Opinion
Case No. 5:22-cv-00519-SLP
2023-08-07
The CIGAR BOX, LLC, d/b/a the Cigar Box; and Vanessa Tidmore, Plaintiffs v. HOUSTON SPECIALTY INSURANCE COMPANY, Defendant.
Rex K. Travis, Travis Law Office, Oklahoma City, OK, James M. Love, Titus Hillis Reynolds Love PC, Tulsa, OK, for Plaintiff The Cigar Box LLC. Rex K. Travis, Travis Law Office, Oklahoma City, OK, John P. Truskett, Truskett Law Firm PLLC, Tulsa, OK, for Plaintiff Vanessa Tidmore. Jay R. Sever, Phelps Dunbar LLP, New Orleans, LA, John H. Sparks, Lisa Monsour Millington, Odom & Sparks PLLC, Norman, OK, Kasi Schuelke, Phelps Dunbar LLP, Southlake, TX, for Defendant.
Rex K. Travis, Travis Law Office, Oklahoma City, OK, James M. Love, Titus Hillis Reynolds Love PC, Tulsa, OK, for Plaintiff The Cigar Box LLC. Rex K. Travis, Travis Law Office, Oklahoma City, OK, John P. Truskett, Truskett Law Firm PLLC, Tulsa, OK, for Plaintiff Vanessa Tidmore. Jay R. Sever, Phelps Dunbar LLP, New Orleans, LA, John H. Sparks, Lisa Monsour Millington, Odom & Sparks PLLC, Norman, OK, Kasi Schuelke, Phelps Dunbar LLP, Southlake, TX, for Defendant. ORDER SCOTT L. PALK, UNITED STATES DISTRICT JUDGE
Before the Court is Defendant Houston Specialty Insurance Company's Motion to Dismiss [Doc. No. 14]. Plaintiff has responded [Doc. No. 19] and Defendant has replied [Doc. No. 21]. The matter is fully briefed and ready for determination. I. Introduction
The Court views the factual allegations of the Complaint in the light most favorable to Plaintiffs as the non-moving parties. Straub v. BNSF Ry. Co., 909 F.3d 1280, 1287 (10th Cir. 2018).
The Plaintiffs in this declaratory judgment action are The Cigar Box, LLC ("Cigar Box") and Vanessa Tidmore ("Ms. Tidmore"), who are adverse to one another in a separate state court action. See Compl. [Doc. No. 1] ¶ 6. In the state court action, Ms. Tidmore sued Cigar Box alleging she was injured in an automobile accident which occurred after Cigar Box over-served alcohol to one of its off-duty employees. Id. Cigar Box had an insurance policy with Defendant, Houston Specialty Insurance Company ("HSIC"), which generally provided coverage for injuries resulting from selling, serving, or furnishing alcoholic beverages (the "Policy"). Id. ¶ 7.
After the accident, HSIC denied coverage based on two exclusions. Id. ¶ 8. First, HSIC determined the Policy does not cover a claim or lawsuit arising out of (or resulting from) service of alcohol to an employee, regardless of whether the employee is on or off duty. Id. Second, HSIC asserted the Policy excludes coverage for incidents arising from service of alcoholic beverages by any person who does not have a "TIPS" Alcohol Certification, and the employee who served the patron was not TIPS certified. Id.
Cigar Box claims the two exclusions HSIC relies on were added to the Policy after the Policy was issued and were never communicated to Cigar Box. Id. ¶ 8. Cigar Box asserts it "understood from [HSIC] that it was buying and paying for coverage for several years and that it was getting coverage which would protect it from suits such as [Ms.] Tidmore's." Id. ¶ 10. Plaintiffs ultimately seek a "judgment reforming the [P]olicy and declaring that the [Policy] afford[s] coverage for the claims" asserted in the separate action brought by Ms. Tidmore against Cigar Box. Id. ¶11.
HSIC moves for dismissal of Plaintiffs' claims under Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1), and for dismissal of Ms. Tidmore for lack of standing. Mot. [Doc. No. 14] at 1-3. HSIC first asserts Plaintiffs' declaratory judgment claim fails because there is no actual case or controversy regarding the Policy as it exists without reformation: in other words, the only apparent dispute relates to reformation—which is an independent claim that must be considered separately—and there is no actual case or controversy regarding the Policy. See id. at 1-2, 5-6. Second, HSIC asserts Ms. Tidmore does not have standing to sue for reformation because she is not a party or third-party beneficiary to the Policy. Id. at 6. Finally, HSIC asserts Plaintiffs failed to allege facts to support a reformation claim under Oklahoma law. Id. at 8.
In Response, Plaintiffs assert the Court has jurisdiction over the declaratory judgment claim because there is an actual case or controversy regarding whether coverage exists in general, though Plaintiffs do not assert there is a dispute between the parties beyond the reformation claim. See Resp. [Doc. No. 19] at 1-6. Plaintiffs further respond Ms. Tidmore is a proper and necessary party to this action because she is "interested in the declaration" and other courts have permitted the claimant in a separate action to join in a declaratory judgment action regarding insurance coverage. Id. at 6-7. Plaintiffs do not respond to HSIC's 12(b)(6) argument regarding failure to state a claim for reformation.
II. Governing Standard
A pleading must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). "To survive a motion to dismiss [under Rule 12(b)(6)], a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)); see also Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. But "mere 'labels and conclusions,' and 'a formulaic recitation of the elements of a cause of action' will not suffice; a plaintiff must offer specific factual allegations to support each claim." Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955).
"Generally, the sufficiency of a complaint must rest on its contents alone." Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010). Thus, "[w]hen a party presents matters outside of the pleadings for consideration . . . 'the court must either exclude the material or treat the motion as one for summary judgment.' " Brokers' Choice of Am., Inc. v. NBC Universal, Inc., 861 F.3d 1081, 1103 (10th Cir. 2017) (quoting Alexander v. Oklahoma, 382 F.3d 1206, 1214 (10th Cir. 2004)). Certain exceptions exist, and the Court may consider: (1) documents attached to the Complaint as exhibits; (2) documents referenced in the Complaint that are central to the Plaintiffs' claims if the parties do not dispute the documents' authenticity; and (3) matters of which the Court may take judicial notice. Gee, 627 F.3d at 1186.
The governing standard for HSIC's 12(b)(1) arguments differs depending on whether HSIC presents a facial attack based on "the factual allegations of the complaint" or a factual attack which "goes beyond the factual allegations of the complaint and presents evidence in the form of affidavits or otherwise to challenge the court's jurisdiction." Rural Water Dist. No. 2 v. City of Glenpool, 698 F.3d 1270, 1272 n.1 (10th Cir. 2012). Here, although it does not specify, HSIC's jurisdictional arguments are based on the allegations in the Complaint, Mot. [Doc. No. 14] at 1-2, 4-8, so the Court considers HSIC's Motion a facial attack. See Schmitz v. Colo. State Patrol, 841 F. App'x 45, 54 (10th Cir. 2020).
HSIC's Motion does attach and refer to the Policy (which the Court may consider as a document referenced in the Complaint), but the Policy is offered as additional support for a facial attack rather than evidence challenging a jurisdictional allegation. Mot. [Doc. No. 14] at 4-6; see also Gee, 627 F.3d at 1186. Plaintiffs do not raise any issue as to the authenticity of the Policy, nor do Plaintiffs assert the Policy should not be considered at this juncture.
When presented with a facial attack, the Court must accept the allegations in the Complaint as true and evaluate whether the factual matter in the Complaint is sufficient to state a plausible claim. See Schmitz, 841 F. App'x at 54 (citing Safe Streets All. v. Hickenlooper, 859 F.3d 865, 877-78 (10th Cir. 2017)). The Court's review generally "mirrors how [it] assess[es] Rule 12(b)(6) motions," and the Court "evaluate[s] whether the complaint contain[s] sufficient factual matter . . . to state a claim to relief that is plausible on its face." Id. (internal quotation marks and citations omitted).
III. Discussion
A. Justiciability of the Declaratory Judgment Claim
i. Article III Justiciability
HSIC's Motion asserts there is no "actual case or controversy" independent of the reformation claim which is sufficient to confer jurisdiction under 28 U.S.C. § 2201 and Article III of the United States Constitution. Mot. [Doc. No. 14] at 5-6. The Declaratory Judgment Act provides:
In a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.28 U.S.C. § 2201(a). " 'The phrase "case of actual controversy" in the Act refers to the type of "Cases" or "Controversies" that are justiciable under Article III' of the United States Constitution." Columbian Fin. Corp. v. BancInsure, Inc., 650 F.3d 1372, 1376 (10th Cir. 2011) (citation omitted). The burden of establishing the existence of an actual case or controversy rests with the party seeking the declaration. Cardinal Chem. v. Morton Int'l, Inc., 508 U.S. 83, 95, 113 S.Ct. 1967, 124 L.Ed.2d 1 (1993).
"The difference between an abstract question and a 'controversy' contemplated by the Declaratory Judgment Act is necessarily one of degree" and there is no "precise test for determining in every case whether there is such a controversy." Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941). The central question is "whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007) (citation omitted). The Court must be able to afford "specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts." Id. (citation omitted).
The Court finds the record before it provides a sufficient "case or controversy" to initially afford jurisdiction under Article III. The Complaint alleges a dispute between the parties as to whether the Policy should afford coverage to Cigar Box for the underlying lawsuit filed in state court by Ms. Tidmore, even if that dispute centers on reformation. Cf. Columbian Financial Corp., 650 F.3d at 1384 (recognizing a "disagreement about coverage" is sufficient to form a case or controversy for jurisdictional purposes); Allendale Mut. Ins. Co. v. Kaiser Engineers, Div. of Henry J. Kaiser Co., 804 F.2d 592, 594-95 (10th Cir. 1986) (finding an actual case or controversy even though the state court judgment for which coverage was sought was still on appeal because there was clearly a necessary dispute as to whether coverage existed). In this case, the controversy is not hypothetical or speculative—the state court lawsuit for which coverage is sought has already been filed, and the disagreement between Cigar Box and HSIC regarding reformation is a substantial controversy currently existing between parties having adverse legal interests.
HSIC argues the reformation claim and declaratory judgment claim are independent claims, and there is no independent jurisdiction over the declaratory judgment claim by itself. Mot. [Doc. No. 14] at 5-6. HSIC principally relies on Zurich Am. Ins. Co. v. Good to Go, LLC, 2018 WL 8333414, at *2 (W.D. Okla. Mar. 22, 2018), but that case dealt with a different issue. Good to Go held the third-party claimant in the underlying tort suit against Zurich's insured did not have "standing to pursue reformation of a contract"—it did not hold there can be no actual case or controversy where the declaratory relief sought depends on (or relates to) reformation. See id. HSIC cites no case holding there is no jurisdiction where the request for declaratory relief overlaps with another disputed claim such as reformation.
In contrast, § 2201(a) provides the Court may issue a declaratory judgment "whether or not other relief is or could be sought." Indeed, "[t]he existence of another adequate remedy does not preclude a declaratory judgment that is otherwise appropriate." Fed. R. Civ. P. 57. As the commentary to Rule 57 explains: "[t]he fact that a declaratory judgment may be granted 'whether or not further relief is or could be prayed' indicates that declaratory relief is alternative or cumulative and not exclusive or extraordinary." Advis. Comm. Notes, 1937 Adoption. Numerous cases have dealt with reformation and declaratory judgment claims together, some of which have issued declaratory relief based on reformation, or vice versa. See, e.g., Hyrne v. Allstate Ins. Co., No. C/A 2:06-CV-0584-DCN, 2006 WL 1889179, at *2 (D.S.C. July 7, 2006) (recognizing "there have been many insurance cases which have asked for reformation in a declaratory judgment action."); see also Breaux v. Am. Fam. Mut. Ins. Co., 387 F. Supp. 2d 1154, 1164 (D. Colo. 2005) (first issuing a declaratory judgment that the insurer violated Colorado law by not properly extending personal injury protection ("PIP") benefits to the plaintiff, then reforming the policy to provide for PIP benefits based on that same violation); Nationstar Mortg., LLC v. Mabry, No. 8:19-CV-01839-PX, 2020 WL 1552653, at *2-3 (D. Md. Apr. 1, 2020) (issuing a declaratory judgment after finding reformation was warranted); GMX Res., Inc. v. Bank of New York Mellon Tr. Co., No. CIV-13-47-D, 2013 WL 3238485, at *2 (W.D. Okla. June 25, 2013) (same). Although the declaratory judgment claim appears to be entirely based on—and duplicative of—the reformation claim, this overlap does not deprive the Court of jurisdiction in the first instance.
There is also no dispute the Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332. Plaintiffs allege this Court has diversity jurisdiction because: (1) Ms. Tidmore and all partners of Cigar Box are citizens of Oklahoma; (2) HSIC is a corporation incorporated and having its principal place of business in Texas; (3) and the liability coverage at issue in this action exceeds $75,000.00. Id. ¶¶ 1-5, 7. HSIC does not challenge any of these allegations.
ii. Discretion to Consider the Declaratory Judgment Claim
The Declaratory Judgment act "confer[s] on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co., 515 U.S. 277, 286, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). Even if Plaintiffs' request for declaratory relief does present an actual case or controversy, "the existence of a 'case' in the constitutional sense does not confer upon a litigant an absolute right to a declaratory judgment." Kunkel v. Continental Cas. Co., 866 F.2d 1269, 1274 (10th Cir. 1989). Rather, whether to grant declaratory relief is a matter of the Court's discretion. Mid-Continent Cas. Co. v. Village at Deer Creek Homeowners Ass'n. Inc., 685 F.3d 977, 980 (10th Cir. 2012); Kunkel, 866 F.2d at 1273 ("Whether to entertain a justiciable declaratory judgment action is a matter committed to the sound discretion of the trial court."). The Court may consider the following factors:
[1] whether a declaratory action would settle the controversy; [2] whether it would serve a useful purpose in clarifying the legal relations at issue; [3] whether the declaratory remedy is being used merely for the purpose of procedural fencing or to provide an arena for a race to res judicata; [4] whether use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction; and [5] whether there is an alternative remedy which is better or more effective.State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 983 (10th Cir. 1994).
Here, the Court agrees with HSIC that the declaratory judgment claim rests entirely on reformation of the policy, so there is "an alternative remedy which is better or more effective." Id. Plaintiffs seek reformation to remove the exclusions HSIC relied on, but they do not assert the exclusions, as written, do not apply or should be interpreted differently. In the Complaint, Plaintiffs allege the patron who caused the accident with Ms. Tidmore was an off-duty employee (which is plainly subject to the first exclusion), and that the employee who served the alcohol was not TIPS certified (which falls squarely under the second exclusion). Compl. [Doc. No. 1] ¶¶ 6, 8; see also Mot., Ex. 1 [Doc. No 14-1] at 20, 30, 42. As such, Plaintiffs appear to recognize the exclusions unambiguously apply to the facts alleged unless they are removed from the Policy.
Although the Court initially finds a sufficient Article III case or controversy due to the reformation claim, it declines to consider the declaratory judgment claim separately. This rationale was applied in Graphic Techs., Inc. v. Pitney Bowes Inc.:
Although cognizant that a court may hear a declaratory action involving the same issues as a coercive action in the same case, see Fed. R. Civ. P. 57, the court finds that such a circumstance weighs against the exercise of jurisdiction. The survival of plaintiff's legal and equitable claims regarding the same issues involved in the declaratory action renders the declaratory action superfluous.998 F. Supp. 1174, 1181 (D. Kan. 1998). Additionally, as explained below, the Court finds Plaintiffs have not sufficiently pleaded a claim for reformation, and that finding—coupled with the fact that the exclusions would clearly apply to the facts alleged if they remain in the Policy—leaves the Court without a remaining dispute to resolve. See Otero v. Hartford Cas. Ins. Co., No. 13-601 MV/CG, 2014 WL 11497803, at *3 (D.N.M. Feb. 14, 2014) ("The Complaint does not allege any other rights or obligations that Plaintiff seeks to have declared. It thus appears that no actual case or controversy remains to be resolved in Plaintiff's declaratory judgment claim.").
B. Ms. Tidmore's Standing
"Constitutional standing is a threshold jurisdictional question" that "must be satisfied prior to adjudication by Article III courts." Trant v. Oklahoma, 874 F. Supp. 2d 1294, 1299 (W.D. Okla. 2012), aff'd, 754 F.3d 1158 (10th Cir. 2014). The "[s]tanding doctrine is designed to determine who may institute the asserted claim for relief." ACORN v. City of Tulsa, Okl., 835 F.2d 735, 738 (10th Cir. 1987) (quoting Action Alliance of Senior Citizens v. Heckler, 789 F.2d 931, 940 (D.C. Cir. 1986)). To establish standing, "a party must show at least that he or she has suffered an actual or threatened injury caused by the defendant and that a favorable judicial decision is likely to redress the injury." ACORN, 835 F.2d at 738 (internal quotations and citations omitted).
HSIC argues Ms. Tidmore does not have standing in this action because the relief sought depends on reformation, and a third-party claimant cannot seek reformation of an insurance policy to which they are not a party. Mot. [Doc. No. 14] at 6-8. Under Shelter Mut. Ins. Co. v. LittleJim, a third-party claimant, "not being a party to the contract, has no standing to seek its reformation." 927 F.2d 1132, 1135 (10th Cir. 1991); see also Hoar v. Aetna Cas. & Sur. Co., 968 P.2d 1219, 1223 (Okla. 1998) (citing Shelter for the proposition that reformation is not available to third party claimants who are neither insureds nor third party beneficiaries). HSIC also relies on Good to Go, which observed: "[t]he case law is clear, however, that [third-party] claimants do not have standing for purposes of a reformation claim under any circumstances." 2018 WL 8333414 at *2.
Plaintiffs argue Good to Go does not apply because that case did not involve a motion to dismiss: it decided whether the third-party claimants could participate in the bifurcated trial on reformation between the insured, Good to Go, and its insurer, Zurich. Resp. [Doc. No. 19] at 4-6. But Plaintiffs do not distinguish or otherwise dispute the holding in Shelter that a third-party claimant "has no standing to seek . . . reformation." 927 F.2d 1132, 1135 (10th Cir. 1991). The Court has no basis to conclude Shelter would not apply here, and therefore finds Ms. Tidmore lacks standing with respect to the reformation claim.
Plaintiffs also assert the Court in Good to Go erred relying on Hoar to determine standing because Hoar is an Oklahoma Supreme Court case, and Article III standing must be determined according to federal law. This argument ignores the fact that Good to Go also cited and relied on Shelter, a Tenth Circuit case upon which the Oklahoma Supreme Court's decision in Hoar was based. See Good to Go, LLC, 2018 WL 8333414, at *2; see also Hoar, 968 P.2d at 1223. Under Shelter and its progeny, Ms. Tidmore does not have standing for purposes of the reformation claim.
However, Plaintiffs are correct that a third-party claimant generally has standing to participate in a declaratory judgment action seeking coverage which could potentially be used to satisfy the judgment in the underlying lawsuit. See Pac. Coal & Oil Co., 312 U.S. at 273-74, 61 S.Ct. 510 (finding a third-party claimant could seek a declaratory judgment regarding coverage related to the underlying lawsuit because "it is possible that opposite interpretations of the policy might be announced by the federal and state courts"); see also Atlas Biologicals, Inc. v. Kutrubes, 50 F.4th 1307, 1333 (10th Cir. 2022) ("We have concluded, in the declaratory judgment context, that a plaintiff that is neither a party to, nor third-party beneficiary of, a defendant's contract nevertheless has standing to seek a declaratory judgment regarding the contract.").
Taking these authorities together, Ms. Tidmore does not have standing to seek reformation, but does have standing for a declaratory judgment claim in a general sense (i.e., if one were to remain). However, as explained above, the Court declines to consider the declaratory judgment claim because there is no apparent dispute as to coverage independent of the reformation claim, and Cigar Box has failed to state a claim for reformation. Thus, there is no remaining claim involving Ms. Tidmore.
C. The Reformation Claim
HSIC's Motion asserts Cigar Box has failed to state a claim for reformation of the Policy. Mot. [Doc. No. 14] at 8-10. Under Oklahoma law, "reformation may be proper if it is shown there existed fraud or mutual mistake." Thompson v. Est. of Coffield, 894 P.2d 1065, 1067 (Okla. 1995). Generally, reformation requires:
In a diversity action such as this one, the Court applies the substantive law of the forum state. Cohen-Esrey Real Estate Servs., Inc. v. Twin City Fire Ins. Co., 636 F.3d 1300, 1302 (10th Cir. 2011).
(1) [an] instrument representing an antecedent agreement which should be reformed, (2) mutual mistake or mistake by one party and [fraud or] inequitable conduct on the part of the other, which results in an instrument that does not reflect what either party intended, and (3) proof of these elements by clear and convincing evidence.Id. at 1067-68; see also Evans v. Hartford Life Ins. Co., 704 F.2d 1177, 1180 (10th Cir. 1983) ("Even where a prior agreement is established, the party seeking reformation must also prove that the written instrument differs because of mutual mistake or fraud."). Cigar Box does not have to prove these elements to avoid dismissal pursuant to Rule 12(b)(6), but it is required to allege facts sufficient to show a plausible claim for relief.
Here, HSIC asserts Cigar Box failed to plead facts to support reformation either due to mutual mistake or fraud. Mot. [Doc. No. 14] at 8-10. Plaintiffs did not respond to this argument in their Response and have therefore conceded the issue. See Northcutt v. Fulton, No. CIV-20-885-R, 2020 WL 7380967, at *2 (W.D. Okla. Dec. 15, 2020) ("Courts routinely deem an issue 'waived' when a party fails to respond to a movant's substantive argument."); Schone v. Sodexo, Inc., No. 19-cv-02283-SKC, 2021 WL 915937, at *3 (D. Colo. Mar. 10, 2021) ("When an argument upon a motion to dismiss that claim is subject to dismissal, and the nonmoving party fails to respond to such an argument, such claims are deemed abandoned and subject to dismissal.") (citation omitted); Rock Roofing, LLC v. Travelers Cas. & Sur. Co., 413 F. Supp. 3d 1122, 1128 (D.N.M. 2019) (plaintiff's failure to respond to defendant's argument waived the issue); Palmer v. Unified Gov't of Wyandotte Cty./Kan. City, Kan., 72 F. Supp. 2d 1237, 1250-51 (D. Kan. 1999) ("[T]he court deems plaintiffs failure to respond to an argument raised in defendants' papers tantamount to an express abandonment of any such claim.").
Moreover, after a thorough review, the Court finds the Complaint fails to state a claim for reformation. The only factual allegations in the Complaint potentially related to reformation are as follows: (1) the two exclusions HSIC relied on to deny coverage for the lawsuit filed by Ms. Tidmore were "added to the policy after the policy was issued and were never communicated to Cigar Box"; and (2) Cigar Box "understood from [HSIC] that it was buying and paying for coverage for several years and that it was getting coverage which would protect from suits such as Ms. Tidmore's." Compl. [Doc. No. 1] ¶¶ 7-10.
First, Cigar Box does not allege any facts to support reformation based on mutual mistake. A party claiming mutual mistake must show, among other things, "a mutual mistake as a result of which the writing reflects something neither party intended." Exxon Corp. v. Gann, 21 F.3d 1002, 1005 (10th Cir. 1994); Good to Go, 2018 WL 8333414 at *2. Cigar Box does not allege that neither party intended for the exclusions to be included in the Policy, and therefore mutual mistake offers no basis for reformation in this case.
Absent mutual mistake, Cigar Box would need to allege fraud or inequitable conduct in connection with a unilateral mistake. See Maloy v. Smith, 341 P.2d 912, 917 (Okla. 1959) ("Reformation may be had [in cases where there has been] mistake on one side and fraud or inequitable conduct on the other." (citation omitted)). But the Complaint includes no allegations regarding an intentional or negligent misrepresentation by HSIC to support actual or constructive fraud, nor are there any allegations regarding a duty between HSIC and Cigar Box required for constructive fraud. See Roberts Ranch Co. v. Exxon Corp., 43 F. Supp. 2d 1252, 1259 (W.D. Okla. 1997) ("a claim for constructive fraud requires a showing that the defendant owed some form of duty to the plaintiff, such as a fiduciary duty or a duty based upon a confidential relationship or a special relationship of trust.") (internal quotation marks and citation omitted).
Under Oklahoma law, the elements of actual fraud are: (1) a material misrepresentation; (2) known to be false at the time made; (3) made with specific intent that a party would rely on it; and (4) reliance and resulting damage. See Key Finance, Inc. v. Koon, 371 P.3d 1133, 1137 (Okla. Civ. App. 2015) (citing Bowman v. Presley, 212 P.3d 1210, 1218 (Okla. 2009)). Constructive fraud requires largely the same elements, but "does not necessarily involve any moral guilt, intent to deceive, or actual dishonesty of purpose." See id. at 1138 (citing Faulkenberry v. Kansas City Southern Railway Co., 602 P.2d 203, 206 (Okla. 1979)).
Cigar Box similarly failed to plead sufficient facts to plausibly claim inequitable conduct. Cigar Box generically alleges "the exclusions were added to the policy after the policy was issued", but it offers no factual details to explain or support this allegation. Compl. [Doc. No. 1] ¶ 8. Most importantly, however, Cigar Box does not dispute that the Policy HSIC attached to its Motion is the same version of the Policy referenced in the Complaint, and that version of the Policy clearly contained both exclusions at its inception. Mot., Ex. 1 [Doc. No. 14-1] at 20, 30, 42. Without any dispute that the exclusions were contained in the Policy when it was issued—or any contrary allegations regarding when or how the exclusions were "added" in—there are no factual allegations to plausibly suggest fraud or inequitable conduct required for reformation. See Twombly, 550 U.S. at 570, 127 S.Ct. 1955 ("Because the plaintiffs here have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed."); see also CFP Acquisitions, Inc. v. Rhoades, No. 20-5073, 2021 WL 4806403, at *6 (10th Cir. Oct. 15, 2021) (affirming dismissal of a reformation claim for "fail[ure] to allege any inequitable conduct").
Cigar Box also claims it "understood from [HSIC]" that the policy would protect it from suits such as Ms. Tidmore's, but it offers no facts regarding the basis for that understanding, let alone how that resulted from fraudulent or inequitable conduct by HSIC. As such, the Court is left only with a unilateral mistake by Cigar Box, which is insufficient for reformation. As explained in Evans:
A mistake on one side only would be insufficient, such as where the policy accurately expressed the intent of the insurer, even though it did not express the intent of the insured. And the insured's
lack of knowledge or ignorance of the coverage actually extended to him by the insurance policy has not been considered a mistake of fact so as to permit reformation.704 F.2d at 1181 (quoting 13A J. Appleman & J. Appleman, Insurance Law and Practice ¶ 7608 at 308-09 (1976)). For all of these reasons, Cigar Box has failed to state a claim for reformation.
D. Leave to Amend
HSIC finally argues the Court should dismiss the case "without leave to amend" and cites to evidence including a prior policy, renewal application, and an insurance proposal. Mot. [Doc. No. 14] at 11 (emphasis omitted). However, Plaintiffs have not sought leave to amend, and therefore that issue is not properly before the Court. The Court also declines to consider the evidence HSIC attaches in support of this argument. See Cent. Nat. Bank of Alva, Okla. v. Spearman Cattle Feeders, Inc., No. CIV-11-1086-D, 2012 WL 2122173, at *6 (W.D. Okla. June 11, 2012) ("a Rule 12(b)(6) motion does not properly challenge the evidence that may support a claim for relief, but is confined to the sufficiency of the allegations asserted in support of that claim . . . Thus, issues related to the evidence are not properly before the Court." (citation omitted)).
IV. Conclusion
IT IS THEREFORE ORDERED that Defendant Houston Specialty Insurance Company's Motion to Dismiss [Doc. No. 14] is GRANTED. Plaintiffs' claims are dismissed without prejudice. A separate judgment of dismissal shall be entered contemporaneously with this Order.
IT IS SO ORDERED this 7th day of August, 2023.