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 Unless otherwise stated, all further references to a 1

“Rule” or “Rules” are to the Federal Rules of Civil Procedure.

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

CLYDE TERRY and ANNE TERRY,

NO. CIV. S 04-2314 MCE GGH

Plaintiffs,

v. MEMORANDUM AND ORDER

THE TRAVELERS INSURANCE CO.,

KENNEL PAK, GENTZLER & SMITH

ASSOCIATES, INC., et al.,

Defendants.

----oo0oo----

Defendants Kennel Pak and Gentzler & Smith Associates, Inc.,

(collectively “Defendants” or “Brokers”) have asked this Court to

dismiss the breach of contract, negligence, fraud, and negligent

misrepresentation claims asserted by Plaintiffs Clyde and Anne

Terry (collectively “Plaintiffs”) pursuant to Federal Rule of

Civil Procedure 12(b)(6). Alternatively, Defendants seek relief 1

under Rules 12(e). Defendants have also asked the Court to

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 Some of the factual allegations as set forth in this 2

section are disputed by the parties. To the extent either party

has interposed objections, those objections are overruled unless

otherwise noted. 

 As alleged by Plaintiffs, Defendants are independent 3

corporations doing business together as an agent of Travelers

Insurance Company (“Travelers”). 

2

strike portions of Plaintiffs’ complaint pursuant to Rule 12(f). 

For the reasons discussed below, Defendants’ motion to dismiss is

GRANTED in part and DENIED in part. Defendants’ motion to strike

is GRANTED in part and DENIED in part, as discussed below.

BACKGROUND2

Plaintiffs are commercial real estate lessors in Dixon,

California. On April 30, 2001, Plaintiffs entered into a written

lease agreement (“the Lease”) with Alan and Karen Levens (“the

Levens”), who run a dog boarding and training business known as

Alan’s Canine Training & Kennel. The Lease required the Levens

to obtain an insurance policy that 1) provided coverage for

liabilities arising out of the Levens’ use of the leased premises

and 2) named Plaintiffs as additional insureds. (Compl. at 4.)

On March 8, 2001, before signing the lease, the Levens

applied to Defendants for the requisite insurance. In response 3

to a question on the insurance application, the Levens indicated

that they planned to conduct “Obed. Schutzhund” training. 

Schutzhund training consists of tracking, obedience, and

protection training for various kinds of dogs. Plaintiffs had no

knowledge of details of the transaction between the Levens and

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 It was later determined that this endorsement only 4

pertained to “completed operations coverage”, i.e., coverage for

liability that arises after the dogs are trained and leave the

facility (meaning that Plaintiffs might have been covered for

training occurring on their property, as required by the lease). 

3

Defendants, other than the fact that it had occurred. (Compl. at

4-5.)

On April 24, 2001, as a result of Defendants’ efforts,

Travelers issued an insurance policy to the Levens, which 1)

covered the Levens for liabilities arising out of their use of

the leased premises, and 2) named Plaintiffs as additional

insureds. Shortly thereafter, on April 30, 2001, Plaintiffs and

the Levens signed the Lease. On May 1, 2001, Defendants issued a

certificate of liability insurance to Plaintiffs on behalf of

Travelers. (Compl. at 5.)

After the lease had been signed, Plaintiffs learned that the

Levens were using the leased premises for Shutzhund training. 

While Plaintiffs knew of the Levens’ kenneling and grooming

activities, which involved some minor obedience training, they

did not realize the Levens were conducting Schutzhund training as

well. On October 30, 2002, Plaintiffs contacted Defendants to

determine whether the insurance policy covered them for liability

related to Schutzhund training. (Compl. at 6.) 

Defendants responded by sending Plaintiffs a letter

indicating that the policy had an endorsement that, in fact, 4

excluded such training. Defendants informed Plaintiffs that

Travelers intended to send a notice of cancellation on November

1, 2002, based on “increased liability exposure” and the fact

that the Levens’ training activities did not meet the

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“underwriting guidelines.” Cancellation was effective January 3,

2003. (Compl. at 6-7.)

On November 27, 2002, Plaintiffs filed suit in state court

against the Levens for, inter alia: 1) breach of the Lease, and

2) misrepresenting the nature of their activities on the leased

premises. In February 2003, Travelers agreed to provide legal

defense services for the Levens. As part of its defense,

Travelers reinstated the insurance policy on July 9, 2003. The

effective date of the policy was established to be January 3,

2003 (the date of the earlier cancellation by Travelers). The

Terry-Levens suit went to trial on July 21, 2003. Based

primarily on the fact that the Levens had an enforceable policy

that met the requirements of the Lease, the court directed a

verdict in favor of the Levens. (Compl. at 7-9.)

In response, Plaintiffs brought suit against Defendants in

federal court, alleging, inter alia, that Defendants did not

fully disclose all of the information in their possession to

Travelers. As a result of Defendants’ failure to disclose,

Travelers issued a policy that did not conform to the

requirements of the Lease. Plaintiffs contend that once they

learned the Levens did not have the proper insurance coverage,

they were forced to file suit against the Levens in state court. 

(Compl. at 14:18-24.) As discussed above, Plaintiffs lost that

suit, incurring over $200,000 in attorney’s fees, which are still

accruing on appeal. Plaintiffs claim they have been forced to

file the present action as a result of Defendants conduct. 

(Compl. at 15, 16, 18, 20.)

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In the present action, Plaintiffs argue that if Defendants

had made a full disclosure of the information in their possession

(which included knowledge of the Levens’ intent to conduct

Shutzhund training), Travelers would never have issued a policy

to the Levens. Plaintiffs speculate that since the Levens would

not have been able to obtain insurance elsewhere, they would have

been without the requisite coverage. Consequently, because the

Levens would have been without insurance, Plaintiffs would never

have signed the lease, which, in turn, means that they would

never have needed to file a law suit to evict the Levens. 

(Compl. at 14:12-24.) Defendants contend that the facts in this

case, as discussed above, do not allow Plaintiffs to state a

claim for breach of contract, negligence, fraud, or negligent

misrepresentation.

 

STANDARD

On a motion to dismiss for failure to state a claim under

Rule 12(b)(6), all allegations of material fact must be accepted

as true and construed in the light most favorable to the

nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336,

337-38 (9th Cir. 1996). A complaint will not be dismissed for

failure to state a claim unless it appears beyond doubt that a

plaintiff can prove no set of facts in support of his [or her]

claim that would entitle him [or her] to relief. Yamaguchi v.

Dep’t of the Air Force, 109 F.3d 1475, 1480 (9th Cir. 1997)

(quoting Lewis v. Tel. Employees Credit Union, 87 F.3d 1537, 1545

(9th Cir. 1996).

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In addressing the federal pleading requirements, the Supreme

Court has found that the statement required under Rule 8(a) must

“simply give the defendant fair notice of what the plaintiff’s

claim is and the grounds upon which it rests. This simplified

notice pleading standard relies on liberal discovery rules and

summary judgement motions to define disputed facts and issues and

to dispose of unmeritorious claims . . . Rule 8(a)’s simplified

pleading standard applies to all civil actions, with limited

exceptions.” Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512

(2002) (citations and quotations omitted).

In contrast to the general pleading requirements, pursuant

to Rule 9(b), “all averments of fraud or mistake, the

circumstances constituting fraud or mistake shall be stated with

particularity . . . ” F.R.C.P. 9(b). A complaint can be

dismissed if it does not comply with Rule 9(b). See Vess v.

Ciba-Geigy Corp. USA, 317 F.3d 1097, 1102 (9th Cir. 2003). 

Under Rule 15(a), when there is no “[u]ndue delay, bad

faith[,] dilatory motive on the part of the movant . . . undue

prejudice to the opposing party by virtue of . . . the amendment,

[or] futility of the amendment,” leave to amend a complaint is to

be “freely given when justice so requires.” Foman v. Davis, 371

U.S. 178, 182 (1962); F.R.C.P. 15(a). Generally, leave to amend

is denied only if it is clear that the deficiencies of the

complaint could not be cured by amendment. Broughton v. Cutter

Labs., 622 F.2d 458, 460 (9th Cir. 1980).

Finally, pursuant to Rule 12(f), “the court may order

stricken from any pleading any insufficient defense or any

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redundant, immaterial, impertinent, or scandalous matter.” Fed.

R. Civ. P. 12(f).

ANALYSIS

 The Court will first address, in Section 1, Defendants’

motion under Rule 12(f) to strike portions of Plaintiffs’

complaint. Then, in Section 2, the Court will address

Defendants’ motion under Rule 12(b)(6) to dismiss particular

claims asserted by Plaintiff.

1. Motion to Strike

Defendants argue that Plaintiffs cannot recover attorneys’

fees, emotional distress damages, or punitive damages. (Mot. to

Dis. at 18:10, 19:5, 19:23.) Defendants have asked the Court to

strike such recovery as immaterial and impertinent. (Mot. to

Dis. at 18:7-9.) 

With respect to punitive damages, the Court finds that they

may be recoverable in this action, should Plaintiffs prevail on

their fraud claim. Cal. Civ. Code § 3294(a) (“where it is proven

by clear and convincing evidence that the defendant has been

guilty of . . . fraud . . . the plaintiff, in addition to the

actual damages, may recover damages for the sake of example and

by way of punishing the defendant.”). Thus, Defendants’ motion

to strike all references to punitive damages in the complaint is

denied.

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As for emotional distress damages, Plaintiffs seek such

recovery as a direct result of Defendants’ alleged fraud and

negligent misrepresentation. (Compl. at 19:2-4, 20:21-23.) 

Under California law, intentional torts, such as fraud, will

support recovery for emotional distress, but only “in cases

involving extreme and outrageous intentional invasions of one’s

mental and emotional tranquility . . . [e.g.,] where a reasonable

[person], normally constituted, would be unable to adequately

cope with the mental stress engendered by the circumstances of

the case.” Molien v. Kaiser Found. Hosp., 27 Cal. 3d 916, 927-28

(1980); Intrieri v. Superior Court, 117 Cal. App. 4th 72, 74

(2004) (finding fraud to be an intentional tort); Cal. Civ. Code

§§ 1709, 3333. Thus, assuming Plaintiffs’ allegations to be

true, Defendants’ motion to strike all references to damages for

emotional distress in relation to Plaintiff’s fraud claim is

denied.

However, under California law, unintentional torts, such as

negligent misrepresentation, will not support recovery for

emotional distress arising from property damage, absent special

circumstances, which are not present in this case as pled. 

Erlich v. Menezes, 21 Cal. 4th 543, 554, 555-56 (1999) (“No

California court has allowed recovery for emotional distress

arising solely out of property damage.”) (citations and

quotations omitted); Friedman v. Merck & Co., 107 Cal. App. 4th

454, 484-85 (2003); Yu v. Signet Bank/Virginia, 69 Cal App. 4th

1337, 1397 (1999) (“in general, a plaintiff incurring neither

physical impact nor physical damage and whose loss (other than

emotional distress) is solely economic, is entitled neither to

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punitive damages nor to a recovery for emotional distress.”)

(quotations and citations omitted); Finch v. Brenda Raceway

Corp., 22 Cal App. 4th 547, 554 (1994) (holding that emotional

distress damages are not recoverable when a negligent

misrepresentation causes only economic injury). 

Here, Plaintiffs seek recovery for emotional distress

engendered by a potential injury to personal property. (Opp’n at

28:27-28, 29:2-5, 29:11-13.) Such recovery is not allowed under

California law. Consequently, Defendants’ motion to strike all

references to damages for emotional distress in relation to

Plaintiffs’ negligent misrepresentation claim is granted. 

Plaintiffs are granted twenty (20) days leave to amend in

accordance with the Court’s ruling.

Finally, with regard to attorneys’ fees as consequential

damages, under the American Rule, parties are expected to

shoulder their own legal fees. Cassim v. Allstate Ins. Co., 33

Cal. 4th 780, 811 (2004); Cal. Civ. Code § 1021. The California

Supreme Court has established some very limited exceptions to

this rule, which are applicable only under special circumstances. 

Cassim, 33 Cal. 4th at 807, 811; Brandt v. Superior Court, 37

Cal. 3d 813, 817, 820, 820 n.8 (1985) (“If you find (1) that the

plaintiff is entitled to recover . . . for breach of the implied

covenant of good faith and fair dealing, and (2) that because of

such breach it was reasonably necessary for the plaintiff to

employ the services of an attorney to collect the benefits due

under the policy, then and only then is the plaintiff entitled to

an award for attorney’s fees.”) (quotations and citations

omitted); Prentice v. N. Am. Title Guar. Corp., 59 Cal. 2d 618,

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620 (1963) (“A person who through the tort of another has been

required to act in the protection of his interests by bringing or

defending an action against a third person is entitled to recover

compensation for . . . attorney’s fees.”); but cf. Davis v. Air

Tech. Indus., Inc., 22 Cal. 3d 1, 7 (1978) (“the Prentice

exception was not meant to apply in every case in which one

party’s wrongdoing causes another to be involved in litigation

with a third party. If applied so broadly, the judicial

exception would eventually swallow the legislative rule that each

party must pay for its own attorney. To avoid this result,

Prentice limits its authorization of fee shifting to cases

involving exceptional circumstances.”) (quotations and citations

omitted). 

Here, the Court finds that Plaintiffs have failed to plead a

valid exception to the American Rule. First, the attorneys’ fees

sought in this case (as well as those sought in the Terry-Levens

lease action) do not qualify as Brandt fees. Brandt, 37 Cal. 3d

at 820 n.8. Second, Plaintiffs have failed to plead exceptional

circumstances analogous to those in Prentice, a false arrest

case, or a malicious prosecution case, where 1) the litigant’s

hand is forced, and 2) he or she required to take legal action in

order to 3) vindicate a particular right. Finally, the Prentice

exception to the American Rule is only applicable in situations

where the proven tort of another required or necessitated

litigation. Reserve Ins. Co. v. Pisciotta, 30 Cal. 3d 800, 801,

817 (1982). Thus, attorneys’ fees, if recoverable at all, will

only be recoverable in the context of tort damages, not contract

damages. Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7

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Cal. 4th 503, 515 (1994) (“[in contract] consequential damages

beyond the expectation of the parties are not recoverable.”)

In consideration of the forgoing, Defendants’ motion to

strike all references to attorneys’ fees as consequential damages

is granted. Plaintiffs are granted twenty (20) days leave to

amend, with respect to their tort causes of action, in accordance

with the Court’s ruling. 

2. Motion to Dismiss

A. The Breach of Contract Claim

To state a cause of action for breach of contract Plaintiff

must allege the following: 1) the existence of a contract, 2)

Plaintiffs’ performance, 3) Defendants’ breach, and 4)

Plaintiffs’ resulting damages. Reichert v. General Ins. Co., 68

Cal. 2d 822, 830 (1968); Careau & Co. v. Sec. Pacific Business

Credit, Inc., 22 Cal. App. 3d 1371, 1388 (1990). In this case,

the second element, Plaintiffs’ performance, is not at issue as

Plaintiffs have asserted their claim as third party

beneficiaries. (Opp’n 11:8-16.)

Under the federal notice pleading standard, the threshold

for successfully pleading a breach of contract claim is extremely

low. Fed R. Civ. P. 8(a); Swierkiewicz, 534 U.S. 506, 510-11,

512 (2002); cf. McGary v. City of Portland, 386 F.3d 1259, 1262

(9th Cir. 2004). Accepting all allegations of fact as true and

construing them in the light most favorable to Plaintiffs, the

Court finds that Plaintiffs have indeed satisfied the pleading

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requirements. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-

38 (9th Cir. 1996). 

First, Plaintiffs have alleged the existence of a contract

under which they have rights as third party beneficiaries. 

On April 30, 2001, Plaintiffs and the Levens signed a written

lease agreement. As a condition of the lease, the Levens were

required to obtain insurance coverage sufficient to insure

Plaintiffs against any liability that might arise from their

activities on the leased property. As a result of these

conditions, Plaintiffs claim that the Levens entered into a

second contract (with Defendants) to obtain the insurance

coverage required by the Terry-Levens lease agreement (Compl. at

14:5-11). Plaintiffs claim that this independent contract

between the Levens and Defendants (to obtain the requisite

insurance coverage) obligated Defendants, as brokers, to 1)

obtain coverage that insured Plaintiffs against liability arising

out of the Levens’ use of Plaintiffs’ land, 2) obtain information

regarding the requested policy and forward that information to

Travelers, and 3) not conceal or fail to disclose pertinent

information to Travelers. Mercury Casualty Co. v. Maloney, 113

Cal. App. 4th 799, 802 (2003) (“A person who is not a party to a

contract may nonetheless have certain rights thereunder, and may

sue to enforce those rights, where the contract is made expressly

for her benefit.”); Johnson v. Holmes Tuttle Lincoln-Merc., 160

Cal. App. 2d 290, 296-97 (1958); Cal. Civ. Code § 1559.

Second, Plaintiffs have specifically alleged a breach of

contract by asserting that Defendants failed to fulfill all of

their obligations under the aforementioned contract. (Compl. at

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14:12-17, 15:3-7.) Defendants’ argument that the contract was

not breached because the requisite coverage was obtained is a

question for summary judgment. See Swierkiewicz, 534 U.S. at

512.

Finally, the Court finds that Plaintiffs have pled specific

damages as a result of Defendants’ alleged contractual breach. 

(Compl. at 14:18-24, 15:8-27.) Furthermore, the Court notes that

the issues of foreseeability and causation, if properly plead,

are questions for summary judgment, not a motion to dismiss. 

Bergerco, U.S.A. v. Shipping Corp. Of India, Ltd., 896 F.2d 1210,

1212 (9th Cir. 1990); Milligan v. Golden Gate Bridge Highway and

Transportation Dist., 120 Cal. App. 4th 1, 9 (2004). 

In light of the liberal notice pleading requirements of Rule

8(a), the Court finds that Plaintiffs have given Defendants fair

notice of their breach of contract claim and the grounds upon

which it rests. Consequently, Defendants’ motion to dismiss

Plaintiffs’ breach of contract claim is denied.

B. The Negligence Claim

To state a cause of action for negligence, Plaintiff must

allege the following: 1) that Defendants owe a duty of care to

Plaintiffs, 2) Defendants breached that duty, 3) legal causation,

and 4) damages. Trujillo v. N. County Transit Dist., 63 Cal.

App. 4th 280, 286-87 (1998); Jones v. Grewe, 189 Cal. App. 3d

950, 954 (1987). 

The threshold for successfully pleading a negligence claim

is extremely low. Fed R. Civ. P. 8(a); Swierkiewicz, 534 U.S.

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Biakanja factors.

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506, 510-11, 512 (2002); cf. McGary v. City of Portland, 386 F.3d

1259, 1262 (9th Cir. 2004). Accepting all allegations of fact as

true and construing them in the light most favorable to

Plaintiffs, the Court finds that Plaintiffs have indeed satisfied

the federal pleading requirements for a negligence claim. Cahill

v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). 

First, the Court finds that Plaintiffs have pled the

existence of a valid duty. (Compl. at 16:7-8.) The California

Supreme Court has set forth factors for determining when a party

to a transaction owes a duty of care to a third party. Biakanja

v. Irving, 49 Cal. 2d 647, 650 (1958) (“The determination whether

in a specific case the defendant will be held liable to a third

person not in privity is a matter of policy and involves the

balancing of various factors, among which [is] the extent to

which the transaction was intended to affect the plaintiff”).

Here, the Court finds that the contract between Defendants

and the Levens was made at the request of Plaintiffs and was

specifically intended to protect Plaintiffs personal interests.5

Thus, the Court finds that, in this particular case, Defendants

owed Plaintiffs a duty of care in obtaining a coverage policy

that insured Plaintiffs against liability arising out of the

Levens’ use of the leased property. 

Second, Plaintiffs have alleged a breach of Defendants’

aforementioned duty of care. Specifically, Plaintiffs claim that

Defendants failed to provide Travelers with the necessary

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information pertaining to the Levens’ dog training activities. 

(Compl. at 16:5-8.)

Finally, Plaintiffs have pled specific damages as a

proximate result of Defendants’ alleged breach of duty. (Compl.

at 16:9-28.) As discussed in Section A above, the Court notes

that whether the requisite coverage was obtained, like the issues

of foreseeability and causation (if properly plead), are

questions for summary judgment, not a motion to dismiss. 

Swierkiewicz, 534 U.S. at 512; Bergerco, U.S.A. v. Shipping Corp.

Of India, Ltd., 896 F.2d 1210, 1212 (9th Cir. 1990); Milligan v.

Golden Gate Bridge Highway and Transportation Dist., 120 Cal.

App. 4th 1, 9 (2004). 

In light of the liberal notice pleading requirements of Rule

8(a), the Court finds that Plaintiffs have properly pled a cause

of action for negligence, thereby giving Defendants fair notice

of Plaintiffs’ claim and the grounds upon which it rests. 

Consequently, Defendants’ motion to dismiss Plaintiffs’

negligence claim is denied.

C. The Fraud Claim

To state a cause of action for fraud, Plaintiff must allege

the following: 1) a misrepresentation of material fact, 2)

knowledge of falsity, 3) intent to deceive and induce reliance,

4) justifiable reliance on the misrepresentation, and 5)

resulting damages. Century Sur. Co. v. Crosby Ins., 124 Cal.

App. 4th 116, 122 (2004). Under the Federal Rules, fraud must be

plead with particularity. Vess v. Ciba-Geigy Corp. USA, 317 F.3d

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1097, 1106 (9th Cir. 2003) (“the circumstances constituting the

alleged fraud [must] be specific enough to give defendants notice

of the particular misconduct . . . so that they can defend

against the charge . . . [a]verments of fraud must be accompanied

by the who, what, when, where, and how of the misconduct

charged.”) (quotations and citations omitted).

Accepting all allegations of fact as true and construing

them in the light most favorable to Plaintiffs, the Court finds

that Plaintiffs have satisfied the federal pleading requirements

for fraud. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38

(9th Cir. 1996). In this case, Plaintiffs have alleged two

fraudulent actions on the part of Defendants. First, an

intentional failure to disclose material information to Travelers

(Compl. at 17:6-13), and second, intentionally issuing a false

and misleading insurance certificate to Plaintiffs (Compl. at

17:14-17). Cal. Civ. Code § 1710. 

The Court finds that the first fraudulent action, as

alleged, is insufficient for Plaintiffs to state a claim against

Defendants. In addition to problems with alleging the requisite

scienter, Plaintiffs never relied on Defendants’ concealment

(from Travelers) of material information – they relied on the

results of that alleged fraud, i.e., the policy. City of

Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68

Cal. App. 4th 445, 482, 482 n.34 (1998) (“It is essential . . .

that the person complaining of fraud actually have relied on the

alleged fraud, and suffered damages as a result.”). In essence,

Plaintiffs have stated a cause of action for Travelers, not

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themselves, with regard to the first action. See, e.g., Century,

124 Cal. App. 4th 116 (2004).

However, the allegations as to the second action satisfy the

federal pleading requirements for fraud. Having alleged

misrepresentation (via the document), scienter, and intent

(Compl. at 17:14-17), as well as reliance (Compl. at 17:20-21)

and damages (Compl. at 19:2-9.), Plaintiffs’ allegations are

sufficiently definite and substantive to state a cause of action

against Defendants for fraud. Vess, 317 F.3d at 1106. 

Consequently, Defendants’ motion to dismiss Plaintiff fraud claim

is denied.

D. The Negligent Misrepresentation Claim

To state a cause of action for negligent misrepresentation,

Plaintiff must allege the following: 1) a false statement of a

material fact that Defendant honestly believed to be true, but

made without reasonable grounds for such belief, 2) the statement

was made with the intent to induce reliance, 3) reasonable

reliance, and 4) damages. Century, 124 Cal. App. 4th at 129;

Cicone v. URS Corp., 183 Cal App. 3d 194, 208, 211 (1986).

Though the threshold for successfully pleading a negligent

misrepresentation claim is very low, Plaintiffs allegations are

insufficient to state such a claim. Fed R. Civ. P. 8(a);

Swierkiewicz, 534 U.S. 506, 510-11, 512 (2002); cf. McGary v.

City of Portland, 386 F.3d 1259, 1262 (9th Cir. 2004). Cahill v.

Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996).

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Plaintiffs negligent misrepresentation claim is based on two

alleged actions by Defendants, which are essentially the same

actions alleged in the fraud claim. First, a negligent

concealment involving Travelers (Compl. at 19:14-21), and second,

a negligent misrepresentation (the certificate of insurance) to

Plaintiffs (Compl. at 19:21-26). As discussed in Section C

above, the alleged concealment will not support a claim by

Plaintiffs against Defendants for lack of the appropriate

scienter and reliance. City of Atascadero, 68 Cal. App. 4th at

482, 482 n.34 (“the person complaining of fraud [must] have

relied on the alleged fraud”). 

As for Plaintiffs alleged negligent misrepresentation, the

Court finds that Plaintiffs have failed to fully satisfy the

requirements for stating such a claim. (Opp’n at 24:19-20.) 

Specifically, Plaintiffs have failed to allege that Defendants’

misrepresentation was “made without reasonable grounds” for

believing the statement to be true. Cicone, 183 Cal App. 3d at

208. The Court finds this element of the claim to be

particularly important. If Defendants were in fact negligent (as

opposed to intentional) in their transactions with Travelers,

then, conceivably, they would have a very reasonable basis for

believing the certificate of insurance was valid, e.g.,

reasonable mistake or oversight. Plaintiffs must allege

otherwise in order to state a claim for negligent

misrepresentation. 

The Court finds that Plaintiffs have failed to allege the

required elements of a negligent misrepresentation claim. 

Consequently, Defendants’ motion to dismiss Plaintiffs’ negligent

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misrepresentation claim is granted. Plaintiffs are granted

twenty (20) days leave to amend in accordance with this Court’s

ruling. 

CONCLUSION

For the aforementioned reasons, Defendants’ motion to

dismiss is GRANTED in part and DENIED in part. Defendants’

motion to strike is also GRANTED in part and DENIED in part. 

Plaintiffs are granted twenty (20) days leave to amend in

accordance with this order. 

IT IS SO ORDERED.

DATED: April 27, 2005

__________________________________

MORRISON C. ENGLAND, JR

UNITED STATES DISTRICT JUDGE

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