Opinion
Civil Action 23-2056
04-03-2024
SMAIL COMPANY, INC., Plaintiff, v. LIBERTY MUTUAL AUTO AND HOME SERVICES, LLC, Defendant.
REPORT AND RECOMMENDATION
PATRICIA L. DODGE, UNITED STATES MAGISTRATE JUDGE
I. Recommendation
It is respectfully recommended that the motion to dismiss filed by Defendant Liberty Mutual Auto and Home Services, LLC (ECF No. 7) be granted in part and denied in part.
II. Report
Plaintiff Smail Company, Inc. (“Smail”) brings this action against Defendant Liberty Mutual Auto and Home Services, LLC (“Liberty Mutual LLC”), asserting claims under Pennsylvania law arising out of Liberty Mutual LLC's refusal to pay for Smail's services in inspecting and storing a vehicle owned by Jayson Heitman (“Heitman”) that had been damaged in an accident.
A. Relevant Procedural History
Smail commenced this action on October 31, 2023 by filing a Complaint in the Court of Common Pleas of Westmoreland County, Pennsylvania. The Complaint asserts claims of unfair competition (Count One), unjust enrichment (Count Two), breach of contract (Count Three) and bad faith under 42 Pa. C.S. § 8371 (Count Four). The breach of contract and bad faith claims are brought by Smail as the assignee of Heitman, and the unfair competition and unjust enrichment claims are brought by Smail in its own right.
Liberty Mutual LLC removed the action to this Court on the basis of diversity jurisdiction. Smail is a Pennsylvania corporation with its principal place of business in Greensburg, Pennsylvania. Liberty Mutual LLC is a limited liability company whose ultimate sole member is a Massachusetts corporation with its principal place of business in Boston, Massachusetts. The amount in controversy exceeds the sum of $75,000, exclusive of interest and costs. (ECF No. 6.)
Defendant's original notice of removal stated that it was “incorporated in the State of Massachusetts and its principal place of business is located at 175 Berkeley Street, Boston, Massachusetts 02116.” (ECF No. 1 ¶ 15.) The citizenship of an LLC “is determined by the citizenship of its members.” Zambelli Fireworks Mfg. Co., Inc. v. Wood, 592 F.3d 412, 419-20 (3d Cir. 2010). Because the information in the notice of removal was incomplete to determine diversity jurisdiction, the Court entered an order directing Defendant to file an amended notice of removal. Defendant complied with this order and provided the necessary information, which establishes that complete diversity jurisdiction exists.
On January 8, 2024, Liberty Mutual LLC filed a motion to dismiss (ECF No. 7), which has been fully briefed (ECF Nos. 8, 13).
B. Relevant Factual Allegations in the Complaint
Smail, which transacts business under the trade name Smail Collision Center, is in the business of repairing new and used automobiles. Jayson Heitman brought his 2018 Kia Forte to Smail after it was damaged in an accident. Smail alleges that Heitman's vehicle was insured by Liberty Mutual LLC. (Compl. ¶¶ 3-4.)
ECF No. 1-3. As discussed below, Liberty Mutual LLC denies that it issued a policy to Heitman.
At the request of Heitman and Liberty Mutual LLC, Smail expended time and resources inspecting the vehicle, which it had stored, to determine if it was repairable. Smail alleges that it had a written contractual relationship with Liberty Mutual LLC and Heitman which consisted of an initial total loss estimate. Further, Smail claims that through a course of dealing, the parties had an oral agreement that Liberty Mutual LLC would pay for Smail's services and retrieve the vehicle if it was determined to be a total loss. (Id. ¶ 5.)
After an inspection, Smail determined that the vehicle was not repairable and was a total loss. As a result, it presented Liberty Mutual LLC with its bill for services and asked it to retrieve Heitman's vehicle. However, it refused to pay Smail for its services or to remove the vehicle from Smail's premises. According to Smail, Liberty Mutual LLC made only a partial payment to Heitman and obtained title to his vehicle. (Id. ¶¶ 5-8.) The vehicle has been abandoned at Smail's premises and continues to incur storage charges. (Id. ¶ 9.)
To avoid suit based on the outstanding charges due and payable to Smail, Heitman assigned all rights and claims arising out of his insurance policy to Smail on October 16, 2023. (Id. ¶¶ 9-10.)
Smail alleges that, despite multiple demands, Liberty Mutual LLC refuses to pay for Smail's time, resources and storage associated with this vehicle.
C. Standard of Review
“Under Rule 12(b)(6), a motion to dismiss may be granted only if, accepting all well-pleaded allegations in the complaint as true and viewing them in the light most favorable to the plaintiff, a court finds that plaintiff's claims lack facial plausibility.” Warren Gen. Hosp. v. Amgen Inc., 643 F.3d 77, 84 (3d Cir. 2011) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007)). “This requires a plaintiff to plead “sufficient factual matter to show that the claim is facially plausible,” thus enabling “the court to draw the reasonable inference that the defendant is liable for misconduct alleged.” Id. (quoting Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009)). While the complaint “does not need detailed factual allegations . . . a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. See also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
As noted by the Third Circuit in Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011), a 12(b)(6) inquiry includes identifying the elements of a claim, disregarding any allegations that are no more than conclusions and then reviewing the well-pleaded allegations of the complaint to evaluate whether the elements of the claim are sufficiently alleged.
In ruling on a Rule 12(b)(6) motion, courts generally consider only the complaint, exhibits attached thereto, and matters of public record. Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014). In addition, “a court may consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document.” Pension Ben. Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). Liberty Mutual LLC has attached the policy to its motion to dismiss and Smail has described the policy in the Complaint and admitted that the policy produced by Liberty Mutual LLC is the actual policy in this case. Therefore, the policy may be considered without converting the motion into a motion for summary judgment.
D. Analysis
1. Unfair Competition
In Count One, Smail alleges a claim of unfair competition in violation of Pennsylvania law. Liberty Mutual LLC moves to dismiss this claim on the ground that it does not apply to the circumstances of this case. It argues that even if the facts pleaded are assumed as true, its failure to pay Heitman's repair bill or remove his vehicle from Smail's facility do not constitute acts of unfair competition. That is so because Liberty Mutual LLC is not competing with Smail in the business of repairing vehicles. It notes that “[u]nfair competition may not be used as ‘a virtual catch-all for any form of wrongful business conduct.'” NLMK Pennsylvania, LLC v. United States Steel Corp., 592 F.Supp.3d 432, 443 (W.D. Pa. 2022) (citing USX Corp. v. Adriatic Ins. Co., 99 F.Supp.2d 593, 620 (W.D. Pa. 2000)), aff'd, 345 F.3d 190 (3d Cir. 2003).
Smail responds that the definition of unfair competition is more expansive than Liberty Mutual LLC suggests and that it indirectly competes with Smail in the auto repair business through its network of contract shops and its power of referral.
As the Third Circuit has noted, courts in Pennsylvania have not uniformly described unfair competition and “it is not so easy to conclude that there is one narrow and clear category of the common law tort.” Granite State Ins. Co. v. Aamco Transmissions, Inc., 57 F.3d 316, 319 (3d Cir. 1995). Nevertheless, “all unfair competition claims recognized by Pennsylvania courts involve some accusation of ‘passing off' of one's own product as another, or a false or dishonest statement, or tortious interference with contract, or intellectual property theft.” Checker Cab Philadelphia, Inc. v. Uber Techs., Inc., 689 Fed.Appx. 707, 709 (3d Cir. 2017).
Smail has not alleged any conduct by Liberty Mutual LLC that would fall within these categories. Instead, it argues that the Restatement (Third) of Unfair Competition contains a broad definition of unfair competition that includes:
One who causes harm to the commercial relations of another by engaging in a business or trade is not subject to liability to the other for such harm unless:
* * * *
(b) the acts or practices of the actor are actionable by the other under federal or state statutes, international agreements, or general principles of common law apart from those considered in this Restatement.
Restatement (Third) of Unfair Competition § 1 (1995). It suggests that Liberty Mutual LLC violated two Pennsylvania statutes: § 8371, bad faith, and 75 Pa. C.S. § 1161, which prohibits the
abandoning of vehicles without a certificate of salvage, and therefore, Liberty Mutual LLC's actions fall within § 1(b).
Smail has not identified any decision by a Pennsylvania appellate court suggesting that the Pennsylvania Supreme Court would recognize a cause of action for unfair competition in the circumstances alleged in this case.Rather, it cites Yeager's Fuel, Inc. v. Pennsylvania Power & Light Co., 953 F.Supp. 617, 668 (E.D. Pa. 1997), in which the district court cited the Restatement (Third) and declined to grant summary judgment on the plaintiff's unfair competition claim because there were issues of fact about whether the defendant violated federal antitrust statutes.
Smail is correct that Liberty Mutual's citation to Mercury Ins. Servs., Inc. v. Mercury Collision Ctr., Inc., 2010 WL 11597513, at *5 (C.D. Cal. Mar. 31, 2010) is not on point. There, the court held that an insurance company could not sue a similarly named auto repair shop under the Lanham Act because the industries were not intertwined. However, Smail has not identified a case in any jurisdiction that recognizes a cause of action for unfair competition under these circumstances.
However, this decision predates Checker Cab, in which the Third Circuit concluded that the Pennsylvania Supreme Court would not embrace the Restatement (Third) of Unfair Competition as Pennsylvania law. Checker Cab, 689 Fed.Appx. at 710. It further noted that no Pennsylvania appellate court has embraced the Restatement Third's definition of unfair competition. Id. Nor do the facts of this case resemble any decision in which a claim of unfair competition has been recognized. See Checker Cab, 689 Fed.Appx. at 709 n.4 (observing that cases permitting a claim of unfair competition have involved theft or misappropriation of property or false or misleading statements about a competitor).
When it would be futile to allow amendment of a claim, it should be dismissed with prejudice. See Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir. 2002). Therefore, with respect to Count One, the motion to dismiss should be granted with prejudice.
2. Breach of Contract and Bad Faith Claims
a. The issuer of the policy
Liberty Mutual LLC first contends that it had nothing to do with the claims in this action. It asserts that as the clear terms of the policy confirm, it was not the issuer or the underwriter of the policy. It references pages one and six of the policy, the latter of which states that “LibertyGuard Auto Policy Declarations provided and underwritten by LM General Insurance Company (a stock insurance company), Boston, MA.” (ECF No. 7 Ex. A at 6.) It notes that because the policy was issued by “LM General Insurance Company,” Liberty Mutual LLC is not a proper defendant in this case with respect to any claim based on the policy.
Smail asserts that the “two entities” are one and the same and share a corporate headquarters and many of the same corporate officers. (ECF No. 13 at 7.) It also argues Liberty Mutual LLC has created a “myriad of alter egos to deflect liability.” Id. And Smail notes that, despite allegedly having “nothing to do with this policy,” Liberty Mutual LLC was able to produce the policy at issue and attach it to its motion to dismiss.
It is unclear which two entities Smail contends are “one and the same.” Presumably it references Liberty Mutual LLC and LM General Insurance Company.
Smail states that it offered to amend the Complaint to name LM General, but Liberty Mutual LLC stated that it would move to dismiss anyway. Smail asserts that to the extent the Court grants the motion to dismiss on this basis, it should be given leave to amend to name the proper entity.
“Clearly one cannot be liable for breach of contract unless one is a party to that contract.” Lockhart v. Federal Ins. Co., 1998 WL 151019, at *3 (E.D. Pa. Mar. 30, 1998) (citation omitted). Moreover, with respect to a bad faith claim under Pennsylvania law:
There is no simple rule for determining who is the insurer for purposes of
the bad faith statute. The question is necessarily one of fact, to be determined both by examining the policy documents themselves, and by considering the actions of the company involved. Thus, we look at two factors: (1) the extent to which the company was identified as the insurer on the policy documents; and (2) the extent to which the company acted as an insurer. This second factor is significantly more important than the first factor, because it focuses on the true actions of the parties rather than the vagaries of corporate structure and ownership.Brown v. Progressive Ins. Co., 860 A.2d 493, 498-99 (Pa. Super. 2004) (footnote omitted).
Courts have recognized that “liability may be imposed where a parent corporation so dominates the activities of a subsidiary that it is necessary to treat the dominated corporation as an ‘alter ego' of the principal.” Simon v. Unumprovident Corp., 2002 WL 1060832, at *2 (E.D. Pa. May 23, 2002) (citing Botwinick v. Credit Exch., Inc., 213 A.2d 349, 354 (Pa. 1965)). To succeed on this theory, however, a plaintiff must demonstrate that the parent company exercised “complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own.” Craig v. Lake Asbestos of Quebec, Ltd., 843 F.2d 145, 150 (3d Cir. 1988).
The record of this case consists solely of the Complaint and the policy. Smail has not contested the authenticity or applicability of the policy supplied by Liberty Mutual LLC. The name of the defendant, Liberty Mutual Auto and Home Services LLC, appears nowhere in the policy. The policy specifically states that the insurer of the policy is LM General Insurance Company. Moreover, none of Smail's arguments about a possible relationship between and among LM General Insurance Company, Liberty Mutual LLC, “Liberty Mutual Insurance” and/or some other unidentified parent corporation are alleged in the Complaint. The references in Smail's brief to the potential applicability of the theory of alter ego, which are unsubstantiated by any facts pleaded in the Complaint, fail to demonstrate that Liberty Mutual LLC is a proper defendant here. Therefore, Counts Three and Four should be dismissed without prejudice and with leave to amend for failure to name the proper defendant.
Liberty Mutual LLC raises its “wrong party” argument with respect to all of the claims. With respect to the unjust enrichment claim, however, it cannot be dismissed on the ground that Liberty Mutual LLC did not issue the policy because the claim is brought by Smail in its own right and Liberty Mutual LLC may have been unjustly enriched regardless of whether it issued the policy. In other words, the claim is not dependent upon the provisions of the policy. Therefore, Count Two should not be dismissed based upon the contentions that Smail sued the wrong party, and Liberty Mutual LLC has not asserted any alternative ground for dismissal of Count Two.
b. Smail's allegations regarding assignment
Liberty Mutual LLC alternatively argues that Smail lacks standing to bring either a breach of contract or bad faith claim as the assignee of Heitman based on what it describes as an improperly vague reference to an “assignment” in the Complaint.
Smail alleges in the Complaint that “Heitman assigned all rights and claims arising out of his insurance contract to Smail by written assignment dated October 16, 2023.” (Compl. ¶ 10.) “When faced with an action involving an assignment, a court must ensure that the plaintiffassignee is the real party in interest with regard to the particular claim involved by determining: (1) what has been assigned; and (2) whether a valid assignment has been made.” Silver v. Klehr, Harrison, Harvey, Branzburg & Ellers, LLP, 2004 WL 1699269, at *2 (E.D. Pa. July 28, 2004) (citation omitted). “Under Pennsylvania law, an assignment is ‘a transfer or setting over of property, or of some right or interest therein, from one person to another, and unless in some way qualified, it is properly the transfer of one whole interest in an estate, chattel, or other thing.'” Id. (quoting Fran & John's Doylestown Auto Ctr., Inc. v. Allstate Ins. Co., 638 A.2d 1023, 1025 (Pa. Super. 1994)).
The Pennsylvania Supreme Court subsequently abrogated Fran & John's insofar as it upheld insurers' attempts to limit post-loss assignments by their insureds. See Egger v. Gulf Ins. Co., 903 A.2d 1219, 1224 (Pa. 2006) (“a non-assignment clause in an insurance contract is not enforceable after the loss has occurred.”)
Courts in Pennsylvania have held that “assignees suing in their own name are not required to set out assignment verbatim or attach a copy of assignment as an exhibit to their pleading; it is sufficient if they state [the] facts and date of assignment and parties thereto.” Manor Bldg. Corp. v. Manor Complex Assocs., Ltd., 645 A.2d 843, 848 (Pa. Super. 1994) (citation omitted). Thus, Liberty Mutual LLC's assertion that the assignment is not attached to the Complaint (ECF No. 8 at 2) is not dispositive.
Smail contends, and the Court agrees, that under Pennsylvania law, Smail has adequately pleaded the existence of an assignment from Heitman to Smail and that the claims asserted are assignable. An insured's claims against his insurer for breach of contract and bad faith claims under section 8371 are assignable. Haugh v. Allstate Ins. Co., 322 F.3d 227, 239 (3d Cir. 2003) (citation omitted).
Further, the Pennsylvania Supreme Court has held that “the entitlement to assert damages under Section 8371 may be assigned by an insured to an injured plaintiff and judgment creditor.” Allstate Property & Casualty Ins. Co. v. Wolfe, 105 A.3d 1181, 1188 (Pa. 2014). In applying this principle, courts have held that when an entity sues for expenses it incurred under the reasonable expectation that it would be paid from insurance proceeds and the insured also assigns claims to that entity, the entity may sue as both an injured plaintiff and a judgment creditor. See Cutting Edge Tree Professionals, LLC v. State Farm Fire Claims Co., 2024 WL 53011, at *5 (E.D. Pa. Jan. 4, 2024) (tree removal service that removed tree from insured's garage under a reasonable expectation that it would be paid from the insurance proceeds and was assigned the insured's rights under the policy could sue as both an injured plaintiff and a judgment creditor); Royal Water Damage Restoration, Inc. v. Allstate Vehicle and Property Ins. Co., 2022 WL 2985637, at *3-4 (E.D. Pa. July 28, 2022) (same).
Smail has alleged that it incurred expenses by storing the vehicle and inspecting it to determine if it was a total loss under the reasonable expectation that it would be paid for its services. Thus, it is an injured plaintiff. The Complaint also alleges that the assignment was made by Heitman “to avoid suit based upon the outstanding charges due and payable to Smail.” In other words, according to Smail, because Heitman would have been potentially liable to Smail for its “time, resources and storage space inspecting the vehicle,” he assigned his rights under the policy. Thus, Smail can be characterized as a judgment creditor as well. As noted in Cutting Edge, “[i]t would make little sense to now require Plaintiff to file a lawsuit and obtain a judgment against [the Insured] for the unpaid amounts simply to create standing for Plaintiff to pursue its bad faith claim against Defendant.” Cutting Edge, 2024 WL 53011, at *5 (quoting Royal Water, 2022 WL 2985637, at *4).
Thus, Smail has properly alleged that it has been assigned Heitman's claims for breach of contract and bad faith. Liberty Mutual LLC also argues that Smail fails to plead a bad faith claim under the circumstances. The Court turns to this issue.
Liberty Mutual LLC does not contend that Smail's breach of contract claim is insufficient, other than being alleged against the wrong entity.
c. Sufficiency of allegations regarding the bad faith claim
In Count Four, Smail alleges that Liberty Mutual LLC engaged in bad faith conduct towards Heitman in violation of 42 Pa. C.S. § 8371. Specifically, it claims that the insurer's refusal to properly investigate the claim, its unreasonable refusal to pay the policy proceeds and acting in its own self-interest represent bad faith to its insured. Other than these conclusory allegations, the sole factual support is that Liberty Mutual LLC made a “partial payment” to its insured and/or his lienholder and obtained title to the vehicle.
A bad faith claim is distinct from the underlying contractual insurance claim from which the dispute arose. Nealy v. State Farm Mut. Auto. Ins. Co., 695 A.2d 790, 792 (Pa. Super. 1997), appeal denied, 717 A.2d 1028 (Pa. 1998). As held by the Pennsylvania Supreme Court, in order to prevail in a bad faith insurance claim, a plaintiff must demonstrate that “(1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew or recklessly disregarded its lack of a reasonable basis in denying the claim.” Rancosky v. Washington Nat'l Ins. Co., 170 A.3d 364, 377 (Pa. 2017). Further, as Liberty Mutual LLC notes, a plaintiff must allege facts in support of both of these prongs. Slinger v. Allstate Mut. Auto Ins. Co., 115 F.3d 230, 233 (3d Cir. 1997). See also Smith v. State Farm Mut. Auto. Ins. Co., 506 Fed.Appx. 133, 136 (3d Cir. 2012) (bad faith claim alleging that insurer “engaged in unfair settlement negotiations” without details describing what was unfair about the negotiations was insufficient); Harris for Estate of Harris v. Allstate Vehicle & Prop. Ins. Co., 2020 WL 4470402, at *3 (E.D. Pa. Aug. 4, 2020) (allegations that insurer “misrepresent[ed] pertinent facts or policy provisions relating to coverages at issue” and “sen[t] correspondence falsely representing” that Plaintiff was not entitled to benefits under the Policy failed to explain what those misrepresentations may have been); Cappuccio v. State Farm Fire & Cas. Ins. Co., 2020 WL 2307340, at *3 (E.D. Pa. May 8, 2020) (allegation that insurer “fail[ed] to complete a prompt and thorough investigation” into the plaintiffs' claim was insufficient).
The Complaint fails to explain why making a “partial payment” to Heitman and/or his lienholder and obtaining title to the vehicle represent bad faith. Further, the Complaint does not plead any facts that support its conclusory allegations that the insurer refused to properly investigate the claim or acted in its own self-interest.
Thus, the bad faith claim is inadequately pleaded. Count Four also should be dismissed without prejudice and with leave to amend for this reason.
III. Conclusion
For the reasons explained above, it is recommended that Defendant's motion to dismiss be granted in part and denied in part as follows:
1. Count One should be dismissed with prejudice. 2. Counts Three and Four should be dismissed without prejudice and with leave to amend. 3. To the extent that Defendant moves to dismiss Count Two, its motion should be denied. Litigants who seek to challenge this Report and Recommendation must seek review by the district judge by filing objections by April 17, 2024. Any party opposing the objections shall file a response by May 1, 2024. Failure to file timely objections will waive the right of appeal.