Case Name: Deborah O’Connell v. Insphere Insurance Solutions, Inc., et al.
Case No.: 2012-1-CV-232891

Currently before the Court is defendants Insphere Insurance Solutions, Inc. and Health Markets, Inc.’s (collectively, the “Insphere Defendants”) motion for summary judgment or, in the alternative, summary adjudication of the fourth, fifth, sixth, and fourteenth causes of action in plaintiff Deborah O’Connell’s (“O’Connell”) fourth amended complaint (“FAC”).

I. Factual and Procedural Background

As relevant here, O’Connell alleges the following in the operative FAC: The Insphere Defendants are in the business of selling insurance policies. (FAC, ¶ 12.) In November 2006, Jo Dee Taylor (“Taylor”), the regional manager for the Insphere Defendants, met with O’Connell to discuss becoming the new division manager of their San Jose Office. (FAC, ¶ 16.) During this meeting, Taylor informed O’Connell that the division would become her own business. (FAC, ¶ 17.) As such, she would hire and train insurance agents and would be responsible for all associated business expenses, including sales leads, office rent, and equipment. (FAC, ¶ 17.) Between 2006 and 2009, Taylor and other agents of the Insphere Defendants consistently stated that O’Connell and other division managers owned their own business. (FAC, ¶ 19.) In January 2010, the Insphere Defendants fraudulently assumed control over O’Connell’s clients, files, insurance, and employees, and refused to pay O’Connell the fair market value of her business or reimburse her for the business expenses she incurred. (FAC, ¶¶ 28, 87.)

On June 18, 2014, O’Connell filed the operative FAC, asserting 15 causes of action against defendant Ron Almaraz and the Insphere Defendants for: (1) violation of Labor Code sections 98.6 and 1102.5; (2) wrongful termination in violation of public policy; (3); defamation; (4) fraud; (5) false promise; (6) conversion; (7) intentional interference with prospective economic relations; (8) violation of Labor Code section 201; (9) violation of Labor Code sections 227 and 227.3; (10) violation of Labor Code section 226; (11) violation of Labor Code sections 226.7 and 512; (12) violation of Labor Code sections 510 and 1194; (13) violation of Labor Code section 2802; (14) violation of Business and Professions Code section 17200; and (15) violation of Labor Code sections 2698 and 2699.

On November 18, 2015, the Insphere Defendants filed their initial motion for summary judgment or, in the alternative, summary adjudication of each cause of action in the FAC. On February 26, 2016, the Court denied the motion for summary judgment or, in the alternative, summary adjudication of the fourth, fifth, sixth and fourteenth causes of action. The motion was otherwise granted.

On April 27, 2016, the Insphere Defendants filed their second motion for summary judgment or, in the alternative, summary adjudication of each of the remaining causes of action in the FAC. O’Connell filed her opposing papers on June 28, 2016. On July 8, 2016, the Insphere Defendants filed their reply.

II. Summary of Evidence

A. Insphere Defendants’ Evidence

In support of their motion, the Insphere Defendants submit the following relevant evidence:

O’Connell served as a division sales leader for the Insphere Defendants from December 2006 until December 2009 and she executed several independent contractor agreements with these defendants, including a lead request and waiver agreement and a divisional sales leader addendum. (Insphere Defendants’ Separate Statement of Undisputed Material Facts (“UMF”) Nos. 9-11.) Under the terms of these integrated contracts, O’Connell agreed: to use the Insphere Defendants’ proprietary information, such as premium and loss information, underwriting guidelines, leads, customer lists, outlines of coverage, brochures, insurance master policies and certificates, and agent solicitation materials, solely for solicitation of insurance of their behalf; that the Insphere Defendants had the sole and exclusive right to reassign subagents; that she would not induce other agents for the Insphere Defendants to contract with another insurance agency; and that she would not induce a policyholder to discontinue any policy. (Insphere Defendants UMF Nos. 30-36.)

While O’Connell was a division sales leader, she leased an office in her name and paid for all business related expenses. (Insphere Defendants’ UMF No. 13.) As a division sales leader, O’Connell recruited and trained insurance agents on behalf of the Insphere Defendants. (Duke Decl., ¶ 5.) These agents entered into a contractual relationship with the Insphere Defendants, not O’Connell. (Duke Decl., ¶ 5.)

During her time as a division sales leader, O’Connell found out that she was not able to promote those agents she wanted to promote and began to believe she was an employee rather than an independent contractor. (Insphere Defendants’ UMF No. 23.) In 2010, the Insphere Defendants changed their business model and signed O’Connell to a new commission-only, independent agent agreement. (Insphere Defendants’ UMF Nos. 14-19.) During this transition, the Insphere Defendants did not take or assume O’Connell’s customer lists, client files, bank accounts, equipment, office lease, or business name or any other tangible or intangible property belonging to O’Connell. (Insphere Defendants’ UMF Nos. 63, 70-71.)

B. O’Connell’s Evidence

In opposition to the motion, O’Connell provides the following relevant evidence: Between 2006 and 2009, O’Connell invested a great deal of time and money recruiting and training her agents as well as paying for business expenses. (O’Connell’s UMF No. 1.) While acting as a division sales leader, Taylor gave O’Connell suggestions concerning who to hire and promote. (O’Connell’s UMF No. 23.) O’Connell, however, thought that she could refuse these suggestions and, therefore, fully believed that she owned her business until January 2010. (O’Connell’s UMF No. 23.) At that time, the Insphere Defendants took her business without compensation for her time or business expenses and offered her a position as a sales leader on a take it or leave it basis. (O’Connell’s UMF No. 24.) During this process, the Insphere Defendants “took the customers from which [] referrals might have come.” (Taylor Depo., p. 80:5-9.)

III. Evidentiary Objections

In connection with her opposition, O’Connell interposes six evidentiary objections to the declarations of Insphere Defendants’ executives, Derrick Duke and Dan Garrison, as well as an exhibit attached to the declaration of Insphere’s attorney, Andrew Frederick, on the grounds that the declarations lack foundation and are conclusory, and the exhibit is unauthenticated. The objections are OVERRULED. (See Barthelemy v. Air Lines Pilots Ass’n (9th Cir. 1990) 897 F.2d 999, 1018 [stating that a businessman’s personal knowledge and competence to testify concerning a business are reasonably inferred from their positions and the nature of their participation in that business]; Ramos v. Westlake Services LLC (2015) 242 Cal.App.4th 674, 684 [providing that a writing may be authenticated by circumstantial evidence as well as its content].)

In connection with their reply, the Insphere Defendants assert six evidentiary objections to O’Connell’s declaration. The objections to the evidence are not material to the disposition of the motion and therefore a ruling is not required. (See Code Civ. Proc., § 437c, subd. (q) [stating that “[i]n granting or denying a motion for summary judgment or summary adjudication the court need rule only on those objections to evidence it deems material to its disposition of the motion”].)

IV. Request for Judicial Notice

The Insphere Defendants ask the Court to take judicial notice of several court orders and pleadings filed in this action. The request for judicial notice is GRANTED. (See Evid. Code, § 452, subd. (d) [stating that a court may take judicial notice of its own records].)

V. Discussion

The Insphere Defendants move for summary judgment or, in the alternative, summary adjudication of the fourth, fifth, sixth, and fourteenth causes of action on the ground that these causes of action have no merit. In opposition, O’Connell asserts that the motion should be denied because it violates Code of Civil Procedure section 437c, subdivision (f)(2) and there are triable issues of material fact concerning each cause of action.

A. Code of Civil Procedure Section 437c, Subdivision (f)(2)

O’Connell argues that the instant motion for summary judgment violates Code of Civil Procedure section 437c, subdivision (f)(2) because it is based on the same issues asserted in the first motion for summary judgment and the Insphere Defendants fail to establish any newly discovered facts or changes in the law.

Code of Civil Procedure section 437c, subdivision (f)(2) provides that “a party may not move for summary judgment based on issues asserted in a prior motion for summary adjudication and denied by the court unless the party establishes, to the satisfaction of the court, newly discovered facts or circumstances or a change of law supporting the issues reasserted in the summary judgment motion.” The purpose of the statute is “to conserve the court’s resources by constraining litigant who would attempt to bring the same motion over and over.” (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1104, internal citations omitted.)

However, the statute only applies to “issues” actually raised in the earlier motion. (Nieto v. Blue Shield of California Life & Health Ins. Co. (2010) 181 Cal.App.4th 60, 72.) In Nieto, the defendant filed three separate motions for summary judgment. (Id. at pp. 69-70.) In the first motion, the defendant, an insurance company, argued that it could rescind the plaintiff’s insurance contract based on a statute. (Id. at p. 69.) The trial court denied this motion and the defendant, subsequently, filed a second motion in which it argued that it could lawfully rescind the plaintiff’s insurance policy as a matter of law based on common law fraud. (Ibid.) The court agreed, but denied the second motion because the defendant failed to provide the requisite evidence establishing that the plaintiff actually committed fraud. (Ibid.) Finally, the defendant filed a third motion supported by evidence demonstrating that the plaintiff fraudulently omitted material information in her insurance application, which the court granted. (Id. at pp. 69-70.)

The plaintiff argued on appeal that the third motion for summary judgment violated Code of Civil Procedure section 437c, subdivision (f)(2) because it concerned the same issues as the first and second motions and the defendant did not demonstrate any newly discovered facts, circumstances, or changes in the law. (Nieto, supra, 181 Cal.App.4th at pp. 71-72.) The Court of Appeal found that the statute was inapplicable because the third motion concerned an issue never raised in the prior two motions, i.e., whether the plaintiff actually committed fraud. (Id. at p. 72.)

The same analysis applies in the present circumstances. Here, the Insphere Defendants raise several new issues omitted from their original motion, namely, that the fourth through sixth causes of action are barred by the statute of limitations and the sixth cause of action for conversion fails because O’Connell did not have a right to possession or exclusive use of her intangible property and they did not convert this intangible property. Accordingly, the motion does not violate Code of Civil Procedure section 437c, subdivision (f)(2) with respect to these new issues.

That being said, the instant motion does concern an issue raised in the first motion with respect to the fourth and fifth causes of action for fraud and false promise. In the first motion, the Insphere Defendants moved for summary adjudication of these causes of action on the basis that O’Connell’s “reliance on the purported misrepresentations was not justified on the ground she executed independent contractor agreements … the terms of which contradicted these purported oral representations.” (Insphere Defendants’ First Notice of Motion for Summary Judgment, Issue Nos. 15, 20.) In the instant motion, the Insphere Defendants move for summary adjudication of the fourth and fifth cause of action on the same basis, that is, O’Connell “could not justifiably have relied on purported statements that she could run her business as she saw fit to the extent these representations conflicted with provisions in [her] fully integrated contractor agreements.” (Insphere Defendants’ Second Notice of Motion for Summary Judgment, Issue Nos. 2, 7.) Accordingly, Code of Civil Procedure section 437c, subdivision (f)(2) applies to this issue.

With respect to their argument concerning the lack of justifiable reliance, the Insphere Defendant provide no “newly discovered facts or circumstances” supporting their motion and do not assert that there has been a change in the law. In this regard, the Insphere Defendants submit the same case law concerning this issue and essentially the same evidence in support of this motion as presented in the first motion. (Compare Insphere Defendants’ Mem. Ps & As. in Support of the Second Motion for Summary Judgment, pp. 5:28 – 9:1-5 with Insphere Defendants’ Mem. Ps & As. in Support of the First Motion for Summary Judgment, p. 29:5-16.) Accordingly, the Court will not reconsider the Insphere Defendants’ argument concerning O’Connell’s lack of justifiable reliance.

B. Fourth and Fifth Causes of Action

The Insphere Defendants assert that the fourth and fifth causes of action for fraud and false promise fail because they are time-barred.

The statute of limitations for an “action for relief on the ground of fraud or mistake” is 3 years. (Code Civ. Proc., § 338, subd. (d).) A fraud cause of action does not accrue “until discovery, by the aggrieved party, of the facts constituting the fraud or mistake.” (Code Civ. Proc., § 338, subd. (d).) “Under the discovery rule, the statute of limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her.” (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110.) However, even if the plaintiff suspects wrongdoing, a fraud cause of action does not accrue until the plaintiff suffers perceptible harm as a result of the defendant’s wrongdoing. (City of Vista v. Robert Thomas Securities, Inc. (2000) 84 Cal.App.4th 882, 886.)

The Insphere Defendants contend that O’Connell’s fraud causes of action are time-barred because she began to suspect that Taylor’s representation that O’Connell owned her own business was false in 2006 and she did not file her original complaint until September 25, 2012, more than 3 years later. In this respect, they rely exclusively on the following excerpts from O’Connell’s deposition: “Q: So if I understand your testimony correctly, it was when you were a division sales leader that you first began to believe you were an employee rather than an independent contractor? [¶] A: Yes … [¶] …Q: And what decisions do you contend that you did not have control over? [¶] A: The most specific things were the ability to select who I wanted to promote as the key people to help with the training process, and those would be my sales leaders. [¶] Q: Okay. And when you found out that you were not able to promote who you wanted to promote, that’s what led you to believe that the statements about owning your own business were not true? [¶] A: Well, that was some of it, yes.” (Insphere Defendants’ UMF No. 23.) This evidence is insufficient to establish that these causes of action are time-barred on several grounds.

First, this testimony does not specifically indicate when O’Connell began to suspect that she was an employee and did not own her own business. O’Connell merely states that she began to suspect she was an employee, rather than an independent business owner, sometime during her term as a division sales leader, a position she occupied from 2006 until December 2009. (See Insphere Defendants UMF No. 9.) While it is possible that a reasonable trier of fact could infer that the O’Connell began to suspect the alleged fraud at the beginning of her term as a division sales leader in 2006, it could equally infer that O’Connell’s suspicions arose at the end of her term in 2009 within 3 years of the filing of her original complaint in 2012. A defendant moving for summary judgment “must present evidence that would require a reasonable trier of fact not to find any underlying material fact more likely than not ….” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 851; see also Kids’ Universe v. In2Labs (2002) 95 Cal.App.4th 870, 879 [stating that the same standard applies where a moving defendant seeks to secure dismissal of the complaint based on an affirmative defense].) Since this evidence would not require a reasonable trier of fact to determine that, more likely than not, O’Connell’s fourth and fifth causes of action accrued more than 3 years before the filing of her original complaint, the Insphere Defendants fail to meet their initial burden on this basis alone.

Second, even assuming that O’Connell discovered the fraud in 2006, the Insphere Defendants fail to introduce evidence establishing that she suffered harm due to their alleged wrongdoing at that time. (See City of Vista, supra, 84 Cal.App.4th at p. 886.) In the FAC, O’Connell alleges that she first suffered damages as a result of the fraud in 2010 when the Insphere Defendants assumed her business without providing any reimbursement for business expenses or purchasing the business at its fair market value of the business. (FAC, ¶¶ 85-86, 104-105.) Since the Insphere Defendants submit no evidence controverting these allegations, they fail to demonstrate that O’Connell’s fraud causes of action accrued more than 3 years before the filing of her original complaint. Accordingly, the Insphere Defendants do not meet their initial burden on this basis as well.
In light of the foregoing, the Insphere Defendants fail to demonstrate that summary adjudication of the fourth and fifth causes of action for fraud and false promise is warranted.

C. Sixth Cause of Action

The Insphere Defendants claim that the sixth cause of action for conversion fails because it is time barred and they did not convert any tangible or intangible property owned by O’Connell.

1. Statute of Limitations

The Insphere Defendants contend that O’Connell’s claim for conversion is time-barred because the statute of limitations for conversion is 3 years, O’Connell’s claim accrued in January 2010, O’Connell did not file the operative FAC until January 2014, and the conversion claim does not relate back to the filing of the original complaint in September 2012. (See Code Civ. Proc., § 338, subd. (c)(1) [providing that the statute of limitations for conversion is 3 years]; AmerUS Life Ins. Co. v. Bank of America, N.A. (2006) 143 Cal.App.4th 631, 639 [stating that a cause of action for conversion accrues when the defendant wrongfully takes the plaintiff’s property].)

Here, it is undisputed that O’Connell’s claim accrued in January 2010 when the Insphere Defendants allegedly assumed her business and that the instant FAC was not filed until June 2014. (O’Connell’s UMF Nos. 51, 56.) Since O’Connell filed the FAC more than 3 years after the conversion cause of action accrued, the cause of action is timely only if it relates back to the filing of the original complaint in September 2012.

An amended complaint filed after the statute of limitations has run relates back to the original complaint if it is based on the same general set of facts, seeks recovery against the same defendants for the same injuries, and refers to the same incident. (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 408-409.) The purpose of the relation-back doctrine is to avoid the harsh results imposed by the statutes of limitations while still putting defendants on notice of the need to defend against a claim in time to prepare a fair defense on the merits. (Garrison v. Board of Directors (1995) 36 Cal.App.4th 1670, 1677-1678.) When applying the relation-back analysis, “courts should consider the strong policy in this state that cases should be decided on their merits.” (Pointe San Diego Residential Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th 265, 277, internal citations omitted.)

Here, the original complaint asserted a cause of action for conversion based on the same general set of facts alleged in the FAC, seeking the same recovery from the same defendants for the same injury, and concerned the same incident. (See Insphere Defendants’ Request for Judicial Notice, Ex. 4, Compl., ¶¶ 109-112.) Accordingly, the sixth cause of action for conversion in the FAC appears to relate back to the filing of the original complaint.

The Insphere Defendants contend that the relation-back doctrine does not apply because O’Connell abandoned her conversion claim by filing a first, second, and third amended complaint that omitted the claim. They acknowledge that they could not find a case directly on point in support of this proposition. However, they argue that the filing of a subsequent complaint acts as a dismissal of the original complaint, which prohibits the application of the relation-back doctrine. This argument is not well-taken.

In Fireman’s Fund Ins. Co. v. Sparks Const., Inc. (2004) 114 Cal.App.4th 1135, the Court of Appeal considered an analogous situation. The plaintiff filed a complaint containing allegations against certain unnamed Doe defendants. (Id. at p. 1139.) It then filed an amended complaint omitting those allegations, but mistakenly served two new defendants with the original complaint and executed amendments purporting to name them as Doe defendants. (Ibid.) Unaware of the existence of the first amended complaint, those defendants filed their answers and the litigation proceeded. (Ibid.) Almost a year later, the plaintiff filed a motion to file a second amended complaint. (Ibid.) Having alerted the defendants to the existence of the first amended complaint, the defendants moved for judgment on the pleadings, which the court granted, on the ground that the Doe amendments were ineffective, the second amended complaint did not relate back to the filing of the original complaint, and, therefore, the statute of limitations had run. (Ibid.) The Court of Appeal agreed that the filing of the amended complaint effectively dismissed all Doe Defendants and, therefore, the Doe amendments were ineffective. (Id. at p. 1140.) However, the Court of Appeal determined that trial court incorrectly found that the statute of limitations had run. (Ibid.) The court explained that an “amended complaint relates back to the filing of the original complaint, and thus avoids the bar of the statute of limitations, so long as recovery is sought in both pleadings on the same general set of facts.” (Id. at p. 1150, internal citations omitted.) After determining that all of the complaints arose out of the same general set of facts, the court found that the second amended complaint related back to the date on which the action was commenced against the two new defendants. (Ibid.)

The same analysis applies in the present circumstances. As previously discussed, the FAC and the original complaint arise out of the same general set of facts. (Compare FAC, ¶¶ 111-113 with Insphere Defendants’ Request for Judicial Notice, Ex. 4, Compl., ¶¶ 109-112.) Therefore, the FAC relates back to the date on which the action was commenced against the Insphere Defendants. Since it is undisputed that the action was commenced against the Insphere Defendants when the original complaint was filed and the original complaint was filed before the statute of limitations for the sixth cause of action for conversion had run, the sixth cause of action is not time-barred.

2. Conversion of Tangible and Intangible Property

The Insphere Defendants contend that the sixth cause of action for conversion fails because they did not convert any of O’Connell’s tangible or intangible business property. In this respect, they submit evidence that they never took ownership or possession of her physical property such as her office equipment or furniture or any intangible property such as her professional goodwill. (Insphere Defendants’ UMF Nos. 59, 62.) As such, they meet their initial burden of demonstrating that they did not substantially interfere or exercise wrongful dominion over her personal property. Therefore, the burden shifts to O’Connell to demonstrate a triable issue of material fact.

In opposition, O’Connell acknowledges that the Insphere Defendants did not convert any of her tangible property. Instead, she contends that the Insphere Defendants wrongfully converted her intangible “business interests” in her clients and agents. In this respect, she asserts that she has a property interest in the opportunity to acquire referrals from customers and “the work she put in to train” her agents, which the Insphere Defendants stole. This argument is not well-taken. To establish a cause of action for conversion, a plaintiff must show ownership or the right to possess the allegedly converted property at the time of its conversion. (Avidor v. Sutter’s Place, Inc. (2013) 212 Cal.App.4th 1439, 1452.) Under Civil Code section 654, a party owns property when he or she has the right “to possess and use it to the exclusion of others.” With respect to intangible property, a cause of action for conversion will not lie unless “both the property and the owner’s rights of possession and exclusive use are [] definite and certain.” (Fremont Indem. Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 126.) Here, O’Connell provides no evidence establishing that she acquired an exclusive right to own or possess the opportunity to acquire referrals from customers or “the work she put in to train” her agents or any legal authority indicating that these interests constitute property. As such, O’Connell fails to produce evidence demonstrating a triable issue of material fact as to whether the Insphere Defendants’ converted either her intangible or tangible property. Accordingly, the sixth cause of action is subject to summary adjudication on this basis.

D. Fourteenth Cause of Action

The Insphere Defendants contend that the fourteenth cause of action for violation of the UCL fails because there are no predicate violations of any other law.

The UCL provides civil remedies for unfair competition to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services. (See Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 520.) Unfair competition includes any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising. (See Bus. & Prof. Code, § 17200.) “‘Virtually any law or regulation – federal, state, statutory or common law – can serve as [a] predicate for a … [section] 17200 ‘unlawful’ violation.’” (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1383 [quoting Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 681].)

Here, O’Connell alleges that the Insphere Defendants violated the UCL by, among other things, making intentional misrepresentations and false promises. (FAC, ¶ 162.) Since they fail to establish that the fourth and fifth causes of action for fraud and false promise have no merit, they likewise fail to demonstrate that the fourteenth cause of action, which is partially based on those causes of action, has no merit. Therefore, summary adjudication of this cause of action is not warranted.
E. Conclusion

In light of the foregoing, the motion for judgment or, in the alternative, summary adjudication is GRANTED IN PART AND DENIED IN PART. The motion for summary adjudication of the sixth cause of action is GRANTED. The motion is otherwise DENIED.