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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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6 IMMOBILIARE, LLC, a California Limited 1:19-cv-00680-LJO-SKO Liability Company, 7 MEMORANDUM DECISION AND Plaintiff, ORDER GRANTING CROSS- 8 DEFENDANT’S MOTION TO DISMISS v. UNDER RULES 9(b) and 12(b)(6). 9 (ECF NO. 13)

WESTCOR LAND TITLE INSURANCE

10 COMPANY, a South Carolina Corporation, and DOES 1-50, 11 Defendants. 12

WESTCOR LAND TITLE INSURANCE

13 COMPANY, a South Carolina Corporation,

14 Cross-Complainant,

15 v.

16 IMMOBILIARE, LLC, a California Limited Liability Company; CORPORATE AMERICA 17 LENDING, INC., a California Corporation, and

ROES 1-20,

18 Cross-Defendants. 19

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I. PRELIMINARY STATEMENT TO PARTIES AND COUNSEL

21 Judges in the Eastern District of California carry the heaviest caseloads in the nation, and this

22 Court is unable to devote inordinate time and resources to individual cases and matters. Given the

23 shortage of district judges and staff, this Court addresses only the arguments, evidence, and matters

24 necessary to reach the decision in this order. The parties and counsel are encouraged to contact the

25 2 accommodate the parties and this action. The parties are required to reconsider consent to conduct all

3 further proceedings before a Magistrate Judge, whose schedules are far more realistic and

4 accommodating to parties than that of any District Judge in the Eastern District of California, who must

5 prioritize criminal and older civil cases.

6 Civil trials in the Eastern District of California trail until the District Judge becomes available

7 and are subject to suspension mid-trial to accommodate criminal matters. Civil trials are no longer reset

8 to a later date if the District Judge is unavailable on the original date set for trial.

9 II. INTRODUCTION

10 After Defendant Westcor Land Title Insurance Company (“Westcor”) removed this action 11 brought by Plaintiff Immobiliare, LLC1 (“Immobiliare”) in the Fresno Superior Court to this Court

12 based on diversity jurisdiction, Westcor filed a Cross-Complaint against Immobiliare and Corporate

13 American Lending, Inc. (“CAL”) (collectively, “Cross-Defendants”) on June 7, 2019. ECF No. 1, Exh.

14 A; id. No. 8. The Cross-Complaint asserts four causes of action: (1) fraudulent concealment, (2) breach

15 of implied covenant of good faith and fair dealing, (3) declaratory relief, and (4) rescission. ECF No. 8.

16 In response, CAL brought the instant Motion to Dismiss (the “Motion”) the Cross-Complaint under

17 Federal Rule of Civil Procedure 9(b) and 12(b)(3) as to the first, third, and fourth causes of action on

18 August 1. Id. No. 13. Westcor, however, stipulated with CAL to dismiss its third and fourth cross-

19 claims on August 21, leaving only the first cross-claim for fraudulent concealment to be subject to this

20 Motion. Id. No. 15. Westcor then filed its Opposition on August 21, id. No. 16, and CAL replied on

21 August 29, id. No. 17.

22 Pursuant to Local Rule 230(g), the Court finds this matter suitable for a decision on the papers.

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25 1 Immobiliare is a company that has only one corporate member. ECF No. 8 ¶ 3. 2 law, the Court GRANTS the Motion.

3 III. BACKGROUND

4 The following facts are drawn from the Cross-Complaint and are accepted as true only for the

5 purposes of this Motion. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). This entire action

6 originates from Immobiliare’s purchase of a parking lot property (the “parking lot”) located in the City

7 of Fresno and owned by Cedar Avenue Professional Offices Owners Association (“Cedar”) through a

8 tax sale for $11,322 on April 28, 2015. ECF No. 8 ¶¶ 7, 10. Cedar was unaware of the tax sale had

9 taken place because the notice of the sale was sent to an incorrect address. Id. ¶ 10.

10 Cedar subsequently learned about the tax sale, and its attorney sent a letter to Immobiliare on

11 July 30, 2015 “advising [Immobiliare] of the situation and offering to buy back” the parking lot, and if

12 Immobiliare refused, Cedar threatened to demand arbitration to resolve their dispute pursuant to a

13 documents for conditions, covenants and restrictions, which ran with the land and had been recorded in

14 the Fresno County Recorder’s Office. Id. ¶¶ 8, 12, 14. Immobiliare, through its agent CAL, “placed an

15 order with Tax Title Services (‘TTS’) for title insurance” on the same day Cedar sent its letter. Id. ¶¶

16 15-16. When Immobiliare, through its agent CAL, submitted an application for title insurance four

17 months later, it misrepresented that the parking lot was vacant when it was actually being used, and that

18 it had not been made aware or advised of any threat of legal action regarding the validity of ownership

19 of the parking lot. Id. ¶¶ 14, 16. Based on the misrepresentations, Westcor, in February 2016, “issued a

20 title policy to Immobiliare with policy limits of $11,322 – the amount Immobiliare paid” for the parking

21 lot. Id. ¶ 18, 42-45.

22 Because Immobiliare refused to resell the parking lot back to Cedar, Cedar filed a petition for

23 rescission of sale of property pursuant to improperly noticed tax sale (the “petition for rescission”) on

24 April 28, 2016. Id. ¶¶ 14, 22, 29. The Fresno County Tax Collector contacted Immobiliare about the

25 petition for rescission sometime shortly after April 28, then again in May and on June 9, 2016. Id. ¶ 23, 2 Immobiliare sought, through its agent CAL, for policy limits increases twice to $150,000 then again to

3 $485,000, which Westcor approved on April 15 and June 20, 2016, respectively. Id. ¶¶ 20-21, 30, 32.

4 Westcor claims that Cross-Defendants knew about both the potential legal challenge to the ownership of

5 the parking lot when Immobiliare applied for title insurance and the petition for rescission when it

6 sought to increase its policy limits. Id. ¶¶ 14-32, 41.

7 On July 12, 2016, Fresno County Board of Supervisors (the “Board”) held a hearing on whether

8 to rescind the tax sale of the parking lot in which Immobiliare appeared and participated. Id. ¶ 33. After

9 the hearing, the Board rescinded the tax sale and returned Immobiliare’s $11,793 payment. Id. ¶ 34. On

10 August 4, Immobiliare filed with Westcor “a false claim for policy benefits in the amount of $485,000

11 based on the rescission of the tax sale” stating that it “had no knowledge of any claim or the Petition

12 prior to the day before [the July 12, 2016] hearing.” Id. ¶ 35 (internal quotation marks omitted).

13 Westcor proceeded to investigate Immobiliare’s claim only to discover the fraudulent concealment, so it

14 brought the instant cross-action after Immobiliare had filed the original action to recover on the title

15 insurance. Id. ¶¶ 36-37.

16 IV. LEGAL STANDARD

17 A motion to dismiss under Rule 12(b)(6) challenges the legal sufficiency of the opposing party’s

18 pleadings. Dismissal of an action under Rule 12(b)(6) is proper where there is either a “lack of a

19 cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.”

20 Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). When considering a motion to

21 dismiss for failure to state a claim under Rule 12(b)(6), “[a]ll factual allegations in the complaint are

22 accepted as true, and the pleadings construed in the light most favorable to the nonmoving party.” Doe I

23 v. Nestle USA, Inc., 766 F.3d 1013, 1018 (9th Cir. 2014) (internal quotation marks and citation omitted).

24 “In reviewing the sufficiency of a complaint, [courts are limited] to the complaint itself and its attached

25 exhibits, documents incorporated by reference, and matters properly subject to judicial notice.” In re 2 Rule 8(a)(2) requires a complaint to provides “only ‘a short and plain statement of the claim

3 showing that the pleader is entitled to relief’ in order to ‘give the defendant fair notice of what the . . .

4 claim is and the grounds upon which it rests.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)

5 (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A sufficiently pled claim “does not need detailed

6 factual allegations [but] a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’

7 requires more than labels and conclusions, and a formulaic recitation of the element of a cause of action

8 will not do.” Id. (citations omitted).

9 A claim is sufficiently pled when it is “plausible on its face,” meaning that there are enough facts

10 alleged to “allow[ ] the court to draw the reasonable inference that the defendant is liable for the

11 misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). This determination is “a context-

12 specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id.

13 at 679. A claim which is possible, but which is not supported by enough facts to “nudge [it] across the

14 line from conceivable to plausible . . . must be dismissed.” Twombly, 550 U.S. at 570. Rule 8 does not

15 “unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Ashcroft, 556

16 U.S. at 678-79.

17 V. ANALYSIS

18 CAL seeks to dismiss the remaining claim for fraudulent concealment on three grounds. First, it

19 contends that Westcor has failed to allege what duty it owed to Westcor to disclose the concealed

20 information. ECF No. 13 at 7-9. Second, Westcor has failed to allege the identity of the CAL employee

21 who committed the fraudulent concealment as required by Federal Rule of Civil Procedure 9(b). Id. at

22 7. Third, Westcor has failed to allege that CAL knew and how it knew about the concealed information.

23 Id.

24 Rule 9(b) requires a party alleging fraud to “state with particularity the circumstances

25 constituting fraud.” Fed. R. Civ. P. 9(b). “[W]hile a federal court will examine state law to determine 2 requirement that the circumstances of the fraud must be stated with particularity is a federally imposed

3 rule.” Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) (internal quotation marks and

4 citation omitted). “Averments of fraud must be accompanied by ‘the who, what, when, where, and how’

5 of the misconduct charged. ‘[A] plaintiff must set forth more than the neutral facts necessary to identify

6 the transaction. The plaintiff must set forth what is false or misleading about a statement, and why it is

7 false.’” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (citations omitted).

8 “[A]llegations of fraud must be specific enough to give defendants notice of the particular misconduct

9 which is alleged to constitute the fraud charged so that they can defend against the charge and not just

10 deny that they have done anything wrong.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007)

11 (citation omitted).

12 Under California law, “[o]ne who assumes to act as an agent is responsible to third persons as a

13 principal for his acts in the course of his agency . . . [¶] [w]hen his acts are wrongful in their nature.”

14 Civ. Code § 2343 (emphasis added). “Stated another way, the fact that the principal becomes liable

15 under the rules of vicarious liability or otherwise does not exonerate an agent from liability for a tortious

16 act committed by the agent while acting under the authority of the principal,” but “in contrast to the

17 vicarious liability of principals, agents are not vicariously liable for the torts of their principals.”

18 Peredia v. HR Mobile Servs., Inc., 25 Cal. App. 5th 680, 692 (2018). As applied here, Westcor must

19 allege with particularity that CAL committed the fraudulent concealment independent of its principal

20 Immobiliare’s misconduct; facts showing that Immobiliare committed fraudulent concealment do not

21 vicariously implicate CAL, nor do they satisfy the particularity requirement of Rule 9(b).

22 A. First Cause of Action for Fraudulent Concealment

23 Fraudulent concealment is one of the four forms of fraud recognized under California law. Finch

24 Aerospace Corp. v. City of San Diego, 8 Cal. App. 5th 1248, 1252-53 (2017) (citation omitted). “The

25 elements of fraudulent concealment are: (1) the defendant concealed or suppressed a material fact; (2) 2 concealed or suppressed the fact with the intent to defraud the plaintiff; (4) the plaintiff was unaware of

3 the fact and would not have acted as he did if he had known of the concealed or suppressed fact; and (5)

4 as a result of the concealment or suppression of the fact, the plaintiff sustained damage. [Citation.]”

5 Burch v. CertainTeed Corporation, 34 Cal. App. 5th 341, 348 (2019) (emphasis added). The Court

6 begins with the preliminary element of duty to disclose.

7 1. CAL’s Duty to Disclose

8 “To maintain a cause of action for fraud through nondisclosure or concealment of facts, there

9 must be allegations demonstrating that the defendant was under a legal duty to disclose those facts.” Los

10 Angeles Memorial Coliseum Com. v. Insomniac, Inc., 233 Cal. App. 4th 803, 831 (2015) (emphasis

11 added). There are four circumstances under which that duty arises: “(1) when the defendant is in a

12 fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material

13 facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the

14 plaintiff; and (4) when the defendant makes partial representations but also suppresses some material

15 facts. The latter three circumstances presuppose[ ] the existence of some other relationship between the

16 plaintiff and defendant in which a duty to disclose can arise. This relationship has been described as a

17 ‘transaction,’ such as that between seller and buyer, employer and prospective employee, doctor and

18 patient, or parties entering into any kind of contractual arrangement.” Burch, 34 Cal. App. 5th at 349-50

19 (internal quotation marks and citations omitted) (emphasis added).

20 Here, Westcor’s fraudulent concealment claim is premised on two circumstances: (1) that CAL

21 had exclusive knowledge of material facts not known to Westcor and (2) that CAL was actively

22 concealing material facts from Westcor. ECF No. 8 ¶¶ 42-43. However, to establish liability for

23 fraudulent concealment against CAL under either of these two circumstances, Westcor must plead facts

24 to demonstrate the existence of some transactional relationship between it and CAL in which CAL had a

25 duty to disclose. Bigler-Engler v. Breg, Inc., 7 Cal. App. 5th 276, 312 (2017) (“a duty to disclose arises 2 Where, as here, a sufficient relationship or transaction does not exist, no duty to disclose arises even

3 when the defendant speaks.”). While the alleged facts show that Immobiliare had a duty to disclose to

4 Westcor under the then-extant contractual relationship between them, there are no facts show that CAL

5 had a contractual relationship with Westcor or the existence of any other transactional relationship that

6 would give rise to a duty to disclose to Westcor the concealed information. See ECF No. 8. Thus,

7 Westcor has failed to allege sufficiently the element of duty.

8 In opposition, Westcor seems to misinterpret California Civil Code § 2343 (“Section 2343”) to

9 argue that CAL had a duty to third parties as an agent to disclose information that Immobiliare was

10 concealing. ECF No. 16 at 14. Section 2343 simply states that “an agent is responsible to third persons”

11 when “his acts are wrongful in their nature.” Westcor is still required by Rule 9(b) to plead sufficiently

12 the wrongful act, namely the fraudulent concealment, that CAL committed. By failing to allege

13 sufficiently the element of duty to disclose, Westcor has failed to state a plausible claim for fraudulent

14 concealment.

15 Westcor then cites to various California cases discussing liability for affirmative

16 misrepresentation in support of its theory of liability based on omissive misrepresentation (or fraudulent

17 concealment). ECF No. 16 at 14 (citing Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon &

18 Gladstone, 107 Cal. App. 4th 54 (2003); Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th

19 503, 512 (1994)). Westcor appears to misunderstand the different forms of fraud under California and

20 how each form requires a different set of elements. “California law generally recognizes four forms of

21 deceit: intentional misrepresentation, negligent misrepresentation, concealment, and failure to perform a

22 promise.” Finch Aerospace, 8 Cal. App. 5th at 1252-53. “[Deceit] may be negative as well as

23 affirmative; it may consist of suppression of that which it is one’s duty to declare as well as of the

24 declaration of that which is false.” Jones v. ConocoPhillips Co., 198 Cal. App. 4th 1187, 1198 (2011)

25 (internal quotation marks and citation omitted) (emphasis added). “[A] cause of action for 2 Orsi, 15 Cal. App. 5th 1089, 1102 (2017) (citation omitted). While a claim for fraudulent concealment

3 requires a duty to disclose, a claim for affirmative misrepresentation does not. See, e.g., Cansino v.

4 Bank of America 224 Cal. App. 4th 1462, 1469 (2014) (setting out the elements for affirmative

5 misrepresentation in which a duty to disclose is not required); Burch, 34 Cal. App. 5th at 348 (providing

6 the elements for fraudulent concealment where allegations of a duty to disclose is required). Because

7 Westcor is asserting a claim for fraudulent concealment, the cases it cites concerning affirmative

8 misrepresentation is inapplicable here. Westcor is required to allege the element of duty to disclose,

9 which it has failed to do here as discussed above.

10 2. Rule 9(b)’s Particularity Requirement of “Who”

11 “Where fraud has allegedly been perpetrated by a corporation, moreover, plaintiffs must allege

12 the names of the employees or agents who purportedly made the fraudulent representations or

13 omissions, or at a minimum identify them by their titles and/or job responsibilities.” UMG Recordings,

14 Inc. v. Glob. Eagle Entm’t, Inc., 117 F. Supp. 3d 1092, 1108 (C.D. Cal. 2015) (citing United States ex

15 rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1051 (9th Cir. 2001)).

16 As CAL correctly argues, ECF No. 13 at 7; id. No. 17 at 4, even though CAL is a corporate

17 cross-defendant, Westcor has failed to identify the CAL’s employee who committed the fraudulent

18 concealment as required by Rule 9(b), ECF No. 8. “As such, [CAL] is hindered in its ability to

19 adequately defend against the accusation through the testimony of the [CAL’s] employees involved.”

20 Garrison v. Oracle Corp., 159 F. Supp. 3d 1044, 1075 (N.D. Cal. 2016). Accordingly, Westcor has

21 failed to satisfy the particularity requirement of “who” under Rule 9(b).

22 3. CAL’s Knowledge of the Concealed Information

23 CAL also takes issue with the first element of knowledge. ECF No. 13 at 7. It contends that

24 Westcor has failed to allege sufficient facts to show that it knew and how it knew about the concealed

25 information. Id. The Court disagrees. 2 set out sufficient factual matter from which a defendant’s knowledge of a fraud might reasonably be

3 inferred.” United States ex rel. Anita Silingo v. WellPoint, Inc., 904 F.3d 667, 679-80 (9th Cir. 2018).

4 Notwithstanding, “Rule 9(b) may be relaxed with respect to matters within the opposing party’s

5 knowledge. In such situations, plaintiffs cannot be expected to have personal knowledge of the relevant

6 facts.” Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993).

7 Here, Westcor alleges that “Cross-Defendants intentionally and fraudulently concealed the

8 Concealed Facts from TTS and Westcor” and “intended for Westcor to rely on its fraudulent

9 concealment” of material facts. ECF No. 8 ¶¶ 42, 44. Reading these allegations in light most favorable

10 to Westcor, the Court finds that Westcor has alleged sufficiently and generally the element of knowledge

11 under Rule 9(b)—that is, to intend to conceal a material fact, CAL must necessarily have had knowledge

12 of the concealed information.

13 CAL then cites to and misconstrues Swartz, 476 F.3d 756, for the proposition that when there are

14 multiple defendants involved in a fraud scheme, a plaintiff must always allege fraud against each

15 defendant separately. ECF No. 13 at 6-7. Based on this, CAL contends that Westcor must separately

16 allege that CAL and Immobiliare had knowledge of the concealed information and cannot lump their

17 knowledge together as “Cross-Defendants.” Id. This argument is unavailing. Correctly read, Swartz

18 stands for the proposition that “[i]n the context of a fraud suit involving multiple defendants, a plaintiff

19 must, at a minimum, identif[y] the role of [each] defendant[ ] in the alleged fraudulent scheme.” Swartz,

20 476 F.3d at 764. Here, Westcor has satisfied this minimum requirement by alleging that Immobiliare

21 was the purchaser of the title insurance and that CAL was the agent who helped with the purchase. ECF

22 No. 8 ¶¶ 14-16.

23 Furthermore, Swartz was later clarified by the Ninth Circuit in United States ex rel. Anita Silingo

24 v. WellPoint, Inc. (“WellPoint”), 904 F.3d 667 (2018), in which it held that where several defendants are

25 sued in connection with an alleged fraudulent scheme, “a complaint need not distinguish between 2 fraudulent scheme” is different, then such distinct role must be separately identified and alleged.

3 WellPoint, 904 F.3d at 677. Given that CAL and Immobiliare are alleged to possess the same concealed

4 information, Westcor need not allege their knowledge separately in the Cross-Complaint.

5 CAL also argues that Westcor has failed to allege how CAL knew of the concealed information.

6 ECF No. 13 at 7. The argument is unpersuasive. As Westcor correctly points out, because how CAL

7 knew of the concealed information is within CAL’s knowledge, ECF No. 16 at 13 n.13, Westcor “cannot

8 be expected to have personal knowledge of the relevant facts,” Neubronner, 6 F.3d at 672. Thus, the

9 application of Rule 9(b) is relaxed. Westcor alleges that each time Immobiliare was in contact with the

10 Fresno County Tax Collector and Cedar about the ownership of the parking lot and the petition for 11 rescission, CAL was instructed by Immobiliare to purchase title insurance or increase the policy limits.2

12 ECF No. 8 ¶¶ 14-32, 41. Because Westcor does not know how CAL knew about the concealed

13 information, these facts are sufficient to satisfy a relaxed application of Rule 9(b).

14 VI. CONCLUSION AND ORDER

15 Although Westcor has sufficiently alleged the element of knowledge, it has failed to allege

16 sufficiently the element of duty and the identity of CAL’s employee who committed the fraudulent

17 concealment. Accordingly, the Motion is GRANTED. “As with Rule 12(b)(6) dismissals, dismissals

18 for failure to comply with Rule 9(b) should ordinarily be without prejudice. [L]eave to amend should be

19 granted if it appears at all possible that the plaintiff can correct the defect.” Vess, 317 F.3d at 1108

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21 2 Westcor also improperly submits email exchanges between the parties for the Court to consider in determining the

22 sufficiency of the Cross-Complaint without asking the Court to take judicial notice. See ECF No. 16 at 12 n.2 (citing Exhibit

23 1). This is highly improper. “[W]hen the legal sufficiency of a complaint’s allegations is tested by a motion under Rule

24 12(b)(6), ‘[r]eview is limited to the complaint.’” Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) (citation 25 omitted). The Co urt therefore declines to consider email exchanges. 2 may be able to cure the pleading defects identified herein, Westcor is GRANTED twenty days to amend

3 the first cause of action from electronic service of this Order. Alternatively, Westcor may give notice

4 that it will stand on the current Cross-Complaint within twenty days.

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6 IT IS SO ORDERED.

7 Dated: December 13, 2019 /s/ Lawrence J. O’Neill _____

UNITED STATES CHIEF DISTRICT JUDGE

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