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Allstate Insurance Co. v. Lighthouse Law P.S., Inc.

United States District Court, W.D. Washington

January 24, 2017

ALLSTATE INSURANCE CO., et al., Plaintiffs,
v.
LIGHTHOUSE LAW P.S., INC., et al., Defendants.

          ORDER DENYING DEFENDANTS' MOTIONS TO DISMISS PLAINTIFFS' AMENDED COMPLAINT

          A Robert S. Lasnik United States District Judge

         This matter comes before the Court on “Defendant Lighthouse Law P.S., Inc. and Thammalaiviroj's Motion to Dismiss Plaintiffs' Amended Complaint.” Dkt. # 56.[1] Plaintiffs Allstate Insurance Co., Allstate Indemnity Co., Allstate Fire & Casualty Insurance Co., and Allstate Property and Casualty Insurance Co. (together, “Allstate”) allege that defendants Patty Thammalaiviroj, an attorney licensed in California, and Chong “Joseph” Kim, a non-lawyer residing in Washington State, created and operated a sham law firm, defendant Lighthouse Law P.S., Inc. (“Lighthouse”), for the purpose of profiting from fraudulent insurance claims.

         After this Court dismissed Allstate's original complaint with leave to amend, Dkt. # 47, Allstate filed an amended complaint, Dkt. # 52, naming additional defendants and elaborating on the factual allegations underlying its claims. Defendants Lighthouse and Thammalaiviroj (“Defendants”) again move to dismiss, arguing that Allstate's amended complaint still fails to state a claim. Having reviewed the memoranda, declarations, and exhibits submitted by the parties, the Court finds as follows.

         I. Failure to State a Claim

          Federal pleading rules require a complaint to include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). This requirement serves to “give the defendant fair notice of what the claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007) (internal marks and citation omitted). Although the complaint's factual allegations need not be detailed, they must sufficiently state a “plausible” ground for relief. Id. at 544. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The plausibility standard is met when a complaint alleges “more than a sheer possibility that a defendant has acted unlawfully.” Id. “Dismissal is proper only where there is no cognizable legal theory or an absence of sufficient facts alleged to support a cognizable legal theory.” Taylor v. Yee, 780 F.3d 928, 935 (9th Cir. 2015). Dismissal without leave to amend is proper “only if it is absolutely clear that the deficiencies of the complaint could not be cured by amendment.” Grogan v. Health Officer of Cty. of Riverside, 221 F.3d 1348 (9th Cir. 2000) (quotation marks and citation omitted).

         When deciding a Rule 12(b)(6) motion to dismiss, the Court may not consider any materials other than the pleadings, Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001), and may disregard any materials improperly submitted, see Swedberg v. Marotzke, 339 F.3d 1139 (9th Cir. 2003). All well-pleaded allegations of material fact are accepted as true and are construed in the light most favorable to the non-moving party. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).

         A. Washington Consumer Protection Act

         Allstate alleges that Defendants violated Washington's Consumer Protection Act (“CPA”), RCW 19.86 et seq., by engaging in deceptive trade practices for financial gain. Specifically, Allstate claims that Defendants violated the CPA by “trafficking in insurance claims” and by presenting material misrepresentations in insurance settlement demands. Dkt. # 52, ¶¶ 78, 94. Defendants move to dismiss this claim on the grounds that Allstate's amended complaint fails to allege a causal link between Defendants' alleged wrongdoing and Allstate's monetary loss, and that in any event Allstate lacks standing to bring a CPA claim. Dkt. # 56 at 11-13.

         Washington law empowers private plaintiffs to bring CPA claims where a defendant's bad acts cause injuries to the plaintiff and risk injury to the public. See Indoor Billboard/Washington, Inc. v. Integra Telecom of Washington, Inc., 162 Wn.2d 59, 73 (2007). A private CPA action may be brought by a party who is not in a consumer relationship with the defendant, Panag v. Farmers Ins. Co. of Wash., 166 Wn.2d 27, 43-44 (2009), so long as the plaintiff successfully pleads five elements: (1) an unfair or deceptive act or practice; (2) that occurred in trade or commerce; (3) a public interest was implicated; (4) the plaintiff's business or property was injured; and (5) the unfair or deceptive act caused the injury suffered, Indoor Billboard, 162 Wn.2d at 73. The causation prong requires the defendant's act to be the proximate cause of the plaintiff's injury, “mean[ing] a cause which in a direct sequence unbroken by any superseding cause, produces the injury event complained of and without which such injury event would not have happened.” Schnall v. AT&T Wireless Servs., Inc., 171 Wn.2d 260, 278 (2011) (internal marks omitted) (quoting 6 Washington Practice: Washington Pattern Jury Instructions: Civil 15.01, at 181 (5th ed. 2005)). An insurance company has standing to bring a CPA claim against a party that submits false information in connection with an insurance claim. State Farm Fire & Cas. Co. v. Hyunh, 92 Wn.App. 454, 458-62 (1998).

         Allstate has successfully pled the elements of its CPA claim. The amended complaint alleges that Defendants operated a sham law firm in order to profit from insurance proceeds, which Allstate paid as a result of Defendants' illegal solicitation of insurance claimants and Defendants' knowing material misrepresentations (including misrepresenting a sham law firm as a legitimate one) in its settlement demands. Dkt. # 52, ¶¶ 5, 31, 32, 33, 45-75, 77, 88, 89, 91, 92, 94. Defendants contest only the causation element, which Allstate has sufficiently pled: Allstate's monetary loss would not have occurred absent Defendants' alleged trafficking and misrepresentations, as Allstate would not have agreed to settle the insurance claims had it known that the claimants were represented by a sham law firm. See Panag, 166 Wn.2d at 64. Moreover, the facts as alleged do not suggest that Allstate's monetary loss is attributable to any superseding cause. See Schnall, 171 Wn.2d at 278. And Washington law provides that Allstate has standing to bring this CPA claim. See Hyunh, 92 Wn.App. at 458-62. Defendants' motion to dismiss Allstate's CPA claim is denied.

         B. Common Law Fraud

         Allstate alleges that Defendants committed fraud by misrepresenting material facts during the submission of settlement demands, including misrepresenting Thammalaiviroj and Kim as Washington-licensed attorneys and Lighthouse as a legitimate law firm. Dkt. # 52, ¶¶ 96-115. Allstate also specifically alleges that Lighthouse knowingly incorporated a chiropractor's false billing statements into its settlement demands. Dkt. # 52, ¶ 100. Defendants move to dismiss this claim on the grounds that Allstate's amended complaint fails to state this fraud claim against each defendant with sufficient particularity. Dkt. # 56 at 13-17.

         The federal rules require parties to “state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). To satisfy that standard, a plaintiff “must set forth more than the neutral facts necessary to identify the transaction. The plaintiff must set forth what is false or misleading about a statement, and why it is false.” In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994). A fraud complaint may not “lump multiple defendants together”; rather, a plaintiff must “differentiate [its] allegations when suing more than one defendant.” Destfino v. Rieswig, 630 F.3d 952, 958 (9th Cir. 2011). Under Washington law, a fraud claim must include: (1) representation of an existing fact; (2) materiality; (3) falsity; (4) the speaker's knowledge of its falsity; (5) intent of the speaker that it should be acted upon by the plaintiff; (6) plaintiff's ignorance of its falsity; (7) plaintiff's reliance on the truth of the representation; (8) plaintiff's right to rely upon it; and (9) damages suffered by the plaintiff. Stiley v. Block, 130 Wn.2d 486, 505 (1996).

         Allstate's amended complaint meets the heightened Rule 9(b) pleading standard. Where several defendants are sued in connection with an alleged fraudulent scheme, “there is no absolute requirement that . . . the complaint must identify false statements made by each and every defendant, ” as each conspirator may be performing different tasks to bring about the desired result. Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (quoting Beltz Travel Serv., Inc., v. Int'l Air Transp. Ass'n, 620 F.2d 1360, 1367 (9th Cir. 1980)). Rather, a plaintiff must, at a minimum, “identify the role of each defendant in the alleged fraudulent scheme.” Swartz, 476 F.3d at 765 (quoting Moore v. Kayport ...


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