Case Name: Hector Castanon v. Patelco Credit Union, et al.
Case No.: 17CV310323

I. Background

This case brought by Hector Castanon (“Plaintiff”) against Patelco Credit Union (“Patelco”), Fred Loya Insurance Agency, Inc. (“FLIA”), and Sandoval Body Shop (“Sandoval”) (collectively, “Defendants”) arises from Defendants’ alleged failure to pay for repairs to Plaintiff’s vehicle and return it to him following repairs.

According to the allegations of the First Amended Complaint (“FAC”), Plaintiff purchased an automobile with financing from Patelco and insurance from FLIA. At the time of purchase, FLIA provided assurances that it would pay for repairs falling within the scope of the insurance.

Subsequently, the vehicle needed repairs and Plaintiff contacted FLIA to determine which repair shop would be covered by his insurance. FLIA stated Plaintiff could take the vehicle to a servicer of his choice and it would cover the cost. Plaintiff took the vehicle to Sandoval for repairs. FLIA provided a check to Plaintiff, ostensibly to pay Sandoval for its services. FLIA did not actually pay for the repairs, and placed a hold on the check. Plaintiff tried to cash the check but was unable to do so because of the hold.

When Plaintiff tried to cash the check, the vehicle had been in possession of Sandoval for more than three months, and it refused to return the vehicle without payment. Plaintiff decided to surrender the vehicle to Patelco in full satisfaction of the loan. FLIA and Patelco paid Sandoval for repairs and the release of the vehicle to Patelco.

After obtaining possession of the vehicle from Sandoval, Patelco offered to sell it back to Plaintiff for $5,000. Plaintiff refused to pay, and the vehicle was sold at auction. After the sale, Patelco claimed that Plaintiff was still liable for the remaining loan balance, approximately $20,000, despite the fact he surrendered the vehicle.

Plaintiff alleges that FLIA never intended to pay any claim under the insurance. Rather, FLIA intended to accept regular payments from Plaintiff, but create some pretext for not paying any claim that should arise. Here, FLIA allegedly placed a hold on the check in bad faith simply to avoid paying for repairs.

Based on the foregoing, Plaintiff alleges causes of action for (1) violation of the Unfair Competition Law (the “UCL”) (Bus. & Prof. Code, § 17200, et seq.); (2) violation of the False Advertising Law (the “FAL”) (Bus. & Prof. Code, § 17500, et seq.); (3) violation of the Consumers Legal Remedies Act (the “CLRA”) (Civ. Code, § 1770); and (4) breach of contract.

Currently before the Court is FLIA’s demurrer to each cause of action, as well as a motion to strike various prayers for relief. Plaintiff opposes both motions.

II. Meet and Confer

Though not raised by the parties, the Court notes that FLIA failed to comply with applicable meet and confer requirements. Before filing a demurrer or motion to strike, a party must meet and confer with the party who filed the challenged pleading to determine whether an agreement can be reached that would resolve the objections to the pleading. (Code Civ. Proc., §§ 430.41, subd. (a) [demurrers], 435.5, subd. (a) [motions to strike].) If the parties are unable to informally resolve the matter and a demurer or motion to strike is filed, the moving party must file and serve an accompanying declaration regarding the meet and confer process. (Code Civ. Proc., §§ 430.41, subd. (a)(3) [demurrers], 435.5, subd. (a)(3) [motions to strike].)

Here, FLIA filed a meet and confer declaration for the demurrer but did not file a similar one for the motion to strike. As such, the Court cannot ascertain whether it attempted to meet and confer or did not engage in any such efforts with respect to the motion to strike. In any case, it did not file the required declaration. A court may not overrule a demurrer or deny a motion to strike based on an insufficient meet and confer process. (Code Civ. Proc., §§ 430.41, subd. (a)(4) [demurrers], 435.5, subd. (a)(4) [motions to strike].) Accordingly, the Court will consider the merits of the demurrer and motion to strike despite this procedural defect. FLIA is admonished to comply with section 435.5 in the future.

III. Demurrer

A. First Cause of Action for Violation of the UCL

FLIA demurs to the first cause of action for violation of the UCL on the ground that it “lacks specificity and is uncertain.” (Dem., p. 3:4-5.) FLIA argues that the FAC lacks specificity as to which of its practices were unfair or how specific practices were fraudulent.

As a preliminary matter, while uncertainty is a ground, lack of specificity is not. The grounds for demurrer are listed in Code of Civil Procedure section 430.10, and lack of specificity is not among them. (Code Civ. Proc., § 430.10.) A party may only demur based on one of the grounds listed in section 430.10. (Ibid. [permitting demurrer on “any one or more of the following grounds”].)

In the first instance, to the extent that FLIA argues Plaintiffs must plead additional facts to clarify and substantiate their allegations, FLIA misunderstands the nature of a demurrer for uncertainty. “[D]emurrers for uncertainty are disfavored and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Lickiss v. Financial Industry Reg. Authority (2012) 208 Cal.App.4th 1125, 1135 (Lickness).) “A special demurrer for uncertainty is not intended to reach the failure to incorporate sufficient facts in the pleading, but is directed at the uncertainty existing in the allegations actually made.” (People v. Lim (1941) 18 Cal.2d 872, 883 (Lim).)

Also, insomuch as FLIA argues that unfairness or fraudulent conduct has not been supported with facts, this is not an argument in support of the ground of uncertainty, but in support of the ground of failure to state facts sufficient to constitute a cause of action. (See Dumm v. Pacific Valves (1956) 146 Cal.App.2d 792, 799 (Dumm) [“Many of the uncertainties specified by the demurrer in the instant action are with regard to matters not alleged, which, if essential to the cause of action, are grounds for general demurrer, not special”].) FLIA has demurred to the first cause of action on the ground of uncertainty, not failure to state sufficient facts. As stated above, the ground of uncertainty addresses “the allegations actually made.” (Lim, supra, 18 Cal.2d at p. 883.) Therefore, the demurrer is not sustainable based on the argument that Plaintiff must plead more facts.

FLIA’s other arguments are also misplaced. Even if the ground of failure to state sufficient facts was properly specified as a ground, the argument that the FAC lacks specificity as to which practices were unfair or fraudulent would still fail. FLIA’s argument is predicated on the premise that Plaintiff fails to sufficiently allege unfair or fraudulent conduct. However, “there are three varieties of unfair competition: practices which are unlawful, or unfair, or fraudulent.” (Blakemore v. Super. Ct. (2005) 129 Cal.App.4th 36, 48.) Here, Plaintiff alleges a violation of all three varieties, including unlawful conduct. “Ordinarily, a general demurrer does not lie as to a portion of a cause of action, and if any part of a cause of action is properly pleaded, the demurrer will be overruled.“ (Fire Ins. Exchange v. Superior Court (2004) 116 Cal.App.4th 446, 452.) As Plaintiff asserts in opposition, he can still plead a violation of the UCL through unlawful conduct, thus this argument is a demurrer as to only part of the cause of action. Therefore, the demurrer is not sustainable on this basis.

Additionally, as part of FLIA’s argument that greater specificity is required it challenges the veracity of the pleadings. It identifies purported inconsistencies and potential alternative explanations for its actions. This line of argument is not well-taken. A demurrer admits the truth of all the allegations, and difficulty proving allegations does not concern the Court at this stage. (Committee On Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 214 (Committee On Children’s Television, Inc).) Therefore, the demurrer is not sustainable on the basis that there are inconsistencies in the alleged facts, or that FLIA’s alleged actions may potentially have an innocent explanation.

Accordingly, the demurrer to the first cause of action for violation the UCL is OVERRULED.

B. Second Cause of Action for Violation of the FAL

FLIA demurs to the second cause of action for violation of the FAL on the grounds that it “lacks specificity and is uncertain.” (Dem., p. 3:6-7.) As previously discussed, uncertainty is a ground for demurrer, but lack of specificity is not. (Code Civ. Proc., § 430.10.)

Several of FLIA’s arguments against the second cause of action are similar to those already addressed with respect to the first cause of action. For instance, FLIA asserts that the FAC “lacks specificity by failing to reference which advertisement and where in that advertisement it states that [FLIA] was responsible for making payments for repairs.” (Mem. of Pts. & Auth. ISO Dem. at p. 5:14-16.) As previously stated, “[a] special demurrer for uncertainty is not intended to reach the failure to incorporate sufficient facts in the pleading, but is directed at the uncertainty existing in the allegations actually made.” (Lim, supra, 18 Cal.2d at p. 883.) Thus, this is not a proper argument for the ground of uncertainty.

Additionally, the argument Plaintiff must allege additional facts regarding a particular advertisement is properly construed as an argument for the ground of failure to plead sufficient facts, and not uncertainty. (See Dumm, supra, 146 Cal.App.2d at p. 799.)
Furthermore, FLIA repeats the argument that it is possible that FLIA acted properly in placing a hold on the check. As previously stated, the Court must assume the truth of the allegations. (Committee On Children’s Television, Inc., supra, 35 Cal.3d at p. 214.) Thus, as discussed with respect to the first cause of action, this argument is not well-taken.

Accordingly, the demurrer to the second cause of action for violation of the FAL is OVERRULED.

C. Third Cause of Action for Violation of the Consumers Legal Remedies Act

FLIA demurs to the third cause of action for violation of the CLRA on the grounds that it “fails to state facts sufficient to constitute a cause of action, lacks specificity, and is uncertain.” (Dem., p. 3:8-9.) As previously discussed, a lack of specificity is not a distinct ground. (Code Civ. Proc., § 430.10.)

FLIA presents a single argument, particularly that the CLRA does not apply to insurance based upon Fairbanks v. Farmers New World Life Insurance Co. (2009) 46 Cal.4th 56 (Fairbanks). As a threshold matter, it is unclear how this argument could involve the ground of uncertainty. FLA does not explain how the CLRA’s inapplicability would render the third cause of action “so incomprehensible that a defendant cannot reasonably respond.” (Lickiss, supra, 208 Cal.App.4th at p. 1135.) This argument could possibly support the ground of failure to plead sufficient facts in that it would negate critical allegations. (See Rakestraw v. California Physicians’ Service (2000) 81 Cal.App.4th 39, 43 [general demurrer should be affirmed where “the complaint fails to plead, or if the defendant negates, any essential element of a particular cause of action].)

In Fairbanks, the court considered whether life insurance is a good or service subject to the CLRA. (Fairbanks, supra, 46 Cal. 4th at p. 59.) The CLRA prohibits a list of activities when they are “undertaken by any person in a transaction intended to result or that results in the sale or lease of goods or services to any consumer.” (Civ. Code, § 1770, subd. (a) (italics added).) The court determined that the CLRA did not apply to life insurance because the act applied to goods and services, and life insurance did not fall within the statutory definition of either category. (Id. at pp. 60-63.) Part of the court’s reasoning was that the definition of services in the CLRA was barrowed in large part from another statute with a broader definition of services. (Id. at p. 62.) This proceeding statute included language that specifically defined services to include the provision of insurance. (Ibid.) However, when the definition of services was placed in the CLRA, this language regarding insurance was omitted. (Ibid.) From this omission the court concluded that the legislature made a deliberate choice to exclude insurance from the CLRA. (Ibid.) While Fairbanks addressed only life insurance, its reasoning applies with equal force to other types of insurance such as automobile insurance. (See Gutierrez v. Carmax Auto Superstores California (2018) 19 Cal.App.5th 1234, 1257 [stating Fairbanks court concluded that CLRA did not apply to insurance generally].)

In opposition, Plaintiff asserts that the instant case deals with more than just the purchase of insurance. According to Plaintiff, Fairbanks controls only the purchase of insurance, and should not be interpreted to exempt from the scope of the CLRA related actions taken after that purchase.

Plaintiff’s argument is not well-taken because a similar argument was expressly rejected in Fairbanks. There, the court considered drawing a distinction between the sale of insurance, which it held was not a good or service as defined in the CLRA, and “ancillary services” provided by insurers. (Fairbanks, supra, 46 Cal. 4th at p. 65.) The plaintiff in Fairbanks argued that the work done by insurance companies besides the actual sale of insurance such as processing claims should be considered a service—to which the CLRA would apply—even if the sale of insurance itself was not. (Ibid.) The court expressly declined to create such a distinction, reasoning that many sellers of intangible goods that are not covered by the CLRA “provide additional customer services related to the maintenance, value, use, redemption, resale, or repayment of the intangible item.” (Id. at p. 65.) To bring them all within the CLRA because they also offered related services would contradict the legislative decision to exclude them. (Ibid.)

The Court sees no difference between FLIA’s argument that actions following the sale of insurance should be services under the CLRA and the argument rejected in Fairbanks. Therefore, the demurrer is sustainable on this basis.

Plaintiff has the burden to show in what manner he can amend his complaint and how that amendment will change the legal effect of the pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) The basis for Plaintiff’s cause of action is deliberate false statements related to the sale of insurance, and related activities. Plaintiff has not demonstrated how he can amend this cause of action such that the Fairbanks would not bar it. Thus, he has not met this burden.

Accordingly, the demurrer to the third cause of action for violation of the CLRA is SUSTAINED, without leave to amend.

D. Fourth Cause of Action for Breach of Contract

FLIA argues that Plaintiff must attach the contract or plead its terms verbatim, and he has not done so. FLIA makes this argument based upon the ground of failure to state facts sufficient to constitute a cause of action.

Contrary to Plaintiff’s argument, “[i]n an action based on a written contract, a plaintiff may plead the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 199 (Construction Protective Services, Inc.); McKell v. Washington Mut., Inc. (2006) 142 Cal.App.4th 1457, 1489; Maxwell v. Dolezal (2014) 231 Cal.App.4th 93, 98 [citing Construction Protective Services, Inc.].)

FLIA cites several cases in support of its position that a contract must be plead verbatim or attached. These cases are all from Courts of Appeal and have no weight in the face of the contrary case from the California Supreme Court. (See Construction Protective Services, Inc., supra, 29, Cal. 4th at p. 199; see also Melendez v. U.S. Bank National Association (C.D. Cal., Feb. 2, 2016, No. CV1508633SJOAGRX) 2016 WL 446528, at *4 [describing a earlier case as unpersuasive in light of Construction Protective Services, Inc.].)

Accordingly, the demurrer to the fourth cause of action for breach of contract is OVERRULED.

IV. Motion to Strike

FLIA moves to strike remedies from three prayers for relief pursuant to Code of Civil Procedure section 436. FLIA does not identify the ground on which this motion is made. Given the apparent focus on improper remedies, it appears the ground is Code of Civil Procedure section 436, subdivision (a). That ground permits the court to strike “any irrelevant, false, or improper matter inserted in a pleading.” (Code Civ. Proc., 436, subd. (a).)

FLIA identifies allegations on page 17 as present on page 16. Similarly, FLIA states that allegations on page 20 are on page 19. Presumably these are typographical errors and FLIA meant to identify the allegations on pages 17 and 20 with the corresponding line numbers.

None of the prayers to be stricken in the notice of motion and motion correspond to the third cause of action. Yet, in its points and authorities FLIA devotes an entire section to striking punitive damage prayer relative to this cause of action. In any event, treating the motion as directed to punitive damage allegations in the third cause of action, as clearly identified in the points and authorities, the Court finds that section moot in light of the ruling on the demurrer.

Here, FLIA moves to strike remedies from the prayers for relief, including damages, restitution, and attorney’s fees. Specifically FLIA moves to strike the following language from three prayers for relief: (1) “Enter judgment against Defendants for all actual, punitive and other damages to which Plaintiff entitled” ; (2) “Restitution to Plaintiff all profits, advantages, and benefits gained directly from and in connection with Defendants’ nefarious conduct as herein described”; and (3) “Attorneys’ fees.” (MTS at pp. 1:27 to 2:16.)

A. Damages Prayers

1. Prayers Related to UCL and FAL

FLIA asserts actual or punitive damages are not recoverable based on the UCL or FAL because the only remedies for those causes of action are declarative relief and restitution.

FLIA is correct that the remedies available under the UCL and FAL are generally the same, and limited to injunctive relief and restitution. (See Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 695 (Colgan) [“Damages are not available under the False Advertising and Unfair Competition Laws because restitution is the only available remedy under those statutes”]; see Bus. & Prof. Code, §§ 17203 & 17535 [similar statutory language regarding UCL and FAL remedies].) Thus, a plaintiff cannot recover tort damages or punitive damages based upon a violation of these statutes. (See Massachusetts Mutual Life Ins. Co. v. Superior Court (2002) 97 Cal.App.4th 1282, 1292 (Massachusetts Mutual Life Ins. Co.) [“Unlike the UCL, under the CLRA a consumer may recover actual damages, punitive damages and attorney fees”].)

Plaintiff’s argument in opposition does not change this result. Plaintiff argues it has plead facts supporting malice and fraud. For background, punitive damages can be alleged and awarded based on malice, oppression, or fraud. (Civ. Code, § 3294.) Plaintiff’s argument is not well-taken because assuming for sake of argument Plaintiff has plead facts that meet the general pleading requirements for malice or fraud, it would not entitle them to punitive damages for a violation of the UCL or FAL. (See Massachusetts Mutual Life Ins. Co., supra, 97 Cal.App.4th at p. 1292.) As stated above, these specific causes of action have very limited remedies, which do not include damages. (Ibid.) Also, Plaintiff contends that these statutes permit restitution, and thereby permit monetary relief. Plaintiff ignores the important distinction between restitution—which is awardable under the UCL and FAL—and damages which is not. (Colgan, supra, 135 Cal.App.4th at p. 695.)

Accordingly, the motion to strike is GRANTED, without leave to amend, as to the prayer for damages in the first and second causes of action.

2. Prayers Related to Breach of Contract

FLIA asserts that punitive damages are not recoverable for breach of contract causes of action and thus are inappropriate here. FLIA is generally correct that punitive damages are not recoverable based upon breach of contract. (Civ. Code, § 3294, subd. (a) [permitting punitive damages “for the breach of an obligation not arising from contract”] ; Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 960.) However, even if a plaintiff asserts a breach of contract claim, he or she may still recover punitive damages “if the action is also in tort . . . ‘even though the tort incidentally involves a breach of contract.’ [Citation.]” (Miller v. National American Life Ins. Co. of Cal. (1976) 54 Cal.App.3d 331, 336.)

Plaintiff presents no argument as to why punitive damages are proper with respect to the breach of contract cause of action, and quotes law consistent with FLIA’s position. For example, Plaintiff quotes a case for the proposition that “section 3294 […] allows for the recovery of punitive damages in all civil actions not arising from contract.” (Opp., p. 3:26-28.)

FLIA does not advance any argument as to why actual damages would be inappropriate in a breach of contract claim. Damages are an appropriate remedy for breach of contract causes of action. (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515 [contract damages based upon expectations of parties]; see Civ. Code, § 3300.)

Accordingly, the motion to strike is GRANTED, with 10 days leave to amend as to the prayer for punitive damages in the fourth causes of action, but DENIED as to actual and other damages.

B. Restitution Prayers

FLIA moves to strike the entire restitution prayer. As a preliminary matter, the motion to strike is broad, yet FLIA acknowledges elsewhere in their memorandum that restitution is a proper remedy for at least some of the causes of action. They ultimately take issue with the inclusion of the word profits in the prayers for relief. FLIA states “the FAC fails to assert” any law entitling Plaintiff to profits. (Mem. of Pts. & Auth. ISO MTS. at p. 3:16-17.). It does not elaborate on this point, or provide authority for why Plaintiff must make some special showing regarding profits.

Restitution is a remedy expressly permitted by statute for UCL and FAL claims. (Bus. & Prof. Code, §§ 17203 & 17535 [permitting such orders as necessary to “restore to any person” interests in property taken in violation of those statutes]; see Colgan, supra, 135 Cal.App.4th at p. 695.) FLIA’s unsupported argument that profits cannot be recovered here is not well-taken, and the prayer for restitution is proper.

FLIA does not advance any argument as to why a prayer for restitution is inappropriate in a breach of contract cause of action. Restitution damages are not generally forbidden in breaches of contract actions. (See Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231 [restitution may be awarded in lieu of breach of contract damages under some circumstances]; Munoz v. MacMillan (2011) 195 Cal.App.4th 648, 662 [existence of restitution remedy did not foreclose expectation damages].)

Accordingly, the motion to strike is DENIED as to the prayer for restitution in the first, second, and fourth causes of action.

C. Attorney’s Fees Prayers

FLIA argues attorney’s fees are inappropriate here, where Plaintiff has not pleaded a contractual or statutory basis for attorney’s fees. It cites Code of Civil Procedure section 1033.5, subdivision (a)(10), which authorizes the awarding of attorney’s fees as costs based upon statute, contract, or other law. (See Code Civ. Proc., § 1033.5, subd. (a)(10).) Plaintiff also cites, Shadoan v. World Savings & Loan Association (1990) 219 Cal.App.3d 97 (Shadoan), which states that the remedies available under the UCL are limited and that statute does not provide for attorney’s fees. (Shadoan, supra, 219 Cal.App.3d at p. 110, n. 7.)

First of all, FLIA mischaracterizes the FAC in that Plaintiff does allege a statutory basis for attorney’s fees, specifically Code of Civil Procedure section 1021.5. (FAC, ¶ 66.) Code of Civil Procedure section 1021.5 permits recovery of attorney’s fees where the litigation results in the enforcement of an important right affecting the public interest and certain other conditions are met. (Code Civ. Proc., § 1021.5.) Courts have awarded attorney’s fees in UCL actions based upon Code of Civil Procedure section 1021.5. (Walker v. Countrywide Home Loans, Inc. (2002) 98 Cal.App.4th 1158, 1179; see Baxter v. Salutary Sportsclubs, Inc. (2004) 122 Cal.App.4th 941, 944 [denying attorney’s fees in UCL action only because court found specific facts did not meet statutory requirements of section 1021.5].)

Insomuch as FLIA argues that attorney’s fees should not be awarded based upon Shadoan, it overstates that case’s reasoning. Shadoan states that the Business and Professions Code does not internally provide a statutory basis for attorney’s fees based on a UCL causes of action. (Shadoan, supra, 219 Cal.App.3d at p. 110, n. 7.) However, it does not prevent a party from obtaining attorney’s fees under other statutes.

Even if Plaintiff did not allege a statutory basis for attorney’s fees, it would not be a basis to grant the motion to strike. There does not appear to be any legal authority requiring a statutory or contractual basis be affirmatively pleaded to survive a motion to strike. (See Snatchko v. Westfield LLC (2010) 187 Cal.App.4th 469, 497; Chinn v. KMR Property Management (2008) 166 Cal.App.4th 175, 194; Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2017), ¶ 6:275, p. 6-91.)

Accordingly, the motion to strike is DENIED as to the prayer for attorney’s fees in the first, second, and fourth causes of action.