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Frischhertz Electric Company, Inc. v. Merchants Bonding Co.

United States District Court, E.D. Louisiana

May 7, 2018


         SECTION “B” (5)


         Before the Court is Defendant Merchants Bonding Company's (“Defendant Merchants”) “Motion to Dismiss for Failure to State a Claim” (Rec. Doc. 6), Plaintiff Frischhertz Electric Company's (“Plaintiff”) Response in Opposition (Rec. Doc. 8), and Defendant Merchant's Reply (Rec. Doc. 14). For the reasons discussed below, IT IS ORDERED that the Motion to Dismiss (Rec. Doc. 6) is hereby DENIED insofar as it seeks to dismiss Counts 2, 6, 7, 8 and 9 of Plaintiff's Complaint.

         IT IS FURTHER ORDERED that the Motion to Dismiss is GRANTED insofar as it seeks to DISMISS Counts 3, 4, and 5 of Plaintiff's Complaint.


         This case originates from a September 2016 consult between Plaintiff and Eustis Insurance, Inc. (“Eustis”). Rec. Docs. 1 and 6. The purpose of the consult was for the possibility of Eustis submitting a surety-bond application on behalf of Plaintiff. Rec. Doc. 1 at 2. On account of the consult, Plaintiff alleges that it shared with Eustis, “sensitive confidential and proprietary financial documentation” that included “detailed financial statements, asset and liability statements, revenue and expense statements, cash flow statements and tax related data” (hereinafter the “Frischhertz Documentation”). Id. Thereafter, Eustis submitted the Frischhertz Documentation to Defendant Merchants in a surety application made on Plaintiff's behalf. Rec. Docs. 1 and 6-5. According to Plaintiff's Complaint, “at all times Frischhertz [Plaintiff] was under the understanding and belief that the financial documentation provided to Eustis Insurance would remain confidential and proprietary.” Rec. Doc. 1 at 2.

         Plaintiff alleges that between October 9, 2016 and October 12, 2016, Defendant Merchants disseminated confidential and proprietary information contained in the Frischhertz Documentation as part of a training session conducted by Defendant Merchants in Des Moines, Iowa (the “Training”). Rec. Doc. 1 at 3. The Training session allegedly included “approximately 50 trainees with over 25 different surety companies, agencies, reinsurers and outside lawyers.” Id.

         Plaintiff alleges that shortly after receiving notice of Defendant Merchants' use of Plaintiff's information, Plaintiff sent Defendant Merchants a demand letter. Rec. Doc. 8-1. On November 15, 2017, Defendant Merchants responded saying that it would investigate the matter. Rec. Doc. 8-2. On November 30, 2017, Plaintiff filed a complaint containing nine (9) causes of action against Defendant Merchants for the above-mentioned dissemination of the Frischhertz Documentation. Rec. Doc. 1. Plaintiff alleges: 1) negligence/breach of privacy; 2) violation of Louisiana Unfair Trade Practices and Consumer Protection Law (“LUPTA”); 3) negligent misrepresentation; 4) negligent hiring; 5) breach of duty of reasonable care, diligence, and judgment under Iowa law; 6) misappropriation under the Iowa Uniform Trade Secrets Act; 7) misappropriation under the Texas Uniform Trade Secrets Act; 8) violation of the Texas Deceptive Trade practices Act; and 9) breach of contract. Overall, Plaintiff's Complaint alleges Defendant Merchants' publishing of confidential and proprietary information has caused damages to its reputation, including being ostracized in the bonding/surety market, and a potential inability to obtain surety bonds from other suppliers in the industry. Defendant Merchants' instant motion seeks to dismiss eight of the nine causes of action in the Complaint filed by Plaintiff. Rec. Doc. 6.


         Rule 12(b)(6) of the Federal Rules of Civil Procedure allows a party to move for dismissal of a complaint for failure to state a claim upon which relief can be granted. When reviewing a motion to dismiss, courts must accept all well-pleaded facts as true and view them in the light most favorable to the non-moving party. Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). However, “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). “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.” Gonzales v. Kay, 577 F.3d 600, 603 (5th Cir. 2009)(quoting Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009))(internal quotation marks omitted). The Supreme Court in Iqbal explained that Twombly promulgated a “two-pronged approach” to determine whether a complaint states a plausible claim for relief. Iqbal, 129 S.Ct. at 1950. First, courts must identify those pleadings that, “because they are no more than conclusions, are not entitled to the assumption of truth.” Id. Legal conclusions “must be supported by factual allegations.” Id. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 1949.

         Upon identifying the well-pleaded factual allegations, courts “assume their veracity and then determine whether they plausibly give rise to an entitlement of relief.” Id. at 1950. 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.” Id. at 1949. This is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. The plaintiffs must “nudge[] their claims across the line from conceivable to plausible.” Twombly, 550 U.S. at 570. This Court analyzes each of the eight causes of action Defendant Merchants seeks to dismiss accordingly.

         COUNT 2 - Violation of Louisiana Unfair Trade Practices and Consumer Protection Law (“LUTPA”)

         Plaintiff alleges that Defendant Merchants' conduct in using and disseminating the Frischhertz Documentation during the Training, and concealment of said disclosure constitutes deceptive and fraudulent business practices under LUTPA. Rec. Doc. 1 at 8. Defendant Merchants' contends that as an insurance company subject to regulation by the Iowa and Louisiana Commissioners of Insurance it is exempt from liability under LUTPA. Rec. Doc. 6-5 at 4-5.

         LUTPA, or Louisiana Statute § 51:1401-1418, declares unlawful and provides a right of action for “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” La. Stat. Ann. § 51:1405. However, “the statute shall not apply to actions or transactions subject to the jurisdiction of certain state regulatory bodies or commissioners, including the insurance commissioner.”[1] Alarcon v. Aetna Cas. & Sur. Co., 538 So.2d 696, 700 (La.App. 5 Cir. 1989). “A trade practice is ‘deceptive' for purposes of LUTPA when it amounts to fraud, deceit, or misrepresentation.” Mixon v. Iberia Surgical, L.L.C., 956 So.2d 76, 80 (La.App. 3 Cir. 2007). Defendant Merchants contends that as an insurer, it is exempt from liability under LUTPA and is subject to the insurance commissioner's regulation. Rec. Doc. 6-5 at 5.

         In Group Life & Health Insurance Co., the Supreme Court was presented with the issue of whether or not certain “pharmacy agreements” were in the “business of insurance” within the meaning of the McCarran-Ferguson Act.[2] Grp. Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205 (1979). The Supreme Court noted the importance of distinguishing between the business of insurance and the business of insurers. It noted that the statutory exemption was for “the business of insurance.” Id. at 211. As a result, the primary element that distinguishes the business of insurance from other business arrangements is the involvement of any underwriting or spreading of risk. Ultimately, the Supreme Court held that the pharmacy agreements did not involve any underwriting or spreading of risk, but were “merely arrangements for the purchase of goods and services by Blue Shield” and “thus legally indistinguishable from countless other business arrangements that may be made by insurance companies.” Grp. Life & Health Ins. Co., 440 U.S. at 214-15. The Fifth Circuit considers three factors determining whether an act is part of the “business of insurance”: “first, whether the practice has the effect of transferring or spreading a policyholder's risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry.” Wiley v. Sec. & Exch. Comm'n, 663 Fed.Appx. 353, 359 (5th Cir. 2016).

         Here, Plaintiff's relationship with Defendant Merchants was not within the business of insurance. While the Frischhertz Documentation was originally provided to Defendant Merchants by way of Eustis for the purposes of obtaining a surety, Defendant Merchants did not ultimately obtain said surety for Plaintiff. In fact. Defendant Merchants repeatedly denies that Plaintiff was ever its “customer.” Rec. Doc. 6. Rather, the alleged dissemination was a decision made by Defendant Merchants for the purposes of the Training; wholly unrelated to any business of insurance services with Plaintiff. The actions challenged by Plaintiff have nothing to do with transferring or spreading a policyholder's risk, are not an integral part of an insurance policy relationship between Defendant Merchants and Plaintiff, and is not limited to entities within the insurance industry.

         Defendant Merchants further argues that Plaintiff's claims are preempted under LUTPA and that Plaintiff lacks standing for its failure to allege facts establishing an “ascertainable loss of money or property.” However, taking Plaintiff's allegations of loss and damages suffered as true the Complaint sufficiently states a claim under LUTPA at this stage of the litigation. See Rec. Doc. 1 at 5, 9. Finally, the one year period in La. R.S. 51:1409(E) is a peremptive period; however, it does not begin to run until a continuing violation ceases. CheckPoint Fluidic Sys. Int'l, Ltd. v. Guccione, 888 F.Supp.2d 780, 792 (E.D. La. 2012) citing Tubos de Acero de Mexico, S.A. 292 F.3d at 481-82. ...

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