Phillips v. State Farm Fire and Casualty Co.

          ORDER

          G. MURRY SNOW, CHIEF UNITED STATES DISTRICT JUDGE

         Pending before the Court is Defendant State Farm Fire and Casualty Company's (“Defendant's”) Motion to Dismiss Counts III and IV of Plaintiffs' First Amended Class Action Complaint. (Doc. 7.) The Motion is denied.^[1]

         BACKGROUND

         The facts alleged in the complaint are as follows. Defendant is an Illinois corporation engaged in the business of insurance in Arizona. Defendant contracts with Xactware, a company that sells a structural damage estimate program, to adjust residential and commercial property loss claims. Xactware's estimating tool has two different databases: a restoration database and a new construction database. The new construction database is used when property damage is so extensive that a ground up rebuild is required, while the restoration database is used when property damage requires renovation or repairs, but not a ground up reconstruction. Because it includes efficiencies in labor cost associated with ground up construction, the new construction database produces a lower cost estimate than the restoration data base would produce for the same scope of work. Defendant selects which of the two databases to use when adjusting a claim.

         On December 6, 2015, a fire occurred at the home of Plaintiffs Anderson and Jasmine Phillips (“Plaintiffs”), causing considerable damage to the home and Plaintiffs' personal property. Plaintiffs timely submitted a claim to Defendant for their loss and performed their obligations and responsibilities under their insurance policy with respect to the claim. On December 14, 2015, Defendant inspected Plaintiffs' home and personal property. Defendant subsequently estimated Plaintiffs' repair costs at $153, 759.64. Plaintiffs also retained the services of a public adjuster, Skipton & Associates, Inc. (“SAI”). SAI inspected Plaintiffs' home and personal property on December 28, 2015 and submitted a repair cost estimate of $203, 114.69. Defendant refused to pay the higher amount estimated by SAI.

         Plaintiffs filed suit in Maricopa County Superior Court on September 30, 2016 alleging breach of insurance contract and tortious bad faith. While that complaint did not assert a class action theory, it alleged that Defendant had underpaid Plaintiffs' claim by approximately $50, 000. On June 3, 2019, after the court granted leave over Defendant's opposition, Plaintiffs filed their amended complaint, asserting a class action and adding claims for unjust enrichment (Count III) and statutory insurance fraud under A.R.S. § 20-443 (Count IV). Plaintiffs allege Defendant used Xactware's new construction database on claims that did not require a ground up rebuild, including Plaintiffs' claim. Plaintiff further alleges that as a result, Defendant knowingly and intentionally underpaid on replacement cost claims to the detriment of Plaintiffs and other insured parties. Pursuant to the Class Action Fairness Act and 28 U.S.C. §§ 1332(d), 1441, 1446, and 1453(a)-(b), Defendant removed the case to this Court on July 1, 2019. On July 8, 2019, Defendant filed this Motion to Dismiss.

         DISCUSSION

         I. Legal Standard

         To survive dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint must contain factual allegations sufficient to “raise the right of relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). While “a complaint need not contain detailed factual allegations . . . it must plead ‘enough facts to state a claim to relief that is plausible on its face.'” Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1022 (9th Cir. 2008) (quoting Twombly, 550 U.S. at 570). When analyzing a complaint for failure to state a claim, “allegations of material fact are taken as true and construed in the light most favorable to the non-moving party.” Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996). However, “the tenet that a court must accept a complaint's allegations as true is inapplicable to threadbare recitals of a cause of action's elements, supported by mere conclusory statements.” Iqbal, 556 U.S. at 678. Legal conclusions couched as factual allegations are not given a presumption of truthfulness, and “conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss.” Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998).

         II. Analysis

         A. Count III: Unjust Enrichment

         Plaintiffs argue that they and each member of the putative class conferred a direct benefit on Defendant through payments for property insurance, and that Defendant unjustly enriched itself by using new construction costs to calculate renovation losses. Defendant argues that this claim must be dismissed because the parties' dispute is governed by contract (insurance policies) and Counts I and II of the complaint already allege claims arising out of the alleged breach of that contract.

         To state a claim for unjust enrichment in Arizona, a plaintiff must prove, among other elements, the absence of a remedy at law.^[2] Stratton v. Am. Med. Sec., Inc., 266 F.R.D. 340, 353-54 (D. Ariz. 2009). Defendant therefore argues that Plaintiffs cannot recover on an unjust enrichment claim because they have “a relationship with the defendant [] governed by a valid express contract, ” Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 408 (9th Cir. 1992), and can recover through breach of contract remedies. Plaintiffs do not dispute that they and all putative class members have valid commercial or residential property insurance policies with Defendant. However, they argue that their unjust enrichment claim should proceed regardless under the theory of opportunistic breach described in Restatement (Third) of Restitution and Unjust Enrichment, § 39. Opportunistic breach provides that where “a deliberate breach of contract results in profit to the defaulting promisor and the available damage remedy affords inadequate protection to the promisee's contractual entitlement, the promisee has a claim to restitution of the profit realized by the promisor as a result of the breach.” Restatement (Third) of Restitution and Unjust Enrichment, § 39, 2011. Plaintiffs fail to cite a single case in which an Arizona court has adopted this section of the Third Restatement. Nor has the Supreme Court “[]ever before relied on § 39 nor adopted its proposed theory of disgorgement.” Kansas v. Nebraska, 574 U.S. 445, 135 (2015) (Thomas, J, concurring in part and dissenting in part) (describing § 39 as a “novel extension” of restitution principles that “lacks support in the law” upon which “few courts have ever relied”). “The sheer novelty of this proposed remedy counsels against applying it here, ” id., and Plaintiffs cannot rely on this theory to support their claim.

         Plaintiffs next argue that the “mere existence of a contract governing the dispute does not automatically invalidate an unjust enrichment alternative theory of recovery, ” Adelman v. Christy, 90 F.Supp.2d 1034, 1045 (D. Ariz. 2000), because a “theory of unjust enrichment is unavailable only if a plaintiff has already received the benefit of her contractual bargain, ” In re Banner Health Data Breach Litig., No. CV-16-02696-PHX-SRB, 2017 WL 6763548, at *6 (D. Ariz. Dec. 20, 2017). Plaintiffs assert that unjust enrichment is applicable here because they did not receive the benefits promised in their contract with Defendant: “Plaintiffs (and the other ...