United States District Court, E.D. Michigan, Southern Division
ARROWOOD INDEMNITY COMPANY f/k/a Royal Indemnity Company, Plaintiff,
THE CITY OF WARREN, MICHIGAN, PATRICK MCQUEENEY, as Personal Representative of the Estate of Donald Ingles, and MICHAEL L. CRISTINI, Defendants. MICHAEL L. CRISTINI, Counter-plaintiff and Third-party Plaintiff
ARROWOOD INDEMNITY COMPANY f/k/a Royal Indemnity Company, Counter-defendant, and U.S. FIRE INSURANCE CO., Third-party Defendant.
OPINION AND ORDER GRANTING MOTIONS TO DISMISS, DISMISSING REMAINING CLAIMS WITH PREJUDICE, DISMISSING PENDING DISCOVERY MOTIONS AS MOOT, AND CLOSING CASE
DAVID M. LAWSON, District Judge.
The question presented by the motions to dismiss in this case is whether the insurance companies' hardball negotiation tactics used in the settlement discussions with counter-plaintiff Michael Cristini could amount to fraudulent conduct. The answer, at least in part, is "yes." However, Cristini's allegation that he made his decision to settle his case in reliance on the insurers' false statements about their intention to contribute to the pool of settlement funds, when the insured defendant was readily collectable itself, is not plausible. Therefore, the well-pleaded allegations in Cristini's counter and third-party complaint do not state viable claims of fraud and civil conspiracy. Therefore, I will grant the insurance companies' motions to dismiss, dismiss the remaining claims in this case, and dismiss the pending discovery motions as moot.
According to Michael Cristini's counter and third-party complaint, counter-defendant Arrowood Indemnity Company and third-party defendant U.S. Fire Insurance Company (USFIC) wrote liability insurance policies covering the City of Warren, one of the defendants in a lawsuit Cristini brought for a civil rights violation. In that underlying case, Cristini alleged that the Warren police department withheld exculpatory evidence, resulting in convictions of Cristini and Jeffrey Moldowan for a rape they say they did not commit. Both convictions were overturned, and Cristini and Moldowan were subsequently retried and acquitted, but not before they spent over twelve years behind bars.
Cristini and Moldowan each filed separate lawsuits against the City of Warren and police detective Donald Ingles ("Warren defendants"), among others, for the violation of their civil rights. During discovery, the Warren defendants revealed that they had insurance policies from USFIC and Arrowood that provided potential coverage for their claims. Because of some procedural entanglements, Moldowan's case proceeded on a faster track than Cristini's. The parties in that matter engaged in robust settlement discussions, which led to a settlement agreement.
The Warren defendants disclosed during the Moldowan settlement discussions that both USFIC and Arrowood were actively participating in efforts to settle the case. In October 2011, the Warren defendants settled with Mr. Moldowan for approximately $2.8 million. Both USFIC and Arrowood contributed to the settlement.
Thereafter, a stay that had been entered in Cristini's case was lifted. In September 2011, Arrowood retained additional counsel to assist the City of Warren in its defense against Cristini's claims.
Cristini alleges that on July 18, 2013, counsel for the Warren defendants advised Cristini that its insurer Arrowood was denying coverage for Cristini's claims and would refuse to contribute to or participate in any potential settlement. Counsel for the Warren defendants also conveyed to Cristini that Arrowood would withdraw its counsel assisting the Warren defendants' defense. Arrowood then filed the present case, styled as a declaratory judgment action against the City of Warren, asking the Court to declare that its policy did not cover Cristini's civil rights claims. Arrowood also took the position that it somehow was entitled to recover the funds it had contributed to the Moldowan settlement.
Between October and November 7, 2013, Cristini alleges, the Warren defendants informed him that the insurance coverage available in the Moldowan suit was not available to settle Cristini's claims because Arrowood refused to contribute to any settlement. On November 7, 2013, counsel for Cristini memorialized in writing its understanding that "there is no longer the same amount of insurance coverage as there was in the Moldowan case." Cristini then made a settlement demand for $2.8 million (which matched the Moldowan settlement amount), which apparently exceeded the amount of insurance coverage Warren said was available at the time.
On November 12, 2013, the parties appeared before the Court for a status conference attended by counsel for Cristini and the Warren defendants. Cristini alleges that during the status conference, counsel for the Warren defendants stated that they would not consider any settlement demand by Cristini unless the demand was within their insurance policy limit. Cristini demanded to know that limit. Counsel for the Warren defendants represented that $2.32 million would exhaust coverage limits, all of that apparently coming from the USFIC policy, since Arrowood refused to contribute any amount to the settlement. The City took the position that it would not contribute any municipal assets to a settlement.
In response, Cristini made a settlement demand on November 14, 2013 that would have required a consent judgment against Warren in the amount of $5.5 million, with an agreement that Cristini would not attempt to collect more than $2.32 million from the Warren defendants, apparently agreeing to take an assignment of the city's potential claim against Arrowood under the insurance policy.
On December 3, 2013, the parties again appeared before the Court for a status conference. Cristini alleges that during the conference, counsel for the Warren defendants said that they would not entertain a settlement demand above $2.32 million or consider a consent judgment that exceeded its coverage. They reiterated that the maximum available insurance was $2.32 million because Arrowood would not participate in any settlement.
On December 12, 2013, Cristini made a settlement demand of $2.32 million. Counsel for the Warren defendants confirmed receipt that day and indicated that they "already communicated [the demand] to the necessary carrier and our clients." Counter compl. at ¶ 39.
On December 13, 2013, counsel for the Warren defendants rejected the settlement demand in a letter stating:
I have just concluded a lengthy telephone conference with representatives of the City of Warren and U.S. Fire. As a result of that conference, I have been asked to restate to you our belief that the entire cause of action set forth on behalf of the plaintiff is barred by the applicable statute of limitations. Additionally, we believe that it will be extremely difficult for the plaintiff to meet his burden of proof on the two remaining claims, Brady and failure to train. U.S. Fire has also asked me to advise you that they are resolute in their willingness to proceed to trial. With that, I have been instructed to reject your most recent settlement demand of $2, 320, 000.00. I have been advised that there will be no counter-offer from defendants until the demand of plaintiff is much more reasonable.
Counter compl. at ¶ 40.
On December 18, 2013, the parties appeared before the Court for a final pretrial conference, preparing for a trial that was to commence in early January 2014. Additional negotiations occurred over the next week, and I ordered the parties back to court on December 27, 2013. A settlement was reached that day, and the parties outlined on the record their agreement to settle the case for $1.5 million.
Following the settlement, counsel for the Warren defendants circulated a draft release. According to Cristini, the draft revealed that Arrowood would contribute $500, 000 to the Cristini settlement. That came as a surprise to Cristini, in light of previous representations by counsel for the Warren defendants about Arrowood's intransigence.
On February 12, 2014, Cristini filed an eight-count counterclaim and third-party claim against Arrowood and USFIC for fraud, silent fraud, conspiracy to commit fraud, and negligent misrepresentation. He accused the insurers of acting in concert to induce him to settle his claim for an amount substantially less than its value.
Arrowood and the Warren defendants eventually resolved the claims against one another, including Arrowood's attempt to recover funds from the Moldowan settlement. Those claim have been dismissed. The only claims remaining in this case come from Cristini against the insurers. In his counter and third-party complaint, he alleges fraud as to Arrowood (count I), fraud as to USFIC (count II), civil conspiracy to commit fraud against both insurers (count III), silent fraud as to Arrowood (count IV), silent fraud as to USFIC (count V), civil conspiracy to commit silent fraud against both insurers (count VI), negligent misrepresentation as to Arrowood (count VII), and negligent misrepresentation as to USFIC (count VIII).
Arrowood and USFIC each filed motions to dismiss under Federal Rule of Civil Procedure 12(b)(6). They also argue that the fraud allegations do not satisfy the heightened pleading requirements of Rule 9(b). The Court heard oral argument on June 17, 2014.
"The purpose of Rule 12(b)(6) is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief if all the facts and allegations in the complaint are taken as true." Rippy ex rel. Rippy v. Hattaway, 270 F.3d 416, 419 (6th Cir. 2001) (citing Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993)). Under Rule 12(b)(6), the complaint is viewed in the light most favorable to the plaintiff, the allegations in the complaint are accepted as true, and all reasonable inferences are drawn in favor of the plaintiff. Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008). "[A] judge may not grant a Rule 12(b)(6) motion based on a disbelief of a complaint's factual allegations." Saglioccolo v. Eagle Ins. Co., 112 F.3d 226, 228-29 (6th Cir. 1997) (quoting Columbia Nat'l Res., Inc. v. Tatum, 58 F.3d 1101, 1109 (6th Cir. 1995)). "However, while liberal, this standard of review does require more than the bare assertion of legal conclusions." Tatum, 58 F.3d at 1109; Tackett v. M & G Polymers, USA, L.L.C., 561 F.3d 478, 488 (6th Cir. 2009). "To survive a motion to dismiss, [a plaintiff] must plead enough factual matter' that, when taken as true, state[s] a claim to relief that is plausible on its face.' Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 570 (2007). Plausibility requires showing more than the sheer possibility' of relief but less than a probab[le]' entitlement to relief. Ashcroft v. Iqbal, [556 U.S. 662, 678] (2009)." Fabian v. Fulmer Helmets, Inc., 628 F.3d 278, 280 (6th Cir. 2010). "Where a complaint pleads facts that are merely consistent with' a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557).
Under the new regime ushered in by Twombly and Iqbal, pleaded facts must be accepted by the reviewing court but conclusions may not be unless they are plausibly supported by the pleaded facts. "[B]are assertions, " such as those that "amount to nothing more than a formulaic recitation of the elements'" of a claim, can provide context to the factual allegations, but are insufficient to state a claim for relief and must be disregarded. Iqbal, 556 U.S. at 681 (quoting Twombly, 550 U.S. at 555). However, as long as a court can "draw the reasonable inference that the defendant is liable for the misconduct alleged, ' a plaintiff's claims must survive a motion to dismiss." Fabian, 628 F.3d at 281 (quoting Iqbal, 556 U.S. at 678).
Consideration of a motion to dismiss under Rule 12(b)(6) is confined to the pleadings. Jones v. City of Cincinnati, 521 F.3d 555, 562 (6th Cir. 2008). Assessment of the facial sufficiency of the complaint ordinarily must be undertaken without resort to matters outside the pleadings. Wysocki v. Int'l Bus. Mach. Corp., 607 F.3d 1102, 1104 (6th Cir. 2010). However, "documents attached to the pleadings become part of the pleadings and may be considered on a motion to dismiss." Commercial Money Ctr., Inc. v. Illinois Union Ins. Co., 508 F.3d 327, 335 (6th Cir. 2007) (citing Fed.R.Civ.P. 10(c)); see also Koubriti v. Convertino, 593 F.3d 459, 463 n.1 (6th Cir. 2010). Even if a document is not attached to a complaint or answer, "when a document is referred to in the pleadings and is integral to the claims, it may be considered without converting a motion to dismiss into one for summary judgment." Commercial Money Ctr., 508 F.3d at 335-36. If the plaintiff does not directly refer to a document in the pleadings, but that document governs the plaintiff's rights and is necessarily incorporated by reference, then the motion need not be converted to one for summary judgment. Weiner v. Klais & Co., Inc., 108 F.3d 86, 89 (6th Cir. 1997) (holding that plan documents could be considered without converting the motion to one for summary judgment even though the ...