LeDuc v. Kentucky Cent. Life Ins. Co.

• Decision Date: 31 August 1992
• Docket Number: No. C-92-1756 RFP,C-92-2110 RFP.,C-92-1756 RFP
• Citation: 814 F. Supp. 820
• Court: U.S. District Court — Northern District of California
• Parties: Thomas LeDUC and Tom LeDuc Agency, Plaintiffs, v. KENTUCKY CENTRAL LIFE INSURANCE COMPANY, et al., Defendants. Steven TARNOFSKY and Steven Tarnofsky Insurance Services, Inc., Plaintiffs, v. KENTUCKY CENTRAL LIFE INSURANCE COMPANY, et al., Defendants.

814 F. Supp. 820

Thomas LeDUC and Tom LeDuc Agency, Plaintiffs, v. KENTUCKY CENTRAL LIFE INSURANCE COMPANY, et al., Defendants.

Steven TARNOFSKY and Steven Tarnofsky Insurance Services, Inc., Plaintiffs, v. KENTUCKY CENTRAL LIFE INSURANCE COMPANY, et al., Defendants.

Nos. C-92-1756 RFP, C-92-2110 RFP.

United States District Court, N.D. California.

August 31, 1992.

COPYRIGHT MATERIAL OMITTED

Jon L. Edwards, Franklin Brockway Gowdy, Martin L. Fineman, Brobeck, Phleger & Harrison, San Francisco, CA, for plaintiffs.

Robert F. Phillips, Jr., Richard A. Ergo, Bowles & Verna, Walnut Creek, CA, for defendants.

PECKHAM, District Judge.

INTRODUCTION

These actions have been related before this court because they involve the same parties and substantially the same set of facts. The following motions to dismiss and strike by Kentucky Central Life Insurance Company ("Kentucky Central") and certain directors and officers of Kentucky Central ("Individual Defendants") are before the court: (1) Kentucky Central's motion to strike portions of the first amended complaint in the LeDuc action; (2) Kentucky Central's motion to strike portions of the complaint in the Tarnofsky action; (3) Individual Defendants motion to dismiss LeDuc first amended complaint for lack of personal jurisdiction; (4) Individual defendants motion to dismiss Tarnofsky complaint for lack of personal jurisdiction; (5) Kentucky Central's motion to dismiss certain claims in LeDuc first amended complaint under Rule 12(b)(6) and (6) Kentucky Central's motion to dismiss certain claims in Tarnofsky complaint under Rule 12(b)(6).

BACKGROUND

Plaintiffs Thomas LeDuc, the Tom LeDuc Agency, Steven Tarnofsky and Steven Tarnofsky Insurance Services, Inc. were agents of Kentucky Central who solicited and sold life insurance policies for Kentucky Central. Plaintiffs Tarnofsky and LeDuc claim that during the latter part of the 1980's, Kentucky Central and certain of its officers and directors engaged in fraudulent investment practices which they concealed from their agents, LeDuc and Tarnofsky. They claim that Kentucky Central failed to disclose the financial instability of the company and the improper lending practices in order to sell more life insurance and annuity investments at higher premiums.

In addition, Plaintiffs claim that Kentucky Central and its officers and directors perpetuated their scheme to defraud by attempting to silence Kentucky Central agents, competitors and others from disclosing the facts relating to the fraudulent lending practices and policies and deteriorating financial condition. This attempted silencing and fraudulent misrepresentation of the financial condition of the company was allegedly accomplished through various letters mailed to the agents and customers in which Kentucky Central downplayed its recent financial difficulties and suggested that certain of its agents were improperly casting doubts regarding the financial security of the insurance company.

LeDuc and Tarnofsky claim that they were forced to resign as representatives of Kentucky Central as a result of these improper activities by Kentucky Central and its directors and officers. LeDuc and Tarnofsky further claim that Kentucky Central owes them for outstanding commissions.

Plaintiffs' actions assert claims for RICO violations, libel, breach of contract, bad faith interference with prospective economic advantage, fraud, negligent misrepresentation, California Business and Professions Code violations, declaratory relief, and intentional infliction of emotional distress. In general the complaints asserts that: (1) Kentucky Central misrepresented its financial condition to induce the public to purchase its products and, in the process, damaged Plaintiffs; (2) Kentucky Central made libelous statements regarding Plaintiffs; and (3) Kentucky Central breached employment or business contracts with Plaintiffs. The LeDuc and Tarnofsky complaints are based upon the same general factual allegations and assert nearly identical claims. The LeDuc action asserts two claims which are not asserted in Tarnofsky but neither of those claims is at issue in these motions.

Kentucky Central claims that these two RICO actions are a defensive reaction to state court litigation which Kentucky Central initiated against former Kentucky Central agents, including Tarnofsky and LeDuc, for their alleged participation in a campaign of misrepresentation regarding the financial condition of Kentucky Central to induce Kentucky Central policyholders to replace their policies with policies from other insurance companies. Kentucky Central dismissed the state court action without prejudice and brought an action in this court asserting essentially the same claims as those pled in the previous state action in order to have all three actions before a single judge. This third action has been related to these suits.

Kentucky Central maintains that Plaintiffs LeDuc and Tarnofsky have used the fact of Kentucky Central's rating reduction and setbacks in Kentucky Central's mortgage and real estate portfolio to make misleading and false allegations in their complaints about Kentucky Central's financial condition. Kentucky Central asserts that it has filed required financial statements with the SEC and many state insurance departments during the period in question. Kentucky Central claims that its real estate related loses have been fully disclosed to shareholders and agents and have been scrutinized by numerous regulatory authorities.

Kentucky Central acknowledges that it experienced some downgrades in its ratings by A.M. Best and Standard and Poors in 1991. Kentucky Central maintains, however, that it still has adequate funds to meet all of the obligations of its policyholders. Kentucky Central claims that plaintiffs LeDuc and Tarnofsky have seized upon the downgradings and have attempted to create panic among policyholders by causing them to believe that Kentucky Central would be "the next Executive Life". According to Kentucky Central, the activities of LeDuc and Tarnofsky have caused the replacement of hundreds of policies by insureds who obtained their Kentucky Central policies through plaintiffs and other agents.

DISCUSSION

A. Motions of Individual Defendants to Dismiss LeDuc and Tarnofsky Actions for Lack of Jurisdiction:

1. Personal Jurisdiction and Minimum Contacts:

The Individual Defendants, who are officers, members of the board and employees of Kentucky Central seek dismissal of the complaints against them for lack of personal jurisdiction. None of the Individual Defendants lives or works in California and they each claim that they do not have sufficient contacts with California to warrant the exercise of jurisdiction over them in this state.

Personal jurisdiction is determined by the applicable state personal jurisdiction statute and constitutional principles of due process. Data Disc, Inc. v. Systems Tech. Assoc., 557 F.2d 1280, 1286 (9th Cir.1977). California's personal jurisdiction statute confers jurisdiction to the extent permitted by the due process clause. See Cal. Code of Civil Procedure, Section 410.10. The due process clause restricts the exercise of jurisdiction to those situations where a defendant has "certain minimum contacts with the forum state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice". International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945).

Personal jurisdiction over a nonresident of the forum state can be either general or specific. Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir.1990). General jurisdiction is applicable where a defendant's activities in the forum state are "substantial" or "continuous and systematic", even if the cause of action is unrelated to those activities. Data Disc, 557 F.2d at 1287. None of the Individual Defendants lives in California, works in California or owns real property in California, although a few of the Individual Defendants have made occasional business related trips to California. Several of the Individual Defendants have not even been in California in the last five years. Thus, none of the Individual Defendants is sufficiently connected to California to warrant the exercise of general jurisdiction in this case.

California courts may assert specific jurisdiction over non-resident defendants if their activities in the forum give rise to or are related to the litigation. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 413-14, 104 S.Ct. 1868, 1872, 80 L.Ed.2d 404 (1984). Such specific jurisdiction is established by the following three-part test: (1) the out of state defendant must have purposefully directed its activities toward residents of the forum state; (2) the cause of action must arise out of or result from the defendant's forum-related action; and (3) the forum's exercise of personal jurisdiction must be reasonable. Sher, 911 F.2d at 1361.

The mere fact that a corporation is subject to general jurisdiction does not mean that its non-resident officers and directors are subject to jurisdiction as well. Davis v. Metro Productions, 885 F.2d 515, 520 (9th Cir.1989). Each defendant's contacts with the forum state must be examined individually to determine whether that defendant has sufficient minimum contacts to support a finding of jurisdiction. Id. at 522.

In Davis, the Ninth Circuit determined that jurisdiction was appropriately exercised over officers and directors of a corporation where it was demonstrated that the individuals purposefully directed allegedly fraudulent activities toward the forum state. Id. Thus, the court asserted jurisdiction over two corporate directors who were the sole shareholders of a corporation in a RICO action alleging fraud and securities violations where it was shown that these individual directors purposefully availed themselves of the forum state by soliciting business from...