Summary
declining to consider declarations submitted in support of opposition to motion to dismiss
Summary of this case from Signal Mut. Indem. Ass'n, Ltd. v. Dignity HealthOpinion
No. CIV. S-06-0957 WBS KJM.
September 26, 2006
MEMORANDUM AND ORDER RE: MOTION TO DISMISS
Currently before the court is defendants' motion to dismiss all defendants other than Fidelity and Deposit Company of Maryland ("FD") for failure to state a claim for breach of contract. For the following reasons, the court grants defendants' motion.
I. Factual Background
Plaintiff International Union of Operating Engineers, Local Union No. 3 ("Local 3") is a labor organization and a California unincorporated association located in Sacramento, California. (First Am. Compl. ¶ 1.) Plaintiff John Bonilla is the business manager of Local 3. (Id.) On July 1, 2002, Local 3 entered into a labor organization bond, or insuring agreement, with FD, a copy of which is attached to the complaint. (Id. Attach. 1 (Bond).) No other defendants signed the bond. (Id.) The names "Zurich North America" and "Zurich FD" appear in facsimile banners that indicate entities to whom a copy of the bond was faxed. (Id.)
On August 22, 2005, Local 3 filed suit against Donald Doser, a former employee of the organization. (Id.; see also Pls.' Opp'n to Mot. to Dismiss 3.) Doser had allegedly committed a number of tortious acts that constituted a breach of his fiduciary duty to Local 3, including changing employment policies to his own financial benefit, unilaterally granting himself several wage increases, and converting the corporation's funds to his personal use. (Id. ¶ 4.) Local 3 provided defendant Zurich with notice of this suit, supporting documentation of its losses, and a proof of loss form in order to file a claim for reimbursement for these losses under the insurance bond. (Id. ¶¶ 8-13.)
After learning that there was a limitation on the time period in which a lawsuit could be filed for claims made under the bond (Pls.' Opp'n 3), plaintiffs filed suit against Zurich North America, Surety and Financial Claims; Zurich American Insurance Company; Zurich North American Insurance Company; American Zurich Insurance Company; and Zurich North America; plaintiffs did not name defendant FD. (Compl.) Defense attorney Calvin Whang informed plaintiffs that defendant FD was the insurer who had issued the bond, not the defendants named in the complaint. (Pls.' Opp'n to Mot. to Dismiss 4.) Plaintiffs subsequently conducted a corporate records search of defendant FD and now contend that FD is related to the other defendants. (Id.) In their first amended complaint, plaintiffs allege that defendants failed to perform under the terms of the insurance contract because they did not compensate plaintiffs for the losses they incurred as a result of Doser's actions, pay the claim they submitted, and/or indemnify plaintiffs on this claim. (First Am. Compl. ¶ 21.) Plaintiffs additionally allege that:
Defendants Zurich of North America, Surety and Financial Claims; Zurich American Insurance Company; Zurich North American Insurance Company; American Zurich Insurance Company; Zurich North America; Fidelity and Deposit Company of Maryland; FD Financial Services and the Zurich North America Companies [] are corporations, subsidiaries of corporations, parent corporations, partners and/or other organizational classifications licensed to conduct the business of issuing fidelity bonds. . . .
(Id. ¶ 2.) Further, plaintiffs allege that "each defendant is the agent and/or partner of the other and each were acting in the course and scope of said agency and/or partnership." (Id.)
Defendants now move to dismiss as against all defendants except for defendant FD, contending that FD was the only underwriter of the bond and that all other defendants therefore cannot be sued for breach of the insurance contract.
II. Discussion
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). The court may not dismiss for failure to state a claim unless "it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Van Buskirk v. CNN, Inc., 284 F.3d 977, 980 (9th Cir. 2002). On a motion to dismiss, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the pleader.Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Cruz v. Beto, 405 U.S. 319 (1972).
However, "[t]he court does not accept as true conclusory legal allegations cast in the form of factual allegations," or unwarranted inferences. County of Marin v. Martha Co., No. 06-0200, 2006 WL 2586967, at *3 (N.D. Cal. Sept. 8, 2006) (citingW. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981))). In particular, the court is not "required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint." Steckman v. Hart Brewing Inc., 143 F.3d 1293, 1295 (9th Cir. 1998). Dismissal of the complaint is appropriate where the pleader fails to allege facts that support a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988); see also Conley v. Gibson, 355 U.S. 41, 47 (1957) (complaint must "give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests").
A. Consideration of Evidence External to the Complaint
When deciding a motion to dismiss, a court may not ordinarily consider material other than the facts alleged in the complaint.Anderson v. Angelone, 86 F.3d 932, 934 (9th Cir. 1996) ("A motion to dismiss . . . must be treated as a motion for summary judgment . . . if either party . . . submits materials outside the pleadings in support or opposition to the motion, and if the district court relies on those materials."). "A court may, however, consider certain materials — documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice — without converting the motion to dismiss into a motion for summary judgment." United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (citations omitted).
Because plaintiffs have attached the bond at issue here to their complaint, the court may consider it for the purposes of this motion to dismiss. Plaintiffs have additionally attached declarations from Phillip A. Mastagni and Will M. Yamata to their opposition to this motion to dismiss, and defendants object to these declarations as improper evidence that should not be before the court on a motion to dismiss. (See Defs.' Reply Attachs. 1 2.) The court will not consider the declarations or attached evidence in the form of correspondence with defendants. These are not documents incorporated by reference in the complaint, nor are they facts of which the court may take judicial notice. See Richie, 342 F.3d at 908. Accordingly, the court cannot consider such evidence "without converting the motion to dismiss into a motion for summary judgment," id., and does not consider such an action to be appropriate here.
B. Liability for Breach of Contract
As a general matter, a non-party, or nonsignatory, to a contract is not liable for a breach of that contract. See, e.g., Britton v. Co-op Banking Group, 4 F.3d 742, 744 (9th Cir. 1993) (noting that a "contractual right may not be invoked by one who is not a party to the agreement"); Henry v. Assoc. Indem. Corp., 217 Cal. App. 3d 1405, 1416-17 (1990) (determining that where "[t]here was no direct contractual relationship between [the parties]," there was no basis from which "a breach of contract action could properly spring . . ." (citingGruenberg v. Aetna Ins. Co., 9 Cal. 3d 566 (1973))); Egan v. Mutual of Omaha Insurance Company, 24 Cal. 3d 809, 824 (1979) (concluding that, when two insurance agents who were not parties to an insurance contract were sued for a breach of the covenant of good faith and fair dealing on that contract, "[b]ecause the only ground for imposing liability on either [agent] is breach of that promise, the judgments against them as individuals cannot stand . . .").
Notwithstanding the above, plaintiffs contend that defendants could be liable under the terms of the bond if they werereinsurers who undertook an obligation to insure plaintiffs after the original bond was signed. "Insurance Code section 620 defines reinsurance as a `contract . . . by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance.'" Stanford W. Ascherman v. Gen. Reinsurance Corp., 183 Cal. App. 3d 307, 311 (1986) (citations omitted). "A reinsurance contract is presumed to be a contract of indemnity for the benefit of the insurance company; the original insured has no interest in it." Id. In other words, because the insured is not a party to the reinsurance contract, the insured cannot recover directly against the reinsurer.
There is some indication that a reinsurance contract with a cut-through endorsement provision may allow the insured to recover from the reinsurer directly. See Prudential Reinsurance Co. v. Superior Court, 3 Cal. 4th 1118, 1155 (1992) (Kline, J., dissenting) (noting that an insured cannot sue a reinsurer "absent a cut-through endorsement" provision in the contract). However, the plaintiff has not alleged that there was a reinsurance contract or a cut-through endorsement provision, and the only contract attached to the complaint and referenced therein is the one between plaintiffs and defendant FD. Thus, plaintiffs' argument that the non-FD defendants may be liable for breach of reinsurance contracts fails because the absence of allegations in the complaint, along with conclusory arguments that contradict the actual contract and allegations in the complaint, suggest that plaintiffs have not stated a claim on which relief can be granted upon that theory. See Steckman, 143 F.3d at 1295.
Alternatively, plaintiffs allege in their complaint that the non-FD defendants are agents and/or partners of defendant FD. "Under California law, an insurance agent cannot be held liable for breach of contract or breach of the implied covenant of good faith and fair dealing because he is not a party to the insurance contract." Minnesota Mut. Life Ins. Co. v. Ensley, 174 F.3d 977, 981 (9th Cir. 1999) (citing Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566 (1973); Henry v. Assoc. Indemnity Corp., 217 Cal. App. 3d 1405, 1416-17 (1990)). Therefore, it does not appear that the non-FD defendants can be liable for breach of contract as agents of defendant FD.
However, under certain circumstances, a partner to a contracting party may be liable for breach of the contract. A partner who enjoys the fruits of the contract and acquiesces to being bound by the acts of its partner may be liable for breach of contract. See DeSantis v. Miller Petroleum Co., 29 Cal. App. 2d 679, 683-84 (1938) (finding that a partner was not liable for breach of contract "when the third party has notice that the partner endeavoring to bind the partnership does not have authority to do so . . ."). There is no factual basis in the complaint or in the bond agreement, however, to support plaintiff's bald assertion that the non FD defendants were partners of FD.
The court need not accept plaintiffs' allegations of a partnership between the non-FD defendants as true. They are not factual allegations that would support the application of California law to find liability, but legal conclusions the court need not credit on a motion to dismiss. See Clegg v. Cult Awareness Network, 18 F.3d 752, 755 (9th Cir. 1994) ("[T]he court is not required to accept legal conclusions cast in the form of factual allegations if those conclusions cannot reasonably be drawn from the facts alleged."). With only these conclusory allegations as a basis for their breach of contract claim, plaintiffs have failed to state a claim against defendants other than the defendant FD, and the complaint must be dismissed as against them. See Malviya v. City of San Jose, No. 05-5427, 2006 WL 2529511, at *3 (N.D. Cal. Aug. 31, 2006) (granting a motion to dismiss when the plaintiff made "`[b]ald assertions and conclusions of law,' without factual allegations giving rise to any inference" that the defendants violated the plaintiff's rights); Nuevo Mundo Holdings v. Pricewaterhouse Coopers LLP, No. 03-613, 2004 WL 112948, at *6 (S.D.N.Y. Jan. 22, 2004) (finding the plaintiffs' "conclusory allegations that [certain defendants] were `agents' of [other defendants], because they represented themselves as part of defendants . . ." insufficient to state a claim); Sever v. Glickman, 298 F. Supp. 2d 267, 272 (D. Conn. 2004) (dismissing a breach of contract claim against one defendant when the complaint contained only conclusory allegations that the defendant "arranged" the contract between the parties and was authorized to do so, and no supporting factual allegations).
Finally, the court must determine whether to grant plaintiffs leave to amend the complaint to cure these fatal defects. This is because, when granting a motion to dismiss, a "district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995)). The court cannot say with certainty that the defects in the complaint are incurable, and therefore grants plaintiff leave to amend the complaint.
IT IS THEREFORE ORDERED that defendants' motion to dismiss all defendants except defendant Fidelity and Deposit Company of Maryland be, and the same hereby is, GRANTED. Plaintiffs are given 30 days from the date of this order to file an amended complaint consistent with this order.