Costello v. Mountain Laurel Assurance Co.

670 F.Supp.3d 603

Taylor COSTELLO, individually and on behalf of all others similarly situated, Plaintiff, v. MOUNTAIN LAUREL ASSURANCE COMPANY, Defendant.

No.: 2:22-cv-35-TAV-CRW

United States District Court, E.D. Tennessee

Filed January 27, 2023

Amy Lynn Judkins, Pro Hac Vice, Newsome Melton, Orlando, FL, Edmund A. Normand, Jacob L. Phillips, Pro Hac Vice, Joshua Jacobson, Normand PLLC, Orlando, FL, Andrew J. Shamis, Pro Hac Vice, Edwin Eliu Elliott, Pro Hac Vice, Shamis & Gentile, P.A., Miami, FL, Christopher Chagas Gold, Pro Hac Vice, Scott Adam Edelsberg, I, Pro Hac Vice, Edelsberg Law, P.A., Aventura, FL, Edwin Lee Lowther, III, Joseph Henry Bates, III, Carney Bates & Pulliam, PLLC, Little Rock, AR, J. Gerard Stranch, IV, Stranch, Jennings & Garvey, PLLC, Nashville, TN, for Plaintiff.

Allison H. White, Pro Hac Vice, Jeffrey S. Cashdan, Pro Hac Vice, Zachary A. McEntyre, Pro Hac Vice, James Matthew Brigman, Erin Munger, King & Spalding LLP, Atlanta, GA, Dwight E. Tarwater, Taylor Andrew Williams, Lindsey M. Collins, Paine Tarwater & Bickers LLP, Knoxville, TN, Julia C. Barrett, Pro Hac Vice, King & Spalding, Austin, TX, for Defendant.

MEMORANDUM OPINION AND ORDER

Thomas A. Varlan, UNITED STATES DISTRICT JUDGE

This civil case is before the Court on defendant Mountain Laurel Assurance Company's Motion to Dismiss Plaintiff's Amended Complaint [Doc. 30]. Specifically, defendant moves to dismiss plaintiff's amended complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiff filed a response [Doc. 40], and defendant replied [Doc. 46]. Thus, defendant's motion is fully briefed and ready for disposition. See E.D. Tenn. L.R. 7.1(a), 7.2. For the reasons explained below, defendant's motion [Doc. 30] is GRANTED in part and DENIED in part.

I. Background¹

On March 25, 2021, plaintiff Taylor Costello ("Plaintiff") was involved in a car accident and sustained physical damage to her vehicle [Doc. 29, ¶ 16]. At the time of the accident, plaintiff's vehicle was insured by defendant Mountain Laurel Assurance Company ("Defendant") under an insurance policy (the "Policy") [Id. at ¶¶ 2, 16; Doc. 29-1]. Following the wreck, plaintiff made a property damage claim to defendant [Doc. 29, ¶ 17]. Pursuant to uniform policies and procedures, defendant declared plaintiff's vehicle a total loss and purported to pay her the actual cash value ("ACV") of her loss vehicle [Id. at ¶ 18].

When calculating its valuations and claims payments, defendant systemically employs a routine "total loss settlement process" [Id. at ¶ 19]. This process involves obtaining a "Vehicle Valuation Report" from Mitchell International, Inc. ("Mitchell") and relying on that valuation as the ACV amount owed under a policy [Id. at ¶¶ 1, 19]. Defendant provided a Mitchell Vehicle Valuation Report for plaintiff's claim on May 4, 2021 [Id. at ¶ 19; Doc. 29-2].

Similar to plaintiff's report, all of the Mitchell Vehicle Valuation Reports utilized by defendant during the relevant period followed the same process, provided and disclosed the same or substantially the same material information, and presented that material information in the same or substantially the same format [Doc. 29, ¶ 20]. The valuation reports purport to contain values for comparable vehicles for sale in the claimant's geographic area and a valuation of the loss vehicle based on the prices of these comparable vehicles [Id.]. The reports then adjust the advertised prices of those comparable vehicles to account for differences in equipment, mileage, and vehicle configuration [Id.].

In addition, the valuation reports make a further adjustment to each loss vehicle called a "Projected Sold Adjustment" ("PSA") [Id. at ¶ 21]. For plaintiff's claim, PSAs of -$697.00, -$680.00, -$623.00, -$681.00, and -$720.00 were applied to five of the seven comparable vehicles [Id.; Doc. 29-2, pp. 6-8]. Defendant provides no data specific to the comparable vehicles or any explanation of industry practices in its valuation reports to support the PSAs [Doc. 29, ¶ 22]. Instead, the only explanation of the PSA in the report states, "Projected Sold Adjustment - an adjustment to reflect consumer purchasing behavior (negotiating a different price than the listed price)" [Id.; Doc. 29-2, p. 9].

However, PSAs do not reflect market realities and run contrary to customary automobile dealer practices and inventory management [Doc. 29, ¶ 23]. Due to the developments in sophisticated pricing software and the ease with which consumers can compare advertised prices of identical vehicles online, used car dealerships no longer price vehicles above market with the expectation of negotiation [Id. at ¶ 25]. Instead, car dealerships use sophisticated pricing software to appraise vehicles before acquiring them and then, price the vehicles to market without negotiating from that price before selling [Id.].

Moreover, PSAs are contrary to appraisal standards [Id. at ¶ 28]. There are multiple generally recognized and acceptable methodologies for determining the ACV, including use of comparable vehicles [Id.]. Defendant uses comparable vehicles' mileage, options, and trim to make dollar adjustments to the ACV [Id.]. However, defendant further applies the PSAs to the ACV, which are an arbitrary adjustment from the advertised price based on undocumented and unverifiable projections [Id.].

By applying the PSAs, defendant is ignoring vast amounts of relevant data that demonstrate that PSAs should not be utilized in making valuation reports and failing to control for certain variables that could influence pricing [Id. at ¶¶ 29, 43-44]. For example, until July 2021, defendant excluded from the calculation of the PSAs all transactions in which the list price of a vehicle equaled the sold price [Id. at ¶ 30]. Even after July 2021, defendant continued to exclude some transactions in which the list price of a vehicle equaled the sold price [Id. at ¶ 31]. Thus, defendant has excluded and continues to exclude from the calculation of PSAs all transactions in which the sold price of a vehicle is greater than the list price [Id. at ¶ 32].

Furthermore, defendant has not investigated whether market realities support the application of PSAs, nor has defendant or its vendors attempted to verify whether the reason for why an advertised price exceeded the sold price was due to negotiation [Id. at ¶ 34]. Defendant's data is also suspect because it contains a significant number of transactions where the advertised date in the database comes after the sold date [Id. at ¶ 36]. All advertised prices for comparable vehicles listed in defendant's valuation reports are derived from Internet sources such as Cars.com, Autotrader.com, Vast.com, and TrueCar.com [Id. at ¶ 39]. This is problematic because these advertised prices include discounts for consumers who are financing and providing a trade-in, which would require those consumers to pay in cash more than the prices listed on the websites [Id. at ¶ 40].

Finally, the impropriety and arbitrariness of the PSAs is further demonstrated by the fact that Mitchell's primary competitor, CCC Intelligent Solutions, Inc., does not apply PSAs in making valuation reports [Id. at ¶ 46]. Instead, it utilizes list prices [Id.]. In addition, application of the PSAs is arbitrary because defendant does not apply PSAs when calculating the ACV of total losses in California or Washington [Id. at ¶ 47].

Plaintiff filed this class action against defendant on April 7, 2022 [Doc. 1]. After defendant filed a motion to dismiss for failure to state a claim [Doc. 26], plaintiff filed the First Amended Class Action Complaint (the "Amended Complaint") [Doc. 29]. In the Amended Complaint, plaintiff asserts causes of action for breach of contract, breach of the covenant of good faith and fair dealing, and declaratory judgment [Id. at ¶¶ 58-77]. The theory upon which plaintiff's claims rest is that plaintiff and each member of the proposed class were damaged by defendant's application of the PSAs to the valuation reports because the PSAs caused defendant to not pay the ACV they would have received had defendant applied the proper methodologies and appraisal standards [Id. at ¶ 48]. Plaintiff alleges that if it were not for the PSAs, the "Base Value" in each valuation report would have been higher, resulting in a higher settlement value and a higher payment by defendant for the ACV [Id. at ¶ 49]. For plaintiff's individual claim, plaintiff contends that had the PSAs not been applied, the ACV for her loss vehicle would have been $485.86 higher, before adding the related increase in payments for applicable sales taxes [Id.].

II. Standard of Review

Rule 8(a)(2) sets out a liberal pleading standard. Smith v. City of Salem, Ohio, 378 F.3d 566, 576 n.1 (6th Cir. 2004). Thus, a complaint filed in federal court need only contain " 'a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to 'give the [opposing party] fair notice of what the . . . claim is and the grounds upon which it rests.' " Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). Detailed factual allegations are not required, but a party's "obligation to provide the 'grounds' of h[er] 'entitle[ment] to relief' requires more than labels and conclusions." Id. " '[A] formulaic recitation of the elements of a cause of action will not do' "; nor will "an unadorned, the-defendant-unlawfully-harmed-me accusation"; nor will " 'naked assertion[s]' devoid of 'further factual enhancement.' " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (second alteration in original) (quoting Twombly, 550 U.S. at 555, 557, 127 S.Ct. 1955).

In deciding a Rule 12(b)(6) motion, the Court must determine whether the complaint contains "enough facts to state a claim to relief that is...