In re PFA Ins. Mktg. Litig.

696 F.Supp.3d 822

IN RE PFA INSURANCE MARKETING LITIGATION.

Case No. 4:18-cv-03771 YGR

United States District Court, N.D. California

Signed June 15, 2022

ORDER GRANTING IN PART AND DENYING IN PART MOTIONS FOR SUMMARY JUDGMENT; ORDER RE: MOTIONS TO SEAL

Re: Dkt. Nos. 252, 263, 253, 255, 258, 262, 264, 270, 271, 273, 275, 277, 279, 280, 293.

Yvonne Gonzalez Rogers, United States District Court Judge.

Plaintiffs Dalton Chen and Youxiang Eileen Wang bring this class action against defendants Life Insurance Company of the Southwest ("LSW") and Premier Financial Alliance ("PFA") for state-law claims arising out of defendants' alleged endless chain scheme. Now pending are two motions for summary judgment brought by each defendant, Docket Nos. 252, 263, and motions to seal material filed in connection with the same, Docket Nos. 253, 255, 258, 262, 264, 270, 271, 273, 275, 277, 279, 280, 293.¹

Having carefully considered the pleadings, the record, the parties' briefs, and the argument presented at the hearing held on May 31, 2022, and for the reasons set forth below, the Court GRANTS IN PART AND DENIES IN PART the motions for summary judgment and it GRANTS IN PART AND DENIES IN PART the motions to seal.

I. MOTIONS TO SEAL

As a preliminary matter, both sides have submitted administrative motions to seal documents or portions of documents offered in support of their summary judgment motions. See Docket Nos. 253, 255, 258, 262, 264, 270, 271, 273, 275, 277, 279, 280, 293. The standard for sealing documents in connection with summary judgment motions requires a showing of "compelling reasons supported by specific factual findings" as set forth in Pintos v. Pacific Creditors Ass'n, 605 F.3d 665, 678 (9th Cir. 2010). The Court finds that the sealing requests here are over-broad in light of that standard and that compelling reasons have not been established to seal certain documents to the extent requested. The Court has considered the basis offered for sealing, as well as the significance to the Court's decision of the portions sought to be sealed, in determining which portions to cite or quote in this order. The motions to seal are granted only insofar as they are not necessary to the Court's analysis as set forth in this order.

Therefore, to the extent that the Court has quoted or recited in this order the contents of any specific portion of a document or material subject to a motion to seal, the Court DENIES the motion to seal that information for lack of compelling reasons shown. The motions to seal are otherwise GRANTED for compelling reasons shown.

II. BACKGROUND

In the Consolidated Class Action Complaint, Docket No. 131, plaintiffs allege as follows:

LSW sells life insurance products through an alleged fraudulent multilevel marketing scheme that is jointly operated by LSW and PFA. The alleged scheme targets immigrants and their families with promises of financial success derived from recruiting people to join PFA and sell "the Living Life Indexed Universal Life Insurance" policy ("Living Life policy") issued by LSW, which is co-branded by LSW under the trade name National Life Group ("NLG") and PFA. Id. ¶¶ 1, 81. This policy is offered only through PFA, meaning that a person cannot buy this policy unless it buys it through PFA. Id. ¶ 51. The Living Life policy is an indexed universal life ("IUL") insurance policy, meaning that it provides a permanent life insurance benefit, as well as a cash component based on a rate of return tied to a financial index, subject to a cap, floor, and participation rate set by the insurer. Id. ¶ 2. Indexed universal life insurance is generally regarded as more complex than other forms of permanent life insurance. Id.

Pursuant to the alleged fraudulent scheme at issue, PFA instructed plaintiffs and other PFA "associates" or "agents" to recruit other people to sell the Living Life policy, who, in turn, will be instructed to recruit more people to sell the Living Life policy, and so forth. Id. ¶ 3. Prospective PFA associates are exposed to representations indicating that, by recruiting more associates, they will be able to achieve financial success and independence, but they are not informed that their actual prospects for financial success and advancement within PFA are very low and that only very few make significant amounts of money or make it to the top of the PFA hierarchy. Id. ¶¶ 3-4. Prospective PFA associates are also exposed to representations indicating that purchasing a Living Life policy will assist them in selling policies to others, in advancing through PFA's hierarchy, and in achieving success and personal wealth. See, e.g., id. ¶¶ 28-29, 33-34. PFA does not disclose that those at the top of the chain will be able to reap the greatest financial benefits from the scheme or that those at the bottom of the chain will be disappointed if the supply of new recruits is exhausted. Id. ¶ 4.

Plaintiffs allege that they would not have joined PFA or purchased Living Life policies if they had known about their true chances of success at PFA. Id. ¶¶ 130, 138, 147.

Plaintiffs assert claims for violations of (1) the Endless Chain Scheme law, Cal. Penal Code § 327, as a predicate for their claim under the unlawful prong of the Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200, et seq.; (2) the UCL under the unlawful and unfair prongs as to both defendants, and under the fraudulent prong as to PFA only; and (3) the New Jersey Consumer Fraud Act ("NJCFA"), N.J. Stat. § 56:8-1, et seq.; in addition to (4) fraud as to PFA only; and (5) civil conspiracy.

With respect to all claims, plaintiffs allege that both defendants acted as a principal, agent, or partner of the other, and aided and abetted the other, in connection with the alleged scheme. Id. ¶¶ 92-93.

On May 14, 2021, plaintiffs moved for certification of proposed classes under Rules 23(b)(2) and 23(b)(3) based on their claims under each of the three prongs of the UCL and the New Jersey Consumer Fraud Act. On November 3, 2021, the Court granted the motion for certification as to a California subclass under Rule 23(b)(3) with respect to plaintiffs' claims under the unlawful and unfair prongs of the UCL. See Docket No. 239. The Court otherwise denied the motion without prejudice. See id.

The California subclass is comprised of:

All persons who enrolled as Premier associates and purchased one or more Living Life policies within California between January 1, 2014 and the present.²

See id. at 38.

III. LEGAL STANDARD

The parties do not dispute the general summary judgment standard, which is well-known and well-established, including the inferences to be given and the burdens. Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir. 1987).

IV. DISCUSSION

A. Plaintiffs' Objections to Certain Evidence

Before turning to the substance of the summary judgment motions, the Court first addresses plaintiffs' objections to some of the evidence presented.

Plaintiffs request that the Court decline to consider certain evidence filed by PFA in support of its motion for summary judgment, namely statements in David Carrol's declaration stating that PFA prioritizes training its agents over recruitment, as well as an entire declaration by a P-Trac accountant, which states that the $125 technology fee is paid directly to P-Trac. Docket No. 271-2 at 15. Plaintiffs argue that they would be prejudiced if the Court considers this evidence in light of PFA's conduct in discovery, namely (1) PFA's failure to produce its head trainer, Jack Wu, for a deposition despite a court order requiring that he appear for deposition; and (2) PFA's and P-Trac's refusal "to provide any discovery concerning P-Trac" to plaintiffs. See id. In support of the request, plaintiffs cite cases in which courts have imposed Federal Rule of Civil Procedure 37 sanctions for discovery misconduct. See id.

In this district, a party seeking sanctions under Federal Rule of Civil Procedure 37 in connection with a dispute about discovery is required to file a separate motion and notice such motion for a hearing, and that motion must be made as soon as practicable after the filing party learns of the circumstances that it alleges make the motion appropriate. See Civil L.R. 37-4 (providing that a request for sanctions under Rule 37 in connection with a dispute about discovery must comply with Civil Local Rule 7-8); Civil L.R. 7-8 (providing that a motion for sanctions must be separately filed and noticed for a hearing and must be made "as soon as practicable after the filing party learns of the circumstances that it alleges make the motion appropriate").

Here, plaintiffs' request for the exclusion of the evidence in question does not comply with Civil Local Rules 37-4 and 7-8, as plaintiffs failed to file a separate motion for sanctions as soon as they discovered the purported discovery misconduct in question. The Court, therefore, DENIES plaintiffs' request on that basis.

B. Motions for Summary Judgment

Each defendant moves for summary judgment. PFA moves as to plaintiffs' claims under the UCL's unlawful prong and unfair prong, the NJCFA, for fraud, and for civil conspiracy. LSW moves as to the same claims, except fraud. However, LSW also moves as to plaintiffs' requests for injunctive relief, and plaintiffs' theories of liability premised on agency, partnership, aiding and abetting, and co-conspiracy. Below, the Court addresses the issues raised in defendants' motions on a claim-by-claim basis.

1. Claim under the unlawful prong of the UCL based on violations of the Endless Chain Scheme law

As noted above, plaintiffs assert a claim against both defendants under the unlawful prong of the UCL premised on alleged violations of California's Endless Chain Scheme law ("ECL"), California Penal Code § 327, arising out of PFA's recruitment-based marketing scheme. The Court certified...