Out W. Rest. Grp. Inc. v. Affiliated FM Ins. Co.

527 F.Supp.3d 1142

OUT WEST RESTAURANT GROUP INC., et al., Plaintiffs,

v.AFFILIATED FM INSURANCE COMPANY, Defendant.

Case No. 20-cv-06786-TSH

United States District Court, N.D. California.

Signed March 19, 2021

Andrea L. DeField, Walter Joseph Andrews, Hunton Andrews Kurth LLP, Miami, FL, Scott Phillip DeVries, Hunton Andrews Kurth, San Francisco, CA, for Plaintiffs.

Steven Donald Turner, Jones Turner, LLP, Irvine, CA, for Defendant.

ORDER GRANTING MOTION FOR JUDGMENT ON THE PLEADINGS

Re: Dkt. No. 26

THOMAS S. HIXSON, United States Magistrate Judge

I. INTRODUCTION

Plaintiffs Out West Restaurant Group, Inc., Cerca Trova Restaurant Group, Inc., Cerca Trova Steakhouse, LP., and Cerca Trova Southwest Restaurant Group, LLC ("Plaintiffs") bring this action against Affiliated FM Insurance Company ("AFM"), seeking coverage for economic losses to their restaurant businesses caused by COVID-19. Pending before the Court is AFM's Motion for Judgment on the Pleadings pursuant to Federal Rule of Civil Procedure 12(c). ECF No. 26. Plaintiffs filed an Opposition (ECF No. 29) and AFM filed a Reply (ECF No. 34). The Court finds this matter suitable for disposition without oral argument and VACATES the March 25, 2021 hearing. See Civ. L.R. 7-1(b). Having considered the parties’ positions, relevant legal authority, and the record in this case, the Court GRANTS AFM's motion for the following reasons.

II. BACKGROUND

A. Factual Background

Plaintiff Out West Restaurant Group, Inc. is a restaurant management company. First Am. Compl. ("FAC") ¶ 9, ECF No. 18. It is the exclusive franchisee of Outback Steakhouse restaurants in Arizona, Colorado, Nevada, and New Mexico and the predominate franchisee in California. Id. Plaintiff Cerca Trova Steakhouse is an entity that holds leases for all California restaurants, while Plaintiff Cerca Trova Southwest Restaurant Group is an entity that holds leases for the non-California restaurants. Id. ¶¶ 10-11. Plaintiff Cerca Trova Restaurant Group, Inc. owns the other Plaintiffs and is the "ultimate parent of the Out West entities." Id. ¶¶ 12, 34. AFM is an insurance company. Id. ¶¶ 13, 27. Cerca Trova purchased an insurance policy (the "Policy") from AFM which insures Cerca Trova along with its subsidiaries. Id. ¶¶ 27, 33-34; id. , Ex. A (Policy). The Policy had an effective date of February 15 through December 1, 2020 and provides coverage for "all risks of physical loss or damage" except as excluded by the Policy. Id. ¶¶ 28, 31; Policy at COMPLAINT-00022.

Plaintiff alleges the COVID-19 pandemic and presence of the virus in the air makes restaurant properties with outdoor or indoor dining spaces unusable and unfit for normal occupancy. FAC ¶ 90. The presence of the virus at Out West's locations, including on surfaces, also causes physical alteration of the integrity of the property and causes physical loss. Id. ¶ 89. According to Plaintiffs, these conditions constitute "loss" and "damage" under the Policy. Id. ¶¶ 80-81.

B. Procedural Background

Plaintiffs filed their initial complaint on September 29, 2020. ECF No. 1. AFM moved to dismiss, arguing that Plaintiffs’ complaint violated Federal Rule of Civil Procedure 8 because it was needlessly long and "impermissibly contains numerous examples of immaterial, impertinent, and redundant matters, repetitive allegations," improper legal arguments and "needless citations to ‘evidence’ ...." Mot. to Dismiss, ECF No. 13. The Court found Plaintiffs’ complaint complied with Rule 8 but their extensive use of footnotes did not comport with the requirements of Rule 10(b), which directs that "[a] party must state its claims or defenses in numbered paragraphs, each limited as far as practicable to a single set of circumstances." Order, ECF No. 17. The Court dismissed with leave to amend for Plaintiffs to remove the footnotes from the Complaint.

On December 8, 2020, Plaintiffs filed the operative FAC for declaratory relief, breach of contract, and breach of implied covenant of good faith and fair dealing, alleging that (1) the presence of COVID-19 "on surfaces" and "in the air" at Plaintiffs’ restaurant locations caused physical loss or damage to their property, and (2) the "Governmental Orders issued as a result [of COVID-19] caused physical loss of and/or damage" to Plaintiffs in that they have deprived them of the use and function of their buildings. FAC ¶¶ 2, 89-94.

Plaintiffs allege that they are "currently aware of over 100 employees testing positive for COVID-19 across numerous of its insured locations"; "[t]hat there may be several more insured locations where customers visiting the insured location to pick-up food for takeout may have tested positive shortly before or after visiting the insured location, unbeknownst to [Plaintiffs]"; and that "these situations, too, trigger coverage as [Plaintiffs] suffer[ ] physical loss and/or damage as a result." FAC ¶¶ 82-84, ¶¶ 87-88. They state they undertake "full deep cleaning and sanitation procedures immediately after [they] become[ ] aware of a positive test or positive exposure to COVID-19, and additionally undertake[ ] significant effort to prevent the presence of COVID-19 onsite." Id. ¶ 85. Plaintiffs allege that the presence of COVID-19, "including on surfaces, and/or other properties causes physical alteration of the integrity of the property, causing physical loss and/or damage" and that "the presence of COVID-19 in the air at [Plaintiffs’] insured locations and/or properties caused physical loss and/or damage, including but not limited to, by rendering the locations unusable, uninhabitable and/or unsuitable for the property's intended purpose." Id. ¶¶ 89-90. They also claim that "COVID-19 and Governmental Orders issued as a result thereof, have caused physical loss of and/or damage to [Plaintiffs’] property by impairing the ‘value, usefulness, or normal function’ of [Plaintiffs’] premises, rendering them unusable and/or unfit for their normal business operations until such time as the relevant governmental agencies determine it is safe to reopen, and otherwise by damaging [Plaintiffs’] property." Id. ¶¶ 92-93.

Plaintiffs allege AFM's failure to diligently pursue a thorough, fair, and objective investigation of their claim and its improper denial of coverage constitute a breach of good faith and fair dealing. Id. ¶ 140. In addition to their Communicable Disease claims (id. ¶¶ 100-06), Plaintiffs seek coverage under the following Policy provisions, each of which in some manner requires physical loss or damage to property: Business Interruption (id. ¶ 109, Policy at COMPLAINT-0040); Protection and Preservation of Property – Property Damage (FAC ¶ 107, Policy at COMPLAINT-0035-36); Extra Expense (FAC ¶ 111, Policy at COMPLAINT-0043); Attraction Property (FAC, ¶ 113, Policy at COMPLAINT-0045); Civil or Military Authority (FAC ¶ 116, Policy at COMPLAINT-0045); Ingress/Egress (FAC ¶ 121, Policy at COMPLAINT-0048); and Supply Chain (FAC ¶ 124, Policy at COMPLAINT-0052), along with Professional Fees associated with these coverages (FAC ¶ 127, Policy at COMPLAINT-0035) (referring to "payable amounts ... for which this Company has accepted liability").

AFM filed its Answer on December 22, 2020. ECF No. 20.

III. LEGAL STANDARD

"After the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c). "Judgment on the pleadings is properly granted when, accepting all factual allegations in the complaint as true, there is no issue of material fact in dispute, and the moving party is entitled to judgment as a matter of law." Chavez v. United States , 683 F.3d 1102, 1108 (9th Cir. 2012) (brackets and internal quotation marks omitted). Like a motion to dismiss under Rule 12(b)(6), a motion under Rule 12(c) challenges the legal sufficiency of the claims asserted in the complaint. Id. Indeed, a Rule 12(c) motion is "functionally identical" to a Rule 12(b)(6) motion, and courts apply the "same standard." Dworkin v. Hustler Magazine, Inc. , 867 F.2d 1188, 1192 (9th Cir. 1989) (explaining that the "principal difference" between Rule 12(b)(6) and Rule 12(c) "is the timing of filing"); Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc. , 637 F.3d 1047, 1054 n.4 (9th Cir. 2011).

Judgment on the pleadings should thus be entered when a complaint does not plead "enough facts to 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 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." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). "The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (simplified). For purposes of ruling on a Rule 12(c) motion, the Court "accept[s] factual allegations in the complaint as true and construe[s] the pleadings in the light most favorable to the nonmoving party." Manzarek v. St. Paul Fire & Marine Ins. Co. , 519 F.3d 1025, 1031 (9th Cir. 2008).

A district court generally may not consider materials outside the pleadings in deciding a motion under Rule 12(c), and if such materials are presented and not excluded, the motion must be treated as a motion for summary judgment under Rule 56. See Fed. R. Civ. P. 12(d). A district court may, however, consider the following materials without converting a Rule 12(c) motion to a Rule 56 motion: "(1) exhibits to the nonmoving party's pleading, (2) documents that are referred to in the non-moving party's pleading, or (3) facts that are included in materials that can be judicially noticed." Yang v. Dar Al-Handash Consultants , 250 F. App'x 771, 772 (9th Cir. 2007).

IV. DISCUSSION

AFM argues the Court must grant judgment on the pleadings because: (1) the AFM policy's...