Court Opinion

ID: 6318638
Source: CourtListenerOpinion
Date Created: 2022-03-01 21:00:30.495465+00
Date Added: 2024-06-11T09:01:37.244176
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        MAR 1 2022
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

LINCOLN BENEFIT LIFE COMPANY,                   No.    21-55152

                Plaintiff-Appellee,             D.C. No.
                                                2:16-cv-09307-MWF-E
 v.

ALEXANDER DALLAL, an individual;                MEMORANDUM*
CLAIRE DALLAL, an individual,

                Defendants-Appellants.

                  Appeal from the United States District Court
                      for the Central District of California
                 Michael W. Fitzgerald, District Judge, Presiding

                     Argued and Submitted February 16, 2022
                              Pasadena, California

Before: OWENS and MILLER, Circuit Judges, and CHRISTENSEN,** District
Judge.

      Defendants-Appellants Alexander Dallal and Claire Dallal (“the Dallals”)

bring this appeal following an adverse jury verdict. The jury awarded Plaintiff-

Appellee Lincoln Benefit Life Company (“Lincoln”) $619,290.49 in compensatory

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
              The Honorable Dana L. Christensen, United States District Judge for
the District of Montana, sitting by designation.
damages and $300,000 in punitive damages. The district court subsequently

resolved several outstanding equitable claims in favor of Lincoln. The Dallals

moved for a new trial, which the district court denied. The Dallals now appeal.

We have jurisdiction pursuant to 28 U.S.C § 1291, and, for the reasons stated

herein, affirm.

      1. We review the district court’s exclusion of Dr. Chow as an expert

witness for an abuse of discretion. Kumho Tire Co., Ltd. v. Carmichael, 526 U.S.

137, 152 (1999). The Dallals’ expert witness disclosure as to Dr. Chow was

untimely and was never accompanied with a report satisfying the requirements of

Federal Rule of Civil Procedure 26(a)(2)(B). On appeal, the Dallals fail to

establish these defects were substantially justified or harmless. See Yeti by Molly,

Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001) (citing Fed. R.

Civ. P. 37(c)(1)). Accordingly, exclusion was well within the district court’s

discretion.

      2. Because the Dallals did not object to the challenged jury instruction, we

review for plain error. Bearchild v. Cobban, 947 F.3d 1130, 1139 (9th Cir. 2020).

To prevail, the Dallals must show: (1) an error; (2) that was plain; (3) which

affected their substantial rights; and (4) “seriously affected the fairness, integrity,

or public reputation of judicial proceedings.” Id. They have not done so here.

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      The parties agree that the three-year statute of limitations found in California

Code of Civil Procedure § 338(d) applies to Lincoln’s claims. This statute

incorporates the “discovery rule” to “fraud actions by statute,” Cansino v. Bank of

Am., 169 Cal. Rptr. 3d 619, 628 (Cal. Ct. App. 2014), providing that any “cause of

action . . . is not deemed to have accrued until the discovery, by the aggrieved

party, of the facts constituting the fraud or mistake,” California Civil Code §

338(d).

      The discovery rule is an “important exception to the general rule of accrual

. . . [and] postpones accrual of a cause of action until the plaintiff discovers, or has

reason to discover, the cause of action.” Fox v. Ethicon Endo-Surgery, Inc., 110

P.3d 914, 920 (Cal. 2005). Under the discovery rule, the statute of limitations does

not begin to run when the last element occurs, but instead at the time the plaintiff

“at least suspects that someone has done something wrong to him.” Norgart v.

Upjohn Co., 981 P.2d 79, 88 (Cal. 1999) (alterations and citation omitted).

      As to the discovery rule, the district court offered the following instruction:

      Lincoln seeks damages for harm that Lincoln claims occurred before
      December 16, 2013, the date that California law recognizes as
      significant under the statute of limitations in this action.

      To recover all of its damages, Lincoln must prove that, before
      December 16, 2013, Lincoln did not know of facts that would have
      caused a reasonable insurance company to suspect that it had suffered
      harm that was caused by someone’s wrongful conduct.

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The Dallals challenge this instruction on two grounds, arguing: (1) that December

16, 2013 is the incorrect accrual date; and (2) the instruction insufficiently

instructed the jury on Lincoln’s obligation to act with reasonable diligence.

Neither contention rises to the level of plain error.

      Lincoln filed suit on December 16, 2016. This means that under the three-

year statute of limitations established by California Code of Civil Procedure

section 338(d), it could only recover for fraudulent claims accruing on or after

December 16, 2013, unless the discovery rule applies. December 16, 2013 is the

controlling date for any statute of limitations defense raised in this case and the

Dallals offer no persuasive argument to the contrary.

      As to the second point, to be sure, California’s discovery rule obligates

injured parties to act reasonably in uncovering injuries and diligently once they

suspect them. Fox, 110 P.3d at 920. The Dallals, however, attempt to contort this

standard into one obligating an insurer to presume it is being defrauded by its

insureds and investigate claims even in the absence of any evidence of

wrongdoing. This is simply not what the discovery rule requires. The jury was

correctly instructed.

      3. We review challenges to a jury’s resolution of a question of fact for

substantial evidence. Mosesian v. Peat, Marwick, Mitchell & Co., 727 F.2d 873,

877 (9th Cir. 1984). Substantial evidence is “evidence adequate to support the

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jury’s conclusion, even if it is also possible to draw a contrary conclusion.”

Harper v. City of L.A., 533 F.3d 1010, 1021 (9th Cir. 2008) (citation omitted). We

do not “weigh the evidence” and instead “simply ask whether the plaintiff has

presented sufficient evidence to support the jury’s conclusion.” Id.

      Here, the jury’s conclusion as to the discovery rule was supported by

substantial evidence. Specifically, at trial the jury was presented with

overwhelming evidence that from 2004 to 2016 the Dallals systematically forged

hundreds of records indicating Mr. Dallal was severely physically and cognitively

incapacitated in order to wrongfully obtain insurance benefits. And during this

period Lincoln did not simply take the Dallals at their word but instead conducted

multiple independent nursing assessments during which Mr. Dallal feigned

incapacity. The jury’s verdict on this issue will remain undisturbed.

      4. We review de novo whether a punitive damages award is excessive.

Cooper Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424, 436, 443 (2001).

The Dallals challenge the punitive damages award under both California law and

the United States Constitution. California law authorizes an award of punitive

damages when a plaintiff establishes by clear and convincing evidence the

defendant engaged in oppression, fraud, or malice. Kaffaga v. Estate of Steinbeck,

938 F.3d 1006, 1015–16 (9th Cir. 2019) (citing Cal. Civ. Code § 3294(a)). But

California law prohibits punitive damage awards that are “excessive as a matter of

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law or raise[] a presumption . . . of passion or prejudice.” Id. at 1018 (quoting

Adams v. Murakami, 813 P.2d 1348, 1350 (Cal. 1991)).

      This state-law excessiveness analysis considers a variety of factors including

the reprehensibility of the defendants’ conduct, the relation between the

compensatory damages awarded and the harm suffered, and the award’s relation to

“the wealth of the particular defendant.” Neal v. Farmers Ins. Exch., 582 P.2d 980,

990 (Cal. 1978). California generally finds punitive damage awards exceeding “10

percent of the” defendant’s net worth excessive. Michelson v. Hamada, 36 Cal.

Rptr. 2d 343, 359 (Cal. Ct. App. 1994).

      The framework under which California reviews punitive damage awards

remains constrained by the Constitution. State Farm Mut. Auto. Ins. Co. v.

Campbell, 538 U.S. 408, 416 (2003). Generally, a punitive damage award is

unconstitutional when it is “grossly excessive or arbitrary,” which requires a

consideration of three factors: “(1) the degree of reprehensibility of the defendant’s

misconduct; (2) the disparity between the actual or potential harm suffered by the

plaintiff and the punitive damages award; and (3) the difference between the

punitive damages awarded by the jury and the civil penalties authorized or

imposed in comparable cases.” Id. at 416, 418.

      In this case, a punitive damages analysis under either California law or the

Constitution compels the same conclusion—the jury’s punitive damages award

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should remain undisturbed. Over the course of nearly a decade, the Dallals

systematically defrauded Lincoln out of hundreds of thousands of dollars in

insurance benefits by forging documents and having Mr. Dallal feign physical and

cognitive incapacity. The jury’s punitive damages award was half of the

compensatory award and a fraction of the Dallals’ $4,000,000 stipulated net worth.

Insurance fraud is serious misconduct, which could be met with both civil and

criminal penalties under California law. Cal. Penal Code § 550(a)(1), (5), (b)(1)–

(3), (c)(1), (3)–(4); Cal. Ins. Code § 1871.7(b). Ultimately, after considering the

requisite factors, we find no basis for disturbing the jury’s punitive damages award

under either California law or the Constitution.

      5. The district court’s equitable cancellation of the Policy is reviewed for an

abuse of discretion. Winding Creek Solar LLC v. Peterman, 932 F.3d 861, 866

(9th Cir. 2019). For equitable relief to issue, the benefiting party must have no

adequate remedy at law and must suffer irreparable injury without it. Morales v.

Trans World Airlines, Inc., 504 U.S. 374, 381 (1992). Voiding contracts on the

basis of fraud has long been considered a proper exercise of equitable power. See

Phoenix Mut. Life Ins. Co. v. Bailey, 80 U.S. 616, 622 (1871); San Diego Flume

Co. v. Souther, 90 F. 164, 167 (9th Cir. 1898).

      The district court did not abuse its discretion in voiding the policy. Its

conclusion that the Dallals’ fraud had irreparably damaged Lincoln’s ability to

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trust them, and that continuance of the policy would require the expenditure of a

disproportionate amount of resources, justifies the use of equitable powers in this

case. And because the parties agree Lincoln has no mechanism to cancel the

Policy absent equity, it lacks an adequate remedy at law. Cf. Mort v. United States,

86 F.3d 890, 892–93 (9th Cir. 1996). Even if the policy separately insured both

Mr. Dallal and Mrs. Dallal does not prevent a total cancellation of the policy

because the evidence established they were both active participants in the

fraudulent scheme. There was no abuse of discretion.

      AFFIRMED.

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