plaintiff argues that in addition to payment of the policy 

limit itself, Ms. Sartain is also “liable for interest at the rate of ten percent from February 

2012 due to the fact that she and Allstate did not accept the statutory California 

/// 

/// 

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Code of Civil Procedure section 998 Offer to Compromise.” Pl.’s Opp’n, 5:9-11.2 

Allstate tries to discredit that claim by alleging that Plaintiff’s own complaint states no 

more than that Alllstate refused to pay the $100,000 policy limit, explaining that “Plaintiff 

cannot accuse Allstate of not paying the ‘policy limit’ when her complaint alleges the 

policy limit was $100,000,” and that sum was paid. Def’s Reply, 2:20-22. That 

characterization is, however, inaccurate. The prayer to Plaintiff’s First Cause of Action, 

for breach of section 11580, seeks not only damages in the amount of $100,000,3 but 

also costs totaling $118,290.73, plus interest. Pl.’s Compl., 5:3-4. Consequently, 

Allstate’s claim that Plaintiff seeks nothing more than the applicable $100,000 liability 

policy limit cannot be sustained. 

 Significantly, Allstate does not dispute (or even address in any way) Plaintiff’s 

claim that it owes interest pursuant to California Code of Civil Procedure section 998 

given its failure to accept Plaintiff’s statutory Offer to Compromise. Moreover, with 

respect to Plaintiff’s additional claim that costs and interest are “usually governed by a 

supplementary payment provision” contained within liability policies, Pl.’s Opp’n, 8:21-22, 

Allstate does no more than assert that Plaintiff’s claim in that regard amounts to mere 

speculation. The case Allstate cites to support its position that no such costs are 

payable, however, Hughes v. Mid-Century Ins. Co., 38 Cal. App. 4th 1176 (1995), is 

inapposite because Hughes involved an actual examination of the policy, and a finding 

that no such provision was present. Id. at 1182-83. Here, no such examination of the 

policy has occurred. Additionally, Allstate’s apparent claim that Plaintiff should have 

alleged in her complaint that the policy contained some such provision is unavailing. 

First, as already indicated, Plaintiff’s prayer requests not only the liability policy limit, but 

 2

 While Plaintiff’s Complaint refers to two offers to settle within the applicable policy limits In 

February 2012 and February 2013, respectively, the briefing submitted in connection with this motion 

makes it clear only that the February 2012 offer was made in accordance with section 998. 

3

 Plaintiff’s Complaint, dated September 13, 2013, was prepared before Allstate paid its $100,000 

liability policy limit. Allstate’s draft for that amount was issued that same day (see Decl. of Pete Bamford, 

Ex. A) and it was not received until after Plaintiff’s counsel, Robert Merritt, had submitted Plaintiff’s 

Complaint for filing. Decl. of Robert M. Merritt, ¶ 23. 

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also costs and interest. Second, Allstate does not explain how Plaintiff could have 

obtained a copy of Ms. Sartain’s entire insurance policy (aside from discovering the 

applicable policy limits) prior to filing the present lawsuit. Moreover, since the instant 

Motion to Dismiss was filed on December 5, 2013, approximately one week after the 

matter was removed to this Court on November 27, 2013 and just over a month after 

Allstate was initially served, Plaintiff clearly had no time to conduct the discovery 

necessary to obtain the policy prior to opposing the subject motion. 

 In sum, based on the record before it at the present time, this Court cannot rule 

out Plaintiff’s entitlement, as a judgment creditor of Allstate’s insured, to additional 

benefits under the Allstate policy beyond the $100,000 that Allstate has already paid on 

Ms. Sartain’s behalf. The Court therefore cannot find as a matter of law that Plaintiff is 

precluded from maintaining a cause of action for violation of California Insurance Code 

section 11580 with respect to benefits that are owing but unpaid under the policy. 

B. Breach of the Implied Covenant of Good Faith and Fair Dealing 

In the context of the contractual relationship between the liability insurer and its 

insured, an implied covenant has been recognized under California law that requires the 

insurer to accept a reasonable settlement offer when it is likely that the judgment will 

exceed the available policy limit. Hand v. Farmer’s Ins. Exch., 23 Cal. App. 4th 1847, 

1854 (1994) (citing Johansen v. Cal. State Auto. Assn. Inter-Ins. Bureau, 15 Cal.3d 9, 16 

(1975)). A similar implied covenant has also been recognized that requires an insurer to 

refrain from unreasonably, or in bad faith, withholding payments of benefits due under 

the policy. Id. (citing Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 573-75 (1973)). 

Although generally these implied duties run in favor of the insured as the 

contracting party, certain exceptions have been recognized, particularly with regard to 

third party beneficiaries of insurance contracts. A judgment creditor is recognized as 

such a beneficiary of the insurance contract between the insurer and its insured. Murphy 

v. Allstate Ins. Co., 17 Cal.3d at 943. As the court in Hand recognized, “the duty not to 

withhold in bad faith payment of adjudicated claims runs not only in favor of the insured 

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but also in favor of a judgment creditor” who has obtained a judgment against the 

insured. Hand , 23 Cal. App. 4th at 1858. Consequently, a bad faith refusal to pay a 

judgment creditor the entire amount of a judgment, once it becomes final, “implicates 

some recognizable duty of good faith by the insurer under its policy . . . intended to 

benefit such a third party beneficiary.” Id. at 1857. 

In the present matter, to the extent that Plaintiff may have a section 11580 claim 

for failure to pay benefits due under the policy, a potential claim this Court has already 

recognized as set forth above, the duty not to withhold benefits payable under the policy 

also triggers an implied covenant of good faith and fair dealing. Id. at 1856. This implied 

covenant not to unreasonably withhold adjudicated damages payable under the policy is 

owed contractually to both the insured and to the judgment creditor. Id. at 1858. 

It follows that Plaintiff, as the judgment creditor of Allstate’s insured, Ms. Sartain, 

may have a viable claim for breach of the implied covenant against Allstate if Allstate 

indeed withheld benefits due under the policy like costs and interest.4 This is enough, 

standing alone, to survive Allstate’s attack on Plaintiff’s Second Cause of Action, which 

alleges breach of the implied covenant. The Court does note, however, that Plaintiff 

cannot maintain an implied covenant claim on the second recognized basis for that 

claim, an unreasonable failure to settle within the policy limits. As the Murphy court 

 4

 While Plaintiff also alleges that Allstate’s delay in paying the $100,000 liability policy limit itself 

was also unreasonable, any delay in that regard hinges on the merit of Plaintiff’s claim that Allstate’s 

appeal on behalf of Ms. Sartain was unjustified and frivolous. Specifically, Plaintiff claims that Allstate’s 

resort to an untimely motion for new trial and subsequent appeal resulted in a delay in paying the 

$100,000 from March 28, 2013, when judgment was initially entered, until September 13, 2013, when 

Allstate’s draft was ultimately issued. This motion required the Court to determine the merit of Allstate’s 

appeal. While the Ninth Circuit did apparently dismiss Plaintiff’s appeal as untimely pursuant to Plaintiff’s 

Motion to Dismiss to that effect (see Decl. of Robert Merritt, ¶ 15, 19), the Ninth Circuit also rejected 

Plaintiff’s request for sanctions, which was made on grounds that the appeal was improper. (See 

Allstate’s Request for Judicial Notice, Ex. B). In Coleman v. Gulf Ins. Group, 41 Cal.3d 782 (1986), the 

California Supreme Court found that whether or not an appeal is meritless should be determined by the 

appellate court by way of California Code of Civil Procedure section 907, which authorizes costs on appeal 

if the appeal was frivolous or taken solely for delay, rather than in a separate civil action like this one. Id. 

at 791, 797. Consequently, the issue of delay associated with Allstate’s appeal does not appear to be 

properly before this Court in the context of Plaintiff’s claim for breach of the implied covenant of good faith 

and fair dealing. Instead, the issue of the frivolousness of Allstate’s appeal seems to have already been 

decided by the appellate court which heard the appeal, the venue where it should have been adjudicated 

pursuant to Coleman. 

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recognized, because “the duty to settle is intended to benefit the insured and not the 

injured claimant, third party beneficiary doctrine does not furnish a basis for the latter to 

recover.” Murphy, 353 F.3d at 944. Murphy went on to explain that “a third party should 

not be permitted to enforce covenants made not for his benefit, but rather for others.” 

Id. Although an insured may assign his cause of action for breach of the duty to settle to 

a judgment creditor like Plaintiff, id. at 942, no such assignment occurred here. 

Consequently, Plaintiff cannot maintain a claim for breach of the implied covenant to the 

extent that claim is premised on a failure to settle within available policy limits on Ms. 

Sartain’s behalf. 

CONCLUSION 

For all the foregoing reasons, Defendant Allstate’s Motion to Dismiss Plaintiff’s 

Complaint (ECF No. 7), which is alternatively brought as a request for summary 

judgment and which the Court construes as such given the inclusion of evidence and 

argument going beyond the scope of the pleadings, is hereby DENIED.5

IT IS SO ORDERED. 

Dated: May 22, 2014 

 5

 Having determined that this oral argument was not of material assistance, the Court ordered this 

matter submitted on the briefs in accordance with Local Rule 230(g). 

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