Greenberg v. Equitable Life Assur. Society

Decision Date30 October 1973
Citation110 Cal.Rptr. 470,34 Cal.App.3d 994
CourtCalifornia Court of Appeals Court of Appeals
PartiesDavid GREENBERG, on behalf of himself and all others similarly situated, Plaintiff and Appellant, v. The EQUITABLE LIFE ASSURANCE SOCIETY OF the UNITED STATES, a corporation, Defendant and Respondent. Civ. 41600.

Toxey Hall Smith and George D. Donnahoe, Hollywood, for plaintiff and appellant.

Newlin, Tackabury & Johnson, George W. Tackabury, and Arthur W. Francis, Jr., Los Angeles, for defendant and respondent.

THOMPSON, Associate Justice.

In this appeal from a judgment of dismissal entered after a demurrer to appellant's first amended complaint was sustained without leave to amend, we conclude that the trial court abused its discretion in not permitting further amendment. We therefore reverse the judgment.

Appellant, suing personally and on behalf of a class of persons similarly situated, filed the complaint which began the case at bench on November 12, 1971. The pleading alleges in substance that respondent insurance company promoted and offered home loans to appellant and other members of the class to be secured by deeds of trust, but only on condition that the borrower purchase a whole life, cash value life insurance policy from respondent of a face amount identical to the loan to be assigned as further security for the indebtedness. The pleading also states that the individual and class plaintiffs could have secured other forms of life insurance or whole life policies from other insurers at less cost than the policy respondent sold as a condition to the loans. Respondent demurred to the complaint on the ground that it was legally inadequate to state a class action, was barred by the statute of limitations, and failed to state a cause of action on behalf of either the named plaintiff or the class represented by him. The demurrer was overruled.

By stipulation with respondent, appellant filed a first amended complaint. That pleading is essentially the same as the original complaint but adds allegations seeking attorneys' fees. Respondent filed a demurrer to the amended pleading. The demurrer asserts failure of the first amended complaint to state a cause of action, misjoinder of parties, and uncertainty. The propriety of the class action allegations was attacked by respondent by a simultaneous motion to strike. Legal issue on the sufficiency of the complaint was joined by contentions in points and authorities--those of appellant, plaintiff, asserting that the first amended complaint alleges facts constituting a cause of action pursuant to Insurance Code section 770, and those of respondent, defendant, arguing that section 770 is inapplicable to the facts as alleged in the attacked pleading. The trial court 1 concluded that no cause of action based upon Insurance Code section 770 was alleged. It reasoned that the section, which precludes a lender in the business of financing real or personal property from requiring insurance 'covering such property' to be negotiated through a particular agent or broker,' is inapplicable to the type of transaction alleged in the first amended complaint. Respondent's demurrer was sustained without leave to amend and the motion to strike was placed off calendar.

On this appeal from an ensuing order of dismissal, appellant concedes the validity of the trial court's action in sustaining the demurrer to the first amended complaint. He contends, however, that the trial court abused its discretion in not permitting amendment to the pleading and submits a proposed second amended complaint illustrating the manner in which amendment could be accomplished to state a legally sufficient cause of action.

The proposed amended pleading is founded upon a concept of dealing by respondent in the nature of 'tie-in sales.' It amplifies the provisions of the first amended complaint by allegations that respondent offered otherwise secured loans to home owners only on condition that the borrower purchase high cost cash value adjustable whole life insurance from respondent and that he borrow the entire amount available on any existing policies of life insurance issued to him by other insurers to assist in paying for insurance issued by respondent. The proposed pleading states also that respondent required a security arrangement which denied purchasers of whole life insurance in the alleged transactions the benefits of accumulating cash values on their policies and that the purchasers, including the named and class plaintiffs, were damaged by reason of the excessively high cost of the insurance sold to them by respondent.

Appellant has demonstrated error of the trial court in not granting him a right to amend. An order sustaining a demurrer without leave to amend 'ordinarily constitutes an abuse of discretion, if there is a reasonable possibility that the defect can be cured by amendment.' (3 Witkin, Cal.Procedure (2d ed.) Pleading, § 844.) Liberality in permitting amendment is the rule, not only where a complaint is defective as to form but also where it is deficient in substance, if a fair prior opportunity to correct the substantive defect has not been given. (3 Witkin, Cal.Procedure (2d ed.) Pleading, § 845; see also Halsted v. County of Sacramento, 243 Cal.App.2d 584, 586, 52 Cal.Rptr. 637, 639, '(T)he denial of . . . permission (to amend) is now usually found to be an abuse of discretion, except where the impossibility of amendment to state a cause of action is clear.') Here, for all practical purposes, appellant was not afforded an opportunity to correct the substantive defects in the pleading attacked on demurrer. While that document is denominated a first amended complaint, the original complaint was held not vulnerable to demurrer so that the superseding pleading was filed by stipulation. The demurrer, which was here sustained without leave to amend, was the first successful attack upon appellant's pleading. Thus, if a reasonable possibility of amendment to state a cause of action may be divined from the first amended complaint, the trial court's action in sustaining the demurrer to it without leave to amend must be overturned.

Exercising the compulsory hindsight required of reviewing courts by California's ultraliberal amendment of pleadings rule, we find the reasonable possibility here. While, as conceded by appellant, the first amended complaint fails to state a cause of action created by the provisions of Insurance Code section 770 for the forced selection of an insurance agent or broker, it does contain allegations which suggest a cause of action for restraint of trade prohibited by Insurance Code section 790.03. The pleading indicates also the strong possibility that amendment will ripen the suggestion into the reality of a legally adequate complaint.

Insurance Code section 790.03 states in pertinent part: 'The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance . . . (c) Entering into any agreement to commit, or by any concerted action committing, any act of boycott, coercion or intimidation resulting in or tending to result in unreasonable restraint of, or monopoly in, the business of insurance.' Section 790.03, subsection (c), must be construed in light of similar statutes prohibiting activities in restraint of trade in business other than insurance. 2 'Coercion' prohibited by subsection (c) is thus coercion in the antitrust sense, conduct which constitutes the improper use of economic power to compel another to submit to the wishes of one who wields it. (Atlantic Refining Co. v. Federal Trade Commission, 381 U.S. 357, 368--369, 85 S.Ct. 1498, 14 L.Ed.2d 443; Simpson v. Union Oil Co. of Calif., 377 U.S. 13, 17, 84 S.Ct. 1051, 12 L.Ed.2d 98; United States v. National Retail Lumber Dealers Association (D.C.Colo.) 40 F.Supp. 448, 455.)

Respondent's practice in dealing with its customers for home loans, as alleged in the first amended complaint, constitutes one form of the coercive use of economic power to create an unreasonable restraint of trade. The practice results in an illegal 'tie-in' agreement. 3 "(A) tying arrangement may be defined as an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product . . .. Where such conditions are successfully exacted...

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44 cases
  • Karlin v. Zalta
    • United States
    • California Court of Appeals Court of Appeals
    • March 29, 1984
    ...Although Karlin asserts her action is primarily modeled upon the decisions in Greenberg v. Equitable Life Assur. Society (1973) 34 Cal.App.3d 994, 110 Cal.Rptr. 470; Shernoff v. Superior Court (1975) 44 Cal.App.3d 406, 118 Cal.Rptr. 680 and Royal Globe Ins. Co. v. Superior Court (1979) 23 C......
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    ...alleged tying arrangement because state law regulated the same behavior. Id. at 728. See Greenberg v. Equitable Life Assurance Soc'y of the United States, 34 Cal.App.3d 994, 110 Cal.Rptr. 470 (1973). In contrast, neither New York nor New Jersey statutes regulate interlocks between banks and......
  • Manufacturers Life Ins. Co. v. Superior Court
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    ...illegal conduct ..., and he possesses no authority to enter money judgments for past injuries"]; Greenberg v. Equitable Life Assur. Society (1973) 34 Cal.App.3d 994, 1001, 110 Cal.Rptr. 470 ["the sole disciplinary authority of the commissioner would be to issue a cease and desist order or o......
  • Weingarten v. Block
    • United States
    • California Court of Appeals Court of Appeals
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    ...commencement of trial (Code Civ.Proc., §§ 473, 576). Liberality in permitting amendments is the rule (Greenberg v. Equitable Life Assur. Society, 34 Cal.App.3d 994, 110 Cal.Rptr. 470). As a matter of policy, the ruling of the trial court will be upheld, unless a manifest or gross abuse of d......
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2 books & journal articles
    • United States
    • Full Court Press Zalma on Property and Casualty Insurance
    • Invalid date
    ...(h). This interpretation of section 790.09 has been adopted in several recent cases. In Greenberg v. Equitable Life Assur. Soc’y., 34 Cal. App. 3d 994 (1973), the plaintiff brought a class action alleging that the defendant insurer had illegally compelled borrowers to purchase policies of l......
    • United States
    • Full Court Press Zalma on Property and Casualty Insurance
    • Invalid date
    ...right of action to enforce violations was recognized in favor of insured parties in Greenberg v. Equitable Life Assur. Society, 34 Cal. App. 3d 994, 1001 (1973), where the court held that “. . . the person to whom the civil liability runs may enforce [the section] by an appropriate action.”......

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