James Lee Constr. v. Gov't Emps. Ins. Co.

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JAMES LEE CONSTRUCTION, INC., a Montana Corp., JAMES B. LEE, and TRACY D. LEE, husband and wife, Plaintiffs, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, et al., Defendants.

No. CV 20-68-M-DWM

United States District Court, D. Montana, Missoula Division

January 3, 2022

OPINION AND ORDER

Donald W. Molloy, District Judge United States District Court

Plaintiffs James Lee Construction, Inc., and husband and wife James and Tracy Lee (the “Lees”) represent a putative class (collectively “Plaintiffs”) challenging the subrogation practices of Defendants GEICO and related GEICO entities (collectively “GEICO”). There are four motions pending.

Background

While the facts and claims of this case become less clear with each amended pleading, they are reconstructed from prior pleadings below.

I. The Accident

Although not stated anywhere in the operative Third Amended Complaint (see Doc. 109), on August 5, 2019, James Lee was involved in a car accident caused by another driver, (Doc. 32 at ¶ 20). He was injured and the Lees' vehicle was totaled. (Id. ¶ 21.) At the time of the accident, the Lees were personally insured by GEICO General and James Lee Construction had a commercial policy with Government Employees. (Id. ¶ 30.) After the accident, the Lees received policy limits of $25, 000 from the at-fault driver's bodily injury coverage and $5, 798.64 from the at-fault driver's property coverage. (Id. ¶ 20.) GEICO and GEICO General subrogated $14, 194.00 from the at-fault driver's insurer, which the Lees claimed would prevent them from fully recovering. (Id. ¶ 33.) As indicated above, the Third Amended Complaint does not contain any of these facts. It does clarify, however, that GEICO paid the Lees $13, 567.00 for their property damage prior to seeking subrogation, (Doc. 109 at ¶ 9), and following its subrogation recovery, reimbursed their $500 deductible, (id. ¶ 12).

II. Procedural History

On April 3, 2020, the Lees filed suit in state court on behalf of themselves and a putative class challenging the subrogation practices of GEICO, GEICO General, and other GEICO entities with which they do not hold policies. (Doc. 3.) The case was removed to this Court on May 12, 2020. (Doc. 1.) There have been three previous rounds of significant briefing.

A. First Motion to Dismiss

In June 2020, GEICO sought to dismiss the original complaint for lack of standing, lack of personal jurisdiction, and failure to state a claim. (See Doc. 11.)

The Court, inter alia, dismissed the non-contracting GEICO entities for lack of personal jurisdiction and dismissed Plaintiffs' conversion claim as preempted by Montana's Unfair Trade Practices Act (“UTPA”). (Id. at 16.) On December 18, 2020, Plaintiffs filed their Second Amended Complaint, which reintroduced the previously dismissed non-contracting GEICO entities as defendants on the basis that they, along with GEICO and GEICO General, jointly operate a subrogation unit in Montana, the “Property Recovery Unit” or “PRU.” (See Doc. 32.)

B. Second Motion to Dismiss

In January 2021, GEICO once again sought dismissal. (Doc. 38.) Based on Plaintiffs' slightly altered theory and an intervening decision of the United States Supreme Court, the Court found that it had personal jurisdiction over the noncontracting GEICO entities that operate the PRU, (see Doc. 52), and that Plaintiffs had standing and adequately pled their claims, (see Doc. 55).

C. Motion for Judgment on the Pleadings

Subsequently, GEICO sought judgment on the pleadings with respect to Plaintiffs' claim for declaratory relief on the grounds that it was preempted by the UPTA. (See Doc. 79.) Following argument, GEICO's motion was granted. (See Doc. 107.) Because Plaintiffs' subrogation claim-which is the basis of their class action-sounded in claims handling, it was barred by the UTPA. See Mont. Code Ann. § 33-18-242(3); (Doc. 107 at 3-7). However, the UTPA does not preempt claims for breach of contract and Plaintiffs were given an additional opportunity to amend. (See Doc. 107 at 7, 9.)

On September 23, 2021, Plaintiffs filed the Third Amended Complaint. (See Doc. 109.) In that pleading, Plaintiffs pursue claims for breach of contract and conversion on behalf of themselves and a putative class.^[1] (See generally id.) Plaintiffs attempt to avoid the UTPA bar on the ground that this action “arise[s] out of the intersection between a contractual subrogation right, a made whole rule limitation to such contractual right, and the timing of the made whole determination and any attendant duties.” (Id. ¶ 2.)

D. Current Motions

There are currently four motions pending. First, GEICO seeks to dismiss the Third Amended Complaint on the grounds that it alleges the same preempted claims for conversion and for declaratory and injunctive relief and fails to plead a breach of contract claim. (Doc. 113.) Second, GEICO seeks to strike Plaintiffs' class claims or alternatively, for an order denying class certification. (Doc. 117.) Third, Plaintiffs seek to vacate the trial schedule. (Doc. 122.) Finally, GEICO seeks to strike a supplemental expert report as untimely. (Doc. 132.) Because GEICO's motion to dismiss is granted, the remaining motions are denied as moot.

Analysis

GEICO seeks to dismiss Plaintiffs' subrogation and conversion claims as preempted by § 33-18-242(3) and to dismiss Plaintiffs' breach of contract claim for failure to state a claim. Both arguments have merit.

I. Legal Standard

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 (2009) (quoting BellAtl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “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. Dismissal under Rule 12(b)(6) is appropriate “where there is no cognizable legal theory or an absence of sufficient facts alleged to support a cognizable legal theory.” L.A. Lakers, Inc. v. Fed. Ins. Co., 869 F.3d 795, 800 (9th Cir. 2017) (internal quotation marks omitted).

As a general matter, GEICO is correct that the Third Amended Complaint “consists mostly of Plaintiffs' argument” and “alleges few facts and relies on past pleadings and filings to establish the predicate factual background for Plaintiffs' claims.” (Doc. 114 at 4-5.) For example, the Third Amended Complaint does not identify the parties or contain a jurisdictional statement. While incorporation by reference across pleadings can be acceptable, see Fed.R.Civ.P. 10(c), “the general rule is that an amended complaint supercedes the original complaint and renders it without legal effect, ” Lacey v. Maricopa Cnty., 693 F.3d 896, 927 (9th Cir. 2012). Plaintiffs make no attempt to incorporate any previously alleged facts as they do not reference the relevant portions of their previous pleading. But even assuming Plaintiffs' Third Amended Complaint meets this basic pleading standard-which it does not-their claims fail as a matter of law.

II. Declaratory and Injunctive Relief

The UTPA limits claims an insured can bring against an insurer. Specifically, it provides that

[a]n insured who has suffered damages as a result of the handling of an insurance claim may bring an action against the insurer for breach of the insurance contract, for fraud, or pursuant to this section, but not under any other theory or cause of action.

§ 33-18-242(3). Accordingly, this Court previously determined that Plaintiffs' claims for conversion and declaratory relief were preempted by the UPTA. (See Doc. 15 at 14-15; Doc. 107 at 3-7.) Plaintiffs claim to have overcome that bar in their Third Amended Complaint, which alleges:

this action eliminates any claim based on the adjustment of the insureds' insurance claim and, instead, seeks relief in routes recognized as available by the Montana Supreme Court:

A-1. declaration of the meaning of the contractual right to subrogate as constrained by the “made-whole” rule, and declaration that the contract has been breached and corresponding supplemental relief for the contract breach (a Ferguson-type claim); or, alternatively

A-2 judgment for damages for breach of the contract in the amount of the wrongful subrogation (without prejudice to any proper, timely and equitable assertion of subrogation by GEICO);

AND

B-1 A declaration of the meaning and application of the equitable made-whole rule to conduct wholly apart from the adjustment of the settled insured's first party claim (a Thomas-type action); or, alternatively,

B-2 A declaration of when the made-whole determination duty attaches (a Safeco of III.-type action);

ALTERNATIVELY, in the event that, declaratory and equitable enforcement of the equitable made whole rule is denied,

C. An adjudication of the Lee's and class members' exclusive legal right to their automobile tort claims and proceeds of those claims, and damages for wrongful conversion of those claims and the proceeds thereof.

(Doc. 109 at ¶ 1 (footnotes omitted).) But, as argued by GEICO, “the substance and nature of Plaintiffs' claims, and the relief sought for such claims, has not changed.” (Doc. 114 at 7.) Put simply, dressing up Plaintiffs' previously unsuccessful legal arguments as pleadings does not make them tenable claims under Montana law. While Plaintiffs disagree, (see Doc. 121 at 5-8), this Court previously determined that subrogation was preempted claims handling activity, (see Doc. 107 at 3). That determination stands. See also Johnson v Mont. Eleventh Jud. Dist., 2021 WL 5088743, at *2 (Mont. Nov. 2, 2021) (refusing to find error...