S.USA Life Ins. Co. v. Foster

S.USA LIFE INSURANCE COMPANY, INC. Plaintiff, v. CHARLES JAMES FOSTER, Defendant.

Civil Action No. 7:18-cv-590

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF VIRGINIA ROANOKE DIVISION

April 29, 2019

By: Hon. Robert S. Ballou United States Magistrate Judge

REPORT AND RECOMMENDATION

Plaintiff S.USA Life Insurance Company ("S.USA Life") filed this breach of contract and quantum meruit action against defendant Charles James Foster ("Foster") to recover commission chargebacks it claims are due under its General Agent Contract ("the Contract"). Compl., Dkt. No. 1. Foster, proceeding pro se, filed a responsive pleading denying liability, setting forth defenses to the claims asserted and contending that S.USA Life is liable to him for fraud. I construe Foster's pleadings as an Answer and Counterclaim. Resp. Pl., Dkt. No. 5. S.USA Life moves to dismiss Foster's counterclaim under Rule 12(b)(6). Pl. Mot. to Dismiss, Dkt. No. 6.

I find that oral argument will not aid the court with the pending motion, which has been fully briefed and is ripe for decision. I consider this motion pursuant to 28 U.S.C. § 636(b)(1)(B) and conclude that Foster's counterclaim fails to plead sufficient facts to support a claim. I RECOMMEND GRANTING Plaintiff's motion to dismiss (Dkt. No. 6) and allowing Foster leave to file an amended counterclaim within twenty-one (21) days of the date the court acts upon this Report and Recommendation.

I. Background

The facts are taken from the complaint, answer and counterclaim and the documents attached.¹ See E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 448 (4th Cir. 2011) ("a court evaluates the complaint in its entirety, as well as documents attached or incorporated into the complaint"); Phillips v. LCI Int'l Inc., 190 F.3d 609, 618 (4th Cir.1999) ("a court may consider [a document outside the complaint] in determining whether to dismiss the complaint" where the document "was integral to and explicitly relied on in the complaint" and there was no authenticity challenge).

A. Complaint

Foster, who is an independent insurance agent in Florida, entered into the Contract with S.USA Life on July 1, 2017, to solicit applications for and to sell S.USA Life's insurance products. Under the Contract, S.U.S.A. Life agreed to pay Foster a commission on the insurance policies that he sold. S.USA Life paid Foster the earned commission upon receipt of the application and the issuance of a policy. Compl., Dkt. No. 1, ¶¶ 8-9. Foster agreed to repay S.USA Life the commission if the policy was later rescinded or terminated within the first year. Id. at ¶ 10. The commission chargeback portion of the Contract required Foster to repay any chargebacks within 30 days, including any interest on the amount due and attorney's fees incurred in collecting any amount due. Id. at ¶ 11. On November 1, 2017, S.USA Life gave Foster written notice that it was terminating the Contract, and on February 16, 2018, S.USA Life demanded that Foster repay the commission chargebacks assessed. Id. at ¶ 12-13. Foster has notpaid the amount S.USA Life claims is due, and S.USA Life now brings this action for breach of contract and quantum meruit, seeking $117,320.71, plus attorney's fees and pre-and post-judgment interest. Id., Prayer for Relief.

B. Counterclaim

Foster asserts in his answer and counterclaim that identity thieves used his insurance license to process applications for clients with S.USA Life without his knowledge. Resp. Pl., Dkt. No. 5, p. 3. Foster asserts that S.USA Life:

has recordings in which multiple individuals (different voices and accents) called their company to process applications, stating they each were Charles James Foster and in some cases received multiple calls simultaneously stated [sic] they were each Charles James Foster. They told various individuals Charles [J]ames [F]oster is on the other phone now and other [C]harles [J]ames [F]oster's would have to call back when that [C]harles [J]ames [F]oster was done.

Id. at p. 2. Foster asserts that he informed S.USA Life employee Jack Heller,

of the actions and he flew down to [F]ort [L]auderdale the next day and upon examining the actions cancelled all licenses with his company, He did this after I [Foster] demanded action of him of this deception. At that point the perpetrators of the identity theft called the clients and had them cancel S.USA's policy and switched them to another carrier (since further payments with S.USA life were ended on those contracts).

Id. Foster asserts that Mr. Heller "knew the crime had been committed and still allowed S.USA Life to file false documentation with the IRS and credit bureaus causing specific financial loss on the part of the defendant." Id. He further asserts that Mr. Heller assisted "the perpetrators in concealing S.USA Life's knowledge of the events. Since S.USA Life [k]nows these are illegal actions profited by a third party their action against me is being presented for an improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation." Id. Foster asserts that "S.USA Life and been [sic] informed repeatedly about the Fraud fromcustomer service to top echelon individuals...and they continue to falsely report the incident to credit reporting agencies and the IRS." Id. at p. 4.

Foster asserts that S.USA Life "conceal[ed]" the facts and "continued to operate with the identity thieves." Id. at p. 3. Foster states that "these same individuals are still processing applications for some of these same clients with S.USA Life under different insurance agent licenses and are still being sold by individuals unlicensed in pertinent states." Id. Foster also asserts that S.USA Life was required by state law to notify the department of insurance in each state of any violation of insurance law within 30 days and has not filed documentation with any state on each violation involved in this case. Id.

II. Standard of Review

The purpose of a Rule 12(b)(6) motion to dismiss is to test the sufficiency of Foster's counterclaim, not to "resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." See Edwards v. City of Goldsboro, 178 F.3d 231, 243-44 (4th Cir. 1999). In considering a Rule 12(b)(6) motion, a court must accept all factual allegations in the counterclaim as true and must draw all reasonable inferences in favor of Foster. Erickson v. Pardus, 551 U.S. 89, 94 (2007). Legal conclusions in the guise of factual allegations are not entitled to a presumption of truth. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a motion to dismiss, Foster must "state a claim to relief that is plausible on its face." Iqbal, 556 U.S. at 678 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. The plausibility standard requires more than "a sheer possibility that a defendant has acted unlawfully." Id.

Because Foster is proceeding pro se, his pleadings must be "liberally construed" and "however inartfully pleaded . . . held to less stringent standards than formal pleadings drafted by lawyers." Erickson, 551 U.S. at 93 (internal citation omitted). However, the court may not ignore a clear failure to allege facts sufficient to state a cognizable claim in a federal district court. See Weller v. Dep't of Soc. Servs., 901 F.2d 387, 391 (4th Cir.1990) ("The 'special judicial solicitude' with which a district court should view such pro se complaints does not transform the court into an advocate. Only those questions which are squarely presented to a court may properly be addressed.").

III. Analysis

Foster's answer and counterclaim is somewhat unclear, asserting defenses to S.USA Life's complaint along with general allegations and legal conclusions of fraud committed by S.USA Life. Liberally construing the allegations set forth in Foster's counterclaim, he asserts claims against S.USA Life for fraud, fraudulent concealment, and aiding and abetting fraud.

S.USA Life asserts that Foster's allegations fail to state a claim under both Virginia and Florida law. The contract at issue in S.USA Life's complaint includes a choice of law provision which provides that it will be governed by Virginia law. Dkt. No. 1-1, p. 4. Foster cites Florida law in support of his counterclaim. When federal jurisdiction depends on diversity of citizenship, the applicable law must be determined by the choice of law rules of the forum state. Brendle v. Gen. Tire & Rubber Co., 408 F.2d 116, 116 (4th Cir. 1969). Virginia courts classify fraud as tort claims (Richmond Metro Auth. v. McDevitt Street Bovis, Inc., 256 Va. 553, 507 S.E.2d 344, 346-47 (Va. 1998)), thus, Foster's claims fall under Virginia's "place of the wrong" (lex loci delicti) rule. See Quillen v. Int'l Playtex, Inc., 789 F.2d 1041, 1044 (4th Cir. 1986). The place of the wrong denotes the place where "the last event necessary to make an act[or] liable for analleged tort takes place." Id. (internal citations omitted). "In the fraud context, 'the place of the wrong is where the loss is sustained ....'" Self Insured Servs. Co. v. Panel Sys., Inc., 352 F. Supp. 3d 540, 552-53 (E.D. Va. 2018) (quoting Jordan v. Shaw Indus., Inc., 131 F.3d 134, at *3 (4th Cir. Nov. 26, 1997)). Foster alleges that S.USA Life's fraudulent acts and/or concealment caused him "financial loss" and "damages." Dkt. No. 5. Given that Foster is a resident of Florida, I will presume for purposes of this Report and Recommendation that Florida law applies to Foster's counterclaim. However, I note that Florida law and Virginia law are almost identical on the issues discussed herein.

A. Fraud

Foster's counterclaim, construed liberally, fails to plead a claim of fraud against S.USA Life. Rule 9(b) of the Federal Rules of Civil Procedure requires a party to plead fraud with specificity. Indeed, "[i]n alleging fraud ... a...