Opinion
Civil No. 02-660 (RHK/JGL)
June 25, 2002
Lauren E. Lonergan and Kristin L.C. Haugen, Briggs and Morgan, P.A., Minneapolis, Minnesota, for Plaintiffs.
David E. Bland and Jessica S. Williams, Robins, Kaplan, Miller Ciresi L.L.P., Minneapolis, Minnesota, for Defendant.
MEMORANDUM OPINION AND ORDER
Introduction
Plaintiffs Mesaba Holdings, Inc. and Mesaba Aviation, Inc. (collectively "Mesaba") purchased an insurance policy from Defendant Federal Insurance Company ("Federal Insurance"). During the time the insurance policy was in place, a storm damaged one of Mesaba's aircraft hangars, and Mesaba sought to recover money from Federal Insurance. Mesaba commenced this action after the parties could not reach an agreement on the amount of money owed under the insurance policy. In its Complaint, Mesaba alleged, among other things, breach of contract and bad faith breach of contract. Before the Court is Federal Insurance's Motion to Dismiss under Fed.R.Civ.P. 12(b)(6), or in the alternative, to Strike under Fed.R.Civ.P. 12(f), the bad faith breach of contract claim (Count III) in the Complaint. For the reasons set forth below, the motion will be granted.
Background
Mesaba, an air carrier, is a Minnesota corporation with its principal place of business in Minneapolis, Minnesota. (Compl. ¶¶ 2-3.) Under an agreement with Northwest Airlines, it operates a "Northwest Airlink" service out of two main hubs — one at the Minneapolis/St. Paul International Airport and the other one at the Wayne County Metropolitan Airport in Detroit, Michigan (the "Detroit Airport"). (Id. ¶¶ 13, 15.) Federal Insurance is an Indiana corporation with its principal place of business in Warren, New Jersey. (Id. ¶ 4.)
On April 1, 2000, Federal Insurance issued a first-party property insurance contract, policy number 3533-08-41 (the "Policy"), to Mesaba for the period from April 1, 2000 to April 1, 2001. (Id. ¶ 5 and Ex. A at Insuring Agreement.) The Policy provided that Federal Insurance would "pay for direct physical loss or damage to building or personal property caused by or resulting from a peril not otherwise excluded." (Id. ¶ 6 and Ex. A at Building and Personal Property.) Wind was not a peril excluded from coverage. (Id.) The Policy also required Federal Insurance to reimburse Mesaba for its replacement costs, business interruption losses, and other extra expenses. (Id. ¶ 22 and Ex. A.) Mesaba's aircraft maintenance hangar at the Detroit Airport was covered by the Policy. (Id. ¶ 8 and Ex. A.)
On May 9, 2000, a severe storm damaged Mesaba's aircraft maintenance hangar at the Detroit Airport; two walls and the roof collapsed during the storm. (Id. ¶ 18.) As a result, Mesaba had to cancel flights because it could not provide maintenance for its aircraft, and it had to build both a temporary and, eventually, a permanent hangar to house its aircraft. (Id. ¶¶ 20-21.) Mesaba estimates its losses from the storm to be in excess of $9.6 million. (Id. ¶ 23.) To date Federal Insurance has paid Mesaba approximately $4.0 million. (Id.)
Mesaba commenced this action in Hennepin County District Court, with a three-count Complaint dated March 8, 2002. (See Notice of Removal ¶ 3.) In Count II, entitled Breach of Contract, Mesaba alleges the following:
In Count I of the Complaint, Mesaba seeks declaratory judgment that Federal Insurance is obligated to pay Mesaba for its losses. (Compl. ¶¶ 25-30.)
32. Federal Insurance had a contractual duty to Mesaba under the Policy to pay for the losses and damages set forth above. This contractual duty includes a duty of good faith and fair dealing.
33. Federal Insurance has breached its contractual obligation to Mesaba, including those obligations set forth in the Policy, by its failure to pay Mesaba's losses and damages.
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35. As a result, Mesaba is entitled to recover from Federal Insurance all direct, indirect, consequential, incidental, special compensatory, and other damages resulting from Federal Insurance's breaches of contract.
(Compl. ¶¶ 32-35 (emphasis added).) In Count III, entitled "Bad Faith Breach of Contract, it alleges the following:
38. Federal Insurance has an absolute duty of good faith and fair dealing to its insured, Mesaba.
39. Federal Insurance breached its duty of good faith and fair dealing by its refusal to provide coverage to Mesaba for its damages and losses. . . .
40. Federal Insurance's breaches were deliberate, willful, reckless, and in bad faith. . . .
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42. Federal Insurance's breach of its duty of good faith and fair dealing constitutes a bad faith breach of the Policy.
43. As a direct and proximate result of Federal Insurance's bad faith breach of the Policy, Mesaba is entitled to recover money damages, including costs and payments and all other sums incurred by them or which may be incurred by them as a result of Federal Insurance's breach, in excess of $50,000 with the full amount of Mesaba's damages to be established at trial.
(Id. ¶¶ 38-43.) In the Complaint, Mesaba seeks, in part, "its damages resulting from Federal Insurance's breach of contract and bad faith breach of contract." (See id. at Request for Relief (emphasis added).)
On March 28, 2002, Federal Insurance removed the action to this Court, pursuant to 28 U.S.C. § 1441 and 1446 because the parties are diverse. See 28 U.S.C. § 1332. On May 2, 2002, it moved to dismiss Count III of the Complaint under Fed.R.Civ.P. 12(b)(6) or in the alternative, to strike it under Fed.R.Civ.P. 12(f).
Analysis
In considering a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court must take as true the allegations contained in the complaint. Cooper v. Pate, 378 U.S. 546, 84 S.Ct. 1733 (1964) (per curiam). A complaint
must be viewed in the light most favorable to the plaintiff and should not be dismissed merely because the court doubts that a plaintiff will be able to prove all of the necessary factual allegations. "Thus, as a practical matter, a dismissal under Rule 12(b)(6) is likely to be granted only in the unusual case in which a plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief."
Fusco v. Xerox Corp., 676 F.2d 332, 334 (8th Cir. 1982) (quoting Jackson Sawmill Co. v. United States, 580 F.2d 302, 306 (8th Cir. 1978)). Viewing the complaint in this manner, a court may dismiss a case under Rule 12(b)(6) only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations. Hishon v. King Spalding, 467 U.S. 67 [ 467 U.S. 69], 73, 104 S.Ct. 2229, 2232 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02 (1957)).
Federal Insurance contends that Count III fails to state a claim upon which relief can be granted because Minnesota courts do not recognize a bad faith breach of contract action. It argues that Minnesota courts only recognize a bad faith contract claim accompanied with an independent tort. (Federal Ins.'s Mem. in Supp. of Mot. to Dismiss at 3-4.) In response, Mesaba asserts that it should be allowed to plead its claims as it has because (1) it is acceptable to draft claims for breach of contract and bad faith breach of contract separately and (2) the existence of bad faith breach of contract remedies are undecided in Minnesota. (Mesaba's Mem. in Opp. of Mot. to Dismiss at 5-7.)
Relying on Nomeco Bldg. Specialties, Inc. v. Pella Corp., 184 F.R.D. 609 (D.Minn. 1999) (Tunheim, J., adopting R R from Erickson, J.), Mesaba argues that it should be allowed to state as a separate claim a bad faith breach of contract claim based on the implied covenant of good faith and fair dealing. (Mesaba's Mem. in Opp. of Mot. to Dismiss at 5-6.) While it is true that there is an implied covenant of good faith and fair dealing in every contract, the implied covenant does not extend to actions beyond the scope of the underlying contract. See In re Hennepin County 1986 Recycling Bond Litigation, 540 N.W.2d 494, 502-03 (Minn. 1995). In Nomeco, the plaintiffs were allowed to proceed with separate breach of contract and breach of implied covenant claims because they denied any attempt to allege that the defendant owed them any duties, under contract law, other than those that arose out of the contract and the plaintiffs. Nomeco, 184 F.R.D. at 610. In this case, Mesaba has made no such representations. Instead, it appears from the pleadings and memorandum submitted that Mesaba is attempting to recover beyond the scope of the Policy because it is seeking damages for both breach of contract and bad faith breach of contract. Nomeco, then, is distinguishable from this case.
Minnesota courts have consistently denied bad faith breach of contract claims since 1979, when the Minnesota Supreme Court held that bad-faith refusal to pay a first-party insurance claim was not actionable, absent an independent tort. Haagenson v. Nat'l Farmers Union Prop., 277 N.W.2d 648, 652 (Minn. 1979). The court explained that a bad-faith motive in breaching a contract does not convert a breach of contract action into a tort action sufficient to support extra-contractual damages. See id. (citing Wild v. Rarig, 234 N.W.2d 775, 790 (Minn. 1975)). As recently as March 2002, the Minnesota Court of Appeals reiterated the holding in Haagenson and stated "failure to pay a claim can only constitute a breach of contract." Sather v. State Farm Fire Cas. Ins. Co., 2002 WL 378111 at *5 (Minn.Ct.App. March 12, 2002) (emphasis added).
Mesaba urges the Court to delay deciding this motion because the issue of bad faith breach of contract remedies is currently before the Minnesota Court of Appeals. (Mesaba's Mem. in Opp. of Mot. to Dismiss at 7 (citing to the Statement of the Case of Appellant Minnesota Mining Manufacturing Company in First State Ins. Co. v. 3M, Trial Court No. C3-00-1644).) The issue in First State, which involves a third-party insurance claim, is arguably not the same as the issue in this case, which involves a first-party insurance claim. In any event, the Court is not inclined to delay ruling on an issue involving a long-standing rule of law.
In the Complaint, Mesaba seeks to recover damages for both breach of contract and bad faith breach of contract. It is clear that under existing Minnesota law, extra-contractual damages are not recoverable unless there is an independent tort. Mesaba has not made an allegation of an independent tort to support its request for extra-contractual damages. Thus, it has failed to state a claim upon which relief can be granted because the relief it seeks is not available under Minnesota law. Accordingly, Count III will be dismissed with prejudice. Because the Court is dismissing Count III, it need not reach Federal Insurance's alternative motion to strike under Fed.R.Civ.P. 12(f).
If the Minnesota Court of Appeals reverses the long-standing rule regarding bad faith breach of contract, Mesaba will have the opportunity to move pursuant to Rule 15(a) to amend the Complaint to add a count for bad faith breach of contract. Because Mesaba has stated a claim for breach of implied covenant of good faith and fair dealing in Count II (see Compl. ¶ 32), it will be able to proceed with discovery on this claim, regardless of whether the claim remains in the form of the implied covenant in Count II or whether Mesaba is able to later amend the Complaint to add it as a separate count.
Conclusion
Upon all the files, records, and proceedings herein, and for the reasons stated above, IT IS ORDERED that Defendant Federal Insurance Company's Motion to Dismiss, or in the alternative, to Strike, Count Three (Doc. No. 4) is GRANTED. Count III of the Complaint is DISMISSED WITH PREJUDICE.