United States District Court, M.D. Louisiana
DWAYNE M. MURRAY, in his capacity as Chapter 7 Trustee for the Bankruptcy Estate of Employers' Self Insurance Fund,
CANNON COCHRAN MANAGEMENT SERVICES, INC
RULING AND ORDER
JOHN W. deGRAVELLES, District Judge.
This matter came before the court on a Motion to Refer to the Bankruptcy Court Pursuant to 28 U.S.C. § 157 and LR83.4.1 (R.Doc. 17) filed by Plaintiff, Dwayne M. Murray, in his capacity as Chapter 7 Trustee for the Bankruptcy Estate of Employers' Self Insurance Fund; Federal Insurance Company's Motion to Dismiss (R.Doc. 18); Defendant, Navigators Specialty Insurance Company's Motion to Dismiss (R.Doc. 21); and Cannon Cochran Management Services, Inc.'s FRCP Rule 12(b)(6) Motion to Dismiss (R.Doc. 22). All motions were contested. Oral argument was heard on each of these motions on October 23, 2014.
After carefully considering the law, allegations of the Amended Complaint, and arguments of counsel, the Court denies the Motion to Refer to the Bankruptcy Court Pursuant to 28 U.S.C. § 157 and LR83.4.1 (R.Doc. 17). The Court grants Federal Insurance Company's Motion to Dismiss (R.Doc. 18) and Defendant, Navigators Specialty Insurance Company's Motion to Dismiss (R.Doc. 21). And the Court grants in part and denies in part Cannon Cochran Management Services, Inc.'s FRCP Rule 12(b)(6) Motion to Dismiss (R.Doc. 22).
A. Allegations of the Complaint
Plaintiff is Dwayne Murray, Chapter 7 Trustee for Employers Self Insurers Fund ("ESIF"). ESIF is a group self-insurance fund for workers' compensation.
The three Defendants are Cannon Cochran Management Services, Inc. ("Cannon"), Federal Insurance Company ("Federal"), and Navigators Specialty Insurance Company ("Navigators") (collectively, "Defendants"). Navigators and Federal are Cannon's insurers. (Amended Complaint, R.Doc. 6, ¶¶ 9-10).
On June 13, 2002, Cannon's predecessor, Management Services USA, Inc. ("Management"), entered into a contract entitled "Service Agreement Between Employers Self Insurers Fund and Management Services USA, Inc." (the "Service Agreement"). (Amended Complaint, R.Doc. 6, ¶¶ 17-19). Under the Service Agreement, Management agreed to, among other things, serve as ESIF's third party administrator, coordinate and report to excess insurance carriers, communicate with ESIF's excess carriers on reportable claims and timely respond to excess carrier requests and perform and manage the daily business affairs of ESIF's selfinsurance program. (Amended Complaint, R.Doc. 6, ¶¶ 21-22).
Plaintiff alleges that, pursuant to the Service Agreement between Management and ESIF, Management negotiated and obtained for ESIF certain excess workers' compensation and employers' liability reimbursement policies for the policy years 2002-2005 ("Excess policies"). (Amended Complaint, R.Doc. 6, ¶¶ 24-26). Under the excess policies, if the excess insurer was not given written notice of a claim within three years of when Plaintiff learned of the claim, the excess insurer's indemnity to Plaintiff would be reduced by forty percent (40%). (Amended Complaint, R.Doc. 6, ¶¶ 24-25).
Plaintiff has asserted five counts:
1) The first count is for breach of contract against Cannon. Plaintiff claims that an employee (Richard Ryan) of an alleged member (Ryan Construction) of ESIF was injured during the course and scope of his employment on February 12, 2003, triggering a workers' compensation claim and judgment by the workers' compensation court. (Amended Complaint, R.Doc. 6, ¶¶ 34). Plaintiff incurred over one million dollars in connection with the worker's compensation claim. (Amended Complaint, R.Doc. 6, ¶35). Plaintiff alleges Management received the claim around March 12, 2003, but did not report the claim to the excess policies' designated claims administrator ("Clarendon") until October 9, 2006, at the earliest. (Amended Complaint, R.Doc. 6, ¶¶ 32-.7). Because of the late notice, ESIF's excess insurer Clarendon stated it would reduce reimbursement to ESIF for the claim, but to date it has not paid any amounts. (Amended Complaint, R.Doc. 6, ¶¶ 39-40). Because of the failure to obtain reimbursement from the excess insurance policies, ESIF was forced to file bankruptcy. (Amended Complaint, R.Doc. 6, ¶ 47). Plaintiff claims Cannon and/or Management, breached the Service Agreement by providing late notice. (Amended Complaint, R.Doc. 6, ¶¶ 59-66).
2) The second count is for breach of contract against Cannon. Plaintiff claims that the excess policies Cannon and/or Management negotiated failed to comply with regulations concerning the amount of self-insured retention ("SIR"), which allegedly led to an inability to reach the SIR and obtain reimbursement from its excess insurer, and eventually to ESIF's bankruptcy (Amended Complaint, R.Doc. 6, ¶¶ 41-47). Plaintiff claims that this amounts to a breach of the Service Agreement. (Amended Complaint, R.Doc. 6, ¶¶ 67-74).
3) The third count is for aiding and abetting breach of fiduciary duties against Cannon. Specifically, Plaintiff claims that its administrator and board of trustees owed ESIF fiduciary duties and that Cannon, through Management, aided and abetted the breach of those duties. (Amended Complaint, R.Doc. 6, ¶¶ 49-58, 75-89).
4) The fourth count is against Navigators and Federal as Cannon's insurer. Specifically, Plaintiff claims Federal and Navigators issued errors and omissions policy to Cannon and/or Management which entitled Cannon to indemnification against one or more of the claims asserted by Plaintiff. (Amended Complaint, R.Doc. 6, ¶¶ 91-93).
5) The fifth count is for unjust enrichment against Cannon. (Amended Complaint, R.Doc. 6, ¶¶ 94-98).
A. Motion to Refer (R.Doc. 17)
Plaintiff moved to transfer this case to the bankruptcy court. Plaintiff explains that, when he filed his Complaint, the Supreme Court had not yet rendered an opinion in Executive Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.), 134 S.Ct. 2165, 2172 (2014), which clarified a bankruptcy court's authority to render final orders on "non-core" matters that are still "related-to" bankruptcy proceedings. At oral argument, Plaintiff did not deny this Court's authority to hear the case without transferring it to the bankruptcy court.
Defendants oppose the transfer. They argue that judicial efficiency would be better served by keeping the case in the district court. Further, Cannon urges that this Court has expertise in state law and that it would be denied a right to trial by jury in the bankruptcy court.
The Court denies the Plaintiff's motion to refer. Under the Supreme Court's decision in Executive Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.), 134 S.Ct. 2165, 2172 (2014), proceedings that are "otherwise related to a case under title 11" can be heard by the bankruptcy court, which then submits proposed findings of fact and conclusions of law to the district court. The district court must then conduct a de novo review and enter any final orders judgments. Id. The Court believes that judicial efficiency will be better served by keeping the case in this Court and trying the case in the first instance rather than sending it to the bankruptcy court and then having to review the issues de novo. The Court's conclusion is strengthened by the fact that this case involves solely matters of state law that do not require expertise in bankruptcy law.
B. Cannon's Motion to Dismiss (R.Doc. 22)
1. Rule 12(b)(6) standard
The Supreme Court has explained:
Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief." Specific facts are not necessary; the statement need only "give the defendant fair notice of what the... claim is and the grounds upon which it rests.'"
Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 2200 (2007) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Interpreting Rule 8(a) and Twombly, the Fifth Circuit explained:
The complaint (1) on its face (2) must contain enough factual matter (taken as true) (3) to raise a reasonable hope or expectation (4) that discovery will reveal relevant evidence of each element of a claim. "Asking for [such] plausible grounds to infer [the element of a claim] does not impose a probability requirement at the pleading stage; it simply calls for enough facts to raise a reasonable expectation that discovery will reveal [that the elements of the claim existed]."
Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 257 (5th Cir. 2009) (quoting Twombly, 127 S.Ct. at 1965) (emphasis added). Later, in In re Great Lakes Dredge & Dock Co. LLC., 624 F.3d 201, 210 (5th Cir. 2010), the Fifth Circuit explained:
To avoid dismissal [under Fed.R.Civ.P. 12(b)(6)], "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). To be plausible, the complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. In deciding whether the complaint states a valid claim for relief, we accept all well-pleaded facts as true and construe the complaint in the light most favorable to the plaintiff. [ Doe v. Myspace, 528 F.3d 413, 418 (5th Cir. 2008)] (citing [ Hughes v. Tobacco Inst., Inc., 278, 278 F.3d 417, 420 (5th Cir. 2001)]). We do not accept as true "conclusory allegations, unwarranted factual inferences, or legal conclusions." Ferrer v. Chevron Corp., 484 F.3d 776, 780 (5th Cir.2007) (quoting Plotkin v. IP Axess Inc., 407 F.3d 690, 696 (5th Cir.2005)); see also Iqbal, 129 S.Ct. at 1940 ("While legal conclusions can provide the complaint's framework, they must be supported by factual allegations.").
Id. at 215.
Analyzing the above case law, our brother in the Western District stated:
Therefore, while the court is not to give the "assumption of truth" to conclusions, factual allegations remain so entitled. Once those factual allegations are identified, drawing on the court's judicial experience and common sense, the analysis is whether those facts, which need not be detailed or specific, allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft, 129 S.Ct. at 1949, Twombly, 555 U.S. at 556, 127 S.Ct. at 1965. This analysis is not substantively different from that set forth in Lormand, supra , nor does this jurisprudence foreclose the option that discovery must be undertaken in order to raise relevant information to support an element of the claim. The standard, under the specific language of Fed. Rule Civ. P. 8(a)(2), remains that the defendant be given adequate notice of the claim and the grounds upon which it is based. This standard is met by the "reasonable inference" the court must make that, with or without discovery, the facts set forth a plausible claim for relief under a particular theory of law provided there is a "reasonable expectation" that "discovery will reveal relevant evidence of each element of the claim." Lormand, 565 F.3d at 257, Twombly, 555 U.S. at 556, 127 S.Ct. at 1965.
Diamond Services Corp. v. Oceanografia, S.A. De C.V., No. 10-177, 2011 WL 938785, at *3 (W.D.La. Feb. 9, 2011) (citation omitted).
Afterward, in Harold H Huggins Realty, Inc. v. FNC, Inc., 634 F.3d 787 (5th Cir. 2011), the Fifth Circuit explained:
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" A claim for relief is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." A claim for relief is implausible on its face when "the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct."
Id. at 796 (citations omitted). Finally, in Thompson v. City of Waco, Texas, 764 F.3d 500 (5th Cir. 2014), the Fifth Circuit recently summarized the Rule 12(b)(6) standard as thus:
We accept all well-pleaded facts as true and view all facts in the light most favorable to the plaintiff. We need not, however, accept the plaintiff's legal conclusions as true. To survive dismissal, a plaintiff must plead enough facts to state a claim to relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Our task, then, is to determine whether the plaintiff stated a legally cognizable claim that is plausible, not to evaluate the plaintiff's likelihood of success.
Id. at 502-503 (citations and internal quotations omitted).
2. Overview of Cannon's Objections
Cannon objects to Plaintiff's Amended Complaint on several grounds. First, Cannon argues that Plaintiff's claims are perempted or prescribed. Cannon argues that this action is governed by La. R.S. 9:5606, which establishes a three-year peremptive period for claims against insurance agents, brokers, solicitors, and "other similar licensees." Cannon then argues that, even if this statute does not apply, Plaintiff's claims are still prescribed because Plaintiff is asserting tort claims, not contract claims, so the action is governed by the one-year prescriptive period of La. Civ. Code art. 3492.
Second, Cannon argues that Plaintiff has failed to state a claim. Cannon argues that the "notice prejudice" rule bars Plaintiff's claim for failure to timely report a claim to the excess insurer. Cannon also argues that Louisiana law does not recognize a cause of action for aiding and abetting the breach of a fiduciary duty in the absence of a conspiracy. Finally, Cannon argues that Plaintiff cannot assert a claim for unjust enrichment because it has other claims, even if they are prescribed.
3. Peremption under La.R.S. 9:5606
a. Parties' Arguments and Ruling
According to Defendants, all claims related to Cannon's failure as a third-party administrator are time-bared pursuant to La. R.S. 9:5606, which provides:
§ 5606. Actions for professional insurance agent liability
A. No action for damages against any insurance agent, broker, solicitor, or other similar licensee under this state, whether based upon tort, or breach of contract, or otherwise, arising out of an engagement to provide insurance services shall be brought unless filed in a court of competent jurisdiction and proper venue within one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered. However, even as to actions filed within one year from the date of such discovery, in all events such actions shall be filed at the latest within three years from the date of the alleged act, omission, or neglect.
D. The one-year and three-year periods of limitation provided ...