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Snyder v. Acord Corporation

United States District Court, D. Colorado

January 15, 2016

DALE SNYDER, et al., Plaintiffs,
ACORD CORPORATION, et al., Defendants.


John L. Kane Senior U.S. District Judge


The Plaintiffs in this action are a handful of insured homeowners who lost their homes and have brought a class action including RICO, antitrust, and a raft of state law claims against their insurance companies, as well as scores of other insurers and related organizations, related to those losses. The parties have now fully briefed several motions to dismiss on various grounds.

This opinion addresses the Defendants’ main motion to dismiss (joined in by all defendants), which argues that each of Plaintiffs’ 23 claims for relief should be dismissed under Rule 8 and Rule 12(b)(6). Doc. 390. For the reasons that follow, the Defendants’ motion is GRANTED.[1]

Factual Background

Plaintiffs are 17 homeowners (and one estate of a deceased homeowner) whose Colorado homes were destroyed by fires in February and June of 2012, and one plaintiff whose home was destroyed by flood damage in September of 2013. See Third Amended Complaint (“TAC”) (Doc. 380) ¶¶ 10-27, 637, 666, 700, 726, 747, 767, 792, 817, 835, 859, 907. The named Plaintiffs had homeowner’s insurance policies issued by ten defendants Shelter Mutual Insurance Company, American Family Mutual Insurance Company, United Services Automobile Insurance, State Farm Fire and Casualty Company, Liberty Mutual, Country Mutual Insurance Company, Allstate Insurance Company, Colorado Farm Bureau, Nationwide Mutual Insurance Company, and United Fire & Casualty Company (“Selling Defendants”) at the time of their losses. See TAC ¶¶ 626, 658, 685, 722, 736-37, 759, 785, 811, 827-28, 852, 878-79.

Plaintiffs allege that their claims were mishandled in various ways and that they were misled regarding the terms of their insurance policies and how those terms would be applied. See generally TAC ¶¶ 621-972. In general, Plaintiffs allege that they were systematically and purposefully underinsured, see, e.g., TAC ¶¶ 653, 709-10, 726, 756-57, 776, 791, 808, 822, 837, and unaware that they would have to repair or replace their homes within a short time frame in order to receive the “Actual Cash Value” of their property, see, e.g., TAC ¶¶ 640, 668, 819, 844. Plaintiffs also complain that they did not know that “Actual Cash Value” would be defined as the cost of repair or replacement less applicable depreciation. See, e.g., TAC ¶¶ 392, 395, 459, 802, 842, 898, 910, 917-18, 920. Plaintiffs have numerous other complaints about how their claims were processed and handled. See, e.g., TAC ¶¶ 643, 677-78, 694, 709, 725, 775, 801, 873.

In addition to the named Plaintiffs’ claims against their insurers, Plaintiffs also bring their claims against 103 other defendants, including insurance companies, holding companies, a consulting firm, and a standard setting organization for the insurance industry known as ACORD (the “Non-Selling Defendants”). See TAC ¶¶ 28-140. Plaintiffs allege a “monumental” conspiracy centered around the ACORD organization, with the scores of Non-Selling Defendants “involved in an enterprise with ACORD as either members, strategic partners, associates, or non- member associates, and [as] stakeholders in the enterprise.” TAC ¶ 151; see id. at ¶ 1179. Although Plaintiffs do not directly allege that ACORD defines the terms or sets any standards in insurance contracts about which the named Plaintiffs complain, see TAC ¶¶ 184-223, they allege that the ACORD organization served as a vehicle for a conspiracy to define and establish those standards. See Doc. 447-1 at 27.

Procedural Background

Plaintiffs filed their Complaint in this action on June 21, 2014, and a First Amended Complaint on July 11, 2014. Docs. 1 & 18. On August 19, 2014, Defendants United Services Automobile Association and USAA Casualty Insurance Company moved to dismiss the First Amended Complaint on the grounds that it failed to comply with Rule 8. See Doc. 223. On September 4, 2014, Plaintiffs filed a response to this motion offering to redraft the First Amended Complaint in order to make it “more streamlined, ” and so that the “facts of the background allegations can be tied more clearly to the different claims for relief.” Doc. 291 at 30-31. In light of these representations, the Court ordered the First Amended Complaint stricken and granted leave for Plaintiffs to file a Second Amended Complaint. Doc. 304. On October 14, 2014, Plaintiffs filed their Second Amended Complaint, see Doc. 339, and on November 24, 2014 Plaintiffs filed a stipulated motion to file a Third Amended Complaint in order to make numerous corrections. See Docs. 376, 377. This motion was granted and Plaintiffs’ Third Amended Complaint (“TAC”) was filed on November 25, 2014. Doc. 380.

On December 4 and 5, 2014, certain defendants filed numerous motions to dismiss the Third Amended Complaint on various bases. See Docs. 389-392, 394-98, 400, 402, 406, 410-12; see generally Doc. 419. In particular, certain defendants who do not sell insurance in Colorado moved to dismiss for lack of personal jurisdiction. See Doc. 389. Defendant State Farm filed a motion to dismiss on behalf of all Defendants (see Doc. 419 at 1), arguing that the TAC fails to comply with Rule 8 and fails to state any claim for relief. See Doc. 390. Certain defendants filed a motion to dismiss arguing that the Plaintiffs have failed to state any claim for relief against them because they had no contract, transaction, or relationship with the named plaintiffs at all. See Doc. 392. Plaintiffs filed an omnibus response to the various motions to dismiss on June 2, 2015, see Doc. 445, and Defendants filed their replies on June 15, 2015. See Docs. 458-462, 464-65. This opinion addresses State Farm’s motion to dismiss, which argues that each of Plaintiffs’ 23 claims for relief should be dismissed under Rule 8 and Rule 12(b)(6). Doc. 390.


I. Rule 8

Rule 8 requires that Plaintiffs’ complaint provide “a short and plain statement of the claim showing that the pleader is entitled to relief, ” with allegations that are “simple, concise, and direct.” Fed.R.Civ.P. 8(a)(2), (d)(1). I find that Plaintiffs’ 260 page, 1, 363 paragraph TAC fails to meet this standard.

In the first place, the sheer length of Plaintiffs’ complaint (260 pages and 1, 363 numbered paragraphs) suggests that Plaintiffs have failed to comply with Rule 8. See Mann v. Boatright, 477 F.3d 1140, 1148 (10th Cir. 2007) (affirming dismissal of 99-page complaint because “[i]n its sheer length, [plaintiff] has made her complaint unintelligible ‘by scattering and concealing in a morass of irrelevancies the few allegations that matter’” (citation omitted)); Schupper v. Edie, 193 F. App’x 744, 745-46 (10th Cir. 2006) (unpublished) (affirming dismissal of 38-page complaint plus 120 pages of exhibits as “overly long” and “prolix”); Luciano v. Perez, No. 06-cv-01284, 2007 WL 1306476, at *2 (D. Colo. May 3, 2007). While it is true that “in complex cases, the complaint will be more extended and may require greater particularity, ” In re: Williams Sec. Litig., 339 F.Supp.2d 1242, 1268 (N.D. Okla. 2003), as Defendants point out, there are numerous sections of the TAC which are of questionable relevance to any of the claims asserted. See, e.g., TAC ¶¶ 235-42, 352, 385, 599-600 (discussing the Enron bankruptcy and California electricity market); id. at ¶¶ 577-78 (Australian floods and brush fires); id. at ¶¶ 525-564 (promulgation of New York regulations on disclosure of insurance sales agents’ compensation); id. at ¶¶ 604-620 (describing a 1997 felony insurance fraud case involving State Farm). In addition, there is critical information missing from the TAC - although Plaintiffs bring breach of contract claims, see TAC ¶¶ 1249-1302, and allege that certain terms of their policies were unclear, see TAC ¶¶ 1218, 1240, they nowhere attach or quote their insurance contracts themselves, which are central to their claims against the Selling Defendants.

More importantly, the TAC fails to satisfy Rule 8 because of its repeated reference to all 113 “Defendants” as a group. The 113 Defendants include not only the 10 Selling Defendants who sold insurance policies to the named Plaintiffs, but also a consulting firm, see TAC ¶ 87, scores of other insurance companies, holding companies, and the ACORD organization itself. See TAC ¶ 28-140. Rather than “explain what each defendant did to [each plaintiff]; when the defendant did it; [and] how the defendant’s action harmed [each plaintiff], ” Nasious v. Two Unknown B.I.C.E. Agents, 492 F.3d 1158, 1163 (10th Cir. 2007), Plaintiffs repeatedly bring their claims against “Defendants” as an undifferentiated group. See, e.g., TAC ¶¶ 1178, 1196, 1218. For example, although only a small minority (10 out of 113) of the Defendants are alleged to have sold one of the named Plaintiffs an insurance policy, Plaintiffs repeatedly state allegations that do not make sense for the Non-Selling Defendants. See, e.g., TAC ¶ 1252 (“Defendants informed Plaintiffs at the time of the claim that the actual cash value of the property was the true value of their property.”);¶ 1285 (“Defendants breached their obligations under the policy by valuing the properties for loss adjustment purposes by a methodology or methodologies independent of and without regard for the Stated Amount for which the properties were insured”); ¶ 1309 (“Defendants and Plaintiffs were parties to a valid property and casualty insurance contract.”). This type of group pleading violates Rule 8. See Robbins v. Oklahoma, 519 F.3d 1242, 1250 (10th Cir. 2008); Chambers v. Cooper, No. 13-cv-00393, 2014 WL 561371, at *1 (D. Colo. Feb. 12, 2014).

In addition, Plaintiffs’ TAC violates Rule 8 through repeated use of impermissible shotgun pleading. Each of Plaintiffs’ claims for relief incorporates by reference the whole of their 1, 363 paragraph Complaint. See, e.g., TAC. ¶¶ 1085, 1105, 1118, 1134, 1147, 1164, 1176, 1183, 1195, 1207, 1217. To take but one example, Plaintiffs’ claim for negligent hiring incorporates by reference the balance of the Complaint. See TAC ¶ 1316. But the Court has been unable to locate any factual allegations whatsoever in the TAC regarding the hiring of any specific employees of any of the 113 defendants. Similarly, Plaintiffs’ claim for outrageous conduct incorporates the entire TAC and alleges that “[t]he above-described actions of the Defendants were extreme and outrageous.” TAC ¶ 1324. This type of shotgun pleading, which forces the Defendants and the Court to wade through hundreds of paragraphs of factual allegations in search of those that are alleged to support the various elements of 23 distinct claims for relief, violates Rule 8. See Greenway Nutrients, Inc. v. Blackburn, 33 F.Supp.3d 1224, 1243 (D. Colo. 2014); Gen. Steel Domestic Sales, LLC v. Steelwise, LLC, No. 07-cv- 01145, 2008 WL 2520423, at *3 (D. Colo. June 20, 2008); Houston v. Mile High Adventist Acad., 846 F.Supp. 1449, 1454 (D. Colo. 1994).

Even though I find that the TAC fails to comply with Rule 8, this opinion will proceed to analyze the merits of Plaintiffs’ claims. See Houston, 846 F.Supp. at 1454.

II. Claims 1-5 - RICO and the COCCA

Plaintiffs’ first five claims for relief allege violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961-1968, and the Colorado Organized Crime Control Act (“COCCA”), C.R.S. § 18-17-101-109.

a. Rule 9(b)

The elements of a civil RICO claim are (1) investment in, control of, or conduct of (2) an enterprise (3) through a pattern (4) of racketeering activity. 18 U.S.C. § 1962(a), (b), & (c); see Tal v. Hogan, 453 F.3d 1244, 1261 (10th Cir. 2006). “Racketeering activity” is defined in 18 U.S.C. § 1961(1)(B) as any “act which is indictable” under federal law and specifically includes mail fraud and wire fraud. Tal, 453 F.3d at 1261. Mail fraud requires that the plaintiff allege “(1) the existence of a scheme or artifice to defraud or obtain money or property by false pretenses, representations or promises, and (2) use of the United States mails for the purpose of executing the scheme.” Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 892 (10th Cir. 1991). The particularity requirement of Rule 9(b) applies to claims of mail and wire fraud. Robbins v. Wilkie, 300 F.3d 1208, 1211 (10th Cir. 2002). Thus, “a complaint alleging fraud [must] ‘set forth the time, place and contents of the false representation, the identity of the party making the false statements and the consequences thereof.’” Koch v. Koch Indus., 203 F.3d 1202, 1236 (10th Cir. 2000) (citation omitted).

Defendants argue that Plaintiffs have failed to satisfy Rule 9(b) with respect to the required predicate acts of mail and wire fraud because they allege only “millions” of transmissions of ACORD “standards, ” “best practices, ” advertising, and policies to consumers, and fail to “identify which defendants were responsible for what transmissions or mailings” or to “provide any information as to what was said and when and how it was supposedly fraudulent.” Doc. 390 at 26; see TAC ¶ 209, 272, 304, 316-17, 562, 576, 1093-94. Defendants further argue that the section of the TAC dealing with the insurance claims of the named Plaintiffs “do not identif[y] any particular act of mail or wire fraud by any Defendant, much less specif[y] the number of mailings or wires, the precise dates, and how they further the scheme, as required to state a RICO mail or wire fraud claim.” Doc. 390 at 28.

Plaintiffs respond that they have alleged the existence of a “scheme . . . to defraud” because they allege that Defendants, “through knowledgeable participation in the ACORD standards and framework, ” have engaged in concerted action to confuse and defraud insurance purchasers. Doc. 447-1 at 5. Plaintiffs also argue that because they allege “collective action” in producing the standards, further specificity as to the role of each Defendant is not required. Id. at 8. With respect to the second element of mail fraud, Plaintiffs allege that ACORD “support[s] its standard framework and transactions through routine mailings and wires, ” and direct the Court to “Appendix 12” with “regard to the specifics.” Id. at 9-10, 15. Plaintiffs also argue that further specificity with regarding to the individual Defendants is not required because of Plaintiff’s allegations of a conspiracy under Pinkerton v. United States, 328 U.S. 640 (1946). Id. at 15-16. Finally, Plaintiffs appear to suggest that they need not plead the specific timing, content, and authorship of the alleged misrepresentations under Rule 9(b). Id. at 16-20.

I find that the Plaintiffs have not satisfied Rule 9(b) in their allegations of mail and wire fraud. Plaintiffs’ vague allegations are plainly insufficient because they do not specify the “who, what, when, where and how of the alleged fraud.” United States ex rel. Schwartz v. Coastal Healthcare Group, Inc., 232 F.3d 902 (10th Cir. 2000) at *3 (unpublished); see, e.g., TAC ¶¶ 209 (alleging “multiple millions of transactions and communications transmitted through wires, mail, and couriers over the past ten years”), ¶ 304 (alleging “other forms of wire transfer that have transmitted these standards through millions of enterprise transactions and enterprise communications”), ¶ 316 (alleging “millions of ACORD standard forms and standard communications sent between enterprise participants”), ¶¶ 272, 317, 562, 576, 1093-94.

Plaintiffs’ response brief attaches an “Appendix 12” which purports to provide more detail “with regard to the specifics” of Plaintiffs’ fraud allegations. Doc. 445-12. But the vast majority of these “specifics, ” to the extent they describe mail or wire communications by the Defendants at all (and many do not, e.g., TAC ¶¶ 641, 677, 697, 707, 708, 712, 818, 865, 914, 947), merely reference ordinary letters and emails sent by the Selling Defendants as part of the processing of the named Plaintiffs’ insurance claims. See, e.g., TAC ¶¶ 640 (letter from defendant informing plaintiffs that they “needed to repair or replace within two years to get above the Actual Cash Value of the property”); ¶ 668 (plaintiff received “an estimate sent to her by electronic mail”); ¶ 771 (plaintiffs were “sent payouts for cleanup and tree damage”); ¶ 797 (defendant sent plaintiff a copy of her “policy via FedEx”); ¶¶ 673, 695, 751, 766, 802, 824, 845, 867, 916. Plaintiffs simply do not allege, and appear not to dispute that they have not alleged, that anything about these communications was fraudulent. In fact, under Plaintiffs’ own theory of the case, the deception occurred regarding the meaning of various terms in their insurance policies, and by the time Plaintiffs had suffered their losses and were in the process of pursuing their claims, that deception had already been accomplished. See, e.g., TAC ¶ 391.

Plaintiffs’ Appendix 12 does include a very few vague accusations of misrepresentations. See, e.g., TAC ¶ 698 (USAA “insisted all was fine”); ¶ 699 (“people on the telephone . . . insisted everything was in order”); ¶ 743 (plaintiff “spoke with a woman who assured her that they had adequate coverage”). These few allegations plainly do not meet the requirements of Rule 9(b).

In addition, Plaintiffs’ Appendix 12 identifies “predicate acts of omission” with respect to each named Plaintiff. See Doc. 445-12. With respect to what should have been disclosed, Plaintiffs reference the section of their TAC describing insurance industry practices related to replacement cost and underinsurance. In particular, Plaintiffs allege that Defendants purposefully underinsure homeowners, do not disclose the requirement that a home be rebuilt within a short time frame to obtain the “replacement cost, ” or how replacement costs and actual cash values are calculated and depreciated. See TAC ¶¶ 401-481. For each named Plaintiff, Plaintiffs then identify “Who” should have made the disclosure and “When” by citing the various paragraphs of their TAC identifying the insurance agents and representatives with whom each named Plaintiff dealt and the circumstances of the handling of their claims. See Doc. 445-12.

With respect to these alleged omissions, at least one court in this district has suggested that Plaintiffs may plead a RICO violation based on a “scheme to defraud, ” where one “person defrauded another, yet did so without actually making any affirmative misrepresentation.” L-3 Commc'ns Corp. v. Jaxon Eng'g & Maint., Inc., 863 F.Supp.2d 1066, 1078 (D. Colo. 2012); see U.S. v. Cronic, 900 F.2d 1511, 1513-14 (10th Cir.1990). However, where violation of the mail fraud statute is based on omissions rather than affirmative misrepresentations, “there can be no fraud absent a duty to speak.” United States v. Sharp, 749 F.3d 1267, 1280 (10th Cir. 2014); see United States v. Gallant, 537 F.3d 1202, 1228 (10th Cir. 2008). Plaintiffs allege that Defendants’ agents failed to explain or disclose various definitions and policy terms, see TAC ¶¶ 401-481, but Plaintiffs do not cite any source of a duty to disclose this information. See BancOklahoma Mortgage Corp. v. Capital Title Co., 194 F.3d 1089, 1105 (10th Cir. 1999) (“[A] duty to disclose arises only when a confidential relationship exists between the parties, i.e., a fiduciary relationship, or when one party has superior information not ...

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