GAUNTLETT v. ILLINOIS UNION INSURANCE COMPANY Complaint

8/7/2019 GAUNTLETT v. ILLINOIS UNION INSURANCE COMPANY Complaint

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Case5:11-cv-00455-LHK Document1 Filed01/28/11 Page1 of 13

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GAUNTLETT & ASSOCIATESDavid A. Gauntlett (SBN 96399)Robert Scott Lawrence (SBN 207099)18400 Von Karman, Suite 300 ADRIrvine, California 92612Telephone: (949) 553-1010Facsimile: (949) [email protected]@gauntlettlaw.comAttorneys for PlaintiffGAUNTLETT & ASSOCIATES E-filing

Filed,JAN 2 8 2011

RICHARD W. WIEKINGCLERK. U.S. DISTRICT COURTNORTHERN DISTRICTOF CALIFORNIASAN JOSE

UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF CALIFORNIA, SAN JOSE DIVISION

AVID A. GAUNTLETT d/b/a G A U N T I ~ r N ) & ASSOCIATES, a sole proprietorship, ))Plaintiff, ))vs. ))ILLINOIS UNION INSURANCE COMPANY, )an Illinois corporation, ))Defendant. )------------------------)

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COMPLAINT FO R DECLARATORYJUDGMENT

COMPLAINT FOR DECLARATORY JUDGMEN


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1 COMPLAINT FOR DECLARATORY JUDGMENT2 1. This is an insurance coverage suit seeking to establish that Defendant Illinois Union3 Insurance Company ("Illinois Union") had a duty to defend Plaintiff David A. Gauntlett d/b/a4 Gauntlett & Associates. ("G&A") in the underlying litigation styled as Tarzi v. Gauntlett &5 Associates, et al., Consolidated Superior Courts of California, County of Orange, Central District,6 Case No. 07-CC-08999 (the "Tarzi action"), and that Illinois Union must reimburse G&A for all7 defense expenses incurred therein.89 2.

THE PARTIESPlaintiff David A. Gauntlett is, and at all times mentioned herein was, an individual

10 residing in Orange County, California and doing business as a sole proprietor under the business11 name Gauntlett & Associates ("G&A"). G&A is a law firm with its principal place of business at12 18400 Von Karman Avenue, Suite 300, Irvine, California.13 3. Defendant Illinois Union is, and at all times mentioned herein was, an insurance14 company organized and existing under the laws of the State of Illinois with its principal place of15 business at 525 Monroe Street, Suite 400, Chicago, Illinois. Illinois Union is a surplus lines insurer16 and is not licensed to transact business by the State ofCalifornia.17 JURISDICTION18 4. This is an action for declaratory relief pursuant to 28 U.S.C. 2201. This court has19 jurisdiction over this action pursuant to 28 U.S.C. 1332 in that complete diversity exists between20 the parties. Plaintiff is a citizen ofCalifornia. Defendant is a citizen of Illinois.21 5. The amount in controversy exceeds the sum of $75,000 exclusive of interest and22 costs, and in addition to other and further relief, declaratory relief is sought.23 VENUE AND APPLICABLE LAW24 6. Venue is proper in the United States District Court for the Northern District of25 California pursuant to 28 U.S.C. 139l(a), 139l(c).26 7. Illinois Union is an insurance company actively selling insurance policies throughout27 California. Illinois Union has sufficient contacts with the Northern District of California to be28 subject to personal jurisdiction in this district.

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1 8. Venue is proper in this district because Illinois Union Policy at issue in this matter2 was applied for, negotiated and issued through plaintiff's insurance broker in Palo Alto, California.3 Moreover, initial notice of the claims in the underlying action were submitted through plaintiff's4 insurance broker in Palo Alto, California. Further, the Policy was intended to cover G&A's5 operations throughout the United States, including the Northern District of California.6 9. The substantive rights of the parties are governed by the law of California because the7 contract at issue in this case was executed in California, there is no evidence that the parties did not8 intend to contract pursuant to the laws of the state of California, the underlying case in which a9 defense was wrongfully denied was filed in California, and the policies and interests of California

10 would be most seriously impaired if its laws were not applied.11 THE ILLINOIS UNION POLICY12 10. Illinois Union issued Employment Practices Liability Insurance Policy No. 12 62 65 813 to David A. Gauntlett; dba Gauntlett & Associates, as named insured, effective July 10, 200614 through July 10, 2007 (the "Illinois Union Policy" or "Policy"). A copy of the Illinois Union Policy15 is attached as Exhibit "I."16171819202122232425262728

11.12.

The Policy has a limit of$l million for each First Party Insured Event.The Policy provides in pertinent part the following coverage and defmitions:This policy covers Claims alleging Employment-relatedDiscrimination, Employment-related Harassment, and InappropriateEmployment Conduct liability ....A. We will pay Loss amounts that the insured is legally obligatedto pay on account of a Claim because of an Insured Event to which thispolicy applies. . . .C. Defense. We have the right and duty to defend any Claimmade or brought against any Insured to which this policy applies. . . .A. Claim(s) means:

1. A written demand for monetary damages;2. A civil proceeding commenced by the service of acomplaint or similar pleading;

B. Defense Costs mean those reasonable and necessary expensesthat result from the investigation, settlement or defense of a specificClaim including attorney fees and expenses, the cost of legalproceedings . . . .

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F. First Party Insured Event means actual or alleged acts ofEmployment-related Discrimination, Employment-related Harassment,or Inappropriate Employment Conduct by an insured against anEmployee . . . .G. Inappropriate Employment Conduct means any actual oralleged:3. Employment-related misrepresentation to ... anEmployee . . . .6. Employment-related libel, slander, defamation ofcharacter or any invasion of right of privacy of an Employee ....

I. Loss1. Loss means the amount the insureds become legally9 obligated to pay on account of each Claim . . . made against them for. . . Inappropriate Employment Conduct for which coverage applies,

10 including, but not limited to, damages, back pay and front pay,judgments, any award of pre-judgment and post-judgment interest,11 settlements and Defense Costs.12 (Emphasis added.)13 13. The Illinois Union Policy fails to define any of the following words and phrases: (1)14 "any" (2) "privacy" (3) "invasion of privacy" (4) "right of privacy" (5) "invasion of right of privacy"15 (6) "misrepresent" (7) "misrepresentation" (8) "employee-related misrepresentation."16 THE UNDERLYING TARZI ACTION17 14. Miriam Tarzi ("Tarzi") ftled suit against G&A on August 16,2007 in litigation styled18 as Miriam Tarzi v. David A. Gauntlett dba Gaunt/ett & Associates, et al., Consolidated Superior19 Courts ofCalifomia, County of Orange, Central District, Case No. 07-CC-08999 (the "Tarzi action"20 or "Tarzi complaint"). The thrust of the lawsuit was that Tarzi had been misclassified as an21 "exempt" employee during the period she worked for G&A, that she had been paid as "exempt," and22 that she was now owed overtime wages and other statutory damages under the California Labor23 Laws because she was in fact a "non-exempt" employee during that time.24 15. The Tarzi complaint alleged causes of action for claims including Violations of the25 Unfair Competition Law. A copy of the Tarzi complaint is attached as Exhibit "2."262728

16. The Tarzi complaint alleges in pertinent part that:5. Plaintiff became employed by defendant as a ftle clerkin June of 1998. From the onset of her employment, defendantclassified her as an "exempt" employee . . . .

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1 10. On May 10, 2007, plaintiff provided defendant2 Gauntlett a letter regarding what she reasonably believed to be hischoice to mis-classify her as an "exempt" employee. She requested3 payment for her unpaid overtime hours. When plaintiff returned towork she learned that all of her stored email communications,

4 over 3000, had been deleted from her work computer. Plaintiffimmediately brought this to the attention of defendant's Teclmology5 Manager who stated that he knew nothing about the missingdocuments. He looked at plaintiffs computer and did, however,6 confmn that someone had changed her settings and deleted of [sic]her stored e-mails. Plaintiff then advised defendant Gauntlett that7 someone had logged into her computer, manipulated the settingsand deleted several thousand e-mails. Defendant Gauntlett had no8 response.

9 (Emphasis added.)10 G&A'S TENDER OF DEFENSE TO ILLINOIS UNION111213 17.

AND ILLINOIS UNION'S DENIALIllinois Union Received Timely Notice of Miriam Tarzi's Claim

and Subsequent LawsuitG&A, through its insurance broker, provided timely notice to Illinois Union of the

14 claims made by Tarzi in her May 10, 2007 letter. The claim was reported to Illinois Union on June15 25, 2007. It was submitted by Socius Insurance Brokers, G&A's wholesale broker on this16 placement.17 18. G&A, through counsel, provided notice of the Tarzi action to Illinois Union on18 September 4, 2007, shortly after being served in that action. Such notice included providing Illinois19 Union with a copy of the underlying complaint.20 Illinois Union's Denial of a Defense Provided No Analysis2122 19.

of the Two Grounds for Coverage Asserted HereinBy letter dated September 27, 2007, Illinois Union denied G&A a defense. In the

23 letter, Illinois Union acknowledged receiving G&A's claim for the Tarzi action and the Tarzi24 complaint. It then denied a defense, claiming the allegations in the Tarzi action did not fall within25 the Policy'S definition of covered "Loss" and were also excluded by the Gain or Profit Exclusion,26 the Compensation Earned or Due Exclusion, and the Employment Contracts Exclusion.27 20. Illinois Union did not explain in any detail why it felt the exclusions applied. The28 letter stated in pertinent part:

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Claimant's civil complaint alleges failure to pay certain wagesowed. Under the above Policy, Claimant's allegations do not fallwithin the Policy's definition of covered "Loss." Accordingly, theInsurer is constrained to advise that there is no coverage for thismatter.At [sic1noted above, Claimant is seeking to be reimbursed forunpaid overtime and other wages that were allegedly withheld. TheExclusions section of the Policy specifically excludes coverage forwages owed. Accordingly, we again must advise that there is nocoverage.

A copy of Illinois Union's September 27,2007 denial letter is attached as Exhibit "3."21. Illinois Union's assertion in its denial letter that its Policy provided no coverage for

the claims asserted by Tarzi was untrue.22. Illinois Union's Policy provides express "Inappropriate Employment Conduct"

coverage to G&A for, inter alia, "Employment-related misrepresentation . . . to an Employee" and"invasion of the right of privacy . . . of an Employee."

23. Illinois Union's denial letter failed to acknowledge that the allegations of the Tarzicomplaint potentially implicated coverage for both "misrepresentation" and "invasion of right ofprivacy." Instead, Illinois Union simply ignored the pertinent allegations, and denied coverage withonly the most superficial analysis of any of Tarzi' s claims.

24. Illinois Union's denial letter failed to identify any specific facts which wouldsubstantiate its failure to defend G&A in the underlying action, merely noting that "Claimant's civilcomplaint alleges failure to pay certain wages owed. Under the above Policy, Claimant's allegationsdo not fall within the Policy's definition of covered 'Loss.' Accordingly, the Insurer is constrainedto advise that there is no coverage for this matter."

25. Illinois Union has refused and continues to refuse to reimburse G&A for expensesdespite its obligation to do so. Because of Illinois Union's failure to defend, G&A has incurredexpenses defending itself in the Tarzi action and in securing counsel to enforce its rights under theinsurance Policy issued by Illinois Union.

26. On or about December 12, 2007, a mediation was held between the parties to theTarzi action. The Tarzi action then settled on terms that were within the Policy limits.

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1 I I / TARZI ALLEGES "INVASION OF PRIVACY" NOT EXCLUDED2 BY THE POLICY, REQUIRING ILLINOIS UNION345678910111213141516171819202122232425262728

TO DEFEND THE TARZIACTIONIllinois Union's Policy Includes "Any Invasion of Privacy"

27. Illinois Union's Policy requires it to defend suits alleging "Inappropriate EmploymentConduct," including but not limited to "any invasion of right of privacy of an Employee ...." TheTarzi complaint alleges facts constituting an "invasion of right of privacy of [Tarzi)." Illinois Unionthus had, and has, an obligation under the Policy to defend G&A in the Tarzi action.

28. The Policy fails to define the words "any" or "privacy."29. The Policy similarly fails to define the phrases "invasion of privacy," "right of

privacy," or "invasion of right of privacy."30. In the absence of definition, the words and phrases of the Policy are given their

ordinary meaning as understood by a reasonable person. The commonly accepted defmition of"invasion of privacy" includes the unauthorized accessing of mail and email, as understood by areasonable person.

31. As it fails to define the phrase, the Policy does not limit "invasion of privacy" to itscommon law defmition or to any other meaning. Appending the word "any" in front of "invasion ofright of privacy" has the effect of widening its potential range of meanings to the broadest extentimaginable.

32. The Policy contains no "publication" requirement and thus does not require anypublication to be made in conjunction with "any invasion of right of privacy." Mere intrusion intomaterial that Tarzi wished to keep secret constitutes an invasion of Tarzi's privacy sufficient totrigger the duty to defend under the Policy.

33. The Policy provides no guidance or exemplars as to what constitutes "invasion ofprivacy," and does not require that the allegations of "invasion of privacy" take any discrete form. Aseparate cause of action for "invasion of privacy" is not required to trigger the duty to defend, asallegations that are buried in other asserted causes of action or which could give rise to anamendment trigger a defense duty.



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1 I I / G&A Is Alleged to Have Invaded Tarzi's "Pr ivacy" by Accessing and Deleting2 3,000 Emails on Her Computer Without Permission3456789

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34. G&A's alleged conduct, referenced in the Tarzi complaint at paragraph 10, invadedTarzi's right of privacy by virtue of accessing and deleting "all of her stored email communications,over 3000" from her computer. The alleged accessing of Tarzi's private email implicates the well-established "secrecy" prong of the right of privacy - e.g., the right to keep the contents of one'sletters safe from prying eyes.

35. Contextually, Tarzi's allegations that G&A "logged onto her computer, manipulatedthe settings and deleted several thousand e-mails" and then refused to own up to it when sheconfronted him about it, lead to the reasonable inference that Tarzi is complaining that such actionswere undertaken without her permission, consent, or prior knowledge. Reasonable inferences drawnfrom pled facts are sufficient to trigger Illinois Union's duty to defend.

36. The implication from Tarzi's allegations in paragraph 10, that G&A accessed hercomputer and deleted some 3,000 emails without her permission or consent, falls within thedefinition of "invasion of privacy" as expressed by the Restatement (Second) of Torts, which statesthat invasion of privacy consists of things such as "examination into one's private concerns, as byopening private and personal mail."

37. Tarzi's accusation of improper accessing of her personal stored email implicates the"invasion of privacy" coverage of the Policy, which is unlimited by definition or stricture, andcovers "any invasion ofprivacy of an Employee."

No Policy Exclusion Bars a Defense for Any "Invasion of Privacy" Claims38. No Policy exclusions bar a defense.39. The Gain or Profit Exclusion of the Policy does not apply because G&A's potential

liability for unpaid wages is independent of the invasion ofprivacy conduct alleged against G&A.40. The Compensation Earned or Due Exclusion of the Policy does not apply because,

again, G&A's potential liability for unpaid wages is independent of the invasion of privacy conductalleged against G&A.

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I 41. The Employment Contracts Exclusion of the Policy does not apply because G&A's2 potential liability for breach of any written employment agreement is independent of the invasion of3 privacy conduct alleged against G&A.4 42. Paragraph 10 of Tarzi's complaint contextually makes clear that the accessing of her5 computer and deletion of all her emails - some 3,000 collected over the course of her employment-6 was done in direct retaliation for Tarzi's making a written demand on G&A for payment of her7 unpaid overtime hours based on her claim that she had been misclassified as an "exempt" employee.8 TARZI ALLEGES EMPLOYMENT-RELATED MISREPRESENTATIONS NOTEXCLUDED BY THE POLICY, REQUIRING ILLINOIS UNION9 TO DEFEND THE TARZI ACTION

10 Illinois Union's Policy Covers An Employer's Misrepresentations11 43. The Tarzi complaint alleges facts constituting an "employment-related12 misrepresentation" to Tarzi. Illinois Union thus had and has an obligation under the Policy to defend13 G&A in the Tarzi action.14 44. Illinois Union's Policy requires it to defend suits alleging "Inappropriate Employment15 Conduct," including but not limited to "Employment-related misrepresentation to . . . an Employee."16 45. The Policy does not define "misrepresentation" or "employment-related17 misrepresentation." Thus, under well-established principles of contract construction, the court must18 look to the ordinary definition of "misrepresentation" as understood by a reasonable person.19 46. An ordinary understanding of "misrepresentation" is that its meaning includes the20 "presentation of information in a way that is inconsistent with the truth."21 Alleged Misclassification of Tarzi as an Exempt Employee Is an Employment-Related2223 47.

Misrepresentation to an EmployeeG&A's alleged "choice" to "mis-classifY" Tarzi as an "exempt" employee, referenced

24 in the underlying complaint at paragraphs 5 and 10, constitutes a "misrepresentation" under existing25 case law.26 48. The Tarzi complaint's allegations that G&A owed and had failed to pay Tarzi27 overtime wages and other statutory penalties under existing California Labor Laws give rise to the28 reasonable inference that Tarzi was told.that she was paid as "exempt" and disputed the truth of that

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I assertion.2 49. Tarzi's allegations of "mis-classification" demonstrate her knowledge of her3 employment status, which - although hardly remarkable given that she worked for G&A for4 approximately 10 years - provides circumstantial evidence that an alleged "misstatement" regarding5 her status had been made to Tarzi during that time.6 50. Tarzi's allegations of "mis-classification" are consistent with one accepted definition7 of "misrepresentation" - as a representation of facts which is inconsistent with the truth. T arzi' s8 allegations of "misrepresentation" in the underlying Tarzi action are thus sufficient to trigger Illinois9 Union's duty to defend even when buried in the language of the underlying complaint.

10 51. The fact that the underlying complaint does not assert any cause of action forI I negligent "misrepresentation" or fraudulent "misrepresentation" is irrelevant, as California's liberal12 pleading policy makes clear that where the claim "possibly" or "potentially" could be asserted, or13 where the complaint could be amended to assert a discrete claim covered by the policy, the duty to14 defend is triggered.15 The FLSA Exclusion Does Not Bar a Defense forEmployment-Related Misrepresentation to Tarzi161718 apply.19

52.

53.

The Fair Labor Standards Act Exclusion ("FLSA Exclusion") of the Policy does not

Allegations of misclassification of an employee as "exempt" and a corresponding20 failure to pay overtime and provide other required benefits under the California Labor Code evince a21 potential for coverage notwithstanding the FLSA Exclusion.22 54. Courts construing similar FLSA exclusions I I I EPL policies have ruled that23 allegations of misrepresentations about an employee's status are sufficient to state a claim for24 potential coverage which is not negated by the existence of the FLSA exclusion.25 55. The FLSA Exclusion does not apply here because Tarzi's allegations of G&A's26 misrepresentation of her employment status give rise to potential claims under common law theories27 of intentional misrepresentation, negligent misrepresentation, and fraudulent concealment, among28 other theories, which can be maintained independently of any statutory remedy for unpaid wages to



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1 which the FLSA Exclusion might apply.2 FIRST CAUSE OF ACTION3 Declaratory Relief - Duty to Defend4 56. G&A, by this reference, incorporates each and every allegation set forth in the above5 paragraphs of this Complaint as though fully alleged herein.6 57. By issuing and delivering the Policy, Illinois Union agreed to provide a defense for7 suits alleging "any invasion of right of privacy of an Employee."8 58. By issuing and delivering the Policy, Illinois Union agreed to provide a defense for9 suits alleging any "Employment-related misrepresentation . . . to an Employee."

10 59. Illinois Union is obligated under the Policy to pay attorneys' fees and costs incurred11 in the defense of the Tarzi action. Illinois Union breached its duty to G&A by failing to provide a12 defense in the Tarzi action.13 60. G&A has fully performed all of the obligations and conditions to be performed by it14 under the Illinois Union Policy and/or has been excused from performing same as a result of Illinois15 Union's breach of its duty to defend.16 61. An actual, bona fide controversy exists between G&A, on the one hand, and Illinois17 Union, on the other hand, that requires judicial declaration by this Court of the parties' rights and18 duties. Namely, the parties disagree about whether Illinois Union had and has a duty to defend G&A19 in the Tarzi action and an obligation to pay all of the attorneys' fees and related costs it has incurred20 to defend that action.21 PRAYER FOR RELIEF22 WHEREFORE, Plaintiff G&A prays for judgment against Defendant Illinois Union as23 follows:24 I. That the Court issue judgment declaring Illinois Union has and had a duty to defend25 G&A under the Policy it issued to G&A against claims asserted in the Tarzi complaint;26 2. That the Court issue judgment declaring Illinois Union must promptly pay to G&A all27 attorneys' fees and costs incurred by G&A in defense of the Tarzi complaint, including settlement28 costs and pre-judgment interest accrning thereon at the statutory rate;



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I 3. For G&A's attorneys' fees incurred herein plus interest on said fees at the highest rate2 allowed by law from the date of entry of judgment until paid in full;3456789

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For total costs of the suit herein; and4.5. For such other and further relief as the Court may deem just and proper.

Dated: January 28, 2011

169866.1-10008-046-1128/2011 I I

GAUNTLETT & ASSOCIATES

B Y : ~ Robert Scott Lawrence

COMPLAINT FOR DECLARATORY JUDGMENT


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1 LIST OF EXHIBITS2 Exhibit "1" Employment Practices Liability Insurance Policy No. 12 62 65 8 issue to David A.Gauntlett; dba Gauntlett & Associates, as named insured, effective July 10, 20063 through July 10, 20074 Exhibit "2" Complaint filed August 16, 2007 styled as Miriam Tarzi v. David A. Gaunt/eft dbaGauntlett & Associates, et al., Consolidated Superior Courts of California, County of5 Orange, Central District, Case No. 07-CC-089996 Exhibit "3" Illinois Union's September 27, 2007 denial letter789

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GAUNTLETT v. ILLINOIS UNION INSURANCE COMPANY Complaint