Coach-Air LLC v. Davies US, LLC, et al

Coach-Air LLC v. Davies US, LLC, et al Motion: Sanctions Pursuant to California Code of Civil Procedure Section 128.7 Movant: Davies US, LLC, Davies Claims North America, Inc., and Premier Claims Management, LLC (collectively, Defendants) Respondent: Coach-Air, LLC

RELEVANT FACTUAL AND PROCEDURAL BACKGROUND On July 3, 2025, Plaintiff Coach-Air LLC (Plaintiff) filed a Complaint against Defendants Davies US, LLC (Davies); Premier Claims Management, LLC (Premiere), United National Insurance Company (National); Innovative Risk Insurance Services, LLC (Innovative); Global Indemnity Group, LLC (Global); Brown and Riding Insurance Services, Inc. (Brown); Southwestern Insurance Services, Inc. (Southwestern); Southwind Risk Retention Group (Southwind); MHC Managing General Agency (MHC). Plaintiff alleges two causes of action for: (1) insurance bad faith and (2) breach of contract.

Plaintiff filed Amendments to Complaint, naming Great Lakes Insurance SE (GLI) Davies Claims North America, Inc. (Davis Claims); One80 Intermediaries, Inc. (One80) and Southern Kentucky Trucking Association Inc. (SKTA) as Does 1-4, respectively. Defendants National, Global, Brown, MHC, Southwind, GLI, Davis, Davis Claims, Premier, and One80 answered Plaintiff’s Complaint. Defendant Southwestern filed a Demurrer. Defendant Innovative was defaulted.

Defendants seek sanctions pursuant to Code of Civil Procedure section 128.7 against Plaintiff because Plaintiff filed a motion for leave to file an amended complaint. Plaintiff opposes.

ANALYSIS California Code of Civil Procedure Section 128.7 states in pertinent part: By presenting to the court, whether by signing, filing, submitting, or later advocating, a pleading, petition, written notice of motion, or other similar paper, an attorney or unrepresented party is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, all of the following conditions are met:

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It is not being presented primarily for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. The claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law. The allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery. The denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief. (CCP§128.7(b)(1)(2)(3)(4)

Only an attorney or unrepresented party may be sanctioned if section 128.7, subdivision (b)(2) is violated, but if section 128.7, subdivision (b)(1), (b)(3), or (b)(4), are violated then the attorney and his client may be sanctioned. (Code Civ. Proc., § 128.7, subd. (d)(1); Laborde v. Aronson (2001) 92 Cal.App.4th 459, 465-466, overruled on other grounds in Musaelian v. Adams (2009) 45 Cal.4th 512, 520.)

The awarded sanctions are not to be punitive, but they are rather to promote compliance with statutory standards of conduct. (Code Civ. Proc., § 128.7, subd. (d); Malovec v. Hamrell (1999) 70 Cal.App.4th 434, 441.) To award sanctions, the conduct only needs to be objectively unreasonable. (Guillemin v. Stein (2002) 104 Cal.App.4th 156, 167.) Essentially, there are “three types of submitted papers that warrant sanctions: factually frivolous (not well grounded in fact); legally frivolous (not warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law); and papers interposed for an improper purpose.” (Ibid.)

Section 128.7 also imposes a safe harbor provision. First, the sanction motion must be filed separately from any other motion or request and shall describe the alleged action or tactic made in bad faith. (Code of Civ. Proc., §128.7, subd. (c)(1).) Second, the moving party must serve a notice of motion as provided in section 1010 but not file it with the court until 21 days after service of the motion and the challenged action or tactic is not withdrawn or appropriately corrected. (Code of Civ. Proc., §128.7, subd. (c)(1).) The second provision means the service of a formal notice motion is necessary to begin the 21 days. (Galleria Plus, Inc. v. Hanmi Bank (2009) 179 Cal.App.4th 535, 538 (Galleria); Barnes v. Department of Corrections (1999) 74 Cal.App.4th 126, 136.)

The sanction motion served on a party must be the same papers ultimately filed with

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the Court. (In re Marriage of Falcone & Fyke (2008) 164 Cal.App.4th 814, 827; Hart v. Avetoom (2002) 95 Cal.App.4th 410, 414.) The purpose of the safe harbor provision is to permit the offending party an opportunity to avoid sanctions by withdrawing the improper pleading during the safe harbor period. (Martorana v. Marlin & Saltzman (2009) 175 Cal.App.4th 685, 699.) The safe harbor provision must be complied with before sanctions can be issued. (Optimal Markets, Inc. v. Salant (2013) 221 Cal.App.4th 912, 920; Galleria, supra, 179 Cal.App.4th at p. 539.)

Where the record shows a good-faith factual investigation, a reasonable legal theory, ongoing discovery, and an effort to amend the pleading to conform to later-discovered facts, Section 128.7 sanctions are not appropriate. (Kumar v. Ramsey (2021) 71 Cal.App.5th 1110 [“the evidentiary burden to escape sanctions under § 128.7 is light”]; Guillemin v. Stein (2002) 104 Cal.App.4th 156, 160 [“CCP § 128.7, must not be construed so as to conflict with the primary duty of an attorney to represent his or her client zealously.”].) This is especially true where, as here, the relevant information is controlled by the opposing party, and where there has been virtually no substantive discovery completed to date.

In the case at hand, Plaintiff has produced evidence showing a good-faith basis to investigate Premier’s relationship with Davies entities, as evidenced by public records showing common addresses, overlapping identifiers, and significant ties between the entities. Plaintiff has shown that Defendants’ theory is only one interpretation of the law. Claims administrators may face liability where the facts show more than a purely ministerial claimsadjustment role.1 As stated in Reed v. Regal Medical Group, Inc., the Reed court further explained that “where a claims administrator is engaged in a joint venture with an insurer, the administrator ‘may be held liable for its bad faith in handling the insured’s claim, even though the organization is not technically a party to the insurance policy.’” (Ibid.)

This authority directly defeats Defendants’ sanctions theory that Plaintiff’s claims lack merit and are frivolous.

Plaintiff does not need to conclusively prove, at the pleading or leave-toamend stage, that Defendants were in a joint venture, agency relationship, alter ego relationship, or other actionable relationship with the insurer or insurance-program participants. For purposes

1 When there is a direct contractual relationship between the insured and an independent claims adjuster, the adjuster can be held liable for tort damages on a bad faith theory. (Delos v. Farmers Group, Inc. (1979) 93 Cal.App.3d 642, 650-654; Davis v. Continental Ins. Co. (1986) 178 Cal.App.3d 836, 837-841 [independent claims adjuster is ‘in the business of insurance’ for purposes of liability under Ins. Code, § 790.03]; Bodenhamer v. Superior Court (1986) 178 Cal.App.3d 180, 183-185 [same].)

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of Section 128.7, it is enough that Plaintiff’s theory is not “totally and completely without merit.” The very existence of authority recognizing claims administrator liability under joint venture and related theories confirms that Defendants’ “claims administrator” label is not a categorical immunity from all claims, all theories, and all discovery.

Defendants do not explain why they did not file a demurrer or motion to strike to Plaintiff’s Complaint, if they truly felt their position was correct with respect to deficiencies in Plaintiff’s pleading. Instead, Defendants filed an answer to Plaintiff’s Complaint without challenging it by way of demurrer or motion to strike. Defendants’ evidence submitted in support of its motion for sanctions namely discusses Premier and does not really address Davis and Davis Claims’ potential liability for the causes of action plead in Plaintiff’s proposed FAC.

Furthermore, Plaintiff’s proposed FAC preserves the factual core of the original Complaint. It does not abandon Plaintiff’s theory or manufacture a new case. Rather, it clarifies and expands the allegations based on facts learned after the original Complaint was filed, including information obtained from crosscomplaints, limited discovery, policy materials, proof of insurance documents, BRAPD1190 materials produced after the loss, and Defendants’ own filings and disclosures.

RULING 1. Defendant’s Evidentiary Objections Nos. 1-11 are all OVERRULED.

2. Defendant’s Motion for Sanctions under California Code of Civil Procedure Section 128.7 is DENIED.

3. Movant to give Notice.

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