Opinion
No. 4:21-cv-00151-JAJ-SBJ No. 4:21-cv-00152-JAJ-SBJ No. 4:21-cv-00153-JAJ-SBJ No. 4:21-cv-00154-JAJ-SBJ
2021-11-16
Grant R. KIMBERLEY, Kimberley Farms, Inc., and GRK, Inc., Plaintiffs, v. CROP RISK SERVICES, INC., and Stratford Insurance Co., Defendants. Dimit Farms, Inc. ; Dimit Family Farms, LLC; Janet Dimit; Edit M. Parmley; and Jay Hardeman, Plaintiffs, v. Crop Risk Services, Inc., and Stratford Insurance Co., Defendants. Douglas Stadler and Trish Stadler, Plaintiffs, v. Crop Risk Services, Inc., and Stratford Insurance Co., Defendants. Muckler Farms, L.L.C., Plaintiff, v. Crop Risk Services, Inc., and Stratford Insurance Co. Defendants.
John Corey Wagner, John G. Daufeldt, John C. Wagner Law Offices, P.C., Amana, IA, for Plaintiffs. Thomas H. Boyd, Kyle Robert Kroll, Pro Hac Vice, Winthrop & Weinstine, P.A., Minneapolis, MN, for Defendants.
John Corey Wagner, John G. Daufeldt, John C. Wagner Law Offices, P.C., Amana, IA, for Plaintiffs.
Thomas H. Boyd, Kyle Robert Kroll, Pro Hac Vice, Winthrop & Weinstine, P.A., Minneapolis, MN, for Defendants.
OPINION AND ORDER REGARDING DEFENDANTS’ MOTION TO DISMISS
JOHN A. JARVEY, Chief Judge These cases, involving contract and misrepresentation claims, arise from the plaintiff farmers’ purchase of private supplemental crop insurance products from the defendant insurers that were offered at rates so low that they were rejected by the Iowa Insurance Division. These cases are now before the court on the insurers’ essentially identical August 27, 2021, Motions To Dismiss First Amended Petition At Law With Prejudice. The farmers filed essentially identical Resistances on October 15, 2021, and the insurers filed essentially identical Replies on October 29, 2021. Although both the insurers and the farmers requested oral arguments on the Motions To Dismiss, the court finds that the parties’ briefing is sufficient for disposition of these Motions. For the reasons stated below, the insurers’ Motions To Dismiss First Amended Petition At Law With Prejudice in these cases are GRANTED .
I. INTRODUCTION
A. Factual Background
The facts set out, here, are drawn primarily from the allegations in the Farmers’ July 23, 2021, First Amended Petitions, or documents attached to them, in these cases.
The plaintiffs in Kimberley v. Crop Risk Services, Inc. , are record titleholders to farmland located in Jasper, Polk, and Story Counties in Iowa. The plaintiffs in Dimit Farms, Inc. v. Crop Risk Services, Inc. , are record titleholders to farmland located in both Jasper and Poweshiek Counties. The plaintiffs in Stadler v. Crop Risk Services, Inc. , are record titleholders to farmland located in Benton, Tama, and Poweshiek Counties. The plaintiff in Muckler Farms, L.L.C. v. Crop Risk Services, Inc. , is record titleholder to farmland located in Poweshiek County. Where necessary, the cases and the plaintiffs will be distinguished as "Kimberley," "Dimit," "Stadler," and "Muckler," but the plaintiffs will be identified collectively as "the Farmers."
Defendant Crop Risk Services, Inc., (CRS) is a foreign corporation with a registered agent in Iowa. Defendant Stratford Insurance Co. (Stratford) is a foreign corporation with its principal place of business in New Jersey. Stratford was authorized to write crop insurance, and CRS was an affiliated program administrator for Stratford. CRS and Stratford will be identified collectively as "the Insurers."
The crop insurance products sold by the Insurers at issue, here, are sold as endorsements to "private" crop-hail policies, which are not part of the Federal Crop Insurance Program. Instead, the "private" crop-hail policies and the endorsements to them are provided directly through private insurers. Federal Crop Insurance covers up to 85% of a farmer's acreage yield loss or revenue loss, while these private insurance products cover the "gap" in coverage between that percentage and a farmer's full loss or the level of the farmer's choosing. The crop insurance products at issue, here, are called (1) Production Wind and (2) Wind/Green Snap/Extra Harvest. Collectively, they will be called "the Crop-Hail Products."
On or about January 31, 2020, CRS filed rates with the Iowa Insurance Division (IID) on behalf of Stratford for both Crop-Hail Products. The IID initially approved the 1/31/20 Rates for the Crop-Hail Products, but on or about February 28, 2020, the IID notified CRS that those rates did not comply with Bulletin 18-02, which sets out "Rules for Crop-Hail Insurance Rate and Form Filings." On or about March 6, 2020, CRS submitted revised rates for Crop-Hail Products to the IID, and the IID approved the revised rates on or about March 9, 2020. The 3/6/20 Revised Rates also did not comply with Bulletin 18-02, however, because those rates had a -75.6% deviation from the Final Average Loss Cost (FALC) determined by National Crop Insurance Services (NCIS). Consequently, on or about March 14, 2020, the IID notified CRS that the 3/6/20 Revised Rates were still noncompliant with Bulletin 18-02. CRS submitted modified rates, again, on or about March 17, 2020, but the 3/17/20 Revised Rates were still noncompliant, allegedly because CRS had failed to use the correct loss cost modification factors (LCMFs). On or about April 1, 2020, CRS submitted a fourth set of revised rates for Crop-Hail Products with the correct LCMFs, and the IID approved those rates on or about April 9, 2020. The Farmers have not alleged any of the specific rates, but they do allege that the 4/1/20 Revised Rates were considerably higher than the original 1/31/20 Rates.
The Farmers allege that each of them or their representatives signed Applications for Crop-Hail Products with CRS and obtained coverage through Stratford based upon the quoted premium rates, that is, rates lower than the 4/1/20 Revised Rates finally approved by the IID. The Farmers do not allege what specific rates they were quoted or what specific rates their Applications were based on, the Farmers have not identified any part of their Applications that contain such information, and the court has not found such information in any of the Applications attached to the First Amended Petitions. The Farmers do allege, however, that, prior to their execution of the Crop-Hail Applications, the Insurers did not inform them that the initially quoted rates for the Crop-Hail Products were subject to approval by the IID. They also allege that their decisions to obtain crop insurance coverage through the Insurers was based on the initially quoted rates. The Applications attached to the various First Amended Petitions show that the Kimberley plaintiffs and CRS's agent signed Applications dated March 3, 2020; the Dimit plaintiffs and CRS's agent signed Applications dated March 5, 2020; one of the Stadler plaintiffs and CRS's agent signed an Application dated March 11, 2020; and the Muckler plaintiff's agent and CRS's agent signed an Application dated March 9, 2020. Pursuant to the terms of the Crop-Hail Applications, insurance coverage attached for the 2020 crop year.
The Farmers allege that, after their Applications "bound" their insurance coverage, the Insurers unilaterally raised the Farmers’ rates for Crop-Hail Products on at least two separate occasions. Furthermore, they allege that they were forced either to pay the increased rates, to reduce their coverage, or to forego Crop-Hail Products coverage altogether, because their purchase of federal crop insurance from the Insurers meant that they were "locked-in" to the Insurers’ private insurance and could not purchase Crop-Hail Products from another carrier. They also allege that CRS expressly indicates on its website that the last day for the purchase of Crop-Hail Products is March 15th of each year. The Farmers allege that they ended up with less coverage than they would have had if the Insurers had honored the coverage and rates the Farmers were quoted.
On or about August 10, 2020, a devastating weather event—called a "Derecho" windstorm—damaged the Farmers’ crops. The Farmers allege that, because they were underinsured or not fully insured, they suffered financial damages.
The Insurers’ conduct in regard to pricing of the Crop-Hail Products at issue in this case was addressed by proceedings of the Iowa Insurance Commissioner. On December 21, 2020, the Iowa Insurance Commissioner entered an Order and Consent to Order (the Consent Order), which is attached to each of the First Amended Petitions. That Consent Order states, in its preamble,
NOW THEREFORE , upon motion of the Iowa Insurance Division ("Division") and by the consent of Respondent Stratford Insurance Company , pursuant to the provisions of Iowa Code chapter 507B—Insurance Trade Practices and Iowa Administrative Code chapter 20—Property and Casualty Insurance, the Commissioner enters the following Order and Consent to Order ("Consent Order").
Consent Order, Pl.s’ First Amend. Pets., Ex. 2 (emphasis added).
Although the Farmers quote in their First Amended Petitions several parts of the Consent Order that are consistent with their own allegations, the court finds that the most pertinent parts of the Consent Order are the following:
On behalf of Stratford, CRS filed rates with the Division that failed to comply with Bulletin 18-02. These noncompliant rates gave CRS an unfair competitive advantage because the rates were markedly lower than the compliant rates filed by their competitors.
Stratford, acting through its affiliated program administrator, misrepresented the terms of the Crop-Hail policies by quoting premium rates which failed to comply with Bulletin 18-0 2. Iowa Farmers selected to obtain coverage through Stratford, in large part, due to the low, quoted rates. These rates increased twice after many of these Farmers already submitted signed applications and coverage was bound....
* * *
Stratford's acts and practices have been in violation of Iowa Code §§ 507B.3 and 507B.4(3) subjecting Stratford to the imposition of a civil penalty, an order requiring Stratford to cease and desist from engaging in such acts or practices, the imposition of costs of the investigation and prosecution in the matter, and any other corrective action the Commissioner deems necessary and appropriate pursuant to Iowa Code §§ 505.8 and 507B.7.
Consent Order, ¶¶ 28-29, 32 (emphasis added). Consequently, the Consent Order imposed civil penalties on Stratford; ordered Stratford to credit policyholders with refunds reflecting the difference between the quoted rate and the final corrected rate; and imposed certain other costs on Stratford. See id. at "Wherefore" clause.
B. Procedural Background
The Farmers filed their original Petitions At Law And Jury Demand in the Iowa District Courts in various counties on March 5, 2021 (Kimberley and Dimit), March 11, 2021 (Stadler), and March 8, 2021 (Muckler). The Insurers removed all four cases to this federal court on May 20, 2021, based on diversity of citizenship. Although the Insurers moved to dismiss the Farmers’ original Petitions on July 2, 2021, the court denied those motions to dismiss without prejudice as moot on August 2, 2021, because the Farmers had filed First Amended Petitions as a matter of course pursuant to Rule 15(a)(1)(B) of the Federal Rules of Civil Procedure.
The Farmers First Amended Petitions At Law And Jury Demand were filed on July 23, 2021. In each First Amended Petition, "COUNT I: BREACH OF INSURANCE CONTRACT" is based on an allegation that the Insurers unilaterally refused to honor their contractual duties under the Crop-Hail Applications. "COUNT II: NEGLIGENT MISREPRESENTATION" is based on allegations that the Insurers knew or reasonably should have known that the quoted rates in the Crop-Hail Applications were false and that the Farmers relied on those quotes to their detriment. "COUNT III: FRAUDULENT MISREPRESENTATION" is based on allegations that the Insurers made false representations to the Farmers, including but not limited to those representations set forth in the Crop-Hail Applications, in what the Farmers allege was "a classic ‘bait and switch’ fraudulent scheme." "COUNT IV: PROMISSORY/EQUITABLE ESTOPPEL" is based on allegations that the Insurers made clear and definite promises to the Farmers, including but not limited to those terms set forth in the Crop-Hail Applications, and that injustice can be avoided only by enforcement of the Insurers’ promises. "COUNT V: PUNITIVE DAMAGES" alleges that "[the Insurers’] misrepresentations to [the Farmers] that the proffered quoted premium rates it agreed to provide in the Crop-Hail Applications would be honored, when [the Insurers] knew such rates were noncompliant with Bulletin 18-02 and in fact were markedly lower than the compliant rates filed by [the Insurers’] competitors," which the Farmers allege the Insurers "committed with a willful or reckless disregard of the [Farmers’] rights." Finally, "COUNT VI: BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING" is based on allegations that the Insurers breached their implied duty by, among other things, misrepresenting to the Farmers the terms of the Crop-Hail policies when they quoted premium rates that failed to comply with Bulletin 18-02.
The Insurers’ Motions To Dismiss now before the court followed on August 27, 2021.
II. LEGAL ANALYSIS
A. Rule 12(b)(6) Standards
The Insurers’ Motions To Dismiss rely primarily on Rule 12(b)(6) of the Federal Rules of Civil Procedure. Rule 12(b)(6) provides for a pre-answer motion to dismiss "for failure to state a claim upon which relief can be granted." FED. R. CIV. P. 12(b)(6). The Eighth Circuit Court of Appeals recently summarized the Rule 12(b)(6) standards, as follows:
We review de novo a grant of a motion to dismiss under Fed R. Civ. P. 12(b)(6). Adams v. Am. Family Mut. Ins. Co. , 813 F.3d 1151, 1154 (8th Cir. 2016). We accept the well-pled allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Schriener v. Quicken Loans, Inc. , 774 F.3d 442, 444 (8th Cir. 2014). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Id. (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). "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." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. We assess plausibility considering only the complaint and materials that are "necessarily embraced by the pleadings and exhibits attached to the complaint," Mattes v. ABC Plastics, Inc. , 323 F.3d 695, 697 n.4 (8th Cir. 2003), "draw[ing] on [our own] judicial experience and common sense," Iqbal , 556 U.S. at 679, 129 S.Ct. 1937. Further, we "review the plausibility of the plaintiff's claim as a whole, not the plausibility of each individual allegation." Zoltek Corp. v. Structural Polymer Grp. , 592 F.3d 893, 896 n.4 (8th Cir. 2010).
Meardon v. Register , 994 F.3d 927, 934 (8th Cir. 2021). More pointedly, "[c]onclusory allegations and ‘threadbare recitals of the elements of a cause of action’ cannot survive a motion to dismiss." Du Bois v. Bd. of Regents of Univ. of Minnesota , 987 F.3d 1199, 1205 (8th Cir. 2021) (quoting Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ).
In deciding a Rule 12(b)(6) motion to dismiss, the court is not strictly limited to consideration of the allegations in the complaint. Instead, the court may also consider "materials embraced by the complaint [which] include documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleadings," as well as "matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint whose authenticity is unquestioned." Zean v. Fairview Health Servs. , 858 F.3d 520, 526 (8th Cir. 2017) (internal quotation marks and citations omitted).
A few more points about the applicable standards are salient, here. First, "in general, a defendant cannot render a complaint defective by pleading an affirmative defense." Weatherly v. Ford Motor Co. , 994 F.3d 940, 942–43 (8th Cir. 2021). Second, the court is not required to wait to see if more specific information becomes available through the discovery process to decide if there is sufficient factual matter to state a claim. Where a complaint lacks sufficient factual allegations to state a claim, the district court does not abuse its discretion by refusing to allow discovery. Steinbuch v. Cutler , 518 F.3d 580, 591 (8th Cir. 2008). Third, Rule 12(b)(6) permits dismissal of a claim that lacks a recognized or cognizable legal theory, as well as dismissal of claims for lack of a plausible factual basis, even after Iqbal. See Couzens v. Donohue , 854 F.3d 508, 519 (8th Cir. 2017) (holding that the district court properly dismissed the plaintiff's claim for negligent infliction of emotional distress, because the plaintiff had not pleaded a legally recognized duty under Missouri law); Brown v. Mortgage Electronic Registration Sys., Inc. , 738 F.3d 926, 933 n.7, 934 (8th Cir. 2013) (noting the appellate court's agreement "with the district court's sound reasoning that the facts pled do not state a cognizable claim under Arkansas law" and holding that dismissal pursuant to Rule 12(b)(6) was appropriate, because Arkansas law did not impose the purported duty on which an unjust enrichment claim and a state statutory claim were based). In other words, such a complaint fails to state a claim because of legal insufficiency rather than factual insufficiency.
The Insurers’ Motions To Dismiss are also based, in part, on failure to pleading fraud with particularity, as required by Rule 9(b) of the Federal Rules of Civil Procedure. The court will summarize the Rule 9(b) pleading standards, if necessary, below.
Before considering whether any of the Counts in the Farmers’ First Amended Petitions state claims upon which relief can be granted or are pleaded with sufficient particularity, however, the court finds that it must clarify the nature of the Farmers’ "estoppel" claims. This is so, because Count IV purports to allege a single or joint "promissory/equitable estoppel" claim, but the court finds that "promissory" and "equitable" versions of estoppel are separate causes of action, not identical or congruent ones, and that only one version has been expressly pleaded in Count IV.
B. The Nature Of The "Estoppel" Claims
As summarized, above, Count IV is identified as a "promissory/equitable estoppel" claim based on allegations that the Insurers made promises that must be enforced to avoid injustice. More fully, it alleges the following:
53. That Defendants have made clear and definite promises to Plaintiffs that included, but are not limited to, those terms set forth in the Crop-Hail Applications.
54. That these promises by Defendants were made with the clear understanding that the Plaintiffs were seeking assurances upon which Plaintiffs could rely and without which Plaintiffs would not have acted.
55. That Plaintiffs acted to their substantial detriment in reasonable reliance on Defendants’ promises.
56. That injustice can be avoided only by enforcement of the Defendants’ promises, including, but not limited to, those terms set forth in the Crop-Hail Applications.
Kimberley First Am. Pet., ¶¶ 53-56.
Identical allegations support this claim in the other plaintiffs’ First Amended Petitions.
As the Iowa Supreme Court has explained, a plaintiff prevails on a "promissory estoppel" claim if the plaintiff establishes (1) that the defendant made "a clear and definite promise"; (2) that the defendant "had reason to believe [the plaintiff] would rely on the promise"; (3) "that [the plaintiff], in fact, did rely on the promise to his detriment"; and (4) "that injustice may be avoided only by enforcement of the promise." Kunde v. Est. of Bowman , 920 N.W.2d 803, 812 (Iowa 2018), as amended on denial of reh'g (Jan. 4, 2019). Thus, the Farmers’ allegations in support of their "promissory/equitable estoppel" claim precisely track the elements of a "promissory estoppel" claim.
In contrast, the elements of an "equitable estoppel" claim are the following:
(1) The defendant has made a false representation or has concealed material facts; (2) the plaintiff lacks knowledge of the true facts; (3) the defendant intended the plaintiff to act upon such representations; and (4) the plaintiff did in fact rely upon such representations to his prejudice.
McKee v. Isle of Capri Casinos, Inc. , 864 N.W.2d 518, 531 (Iowa 2015). Thus, "promissory estoppel" and "equitable estoppel" are different causes of action. Id. The Farmers’ allegations in Count IV do not track the elements of "equitable estoppel." Furthermore, based on its elements, the "equitable estoppel" version of estoppel is more akin to a misrepresentation tort claim than a contract claim. Therefore, the court will address the Farmers’ "equitable estoppel" claim, to the extent one has been pleaded somewhere other than Count IV, in its analysis of the Farmers’ misrepresentation claims.
C. The Contract Claims
The Insurers argue that the Farmers’ "contract" claims—that is, the claims for breach of contract, promissory estoppel, and breach of the covenant of good faith and fair dealing in Counts I, IV, and VI, respectively—all fail to state claims upon which relief can be granted, because the law will not recognize a right of action in favor of either party founded on an illegal and invalid contract. Here, the Insurers argue, the Farmers are bound by the terms of the insurance policies they actually purchased, at the rates imposed under Iowa law, but the Farmers are trying to enforce the coverage that they had originally desired to purchase at the lower rates that the IID ruled were illegal.
The Farmers respond that the illegality, if any, of the contracts was completely on the side of the Insurers. To put it another way, the Farmers argue that the conduct of the Insurers in knowingly offering contract terms that they cannot honor has the effect of destroying the right of the Farmers to receive the fruits of the contract. They argue that they have more than sufficiently pleaded contractual claims by alleging that the Insurers specifically breached their contracts by revoking offered rates that they knew or should have known they could not really offer, but nevertheless offered in binding agreements.
The Farmers’ contract claims seek to enforce the original rates and the amount of coverage that they allege they were quoted and which they assert became terms of their contracts with the Insurers when they and the Insurers’ representatives signed their Applications. The fundamental and dispositive problem with these claims is that the Iowa Supreme Court has made clear that a party cannot enforce an illegal contract, and when a contract is unenforceable because of illegality, the court need look no further. Poller v. Okoboji Classic Cars, L.L.C. , 960 N.W.2d 496, 519 (Iowa 2021) ; see also Koepke v. Peper , 155 Iowa 687, 136 N.W. 902, 903 (1912) ("[The law] will not aid either party to an illegal contract to enforce it against the other, nor will it relieve a party to such a contract who has actually fulfilled it and who seeks to reclaim anything paid thereon. The law will leave the parties exactly where they stand, not that it prefers one to the other, but because it will not recognize a right of action founded on an illegal contract in favor of either party."). The Farmers’ First Amended Petitions expressly plead that the rates that the Farmers are attempting to enforce—as part of their contracts, as a matter of good faith and fair dealing, or as a matter of promissory estoppel—were held to be illegal and invalid by the IID. Such agreements simply are not enforceable.
More specifically, as the Iowa Supreme Court has observed, "we think the better view is that the illegal contract cannot be enforced.... [This] approach ... is consistent with other commercial cases where we have held that illegal contracts are not enforceable." Poller , 960 N.W.2d at 521. Indeed, that court held that this rule applies, even if it results in some degree of unfairness to one of the parties. Id. at 521-22.
This same principle necessarily applies to promissory estoppel, which requires proof, inter alia , "that injustice may be avoided only by enforcement of the promise." Kunde , 920 N.W.2d at 812. It is plain that enforcing an illegal promise, however clear and definite, would have the effect of imposing an injustice, rather than avoiding it. Similarly, " ‘[t]he underlying principle [of the covenant of good faith and fair dealing] is that there is an implied covenant that neither party will do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.’ " Albaugh v. The Rsrv. , 930 N.W.2d 676, 686 (Iowa 2019) (quoting Alta Vista Properties, L.L.C. v. Mauer Vision Ctr., P.C. , 855 N.W.2d 722, 730 (Iowa 2014) ). However, no party is entitled to receive the fruits of an illegal contract. Cf. Poller , 960 N.W.2d at 521.
Here, the Farmers’ contract claims are not cognizable under Iowa law, where the underlying contract terms that the Farmers are attempting to enforce are illegal, so dismissal of these claims is appropriate. See Couzens , 854 F.3d at 519 (explaining that dismissal is appropriate if a claim is not legally cognizable); Brown , 738 F.3d at 933 n.7, 934 (same). The Insurers’ Motions To Dismiss are granted as to the Farmers’ contract claims in Counts I, IV, and VI. The legal deficiency in these claims cannot be remedied by any repleading of additional facts, so dismissal of these claims is with prejudice.
D. The Misrepresentation Claims
The court turns, next, to the Farmers’ misrepresentation claims, that is, the claims of negligent misrepresentation and fraudulent misrepresentation in Counts II, III, and the claim of "equitable" estoppel, to the extent such a claim has been pleaded somewhere in the First Amended Petitions. The court will consider each of the Insurers’ challenges to these claims, but not in the order that the Insurers asserted them.
1. Legal duty
The court begins with the Insurers’ argument that no legal duty exists to support the Farmers’ negligent misrepresentation claims, which the court finds is dispositive of this claim. The Insurers argue that they owed the Farmers no legal duty of care in their arms-length insurance transaction, because the Insurers are not in the business of supplying information. The Insurers contend that their relationship with the Farmers was not advisory in nature; instead, they contend that they acted for the parties’ mutual benefit in offering competitive insurance rates, much like a financial institution. The Farmers respond that the issue of whether the Insurers owed them a legal duty is not ripe for adjudication when discovery has not occurred. The Farmers argue that neither of the Insurers’ contentions, about an arms’ length transaction and not being in the business of supplying information, has been proved, while discovery may provide definitive evidence of the relationship between the parties.
The parties recognize that a legal duty is a requirement of a negligent misrepresentation claim. "Whether the defendant owed a legal duty is ‘always a question of law for the court.’ " Dinsdale Constr., L.L.C. v. Lumber Specialties, Ltd. , 888 N.W.2d 644, 649 (Iowa 2016) (quoting Fry v. Mount , 554 N.W.2d 263, 265 (Iowa 1996) ). "[U]nder Iowa law, normally only those in the business of supplying information to others owe a duty to ensure that information is correct, accurate, and thorough," as required for a negligent misrepresentation claim to be viable. Id. at 650 (citing Sain v. Cedar Rapids Cmty. Sch. Dist. , 626 N.W.2d 115, 123 (Iowa 2001) ). The goal is "to distinguish advisory relationships from relationships that are adversarial and at arm's length," "to distinguish the sale of information as a product from information given incidentally as part of another transaction," and "to distinguish professional purveyors of information from those who work in another capacity." Id. (citing Pitts v. Farm Bureau Life Ins. Co. , 818 N.W.2d 91, 111-12 (Iowa 2012) ). Only those who sell information as a product, as professional purveyors of information, rather than supplying information incidental to an arms’ length transaction, have the duty of care in supplying the information on which a negligent misrepresentation claim can be based. Id. The purveyor of information has a pecuniary interest in being paid for giving the information. Id. at 651-53.
Here, the Farmers allege in the first numbered paragraph of each negligent misrepresentation claim "[t]hat [the Insurers] were in the business of supplying information to others concerning crop insurance as evidenced in the Crop-Hail Applications." That allegation, standing alone, is wholly conclusory. See Du Bois , 987 F.3d at 1205 (explaining that "[c]onclusory allegations and ‘threadbare recitals of the elements of a cause of action’ cannot survive a motion to dismiss"). The First Amended Petitions must, instead, provide factual allegations from which the court can reasonably infer that the Insurers were in the business of supplying information, that is, that the transactions with the Farmers involved the "sale of information as a product." Dinsdale Constr., L.L.C. , 888 N.W.2d at 650 ; see also Meardon , 994 F.3d at 934 (setting out the plausible factual basis pleading standard under Rule 12(b)(6) ). The First Amended Petitions contain no such factual allegations. Rather, all that the First Amended Petitions suggest is that the Insurers’ representations about the rates for the Crop Hail Products were "information given incidentally as part of another transaction," specifically, an arms’ length transaction for the sale and purchase of the Crop Hail Products. Id. Because there are no factual allegations plausibly suggesting that the transactions for the sale and purchase of the Crop-Hail Products were anything other than arms’ length, there is no duty on which the negligent misrepresentation claim can be based, and that claim is subject to dismissal. The Farmers contend that they might discover such facts, so dismissal is premature, but they have not identified any facts they might discover that would plausibly suggest that the Insurers were in the business of supplying information. More importantly, as the court explained, above, where a complaint lacks sufficient factual allegations to state a claim, the district court does not abuse its discretion by refusing to allow discovery. Steinbuch , 518 F.3d at 591.
Thus, the Insurers Motions To Dismiss will be granted as to the Farmers’ negligent misrepresentation claims for failure to plead a plausible factual basis for the required duty. Furthermore, the Farmers have not requested leave to replead any claim that the court finds is subject to dismissal, even though the Insurers expressly request dismissal with prejudice. Under these circumstances, dismissal of all the Farmers’ negligent misrepresentation claims is with prejudice.
2. False representation
The court now turns issues relating to all three of the misrepresentation claims—including the now dismissed negligent misrepresentation claim, as well as the fraudulent misrepresentation claim and the equitable estoppel claim. The court concludes, for the sake of argument and reading the allegations of the Farmers’ First Amended Petitions liberally, that there are allegations that at least track the elements of an equitable estoppel claim. See McKee , 864 N.W.2d at 531 (setting out the elements of an equitable estoppel claim).
One element that all the misrepresentation claims have in common is that the representations on which the claims are based were "false." Bass v. J.C. Penney Co. , 880 N.W.2d 751, 764 (Iowa 2016) (explaining that a materially false or deceptive representation is required to support a negligent misrepresentation or a fraudulent misrepresentation claim); Bagelmann v. First Nat. Bank , 823 N.W.2d 18, 30 (Iowa 2012) (explaining that, in a commercial context, negligent misrepresentation requires proof that the defendant supplied false information); Dier v. Peters , 815 N.W.2d 1, 7 (Iowa 2012) (explaining that a fraudulent misrepresentation claim requires proof that the representation was false); McKee , 864 N.W.2d at 531 (explaining that the first element of an equitable estoppel claim is that "[t]he defendant has made a false representation or has concealed material facts"). Still more specifically, the plaintiff must show that the representations was false at the time it was made. Van Sickle Const. Co. v. Wachovia Com. Mortg., Inc. , 783 N.W.2d 684, 688 (Iowa 2010) ; Spreitzer v. Hawkeye State Bank , 779 N.W.2d 726, 735 (Iowa 2009) ("Under the law, a representation must be false at the time it was made to support a claim of fraud, and a representation that was true cannot serve as a basis for a claim of fraud.").
Here, the Insurers contend that the Farmers fail to allege facts that show any statement was false or inaccurate at the time the Insurers made it. Indeed, the Insurers argue that the Farmers’ allegations show that the Insurers offered to provide the Crop-Hail Products at the rates they filed with, and for which they had received initial approval from, the IID. The Farmers respond that the Insurers are attempting to put the burden of knowing whether the rates were compliant with Iowa law on the Farmers, but the Insurers ignore what the Insurers knew when they made the representations. The Farmers argue that it stretches all bounds of common sense for the Insurers to assert that no one can infer that they had an intent to deceive, despite offering rates nearly 75% to 40% lower than the norm, just because the IID initially approved those rates and the Insurers kept attempting to secure approval. The Farmers argue that, to the contrary, the Insurers knew or should have known the rates offered to the Farmers would never be approved. They point out that, in the Consent Order before the Insurance Commissioner, the Insurers stipulated that the proffered rates were a misrepresentation.
The Farmers’ arguments about whether the Insurers knew or should have known that their representations about the rates were false blurs the separate elements of "falsity," "knowledge of falsity," and "intent to deceive" in a fraudulent misrepresentation claim. See, e.g., Dier , 815 N.W.2d at 7 (stating the elements of common-law fraudulent misrepresentation). The "falsity" element of the three misrepresentation claims at issue, here, has nothing to do with what the defendant knew or should have known. Whether a representation was "false" can be determined as a matter of law. See Bass , 880 N.W.2d at 764. If the IID, which is the state agency responsible for determining legal insurance rates, had approved a particular rate at the time the rate was offered, offering that rate was not a "false" representation as a matter of law. That does not mean that the Farmers have necessarily failed to allege any false representations, however.
The key issue is one of timing. The Applications attached to the various First Amended Petitions, which the court may properly consider on a Rule 12(b)(6) motion to dismiss, Zean , 858 F.3d at 526, show the dates that the Farmers submitted Applications also signed by CRS's agents, and the allegations of the First Amended Petitions allege the dates the Insurers’ rates were approved or rejected. Thus, the Applications and the allegations establish the following timeline:
• The 1/31/20 Rates were initially approved
• On 2/28/20, the IID notified the Insurers that the 1/31/20 Rates did not comply with Bulletin 18-02;
• On 3/3/20, the Kimberley plaintiffs signed Applications;
• On 3/5/20, the Dimit plaintiffs signed Applications;
• On 3/6/20, the Insurers submitted revised rates
• On 3/9/20, the IID initially approved the 3/6/20 Revised Rates;
• On March 9, 2020, the Muckler plaintiff signed an Application;
• On March 11, 2020, the Stadler plaintiffs signed an Application;
• On or about March 14, 2020, the IID notified the Insurers that the 3/6/20 Revised Rates were still did not comply with Bulletin 18-02.
As shown by the italicized text in the timeline, the Kimberley plaintiffs and the Dimit plaintiffs signed Applications when the Insurers had no approved rates , that is, during the period from 2/28/20 to 3/9/20. Thus, a representation that the rates quoted to those plaintiffs were legal was false as a matter of law at the time the representation was made. Furthermore, allegations that these plaintiffs "signed applications for Crop-Hail Products with CRS and obtained coverage through Stratford based upon the quoted premium rates, but prior to the Division's approval," see Kimberley First Am. Pet., ¶ 21; Dimit First Am. Pet., ¶ 23; see also Kimberley First Am. Pet. at ¶¶ 43, 48; Dimit First Am. Pet. at ¶¶ 45, 50, have plausible factual support from what the pleadings and the documents the pleadings encompass demonstrate about the timing of the transactions. That means that the remaining misrepresentation claims of the Kimberley plaintiffs and the Dimit plaintiffs survive this part of the Insurers’ challenge. See Meardon , 994 F.3d at 934 (setting out the plausible factual basis pleading standard under Rule 12(b)(6) ).
In contrast, as shown by the bold text in the timeline, the Muckler plaintiff and the Stadler plaintiffs signed Applications at a time when the Insurers had initial IID approval for the 3/6/20 Revised Rate, that is, during the period from 3/9/20 to 3/14/20. Thus, a representation to the Muckler plaintiff and the Stadler plaintiffs that the rates were legal was not false as a matter of law at the time the representation was made. There is no pleading of a plausible factual basis from which the court can infer that these plaintiffs were quoted the 1/31/20 Rate, which the Insurers had already been notified had been invalidated, rather than the 3/6/20 Revised Rate, which the Insurers had been notified had been approved. No such plausible factual allegations are to be found, where the Farmers do not plead what specific rates they were quoted and their Applications do not contain that information. Thus, these plaintiffs’ allegations that they "signed applications for Crop-Hail Products with CRS and obtained coverage through Stratford based upon the quoted premium rates, but prior to the Division's approval," see Muckler First Am. Pet, ¶ 19; Stadler First Am. Pet, ¶ 19; see also Muckler First Am. Pet at ¶¶ 41, 46; Stadler First Am. Pet. at ¶ 41, 46, are merely conclusory, because they lack any support from what the pleadings and the documents the pleadings encompass demonstrate about the timing of the transactions. As such, they are insufficient to defeat the Insurers’ Motions To Dismiss the misrepresentation claims on this ground. See Du Bois , 987 F.3d at 1205 (explaining that "[c]onclusory allegations and ‘threadbare recitals of the elements of a cause of action’ cannot survive a motion to dismiss").
The misrepresentation claims of the Muckler plaintiffs and the Stadler plaintiffs are not saved by their assertion that the Insurers stipulated in the Consent Order by the Insurance Commissioner that the Insurers’ proffered rates were a "misrepresentation." This is so, because the fact to which the Insurers actually stipulated was the following: "Stratford, acting through its affiliated program administrator, misrepresented the terms of the Crop-Hail policies by quoting premium rates which failed to comply with Bulletin 18-02." Consent Order at ¶ 29. As the Insurers argue, this stipulation does not establish that the Insurers made statements about their Crop-Hail Products to specific Farmers that were false when made, where the IID had initially approved certain rates as compliant with Bulletin 18-02.
Thus, the Insurers’ Motions To Dismiss are granted as to the misrepresentation claims of the Muckler plaintiff and the Stadler plaintiffs in Counts II and III, and their "equitable estoppel" claim, to the extent that such a claim is elsewhere pleaded, but it is denied as to the misrepresentation claims of the Kimberley plaintiffs and the Dimit plaintiffs.
Furthermore, in response to the Motions To Dismiss, the Farmers have not requested leave to replead any claim that the court finds is subject to dismissal, even though the Insurers expressly request dismissal with prejudice. Also, the Insurers made comparable arguments on whether the representations were "false" in their July 2, 2021, Motions To Dismiss the Farmers’ original Petitions, but those Motions were denied as moot, by an Order filed August 2, 2021, after the Farmers filed their First Amended Petitions on July 23, 2021, as a matter of course, pursuant to Rule 15(a)(1)(B) of the Federal Rules of Civil Procedure. Thus, the Farmers have had an opportunity to remedy this deficiency, but they failed to do so. See, e.g., Liscomb v. Boyce , 954 F.3d 1151, 1156 (8th Cir. 2020) (explaining that further amendment is futile if the amended complaint does not meet pleading requirements).
Under these circumstances, the dismissal of the remaining misrepresentation claims of the Stadler plaintiffs and the Muckler plaintiff is with prejudice.
3. Reliance
Another element that all the misrepresentation claims—including the now dismissed negligent misrepresentation claim—have in common is "reliance." See, e.g., Dinsdale , 888 N.W.2d at 649-50 (explaining that a defendant is subject to liability for negligent misrepresentation, if, inter alia , the plaintiff suffered pecuniary loss caused by the plaintiff's justifiable reliance upon the information provided by the defendant); McKee , 864 N.W.2d at 531 (explaining that, to prove an equitable estoppel claim, the plaintiff must prove that he or she did in fact rely upon the defendant's representations to his prejudice); Dier , 815 N.W.2d at 9 ("To bring a fraud claim, the plaintiff must have justifiably relied on the false representation.").
The Insurers argue—albeit in the context of the insufficiency of the pleading of the fraudulent misrepresentation claim under the pleading standards in Rule 9(b) of the Federal Rules of Civil Procedure —that the Farmers merely allege that they "relied upon" the prices quoted by the Insurers and that this somehow caused them harm. The Insurers also contend that whatever harm the Farmers have experienced, if any, is not a result of any conduct by the Insurers or any reliance by the Farmers upon the Insurers’ conduct. Instead, the Insurers contend that any deficiency in coverage is the result of the Farmers’ own purchasing decisions after the IID required the Insurers to file increased rates, and they could have avoided injury, for example, by obtaining coverage from another provider.
The Farmers’ Resistances do not even mention Rule 9(b) or a particularity requirement for pleading fraud. The Farmers’ Resistances do address reliance, however, by suggesting that the Farmers relied on the Insurers to offer only rates that the Insurers could actually provide or there would be no reason for the Farmers to enter into an agreement, and by suggesting that their decision to obtain crop insurance coverage through the Insurers was based on the initial quoted rates.
The court will consider first the Insurers’ last argument about "reliance"—that is, the argument that the Farmers relied on their own decision-making, rather than relying on any representations by the Insurers, and that they could have taken action to avoid injury, such as obtaining coverage from another provider. The court finds that this argument asserts an affirmative defense as a ground for dismissal. Specifically, whether this argument is directed at "reliance" or "causation," the court concludes that it is a "failure to mitigate damages" affirmative defense that is not a basis for dismissal for failure to state a claim. See Weatherly , 994 F.3d at 942–43 ("[I]n general, a defendant cannot render a complaint defective by pleading an affirmative defense.").
On the other hand, the court finds that the Farmers have made no more than conclusory allegations of reliance. In the "Preamble" to their First Amended Petitions, the Farmers allege, "Plaintiffs signed applications for Crop-Hail Products with CRS and obtained coverage through Stratford based upon the quoted premium rates ...," see, e.g. , Kimberley First Am. Pet. at ¶ 21, and that "Plaintiffs’ decision to obtain crop insurance coverage through Defendants was based on the initial quoted rates," see, e.g., id. at ¶ 22; in their negligent misrepresentation claims, they allege, "Plaintiffs reasonably relied on the information in the transaction that the Defendants intended the information to influence," see, e.g., id. at ¶ 45; in their fraudulent misrepresentation claims, they allege, "Plaintiffs acted in reliance on the truth of the representations and were justified in relying on said representations," see, e.g., id. at ¶ 51; and in their "promissory/equitable estoppel," they allege, "Plaintiffs acted to their substantial detriment in reasonable reliance on Defendants’ promises," see, e.g., id. ¶ 55. In their Resistances, the Farmers’ assert that they relied on the Insurers to offer only rates that the Insurers could actually provide or there would be no reason for the Farmers to enter into an agreement. They allegations become no less conclusory for repetition.
The problem with all these allegations of "reliance" is that the Eighth Circuit Court of Appeals has held that, where "[t]he only allegation in the complaint about reliance [wa]s the assertion that ‘[the plaintiff] would not have purchased [the defendant's product] but for the Fraudulent Misrepresentations," this was no more than "a conclusory allegation," and with "no other facts in support of [the plaintiff's] reliance as a result of the allegedly fraudulent misrepresentations," dismissal was appropriate. Ambassador Press, Inc. v. Durst Image Tech. U.S., L.L.C. , 949 F.3d 417, 423 (8th Cir. 2020). The Farmers’ conclusory allegations of "reliance," here, are also plainly insufficient. The Farmers have not identified any facts in their pleadings from which the court can plausibly infer that they relied on the Insurers’ alleged misrepresentations, where they have not responded to the Insurers’ specific arguments that they failed to plead "reliance" adequately. Cf. id.
Furthermore, the Insurers made comparable arguments about deficiencies in the Farmers’ pleading of "reliance" in their July 2, 2021, Motions To Dismiss the Farmers’ original Petitions, and despite both filing Amended Petitions as a matter of course and having another opportunity to brief a response to the Insurers’ "reliance" argument, the Farmers did neither. Because there has already been an attempt to amend the Farmers’ misrepresentation claims, a further opportunity would be futile. See, e.g., Liscomb v. Boyce , 954 F.3d 1151, 1156 (8th Cir. 2020) (explaining that further amendment is futile if the amended complaint does not meet pleading requirements).
Thus, all the misrepresentation claims of all the Farmers are dismissed with prejudice. The court finds it unnecessary to address any of the Insurers’ other arguments for dismissal of these claims.
E. Punitive Damages
The Insurers argue that the Farmers’ punitive damages "claim" in Count V seeks a remedy, but it does not assert a standalone claim under Iowa law. Thus, they contend, because the Farmers’ Counts I, II, III, IV, and VI do not state claims upon which relief can be granted, the Farmers’ claim for "Punitive Damages" in Count V must also be dismissed. In the alternative, the Insurers argue that the Farmers have not plausibly alleged facts that could entitle them to recover punitive damages, because they have not adequately alleged that the Insurers engaged in willful, wanton, and malicious conduct. In their Resistances, the Farmers ignore the first ground for dismissal of the "claim" for punitive damages and assert only that the Insurers’ conduct in proffering the grossly deviant rates to them was sufficiently reckless to support a claim for punitive damages.
The Iowa Supreme Court has explained that "punitive damages do not constitute a distinct ‘cause of action.’ Rather, they are a form of relief incidental to the main cause of action." In re Vajgrt , 801 N.W.2d 570, 574 (Iowa 2011) (citing Sebastian v. Wood , 246 Iowa 94, 100, 66 N.W.2d 841, 844 (1954) ). Thus, where no "main cause of action" survives, the Farmers are not entitled to the "incidental" relief of punitive damages.
The Insurers’ Motions To Dismiss are granted as to the "claim" for punitive damages in Count V of the Farmers’ First Amended Petitions.
III. CONCLUSION
Upon the foregoing,
IT IS ORDERED that
1. In Kimberley v. Crop Risk Services, Inc. , No. 4:21-cv-00151-JAJ-SBJ, the defendant Insurers’ August 27, 2021, Motion To Dismiss First Amended Petition At Law With Prejudice [Dkt. No. 27] is GRANTED;
2. In Dimit Farms, Inc. v. Crop Risk Services, Inc. , No. 4:21-cv-00152-JAJ-SBJ, the defendant Insurers’ August 27, 2021, Motion To Dismiss First Amended Petition At Law With Prejudice [Dkt. No. 27] is GRANTED ;
3. In Stadler v. Crop Risk Services, Inc. , No. 4:21-cv-00153-JAJ-SBJ, the defendant Insurers’ August 27, 2021, Motion To Dismiss First Amended Petition At Law With Prejudice [Dkt. No. 27] is GRANTED ;
4. In Muckler Farms, L.L.C. v. Crop Risk Services, Inc. , No. 4:21-cv-00154-JAJ-SBJ, the defendant Insurers’ August 27, 2021, Motion To Dismiss First Amended Petition At Law With Prejudice [Dkt. No. 27] is GRANTED .
The Clerk of Court shall enter judgment in each case accordingly.