Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-cv-05621/USCOURTS-cand-3_15-cv-05621-0/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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15-cv-05621-RMW

ORDER DENYING MOTION TO REMAND AND GRANTING MOTION TO DISMISS

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

IGLESIA CRISTIANA LUZ Y VERDAD, 

et al.,

Plaintiffs,

v.

CHURCH MUTUAL INSURANCE 

COMPANY, et al.,

Defendants.

Case No. 15-cv-05621-RMW 

ORDER DENYING MOTION TO 

REMAND AND GRANTING MOTION 

TO DISMISS WITH LEAVE TO 

AMEND

Re: Dkt. Nos. 11, 12, 21

Plaintiffs filed this action in state court in October 19, 2015, alleging five causes of action 

against defendants Church Mutual Insurance Company and Allstate Insurance Company: (1) 

breach of covenant of good faith and fair dealing, (2) breach of fiduciary duty, (3) direct action for 

recovery of judgment, (4) breach of contract, and (5) intentional infliction of emotional distress.

Dkt. 1 at 6-18. Defendant Allstate removed to federal court on December 9, 2015. Id. at 1-4. 

Before this court are plaintiffs’ motion to remand and Allstate’s motion to dismiss for failure to 

state a claim. Dkt. Nos. 12, 11. A hearing was held on February 19, 2016. Having considered the 

parties’ arguments, the court denies plaintiffs’ motion to remand and grants Allstate’s motion to 

dismiss with leave to amend.

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ORDER DENYING MOTION TO REMAND AND GRANTING MOTION TO DISMISS

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I. BACKGROUND

In April 2012, plaintiffs Henry Espinoza, Max Espinoza, Kevin Gonzales, Jose Eduardo 

Castro, Uriel Vargas, Daniel Barrios, and Jorge Davila filed a complaint in state court against a 

church, Iglesia Cristiana Luz y Verdad, and its pastor, Gustavo Antonio Lanzas, alleging that the 

plaintiffs were victims of sexual molestation by Gustavo Antonio Lanzas. Compl. ¶¶ 8-9. That

action resulted in default judgment for plaintiffs in the amount of $14,840,000. 

On October 19, 2015, Iglesia Cristiana Luz y Verdad, “through its Assigns and Successors 

in Interest, Insureds,” and Henry A. Espinoza, Max J. Espinoza, Kevin Gonzales, Jose Eduardo 

Castro, Uriel Vargas, Daniel Barrios, and Jorge E. Davila, as “Third Party Claimants,” filed this 

action in the Superior Court of the State of California for the County of Santa Clara. Plaintiffs 

seek damages arising from the alleged bad faith failure of the insurance company defendants to 

settle plaintiffs’ claim relating to the underlying sexual molestation suit. Compl. ¶¶ 12-14. 

Plaintiffs assert the following claims against both Church Mutual Insurance Company and 

Allstate: (1) breach of covenant of good faith and fair dealing, (2) breach of fiduciary duty, (3) 

direct action for recovery of judgment, (4) breach of contract, and (5) intentional infliction of 

emotional distress. Compl. ¶ 16-34. 

Plaintiffs’ alleges that defendants issued “various comprehensive general liability 

insurance policies” to Iglesia Cristiana Luz y Verdad and Gustavo Antonio Lanzas. Id. at ¶ 6. 

Plaintiffs further allege that the policies were “in effect between the early 1990’s to approximately 

2010” and that the policies “will be produced through discovery.” Id. at ¶ 6. Plaintiffs allege that 

“[o]n or about October 15, 2015, plaintiffs . . . demanded, through counsel, the sum of $3,000,000 

in full settlement of the claims against their named insured . . .”

1

Id. at ¶ 12. Plaintiffs contend that 

 

1 Allstate requests judicial notice of certain correspondence, including plaintiffs’ demand letter. 

Dkt. No. 11 at 4 and n.1. Plaintiffs also rely on correspondence in support of their opposition, 

which the court interprets as a request for judicial notice. See Dkt. No. 14 at 4. In ruling on a 

motion to dismiss, the court may consider materials attached to and submitted with the complaint, 

and may also take judicial notice of and consider unattached evidence on which the complaint 

relies if: (1) the complaint refers to the document; (2) the document is central to the plaintiff’s 

claim; and (3) no party questions the authenticity of the document. US. v. Corinthian Colleges, 

655 F.3d 984, 999 (9th Cir. 2011). However, because the court does not rely on any documents 

outside the complaint, the parties’ requests for judicial notice are moot.

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ORDER DENYING MOTION TO REMAND AND GRANTING MOTION TO DISMISS

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this demand was reasonable in light of the injuries they suffered. Id. 

Allstate represents that plaintiffs never served the state court complaint on either 

defendant, and that Allstate’s appearance for removal purposes was voluntarily. Dkt. No. 18 at 2. 

Allstate moved to dismiss for failure to state a claim on December 30, 2015. Dkt. No. 11. 

Plaintiffs moved to remand on January 12, 2016. Dkt. No. 12. 

II. MOTION TO REMAND

Allstate argues that plaintiffs’ motion to remand is untimely. Dkt. No. 18 at 4. A motion to 

remand “on the basis of any defect other than lack of subject matter jurisdiction must be made 

within 30 days after the filing of the notice of removal under section 1446(a).” 28 U.S.C. § 

1447(c). Plaintiffs move to remand on two grounds: 1) failure to join all defendants in the notice 

of removal and 2) failure to remove on a timely basis. Dkt. No. 12 at 6. Plaintiffs’ motion does not 

allege that this court lacks subject matter jurisdiction. Allstate’s notice of removal was filed in this 

court on December 9, 2015. Therefore, plaintiffs had until January 8, 2016 to move for remand on 

any basis other than lack of subject matter jurisdiction. Plaintiffs did not move to remand until 

January 12, 2016. Plaintiffs’ motion is denied as untimely.

Even considering the merits of the motion to remand, however, the court finds that 

plaintiffs’ arguments lack merit. First, plaintiffs argue that Allstate’s removal was defective 

because Church Mutual Insurance Company did not join in the notice of removal. See Dkt. No. 12 

at 6. The removal statute requires consent from “all defendants who have been properly joined and 

served.” 28 U.S.C § 1446 (b)(2)(A). In its notice of removal and its opposition to plaintiffs’ 

motion to remand, Allstate asserts that plaintiffs did not serve either defendant Allstate or Church 

Mutual Insurance Company prior to removal. Dkt. No. 1 ¶ 5; Dkt. No. 18 at 2. Plaintiffs have not 

alleged that they served Church Mutual Insurance Company. Therefore, Church Mutual Insurance 

Company’s consent was not required. 

Second, plaintiffs argue that Allstate’s removal was untimely. The removal statute requires 

that a notice of removal be filed “within 30 days after the receipt by the defendant, through service 

or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such 

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ORDER DENYING MOTION TO REMAND AND GRANTING MOTION TO DISMISS

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action or proceeding is based, or within 30 days after the service of summons upon the defendant 

if such initial pleading has then been filed in court and is not required to be served on the 

defendant, whichever period is shorter.” 28 U.S.C § 1446 (b)(1). Plaintiffs’ argument is that 

Allstate received “a copy of the initial Amended Complaint on October 20, 2015, along with 

plaintiffs’ demand for settlement.” Dkt. No. 12 at 5. However, the complaint referred to by 

plaintiff appears to be the complaint in the underlying sexual molestation action—not the pleading 

set forth the claim for relief in this case. See id. at 3-4 (“On October 15, 2015, plaintiffs sent a 

demand to defendant Allstate to settle for the policy limits and sent a copy of the amended 

Complaint in the underlying action . . .”) (emphasis added). Because plaintiff does not allege that 

Allstate received the complaint in this action, it is not clear that the time 30 day period for removal 

was ever triggered. 

Although plaintiffs’ motion to remand does not challenge the existence of diversity 

jurisdiction, plaintiffs’ reply brief does raise the question of diversity.2First, plaintiffs argue that 

“it is possible that the church itself or one of its officers may be joined as a party-defendant under 

different scenarios,” thereby defeating diversity jurisdiction at some point in the future. Dkt No. 

19 at 2. Plaintiffs do not argue that the church or its officers defeat diversity jurisdiction at this 

time.

Second, plaintiffs cites 28 U.S.C. 1332(c) for the proposition that in a “direct action” the 

insurance company is deemed to be a citizen of the state of its insured. However, plaintiffs do not, 

and likely could not, assert that this case is a direct action to which § 1332(c) would apply. Dkt 

No. 19 at 2; see 28 U.S.C. 1332(c) (applies if “the insured is not joined as a party”); Searles v. 

 

2 Allstate moves to strike plaintiffs’ reply because it includes argument not raised in plaintiffs’ 

motion, or in the alternative to file a surreply. Dkt. No. 21. Allstate’s proposed surreply is attached 

to its motion as Exhibit A. Id. Allstate is correct that the “general rule is that appellants cannot 

raise a new issue for the first time in their reply briefs.” Coos Cty. Bd. of Cty. Comm’rs v. 

Kempthorne, 531 F.3d 792, 812 n.16 (9th Cir. 2008) (quoting Ghahremani v. Gonzales, 498 F.3d 

993, 998 n.3 (9th Cir. 2007) (declining to consider argument raised for first time in reply brief). 

However, because this court addresses the arguments raised in plaintiffs’ reply, Allstate’s motion 

for leave to file a surreply is granted.

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Cincinnati Ins. Co., 998 F.2d 728, 729 (9th Cir. 1993) (“direct action” within the meaning of § 

1332(c)(1) is a case “in which a party suffering injuries or damage for which another is legally 

responsible is entitled to bring suit against the other’s liability insurer without joining the insured 

or first obtaining a judgment against him”). Therefore, the court finds no basis for remand in 

plaintiffs’ reply. 

For these reasons, the court denies plaintiffs’ motion to remand and considers Allstate’s 

motion to dismiss.

III. MOTION TO DISMISS

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) “tests the legal 

sufficiency of a claim.” Conservation Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011)

(quoting Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)). “When there are well-pleaded 

factual allegations, a court should assume their veracity and then determine whether they plausibly 

give rise to an entitlement to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). However, “the 

tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable 

to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere 

conclusory statements, do not suffice.” Id. (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 

555 (2007)). 

A claim is facially plausible when it “allows the court to draw the reasonable inference that 

the defendant is liable for the misconduct alleged.” Iqbal, 556 at 678. “Determining whether a 

complaint states a plausible claim for relief . . . [is] a context-specific task that requires the 

reviewing court to draw on its judicial experience and common sense.” Id. at 679. The allegations 

made in a complaint must be both “sufficiently detailed to give fair notice to the opposing party of 

the nature of the claim so that the party may effectively defend against it” and “sufficiently 

plausible” such that “it is not unfair to require the opposing party to be subjected to the expense of 

discovery.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

A. Breach of Contract

Under California law, “[t]o state a cause of action for breach of contract, a party must 

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ORDER DENYING MOTION TO REMAND AND GRANTING MOTION TO DISMISS

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plead the existence of a contract, his or her performance of the contract or excuse for 

nonperformance, the defendant’s breach and resulting damage.” Harris v. Rudin, Richman & 

Appel, 74 Cal. App. 4th 299, 307 (1999). Allstate argues that plaintiffs have failed to establish the 

existence of a contract.

In support of this argument, Allstate cites predominately California state court cases, 

including Otworth v. Southern Pac. Transp. Co., 166 Cal. App. 3d 452 (1985). This line of cases 

holds that “the terms [of the contract] must be set out verbatim in the body of the complaint or a 

copy of the written instrument must be attached and incorporated by reference.” Otworth, 166 Cal. 

App. 3d at 459. However, “the majority rule in district courts in this circuit rejects application of 

Otworth in federal actions; rather, the sufficiency of the complaint is governed according to the 

Federal Rules of Civil Procedure and federal law interpreting those rules.” James River Ins. Co. v. 

DCMI, Inc., No. C 11-06345 WHA, 2012 WL 2873763, at *3 (N.D. Cal. July 12, 2012); see also

Missud v. Oakland Coliseum Joint Venture, No. 12-02967 JCS, 2013 WL 812428, at *19 (N.D. 

Cal. Mar. 5, 2013) (“as a procedural matter, the sufficiency of the complaint is governed, not by 

state law, but by the Federal Rules of Civil Procedure and federal law interpreting those rules”).

Under federal pleading standards, a plaintiff is not required to attach a contract or recite its 

terms verbatim, but a “plaintiff must identify with specificity the contractual obligations allegedly 

breached by the defendant.” Misha Consulting Grp., Inc. v. Core Educ. & Consulting Sols., Inc., 

No. C-13-04262-RMW, 2013 WL 6073362, at *1 (N.D. Cal. Nov. 15, 2013). This is “enough to 

raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. However, “mere 

legal conclusions that a contract existed . . . will be insufficient to survive a motion to dismiss.” 

Garibaldi v. Bank of Am. Corp., No. C 13-02223 SI, 2014 WL 172284, at *3 (N.D. Cal. Jan. 15, 

2014). Applying this standard, the court finds that plaintiffs have failed to sufficiently identify the 

contractual obligations allegedly breached by Allstate. 

Plaintiffs allege that both defendants issued “various comprehensive general liability 

insurance policies” to Iglesia Cristiana Luz y Verdad and Gustavo Antonio Lanzas and that the 

policies were “in effect between the early 1990’s to approximately 2010.” Compl. at ¶ 6. The 

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complaint includes the following description of the alleged policies: 

Under the terms of the comprehensive insurance policies described above

defendants agreed to indemnify plaintiff, church Iglesia Cristiana Luz y Verdad and 

pastor Gustavo Antonio Lanzas up to the amount of liability coverage extended to 

plaintiffs and pastor for sexual molestation conduct, and to defend their insured 

church Iglesia Cristiana Luz y Verdad and pastor Gustavo Antonio Lanzas in any 

civil action seeking such damages.

Id. ¶ 7. It is not clear from the allegations in the complaint how many policies are at issue. Nor 

does the complaint specify whether both the church and pastor were insured under the same policy 

or separate policies. The alleged time period for coverage spans nearly twenty years. The 

complaint does not indicate when the policy contracts were formed, nor does it identify the 

policies by number. The complaint does not disclose such terms as the amount of coverage or the 

premiums charged. Plaintiffs’ allegations are not sufficiently specific to put Allstate on notice of 

the contract at issue. Cf. Misha Consulting Grp., Inc. v. Core Educ. & Consulting Sols., Inc., No. 

C-13-04262-RMW, 2013 WL 6073362, at *2 (N.D. Cal. Nov. 15, 2013) (“Although the complaint 

could have been more specific, it sets out the type of services requested, the dates of performance, 

and the contract price. Further, the complaint refers to the dates of the e-mail exchanges within 

which the contract was allegedly formed.”). Without additional detail, Allstate cannot effectively 

defend against plaintiffs’ claims.

Plaintiffs argue that “the real issue is one of discovery and not pleadings.” In their

opposition brief, plaintiffs allege that the passage of time and “the fact that the church was shut 

down for many years” resulted in the loss or destruction of the relevant policies, but that “based on 

good-faith recollection, defendant church and pastors were insured by Allstate and another third 

carrier sometime between 1999 and 2008.” Dkt. No. 14 at 2. These details, however, are not 

included in the complaint. Even in briefing, plaintiffs do not identify the individual with a “goodfaith recollection” of a policy issued by Allstate. Moreover, although plaintiff has narrowed the 

time period of alleged coverage considerably, plaintiffs’ allegations are still too vague to ensure 

that Allstate can effectively defend against plaintiffs’ claims. Plaintiffs must allege the factual 

basis for its conclusion that an Allstate policy was issued.

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Plaintiffs also argue that “common sense” suggests that if “plaintiff’s good-faith 

recollection” of “being insured by Church Mutual Insurance Company between 1995 and 1998 

proved to be right,” then there is a “plausible connection” to coverage by Allstate. Dkt. No. 14 at 

5. Again, these allegations are not included in the complaint. Moreover, the court is not convinced 

that existence of one insurance contract necessarily implies the existence of a contract issued by an 

entirely separate insurance company.

Because the complaint contains only conclusory allegations as to the existence of the 

contract, plaintiffs are not entitled to discovery. See Iqbal, 556 U.S. 662, 678-79 (holding that 

Rule 8 “does not unlock the doors of discovery for a plaintiff armed with nothing more than 

conclusions”). Therefore, the court dismiss plaintiffs’ claim for breach of contract with leave to 

amend.

B. Remaining Claims 

Allstate alleges that plaintiffs’ remaining claims also fail because they all depend on 

plaintiffs’ breach of contract claims. Dkt. No. 11 at 8-9. The court agrees that plaintiffs’ remaining 

claims depend on the existence of an insurance policy contract. See Compl. ¶ 18 (alleging that 

defendants had duty to act in good faith in carrying out responsibilities under insurance policy 

contract); ¶ 25 (alleging special fiduciary relationship between insurer and insured); ¶ 29 (seeking

recovery of judgment based on wrongful failure to settle for policy limits and refusal to indemnify 

the insured); and ¶ 33 (incorporating all other factual allegations as basis for IIED claim). 

Plaintiffs do no dispute that all remaining claims depend on the existence of a contract. 

Accordingly, the court dismisses the claims against Allstate for breach of covenant of good faith 

and fair dealing, breach of fiduciary duty, direct action for recovery of judgment, and intentional 

infliction of emotional distress with leave to amend.

IV. CONCLUSION

For the foregoing reasons, the court denies plaintiffs’ motion to remand and grants 

Allstate’s motion to dismiss. The court grants plaintiffs 30 days leave to amend to address the 

deficiencies identified in this order—specifically the lack of factual allegations as to the existence 

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ORDER DENYING MOTION TO REMAND AND GRANTING MOTION TO DISMISS

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of an insurance policy contract. 

The court notes that plaintiffs filed a First Amended Complaint on February 15, 2016. See

Dkt. No. 22. However, the time for plaintiffs to amend as a matter of course had expired. See

Federal Rule of Civil Procedure 15(a)(1) (“A party may amend its pleading once as a matter of 

course within: (A) 21 days after serving it, or (B) if the pleading is one to which a responsive 

pleading is required, 21 days after service of a responsive pleading or 21 days after service of a 

motion under Rule 12(b), (e), or (f), whichever is earlier.”) (emphasis added). Allstate’s motion to 

dismiss was filed on December 30, 2015; therefore, plaintiff had until January 20, 2016 to amend 

as a matter of course. “In all other cases, a party may amend its pleading only with the opposing 

party’s written consent or the court’s leave.” Fed. R. Civ. P. 15(a)(2). Allstate objects to plaintiffs’ 

First Amended Complaint (Dkt. No. 22), and plaintiffs did not seek leave to amend from the court. 

Therefore, plaintiffs’ First Amended Complaint has no effect. 

Plaintiffs now have 30 days leave to file a second amended complaint. Plaintiffs may 

include factual allegations relating to the existence of a contract in their second amended

complaint. However, if plaintiffs wish to add new parties or claims to their second amended 

complaint, plaintiffs must obtain either 1) written consent from opposing parties, or 2) leave of

court. 

IT IS SO ORDERED.

Dated: February 19, 2016

______________________________________

Ronald M. Whyte

United States District Judge

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