Holborn Corp. v. Sawgrass Mut. Ins. Co.

304 F.Supp.3d 392

HOLBORN CORPORATION, Plaintiff,

v.SAWGRASS MUTUAL INSURANCE COMPANY, Defendant.

16–cv–09147 (AJN)

United States District Court, S.D. New York.

Signed January 17, 2018

Emily Anna Beer, Robert Allen Scher, Foley & Lardner LLP, New York, NY, Max Chester, Foley & Lardner, LLP, Milwaukee, WI, for Plaintiff.

Jordan Scott Kosches, GrayRobinson, P.A., Miami, FL, for Defendant.

MEMORANDUM OPINION & ORDER

ALISON J. NATHAN, United States District Judge

In this diversity action, Plaintiff Holborn Corporation asserts that Defendant Sawgrass Mutual Insurance Company breached its contract by failing to pay premiums to Holborn in exchange for Holborn acting as Sawgrass's reinsurance broker. Sawgrass asserts counterclaims against Holborn, alleging first that Holborn acted negligently and breached its fiduciary duty by failing to recommend a particular type of reinsurance, and second that Holborn breached its contract by failing to repay certain sums to Sawgrass. Before the Court is Holborn's motion to dismiss Counts I and II (negligence and breach of fiduciary duty) of Sawgrass's Amended Counterclaims under Federal Rule of Civil Procedure 12(b)(6). Because the Court concludes that New York law applies and that Sawgrass has failed to sufficiently allege facts that would support Sawgrass's claims under New York law, the motion is granted.

I. Background

The following facts are taken from the allegations contained in the Defendant's Amended Counterclaims, as required in deciding this motion to dismiss. See Kassner v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 237 (2d Cir. 2007). Defendant Sawgrass is a mutual insurance corporation existing in and organized under the laws of the state of Florida. Defendant/Counter–Plaintiff's Amended Counterclaims ("Counterclaims"), Dkt. No. 22, ¶ 1. It writes homeowners insurance policies in the state of Florida. Counterclaims ¶ 4. Plaintiff Holborn is a reinsurance intermediary organized under the laws of the state of Delaware, with offices in New York, Minnesota, and Kansas. Counterclaims ¶ 2.

In 2012, Holborn had a series of conversations with Sawgrass's then–President and CEO, James Esse, aimed at convincing Esse to let Holborn procure reinsurance for Sawgrass. Counterclaims ¶ 5. During these conversations, Esse advised Holborn that it would need to "carefully analyze" Sawgrass's potential risk exposure under its homeowners policies, as well as "design a specific reinsurance program custom tailored to Sawgrass' unique business needs." Counterclaims ¶ 7. Given the magnitude of Sawgrass's risk, any reinsurance deal would likely require Sawgrass to pay nearly $10 million in annual reinsurance premiums for nearly $100 million in coverage. Counterclaims ¶ 8. Holborn was likely to receive nearly $1 million in annual commissions. Counterclaims ¶ 8. As a result, Sawgrass alleges, Holborn "understood that if Sawgrass retained it as its reinsurance intermediary that the relationship would be one of trust and confidence, and that Holborn would have a duty to counsel and advise Sawgrass on the reinsurance program that would be most advantageous to its particular business needs." Counterclaims ¶ 9.

In addition, according to Sawgrass, Holborn made "a series of representations concerning its expertise in an effort to induce Sawgrass to retain its services," which were "substantially the same" as the representations currently made on Holborn's website. Counterclaims ¶ 10. These representations include:

a. Holborn is an independent reinsurance brokerage offering advanced analytic tools, global market access, and responsive account services to clients across the United States.

b. Holborn is "committed to understanding each clients' needs, corporate culture, risk tolerance and overall business approach."

c. Holborn promises to "maintain a relentless commitment to giving clients what they truly need, with no two client solutions exactly the same."

d. Holborn "take[s] a comprehensive approach to reinsurance structure design and placement by understanding each client's business philosophy and risk appetite. Each client team incorporates dedicated placement & claims brokers, cat modelers, actuaries, contracts professionals and accountants, who collaborate to deliver an exceptional client experience throughout the year. By being client focused, instead of product-focused, [its] team understands the whole picture and the implications of each recommendation and ultimate decision made by our clients."

e. Holborn "keeps [its] finger on the pulse of both the traditional market and alternative market, when exploring risk solutions, to ensure [its] clients have the most efficient, innovative and secure reinsurance program available."

Counterclaims ¶ 10. Sawgrass considered these representations material to its decision to retain Holborn and alleges that Holborn knew or should have known this. Counterclaims ¶ 11.

On March 14, 2012, Sawgrass executed a Broker Authorization Contract (the "2012 BAC"), which designated Holborn as Sawgrass's reinsurance intermediary from June 1, 2012 through May 31, 2015. Counterclaims ¶ 12; see also 2012 BAC, Dkt. No. 29–1. On November 6, 2013, Holborn and Sawgrass executed a superseding Broker Authorization Contract (the "2014 BAC"), which designated Holborn as Sawgrass's reinsurance intermediary from June 1, 2014 through May 31, 2017. Counterclaims ¶ 12; see also 2014 BAC, Dkt. No. 29–2. In addition, the parties signed two other agreements: a "Consulting Agreement" that amended the 2012 BAC and specified that Holborn would provide consulting services for a period of time even if the contract were terminated, Counterclaims ¶ 14, and a contract authorizing Sawgrass to use Holborn's proprietary Portfolio Optimization Tool, see Portfolio Optimization Tool Use Agreement, Dkt. No. 29–3.

According to Sawgrass, Holborn recommended a specific program of reinsurance coverage that it represented was the most advantageous for Sawgrass. Counterclaims ¶ 16. Based on these representations, Sawgrass purchased the recommended reinsurance. Counterclaims ¶ 17. At some point thereafter, Sawgrass learned that Holborn had failed to recommend "Top and Drop" reinsurance coverage, a multi-layer insurance product which allows the insured to reuse the top excess-of-loss layer of reinsurance if it is not breached by the first loss event. Counterclaims ¶¶ 18–19. Sawgrass alleges that if Holborn had recommended Top and Drop coverage, Sawgrass would have saved hundreds of thousands of dollars. Counterclaims ¶ 20.

Sawgrass subsequently terminated Holborn pursuant to paragraph 2 of the 2014 BAC, which allowed Sawgrass to terminate Holborn at any time for cause. Counterclaims ¶ 27; 2014 BAC ¶¶ 2–3. On November 23, 2016, Holborn filed a complaint against Sawgrass alleging breach of contract. Complaint, Dkt. No. 1, ¶ 1. Specifically, Holborn alleged that Sawgrass "prematurely terminat[ed] the Contract without cause and fail[ed] to pay Holborn its full share of brokerage on all reinsurance procured or placed" during the period of time covered by the 2014 BAC. Complaint ¶ 1. In response, Sawgrass brought three counterclaims against Holborn alleging negligence, breach of fiduciary duty, and breach of contract. Counterclaims ¶¶ 34–55. Sawgrass alleges that Holborn's failure to recommend Top and Drop insurance constituted a breach of its duty of care, Counterclaims ¶ 40, and a breach of its fiduciary duty, Counterclaims ¶ 47. It also alleges that Holborn breached the terms of the 2014 BAC by failing to remit a percentage of the brokerage earned by Holborn as required. Counterclaims ¶¶ 53–54.

On April 11, 2017, Holborn filed a motion to dismiss Sawgrass's first and second counterclaims. Dkt. No. 27. Holborn argues that the tort-based claims of negligence and breach of fiduciary duty are barred by the economic loss doctrine under New York law and therefore must be dismissed. Memo. in Support of Motion to Dismiss ("Support"), Dkt. No. 28, at 1.

II. Legal Standard

To survive a motion to dismiss under Rule 12(b)(6), the complaint must "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim achieves "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." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Plausibility is "not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility tha t a defendant has acted unlawfully." Id. Assessing the plausibility of a complaint is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679, 129 S.Ct. 1937. To plausibly allege a claim, the plaintiff must do more than provide "bare assertions" that "amount to nothing more than a ‘formulaic recitation of the elements’ " of a claim. Id. at 681, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955 ). "Plausibility thus depends on a host of considerations: the full factual picture presented by the complaint, the particular cause of action and its elements, and the existence of alternative explanations so obvious that they render plaintiff's inferences unreasonable." L–7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 430 (2d Cir. 2011). "A motion to dismiss a counterclaim is evaluated under the same standard as a motion to dismiss a complaint." Orientview Techs. LLC v. Seven for All Mankind, LLC, No. 13-cv-0538 (PAE), 2013 WL 4016302, at *2 (S.D.N.Y. Aug. 7, 2013) (citation omitted). In reviewing a motion to dismiss, the court "may consider any written instrument attached to the complaint, statements or documents incorporated into the complaint by reference, ... and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d...