Grady v. Progressive Direct Ins. Co.

643 F.Supp.3d 929

Shonacie GRADY, individually and on behalf of all others similarly situated, Plaintiff, v. PROGRESSIVE DIRECT INSURANCE COMPANY, an Ohio corporation, Defendant.

Case No. 22-CV-866 (NEB/TNL)

United States District Court, D. Minnesota

Signed November 30, 2022

Andrew Shamis, Pro Hac Vice, Shamis & Gentile P.A., Miami, FL, Christopher Chagas Gold, Pro Hac Vice, Scott Adam Edelsberg, I, Pro Hac Vice, Edelsberg Law PA, Aventura, FL, Edwin Lee Lowther, III, Pro Hac Vice, Joseph Henry (Hank) Bates, III, Pro Hac Vice, Carney Bates & Pulliam, PLLC, Little Rock, AR, Jacob Phillips, Pro Hac Vice, Normand PLLC, Orlando, FL, Nathan D. Prosser, Hellmuth & Johnson PLLC, Edina, MN, for Plaintiff.

Allison Hill White, Pro Hac Vice, Zachary Andrew McEntyre, Pro Hac Vice, James Matthew Brigman, Pro Hac Vice, Jeffrey S. Cashdan, Pro Hac Vice, King & Spalding LLP, Atlanta, GA, Julia Constance Barrett, Pro Hac Vice, King & Spalding, Austin, TX, Theresa M. Bevilacqua, Dorsey & Whitney LLP, Minneapolis, MN, for Defendant.

ORDER ON MOTION TO DISMISS

Nancy E. Brasel, United States District Judge

Shonacie Grady alleges that her car insurer, Progressive Direct Insurance Company, undervalued her totaled 2016 Ford Focus when it settled her property-damage claim. To value her loss, Progressive Direct relied on a third party that looked at used cars similar to Grady's Ford Focus. It adjusted those cars' advertised prices based on differences in equipment, mileage, and configuration to reach a settlement amount. One of those modifications, the projected-sold adjustment ("PSA"), took haircuts off the cars' advertised prices on the assumption that buyers regularly negotiate with dealerships. Grady contends that used-car markets no longer operate this way, so Progressive Direct's PSAs improperly reduced her insurance award.

Grady brings this putative class action alleging that Progressive Direct violated the Minnesota Consumer Fraud Act ("MCFA"), Minn. Stat. § 325F.68 et seq., and breached express and implied terms of its insurance policy. (ECF No. 22 ("Compl.").) She seeks damages, an injunction, and a declaratory judgment. (Id.) Progressive Direct moves to dismiss. (ECF No. 35.) The Court denies the motion in part and grants it in part.

BACKGROUND

The Court presents the facts in the light most favorable to the non-moving party. Grady had an automobile-insurance policy ("Policy") with Progressive Direct for her 2016 Ford Focus. (Compl. ¶¶ 11, 16; see also ECF No. 22-2 ("Valuation Report").) After a car wreck, Grady submitted a property-damage claim. (Id. ¶¶ 16-17.) Progressive Direct determined Grady's car to be a "total loss." (Id. ¶ 18.)

Under the Policy, Progressive Direct agreed to pay for "sudden, direct, and accidental loss" to Grady's car. (ECF No. 22-1 ("Policy") at 24 (ECF pagination).) The maximum amount that it would pay was the lowest of four liability limits. (Id. at 29.) Relevant here, one of those limits is "the actual cash value of the stolen or damaged property at the time of the loss reduced by the applicable deductible." (Id.) The Policy explains that "actual cash value is determined by the market value, age, and condition of the vehicle at the time the loss occurs." (Id. at 30.) It also explains that Progressive Direct "may use estimating, appraisal, or injury evaluation systems to assist us in adjusting claims under this policy and to assist us in determining the amount of damages, expenses, or loss payable under this policy." (Id. at 36.)

To determine a car's actual cash value ("ACV"), Progressive Direct uses valuation reports created by a third party, Mitchell International, Inc. (Compl. ¶ 1; see generally Valuation Report.) The reports look at recently-sold and currently-listed cars comparable to the policyholder's car. For the listed vehicles, Mitchell takes the advertised prices and adjusts them based on differences in equipment, mileage, and configuration. (Compl. ¶ 20.) Grady generally agrees that these adjustments are appropriate. (Id. ¶ 28.) But one of Mitchell's modifications—the PSA—adjusts downward the advertised prices to account for buyers negotiating before the sale. (Id. ¶ 22.) Whether the PSAs are appropriate in today's used-car market is the basis of this lawsuit.

Grady contends that the PSAs "do not reflect market realities . . . and run contrary to customary automobile dealer practices and inventory management." (Id. ¶ 23.) Before the internet, advertised prices were listed on a car's physical window. Consumers could not easily compare that price to competitors' offerings. (Id.) Dealers would therefore price their lots "above market knowing that some consumers might be poor negotiators and they would realize an inflated profit on those sales." (Id. ¶ 24.) Such negotiations were commonplace. (Id.) But after the internet and developments in pricing software, "used car dealerships no longer price vehicles above market with room for—and the expectation of—negotiation." (Id. ¶ 25.) Today, negotiations are "highly atypical" and no longer "proper to include in determining ACV." (Id. ¶ 27.) Grady alleges that Mitchell's primary competitor does not use PSAs, and that even Progressive Direct declines to use them when calculating ACVs in California or Washington (Id. ¶¶ 46-47.)

Along with outdated consumer-behavior assumptions, Grady alleges other problems with Progressive Direct's price adjustments. She contends that Progressive Direct ignores variables such as whether customers traded their car in, bought extended warranties, or financed their purchase. (Id. ¶ 29.) She also claims that Progressive Direct's data mistakenly excludes transactions in which a car's advertised price was equal to or less than its sold price. (Id. ¶¶ 30-33.) And she alleges that the data includes transactions with advertised dates that follow sold dates, an obvious error. (Id. ¶ 36.) Grady argues that these mishaps collectively "skew the data in favor of [Progressive Direct] to the detriment of the insureds." (Id. ¶ 37.)

Mitchell's report on Grady's 2016 Ford Focus estimates the base value of her car at $12,775.30. (Valuation Report at 1.) Mitchell looked at ten comparable cars. (Id. at 4.) Three had sold, so Mitchell did not apply PSA. (Id. at 6-7.) The remaining seven were listed for sale but had not yet sold. (Id. at 7-10.) Mitchell applied PSAs to six of those cars. (Id.) The PSAs adjusted downward their list prices by $814, $753, $815, $896, $827, and $893. (Id.; see also Compl. ¶ 21.) Grady contends that her car's ACV would have been $499.80 higher had Mitchell not applied those PSAs. (Compl. ¶ 49.)

Grady filed this putative class action under Rule 23 of the Federal Rules of Civil Procedure on behalf of herself and other Minnesota citizens who were underpaid by Progressive Direct for totaled vehicles. (Id. ¶ 50.) She brings claims for violation of the MCFA, breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory judgment. (Id. ¶¶ 58-93.)

ANALYSIS

To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quotation marks and citation omitted). "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." Id. The Court must "accept as true" all plausible factual allegations. Id. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. "Though matters outside the pleading may not be considered in deciding a Rule 12 motion to dismiss, documents necessarily embraced by the complaint are not matters outside the pleading." Ashanti v. City of Golden Valley, 666 F.3d 1148, 1151 (8th Cir. 2012) (citation omitted).

As noted above, Grady brings four claims: (1) violation of the MCFA, (2) breach of contract, (3) breach of the implied covenant of good faith and fair dealing, and (4) declaratory judgment.¹ (Compl. ¶¶ 58-93.) The Court addresses each claim in turn. For all, the parties agree that Minnesota law applies. The complaint also necessarily embraces the Policy and Valuation Report, so the Court considers it when addressing Progressive Direct's motion to dismiss. Ashanti, 666 F.3d at 1151.

I. Minnesota Consumer Fraud Act

Section 325F.69, subdivision 1 of the MCFA provides:

The act, use, or employment by any person of any fraud, false pretense, false promise, misrepresentation, misleading statement or deceptive practice, with the intent that others rely thereon in connection with the sale of any merchandise, whether or not any person has in fact been misled, deceived, or damaged thereby, is enjoinable as provided in section 325F.70.

"[A] party may be liable for fraud either by making an affirmative statement that is false or by concealing or not disclosing facts under certain circumstances." Graphic Commc'ns Loc. 1B Health & Welfare Fund A v. CVS Caremark Corp., 850 N.W.2d 682, 695 (Minn. 2014). Section 325F.69, subdivision 1 "does not apply to all allegations of fraud, but only to those where there is a nexus between the alleged fraud and the sale of merchandise." Banbury v. Omnitrition Int'l, Inc., 533 N.W.2d 876, 882 (Minn. Ct. App. 1995). If a claim asserts fraud that is not connected to the sale of merchandise, Section 325F.69, subdivision 1 does not apply. Id.

Fraud claims must satisfy a heightened pleading standard. Cleveland v. Whirlpool Corp., 550 F. Supp. 3d 660, 673 (D. Minn. 2021). Under Rule 9(b) of the Federal Rules of Civil Procedure, "a party must state with particularity the circumstances constituting fraud," although knowledge may be alleged generally. "The primary purpose of th[e] particularity requirement is to enable a defendant to respond and...