Opinion
8:98CV507.
April 16, 2002.
MEMORANDUM AND ORDER
The matters before the court are the cross-motions for summary judgment filed by defendants (hereinafter, collectively, "Protemps"), Filing No. 134, and by plaintiff Liberty Mutual, Filing No. 160.
Also pending are Liberty Mutual's Motion to Substitute Exhibit 1 to Index of Evidence, Filing No. 140; Protemps' Motion for Leave to File a Reply Brief, Filing No. 141; Liberty Mutual's Motion to Substitute Originals, Filing No. 167; and Liberty Mutual's Motion for Leave to File a Reply Brief, Filing No. 202. Those motions will be granted and the court has considered the referenced documents and the briefs.
Plaintiff insurance companies seek damages for breach of contract and fraudulent misrepresentation in connection with underpayment of premiums for workers' compensation insurance. Defendants have filed a counterclaim for breach of contract, seeking lost profits due to plaintiffs' alleged breach. The relevant facts are set forth in the court's Memorandum and Order dated September 28, 2001, Filing No. 132, and as "uncontroverted facts" in the Order on Final Pretrial Conference, Filing No. 208, and need not be repeated here. Briefly, in the earlier order this court found that certain rulings of the Nebraska courts should be afforded preclusive effect. Specifically, the court found that plaintiffs are barred from asserting that: 1) First Temps is a successor business of Protemps for purposes of combining experience ratings; 2) that James and JoAngela King fraudulently created First Temps to avoid application of Protemp's "mod factor" in order to obtain workers' compensation insurance at a lesser premium; and 3) that the insurance companies are not authorized under Nebraska law, the workers' compensation plan, or the policies, to retroactively reclassify workers. Filing No. 132, Memorandum and Order at 16.
I. Protemps' Motion for Summary Judgment
Protemps argues that this court's earlier ruling mandates summary judgment in its favor because plaintiffs cannot prove either fraud or breach of contract without arguing and proving the precluded issues. In response, plaintiffs argue that there remain genuine issues of material fact with respect to whether defendants owe additional premiums under the policies without regard to the precluded matters. They argue that defendants owe additional premiums under the policies for: 1) the difference between actual and estimated payroll; and 2) reallocation of employees to existing classification codes (as opposed to reclassification of codes). Plaintiffs further argue that the evidence shows that defendants owe additional premiums under defendants' own assessment of the classification and payroll codes. Finally, they argue that they are not precluded from seeking additional premiums under the laws of states other than Nebraska. Defendants characterize plaintiffs' response as an attempt to introduce new claims that were not presented in the pleadings.
On a motion for summary judgment, the question before the court is whether the record, when viewed in the light most favorable to the nonmoving party, shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(C); Mansker v. TMG Life Ins. Co., 54 F.3d 1322, 1326 (8th Cir. 1995). The burden of establishing the nonexistence of any genuine issue of material fact is on the moving party. Fed.R.Civ.P. 56(c); Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970). Therefore, if a party does not meet its initial burden with respect to an issue, summary judgment must be denied notwithstanding the absence of opposing affidavits or other evidence. Adickes, 398 U.S. at 159-60; Cambee's Furniture, Inc. v. Doughboy Recreational Inc., 825 F.2d 167, 173 (8th Cir. 1987). Once a party meets its initial burden of showing there is no genuine issue of material fact, the opposing party may not rest upon the allegations of his or her pleadings but rather must set forth specific facts, by affidavit or other evidence, showing that a genuine issue of material fact exists. See Fed.R.Civ.P. 56(e); Chism v. W.R. Grace Co., 158 F.3d 988, 990 (8th Cir. 1998). The party opposing the motion must do more than simply show that there is some metaphysical doubt as to the material facts; he or she must show "there is sufficient evidence to support a jury verdict" in his or her favor. Id.
The Federal Rules of Civil Procedure provide for a liberal system of "notice pleading." Federal Rule of Civil Procedure 8(a)(2) requires only that the plaintiff provide a short and plain statement of his or her claim that will "simply 'give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.'" Swierkiewicz v. Sorema N.A., 122 S.Ct. 992, 998 (2002) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). "The essential function of a complaint under the Federal Rules of Civil Procedure is to give the opposing party 'fair notice of the nature and basis or grounds for a claim, and a general indication of the type of litigation involved.'" Hopkins v. Saunders, 199 F.3d 968, 973 (8th Cir. 1999) ( quoting Redland Ins. Co. v. Shelter Gen. Ins. Cos., 121 F.3d 443, 446 (8th Cir. 1997)). Defendants must be given such fair notice of the claims so that they may make a meaningful response to the pleadings. Miles v. ERTL Co., 722 F.2d 434, 434-35 (8th Cir. 1983) (per curiam). Rule 8(a)'s simplified pleading standard applies to all civil actions, with limited exceptions, including Rule 9(b)'s requirement of greater particularity in all averments of fraud or mistake. Swierkiewicz, 122 S.Ct. at 998. The Supreme Court has declined to extend a heightened pleading standard to other contexts. Id.
In their complaint, plaintiffs allege breach of contract and fraud in connection with workers' compensation insurance contracts. The factual allegations of the complaint allegations involve application of a "mod factor" to certain job classifications. Plaintiffs assert that defendants breached the contract by misclassifying employees to obtain a lower premium. Plaintiffs also assert First Temps was created as a successor to Protemps in order to avoid the application of Protemps' mod factor. Plaintiffs' allegations state that audits revealed that First Temps misclassified employees and that the mod factors of the two companies were combinable. The factual allegations tangentially refer to underpayment of premiums, to the difference between estimated and actual payroll, and to classification of employees, but there is no mention of the concept of "reallocation" of employees. The factual allegation with respect to the fraud claim provides that "[t]he creation of First Temps was fraudulently undertaken for the purpose of continuing the business of Protemps under a new name, with the intent of avoiding the application of a modification factor ("mod") to its insurance premium which would reflect the claims experience of Protemps." Complaint, Filing No. 1, ¶ 22.
This is an "experienced modification factor," that reflects an employer's historical claims experience for purposes of assessing workers' compensation insurance premiums.
It is well settled that the pretrial order supersedes the pleadings and establishes the issues to be considered at trial. Lane v. Geiger-Berger Assoc., 608 F.2d 1148, 1152-53 (8th Cir. 1979). Reference to the pretrial order in this instance, however, provides little guidance since the parties continue to dispute the theories of recovery and resolution of the subject of these motions remains at issue.
The court finds that there are genuine issues of material fact with respect to the breach of contract claim. Under liberal rules of pleading, plaintiffs' complaint adequately puts defendants on notice of claims relating to additional premiums owed for the difference between estimated and actual payroll figures. Plaintiffs' complaint also fairly apprises defendants of plaintiffs' claim for premiums due after audit for employees classified under defendants' own calculations. Plaintiffs' claim for additional premiums for alleged "reallocation" of employees within a classification, however, will not be allowed. That theory is properly viewed as a subset of plaintiffs' retroactive reclassification claim that was addressed by the court in its earlier order and will be precluded. If the theory is not characterized as part of the reclassification claim, it was not presented in the pleadings and the defendant was not put on notice of the claim.
With respect to the fraud claim, plaintiffs are limited to the specific allegations of fraud in their complaint. Fed.R.Civ.P. 9(b). The factual allegations of fraud relate only to the creation of First Temps as a successor corporation to Protemps. Damages for underpayment of premiums under any theory of misclassification, reallocation, or misestimation of payroll simply were not sought and the matters were not pleaded.
Defendants have shown that plaintiffs will not be able to prove fraud without proving that defendants created First Temps as a successor corporation to Protemps. Plaintiffs are bound by the Nebraska courts finding that First Temps is not a successor corporation to Protemps. It is clear that plaintiffs can prove no set of facts that would entitle them to relief and that defendants are entitled to summary judgment on the fraud claim.
The court regards plaintiffs' argument that the laws of other states should apply as wholly specious and lacking in merit. This action was filed by plaintiffs in the District of Nebraska with jurisdiction premised on diversity of citizenship. Plaintiffs plead state law claims under Nebraska law. To now argue that Kansas, Iowa or Missouri law applies borders on either frivolous or contumacious behavior.
II. Liberty's Mutual's Motion for Summary Judgment
Liberty Mutual moves for summary judgment on defendants' counterclaim for breach of contract. In their counterclaim, defendants contend that the workers' compensation premium increase caused them to lose profits. In support of its motion, Liberty Mutual first argues that the decision to change the mod factor and accordingly to increase premiums was made by NCCI and that it cannot be liable for NCCI's actions. It next asserts a "good faith" defense, asserting that defendants have not presented any evidence of bad faith. It further contends that First Temps cannot prove damages. In response, defendants point to disputed issues of fact.
Liberty Mutual's argument in this regard is premised in part on Magistrate Judge Jaudzemis's finding that defendants' expert cannot testify on damages. Filing No. 197. That order is the subject of an appeal, ruled on in a separate order filed contemporaneously herewith.
The court has considered the evidence and finds that Liberty Mutual is not entitled to summary judgment on defendants' counterclaim. Liberty Mutual's argument that it is not responsible for the increased premiums was addressed in the court's earlier order. The court need not find an agency relationship between NCCI and Liberty Mutual; the actions of Liberty Mutual that prompted an investigation and audit by NCCI are at issue as alleged breaches of Liberty Mutual's duty of good faith and fair dealing in connection with the insurance contracts. Proper assessment of a mod factor is an insurer's duty under a workers' compensation policy. American Driver Servs. v. Truck Ins. Exch., 631 N.W.2d 140, 149 (Neb.App. 2001). The question of a party's good faith in the performance of a contract is a question of fact. Strategic Staff Management, Inc. v. Roseland, 619 N.W.2d 230, 235 (Neb. 2000). Defendants are not obliged to provide evidence of bad faith since it is the insurers' burden to prove their defense. The evidence shows that there are genuine issues of material fact with respect to defendants' ability to prove damages. A party need not prove damages with mathematical precision. See Buell, Winter, Mousel Assoc., Inc. v. Olmstead Perry Consulting Engineers, Inc., 420 N.W.2d 280, 284 (Neb. 1988). Defendants have presented evidence that they sustained some measure of damages. At this point, the court is unable to state that defendants' damages are wholly speculative.
Accordingly,
IT IS HEREBY ORDERED:
1. Defendants' Motion for Summary Judgment, Filing No. 134, is granted in part and denied in part. Defendants' motion for summary judgment on the breach of contract claim is denied except to the extent that any claim seeking damages for alleged "reallocation" of employees is dismissed. Defendants' motion for summary judgment on plaintiffs' fraud claim is granted, and plaintiffs' fraud claim is dismissed.
2. Liberty Mutual's Motion for Summary Judgment, Filing No. 160, is denied.
3. Liberty Mutual's Motion to Substitute Exhibit 1 to Index of Evidence, Filing No. 140, is granted; Protemps' Motion for Leave to File a Reply Brief, Filing No. 141, is granted; and Liberty Mutual's Motion to Substitute Originals, Filing No. 167, is granted; Liberty Mutual's Motion for Leave to File a Reply Brief, Filing No. 202, is granted.