Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_96-cv-00385/USCOURTS-cand-3_96-cv-00385-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1331 Fed. Question

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

ALLMERICA FINANCIAL LIFE

INSURANCE AND ANNUITY COMPANY,

Plaintiff,

v

JOHN DALESSIO,

Defendant. /

No C-96-0385 VRW

ORDER

Defendant John Dalessio and plaintiff Allmerica Financial

Life Insurance and Annuity Company (“Allmerica”) cross-move for

summary judgment on Allmerica’s claims for fraud and restitution

against Dalessio. For reasons discussed below, Dalessio’s motion

is DENIED and Allmerica’s motion is GRANTED IN PART and DENIED IN

PART.

I

 On March 31, 1988, Dalessio received a disability

insurance policy from SMA Life Assurance Company (“SMA”),

Allmerica’s predecessor in interest. Dalessio contends that he did

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 1 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

not submit an application to SMA, but rather State Mutual Life

Assurance Company (“State Mutual”). In his application, Dalessio

represented that he was in good health. Doc #211 (Kwasniak Decl)

¶¶2, 5. Dalessio admits that he has been disabled since 1980 with

several physical problems and a severe memory disability. E g, Doc

#243 (Dalessio Decl) ¶10. Dalessio also testified that he signed

the application and that the application contained

misrepresentations and omitted facts. Doc #212 (Shane Decl), Ex B

(Dalessio Depo) at 167:17:20, 177:5-19, 179:9-19. 

On August 28, 1990, Dalessio filed a claim for disability

benefits. Kwasniak Decl, Ex E. As the basis for his claim,

Dalessio stated that a car accident in 1989 caused him to be

totally disabled. Id. Allmerica paid Dalessio a total of

$253,527.53 in disability benefits from 1990 until 1995. Kwasniak

Decl ¶21. In October 1995, Allmerica received information from the

federal government that Dalessio had been disabled since 1980. 

Allmerica investigated, attempted to rescind the policy by

terminating Dalessio’s benefits and filed this diversity action in

1996. 

On June 28, 2002, the court granted summary judgment in

favor of Allmerica on its claim for rescission and Dalessio’s

counterclaims (the “6/28/02 order”). Doc #229. As Allmerica has

since retracted its claim for breach of the implied covenant of

good faith and fair dealing, Doc #272 at 10, the only claims that

remain are Allmerica’s claims for fraud and restitution. Both

parties move for summary judgment on the remaining claims. 

Allmerica seeks restitution in the amount of $253,527.53 for

benefits paid less $8,299.44 in premiums paid by Dalessio, plus

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 2 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

attorney fees and interest. 

Before proceeding to the merits, the court pauses to

address the procedural irregularities attending the present

motions. On February 5, 2004, the court directed Allmerica to

submit its summary judgment motion by March 4, 2004, or to attend a

case management conference. Doc #251. This deadline was extended

to May 6, 2004. Doc #256. On November 19, 2004, Allmerica stated

its intention to file a motion for summary judgment by December 18,

2004. Doc #267. When Allmerica failed to do so, defendant

Dalessio filed his motion for summary judgment on April 27, 2005. 

Doc #270. Allmerica filed its opposition and cross-motion on June

16, 2005, exactly 21 days before the scheduled hearing date. Doc

#272. Allmerica did not comply with the 35-day notice period

required in Civ L R 7-2(a) with respect to its cross-motion. As

the cross-motion was not timely, Dalessio claims he could not file

an opposition to the cross-motion within the 21-day notice period

required in Civ L R 7-3(a). Doc #274. Because Dalessio’s

arguments and evidence were fully presented in the memorandum in

support of his motion (to say nothing of briefing in connection

with earlier dispositive motions and motions for reconsideration),

the court concludes that Dalessio will not be prejudiced by

adjudication of the motions based on the briefing as it now stands,

especially considering that Dalessio did not avail himself of an

opportunity to reply to Allmerica’s opposition. See Civ L R 7-

3(c). The court will, of course, consider Dalessio’s memorandum in

support of his motion for purposes of both motions.

//

//

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 3 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

II

In reviewing a motion for summary judgment, the court

must determine whether genuine issues of material fact exist,

resolving any doubt in favor of the party opposing the motion. 

“[S]ummary judgment will not lie if 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 v Liberty Lobby, 477 US 242, 248 (1986). “Only disputes

over facts that might affect the outcome of the suit under the

governing law will properly preclude the entry of summary

judgment.” Id. And the burden of establishing the absence of a

genuine issue of material fact lies with the moving party. Celotex

Corp v Catrett, 477 US 317, 322-23 (1986). Summary judgment is

granted only if the moving party is entitled to judgment as a

matter of law. FRCP 56(c).

The nonmoving party may not simply rely on the pleadings,

however, but must produce significant probative evidence, by

affidavit or as otherwise provided in FRCP 56, supporting its claim

that a genuine issue of material fact exists. TW Elec Serv v

Pacific Elec Contractors Ass’n, 809 F2d 626, 630 (9th Cir 1987).

The evidence presented by the nonmoving party “is to be believed,

and all justifiable inferences are to be drawn in his favor.” 

Anderson, 477 US at 255. “[T]he judge’s function is not himself to

weigh the evidence and determine the truth of the matter but to

determine whether there is a genuine issue for trial.” Id at 249.

The evidence presented by both parties must be

admissible. FRCP 56(e). Conclusory, speculative testimony in

affidavits and moving papers is insufficient to raise genuine

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 4 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

issues of fact and defeat summary judgment. Thornhill Publishing

Co, Inc v GTE Corp, 594 F2d 730, 738 (9th Cir 1979). Hearsay

statements in affidavits are inadmissible. Japan Telecom, Inc v

Japan Telecom America Inc, 287 F3d 866, 875 n 1 (9th Cir 2004).

III

As a preliminary matter, the court considers the parties’

evidentiary challenges. Briefly stated, because the statements and

evidence contained in the declaration submitted by Dalessio have

not affected the disposition of the present motions, Allmerica’s

motion to strike, Doc #278, is DENIED AS MOOT. 

Although Dalessio does not lodge a formal objection, he

does argue in passing that Allmerica’s “files are sufficiently

unreliable as to preclude their use in determining when [Allmerica]

received documents.” Doc #270 at 12. Putting aside that

Dalessio’s argument is completely unsubstantiated, the court has

found it unnecessary to determine “when [Allmerica] received

documents” for purposes of the present motion. Dalessio’s

objection is accordingly OVERRULED.

IV

The court first addresses the parties’ motions respecting

Allmerica’s claim for fraud. The court notes at the outset that

Allmerica’s ability to recover damages for fraud has not been

compromised by the court’s order rescinding the insurance policy. 

The right to rescission of an insurance contract does not derogate

the right to pursue other remedies. Williamson & Vollmer

Engineering, Inc v Sequoia Ins Co, 64 Cal App 3d 261, 275 (1976). 

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 5 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

But Allmerica cannot obtain a double recovery. Cal Civ Code §

1692. In this case, Allmerica seeks punitive damages on its fraud

claim. California courts have allowed plaintiffs to seek punitive

damages for fraud even after summary judgment has been granted on a

claim for rescission. See Cobian v Ordonez, 103 Cal App 3d Supp

22, 28-29 (1980); cf Douglas v Ostermeier, 1 Cal App 4th 729, 750 n

3 (1991). 

The elements of fraud are (1) a misrepresentation of

material fact, (2) knowledge of falsity, (3) intent to defraud, (4)

justifiable reliance and (5) damages. E g, Engalla v Permanente

Medical Group, Inc, 15 Cal 4th 951, 974 (1997); Cal Civ Code

§ 1572. Under Cal Civ Code § 1572, liability for actual fraud is

limited to acts committed with the intent to deceive another party

and induce that party to enter into the underlying contract.

A

The court addresses Allmerica’s motion first, as it will

not detain the court long. Allmerica does nothing more than argue

that in finding that Dalessio misrepresented material facts on his

application, the court also found fraudulent intent in the 6/28/02

order. The court made no such finding and no such finding was

required. See, e g, Barrera v State Farm Mut Auto Ins Co, 71 Cal

2d 659, 665 n 4 (1969) (observing that under Cal Ins Code § 331,

“whether the insured misstated or concealed certain facts with the

intention to deceive is irrelevant to the right to rescind”). Nor

is it proper at summary judgment for the court to infer Dalessio’s

knowledge of falsity and intent to deceive from the fact that

Dalessio made material misrepresentations. Allmerica’s motion for

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 6 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7

summary judgment in its favor on its fraud claim is DENIED. 

B

1

Dalessio first argues that he applied to State Mutual,

not SMA, and therefore could not have made any misrepresentations

to SMA. In the 6/28/02 order, the court implicitly found that

Dalessio applied to SMA. Doc #229 at 2. In his motion for

reconsideration of the 6/28/02 order, Dalessio advanced the same

argument that he could not have made any misrepresentations to SMA

because he applied to State Mutual. Doc #242. The court declined

to address the merits of this argument because the supporting

evidence was available before the parties submitted their earlier

cross-motions for summary judgment and Dalessio did not establish

any other ground for reconsideration. Doc #251 at 4. In effect,

Dalessio again requests reconsideration of the court’s finding that

Dalessio misrepresented facts on his application based on evidence

that was available when the parties filed their cross-motions in

2002. 

Although the “law of the case” doctrine is not an

absolute bar from reconsideration, courts generally reconsider

previously decided questions only in cases in which there has been

an intervening change of controlling authority, new evidence has

surfaced or the previous disposition was clearly erroneous and

would work a manifest injustice. Leslie Salt Co v United States,

55 F3d 1388, 1393 (9th Cir 1995). Reliance upon an earlier order

granting summary judgment as law of the case for purposes of a

subsequent motion for summary judgment is inappropriate when new

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 7 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8

evidence has been developed in the intervening period. See Cable &

Computer Technology Inc v Lockheed Sanders, Inc, 214 F3d 1030, 1038

(9th Cir 2000). But that is not this case. 

Even if the court were to treat Dalessio’s proffered

evidence as new, the court would conclude that Dalessio is not

entitled to summary judgment on this basis. Dalessio’s argument is

based upon a single piece of evidence: Two checkboxes appear at

the top of “Part II” of Dalessio’s application. Next to one reads

State Mutual’s full name; next to the other reads SMA’s full name. 

Below the checkboxes is a parenthetical instruction to “[c]heck

applicable box(es).” The box checked on Part II of Dalessio’s

application corresponds to State Mutual. Doc #1 (Compl), Ex B. 

Viewed in context, the court finds this to be

inconsequential. First, Dalessio testified that the only portion

of Part II of his application that is in his handwriting is his

signature at the bottom of the page, and that the rest of Part II

was filled out by a medical examiner. Dalessio Depo at 174:17-19. 

Further, on “Part I” of the application, checkboxes corresponding

to both SMA and State Mutual are checked. Compl, Ex B. On the

amendment to the application (which bears Dalessio’s signature),

only the box corresponding to SMA is checked. Id, Ex C. Dalessio

paid his first premium with a handwritten check payable to SMA. 

Doc #92, Ex E. And countless policy riders and other documents

sent to Dalessio would have made it abundantly clear to Dalessio

that SMA was his insurer. One reasonable inference that can be

drawn from this evidence is that the individual who filled out Part

II of Dalessio’s application mistakenly checked the box

corresponding to State Mutual. At best, there is an issue ——

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 8 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

9

perhaps material, perhaps not —— regarding the insurance company to

which Dalessio intended to apply. 

Even if Dalessio could conclusively show that he applied

to State Mutual rather than SMA, that would not necessarily end the

inquiry. California courts have adopted the doctrine of “indirect

deception,” whereby contractual privity is not a sine qua non to a

claim for fraud. See, e g, Geernaert v Mitchell, 31 Cal App 4th

601, 605-09 (1995). Under this doctrine, Dalessio is entitled to

summary judgment if he can show that he had no reason to expect

that SMA would rely upon the misrepresentations in his application. 

See id at 609 (implying that summary judgment is not appropriate

unless the defendant “had no reason to expect reliance by the

plaintiffs”). Dalessio has made no such showing. To the contrary,

in addition to the application materials bearing a check mark next

to SMA’s name, there is other evidence that Dalessio was aware that

he was applying to SMA, not State Mutual. See Doc #92 (Gong Decl)

¶3 (suggesting that the agent who sold Dalessio the policy led

Dalessio to believe that he was applying to SMA). Accordingly,

summary judgment cannot be granted on this basis. 

2

Next, Dalessio argues that Allmerica cannot prove that

Dalessio knew his representations were false. 

During his deposition, Dalessio testified that his “No”

answer to the question on the application asking whether he had

ever received benefits “was incorrect because I was receiving

partial disability from the federal government, and I would have

been aware of it at th[e] time [the application was completed]

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 9 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10

* * *.” Dalessio Depo at 258:19-21 (emphasis added). Dalessio

contends this statement is inadmissible, relying primarily upon the

court’s earlier ruling that because Dalessio has no long term

memory of events that occurred after 1980, Dalessio lacks the

personal knowledge necessary to testify competently about events

that occurred after that time in the absence of supporting evidence

such as his personal records. Doc #229 at 2-3. 

Dalessio attempts to extend the court’s previous

evidentiary ruling too far. The court ultimately struck a portion

of Dalessio’s sworn affidavit in which he stated that he “[knew]”

he performed legal services in 1989 because, in the absence of any

explanation for his ability to recall this particular fact, it

contradicted his deposition testimony that he could not recall most

particulars from that time frame. In contrast, Dalessio’s

statement that he would have known he was receiving partial

disability payments at the time he completed his insurance

application was made at his deposition. The difference is

significant because Dalessio “rel[ied] on his review of documents

and his notes, calendars, and other resources” for purposes of his

deposition testimony. Shane Decl, Ex A.

In any event, “evidence of the falsity of a

representation is sufficient to raise a triable issue of fact as to

the elements of the knowledge of the falsity.” Hart v Browne, 103

Cal App 3d 947, 957 (1980) (citing Maxson v Llewelyn, 122 Cal 195

(1898)). Dalessio has failed to carry his burden of demonstrating

the absence of a triable issue of fact regarding his knowledge of

falsity. It matters not, then, that Allmerica did not address

knowledge of falsity in its opposition.

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 10 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

11

3

Next, Dalessio contends that there is no evidence

sufficient to create a genuine issue of material fact regarding his

fraudulent intent. Dalessio relies primarily upon the fact that he

provided the name of his treating physician on his application, as

well as “all of the information needed to obtain his complete

medical records from every source.” Doc #270 at 14. For the

proposition that “California courts have found similar facts to be

strong circumstantial evidence that an insured did not intend to

mislead an insurer,” id, Dalessio cites United Fidelity Life Ins Co

v Emert, 49 Cal App 4th 941 (1996), and Rutherford v Prudential Ins

Co, 234 Cal App 2d 719 (1965).

Apparently, Dalessio cites United Fidelity for its remark

that “[p]resumably any insured who lies about his medical condition

on the application is also likely to omit his treating physician or

entity with information regarding the true state of his health.” 

49 Cal App 4th at 945. This does not support Dalessio’s argument

for two reasons. First, the court was addressing an insurer’s

attempt to overcome an incontestability clause by arguing that it

could not have meaningfully investigated any fraud on the part of

the defendant without the name of his doctors. The court was

merely emphasizing that there was nothing special about the case

that would justify removing the incontestability bar. Second, even

taking the statement at face value, the court’s suggestion that

fraudfeasors “likely” will not include certain sources of

information on their application does not amount to a rule that

entitles a defendant-insured to summary judgment simply because he

included sources of information from which the truth could be

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 11 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12

ascertained.

Although more cogent, Rutherford is also unavailing. 

There, the surviving widow of an insured obtained a jury verdict

against an insurer on her claim for benefits under the policy

issued to the insured-decedent, and the insurer appealed the trial

court’s denial of its motion for judgment notwithstanding the

verdict. Rutherford, 234 Cal App 2d at 721-22. One issue on

appeal was whether the insured was entitled to judgment due to

misrepresentations of material fact contained in the application. 

The appellate court let the verdict stand because the insured was

led to believe by the agent for the insurer that the omitted

information was not material. In this regard, the insured’s “good

faith and belief that he had made complete, thorough and accurate

representations to the insurance company [was] supported by the

fact” that he had authorized the release of his medical history and

provided the name of a doctor who had performed a procedure that

had not been disclosed on the application. Id at 731. Like United

Fidelity, however, Rutherford does not preclude a finding of

fraudulent intent as a matter of law.

To be sure, if the trier of fact finds that Dalessio

included all sources of information from which Allmerica could have

ascertained Dalessio’s true medical history, a finding in his favor

on the fraud claim could hardly be second-guessed. But because the

factfinder could conclude that Dalessio knew at least some of his

representations were false when made, the factfinder could further

infer intent to deceive. See, e g, Griswold v Morrison, 53 Cal App

93, 101 (1921) (“A misrepresentation knowingly made is sufficient

to warrant an inference of fraudulent intent * * *.”), disapproved

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 12 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

13

on other grounds, Gagne v Bertran, 43 Cal 2d 481 (1954); cf Gagne,

43 Cal 2d at 488 (“Defendant’s intent to induce plaintiffs to alter

their position can be inferred from the fact that he made the

misrepresentations with knowledge that plaintiffs would act in

reliance on them.”). Dalessio has therefore failed to carry his

burden of demonstrating the absence of a triable of issue of fact

regarding his intent to deceive. 

4

Next, Dalessio argues that Allmerica cannot show that it

actually and reasonably relied upon the misrepresentations

contained in Dalessio’s application. The thrust of Dalessio’s

argument is that Allmerica cannot be trusted and therefore “the

Court must draw the strongest allowable presumptions and

inferences” in Dalessio’s favor, viz, “that prior to issuing the

policy [Allmerica] requested and received [Dalessio]’s medical

records from [Dalessio]’s attending physician, and that these

records revealed [Dalessio]’s prior illnesses, provided the name of

[Dalessio]’s psychiatrist and thus access to all of [Dalessio]’s

medical records.” Doc #270 at 15-17. 

The only cogent aspect of Dalessio’s argument is his

suggestion that Allmerica received Dalessio’s medical file kept by

his attending physician (as opposed to simply an attending

physician’s statement (“APS”), which in this case stated that

Dalessio’s health was “[e]xcellent,” e g, Shane Decl, Ex E), prior

to issuing the policy. This is not the first time Dalessio has

advanced this argument. But now, as before, “[a]s there is not

evidence that Allmerica received Dalessio’s medical files before it

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 13 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

14

issued the policy, this argument fails.” Doc #229 at 9.

The remainder of Dalessio’s argument is predicated upon

his allegation that Allmerica and its agents have made numerous

false or contradictory statements in the course of this litigation. 

Simply put, the portions of the record cited by Dalessio do not

substantiate his accusations. Accordingly, the court has no

trouble declining Dalessio’s invitation to indulge in the

presumption that, before the policy issued, Allmerica had obtained

medical records that disclosed the true state of Dalessio’s medical

affairs. Dalessio has failed to carry his burden of demonstrating

the absence of a genuine issue regarding Allmerica’s reasonable

reliance upon his application. 

5

In sum, based on the record before the court, the court

cannot say that the trier of fact could not reasonably infer that

Dalessio made false statements on his insurance application with

knowledge of their falsity and intent to deceive and induce SMA to

issue the policy. Resolution of issues of knowledge and intent

almost certainly turn upon credibility determinations that would be

improper at this time. Because Dalessio has failed to demonstrate

that the trier of fact could not permissibly find fraud on the

present record, his motion for summary judgment on Allmerica’s

claim for fraud is DENIED.

//

//

//

//

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 14 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

15

V

The last issue before the court is restitution. Relief

based on rescission may be granted to the aggrieved party,

including restitution of benefits and any consequential damages so

long as no duplicate or inconsistent relief is granted. Cal Civ

Code § 1692. The court may also adjust the equities between the

parties as justice may require. Id. 

Allmerica argues that it is entitled to restitution as

result of the rescission granted in the 6/28/02 order. Allmerica

asks for the amount of benefits it paid to Dalessio (less premiums

paid by Dalessio), attorney fees and interest. Dalessio argues

that Allmerica should be denied restitution under the doctrine of

unclean hands.

A 

The doctrine of unclean hands bars relief to a plaintiff

who has violated conscience, good faith or other equitable

principles relating to the transaction that gave rise to the cause

of action. Dollar Systems, Inc v Avcar Leasing Systems, Inc, 890

F2d 165, 173 (9th Cir 1989). The doctrine does not apply to

misconduct that occurs after the cause of action accrues. Id.

Additionally, courts do not apply the doctrine of unclean hands

where the defendant has suffered no harm as a result of the

plaintiff's actions. Chitkin v Lincoln Nat’l Ins Co, 879 F Supp

841, 854 (SD Cal 1995). 

The misconduct alleged by Dalessio does not rise to the

level of unclean hands. Due to the material misrepresentations

contained in Dalessio’s application, Allmerica had the right to

rescind the policy immediately upon its issuance. See Dollar

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 15 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

16

Systems, 890 F2d at 173. Putting aside that most of the alleged

instances of misconduct have not been substantiated by Dalessio,

see Carmen v San Francisco Unified Sch Dist, 237 F3d 1026, 1030

(9th Cir 2001) (“[T]he district court may limit its review to the

documents submitted for the purposes of summary judgment and those

parts of the record specifically referenced therein.” (emphasis

added)), and putting aside that those portions of the record that

are referenced do not exist, compare, e g, Doc #270 at 20 n 57

(citing Doc #243, Ex T at 173-74), with Doc #243 (containing no

exhibit “T” nor any deposition transcript pages numbered “173” or

“174”), most of the alleged misconduct would have occurred after

Allmerica’s right to rescind accrued (e g, illegal withholding of

benefits, filing of false complaint, discovery abuses, prolonged

depositions, untimely pleadings, fabrication of evidence, Doc #270

at 20). Accordingly, these instances of alleged misconduct cannot

support a defense of unclean hands. See Dollar Systems, 890 F2d at

173. Only the allegation that Allmerica altered his application

warrants discussion because such alteration would have occurred

before Allmerica’s right to rescind accrued. 

Dalessio argues that alteration of an insurance

application is a crime and this criminal conduct bars recovery. 

But there is no evidence that Allmerica or its predecessor altered

Dalessio’s application. Apparently, Dalessio’s accusation is based

on his assertion that he applied to State Mutual, not SMA: 

“[U]nder California law, [Allmerica]’s use of [Dalessio]’s

application to State Mutual without his knowledge or permission

constitutes an alteration of his application * * *.” Doc #270 at

10. Dalessio cites Cal Ins Code § 10382, which prohibits

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 16 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

17

alteration of an insurance application but in no way supports the

theory of constructive alteration advanced by Dalessio. There is

simply no evidence that Allmerica (or its predecessor) actually

altered Dalessio’s application.

Because Dalessio failed to establish any misconduct by

Allmerica that pre-dates Allmerica’s right to rescind the contract,

Dalessio’s motion for summary judgment in his favor on Allmerica’s

claim for restitution is DENIED. 

B

1

Although the court concludes that Allmerica is entitled

to restitution by virtue of the court’s earlier judgment in its

favor on its claim for rescission, Allmerica has failed to provide

evidence by which the amount of restitution can be ascertained. As

the court observed in the 6/28/02 order (at page 2), there is

evidence that Allmerica paid Dalessio $253,527.53 in disability

benefits, see Doc #211 (Kwasniak Decl) ¶21. Although counsel for

Allmerica represents that Dalessio paid $8,299.44 in premiums, see

Doc #272 at 3, 8, Allmerica neither provided supporting evidence

nor pointed to evidentiary support already contained in the now

rather unwieldy record. 

2

Allmerica requests attorney fees in connection with its

claims for rescission and restitution. Under Cal Civ Code § 1692,

the court may award attorney’s fees to a party prevailing on a

claim for rescission and restitution. The manner in which the

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 17 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

18

court exercises its discretion in this respect is, however,

governed by federal law. In a rescission case applying § 1692, the

Ninth Circuit summarized the applicable law on discretionary fee

awards:

A prevailing federal litigant ordinarily may not,

absent statute or enforceable contract, collect

attorneys’ fees. However, a court may assess

attorneys’ fees when the losing party has acted in

bad faith, vexatiously, wantonly, or for oppressive

reasons. Bad faith may be found, not only in the

actions that led to the lawsuit but also in the

conduct of the litigation. 

Dollar Systems, 890 F2d at 175 (citations and quotations omitted). 

Further, “[a]n award of attorneys’ fees for bad faith is punitive

and the penalty can be imposed only in exceptional cases and for

dominating reasons of justice.” Id (citations and quotations

omitted). 

This case is exceptional in that it is now in its tenth

year despite the relative simplicity of the issues. Although it

appears that Allmerica bears some responsibility for this state of

affairs, there can be little doubt that Dalessio has prolonged

these proceedings with duplicative dispositive motions (including

at least one motion for reconsideration), premature appeals and a

motion to recuse the undersigned. But Allmerica’s assertion that

“[b]ut for” Dalessio’s conduct it would not have been burdened with

this litigation, Doc #272 at 8, is insufficient under the standard

set forth in Dollar Systems. In any event, it is best to refrain

from awarding fees until all claims have been adjudicated. Only

then can the equities be balanced in a fully informed manner.

3

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 18 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

19

Allmerica also seeks interest from the time it first

started to pay out benefits in 1990. “State pre-judgment interest

rules are to be applied in diversity cases.” James B Lansing

Sound, Inc v Nat’l Union Fire Ins Co, 801 F2d 1560, 1569 (9th Cir

1986). Pursuant to Cal Civ Code § 3287(a), 

[e]very person who is entitled to recover damages

certain, or capable of being made certain by

calculation, and the right to recover which is

vested in him upon a particular day, is entitled

also to recover interest thereon from that day,

except during such time as the debtor is prevented

by law, or by the act of the creditor, from paying

the debt.

Under § 3287(a), “[p]rejudgment interest is also due on money paid

as restitution.” Irwin v Mascott, 112 F Supp 2d 937, 956 (ND Cal

2000). “In an action based upon rescission of a contract, the

plaintiff’s right to repayment of moneys paid under the contract is

fixed by the rescission, and interest on the moneys paid thus is

recoverable from the date of rescission.” Leaf v Rauch, 47 Cal App

3d 371, 376 (1975); see also Lund v Cooper, 1259 Cal App 2d 349,

352 (1958). 

Applying the foregoing principles, because the amount of

restitution due Allmerica is, and was, capable of ready and certain

calculation, Allmerica is entitled to pre-judgment interest at the

rate provided by California law for the difference between the

benefits it paid to Dalessio and the premiums it received from

Dalessio from the date it rescinded the insurance policy, which in

this case is December 18, 2005, the date that Allmerica terminated

Dalessio’s benefits. Kwasniak Decl ¶21.

//

//

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 19 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

20

4

The court concludes that Allmerica is entitled to

restitution in an amount equal to $253,527.53 less premiums to paid

to Allmerica or its predecessor in interest, plus pre-judgment

interest thereon. Upon a proper showing of the premiums paid by

Dalessio, Allmerica’s claims for rescission and restitution will be

fully adjudicated and judgment will be entered at the appropriate

time. With these caveats, Allmerica’s motion for summary judgment

on its claim for restitution is GRANTED. 

A motion for attorney fees shall be filed, if at all,

following entry of final judgment pursuant to FRCP 54(d)(2). Any

request for attorney fees shall conform to the analysis of lodestar

fee awards set forth in In re HPL Technologies Sec, Inc Litig, 366

F Supp 2d 912, 919-22 (ND Cal 2005) (Walker, J). See also Willis v

City of Oakland, 231 FRD 597, 600-02 (ND Cal 2005) (Walker, J). 

VI

In sum, Dalessio’s motion for summary judgment is DENIED. 

Allmerica’s motion for summary judgment in its favor is GRANTED IN

PART and DENIED IN PART. 

//

//

//

//

//

//

//

//

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 20 of 21
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

21

The parties are ORDERED to attend a further case

management conference on March 28, 2006, at 9:00 am, for purposes

of scheduling a pretrial conference and trial date. The parties

may mutually arrange an alternative date for the further case

management conference with the courtroom deputy, Ms Cora Delfin,

415-522-2039, provided that the further case management conference

shall be held no later than April 21, 2006. Once scheduled, the

case management conference will not be continued except upon good

cause shown. The parties shall not file any further dispositive

motions. 

SO ORDERED.

__________________________________

VAUGHN R WALKER

United States District Chief Judge

Case 3:96-cv-00385-VRW Document 282 Filed 02/20/06 Page 21 of 21