Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-02252/USCOURTS-cand-3_07-cv-02252-6/pdf.json

Parties Involved:
The Commissioner of the California Department of Insurance
Defendant
The Prudential Insurance Company of America
Defendant
Brian Williams
Plaintiff

Document Text:

United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

BRIAN WILLIAMS, D.C.,

Plaintiff,

 v.

THE PRUDENTIAL INSURANCE

COMPANY OF AMERICA, THE

COMMISSIONER OF THE CALIFORNIA

DEPARTMENT OF INSURANCE, and DOES

1–50, inclusive,

Defendants. /

No. C 07-02252 WHA

ORDER GRANTING

DEFENDANT’S MOTION TO

DISMISS

INTRODUCTION

In this disability-benefits action, defendant Prudential Insurance Company of America

moves to dismiss plaintiff’s fraud claim from the first amended complaint. For the reasons

stated below, Prudential’s motion to dismiss is GRANTED.

STATEMENT

Defendant Prudential is a corporation organized under the laws of New Jersey and its

principal place of business is in New Jersey. Plaintiff Brian Williams is a California resident. 

In 2000, plaintiff was a chiropractor and owned his own chiropractor business. As a member

of NCMIC Group, Inc., he purchased and was insured under Prudential’s Long Term Disability

Plan No. DG-91639-IA. In October 2003, he stopped working because of a degenerative disc

disease in his lumbar spine and shoulder area, bilateral AC (shoulder), arthrosis, lumbalgia,

sleeping problems, and severe pain. He returned to work and tried to work part-time,

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United States District Court

For the Northern District of California

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which caused further pain and injury. He submitted a claim for disability benefits with

Prudential on February 1, 2004. Plaintiff claimed that, “[t]hroughout the period of his disability,

plaintiff performed all obligations required of him by the POLICY. Plaintiff intended and

expected thereby to be assured of peace of mind and financial and economic security as a result

of PRUDENTIAL’S obligations to plaintiff under the POLICY herein at issue” (Compl. at ¶¶ 5,

8–12). Nothing else was stated in the complaint as to what occurred between plaintiff’s

submission of the claim in February 2004 and when plaintiff spoke to Prudential employee

Nancy Pichette, a senior appeals analyst, in July 2005.

On July 25, 2005, Ms. Pichette told plaintiff that if he disagreed with Prudential’s

termination of disability benefits, he should appeal under the Employee Income Retirement

Security Act. For reasons not stated in the complaint, neither the policy nor his appeal rights

under the policy, however, were governed by ERISA. On March 8, 2006, Ms. Pichette then

told plaintiff that self-reported symptoms had a limited-benefits pay period of 24 months. 

Prudential denied by letter plaintiff’s disability claim for disability benefits on March 8, 2006,

claiming plaintiff was not disabled (id. at ¶¶ 13–16).

In the original complaint, plaintiff asserted six claims against defendants Prudential and

the Commissioner of the California Department of Insurance. Prudential moved to dismiss

claims three through six. Plaintiff did not oppose claims four through six, which were therefore

dismissed by the Court with prejudice. The Court dismissed the Commissioner from the case

because claims five and six were the only claims alleged against Commissioner (Aug. 3 Order

at 2). 

There were three alleged misrepresentations with respect to the third claim. 

First, Ms. Pichette erroneously informed plaintiff that the policy and plaintiff’s appeal rights

were governed by ERISA, which caused plaintiff to defer filing suit. The August 3 order held

that plaintiff had failed to assert with particularity how he was damaged by the ERISA

misrepresentation. Second, Ms. Pichette told plaintiff that he would be entitled to receive

benefits only when Prudential determined that plaintiff was disabled, in contravention of

California law. The August 3 order found that the pleading remained problematic because the

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complaint failed to allege detrimental reliance. With respect to the third misrepresentation,

plaintiff stated that he would not pursue the allegation. The order granted Prudential’s motion

to dismiss and gave plaintiff leave to amend the misrepresentation claim.

Plaintiff filed his amended complaint on August 17. As in the original complaint,

Mr. Williams alleged breach of contract, breach of the covenant of good faith and fair dealing,

and intentional misrepresentation (Amd. Compl. ¶¶ 4–47). He sought special damages for

failure to provide benefits under the insurance contract, general damages for mental and

emotional distress and other incidental damages, punitive and exemplary damages, costs of suit,

reasonable attorney’s fees, and other special damages. The amount in controversy exceeded

$75,000. On September 17, 2007, Prudential moved to dismiss plaintiff’s fraud claim in his

amended complaint on grounds that plaintiff failed to state a claim upon which relief could be

granted.

ANALYSIS

A motion to dismiss under Rule 12(b)(6) tests for the legal sufficiency of the claims

alleged in the complaint. See Parks Sch. of Business v. Symington, 51 F.3d 1480, 1484 (9th Cir.

1995). All material allegations of the complaint are taken as true and construed in the light

most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 340 (9th

Cir. 1996). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need

detailed factual allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment]

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

of a cause of action will not do. Factual allegations must be enough to raise a right to relief

above the speculative level.” Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1255, 1264–65 (2007)

(citations omitted).

In California, the elements of a claim for intentional misrepresentation are:

(i) misrepresentation; (ii) knowledge of falsity; (iii) intent to defraud (i.e., to induce reliance);

(iv) justifiable reliance; and (v) resulting damage. Conrad v. Bank of Am., 45 Cal. App. 4th

133, 156 (1996). Rule 9(b) requires that the circumstances constituting fraud be alleged

“with particularity.”

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In his amended complaint, plaintiff alleges that Prudential made three

misrepresentations concerning the policy — that the policy and plaintiff’s appeal rights under

the policy were governed by ERISA, that disabilities due to self-reported symptoms had a

limited pay period of 24 months under the policy, and that Mr. Williams would be considered

disabled when Prudential determined that he was disabled. Prudential argues that the claim for

intentional misrepresentation should be dismissed without leave to amend because plaintiff has

not and cannot adequately allege damages resulting from any of the alleged misrepresentations.

1. HAS PLAINTIFF PROPERLY ALLEGED DAMAGES?

Damage is an essential element of a fraud claim. See Cal. Civ. Code. 1709, 45 Cal. App.

4th at 156. Plaintiff was granted leave to amend to assert with “particularity” how he was

damaged by the ERISA misrepresentation. In his amended complaint, plaintiff claimed that the

misrepresentations caused him to delay filing suit and the receipt of disability benefits. 

Consequently, these delays “caused Dr. Williams severe emotional distress, and the loss of

interest on and use of said sums [i.e., disability-insurance benefits]” (Compl. ¶ 42).

Prudential claims that plaintiff has still failed to meet the pleading requirements —

neither the loss of disability benefits plus interest nor the resultant emotional distress can

support the damages element of the fraud claim or so it is argued. Emotional distress damages

generally cannot be recovered for fraud in the execution of a contract, unless the fraud caused

pecuniary damage. See Harlow v. American Equitable Assur. Co. of New York, 87 Cal. App.

28, 31–32 (1927). See also, Abbot v. Stevens, 133 Cal. App. 2d 242, 247 (1955) (“Fraudulent

representations which work no damage cannot give rise to an action at law, and an allegation of

a definite amount of damage is essential to stating a cause of action”) (citation omitted). 

While it is true that emotional distress does not constitute pecuniary loss, it would be

recoverable if it were predicated on a pecuniary loss.

The primary issue is whether plaintiff properly pled pecuniary damages aside from those

he could collect under the breach-of-contract claims. With respect to the fraud claim, the only

pecuniary damages alleged by plaintiff were lost disability-insurance benefits and the loss of

interest on and use of these sums (Compl. ¶ 42). Plaintiff argues that the loss of interest is

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enough to sustain a fraud claim. That is not the case. Defendant concedes that interest would

be recoverable if plaintiff were to prevail on the breach-of-contract claims. See Cal. Code of

Civ. Procedure Section 3287(a). Lost interest therefore cannot serve as a damage item for fraud

purposes. Because there are no other pecuniary items alleged, the fraud claim must be

dismissed with leave to amend.

2. HAS PLAINTIFF PROPERLY ALLEGED DETRIMENTAL RELIANCE?

With respect to the alleged misrepresentation regarding plaintiff’s entitlement to benefits

only when defendant deemed him disabled, plaintiff conceded that the elements of fraud were

not adequately pled in the original complaint. The original complaint had failed to allege

detrimental reliance. The Court granted leave to amend this allegation. In his amended

complaint, plaintiff alleged (Compl. at ¶ 42):

Plaintiff Brian Williams, D.C. detrimentally relied on the aforesaid

misrepresentations as follows. In relying on the aforesaid

misrepresentations, Plaintiff believed that his only recourse was to

pursue Defendant PRUDENTIAL’S internal appeals process. 

Plaintiff prepared his appeal documents, and copied relevant

supporting exhibits. Months passed, and a denial followed. 

PRUDENTIAL offered subsequent appeal processes. For each of

those appeals, Plaintiff again prepared appeal documents, and

again copied supporting exhibits. While all of the appeals were

being made and considered, Plaintiff was deterred from filing suit,

and delayed from obtaining a recovery against PRUDENTIAL. 

These further delays in not having his disability insurance benefits,

caused Dr. Williams severe emotional distress, and the loss of

interest on and use of said sums. PRUDENTIAL misrepresenting

the effect of the terms of the policy under California and Federal

Law, that only PRUDENTIAL had the right to determine whether

Dr. Williams was disabled, caused Dr. Williams to delay filing suit

for many months, instead of following PRUDENTIAL’S internal

appeal process. PRUDENTIAL misrepresenting the effect of the

terms of the policy under California and Federal Law, that selfreported symptoms reduced his benefits to 24 months, robbed Dr.

Williams of the peace of mind that his disability benefits safety net

would protect him and instead was an illusion, caused Dr.

Williams severe emotional distress. Dr. Williams worried he

would not have the financial ability to survive, and would become

destitute.

In its moving papers and reply, Prudential did not address the detrimental-reliance issue. 

In taking all material allegations of the complaint as true and construing them in the light most

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favorable to the nonmoving party (Mr. Williams), this order finds that plaintiff alleged with

particularity the detrimental reliance element of the fraud claim. 

CONCLUSION

Because this order finds that plaintiff failed to allege with sufficient particularity the

damages element of the fraud claim, defendant’s motion to dismiss the fraud claim is hereby

GRANTED. Plaintiff may file a motion seeking leave to amend in which he explains how the

aforementioned problem has been cured, appending a copy of the proposed pleading.

IT IS SO ORDERED.

Dated: November 13, 2007. 

WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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