De Laveaga Service Center, Inc. v. Nationwide Insurance Company

Background

Defendants Nationwide Insurance Company and AAMCO Insurance Company filed a combined motion to dismiss and motion to strike. They argued that the First Amended Complaint should be stricken because it was filed after they sought dismissal of Stephen Rothhammer and allegedly sought to destroy diversity jurisdiction. They also asked the court to dismiss the claims for intentional infliction of emotional distress, breach of the implied covenant of good faith and fair dealing as to Rothhammer, and “malice.” The plaintiff opposed both motions.

The plaintiff later voluntarily dismissed Rothhammer from the case. The court had previously denied the plaintiff’s motion to remand, finding that removal was proper based on the pleadings filed when the case was removed. The court therefore considered the effect of Rothhammer’s dismissal on the pending motions.

Motion to Strike

The court denied the motion to strike as moot. It explained that the court had already found that it had diversity jurisdiction and that, after Rothhammer was dismissed, the alleged basis for striking the First Amended Complaint was no longer present. The court stated that it would evaluate the remaining arguments using the First Amended Complaint.

Intentional Infliction of Emotional Distress

The defendants argued that the plaintiff, a corporation, could not suffer emotional distress under California law. The plaintiff responded that the claim was being asserted for Sean O’Neal, its chief executive officer, as the real party in interest—the person legally entitled to bring the claim.

The court agreed with the defendants. It held that a corporation cannot suffer emotional distress under California law. It also held that the plaintiff could not assert the claim on O’Neal’s behalf because he was not named as a plaintiff and because a shareholder generally cannot recover personally for an injury to the corporation. The court further stated that any conspiracy theory based on intentional infliction of emotional distress failed because the plaintiff could not assert the underlying tort.

The claim was dismissed with leave to amend. The court stated that, if the plaintiff pursued the claim, it would have to name O’Neal as a separate plaintiff and allege facts showing that he had standing to bring the claim against the insurance companies.

Implied Covenant of Good Faith and Fair Dealing

The defendants sought dismissal of this claim only as pleaded against Rothhammer. Because Rothhammer had been dismissed from the case, the court denied that request as moot. The claim survived against the remaining defendants because no request to dismiss it had been made.

“Malice” Claim

The defendants argued that California law did not recognize a standalone claim for “malice” and that, if the claim was treated as fraud, it failed to satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). The plaintiff said it was asserting a fraud claim.

The court concluded that the plaintiff had not plausibly pleaded fraud. Although the caption page identified a third cause of action for fraud, no such cause of action appeared in the body of the complaint. Instead, the complaint included an “Allegation of Malice” stating that the defendants’ conduct was malicious and oppressive and intended to harm the plaintiff. The court found that allegation insufficient to state a fraud claim. It also found that the complaint did not adequately identify the required details of the alleged fraud, including who committed it, what was done, when and where it occurred, and how it was fraudulent. Any conspiracy-to-commit-fraud theory failed for the same reason.

The “malice” claim was dismissed with leave to amend. The court directed that any amended version of the claim be labeled as a fraud claim.

Order

The court ordered that the motion to strike was DENIED AS MOOT. The motion to dismiss was GRANTED WITH LEAVE TO AMEND as to the intentional-infliction-of-emotional-distress claim; DENIED AS MOOT as to the claim against dismissed defendant Stephen Rothhammer for breach of the implied covenant of good faith and fair dealing; and GRANTED WITH LEAVE TO AMEND as to the “malice” claim.

The plaintiff was required to file an amended complaint within 60 days. The court stated that failure to meet the deadline or cure the identified deficiencies would result in dismissal of the deficient claims with prejudice, and that any amendment could not exceed the scope of the identified deficiencies.