Opinion
No. C99-61 MJM.
October 26, 1999.
ORDER
This matter comes before the court pursuant to defendant's June 21, 1999 combined motion to dismiss and motion to strike (docket number 13). Plaintiffs resisted defendant's motion on August 12, 1999 (docket number 24) and filed a brief in support thereof on August 19, 1999 (docket number 29). Defendant filed a reply to plaintiffs' resistance on August 30, 1999 (docket number 30). For the reasons set forth below, defendant's motion is denied.
In their complaint, the plaintiffs charge the defendant (Mutual Trust) with three counts. Count I of the complaint alleges that Rex A. McCright, an agent of the Mutual Trust, used computer programs belonging to Mutual Trust to present projections regarding coverage and benefits. The plaintiffs claim that such presentations amounted to misrepresentation as the projections were greatly inflated and Mutual Trust knew, or should have known that the projections were greatly inflated. Count II, a negligence claim, is not at issue in this motion. Count III claims that Mutual Trust breached its duty of good faith and fair dealing.
Mutual Trust argues that Count I should be dismissed pursuant to Fed.R.Civ.P. 9(b), for failing to plead the fraud count with sufficient particularity, and pursuant to Fed.R.Civ.P. 12(b)(6), for failing to state a claim upon which relief can be granted. Mutual Trust argues that Count III should be dismissed because Iowa law does not recognize a breach of duty of good faith and fair dealing in the insurance context. Mutual Trust claims that individual plaintiff Barthelmes should be dismissed pursuant to Fed.R.Civ.P. 12(b)(6), as Mutual Trust has entered into a settlement and obtained a release from Barthelmes. Mutual Trust also moves that paragraphs six through 11 be struck for failing to adequately plead a class action.
Pursuant to Judge Jarvey's order of July 22, 1999, the portion of Mutual Trust's motion that pertains to plaintiff Barthelmes will be treated as a motion for summary judgment pursuant to Fed.R.Civ.P . 56. The plaintiffs have until December 15, 1999 to conduct discovery on this issue and file a resistance.
Count I — Misrepresentation
Count I of the plaintiff's complaint, titled "Misrepresentation," alleges, in pertinent part, that Mutual Trust agent Rex A. McCright, using Mutual Trust's computer programs prepared for that purpose, at various times presented to certain members of the Plaintiffs' Class computer projections of coverage and benefits from Mutual Trust insurance policies. Said coverage projections and projected payouts were greatly inflated. Even though Mutual Trust knew or should have known of such inflated projections, Mutual Trust did not inform members of the Plaintiffs' Class of such facts until after the Plaintiffs had relied upon such projections to their detriment.
Mutual Trust claims that Count I of the plaintiffs' complaint alleges a cause of action for fraudulent misrepresentation and should be dismissed on two separate grounds. First, Mutual Trust argues that Count I, which alleges fraud, is not stated with sufficient particularity, and therefore must be dismissed pursuant to Rule 9(b). Second, Mutual Trust contends that plaintiffs have not adequately alleged the requisite elements for a fraudulent misrepresentation cause of action, and, therefore, Count I must be dismissed pursuant to Rule 12(b)(6) for failing to state a claim upon which relief can be granted. Plaintiffs aver that their complaint states with sufficient particularity the fraudulent misrepresentations that form the basis of their claim against Mutual Trust. Plaintiffs further claim that they have adequately stated a claim of fraudulent misrepresentation to withstand dismissal under Rule 12(b)(6).
Rule 9(b)
Rule 9(b) provides, in relevant part: "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." "Because one of the main purposes of [Rule 9(b)] is to facilitate a defendant's ability to respond and to prepare a defense to charges of fraud, conclusory allegations that a defendant's conduct was fraudulent and deceptive are not sufficient to satisfy the rule." Commercial Property Investments, Inc. v. Quality Inns Int'l, Inc., 61 F.3d 639, 644 (8th Cir. 1995). See also Roberts v. Francis, 128 F.3d 647, 651 (8th Cir. 1997) ("In pleading fraud, a plaintiff cannot simply make conclusory allegations."). "Circumstances" constituting the fraud include matters such as the "time, place and contents of false representations, as well as the identity of the person making the misrepresentation and what was obtained or given up thereby." Commercial Property Investments, Inc., 61 F.3d at 644. However, a plaintiff need not show all of these "circumstances" to plead fraud with sufficient particularity under Rule 9(b). "A plaintiff must state enough so that his/her pleadings are not merely conclusory." Roberts, 128 F.3d at 651 n. 5. In Count I of their complaint, the plaintiffs claim that Rex A. McCright used Mutual Trust's computer programs to present both to them and to other members of their putative class greatly inflated projections of coverage and benefits from Mutual Trust insurance policies. The plaintiffs further claim that Mutual Trust knew or should have known of McCright's fraudulent behavior and failed to inform plaintiffs about it until they had relied upon the inflated projections to their detriment. Over the last ten years, the plaintiffs claim to have lost sums of money exceeding the jurisdictional requirement due to the above described "scheme" and "other deceitful means."
The court agrees with Mutual Trust that the plaintiffs claim regarding the alleged fraudulent misrepresentation was vaguely plead. As for the time of the alleged fraud, the plaintiffs offer only that it occurred over the last ten years. Furthermore, there are no facts found in the complaint concerning the situs of the alleged fraudulent misrepresentations. Finally, as for the contents of the alleged false representations, plaintiffs offer no more than the fact that the projections were "greatly inflated." Such general allegations do not enable Mutual Trust ability to respond and to prepare a defense to charges of fraud. However, because the court cannot say that it appears beyond doubt that the plaintiffs can prove no set of facts which would establish fraudulent misrepresentation, the plaintiffs shall have 20 days from date of this order to recast their complaint as to Count I.
Rule 12(b)(6)
Alternatively, Mutual Trust claims that Count I should be dismissed pursuant to Rule 12(b)(6) for failing to state a claim upon which relief can be granted. Mutual Trust contends that plaintiffs' complaint fails to sufficiently allege the elements of a fraudulent misrepresentation cause of action. Mutual Trust further claims that dismissal under Rule 12(b)(6) is proper because plaintiffs cannot establish the falsity of the representations at the time they were made as they were projections only.
In deciding a motion to dismiss under Rule 12(b)(6), the court must "accept the factual allegations contained in the complaint as true and construe them in the light most favorable to the plaintiff." Springdale Educ. Ass'n v. Springdale Sch. Dist., 133 F.3d 649, 651 (8th Cir. 1998). "A complaint should not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would demonstrate an entitlement to relief." Id. As a practical matter, a motion to dismiss should be granted only in the unusual case in which a plaintiff includes "allegations that show on the face of the complaint that there is some insuperable bar to relief." Frey v. City of Herculaneum, 44 F.3d 667, 671 (8th Cir. 1995) (quoting Alexander v. Peffer, 993 F.2d 1348, 1349 (8th Cir. 1993)). See also Hishon v. King Spalding, 467 U.S. 69, 73 (1984) ("A court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations."); McSherry v. Trans World Airlines, Inc., 81 F.3d 739, 740 (8th Cir. 1996) (same). However, "a complaint must contain facts sufficient to state a claim as a matter of law and must not be merely conclusory in its allegations." Springdale Educ. Ass'n, 133 F.3d at 651.
Under Iowa law, a plaintiff bears the burden of proving the following elements to support the allegations of an action based on fraud:
(1) The defendant made a false representation of a material fact.
(2) The defendant knew the representation was false when made or implied the truth of an unqualified representation of fact unknown to be true or not.
(3) The representation was made with an intent to deceive.
(4) Plaintiff relied on the false representation.
(5) This reliance caused plaintiff damage.
Kelly Tire Serv., Inc. v. Kelly-Springfield Tire Co., 338 F.2d 248, 252 (8th Cir. 1964). See also Magnusson Agency v. Public Entity, 560 N.W.2d 20, 27-28 (Iowa 1997) (same). To satisfy the falsity element, the plaintiff must establish that the representation was false at the time upon which it was relied. Id. at 28.
Mutual Trust argues that the majority of the elements were plead in a conclusory manner. Mutual Trust further claims that plaintiffs have failed to state a claim upon which relief can be granted because, by the explicit admission of their complaint, they cannot establish either falsity or justifiable reliance. In support of this argument, Mutual Trust relies heavily on Kelly Tire Serv., Inc., emphasizing that the allegedly false representations relied upon by the plaintiffs were projections only. Mutual Trust argues that projections, which the plaintiffs claim to have relied upon, are speculative, opinion-based, and cannot serve as the foundation for a false statement. The court finds Mutual Trust's reading of Kelly Tire Serv., Inc. to be overly broad.
At issue in Kelly Tire Serv., Inc. was the district court's directed verdict in favor of the defendant at the close of evidence. "With respect to the representations contained in the projections, the evidence does not demonstrate that defendant had any knowledge when these annual forecasts of plaintiff's business were prepared and presented to it that the estimated levels of sales and profits could not be attained." Kelly Tire Serv., Inc., 338 F.2d at 253. This court does not read Kelly to stand for the proposition that an alleged misrepresentation can only be based upon a statement of fact and can never be based on speculation or opinion. Aside from that, the plaintiffs complaint in this case alleges that Mutual Trust did know or should have known that McCright's projections were greatly inflated. Therefore, Kelly is distinguishable. Mutual Trust's motion to dismiss Count I pursuant to Rule 12(b)(6) is denied.
Count III — Breach of Duty of Good Faith and Fair Dealing
In Count III of their complaint, Plaintiffs claim that Mutual Trust breached its duty of good faith and fair dealing. Specifically, plaintiffs allege that Mutual Trust acted willfully, fraudulently, intentionally, and in bad faith in settling claims made by plaintiffs arising out of the wrongful conduct described above. Mutual Trust argues that Count III must be dismissed pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted, as Iowa law does not recognize a breach of duty of good faith and fair dealing cause of action in the insurance context. Mutual Trust suggests that the plaintiffs possibly sought to allege a first-party bad faith cause of action. However, Mutual Trust argues that a first-party bad faith cause of action should also be dismissed because there is no allegation that the plaintiffs have either made a claim for insurance benefits or that Mutual Trust has denied an actual claim for benefits.
The plaintiffs argue that Mutual Life acted in bad faith when they attempted to recover the cash surrender value of their policies. The plaintiffs further claim that there is an implied covenant of good faith and fair dealing that requires either party to an insurance contract to avoid doing anything that will impair the rights of the other to receive the benefit of the agreement.
"Iowa courts have generally rejected the doctrine of good faith and fair dealing to support plaintiffs' demands for punitive damages in the context of employment contracts." McConnell v. IASD Health Servs., 1995 WL 807187 *4 (Iowa Dist. 1995) (ruling on defendant's motion to dismiss). See also Fogel v. Trustees of Iowa College, 446 N.W.2d 451, 456-57 (Iowa 1989) (noting that the majority of jurisdictions have refused to recognize the doctrine of good faith and fair dealing in the employment context). Moreover, the McConnell court was unable to locate an application of the doctrine in the insurance context in Iowa case law. McConnell, 1995 WL 807187 *4. "Clearly, however, Iowa courts have recognized that insurers have duties to insureds beyond those obligations explicitly stated in their insurance contracts." Id. at *5. See, e.g., Dolan v. Aid Ins. Co., 431 N.W.3d 790, 794 (Iowa 1988) (recognizing the ability of an insured to bring a bad faith claim against the insured).
The fact that plaintiffs described Count III as a "Breach of Duty of Good Faith and Fair Dealing" rather than an action based on Mutual Trust's bad faith does not require dismissal. Moreover, the plaintiffs complaint does allege that they made claims against Mutual Trust to recover their surrender cash value, arising out of McCright's alleged wrongful conduct, and that Mutual Trust acted in bad faith in settling these claims. Therefore, dismissal of plaintiffs' first-party bad faith claim is denied.
Failure to Adequately Plead a Class Action
Mutual Trust argues that paragraphs six through 11 of plaintiffs complaint, titled "Class Action Allegations" should be struck from the complaint because other paragraphs of the complaint amount to admissions that the plaintiffs cannot establish a certifiable class. Mutual Trust further claims that paragraphs six through 11 should be struck as plaintiffs have plead no facts in support of them. The plaintiffs contend that Mutual Trust's motion to strike paragraphs six through 11 of their complaint is premature as they have not yet requested class certification.
Fed.R.Civ.P. 12(f) provides, in relevant part, "the court may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Paragraphs six through 11 of the plaintiffs state the prerequisites to maintaining a class action as set forth in Fed.R.Civ.P . 23(a) and applies them generally to the facts of the case. Plaintiffs have not yet moved for class certification. Whether or not plaintiffs putative class is certifiable is not to be decided on the face of the pleadings. Therefore, the court finds that paragraphs six through 11 are not "redundant, immaterial, impertinent, or scandalous." Mutual Trust's motion to strike is denied.
Order
Defendant's June 21, 1999 combined motion to dismiss and motion to strike (docket number 13) is denied. Plaintiffs have 20 days from the date of this order to recast their complaint as to Count I in a manner consistent with this order.