1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 6 RYAN YOO, et al., Case No. 21-cv-07723-HSG

7 Plaintiffs, ORDER DENYING MOTION TO

DISMISS

8 v. Re: Dkt. No. 17 9 SAFECO INSURANCE COMPANY OF AMERICA, et al., 10 Defendants. 11 12 This is an insurance coverage lawsuit brought by Plaintiffs Ryan and Jisun Yoo 13 (“Plaintiffs”) against Defendants Safeco Insurance Company of America (“Safeco”) and Liberty 14 Mutual Insurance Company (“Liberty”) (collectively, (“Defendants”)). Dkt. No. 1 (“Compl.”). 15 Before the Court is Defendants’ motion to dismiss. Dkt. No. 17 (“Mot.”).1 The Court finds this 16 matter appropriate for disposition without oral argument and the matter is deemed submitted. See 17 Civil L.R. 7-1(b). For the reasons provided below, the Court DENIES the motion. 18 I. BACKGROUND 19 The Court accepts the following allegations as true for the purposes of resolving 20 Defendants’ motion. Safeco issued an insurance policy (the “Policy) that covered Plaintiffs’ home 21 and personal belongings in the event of damage. Compl. ¶ 11. In October 2019, a broken water 22 line under Plaintiffs’ home caused extensive damage and required significant repairs. Id. ¶ 13. 23 After Plaintiffs reported the damage, Safeco investigated the claim and made a settlement offer. 24 Id. ¶¶ 14, 31. Plaintiffs allege that Safeco mishandled their claim, conducted an inadequate 25 investigation, and provided a deficient settlement. Id. ¶¶ 31-36. In October 2021, they filed this 26 1 Both Defendants and Plaintiffs ask the Court to take judicial notice of several documents in 27 support of the Motion to Dismiss and Opposition, respectively. The Court does not find these 1 lawsuit, which brings a single claim for Breach of the Implied Covenant of Good Faith and Fair 2 Dealing. Id. ¶¶ 30-58. Plaintiffs have sued not only Safeco, the insuring entity, but also Liberty, 3 Safeco’s parent company. See id. ¶¶ 15-22, 28. The Complaint alleges that the two companies are 4 “alter-egos,” and that Liberty uses Safeco as a shell company to shield Liberty from liability. See 5 id. 6 II. LEGAL STANDARD 7 To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must plead “enough facts to state 8 a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 9 (2007). A claim is facially plausible when a plaintiff pleads “factual content that allows the court 10 to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft 11 v. Iqbal, 556 U.S. 662, 678 (2009). In reviewing the plausibility of a complaint, courts “accept 12 factual allegations in the complaint as true and construe the pleadings in the light most favorable 13 to the nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th 14 Cir. 2008). Nevertheless, courts do not “accept as true allegations that are merely conclusory, 15 unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 16 F.3d 1049, 1055 (9th Cir. 2008) (quoting Sprewell v. Golden State Warriors, 266 F.3d 979, 988 17 (9th Cir. 2001)). 18 III. DISCUSSION 19 The Complaint states a single claim for Breach of the Implied Covenant of Good Faith and 20 Fair Dealing against both Safeco and Liberty. Compl. ¶¶ 30-58. Liberty contends that it cannot 21 be held liable for an implied breach of the Policy because it is not a party to the Policy. Mot. at 22 10. It is true that under California law only a party to an insurance policy can be held liable for 23 breaching that policy. See Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 576, 510 P.2d 1032 (1973). 24 And here, it is undisputed that Liberty is not a party to the Policy. Compl. ¶ 16; Mot. at 10-11. 25 This only begins the dispute, however, because the Complaint alleges that Liberty and Safeco are 26 functionally a single entity, or “alter-egos.” Compl. ¶ 23. The crux of Defendants’ motion is that 27 Plaintiffs’ alter-ego allegations are too conclusory to state a claim. Mot. at 11. As explained 1 The alter-ego doctrine exists to prevent individuals or other corporations from using 2 corporate legal technicalities to evade justice. See Sonora Diamond Corp. v. Sup. Ct., 83 Cal. 3 App. 4th 523, 538 (2000). It arises where, as here, a “plaintiff comes into court claiming that an 4 opposing party is using the corporate form unjustly and in derogation of the plaintiff’s interests.” 5 Mesler v. Bragg Mgmt. Co., 39 Cal. 3d 290, 300, 216 Cal. Rptr. 443 (1985). Under California 6 law, Plaintiffs must adequately allege two elements before invoking the alter-ego doctrine.2 First, 7 they must allege that there is such a “unity of interest” between the parent and its subsidiary that 8 separate personalities effectively do not exist. See Curci Investments, LLC v. Baldwin, 14 Cal. 9 App. 5th 214, 221 (2017). And second, they must allege that an “inequitable result” would follow 10 from treating the acts in question as those of the subsidiary alone. Id. There are no bright-line 11 rules, but there are several factors that courts consider in this analysis, including the commingling 12 of funds, diversion of assets, failure to follow corporate formalities, and the ownership structure of 13 the entities. See Zoran Corp. v. Chen, 185 Cal. App. 4th 799, 811-12 (2010) (providing a non- 14 exhaustive list of factors and stressing the importance of considering the totality of the 15 circumstances). In this case, the Court finds that the Complaint adequately alleges both elements. 16 As to the unity of interest element, the Complaint alleges at length how Safeco is a “mere 17 shell and conduit” that Liberty uses at its discretion. Mot. at 22. For example, it alleges that 18 Safeco is a “wholly owned and controlled” subsidiary of Liberty that “has no employees” and 19 “cedes 100% of its business” to Liberty. Id. It also alleges that Liberty and Safeco have a 20 “management agreement” under which Safeco gives Liberty sole and complete authority to sell 21 policies and accept, investigate, adjust, or deny claims. Id. Plaintiffs further contend that Liberty 22 and Safeco have identical officers, file consolidated tax returns, and use the same bank accounts. 23 Id.; see also id. (listing over forty factual allegations supporting Plaintiffs’ contention that Liberty 24 controls Safeco’s day-to-day and larger strategic operations). Essentially, Plaintiffs spend the vast 25 majority of the Complaint alleging that Safeco and Liberty are one and the same and should be 26 treated as such. A court in this District recently found nearly identical allegations against Liberty 27 1 enough to survive a motion to dismiss, and this Court agrees with the reasoning of that case. 2 Sulimani v. Liberty Mutual Insurance Company, Case No. 4:20-cv-04041-SBA, Dkt. 34, *10-13 3 (N.D. Cal. July 20, 2021). Plaintiffs have sufficiently alleged that Liberty and Safeco share a 4 unity of interest.3 As always on a motion to dismiss, whether Plaintiffs can actually prove these 5 allegations is for another day. 6 Plaintiffs have also adequately alleged that an “inequitable result” would flow from not 7 treating Liberty and Safeco as alter-egos. To satisfy this second prong, Plaintiffs must allege 8 “specific manipulative conduct” by the parent toward the subsidiary that “relegate[s] the latter to 9 the status of merely an instrumentality, agency, conduit or adjunct of the former[.]” Laird v. 10 Capital Cities/ABC, Inc., 68 Cal. App. 4th 727, 737 (1985) (citations and quotation marks 11 omitted). The Complaint alleges that Liberty has complete control over Safeco, uses the corporate 12 structure in bad faith to shield itself from liability, and is engaged in a scheme across its 13 subsidiaries to hide coverage and misrepresent claimants’ rights to benefits. Compl. ¶¶ 28-29. It 14 also alleges that not including Liberty in this lawsuit would obscure the entities’ true financial 15 condition because Liberty keeps the asset size of its insuring entities like Safeco small to avoid 16 large punitive damages awards. Id. ¶ 29. Other courts in this District have found similar 17 allegations of harm and inequity sufficient at the motion to dismiss stage. See Vu v. Liberty 18 Mutual Ins. Co., 2018 WL 5982867, *3 (N.D. Cal. Nov. 14, 2018); Sulimani, 20-cv-04041, Dkt. 19 22 at *11. This Court concurs. At bottom, the Complaint adequately alleges that failing to treat 20 Liberty and Safeco as alter-egos would result in injustice. 4 Defendants’ motion to dismiss is 21 3 Defendants ask the Court to follow the reasoning of Ruiz v. General Ins. Co., where a district 22 court found alter-ego allegations against Liberty and another subsidiary insufficient to satisfy the “unity of interest” prong. 2020 WL 4018274, *5 (E.D. Cal. July 15, 2020). But the Court does 23 not find that case analogous. The complaint there was found insufficient because it made “no allegations at all regarding the organizational relationship” between the two entities aside from “a 24 few oblique paragraphs that could be read to imply” that one was a subsidiary of the other. Id. By contrast, the Complaint in this case alleges facts about the organizational relationship between 25 Liberty and Safeco and explains how Liberty effectively renders Safeco a shell corporation. See Compl. ¶ 22. And in any event, the ownership structure is just one factor courts may consider 26 when assessing whether there is a unity of interest. See Zoran Corp. v. Chen, 185 Cal. App. 4th 799, 811-12 (2010). 27 1 || accordingly DENIED. 2 || IV. CONCLUSION 3 The Court DENIES Defendants’ motion and SETS a telephonic case management 4 || conference on July 26, 2022, at 2:00 p.m. The parties shall submit a joint case management 5 statement by July 19, 2022. Given the age of this case, the parties are advised that the Court 6 || intends to promptly set a case schedule that sets trial for no later than July 2023. All counsel shall 7 use the following dial-in information to access the call: 8 Dial-In: 888-808-6929; 9 Passcode: 6064255 10 || For call clarity, parties shall NOT use speaker phone or earpieces for these calls, and where at all 11 possible, parties shall use landlines. 12 IT IS SO ORDERED.

13 || Dated: 7/12/2022

Abprerel 5 Mb

HAYWOOD S. GILLIAM, JR.

IS United States District Judge 16

= 17

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19 20 21 22 93 || held liable for inducing a breach of the corporation’s contract. See Mot. at 16-17 (citing Shoemaker v. Myers, 52 Cal.3d 1, 24-25 (1990)). As the Sudimani court explained in a very 24 similar case, this argument is a non-starter. See Sulimani v. Liberty Insurance Corp., 20-cv- 04041, Dkt. 22, *13-15 (N.D. Cal. June 20, 2021) (finding Liberty’s identical argument 25 “confounding and unsupported”). Simply put, it gets the Complaint backwards. Nothing in the Complaint suggests that Liberty or its employees acted under the direction of Safeco. Rather, 26 || Plaintiffs clearly allege that Liberty is the parent company that wholly owns and entirely controls Safeco. See Mot. at 22. 27 > Defendants also move to strike the Complaint’s alter-ego allegations as irrelevant. Mot. at 20. This request is denied. The allegations are plainly relevant to whether Liberty and Safeco are alter 28 . . . egos, so the Court finds no basis to strike them.