Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-01015/USCOURTS-caed-2_07-cv-01015-2/pdf.json

Parties Involved:
Access Claims Administrators, Inc.
Defendant
Lincoln General Insurance Company
Plaintiff

Document Text:

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

LINCOLN GENERAL INSURANCE

COMPANY,

NO. CIV. S-07-1015 LKK/EFB 

Plaintiff,

v.

O R D E R

ACCESS CLAIMS ADMINISTRATORS,

INC., and DOES 1 through 75,

inclusive, et al.,

Defendants.

 /

This is an action brought by an insurance company against its

corporate claims administrator over the alleged mishandling of a

claim arising from an automobile accident. Pending before the

court is defendant’s motion to transfer and motion to dismiss. For

the reasons set forth below, the court denies the motion to

transfer, and grants the motion to dismiss with respect to the

negligence and negligent misrepresentation claims but denies the

motion to dismiss with respect to the breach of contract, good

faith and fair dealing, and fraud claims.

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I. Background

This is a lawsuit between a Pennsylvania insurer, Lincoln

General Insurance Company (“Lincoln”), whose headquarters are

located in Pennsylvania, and a claims administrator, Access Claims

(“Access”), whose headquarters are located in Georgia. Compl. ¶¶

1-2. Pursuant to a claims service agreement, Access administered

claims for Lincoln’s California insurance policies. Compl. ¶ 6.

Lincoln has now filed suit against Access for its alleged

mishandling of a claim that arose out of an automobile accident and

a subsequent third-party personal injury claim. The complaint

alleges five causes of action: (1) breach of contract, (2) breach

of good faith and fair dealing, (3) negligence, (4)

fraud/intentional deceit, and (5) negligent misrepresentation. The

action was originally filed in San Joaquin County Superior Court

and later removed by Access to this court.

Lincoln originally issued an auto liability insurance policy

to Manuel Coleman, a California resident, with a coverage limit of

$30,000 for bodily injuries resulting from a single auto accident.

Coleman was then involved in an accident in California with Diana

Dias and her husband, who are also California residents. Diana

Dias claimed that she was paralyzed as a result of the accident and

sued Coleman in San Joaquin County Superior Court. Pursuant to the

claims service agreement between Lincoln and Access, Access handled

the defense of the Dias lawsuit, including the retention of three

California lawyers to defend the lawsuit on Coleman’s behalf.

Lincoln alleges that Access handled the defense of the Dias lawsuit

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inappropriately and exposed Lincoln to damages far in excess of the

$30,000 policy limits. 

Specifically, Lincoln claims that Access failed to respond in

a timely manner to a time-limited demand letter from Dias’ counsel

asking for the $30,000 policy limits. Compl. ¶ 12. Lincoln also

alleges that Access withheld the existence of the Dias claim and

Access’ mishandling of the same from Lincoln. According to

Lincoln, it only learned of the Dias claim as a result of an

internal file audit. Compl. ¶¶ 9-11, 12, 14. Lincoln alleges that

when it learned of the potential exposure of liability, it chose

to participate in the settlement process directly and thereafter

settled the Dias claim for $3.8 million. Decl. of Tim Kirk, ¶¶ 5-

6. The mediation and settlement process took place in California.

Id. ¶¶ 7-13. Access, however, maintains that all of its

administration of the Dias claim occurred in Georgia at Access’

office. Decl. of Michael Meadows ¶ 4.

II. Standard

A. Motion to Transfer

For the convenience of parties and witnesses, a district court

may transfer any civil action to any other district or division

where it might have been brought if to do so is in the interest of

justice. 28 U.S.C. § 1404(a). The defendant must make a strong

showing of inconvenience, however, to warrant upsetting plaintiff's

choice of forum. Decker Coal Co. v. Commonwealth Edison Co., 805

F.2d 834, 843 (9th Cir. 1986). The relevant factors in this

inquiry include plaintiff’s choice of forum, convenience to the

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parties, convenience to the witnesses, ease of access to evidence,

familiarity of the forum with applicable law, feasibility of

consolidation with other claims, local interests in the

controversy, and court congestion. Williams v. Bowman, 157 F.

Supp. 2d 1103, 1106 (N.D. Cal. 2001).

B. Motion to Dismiss

On a motion to dismiss, the allegations of the complaint must

be accepted as true. See Cruz v. Beto, 405 U.S. 319, 322 (1972).

The court is bound to give the plaintiff the benefit of every

reasonable inference to be drawn from the "well-pleaded"

allegations of the complaint. See Retail Clerks Intern. Ass'n,

Local 1625, AFL-CIO v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963).

Thus, the plaintiff need not necessarily plead a particular fact

if that fact is a reasonable inference from facts properly alleged.

See id.; see also Wheeldin v. Wheeler, 373 U.S. 647, 648 (1963)

(inferring fact from allegations of complaint).

In general, the complaint is construed favorably to the

pleader. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). The

court may not dismiss the complaint if there is a reasonably

founded hope that the plaintiff may show a set of facts consistent

with the allegations. Bell Atlantic Corp. v. Twombly, 127 U.S.

1955, 1967-69 (2007). In spite of the deference the court is bound

to pay to the plaintiff's allegations, however, it is not proper

for the court to assume that "the [plaintiff] can prove facts which

[he or she] has not alleged, or that the defendants have violated

the . . . laws in ways that have not been alleged." Associated

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General Contractors of California, Inc. v. California State Council

of Carpenters, 459 U.S. 519, 526 (1983).

III. Analysis

A. Motion to Transfer

The court may transfer a civil action to any other district

where it might have been brought for the convenience of the parties

and witnesses and in the interest of justice. 28 U.S.C. § 1404(a).

As an initial matter, the plaintiff’s choice of forum is typically

entitled to considerable weight, but may be lessened where the

plaintiff’s choice is not its residence. Inherent.com v.

Martindale-Hubbell, 420 F. Supp. 2d 1093, 1099 (N.D. Cal. 2006).

Here, Access maintains that transfer is appropriate because of (1)

convenience of the parties, (2) convenience of the witnesses, (3)

ease of access to evidence, (4) familiarity of each forum with the

applicable law, (5) the absence of a significant California

interest in the controversy, and (6) relative court congestion.

1. Convenience to Parties

First, with regard to convenience of the parties, it appears

that Georgia would be more convenient to Access, whereas California

would be more convenient for Lincoln. Access is located in the

Northern District of Georgia. It is unclear whether Access has or

ever had any California offices, although, at the very least, it

is licensed as an insurance adjuster in California. Lincoln, on

the other hand, is based out of Pennsylvania, but contends that it

has offices in California. 

Clearly, the fact that suit would be more convenient for

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Access in Georgia, does not mean it can shift the inconvenience to

the plaintiff. The relevant question is whether, if the motion to

transfer were granted, the added convenience to Access of defending

this case in Georgia would be greater than the added inconvenience

to Lincoln of prosecuting this case in Georgia. Given that Access

is based out of Georgia, whereas Lincoln’s principal place of

business is in neither Georgia nor California, the court concludes

that the overall convenience to the parties would be promoted,

albeit marginally, by transfer.

2. Convenience to Witnesses

With regard to convenience to witnesses, it is likely that

important witnesses to this action -- the Access employees who were

involved in the alleged mishandling of the Dias claim -- are

located in Georgia. Nevertheless, Access has not quantified how

many of these witnesses exist. Lincoln, on the other hand, claims

that there are at least ten witnesses located in California who may

be called upon to testify. They include a Lincoln employee who was

involved in the settlement of the Dias claim, several lawyers

involved in the settlement, Manuel Coleman, and Diana Dias and her

husband.

The relevance and admissibility of the testimony of these

witnesses is in dispute. For example, Lincoln maintains that

Access will argue that it did not know about or consent to

Lincoln’s settlement of the Dias claim, and that, as a result,

Lincoln will have to put on the California lawyers involved in the

settlement to show that Access had knowledge of the settlement.

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Access responds that none of these witnesses have personal

knowledge of the central facts in dispute -- how Access handled the

Dias claim -- and that their testimony would either be barred by

attorney-client privilege or would be cumulative of other

testimony. Furthermore, Access maintains that testimony by Coleman

or Dias would be irrelevant, because the facts of the accident are

not in dispute. The reasonableness of the settlement, however, is

in dispute. As to that matter, these witnesses' testimony would

indeed be relevant.

In sum, there appears to be, on one side, a handful of

potential California witnesses who may testify as to various issues

balanced against, on the other side, an unknown number of Access

representatives and adjusters who will testify as to other issues.

Because it is unclear how many Access employees will be called upon

to testify, it is impossible for the court to assign any particular

weight to the alleged inconvenience to Access employees. Because

it is Access’ burden to show the propriety of transfer, the court

finds that this factor weighs against transfer.

3. Ease of Access to Evidence

With regard to ease of access to evidence, there is little

dispute that transfer would be more efficient for Access, given

that information related to the Dias claim is located in its

offices in Georgia. Transfer would have no effect on Lincoln,

however, because its relevant information is housed in its offices

in Pennsylvania. Accordingly, the overall ease of access to

evidence would be promoted by transfer. This issue, however, is

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 Interestingly, however, Access does not argue in its motion

to dismiss that Georgia law should apply to the claims at issue.

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not of significant import since all that appears to be involved is

the transport of relevant documents.

4. Familiarity of Each Forum with Applicable Law

The parties dispute whether Pennsylvania or California law

applies to Lincoln’s claims. This dispute is immaterial for

purposes here, however, because there is no reason to believe that

a Georgia court would be more familiar with adjudicating either

Pennsylvania or California state law claims than a California

court. Accordingly, this factor does not weigh in favor of

transfer.

5. Local Interest in Controversy

Access maintains that there is only an attenuated local

interest in the controversy because the present dispute is one

between Georgia and Pennsylvania companies. Furthermore, Access

points out that while the automobile accident occurred in

California and involved California residents, none of those

individuals are party to suit. In addition, Access argues that the

conduct that gave rise to suit -- the alleged improper

administration of the Dias claim -- occurred in Georgia, at Access’

offices.1 Meadows Decl. ¶ 4. The harm of that conduct was

allegedly felt by Lincoln General in terms of exposure to liability

and therefore had no specific geographic locus.

Nevertheless, Access is also a California-licensed claims

adjuster and, at least in the past if not present, conducted

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2 The court recognizes that the facts surrounding the

litigation and settlement of the Dias lawsuit are relevant to some,

but not all, of plaintiff’s case. First, these facts are relevant

to the extent that Access’ conduct in the settlement at least

partially forms the factual basis for some of Lincoln’s claims.

For example, the breach of contract claim asserts that Access

breached the parties’ agreement not only by failing to timely

respond to Ms. Dias’ demand letter but also “[b]y failing to

properly coordinate, direct and manage litigation activity.”

Compl. ¶ 21(c). Second, the facts surrounding the litigation and

settlement of the Dias lawsuit would be relevant to proving that

Lincoln is entitled to recover the money it paid to settle the Dias

claim and that the amount of the settlement, $3.8 million, was

reasonable. Compl., Prayer for Judgment.

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 Indeed, whether the settlement paid by Lincoln was

appropriate under California's bad faith law is distinctly an issue

that deals with California's insurance law and the interests

protected by it.

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business in California. Although the specific action that gave

rise to this suit may not have occurred exclusively in California,

it would not have occurred but for the fact that Access was

licensed to adjust California insurance policies. The parties’

dispute in fact arose from Access’ conduct in adjusting Lincoln’s

California policies. Furthermore, the litigation and settlement

of the Dias lawsuit apparently occurred in California.2 

The legally relevant question is whether there exists a “local

interest in having localized controversies decided at home” -- not

whether there is an exclusively local interest in the controversy.

Decker, 805 F.2d at 843. Accordingly, while the present

controversy may have connections with more than one state, there

is nevertheless a distinct local interest in the controversy.3

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6. Relative Court Congestion

While this court has the heaviest caseload per active judge

in the United States, this factor does not weigh significantly on

either side of the motion to transfer. This court has a median of

10.9 months to resolve cases and 26 months to trial compared to 9.1

months to resolve cases and 24.8 months to trial for the Georgia

court. A difference of one or two months is not sufficient to

demonstrate the propriety of transfer.

In sum, Access has shown that transfer would promote its own

convenience and improve ease of its access to evidence.

Nevertheless, Access has not shown that transfer would promote the

convenience of the witnesses, that a California court would be less

familiar with the applicable law, or that there is significantly

greater court congestion here relative to Georgia. Furthermore,

both California and Georgia appear to have some interest in the

controversy: on the one hand, the controversy arose from Lincoln’s

agreement with Access to adjust its California insurance policies,

and the settlement of the Dias lawsuit occurred in California, but,

on the other hand, the alleged mishandling of the Dias lawsuit

apparently occurred in Georgia at Access’ offices. Accordingly,

this factor does not weigh in favor of or against transfer. While

a close issue, the court finds that this Access has not made the

required “strong showing,” Decker, 805 F.2d at 843, and denies the

motion to transfer.

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B. Motion to Dismiss

1. Choice of Law

In adjudicating Access’ motion to dismiss, the first issue to

be addressed is the applicable state law. A federal court sitting

in diversity applies the choice of law rules of the forum state.

Klaxon v. Stentnor Elec. Mfg. Co., 313 U.S. 487 (1941). Under

California’s choice of law rules, a choice of law provision is

enforceable where the designated state has a substantial connection

to the parties or the dispute, or where there is some other

reasonable basis for the choice. Nedlloyd Lines B.V. v. Superior

Ct., 3 Cal. 4th 459, 466 (1992). If the chosen state’s law

conflicts with a fundamental policy of California, the court must

also determine whether California has materially greater interests

than the chosen state in the determination of the particular issue.

Id. at 466.

Here, the agreement between the parties provides that “[t]his

Agreement shall be interpreted and construed in accordance with the

laws of the State of Pennsylvania.” Ex. A, Section III. Access

argues that this clause indicates that the parties intended for

Pennsylvania law to apply in the event of a dispute arising from

the contract. Lincoln, however, maintains that the terms

“interpret” and “construe” mean that Pennsylvania law applies in

the interpretation and construction of the agreement, but not

claims that might otherwise arise.

Accordingly, the court must determine the meaning and scope

of the choice of law clause. In conducting this analysis, the

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court is bound by Pennsylvania law. See Nedlloyd, 3 Cal. 4th at

469, n.7 (noting that choice of law clause applies in interpreting

clause itself). Here, there is no Pennsylvania case law directly

on point. The one case cited by Access involved a choice of law

provision similar to the one at issue here, but that court merely

assumed (and the parties did not appear to dispute) that

Pennsylvania law should apply to the claims. See Bishop v. GNC

Franchising LLC, 403 F. Supp. 2d 411, 415 (W.D. Pa. 2005) (applying

Pennsylvania law to claims where agreement was to be “interpreted

and construed under the laws of the Commonwealth of Pennsylvania”).

Several courts that have confronted a similar issue, however,

have held that the words “construe” and “interpret” are narrow, and

apply only to the construction and interpretation of the contract.

For example, in America’s Favorite Chicken Company, the court found

that a choice of law provision stating that the agreement was to

be “interpreted and construed under the laws of the State of

Louisiana” did not require application of Louisiana law to the

plaintiff’s claims. America’s Favorite Chicken Co. v. Cajun

Enterprises, Inc., 130 F.3d 180, 182 (5th Cir. 1997) (“On its face,

the choice of law clause is restricted to the interpretation or

construction of the [] agreements. . . . Since the [] claims do not

implicate the interpretation or construction of the [] agreements,

they are not governed by the narrow choice of law clause present

here.”) (emphasis in original). See also Caton v. Leach Corp., 896

F.2d 939, 942-43 (5th Cir. 1990) (provision that agreement shall

be “construed under the Laws of State of California” was narrow and

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 These two Fifth Circuit cases did not address a seemingly

contradictory Fifth Circuit decision, where the court stated that

it was “aware that the term ‘construe in accordance with’ is

technically distinguishable from the term ‘governed by’, but doubts

that such a fine distinction was intended by the parties.” C.A.

May Marine Supply Co. v. Brunswick Corp., 557 F.2d 1163, 1165 (5th

Cir. 1977). These contradictory holdings might be reconciled by

the fact that the court was applying the contract law of a

different state or, perhaps more realistically, that the court has

simply adopted a new position in recent history.

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did not govern claims for tort that did not arise out of

contract).4

Similarly, in Dollar Systems, the Ninth Circuit held that

where the choice of law provision stated that it would be

“construed in accordance with” the laws of a particular state, but

the claims at issue did not depend on the construction of the

agreement, the choice of law provision had no force. Dollar

Systems, Inc. v. Avcar Leasing Systems, Inc., 890 F.2d 165, 170

(9th Cir. 1989). 

When contracting parties wish that all disputes arising from

their relationship be subject to a particular state’s law, they

must use language indicating as much. In Nedlloyd, the California

Supreme Court noted that “[t]he phrase ‘governed by’ is a broad one

signifying a relationship of absolute direction, control, and

restraint. Thus, the clause reflects the parties' clear

contemplation that ‘the agreement’ is to be completely and

absolutely controlled by [the foreign jurisdiction’s] law.”

Nedlloyd, 3 Cal. 4th at 469. See also Boat Town U.S.A., Inc. v.

Mercury Marine Division of Brunswick, 364 So. 2d 15, 17 (Fla. App.

1978) (“The difference between ‘interpretation’ and ‘govern’ is

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more than a technical distinction. It goes to the very heart of

the purpose underlying a contract.”). Here, however, those

critical words were missing from the choice of law provision.

 Nevertheless, not all courts have come to the same conclusion

as America’s Favorite Chicken, Caton, Dollar Systems, Nedlloyd, and

Boat Town. The Sixth Circuit in particular has rejected the view

that there is a distinction between “interpreted and construed” on

the one hand and “governed by” on the other. See Boatland, Inc.

v. Brunswick Corp., 558 F.2d 818, 821-22 (6th Cir. 1977)

(describing distinction between “interpreted and construed” and

“governed by” as strained and narrow); Kipin Industries, Inc. v.

Van Deilen Int’l, Inc., 182 F.3d 490, 494 (6th Cir. 1999) (citing

Boatland with approval). See also Hammel v. Ziegler Financing

Corp., 113 Wis. 2d 73, 76 (1983) (describing distinction as “a

trick interpretation or twist on one word”).

Of course, all of these authorities are merely persuasive,

given that the interpretation of the agreement between Access and

Lincoln, including the choice of law provision, is a question of

Pennsylvania law. Nevertheless, the court adopts the approach

embraced by the majority of courts and concludes that the words

employed in the choice of law provision refer only to the

construction and interpretation of the agreement, not the

substantive law that applies to any dispute arising from the

parties’ relationship. 

This is in accord with “the well-settled rule that when

interpreting a contract, a court must construe it as it is written,

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5 In C.A. May Marine Supply Co., the Fifth Circuit case in

tension with more recent decisions, the court discounted this

possibility because it could “conceive of few circumstances where

resort must be had to state law to determine the meaning of

ambiguous terms, but not to impose state substantive law upon the

parties.” 557 F.2d at 1165. Even if there are few circumstances

in which the parties may choose to divide the choice of law

provision across two jurisdictions, the court’s ruling preserves

the freedom for the parties to enter into such arrangements.

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giving effect to the clear language and plain meaning of the

words.” Solomon v. U.S. Healthcare Systems of Pennsylvania, Inc.,

797 A.2d 346, 349 (Pa. Super. 2002). Furthermore, Pennsylvania

“[c]ourts do not assume that a contract's language was chosen

carelessly, nor do they assume that the parties were ignorant of

the meaning of the language they employed.” Murphy v. Duquesne

Univ. of the Holy Ghost, 565 Pa. 571, 591 (2001). This is

particularly the case where, as here, the contracting parties are

both sophisticated commercial entities. Finally, adopting the

narrow meaning of the phrase “interpreted and construed” increases

the number of options available to the contracting parties, because

they may choose to apply one state’s laws to interpret the contract

and another state’s laws to govern disputes between them.5

The question remains as to what law applies in adjudicating

Access’ motion to dismiss in the absence of an effective choice of

law provision. “[G]enerally speaking the forum will apply its own

rule of decision unless a party litigant timely invokes the law of

a foreign state [and] . . . demonstrate[s] that the latter rule of

decision will further the interest of the foreign state and

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6 This analysis involves three steps. Washington Mutual Bank,

24 Cal. 4th at 919-20. First, the court must determine whether the

proposed foreign rule differs from the forum rule. Second, if

there is a difference, the court must determine what interest, if

any, each state has in having its own law applied to the case.

Third, the court must select the law of the state whose interests

would be “more impaired” if its law were not applied.

7 Although it might be plausible to apply Georgia law to the

claims at issue, Access has not requested that the court do so.

Accordingly, the only issue before the court is whether it should

stray from the default application of California law and apply

Pennsylvania law.

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therefore that it is an appropriate one for the forum to apply.”6

Washington Mutual Bank, FA v. Superior Court, 24 Cal. 4th 906, 919

(2001) (internal quotation marks omitted); see also ABF Capital

Corp. v. Grove Props. Co., 126 Cal. App. 4th 204, 215 (2005). 

Here, however, aside from the fact that plaintiff is a

Pennsylvania corporation and that the agreement contains a choice

of law provision specifying Pennsylvania law for purposes of

contract interpretation, Pennsylvania has little or no interest in

the controversy. California’s interest in the controversy is

greater than any Pennsylvania might possess; as noted above with

regard to the motion to remand, the contract’s subject matter

pertains to California. Moreover, plaintiffs' tort claims are

governed by California's unique laws. Furthermore, even if the

injury to plaintiff was not specifically felt in California, the

claim arose from Access’ relationship with California as a licensed

claims adjuster. Accordingly, I conclude California law applies

to all the claims at issue, except insofar as they deal with the

construction or interpretation of the contract.7 

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8 For example, Access argues that Lincoln’s tort claims are

barred by the gist of the action doctrine under Pennsylvania law,

Williams v. Hilton Group, PLC, 261 F. Supp. 2d 324, 327-28 (E.D.

Pa. 2003), but concedes that the doctrine is not recognized in

California.

Access also argues that Lincoln’s claims are barred because

it was not legally obligated to settle the Dias claim and that it

was therefore acting as a volunteer. Access then cites

Pennsylvania law indicating that where an indemnitee settles an

underlying claim without litigation, there is no claim for

indemnification. Again, California law applies, and Access has not

shown that a similar rule exists in California.

9

 The economic loss rule also exists in Pennsylvania. See

Werwinski v. Ford Motor Co., 286 F.3d 661, 671 (3d Cir. 2002)

(interpreting Pennsylvania law).

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2. Claims

In light of the foregoing, the court need not resolve

arguments premised upon Pennsylvania law.8 Instead, the remainder

of this order addresses arguments premised upon California law.

a. Negligence & Negligent Misrepresentation

First, Access argues that the economic loss rule bars

Lincoln’s negligence and negligent misrepresentation claims. Under

California law, purely economic losses due to disappointed

expectations do not constitute cognizable injury.9 See Robinson

Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979, 988 (2004).

“Quite simply, the economic loss rule ‘prevent[s] the law of

contract and the law of tort from dissolving one into the other.’”

Id. If a plaintiff cannot “demonstrate harm above and beyond a

broken contractual promise,” the economic loss rule bars the claim.

Id. If, however, there is an independent duty that the defendant

has breached, the rule does not bar the claim. H ere, two of

Lincoln’s claims -- negligence and negligent misrepresentation --

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10 Lincoln argues that economic damages should be recoverable

because it shared a special relationship with Access that imposed

a heightened duty of care. See Ott v. Alfa-Laval Agri, Inc., 31

Cal. App. 4th 1439, 1448 (1995) (noting that “economic damages,

standing alone, can be recovered under some circumstances in an

action for negligence” where a “special relationship” exists

between the plaintiff and defendant”). Here, however, the factors

for a special relationship are not present: among other things,

there is no indication that Access’ failure to respond to the timelimited demand letter was “intended to affect” Lincoln. Id. at

1455-56 (“The absence of this foundation precludes a finding of

‘special relationship’”).

To the extent that Lincoln relies upon Access’ alleged

intentional concealment of the mishandling of the Dias claim as a

basis for a “special relationship,” the fraud/intentional deceit

claim already alleges a tort, and there is no need for a belt and

suspenders approach. Accordingly, the “special relationship”

factor aimed at preventing future harm is lacking, because the

alleged misconduct is already deterred by existing tort claims.

11 The Claims Service Agreement between the parties provides

that Access shall, among other things, “[i]nvestigate liability,

damages and coverages, evaluate, negotiate claims through

settlement or final disposition,” “[p]repare and file all reports

and handle all claims in accordance with established claims

procedures and state guidelines . . .,” and “[c]oordinate, direct

and manage litigation activity.” Ex. A to Mot. to Dismiss.

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are barred by the economic loss rule.10 The allegations made with

regard to the breach of contract claim closely parallel those made

with regard to the negligence and negligent misrepresentation

claims. For example, in the breach of contract claim, Lincoln

alleges that Access failed to properly investigate liability,

prepare reports, handle claims in accordance with established

claims procedures, and coordinate litigation activity.11 Compl. ¶

21. In the negligence claim, Lincoln alleges that Access failed

to respond to Dias’ demand letter, notify Lincoln of the Dias

claim, and obtain legal counsel to adequately represent Lincoln.

Compl. ¶ 33. In short, the breach of contract claim subsumes the

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12 In its reply, Access introduces the new argument (not

briefed in its motion) that the fraud arose in Pennsylvania

because, pursuant to the parties agreement, Access’ reports were

to be submitted to a computer in Lincoln’s home office. Even if

true, however, this would not negate the possibility that part of

the fraud also arose in California. Just as venue may be

appropriate in more than one district, Rodriguez v. California

Highway Patrol, 89 F. Supp. 2d 1131, 1136 (N.D. Cal. 2000), so too

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negligence and negligent misrepresentation claims.

Although Lincoln correctly notes that the economic loss rule

is applied most often in the context of products liability cases,

it is not confined to this context. See County of Santa Clara v.

Atlantic Richfield, 137 Cal. App. 292, 318 (2006) (economic loss

rule applies generally to negligence cases). Nevertheless,

Lincoln’s remaining claims, including breach of the covenant of

good faith and fair dealing and fraud/intentional deceit, are not

barred by the economic loss rule. See Robinson, 34 Cal. 4th at 989

(noting that claims for fraud, deceit, and breach of good faith and

fair dealing in contract cases are still cognizable despite the

economic loss rule).

b. Fraud and Intentional Deceit

i. Statute of Limitations

Access argues that California’s choice of law with respect to

statutes of limitation is governed by a “borrowing statute,” which

requires adoption of the statute of limitations in the state where

the action arose. Cal. Code Civ. Proc. § 361. It then asserts,

ipse dixit, that the alleged fraud arose in Pennsylvania and would

therefore be subject to Pennsylvania’s two-year statute of

limitation.12 42 Pa. C.S. § 5524(7) (two-year statute of

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might a cause of action arise in more than one forum.

13 Arguably, the fraud might have also partially arisen out of

Georgia, the place where Access administered its claims. Again,

however, no party has requested application of Georgia law and the

burden of applying a foreign jurisdiction’s law rests with the

party who requests it. Washington Mutual Bank, 24 Cal. 4th at 919.

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limitation for fraud). 

Lincoln purported to discover the Dias claim and Access’

alleged fraud “on or about January 28, 2005.” Compl. ¶ 14.

Lincoln then filed its complaint approximately two years and two

months later. Given that Access allegedly concealed information

concerning a California claim, at least part of the fraud could be

said to arise out of California.13 Because California’s statute of

limitations regarding fraud claims is three years, Cal. Code Civ.

Proc. § 338, the court finds that the complaint was timely filed.

ii. Pleading with Particularity

Access next argues that the fraud claim has not been alleged

with particularity because Lincoln has not identified the

individual or individuals who made fraudulent statements. Because

of the nature of the fraud alleged in this case, however, in which

the alleged misconduct stemmed from Access’ purposeful silence, it

would be illogical to demand that Lincoln identify the specific

individuals who perpetrated the fraud.

c. Breach of Contract

Finally, Access maintains that the breach of contract claim

ought to be dismissed because Lincoln was insured with respect to

the Dias claim. Under California law, the collateral source rule,

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14 As noted above, the choice of law provision applying

Pennsylvania law is only relevant to the extent that the court

“interprets” or “construes” the parties’ agreement. In this

section, the court is not interpreting or construing the parties’

agreement. Although the scope of the collateral source rule may

be relevant to the issue of damages for an alleged breach of

contract, the court is not applying contract law for the purposes

of contract interpretation or construction. Accordingly,

California law governs.

15 Access maintains that the court may take judicial notice of

public records related to legal proceedings. Robinson Racheria

Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir.

1992).

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which normally permits suits against wrongdoers even where the

plaintiff has obtained payment through an independent source, does

not apply to contract claims.14 See Plut v. Fireman’s Fund Ins.

Co., 85 Cal. App. 4th 98, 107-09 (2001) (“The overwhelming weight

of authority in California and other jurisdictions has rejected the

extension of the collateral source rule to breach of contract.”);

Bramalea California, Inc. v. Reliable Interiors, Inc., 119 Cal.

App. 4th 468, 472 (2004) (“The collateral source rule, if applied

to an action based on breach of contract, would violate the

contractual damage rule that no one shall profit more from the

breach of an obligation than from its full performance.”) (internal

quotation marks omitted). 

Here, Access has tendered Lincoln’s Corporate Disclosure

Statement and Statement of Financial Interest, filed in a different

but related action between Lincoln and Access.15 In the statement,

Lincoln states that Chubb Reinsurance, Inc. has an interest in the

related action because of “their subrogation rights in connection

with an insurance claim made on behalf of Chubb’s re-insured,

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Lincoln General.” Ex. 3. The document does not state, however,

that Lincoln General was reimbursed in full for the settlement.

Accordingly, while the court might dismiss the breach of

contract claim given that the benefit of the California collateral

source rule does not extend to contract claims, there are

nevertheless potential factual issues that might require discovery.

In an abundance of caution, the court declines to grant the motion

to dismiss with respect to the breach of contract claim.

IV. Conclusion

For the reasons set forth above, the court DENIES the motion

to transfer. The court GRANTS the motion to dismiss with respect

to the negligence and negligent misrepresentation claims and DENIES

the motion to dismiss with respect to the breach of contract,

breach of good faith and fair dealing, and fraud claims.

IT IS SO ORDERED.

DATED: August 29, 2007.

 

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