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City of Orem v. Evanston Insurance Co.

United States District Court, D. Utah

May 5, 2017

CITY OF OREM and JAMES LAURET, Plaintiffs,
v.
EVANSTON INSURANCE COMPANY, Defendant.

          Jill N. Parrish District Judge

          MEMORANDUM DECISION AND ORDER

          Paul M. Warner Chief United States Magistrate Judge

         District Judge Jill N. Parrish referred this matter to Chief Magistrate Judge Paul M. Warner pursuant to 28 U.S.C. § 636(b)(1)(A).[1] Before the court is Plaintiffs the City of Orem's and James Lauret's (collectively “Plaintiffs”) Motion for Leave to File a First Amended Complaint.[2] Having reviewed the parties' briefs and the relevant law, the court renders the following Memorandum Decision and Order.[3]

         BACKGROUND

         In 2014, during the Summerfest Parade sponsored by the City of Orem (the “City”), Nylie and Liam Tanaka (the “Tanakas”) were injured by an explosion.[4] Subsequently, the Tanakas filed a personal injury lawsuit in state court against the City and the chairman of the Summerfest, James Lauret (“Mr. Lauret”).[5]

         During the incident, the City was covered by a general commercial liability policy issued by Defendant Evanston Insurance Company (“Evanston”).[6] Pursuant to the Evanston policy, Plaintiffs tendered the defense of the Tanakas lawsuit to Evanston.[7] After investigating the incident and seeking independent legal advice, Evanston determined that the Tanakas lawsuit fell outside the policy's coverage and, therefore, Evanston had no duty to defend and indemnify the City.[8] In response, Plaintiffs defended the Tanakas lawsuit and eventually reached a settlement.[9]

         During the pendency of the Tanakas lawsuit, Plaintiffs filed the above captioned lawsuit in state court seeking a declaratory judgment that Evanston had a contractual duty to defend Plaintiffs and that the Tanakas' claims are covered by the Evanston policy.[10] Plaintiffs also ask for relief under theories of breach of contract and breach of the implied covenant of good faith and fair dealing.[11] Furthermore, Plaintiffs claim they are entitled to “the amount of any costs or expenses defending the [Tanakas' lawsuit], any amount paid in settlement . . ., and any other amounts this court deems just.”[12]

         On May 20, 2016, Evanston removed this action to federal court.[13] On February 15, 2017, the court granted the parties' stipulated motion for an Amended Scheduling Order.[14] The Amended Scheduling Order specifies that the last day to file amended pleadings was Saturday, April 1, 2017.[15] On April 3, 2017, Plaintiffs filed the instant motion seeking leave to amend the complaint to add additional causes of action for breach of fiduciary duty, intentional infliction of emotional distress, and negligent infliction of emotional distress.[16]

         STANDARDS OF REVIEW

         Pursuant to Rule 15(a)(2) of the Federal Rules of Civil Procedure, the court “should freely give leave [to amend] when justice so requires.” Whether to provide a party leave to amend its pleadings “is within the discretion of the trial court.” Minter v. Prime Equip. Co., 451 F.3d 1196, 1204 (10th Cir. 2006) (quotations and citation omitted). The court may deny leave to amend only where there is a “showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment.” Bylin v. Billings, 568 F.3d 1224, 1229 (10th Cir. 2009) (quoting Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993)).

         Evanston's opposition to Plaintiffs' motion relies primarily on futility grounds.[17] The cornerstone of a charge of futility is whether the proposed complaint would survive a motion to dismiss. See Anderson v. Suiters, 499 F.3d 1228, 1238 (10th Cir. 2007) (finding plaintiff's “proposed amendments would be futile because the two new claims would be subject to dismissal”). In deciding a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the court presumes the truth of all well-pleaded facts in the complaint, but need not consider conclusory allegations. Tal v. Hogan, 453 F.3d 1244, 1252 (10th Cir. 2006), cert. denied, 549 U.S. 1209 (2007). The court is not bound by a complaint's legal conclusions, deductions, and opinions couched as facts. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 565 (2007). Furthermore, though all reasonable inferences must be drawn in the non-moving party's favor, a complaint will only survive a motion to dismiss if it contains “enough facts to state a claim to relief that is plausible on its face.” Id. at 570. “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.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (citation omitted).

         DISCUSSION

         In addition to supplementing the causes of action in the original complaint, Plaintiffs' proposed First Amended Complaint adds claims against Evanston for breach of fiduciary duty, intentional infliction of emotional distress, and negligent infliction of emotional distress.[18]Additionally, the First Amended Complaint demands punitive damages.[19] In response, Evanston argues that Plaintiffs' motion should be denied because the motion is untimely, futile, and would make it impossible for the parties to comply with the discovery deadlines set forth in the Amended Scheduling Order.[20]

         At the outset, the court recognizes that Plaintiffs' motion was filed in conformity with the Amended Scheduling Order. The Amended Scheduling Order specifies that the deadline to file amended pleadings was Saturday, April 1, 2017.[21] Consistent with Rule 6 of the Federal Rules of Civil Procedure, the parties had until April 3, 2017, to file amended pleadings. See Fed. R. Civ. P. 6(a)(2)(C) (“[I]f the period would end on a Saturday, Sunday, or legal holiday, the period continues to run until the same time on the next day that is not a Saturday, Sunday, or legal holiday.”). Similarly, discovery deadlines are rarely set in stone. The court has discretion to adjust discovery deadlines to accommodate the needs of the case. Therefore, the Amended Scheduling Order poses no bar to Plaintiffs' motion.

         In the court's view, Plaintiffs' motion should be granted unless the court finds that allowing Plaintiffs to amend would be futile. The court has carefully reviewed the First Amended Complaint and finds that Plaintiffs fail to satisfy the facial plausibility demands of Rule 12(b)(6). Plaintiffs merely recite legal conclusions and do not offer the court a factual basis demonstrating they are entitled to relief. Accordingly, Plaintiffs' Motion for Leave to file a First Amended Complaint is denied.

         A. Breach of the Implied Covenant of Good Faith and Fair Dealing

         The First Amended Complaint includes additional allegations that Evanston's denial of coverage was in violation of the implied covenant of good faith and fair dealing.[22] The contractual nature of an insurance relationship imposes a duty on an insurer to “perform a[n] . . . insurance contract in good faith.” Beck v. Farmers Ins. Exchange, 701 P.2d 795, 801 (Utah 1985). The “implied obligation of good faith performance contemplates, at the very least, that the insurer will diligently investigate the facts to enable it to determine whether a claim is valid, will fairly evaluate the claim, and will thereafter act promptly and reasonably in rejecting or settling the claim.” Id. (citations omitted). However, “when an insured's claim is fairly debatable, the insurer is entitled to debate it and cannot be held to have breached the implied covenant if it chooses to do so.” Billings v. Union Bankers Ins. Co., 918 P.2d 461, 465 (Utah 1996) (citations omitted). Moreover, “[w]hether an insured's claim is fairly debatable under a given set of facts is . . . a question of law.” Id. at 464.

         Evanston argues that Plaintiffs' claim for coverage was reasonably debatable and, therefore, Evanston cannot be liable for breaching the implied covenant of good faith and fair dealing.[23] Evanston has put the cart before the horse, so to speak. At this stage, the court is only concerned that Plaintiffs have proffered a plausible factual basis to support their theory that Evanston violated the implied covenant of good faith and fair dealing. In this regard, the First Amended Complaint is devoid of any facts suggesting that Evanston violated the implied covenant of good faith and fair dealing.

         The First Amended Complaint simply asserts legal conclusions. For example, Plaintiffs contend that Evanston breached its duty by: unreasonably delaying in acting upon Plaintiffs' claims, unreasonably investigating Plaintiffs' claims, causing undue financial distress to Plaintiffs, and “other wrongful and illegal conduct.”[24] Plaintiffs do not offer how Evanston's denial of coverage was unreasonable, how its investigation was deficient, or how Plaintiffs' claim for coverage could not reasonably be debated. Plaintiffs fail to even cite the policy language that entitles them to coverage. Incongruously, Plaintiffs' reply brief goes to great lengths to outline facts suggesting that Evanston knew denying Plaintiffs' coverage would be inconsistent with the policy presented to Plaintiffs.[25] Yet, none of these facts are pled in the First Amended Complaint. On a motion for leave to amend, the court is required to focus on the proposed amendments to determine whether leave should be granted. Without sufficient facts, the court cannot test Plaintiffs' claims for plausibility. Accordingly, Plaintiffs are denied leave to amend as to the implied covenant of good faith and fair dealing.

         B. Breach of Fiduciary Duty

         The proposed First Amended Complaint alleges that Evanston's denial of coverage amounted to a breach of fiduciary duty.[26] Under Utah law, an insurance policy covenant “requiring the insurer to defend the insured” imposes upon an insurer a “fiduciary responsibility.” Ammerman v. Farmers Ins. Exch., 430 P.2d 576, 578 (Utah 1967). To prove a breach of a fiduciary duty, “a plaintiff must demonstrate that the defendant owed a duty, the defendant breached the duty, the plaintiff suffered damages, and the plaintiff's damages were actually and proximately caused by the defendant's breach.” Giles v. Mineral Res. Int'l, Inc., 2014 UT App 259, ¶ 6, 338 P.3d 825 (citing Christensen & Jensen, PC v. Barrett & Daines, 2008 UT 64, ¶ 23, 194 P.3d 931).

         Evanston claims that a “breach of the implied covenant of good faith is a claim for breach of fiduciary duty.”[27] Therefore, allowing Plaintiffs leave to add a claim for breach of fiduciary duty would be “superfluous and redundant.”[28] Moreover, Evanston asserts that because Plaintiffs' claim for coverage was reasonably debatable, Evanston cannot be liable for breaching its fiduciary duty.[29]

         Perceived superfluity and redundancy aside, Plaintiffs offer no factual support for their breach of fiduciary duty allegations. For instance, the First Amended Complaint alleges that Evanston breached its fiduciary duty to Plaintiffs by: failing to promptly defend Plaintiffs in the Tanakas' lawsuit; “unreasonably acting in conflict of interest to Plaintiffs' detriment”; “refusing to perform a reasonable investigation of Plaintiffs' claims”; and “other wrongful and illegal conduct.”[30] Plaintiffs do not state what conflict of interest Evanston had with Plaintiffs or how Evanston failed to perform a reasonable investigation. It is axiomatic that ...


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