Case 2:22-cv-02548-ODW-MAR Document 25 Filed 12/29/22 Page 1 of 10 Page ID #:1452

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8 United States District Court 9 Central District of California

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11 WILD CHANG et al., Case № 2:22-cv-02548-ODW (MARx)

12 Plaintiffs,

ORDER GRANTING MOTION TO

13 v.

DISMISS [13]

14 FARMERS INSURANCE COMPANY, INC. et al., 15

Defendants. 16

17 18 I. INTRODUCTION 19 On April 15, 2022, Plaintiffs Wild Chang Sr., Wild Chang Jr., and Kenneth Lo, 20 proceeding pro se, filed this action in federal court against Defendants Farmers 21 Insurance Company, Inc. (“Farmers Insurance”), Fire Insurance Exchange (“Fire 22 Insurance”), Woolls Peer Dollinger & Scher (“Woolls Peer”), and Stacy Chern. 23 (Compl., ECF No. 1.) Plaintiffs allege that Defendants violated the Racketeer 24 Influenced and Corrupt Organizations Act (“RICO”), including by fraudulently 25 attempting to shield Farmers Insurance from liability under an insurance policy. (Id.) 26 Defendants now move to dismiss Plaintiffs’ Complaint under Federal Rule of Civil 27 28 Case 2:22-cv-02548-ODW-MAR Document 25 Filed 12/29/22 Page 2 of 10 Page ID #:1453

1 Procedure (“Rule”) 12(b)(6). (Mot. Dismiss (“Mot.” or “Motion”), ECF No. 13.) For 2 the following reasons, the Court GRANTS Defendants’ Motion.1 3 II. BACKGROUND 4 In resolving a Rule 12(b)(6) motion, the Court takes Plaintiffs’ well-pleaded 5 factual allegations as true. Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 6 2001). In addition, the Court may consider Plaintiffs’ exhibits to the Complaint. See 7 United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (“A court may . . . consider 8 certain materials—documents attached to the complaint, documents incorporated by 9 reference in the complaint, or matters of judicial notice—without converting [a] 10 motion to dismiss into a motion for summary judgment.”). However, the Court “need 11 not . . . accept as true allegations that contradict matters properly subject to judicial 12 notice or by exhibit.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 13 2001). 14 Farmers Insurance is a corporation engaged in providing property insurance. 15 (Compl. ¶ 12; id. Ex. 13 (“Giles Declaration” or “Giles Decl.”) ¶¶ 15–16.) Fire 16 Insurance is an inter-insurance exchange that sells insurance policies nationwide 17 through contracted insurance agents. (Giles Decl. ¶¶ 4–6.) Chern is an agent 18 authorized to sell insurance products on behalf of Fire Insurance and other Farmers 19 Insurance companies. (Compl. ¶ 14; id. Ex. 14 (“Chern Declaration” or “Chern 20 Decl.”) ¶ 3.) 21 On April 29, 2014, Chang Sr. and Lo purchased an insurance policy while 22 refinancing a property in Rowland Heights, California (“Property”). (Compl. ¶¶ 26, 23 33, 77.) At the time of their purchase, Chang Sr. and Lo understood the insurer for 24 this policy to be Farmers Insurance. (Id.) 25 On December 16, 2014, Chang Sr. entered the crawlspace underneath the 26 Property’s foundation and used a lighter and bug spray to attempt to kill spiders, 27

28 1 Having carefully considered the papers filed in connection with the Motion, the Court deemed the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15.

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1 causing an accidental structural fire that damaged the Property. (Id. ¶¶ 35, 38, 40; id. 2 Ex. 6 (“Fire Report & Arson Investigation”).) Plaintiffs filed an insurance claim for 3 damages related to the fire. (Compl. ¶ 35.) 4 On March 17, 2015, after Plaintiffs requested a copy of their insurance policy, 5 Fire Exchange mailed Plaintiffs a copy of the policy, which was “disguised” as an 6 insurance policy from Farmers Insurance. (Id. ¶¶ 35–36, 78; id. Ex. 5 (“Policy”).) 7 The Policy named only Lo as an insured for the Property. (Policy 512.) Later that 8 year, Plaintiffs received a notice of non-renewal that informed Plaintiffs that their 9 insurance coverage for the Property would end on January 30, 2016. (See Compl. 10 ¶ 42; id. Ex. 7 (“Notice of Non-Renewal”).) 11 While awaiting a decision on their insurance claim, Chang Sr. and his son, 12 Chang Jr., lived in a detached building located on the Property and slept on air 13 mattresses. (Compl. ¶¶ 40, 63–64; id. Ex. 29 (“Temporary Housing Denial”).) 14 During this time, Chang Sr. suffered a stroke, which Chang Jr. witnessed, resulting in 15 emotional distress. (Compl. ¶ 64.) Following this incident, Chang Sr. was confined to 16 a wheelchair and unable to swallow food for a period of several months. (Id.) 17 In January and February of 2016, Plaintiffs’ counsel communicated with Fire 18 Insurance’s claim counsel regarding the status of Plaintiffs’ insurance claim and the 19 ongoing investigation into the claim. (See id. ¶¶ 43–44; id. Exs. 8–9 (“Claim Counsel 20 Communications”).) On February 22, 2016, Fire Insurance’s claim counsel informed 21 Plaintiffs’ counsel that Fire Insurance would approve payment to repair the Property’s 22 structure, but would not cover additional living expenses for Chang Sr. and Chang Jr., 23 who were not listed as named insureds on the Policy. (Compl. ¶ 45; see id. Ex. 10 24 (“Claim Decision”).) 25 On February 16, 2017, Chang Sr. and Lo filed a complaint in Los Angeles 26 Superior Court against Farmers Insurance, Fire Insurance, and Chern, seeking relief 27

28 2 When citing a particular page in Plaintiffs’ exhibits to the Complaint, the Court cites the pagination found in the CM/ECF header.

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1 for “conventional breach of contract,” “related bad faith,” and tort causes of action.3 2 (Compl. ¶ 48; Defs.’ Req. Judicial Notice ISO Mot. (“RJN”) Ex. 1 (“State Court 3 Complaint” or “State Ct. Compl.”), ECF No. 13-1. ) Defendants are represented by 4 Woolls Peer in this state action. (Compl. ¶¶ 48–60.) On January 26, 2018, the state 5 court dismissed, with prejudice, Farmers Insurance as a defendant. (Id. ¶ 49.) On 6 July 19, 2021, Plaintiffs amended the State Court Complaint to, as relevant here, 7 allege fraud as a cause of action and add Woolls Peer as a defendant. (RJN Ex. 2 8 (“Third Am. State Court Compl.”).) The defendants demurred, and the state court 9 sustained the demurrer in its entirety, allowing Plaintiffs leave to amend only the sixth 10 cause of action for emotional distress. (See RJN Ex. 3 (“Notice of Ruling on 11 Demurrer”).) 12 Plaintiffs then brought this civil RICO action in federal court under the theory 13 that Defendants conspired to fraudulently convert Plaintiffs’ policy with Farmers 14 Insurance into a policy with Fire Insurance and to shield Farmers Insurance from 15 liability under the Policy. (Compl. ¶¶ 69–98.) Plaintiffs’ RICO action is organized 16 into three counts alleging RICO violations. (Id.) Defendants now move to dismiss on 17 the basis that Plaintiffs’ RICO claim is (1) time-barred to the extent it is based on 18 unreimbursed costs and damages from the fire; and (2) premature to the extent it is 19 based on damages in the form of attorneys’ fees and costs incurred in the underlying 20 state court action. (Mot. 7–9.) 21 III. LEGAL STANDARD 22 A court may dismiss a complaint under Rule 12(b)(6) “based on the lack of a 23 cognizable legal theory or the absence of sufficient facts alleged under a cognizable 24 legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). 25 To survive a motion to dismiss, a complaint need only satisfy “the minimal notice 26

3 The Court grants Defendants’ Request for Judicial Notice and takes judicial notice of Defendants’ 27 Exhibits 1 through 5 as related filings in a state court case. See Burbank-Glendale-Pasadena Airport 28 Auth. v. City of Burbank, 136 F.3d 1360, 1364 (9th Cir. 1998) (taking judicial notice of related court filings).

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1 pleading requirements of Rule 8(a)(2)”—“a short and plain statement of the claim.” 2 Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003) (quoting Fed. R. Civ. P. 8(a)(2)). 3 However, the “[f]actual allegations must be enough to raise a right to relief above the 4 speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). That is, the 5 complaint must “contain sufficient factual matter, accepted as true, to state a claim to 6 relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 7 (internal quotation marks omitted). 8 The determination of whether a complaint satisfies the plausibility standard is a 9 “context-specific task that requires the reviewing court to draw on its judicial 10 experience and common sense.” Id. at 679. In making that determination, a court is 11 generally limited to the pleadings and must construe “[a]ll factual allegations set forth 12 in the complaint . . . as true and . . . in the light most favorable” to the plaintiff. Lee, 13 250 F.3d at 679 (9th Cir. 2001) (internal quotation marks omitted) (quoting Epstein v. 14 Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996)). Although a court must view 15 these allegations in the light most favorable to the nonmoving party, it is not required 16 to blindly accept “allegations that are merely conclusory, unwarranted deductions of 17 fact, or unreasonable inferences.” Sprewell, 266 F.3d at 988. 18 Where a district court grants a motion to dismiss, it should provide leave to 19 amend unless it is clear the complaint could not be saved by any amendment. See 20 Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). 21 IV. DISCUSSION 22 Defendants seek dismissal of Plaintiffs’ RICO claim or, alternatively, a stay of 23 this action until the state court action is resolved. (Mot. 4.) Defendants argue that 24 Plaintiffs’ claim is time-barred if the underlying injury relates to the handling of 25 Plaintiffs’ insurance claims.4 (Id. 7–8.) Defendants also argue that Plaintiffs’ claim is 26 27 4 Regardless of whether Plaintiffs’ alleged injuries are sufficient to sustain a civil RICO claim, the 28 Court considers the injuries as alleged to determine if Plaintiffs’ claim falls outside the statute of limitations.

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1 premature to the extent it amounts to a malicious prosecution claim based on Woolls 2 Peer’s conduct in the state court proceedings.5 (Id. 8–9.) 3 “To state a civil RICO claim, plaintiffs must allege (1) conduct (2) of an 4 enterprise (3) through a pattern (4) of racketeering activity (5) causing injury to 5 plaintiffs’ business or property.” Ove v. Gwinn, 264 F.3d 817, 825 (9th Cir. 2001) 6 (internal quotation marks omitted) (citing 18 U.S.C. § 1964(c)). “The statute of 7 limitations for civil RICO actions is four years.” Pincay v. Andrews, 238 F.3d 1106, 8 1108 (9th Cir. 2001) (citing Agency Holding Corp. v. Malley–Duff & Assocs., Inc., 9 483 U.S. 143, 156 (1987)). Courts in the Ninth Circuit “have continuously followed 10 the ‘injury discovery’ statute of limitations rule for civil RICO claims.” Id. (citing 11 Grimmett v. Brown, 75 F.3d 506, 511 (9th Cir. 1996)). The injury discovery rule 12 provides that “the civil RICO limitations period begins to run when a plaintiff knows 13 or should know of the injury that underlies [the] cause of action.” Grimmett, 75 F.3d 14 at 510. However, “[t]he plaintiff need not discover that the injury is part of a ‘pattern 15 of racketeering’ for the period to begin to run.” Id. Moreover, a “plaintiff is deemed 16 to have had constructive knowledge if it had enough information to warrant an 17 investigation which, if reasonably diligent, would have led to discovery of the fraud.” 18 Pincay, 238 F.3d at 1110 (quoting Beneficial Standard Life Ins. Co. v. Madariaga, 851 19 F.2d 271, 275 (9th Cir. 1988)). 20 Here, Plaintiffs’ RICO claim is premised on the theory that Defendants worked 21 in concert to shield Farmers Insurance from liability, including by fraudulently 22 converting the insurance policy that Plaintiffs allege they purchased from Farmers 23 Insurance into a policy with Fire Insurance and by fraudulently litigating the state 24 court case. (Compl. ¶¶ 69–98.) In alleging that Defendants’ conduct constitutes a 25 5 The Court does not reach this argument because it finds that Plaintiffs’ claim, as alleged, is 26 time-barred under the statute of limitations for a civil RICO claim. To the extent Plaintiffs seek to recover for attorneys’ fees and costs incurred during the state court litigation, Plaintiffs’ allegations 27 make clear that they knew of those injuries in January 2018. (See Compl. ¶ 79 (alleging Defendants 28 fraudulently litigated the state court case in January 2018).)

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1 pattern of racketeering activity, Plaintiffs identify three specific acts of racketeering. 2 (Id. ¶¶ 76–79.) First, Plaintiffs allege that, on April 29, 2014, their purchase of 3 insurance coverage was fraudulently executed as a policy with Fire Insurance, rather 4 than Farmers Insurance. (Id. ¶ 77.) Second, Plaintiffs allege that the Policy, which 5 was “disguised” as an insurance policy from Farmers Insurance, was fraudulently 6 provided to Plaintiffs on March 17, 2015. (Id. ¶¶ 36, 78.) Third, Plaintiffs allege that 7 Defendants fraudulently litigated the state court case in January 2018 to dismiss 8 Farmers Insurance as a defendant. (Id. ¶¶ 49, 79.) 9 Assuming for the sake of argument that these three acts are sufficient to sustain 10 a RICO claim, they also indicate that Plaintiffs were on notice of the facts underlying 11 the alleged fraud more than four years before filing this case. As to the second act of 12 alleged racketeering, on March 17, 2015, Plaintiffs received a copy of the Policy, 13 which identified both “Fire Insurance Exchange” and “Farmers Insurance Group” in 14 the header on the Policy’s first page. (Policy 51.) In addition, the Policy included a 15 notice “sent on behalf of the Farmers Insurance Group of Companies, whose members 16 include, but are not limited to: . . . Fire Insurance Exchange [and] Farmers Insurance 17 Company, Inc.” (Id. at 86.) Thus, the Policy was not disguised as an insurance policy 18 from Farmers Insurance, but rather, it indicated on its face that it was a product of Fire 19 Insurance and Farmers Insurance. (See generally Policy.) 20 Plaintiffs’ subsequent communications with Farmers Insurance and Fire 21 Insurance concerning Plaintiffs’ insurance claim provided further notice of the facts 22 underlying the alleged fraud. For example, Plaintiffs received the Notice of 23 Non-Renewal dated November 19, 2015. (Notice of Non-Renewal.) Although the 24 notice was signed by Farmers Insurance, it expressly stated that the Policy is 25 “Underwritten By Fire Insurance Exchange.” (Id.) Further, in January and February 26 of 2016, Plaintiffs’ counsel communicated with Fire Insurance’s claim counsel 27 regarding Plaintiffs’ insurance claim. (See Claim Counsel Communications.) Thus, 28 after receiving the Policy and communicating with Fire Insurance’s agents and

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1 representatives, Plaintiffs had sufficient information to warrant an investigation into 2 the relationship between Fire Insurance and Farmers Insurance, which would have led 3 Plaintiffs to discover the fraud they now allege. See Pincay, 238 F.3d at 1110. 4 Plaintiffs therefore had constructive notice of the fraud in 2015 or 2016, yet waited six 5 years to file their RICO action in April 2022. (See Compl.) 6 Moreover, Plaintiffs’ allegations and information subject to judicial notice 7 make clear that Plaintiffs learned of the injuries underlying their RICO action more 8 than four years before filing the Complaint. Plaintiffs allege that they suffered 9 damages in the form of the denial of benefits under the Policy and related physical and 10 emotional injuries. (See Compl. ¶¶ 63–67.) However, on February 16, 2017, 11 Plaintiffs filed the State Court Complaint against Farmers Insurance, Fire Insurance, 12 and Chern, seeking to recover for damages suffered as a result of Defendants’ 13 handling of Plaintiffs’ insurance claim. (See generally State Ct. Compl.) Thus, it is 14 clear that Plaintiffs knew of these injuries by February 16, 2017. (Id.) Regardless of 15 whether Plaintiffs understood any injury to be part of a pattern of racketeering, the 16 statute of limitations began to run with Plaintiffs’ notice of the injury itself. Grimmett, 17 75 F.3d at 510. 18 To the extent that Plaintiffs seek damages in the form of attorneys’ fees and 19 costs in litigating the state court action, (see Compl. ¶ 68), a RICO claim based on 20 those injuries would also be time-barred. In the third act of racketeering, Plaintiffs 21 allege that Defendants fraudulently litigated the state court case in January 2018 to 22 dismiss Farmers Insurance as a defendant. (Id. ¶ 79.) Thus, it is clear that Plaintiffs 23 knew of their alleged injuries in January 2018, but they did not file the Complaint 24 until more than four years later. (See Compl.) Accordingly, Plaintiffs’ RICO claim is 25 time-barred. 26 Plaintiffs’ arguments to the contrary fail. Plaintiffs allege that they were not 27 aware of Defendants’ RICO violations until “[r]ecently,” after they came across news 28 headlines and “realized” that the RICO violations in those cases were “similar” to the

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1 activities involved here. (Compl. ¶¶ 3, 32.) However, as discussed above, Plaintiffs 2 “need not discover that the injury is part of a ‘pattern of racketeering’ for the period to 3 begin to run.” Grimmett, 75 F.3d at 510 (quoting McCool v. Strata Oil Co., 972 F.2d 4 1452, 1464–65 (7th Cir. 1992)). Instead, the period “begins to run when a plaintiff 5 knows or should know of the injury that underlies [the] cause of action.” See id. 510– 6 11. For the reasons discussed above, Plaintiffs knew of their injury more than four 7 years before filing the Complaint, regardless of when Plaintiffs may have discovered a 8 broader pattern of racketeering. 9 Plaintiffs also argue that Defendants’ RICO violations are ongoing and, thus, 10 subject to the separate accrual rule.6 (Opp’n 13, ECF No. 20.) “The separate accrual 11 rule ‘provides that a new cause of action accrues for each new and independent injury, 12 even if the RICO violation causing the injury happened more than four years before.’” 13 Hunter v. Union Corp., 94 F.3d 651 (9th Cir. 1996). For the separate accrual rule to 14 apply, a plaintiff must identify a “new overt act[]” within the limitations period, which 15 must (1) “be a new and independent act that is not merely a reaffirmation of a 16 previous act;” and (2) “inflict new and accumulating injury on the plaintiff.” 17 Grimmett 75 F.3d at 512–13 (internal emphasis omitted). Here, however, Plaintiffs 18 fail to identify which, if any, of Defendants’ acts constitutes a new overt act inflicting 19 a new injury within the limitations period. (See generally Opp’n.; see also Compl.) 20 Accordingly, the Court finds that Plaintiffs failed to timely bring their RICO 21 claim within the four-year limitations period, and the claim is thus time-barred. 22 However, the Court provides Plaintiffs leave to amend to allege additional facts in 23 support of the application of the separate accrual doctrine. 24 /// 25 /// 26 /// 27

28 6 Defendants did not file a reply or otherwise respond to Plaintiffs’ cursory invocation of the separate accrual rule.

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1 Vv. CONCLUSION 2 For the reasons discussed above, the Court GRANTS Defendants’ Motion to 3 || Dismiss, with leave to amend as described above. (ECF No. 13.) If Plaintiffs choose 4|| to amend, their First Amended Complaint is due no later than twenty-one (21) days 5 || from the date of this Order, in which case Defendants shall answer or otherwise 6 || respond within fourteen (14) days of the filing. If Plaintiffs do not amend, then the 7 || dismissal of Plaintiffs’ claim shall be deemed a dismissal with prejudice as of the 8 | lapse of Plaintiffs’ deadline to amend. 10 IT IS SO ORDERED. 1] 12 December 29, 2022 ss 13 wx i Gud lliid 15 OTIS D. WRIGHT, II 6 UNITED STATES DISTRICT JUDGE

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