Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-04898/USCOURTS-cand-3_06-cv-04898-20/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 28:1332 Diversity-Petition for Removal

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

G&C AUTO BODY INC,

 Plaintiff,

 v.

GEICO GENERAL INSURANCE COMPANY,

Defendant. /

No. C06-04898 MJJ

ORDER:

 (1) GRANTING IN PART AND

DENYING IN PART DEFENDANTS’

PARTIAL SUMMARY JUDGMENT

MOTION ON SECTION 17200 CLAIM;

(2) GRANTING DEFENDANTS’

PARTIAL SUMMARY JUDGMENT

MOTION ON FRAUD CLAIM; and

(3) DENYING PLAINTIFFS’ MOTION

FOR LEAVE TO AMEND.

INTRODUCTION

Before the Court are three motions: (1) Defendants’ Motion For Partial Summary Judgment

On Plaintiffs’ First Cause Of Action For Alleged Violation Of California Business & Professions

Code Section 17200 (Docket No. 79); (2) Defendants’ Motion For Partial Summary Judgment On

Plaintiffs’ Fraud Claim (Docket No. 72), and (3) Plaintiffs’ Motion For Leave To Amend (Docket

No. 201.) 

For the following reasons, the Court GRANTS IN PART AND DENIES IN PART

Defendants’ summary judgment motion with respect to the Section 17200 claim, GRANTS

Defendants’ summary judgment motion with respect to the fraud claim, and DENIES Plaintiffs’

motion for leave to amend.

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United States District Court

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FACTUAL BACKGROUND

Plaintiffs are two auto body repair companies that have sued the defendant insurance

companies. Defendants provide automobile coverage for their policyholders. Plaintiffs on occasion

perform work for some of Defendants’ policyholders. Plaintiffs have asserted four claims against

Defendants in this action: (1) unfair competition under Section 17200, (2) interference with

economic relationship, (3) fraud and deceit, and (4) commercial defamation.

The gravamen of Plaintiffs’ allegations against Defendants is that the labor repair rates that

Defendants use to resolve the claims of their policyholder are below the prevailing auto body rates in

the region, and below the allegedly reasonable labor repair rates that Plaintiffs are entitled to charge

for auto repair work. Plaintiffs also contend that Defendants are steering their policyholders away

from taking their business to Plaintiffs in an effort to avoid having to pay Plaintiffs’ allegedly

reasonable rates. 

LEGAL STANDARD

Rule 56(c) of the Federal Rules of Civil Procedure authorizes summary judgment if there is

no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of

law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party bears the

initial burden of demonstrating the basis for the motion and identifying the portions of the pleadings,

depositions, answers to interrogatories, affidavits, and admissions on file that establish the absence

of a triable issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the

moving party meets this initial burden, the burden then shifts to the non-moving party to present

specific facts showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(e); see also Celotex,

477 U.S. at 324; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). 

The non-movant’s bare assertions, standing alone, are insufficient to create a material issue of fact

and defeat a motion for summary judgment. See Anderson, 477 U.S. at 247-48. An issue of fact is

material if, under the substantive law of the case, resolution of the factual dispute might affect the

case’s outcome. See id. at 248. Factual disputes are genuine if they “properly can be resolved in

favor of either party.” Id. at 250. Thus, a genuine issue for trial exists if the non-movant presents

evidence from which a reasonable jury, viewing the evidence in the light most favorable to that

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party, could resolve the material issue in its favor. See id. However, “[i]f the [non-movant’s]

evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” 

Id. at 249-50 (internal citations omitted). 

ANALYSIS

I. Plaintiffs’ Section 17200 Claim.

Defendants challenge Plaintiffs’ first cause of action – a Section 17200 unfair competition

claim – on four different grounds. Defendants contend that summary judgment on this claim should

be granted in their favor because: (1) Plaintiffs’ lack standing to bring the claim, (2) the Court

should abstain from hearing the claim, (3) Plaintiffs’ Section 17200 claim seeks to circumvent the

prohibition on private actions for violation of the Insurance Code’s regulation of unfair competition

in the business of insurance, and (4) Plaintiff’s Section 17200 claim is moot.

A. Standing.

Section 17200 claims permit restitutionary and injunctive relief, but not damages. As did the

parties, the Court will separately analyze Plaintiffs’ standing to seek the two forms of relief.

1. Restitution.

Given the nature of Plaintiffs’ allegations, Plaintiffs lack standing to seek restitution under

Section 17200. The California Supreme Court’s decision in Korea Supply Co. v. Lockheed Martin

Corp., 29 Cal. 4th 1134 (2003) is directly on point and controls here. In Korea Supply, the Court

considered the question of standing for Section 17200 claims, and held that nonrestitutionary

disgorgement is not available as a remedy in an individual action under Section 17200. 

The type of monetary award that Plaintiffs seek here is remarkably similar to that in Korea

Supply. As in Korea Supply, Plaintiffs do not seek to “restore the status quo by returning to the

plaintiff funds in which he or she has an ownership interest.” Id. at 1149. Instead, Plaintiffs seek

monetary relief for two alleged harms: (1) unpaid accounts receivable that Plaintiffs have

accumulated with respect to car owners that have insurance policies with Defendants, based on

Defendants’ failure to pay its policyholders the full labor rates charged by Plaintiffs for that repair

work; and (2) loss of business caused by Defendants’ steering of customers away from Plaintiffs’

auto repair shops. Plaintiffs are not GEICO policyholders and have no contractual claims pursuant

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 Plaintiffs attempt to fit their allegations in this case inside the boundaries drawn by Korea Supply by contending

that they have a “vested interest in recovering money owed to them for work already completed”, as well as a vested interest

in “business that would have gone to them but for GEICO’s unfair practice of steering customers away from them.” (Opp.

at 23:10-11.) This argument stretches the noted of a “vested” ownership interest beyond its reasonable meaning, and beyond

the meaning given to it in Korea Supply. Plaintiffs may have a vested interest in the amounts directly owed by car owners

for work already performed, but they do not have a vested ownership interest in insurance proceeds that Defendants have

declined to pay to their policyholders. As to Plaintiffs’ contention that they have a “vested interest” in lost business due to

steering, Korea Supply directly rejects this argument: “Compensation for a lost business opportunity is a measure of damages

and not restitution to the alleged victims.” 29 Cal. 4th at 1151.

2

 The California Supreme Court’s policy rationale for its holding in Korea Supply applies with equal force here:

“Allowing the plaintiff in this case to recover nonrestitutionary disgorgement under the UCL would enable it to obtain tort

damages while bypassing the burden of proving the elements of liability under its traditional tort claim for intentional

interference with prospective economic advantage.” 29 Cal. 4th at 1151.

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to any GEICO insurance policy. Instead, Plaintiffs enter into contracts with the policyholders that

require repairs. 

Any monetary award that Plaintiffs would recover from Defendants in this litigation

therefore “would not be restitutionary as it would not replace any money or property that defendants

took directly from plaintiff.” Id. Moreover, contrary to Plaintiffs’ contentions, nothing in the record

before the Court establishes that Plaintiffs have a “vested interest” in the money they seek to obtain,

within the meaning discussed by Korea Supply. While the concept of restitution, as used in Section

17200, is broad enough to allow a plaintiff to recover money or property in which he or she has a

“vested interest”, such as earned wages, here Plaintiffs have nothing more than an “expectancy”, or

“contingent interest”, in the receipt of monies paid by Defendants to their policyholders. See id.1

 

As in Korea Supply, Plaintiffs’ expectancy in this case is further attenuated because Plaintiffs never

anticipated payment directly from Defendants; rather, Plaintiffs expected Defendants’ policyholders

to pay Plaintiffs the amounts they are reimbursed by Defendants under the insurance policies. An

order awarding money to Plaintiffs here would improperly award funds that constitute a “contingent

expectancy of payment from a third party”, rather than “funds that were directly owed to them by the

defendant.” Id. This kind of recovery is not restitutionary in nature and is therefore not available

under Section 17200.2

 

Plaintiffs’ authorities fail to support their assertion of standing. In each case cited by

Plaintiffs, the money sought to be recovered by means of a Section 17200 claim had either originally

been in the plaintiffs’ possession, or an ownership interest in the money had been created by a direct

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obligation between the plaintiff and defendant. See Rosales v. Citibank, 133 F. Supp. 2d 1177, 1181

(N.D. Cal. 2001) (money taken from plaintiffs’ bank account by unknown persons); Shersher v.

Superior Court, 154 Cal. App. 4th 1491, 1499-1500 (2007) (plaintiff previously had ownership

interest in money paid to retailer for software that did not perform as expected); Cortez v. Purolator

Air Filtration Products Co., 23 Cal. 4th 163, 178 (2000) (defendant could be required to restore

unpaid wages unlawfully withheld from its employees); Matoff v. Brinker Restaurant Corp., 439 F.

Supp. 2d 1035, 1038 (C.D. Cal. 2006) (customer had standing to pursue restitution for tips it paid,

even if defendant had since directed those funds to third parties). None of these cases permit

Plaintiffs to escape the limits on restitutionary recovery established in Korea Supply.

Accordingly, the Court finds that Plaintiffs cannot obtain monetary relief in connection with

their Section 17200 claim. The sole remaining issue discussed below with regard to this claim,

therefore, is whether Plaintiffs can obtain injunctive relief.

2. Injunctive Relief.

The standing requirements to maintain a Section 17200 action, as modified by the passage of

Proposition 64, are set forth in Section 17204. For standing purposes, Section 17204 requires that a

plaintiff “has suffered injury in fact and has lost money or property as a result of such unfair

competition.” Defendants contend that have Plaintiffs cannot establish injury in fact, and cannot

establish that they have lost money or property as a result of unfair competition, because Defendants

are not party to any insurance contract with Defendants. The Court disagrees.

Plaintiffs have adequately established both injury in fact, and a loss of money as a result of

the acts that Plaintiffs contend constitute unfair competition. Both unpaid accounts receivable that

Plaintiffs have accumulated with respect to car owners that have insurance policies with Defendants,

as well as Plaintiffs’ loss of business caused by Defendants’ steering of customers away from

Plaintiffs’ auto repair shops, have a direct causal connection to the acts that Plaintiffs contend

constitute unlawful competition here. Neither Cazares v. Household Finance Corp., 2005 U.S. Dist.

LEXIS 39222 (C.D. Cal. July 26, 2005) nor Hamelin v. Allstate Ins. Co., U.S. Dist. LEXIS 5093

(C.D. Cal. Mar. 12, 2002), cited by Defendants, support Defendants’ contention that Plaintiffs lack

standing under such circumstances simply because they are not in a contractual relationship with

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Defendants.

Defendants also argue, by citing to Walker v. USAA Cas. Ins. Co., 474 F.Supp.2d 1168 (E.D.

Cal. 2007), that Proposition 64's modification to the Section 17204 standing requirements now

restrict the availability of injunctive relief to those that would qualify for restitutionary relief under

Korea Supply. In Walker, the court found that the amendment to Section 17204 wrought by

Proposition 64, which now requires that a plaintiff show that he or she has “suffered injury in fact

and has lost money or property as a result of unfair competition”, intended to use the terms “lost

money and property” in the same precise and technical sense that California courts had already

defined “lost money and property” for purposes of seeking restitution. Id. at 1172. Citing Korea

Supply and Cortez v. Purolator Air Filtration Prods. Co., 23 Cal 4th 163, 177 (2000), the Walker

court found that the term “lost money or property”, as used in Section 17204, had already been

defined in the context of seeking restitution to require a plaintiff to have either prior possession or a

vested legal interest in the money or property lost. 474 F. Supp. 2d at 1172. This analysis, if

correct, would suggest that Plaintiff lack standing to seek even injunctive relief for the reasons

discussed above in Section I.A.1.

This Court, however, declines to adopt the reasoning or holding of Walker. Central to the

chain of reasoning in Walker was the assumption that the statutory language “lost money or

property” had already been judicially construed by the California courts in Korea Supply and Cortez

before Proposition 64's passage. This Court’s own review of Korea Supply and Cortez, however,

turned up no express discussion or definition of the phrases “lost money or property” or “loss of

money or property” in these decisions. Nor can the Court consider the wording of the relevant

portions of Sections 17203 and 17204 to be parallel. To the contrary, Section 17203's wording

authorizing restitutionary relief – which permits a court to “restore to any person in interest any

money or property, real or personal, which may have been acquired by means of such unfair

competition” – is worded differently, and more narrowly, than Section 17204's requirement that a

person have “lost money or property” as a result of unfair competition to have standing to sue.

This Court therefore finds no basis to presume that the People of California, when adopting

Proposition 64, meant for the new Section 17204 standing requirements to track the requirements

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established for obtaining restitution under Section 17203 set by Korea Supply, Cortez and their

progeny. 

The Walker analysis is also in tension with White v. Trans Union LLC, 462 F. Supp. 2d 1079,

1084 (C.D. Cal. 2006). In White, the Court rejected the argument that the Plaintiff must show that

the Defendant took money directly from plaintiff in order to obtain injunctive relief under Section

17200. Id. at 1083. White found that, at the motion to dismiss stage, allegations of lost income were

enough to establish injury-in-fact, and therefore to establish standing to seek injunctive relief. White

found that, for purposes of injunctive relief, lost income “is all the statute requires. In particular, the

statute does not require that the losses in question were the product of the defendant’s wrongful

acquisition of the plaintiff’s property.” Id. at 1084. This Court agrees with White’s reading of 

Section 17204. 

Accordingly, the Court finds that Plaintiffs have standing to seek injunctive relief in

connection with their Section 17200 claim.

B. Abstention

Defendants argue that the Court should abstain from exercising jurisdiction over Plaintiffs’

Section 17200 claim because the conduct at issue is subject to extensive regulation by the California

Department of Insurance (“DOI”). The briefing submitted by Defendants leaves it unclear exactly

which abstention doctrine, or doctrines, they seek to invoke. Although Defendants never refer to

them by name, the abstention doctrines discussed in the authorities cited by Defendants are

Burford abstention and the primary jurisdiction doctrine.

Given that the Court has determined that the sole remedy available to Plaintiffs in connection

with their Section 17200 claim is injunctive relief, the abstention analysis is simplified considerably

by Plaintiffs’ concession at oral argument, on the record in open court, that the only form of

injunctive relief that they will seek based on Section 17200 is an injunction requiring Defendants to

cease and desist from making defamatory remarks about Plaintiffs’ worksmanship and business

practices. Defendants’ evidence indicates that injunctive relief directed at Defendants’

reimbursement practices or calculation of labor repair rates might have considerably overlapped, and

potentially interfered with, the Department of Insurance’s expertise in and regulatory authority over

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 On November 26, 2007, after oral argument on the motion, Defendant submitted supplemental evidence regarding

this point without prior leave of Court. Defendant’s submission did not comply with Civil Local Rule 7-3. Accordingly, the

Court GRANTS Plaintiff’s motion to strike the November 26, 2007 submission. (Docket No. 269.) 

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Defendants. (Feld Decl., Exh. B; see also Defendants’ Supplemental Statement of Facts, Exh. 12.)3

However, there is no indication in the record before this Court that the Department of Insurance

(“DOI”) has special expertise in, or regulates, potentially defamatory statements made by insurers

regarding auto body shops. Accordingly, the Court finds that neither Burford principles nor the

primary jurisdiction doctrine warrant abstention here. See Knudsen Corp. v. Nevada State Dairy

Comm'n, 676 F.2d 374, 377 (9th Cir.1982) (Burford abstention can apply where, inter alia, issues 

“are not easily separable from complicated state law issues with which the state courts may have

special competence”); Farmers Ins. Exch. v. Superior Court, 2 Cal. 4th 377 (1992) (primary

jurisdiction doctrine can apply where enforcement of claim requires “enforcement of the claim

requires the resolution of issues which, under a regulatory scheme, have been placed with the special

competence of an administrative body”).

C. Insurance Code Section 790.03.

Defendants contend that Plaintiffs’ Section 17200 claim runs afoul of the California

prohibition against a private right of action for violations of California Insurance Code Section

790.03. Section 790.03 defines and prohibits certain acts of unfair competition in the business of

insurance. There is no private right of action under California Insurance Code Section 790.03. See

Moradi-Shalal v. Fireman’s Fund Ins. Co., 46 Cal. 3d 287, 304-05 (1988). Instead, the procedures

to enforce alleged violations of Section 790.03 are vested within the exclusive authority of the

Insurance Commissioner.

The law is clear that Plaintiffs cannot rely on alleged violations of Insurance Code Section

790.03 to establish “unlawful” conduct for purposes of their Section 17200 claim. See Maler v.

Superior Court, 220 Cal. App. 3d 1592, 1598 (1990); Safeco Ins. Co. v. Superior Court, 216 Cal

App. 3d 1491, 1494 (1990). However, neither Maler and Safeco, nor any other authority of which

this Court is aware, bar Plaintiffs from pursuing a Section 17200 claim for unlawful conduct to the

extent that Plaintiffs can establish the unlawfulness is based upon a different statutory provision. 

Here, for purposes of supporting their request for injunctive relief prohibiting defamatory remarks,

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 California Civil Code Section 46(3) provides that slander includes any false and unprivileged publication which

“[t]ends to directly injure [plaintiff] in respect to [plaintiff’s] office, profession, trade or business, either by imputing to

[plaintiff] general disqualification in those respects which the office or other occupation peculiarly requires, or by imputing

something with reference to [plaintiff’s] office, profession, trade, or business that has a natural tendency to lessen its profits.”

5

 For the same reason, the Court need not reach the merits of Defendants’ objections to certain exhibits submitted

in opposition to the Motion (Docket No. 230) nor Defendants’ objections to Plaintiffs’ request for judicial notice (Docket

No. 231). Resolution of Defendants’ legal challenges to the Section 17200 claim does not depend on the admissibility of

this evidence.

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 Plaintiffs’ opposition included a Rule 56(f) request for additional time to present expert testimony to the Court.

The Court denies Plaintiffs’ Rule 56(f) request because Plaintiffs have not demonstrated how expert testimony would be

relevant to resolution of these legal challenges. In any event, the Rule 56(f) request appears to be moot as Plaintiffs, shortly

before the hearing, submitted declarations from their two experts. Because the contents of these expert declarations is

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Plaintiffs identify California Civil Code Section 46(3) as an independent statutory basis for deeming

the allegedly defamatory remarks unlawful.4

 An unfair competition claim may be based on

defamatory statements if such statements constitute a business practice. See Isuzu Motors, Ltd. v.

Consumers Union of U.S., Inc., 12 F. Supp. 2d 1035, 1048 (C.D. Cal. 1998). The Court finds that

Insurance Code 790.03 does not bar Plaintiffs from establishing a violation of Section 17200, and

obtaining the injunctive relief identified at oral argument, by proving a predicate violation of Civil

Code Section 46(3).

D. Mootness.

Though Defendants contend Plaintiffs’ Section 17200 cause of action is moot, they fail to

offer evidence establishing that the allegedly defamatory remarks regarding Plaintiffs have actually

ended. The administrative remedies pursued and implemented by the Department of Insurance do

not address issues of defamation. (Feld Decl., Exh. B.) On this record, the Court cannot conclude

that the alleged wrongful conduct has ended.

E. Sufficiency Of Plaintiffs’ Evidence.

Plaintiffs’ lengthy presentation of its factual evidence demonstrating Defendants’ misconduct

is largely irrelevant to resolution of Defendants’ summary judgment motion challenging the Section

17200 claim, which by Defendants’ own admission raised solely legal challenges.5

 For the first time

on reply, Defendants contend that Plaintiffs have failed to come forward with proof of certain

elements of a Section 17200 claim. The Court will not consider such arguments as they were not

raised in Defendants’ opening brief.6

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irrelevant to the Court’s resolution of the legal challenges raised by Defendants, the Court DENIES Defendants’ motion to

strike the expert declarations (Docket No. 249) as moot. 

7

 Plaintiffs cite to Exhibit V of the Colleen Duffy Smith declaration as evidence that Defendant made statements

to policyholders, “in the form of estimates drafted for Plaintiffs”, that the reimbursement rate was $75 per hour. But Exhibit

V is a chart of small-claims complaints prepared by Plaintiffs’ counsel and does not prove the existence of the false or

misleading statements.

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II. Plaintiffs’ Fraud Claim.

For the reasons discussed on the record at the hearing, and as indicated at the hearing, the

Court GRANTS Defendants’ motion for summary judgment with respect to Plaintiffs’ fraud claim,

their third cause of action, and DENIES Plaintiffs’ motion for leave to amend as futile. Plaintiffs’

proposed amended complaint, like their current complaint, fails to adequately plead the existence of

false or misleading statements with sufficient particularity. Moreover, Plaintiffs have failed meet

their burden under Celotex to come forward with evidence of (1) actionable false or misleading

statements, (2) intent to induce reliance by Plaintiffs, or (3) justifiable reliance.7

CONCLUSION

For the foregoing reasons, the Court GRANTS IN PART AND DENIES IN PART

Defendants’ summary judgment motion with respect to the Section 17200 claim, GRANTS

Defendants’ summary judgment motion with respect to the fraud claim, and DENIES Plaintiffs’

motion for leave to amend.

IT IS SO ORDERED.

Dated: December 12, 2007 

MARTIN J. JENKINS

UNITED STATES DISTRICT JUDGE

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