Opinion
CIVIL NO.: WDQ-12-1606
02-26-2013
DOODSON INSURANCE BROKERAGE OF TX, LLC Plaintiff, Counter-Defendant v. INDEMNITY INSURANCE CORPORATION, RRG Defendant, Counter-Plaintiff, v. AXIS INSURANCE COMPANY, Counter-Defendant.
MEMORANDUM OPINION
Doodson Insurance Brokerage of TX, LLC ("Doodson") sued Indemnity Insurance Corporation, RRG ("Indemnity") for a declaratory judgment concerning its representations about insurance policies. Indemnity counterclaimed, joining AXIS Insurance Company ("AXIS") as defendant, for tort and insurance claims. Pending are Doodson's and AXIS's motions to dismiss and Doodson's motion to strike. Also pending are Indemnity's motions for sanctions and for a temporary restraining order and preliminary injunction. No hearing is necessary. See Local Rule 105.6. For the following reasons, AXIS's motion to dismiss will be granted. Doodson's motion to dismiss will be granted in part and denied in part. Doodson's motion to strike, and Indemnity's sanctions and injunction motions will be denied. I. Background
For the motions to dismiss for failure to state a claim, the well-pled allegations in the counterclaim are accepted as true. See Brockington v. Boykins, 637 F.3d 503, 505 (4th Cir. 2011). In reviewing the motion to dismiss, the Court may consider allegations in the counterclaim, matters of public record, and documents attached to the motion to dismiss that are integral to the counterclaim and authentic. See Philips v. Pitt Cnty. Mem'1 Hosp., 572 F.3d 176, 180 (4th Cir. 2009).
Doodson is a brokerage, selling insurance products for AXIS and other companies to nightclubs and restaurants. See ECF No. 17 ¶ 4, 6. These Commercial General Liability ("CGL") policies generally cover "bodily injury" from "occurrences." Id. ¶ 6; see ECF No. 1-1 at 1 (standard CGL form). Standard policies exclude bodily injury "expected or intended from the standpoint of the insured." ECF No. 1-1 at 1. The exclusion does not apply, however, to bodily injury "resulting from the use of reasonable force to protect persons or property." Id.
Indemnity believes that assault and battery claims are not covered by these policies. ECF No. 17 ¶ 6. It alleges that Doodson represents to potential insureds that standard CGL policies fully cover assaults and batteries, albeit "silently," without direct reference in the policy. Id. ¶¶ 11, 31. Indemnity's standard policies expressly exclude assault and battery claims, but it offers an endorsement to CGL policies expressly covering assault and battery claims. Id. ¶¶ 33-34. Because of its interpretation, Doodson charges less for policies it sells. See id.
The parties often refer to these claims as "A&B." See, e.g., ECF No. 17 ¶ 12.
In 2010, Doodson quoted coverage to a business called Metro, to which Indemnity was also trying to sell insurance. Id. ¶ 52. Doodson falsely represented that its policy contained full assault and battery coverage, and offered it for substantially less than Indemnity. Id. ¶ 53. Metro purchased insurance from Doodson. Id. ¶ 54.
In April 2012, Doodson falsely told Chris Sherman that a policy that it had quoted for Noho Restaurant Inc. d/b/a Bow & Truss contained assault and battery coverage with no exclusions. Id. ¶ 43. On July 19, 2012, Doodson falsely represented to Michael Swier that its quotation of AXIS CGL and Liquor Liability to New York's Bowery Ballroom and Mercury Lounge contained full assault and battery coverage. Id. ¶¶ 47-48.
B. Evidence for Sanctions
On October 17, 2007, a broker made claims about when a bouncer will be covered for hitting a patron under CGL insurance policies. ECF No. 27-2 at 3. Roger Sandau, then Chief Operating Officer of The Agency, and now CEO of Doodson, wrote to Jeff Cohen, president of Indemnity, that the broker's email contained "complete misrepresentations by the broker on the A&B issue." ECF No. 27-2 at 1; see ECF No. 30-2 ¶¶ 2, 3.
The identity of the broker has been obscured by formatting problems within the emails. See ECF No. 27-2 at 3.
Specifically the email stated:
Basically the only thing that will not be covered would be intentional acts. In other words, if a bouncer beats up a patron or punches them first, it becomes more or less an intentional act that we don't want to cover.ECF No. 27-2 at 3 (emphases in original).
If the bouncer is doing his job and a patron hits him first he can fight back and be covered. In either event, the "Silent" on A&B defends the named insured until the courts determine who started the incident.
In December 2011, there was a series of emails between Cohen, Doodson President Paul Bassman, and an insurance agent named Bill Taylor. See ECF No. 30-3 at 6. Taylor asserted that his standard CGL forms covered assault and battery. Id. at 4-5. Although he apparently agreed with this position, see ECF No. 30-5 at 2, Bassman, using language from Cohen, asked Taylor for clarification. See id.; ECF No. 30-3 at 3-4.
C. Procedural History
On May 30, 2012, Doodson sued Indemnity seeking a declaration that it has not misrepresented assault and battery coverage under standard CGL forms. ECF No. 1. On June 22, 2012, Indemnity answered and counterclaimed against Doodson, alleging tort claims. ECF No. 5. On July 20, 2012, Doodson moved to dismiss and for judgment on the pleadings. ECF No. 14. On August 3, 2012, Indemnity amended its counterclaim and joined AXIS as a counter-defendant, alleging (1) tortious interference with a contractual relationship, (2) tortious interference with existing business relationships, (3) tortious interference with prospective business relationships, (4) civil conspiracy, (5) injunctive relief, and (6) violations of the Texas Insurance Code. ECF No. 17. The same day, Indemnity moved for a temporary restraining order and a preliminary injunction. ECF No. 15.
On August 3, 2012, Indemnity opposed, ECF No. 16, and on August 20, 2012, Doodson replied, ECF No. 24.
On August 6, 2012, Doodson opposed the motion. ECF No. 18. On August 24, 2012, AXIS opposed. ECF No. 29. On September 10, 2012, Indemnity replied. ECF No. 34.
On August 20, 2012, Doodson moved to dismiss the amended counterclaim. ECF No. 25. On August 24, 2012, AXIS moved to dismiss the amended counterclaim. ECF No. 28. The same day, Indemnity moved for sanctions against Doodson. ECF No. 27. On August 28, 2012, Doodson opposed the sanctions. ECF No. 30.
On September 10, 2012, Indemnity opposed the dismissal motions. ECF No. 33. On September 14, 2012, it replied on sanctions. ECF No. 35.
On September 26, Doodson replied to its motion to dismiss. ECF No. 38. On September 28, 2012, AXIS replied to its motion to dismiss. ECF No. 41. The same day, Indemnity filed a supplemental brief supporting its motion for sanctions. ECF No. 42 .
On October 1, 2012, Doodson moved to strike Indemnity's supplemental brief. On October 18, 2012, Indemnity responded. ECF No. 57. II. Analysis
A. Motions to Dismiss
Doodson and AXIS seek to dismiss each count in Indemnity's counterclaim for failure to state a claim.
1. Legal Standard
Under Fed. R. Civ. P. 12(b)(6), an action may be dismissed for failure to state a claim upon which relief can be granted. Rule 12(b)(6) tests the legal sufficiency of a complaint, but does not "resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006).
The Court bears in mind that Rule 8(a)(2) requires only a "short and plain statement of the claim showing that the pleader is entitled to relief." Migdal v. Rowe Price-Fleming Int'l Inc., 248 F.3d 321, 325-26 (4th Cir. 2001). Although Rule 8's notice-pleading requirements are "not onerous," the plaintiff must allege facts that support each element of the claim advanced. Bass v. E.I. Dupont de Nemours & Co., 324 F.3d 761, 764-65 (4th Cir. 2003). These facts must be sufficient to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
This requires that the plaintiff do more than "plead [] facts that are 'merely consistent with a defendant's liability'"; the facts pled must "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) {quoting Twombly, 550 U.S. at 557). The complaint must not only allege but also "show" that the plaintiff is entitled to relief. Id. at 679 (internal quotation marks omitted). "Whe[n] the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not shown—that the pleader is entitled to relief." Id. (internal quotation marks and alteration omitted).
2. Count I: Tortious Interference with a Contract
Doodson and AXIS assert that Indemnity's tortious interference claims fail to allege a plausible claim for relief under Twombly and Iqbal. See ECF Nos. 25-1 at 12, 28-1 at 6. Doodson contends that its allegations are sufficient. ECF No. 33 at 20.
Doodson also asserts that Indemnity's claims are subject to the heightened pleading requirements for fraud under Fed. R. Civ. P. 9(b). ECF No. 25-1 at 9. Because Indemnity's tortious interference allegations are insufficient under Twombly and Iqbal, the Court will not reach this argument.
Under Maryland law, to state a claim for tortious interference with a contract, Indemnity must allege (1) the existence of a contract between it and a third party; (2) Doodson's and AXIS's knowledge of the contract; (3) Doodson's and AXIS's intentional interference with the contract; (4) breach of the contract by the third party; and (5) resulting damages to Indemnity. Ultrasound Imaging Corp. v. Am. Society of Breast Surgeons, 358 F. Supp. 2d 475, 479-80.
The parties assume that Maryland law applies without offering any choice of law analysis. In a diversity action, such as this, this Court must apply the choice of law rules of Maryland, the state where it sits. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941).
For tort claims, Maryland applies the law of the jurisdiction "where the last act required to complete the tort occurred," namely the place of injury. Philip Morris Inc. v. Angeletti, 752 A.2d 200, 231 (Md. 2000). Because Indemnity's place of business is in Maryland, it was harmed here, and Maryland law applies. See ECF No. 17 ¶ 1.
Here, the amended complaint lacks a plausible allegation of wrongdoing by Doodson and AXIS showing that Indemnity is entitled to relief. It alleges that "Doodson, AXIS, and others know and knew of Indemnity's business, or reasonably should have known of Indemnity's contractual and other business relationships." ECF No. 17 ¶ 56. It does not identify any contract of which AXIS and Doodson were aware that was then breached, as required. See Ultrasound Imaging, 358 F. Supp. 2d at 479. Instead, Indemnity offers only conclusions based on the elements of the claim, without providing any pertinent facts. These allegations are insufficient to plausibly state a claim. See Twombly, 550 U.S. at 555. Count I will be dismissed.
3. Counts II and III: Tortious Interference with Economic Relationships
Under Maryland law, there are two types of tortious interference with a business: (1) interference with a contractual relationship resulting in breach and (2) maliciously or wrongfully interfering with economic relationships in absence of a breach. Kaser v. Fin. Protection Marketing, Inc., 831 A.2d 49, 53 (Md. 2003). Count III and Count II, to the extent it alleges a cause of action in absence of a breach of contract, are analyzed under the latter.
To state a claim for tortious interference with an economic relationship, Indemnity must allege that (1) Doodson and AXIS committed intentional and willful acts, (2) calculated to cause damage to Indemnity's lawful business, (3) with the unlawful purpose of causing such damage, without right of justification, and (4) that actual damage has resulted from those acts. Fare Deals Ltd. v. World Choice Travel.com, Inc., 180 F. Supp. 2d 678, 691 (D. Md. 2001) (citing Alexander & Alexander, Inc. v. B. Dixon Evander & Assocs., 650 A.2d 260, 269 (Md. 1994)).
The substance of the amended complaint is that Doodson's behavior of allegedly falsely describing its policies "artificially deflate[s] the market prices for Indemnity's appropriately underwritten and priced assault and battery coverage." ECF No. 17 ¶ 46. There is no allegation that in Doodson's negotiations with various clients it was attempting to steal clients from Indemnity. Further, Indemnity's assertion of damage to the market does not show an intent to damage Indemnity specifically. It simply alleges that Doodson and AXIS knew of unspecified business relationships, and their assertions about the insurance coverage lowered prices so that Indemnity lost sales. Id. ¶ 61, 64. The only lost business identified is that of Metro. See ECF No. 17 ¶ 60. Indemnity has not, however, alleged that Doodson or AXIS knew that Indemnity was offering its insurance to Metro or that its allegedly fraudulent offer was intended to harm Indemnity specifically. Indemnity's allegations are conclusionary and do not plausibly allege the requisite intent by Doodson and Indemnity. See Twombly, 550 U.S. at 555. Counts II and III will be dismissed.
In its opposition, Indemnity references subsequent "account poaching" by Doodson. ECF No. 33 at 31. These arguments are irrelevant, as the motion to dismiss is reviewed only on the basis of the counterclaim. See Brockington, 637 F.3d at 505.
Indemnity relies on Guest-Tek Interactive Entm't Inc. v. Pullen, 731 F. Supp. 2d 80 (D. Mass. 2010) to show that Doodson had the requisite intent in luring its customers. ECF No. 33 at 23-24. Guest-Tek is distinguishable because there a former employee of Guest-Tek took a contact list and was contacting customers in a specific attempt to get their business. See Guest-Tek, 731 F. Supp. 2d at 88. The other cases on which Indemnity relies are similarly unhelpful. See Bertuglia v. City Of New York, 839 F. Supp. 2d 703, 730 (S.D.N.Y. 2012) (allegations of misrepresentations about the plaintiff's professional honesty); Tamburo v. Dworkin, No. 04 C 3317, 2010 WL 5476780, at *7 (N.D. 111. Dec. 29, 2010) ("Versity alleged that the defendants were aware of Versity's business and its customer base and jointly orchestrated a campaign to boycott Versity's products . . .").
4. Count IV: Civil Conspiracy
The parties agree that the civil conspiracy claim must rise and fall with the tortious interference counts. See ECF Nos. 25-1 at 15, 33 at 29-30; see also Lloyd v. Gen. Motors Corp., 916 A.2d 257, 284 (Md. 2007) (stating than an underlying tort is required for the civil conspiracy claim). Accordingly, Count IV will be dismissed.
5. Count VI: Texas Insurance Code
Indemnity alleges violations of Tex. Ins. Code Ann. §§ 541.051(1), (5), 510.052. ECF No. 17 ¶¶ 82-84. Section 541.051(1) prohibits statements misrepresenting the terms, benefits or advantages promised, or dividends to be received of an insurance policy issued or to be issued. Tex. Ins. Code Ann. § 541.051(1). Section 541.051(5) prohibits "a misrepresentation to a policyholder insured by any insurer for the purpose of inducing or that tends to induce the policyholder to allow an existing policy to lapse or to forfeit or surrender the policy." Id. § 541.051(5)
Section 510.052 prohibits misleading statements "placed before the public" about the business of insurance:
(1) in a newspaper, magazine, or other publication;Id. § 541.052. The Code authorizes an action for damages. Id. § 541.151.
(2) in a notice, circular, pamphlet, letter, or poster;
(3) over a radio or television station;
(4) through the Internet; or
(5) in any other manner.
a. AXIS
AXIS asserts that Indemnity has not alleged that it made any misrepresentations as required for liability. ECF No. 28-1 at 13. Indemnity contends that it alleged AXIS provided a quotation to Bowery Ballroom and Mercury Lounge. ECF No. 33 at 26.
Indemnity is correct that it has alleged that AXIS provided a quotation. ECF No. 17 ¶ 47. It did not, however, plead that AXIS made any misrepresentation. With regard to Bowery Ballroom and Mercury Lounge, the counterclaim specifically states that "Doodson falsely represented . . . that the proposed AXIS policy contains full assault and battery coverage." Id. ¶ 48. There is no allegation of a misrepresentation by AXIS. Accordingly, Count VI against AXIS will be dismissed,
To the extent that Indemnity argues that an agency relationship imputes Doodson's statements to AXIS, see ECF No. 33 at 7-8, the act of selling insurance alone is insufficient to create that applicable agency relationship. See Guthrie v. Republic Nat'l Ins. Co., 682 S.W.2d 634, 639 (Tex. App. 1984). Indemnity has specifically alleged that Doodson sells insurance for AXIS and other companies, see, e.g., ECF No. 17 ¶ 6, negating any inference of an employment relationship that could lead to agency. Cf. Guthrie, 682 S.W.2d at 639.
b. Doodson
1. Section 541.052
Doodson asserts that Indemnity has not pled publication as required by § 541.052(b). ECF No. 25-1 at 16. Indemnity contends that Doodson's disclosure to clients was sufficient to trigger the section. ECF No. 33 at 31.
Doodson also argues that Rule 9(b) should apply to these allegations. ECF No. 25-1 at 10. The Federal Courts in Texas have held that Rule 9(b) applies to Texas Insurance Code claims when they are "substantively identical to fraud." Partain v. Mid-Continent Specialty Ins. Servs., Inc., 838 F. Supp. 2d 547, 557 (S.D. Tex. 2012). One of the elements of fraud under Texas law is an intention to induce the plaintiff's reliance. Id. Here, there is no allegation that Indemnity relied upon Doodson's alleged misrepresentations. Accordingly, Rule 9(b) is inapplicable. See Partain, 838 F. Supp. 2d at 557.
Few courts have interpreted the requirements of § 541.052. In the only on-point case found by the Court, the defendant was not liable because the statement was made over the telephone. Anderson v. Zurich Am. Ins. Co., Civil No. H-05-3652, 2009 WL 540795, at * 7 (S.D. Tex. Mar. 4, 2009). Following Anderson and the text of § 541.052(b) it is clear that the statements to the public must be a mass communication to the public at large to incur liability. As Indemnity has not alleged this, the § 541.052 claim will be dismissed.
Tex. Ins. Code Ann. § 541.052(b) lists the ways to disseminate the communication to the public as:
(1) in a newspaper, magazine, or other publication;Consistent with Anderson, the Court reads these as examples of ways to reach a large number of people, not specific persons. Anderson, 2009 WL 540795, at * 7.
(2) in a notice, circular, pamphlet, letter or poster;
(3) over a radio or television station;
(4) through the Internet; or
(5) in any other manner.
Doodson argues that for the misrepresentations required for liability under § 541.051, Indemnity is required to prove that CGL coverage can never cover assault and battery claims. See ECF No. 25-1 at 2, 16. Indemnity, however, alleges that Doodson misleads potential insureds, including Metro, Bow & Truss, and the Bowery Ballroom and Mercury Lounge, by claiming to offer full "silent" assault and battery coverage. See ECF No. 17 ¶¶ 31, 43, 48, 53. The CGL, however, excludes bodily injury from the unreasonable use of force to protect persons and property, which Indemnity alleges is the substance of claims against bouncers. See ECF Nos. 1-1 at 1, 17 ¶ 29 n.l. Taking Indemnity's allegations as true, Indemnity has alleged that Doodson is misleading customers about the scope of any silent assault and battery coverage by claiming that it fully covers any assault and battery claim.
Doodson also contends, with minimal discussion, that Indemnity has failed to allege that it has sustained actual damages. ECF No. 25-1 at 15. Indemnity asserts that it has sustained damage by failing to gain accounts. ECF No. 33 at 30-31.
The Court cannot find, and the parties have not cited, any cases interpreting the actual damages requirement of the Texas statute. Indemnity has alleged that it lost Metro's business because of Doodson's misrepresentation. ECF No. 17 ¶ 54. It requests $150,000 in compensatory damages for the business it has lost because of Doodson's misrepresentations. Id. ¶ 85. Indemnity has alleged damages from Doodson's actions. Count VI will be dismissed as to § 541.052 only.
6. Count V: Injunctive Relief
AXIS asserts that this count should be dismissed because Indemnity has failed to allege a claim against it for tortious interference. ECF No. 28-1 at 12. Doodson and Indemnity have not addressed this claim.
As stated above, the tortious interference claims against Doodson and AXIS will be dismissed. See supra Part II.A.2-3. The amended counterclaim relies on the tortious interference claims, and not the Texas Insurance Code claim for the injunctive relief. See ECF No. 17 ¶ 69-79. Further, the Texas Insurance Code authorizes only damages actions. See Tex. Ins. Code Ann. § 541.151. Accordingly, Count V will be dismissed as to Doodson and AXIS.
AXIS's motion to dismiss will be granted. Doodson's motion to dismiss will granted in part and denied in part.
Because Indemnity has amended its original counterclaim, Doodson's original motion to dismiss will be denied as moot. The same document also seeks judgment on the pleadings. See ECF No. 14. A party may seek judgment on the pleadings only when the pleadings are closed. Fed. R. Civ. P. 12(c). The pleadings are not closed until an answer to' the counterclaim is filed. See Charles Alan Wright et al., Federal Practice & Procedure, § 1367. As Doodson has not filed its answer to the counterclaim, the motion for judgment on the pleadings will be denied.
B. Indemnity's Request to Amend
In its opposition, Indemnity asks for permission to amend its counterclaim in the event the Court dismissed it. ECF No. 33 at 26 n.7. Doodson and AXIS have not opposed Indemnity's request to amend.
Because more than 21 days have passed since Doodson and AXIS moved to dismiss, Indemnity may amend its counterclaim only if Doodson and AXIS consent or with the Court's permission. Fed. R. Civ. P. 15(a)(2); Rice v. PNC Bank, N.A., No. PJM-10-0007, 2010 WL 1711496, at *2 (D. Md. Apr. 26, 2010). Fed. R. Civ. P. 15(a)(2) instructs that leave should be freely given when justice requires. Leave should be denied only when amendment would prejudice the opposing party, amount to futility, or reward the movant's bad faith. Steinburg v. Chesterfield Cnty. Planning Comm'n, 527 F.3d 377, 390 (4th Cir. 2008) . As there is no indication of prejudice or futility, Indemnity will be granted leave to amend its counterclaim.
C. Motion for a Temporary Restraining Order and Preliminary Injunction
Indemnity seeks a Temporary Restraining Order and Preliminary Injunction based on its allegations of tortious interference. ECF No. 15. Because these claims will be dismissed, the motion will be denied as moot.
Although Indemnity has not sought injunctive relief for the Texas law claims, the statute authorizes only a damages action. See Tex. Ins. Code Ann. § 541.151.
D. Motion to Strike Indemnity's Supplemental Brief
Doodson asks the Court to strike Indemnity's second supplemental brief to its motion for sanctions because there is no authority for it under the Federal Rules. ECF No. 43. Indemnity asserts that Fed. R. Civ. P. 15(d) authorizes its action. ECF No. 57.
Fed. R. Civ. P. 7(a) defines a pleading as a complaint, an answer, and various procedural variations of those documents. Briefing memoranda are not within the definition. Cf. Fed. R. Civ. P. 7(a). Fed. R. Civ. P. 15(d) permits "supplemental pleadings." As the brief is not a pleading, Rule 15(d) does not authorize Indemnity's filing.
Doodson has not provided authority for striking Indemnity's brief. Cf. ECF No. 43. Under Fed. R. Civ. P. 12(f), "[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Although some cases have held that Rule 12(f) may be used to strike documents other than pleadings such as Indemnity's brief, the weight of recent authority is that such an action is not contemplated or permitted by the Rules.
See, e.g., McLaughlin v. Copeland, 435 F. Supp. 513, 519 (D. Md. 1977) (collecting cases).
See, e.g., In re Minh Vu Hoang, Civ. No. DKC-11-2320, 2012 WL 5995621, at *5 (D. Md. Nov. 29, 2012); Hrivnak v. NCO Portfolio Mgmt., Inc., 723 F. Supp. 2d 1020, 1029 (N.D. Ohio 2010); 5C Charles Alan Wright et al., Federal Practice & Procedure § 1380 & nn.4-6 (3d ed.).
The Court does have inherent authority to strike other documents. "Because of their very potency, inherent powers must be exercised with restraint and discretion." Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991). Doodson has offered no reason to use such authority here. Cf. ECF No. 43.
See Iota Xi Chapter of Sigma Chi Fraternity v. Patterson, 566 F.3d 138, 150 (4th Cir. 2007); Kelly v. FedEx Ground Package Sys., Inc., No. 3:10-cv-01265, 2011 WL 1584764, at *3 (S.D.W.V. Apr. 26, 2011); Jennings v. Univ. of N.C. at Chapel Hill, 340 F. Supp. 2d 666, 672 (M.D.N.C. 2004).
Because there is no authority for Indemnity's filing of the supplemental brief, the Court will not consider it in its decision on the motion for sanctions. It will not, however, strike it from the record. Doodson's motion will be denied.
The Court notes that Indemnity's supplemental brief appears to complain about various discovery violations. See generally ECF No. 42. Rule 11 is generally inapplicable to discovery matters. See Fed. R. Civ. P. 11(d); Kwarteng v. Morgan State Univ., 128 F. App'x 301, 302-303 (4th Cir. 2005); see also Fed. R. Civ. P. 37 (sanctions in discovery).
E. Motion for Sanctions
Indemnity seeks sanctions against Doodson because its CEO has taken a position contrary to Doodson's court filings. ECF No. 27. Doodson contends that Indemnity has misconstrued the emails and such statements would be more proper for cross examination than sanctions. ECF No. 30. It further states that Indemnity should be sanctioned for bringing the motion. Id.
Under Fed. R. Civ. P. 11(b), an attorney or unrepresented party certifies to the court that to the best of his "knowledge, information, and belief" formed after a reasonable inquiry: (1) the action is not being presented for an improper purpose, (2) the legal contentions are warranted, (3) the facts alleged have or will have evidentiary support, and (4) denials of facts are based on evidence or lack of knowledge. See Fed. R. Civ. P. 11(b). "[I]mproper purpose may be inferred from a claim's lack of factual or legal foundation or other factors such as the timing of filing of the complaint." Giganti v. Gen-X Strategies, Inc., 222 F.R.D. 299, 313 (E.D. Va. 2004) (citing In re Kunstler, 914 F.2d 505, 518 (4th Cir. 1990)). Rule 11(c) allows attorneys and parties to be sanctioned for Part (b) violations.
1. Sandau's Statement
Indemnity asserts that Sandau, Doodson's CEO, has taken a position contrary to Doodson's by stating that it is a misrepresentation that "'silent' A&B coverage can exist under a standard CGL policy." ECF No. 27 at 10. In the email, dated October 19, 2007, Sandau stated "[c]omplete misrepresentation by the broker on the A&B issue." ECF No. 27-2 at 1. Although the email chain's formatting has been lost, it appears that the broker said:
Basically the only thing that will not be covered would be intentional acts. In other words, if a bouncer beats up a patron or punches them first, it becomes more or less an intentional act that we don't want to cover.ECF No. 27-2 at 3 (emphases in original).
If the bouncer is doing his job and a patron hits him first he can fight back and be covered. In either event, the "Silent" on A&B defends the named insured until the courts determine who started the incident.
At the time that Sandau made the statement, he was the Chief Operating Officer of The Agency, the managing general agent for Indemnity. ECF No. 30-2 ¶ 3. Sandau swears that his "comment referred to the broker's incorrect generalizations of potential coverage, and the broker's failure to correctly describe the 'reasonable force' exception to the intentional acts exclusion." ECF No. 30-2 ¶ 5.
To the extent that Sandau's views in 2007 can be attributed to Doodson in a litigation started in 2012, Sandau's explanation is reasonable. The CGL Form states that the exclusion "does not apply to 'bodily injury' resulting from the reasonable use of force to protect persons or property." ECF No. 1-1 at 1. Based on the CGL Form, Sandau's explanation is reasonable, given the lack of specificity by the broker. The Court sees no conflict with Doodson's position in this case.
Indemnity also asserts that another email sent by Sandau conflicts with Sandau's "recent Affidavit" where he "avers that a policy endorsement that would delete coverage for expected or intended acts would 'be a satisfactory substitute for an actual A&B endorsement [deleting A&B coverage].'" ECF No. 35 at 5. Indemnity does not provide a citation for this statement other than "See id" with no antecedent citation. See ECF No. 35 at 4-55. The Court can find no such averment by Sandau in either of his two affidavits in the record. Cf. ECF Nos. 19-1, 30-2.
2. Bassman's Statement
Indemnity argues that Bassman has taken a position contrary to Doodson's by asking Taylor:
Regarding Assault and Battery...how can your policy provide coverage for assault & battery involving an insured on patron altercation? I assume you are using an ISO form for the GL and within that form it has an intentional/expected exclusion. This would most likely bar coverage for any intentional act of the insured for example when if [sic] a bouncer hits a patron.ECF No. 30-3 at 4. Indemnity asserts that this is Bassman's position and contrary to Doodson's here. See ECF No. 27 at 2.
The record, and full email chain, reveal that Bassman was actually asking a question posed by Cohen. See ECF No. 30-5 at 2. Indemnity asserts that Bassman was skeptical of Taylor's position by insisting on questioning him about it. See ECF No. 35 at 8; see also ECF No. 30-4 at 2 (Bassman stating "I need to push it yes"). However, the emails show that Bassman apparently held the same view as Taylor--and Doodson in this litigation--that protection of persons or property is covered. Compare ECF No. 30-5 at 2, with ECF No. 30-3 at 2. Bassman's asking of Cohen's questions was apparently just that; Bassman's position does not appear to be contrary to Doodson's. Indemnity's motion for sanctions will be denied.
3. Sanctions against Indemnity
Doodson requests sanctions against Indemnity because its motion was frivolous. ECF No. 30 at 2. Although the Court does not agree with Indemnity's construction of the emails involved, it does not appear that Indemnity's motion was frivolous or in bad faith, given the complexity of the issues involved.
Doodson also seeks sanctions against Indemnity because the email from Bassman that it submitted with its motion for sanctions is a highly excised version of the true exchange, obscuring the actual communications. ECF No. 30 at 2; see ECF No. 27-3. As the full email chain reveals, Bassman did send the email as provided; the context, however, was lacking. See ECF No. 30-3 at 3-4. Although Indemnity may have been trying to simplify the exchange, it does not appear that Indemnity was attempting to mislead the Court. Accordingly, the Court will not sanction Indemnity for its motion. The parties are warned, however, that future excisions of this kind or similar behavior may result in sanctions. III. Conclusion
For the reasons stated above, Doodson's motion to dismiss the amended counterclaim will be granted in part and denied in part. AXIS's motion to dismiss will be granted. Indemnity's sanctions and injunction motions, and Doodson's motion to strike will be denied.
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William D. Quarles, Jr.
United States District Judge