Pinon Sun Condominium Association, Inc. v. Atain Specialty Insurance Co.

          REPORT AND RECOMMENDATION ON PLAINTIFF AND THIRD-PARTY DEFENDANTS' MOTIONS TO DISMISS PURSUANT TO FED. R. CIV. P. 12(B)(6) (DOCKET NOS. 52 & 64)

          Michael J. Watanabe, United States Magistrate Judge.

         This matter is before the Court on Plaintiff Pinon Sun Condominium Association, Inc. (“Pinion Sun”) and Third-Party Defendants Claim Solutions, LLC, Scott Benglen, Shalz Construction, LLC, and Bradley Shalz's (collectively “Movants”) Motions to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6) (Docket Nos. 52 & 64). In the subject motions, Movants seek to dismiss Defendants and Third-Party Plaintiffs Great Lakes Insurance, SE f/k/a Great Lakes Reinsurance (UK) Plc's (“Great Lakes”), Atain Specialty Insurance Case Company (“Atain”) and Indian Harbor Insurance Company's (“Indian Harbor”) (collectively “Defendants”) Counterclaims and Third-Party Complaints for Damages and Declaratory Judgment (Docket Nos. 12 & 51.). Judge Christine M. Arguello referred the subject motions to the undersigned Magistrate Judge. (Docket No. 82) The Court has reviewed the subject motions (Docket Nos. 52 & 64), Defendants' Responses (Docket Nos. 80 & 84), and Movants' Replies. (Docket Nos. 91 & 92.) The Court has taken judicial notice of the Court's file, and considered the applicable Federal Rules of Civil Procedure and case law. The Court now being fully informed makes the following findings of fact, conclusions of law, and recommendation.

         I. PROCEDURAL AND FACTUAL HISTORY

         a. Procedural History

         Pinon Sun initiated this action on June 30, 2017 by filing a Complaint and Jury Demand against Great Lakes for its unreasonable failure to pay on an insurance policy in the aftermath of a 2016 hail and windstorm. (Docket No. 1.) In response, Great Lakes filed a Counterclaim and Third Party Complaint for Damages and Declaratory Judgment against Pinon Sun; Claim Solutions, LLC and its managing partner, Scott Benglen (collectively “Solutions”); and Shalz Construction LLC and its manager, Bradley Shalz (collectively “Shalz”). (Docket No. 12.) As discussed below, Great Lakes alleges that Pinon Sun and these Third-Party Defendants conspired with each other to commit insurance fraud. Pinon Sun, Solutions, and Shalz filed Answers denying the various claims for relief. (Docket Nos. 19, 32 & 33.) Then, on September 22, 2017, Pinon Sun filed an Amended Complaint (Docket No. 37) which added Atain and Indian Harbor, the excess carriers under the insurance policy, as defendants. Great Lakes and Atain and Indian Harbor subsequently filed fundamentally identical Third-Party Complaints against Pinon Sun and the Third Party Defendants. (Docket Nos. 49 & 51.) Movants now request that all but the breach of contract counterclaims be dismissed for failing to state plausible claims for relief. (Docket Nos. 52 & 64.)

         b. Factual Background

         The following allegations are taken from Defendants' Counterclaims and Third-Party Complaints for Damages and Declaratory Judgment. (Docket Nos. 49 & 51.)

         Defendants issued an All Risk Property Damage Coverage Form, Policy Number AIN11039 (the “Policy”), through the Commercial Industrial Building Owners Alliance, Inc. (“CIBA”) insurance program, to Pinon Sun for a condominium complex it owned in Colorado Springs, Colorado. (Docket Nos. 49 ¶¶ 12-14 & 51 ¶¶ 201-03.)

         On July 28, 2016, Pinon Sun, through Solutions, filed a claim under the Policy for hail loss. (Docket Nos. 49 ¶ 18 & 51 ¶ 207.) Defendants allege that Solutions then entered into a conspiracy with Shalz to commit insurance fraud by claiming an amount for roofing repairs in excess of the actual damage, and then dividing the excess proceeds between themselves. (Docket Nos. 49 ¶ 20 & 51 ¶ 209.) They did this by (1) failing to obtain open competitive bidding for the replacement of the roof; (2) failing to enter into a written contract setting forth the scope of the work and the cost of the services, as required by Colorado law; (3) creating and submitted a false invoice for repairs; (4) making various false claims concerning the siding repairs; and (5) submitting multiple Sworn Statements in Proof of Loss far in excess of the reasonable cost of repair or replacement. (Docket Nos. 49 ¶¶ 21-29 & 51 ¶¶ 210-218.) Defendants allege that Solutions was the agent of Pinon Sun, and therefore Pinon Sun is legally liable for the fraud and misrepresentations of Solutions. (Docket Nos. 49 ¶ 30 & 51 ¶ 219.)

         Defendants assert eight claims for relief: (1) breach of contract against Pinon Sun; (2) fraud and misrepresentation against Pinon Sun, Solutions, and Shalz; (3) insurance fraud against Pinon Sun, Solutions, and Shalz; (4) civil conspiracy against Pinon Sun, Solutions, and Shalz; (5) civil theft against Pinon Sun, Solutions, and Shalz; (6) violation of the Colorado Organized Crime Act, C.R.S. § 18-17-104 (“COCCA”), against Pinon Sun, Solutions, and Shalz; (7) violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962 (“RICO”), against Pinon Sun, Solutions, and Shalz; and (8) for declaratory judgment. (Docket Nos. 49 ¶¶ 34-88 & 51 ¶¶ 223-76.)

         Movants now seek to dismiss all of Defendants' claims for relief, except the breach of contract claim. Movants argue that Defendants' merely cite the elements of each claim without providing a factual basis to support each element.

         II. LEGAL STANDARD

         In evaluating a motion to dismiss under Rule 12(b)(6), a court must accept as true all well-pleaded factual allegations in the complaint, view those allegations in the light most favorable to the plaintiff, and draw all reasonable inferences in the plaintiff's favor. Brokers' Choice of America, Inc. v. NBC Universal, Inc., 757 F.3d 1125, 1135-36 (10th Cir. 2014); Mink v. Knox, 613 F.3d 995, 1000 (10th Cir. 2010). Conclusory allegations are insufficient. Cory v. Allstate Ins., 583 F.3d 1240, 1244 (10th Cir. 2009). Instead, in the complaint, the plaintiff must allege a “plausible” entitlement to relief. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-556 (2007). A complaint warrants dismissal if it fails “in toto to render plaintiffs' entitlement to relief plausible.” Twombly, 550 U.S. at 569 n.14 (italics in original). “In determining the plausibility of a claim, we look to the elements of the particular cause of action, keeping in mind that the Rule 12(b)(6) standard does not require a plaintiff to set forth a prima facie case for each element.” Safe Street Alliance v. Hickenlooper, 859 F.3d 865, 878 (10th Cir. 2017) (citation, internal quotation marks, and alteration omitted). A court may not assume that a plaintiff can prove facts that have not been alleged, or that a defendant has violated laws in ways that a plaintiff has not alleged. Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983); see also Whitney v. New Mexico, 113 F.3d 1170, 1173-74 (10th Cir. 1997) (court may not “supply additional factual allegations to round out a plaintiff's complaint”). The “‘burden[, however, ] is on the moving party to prove that no legally cognizable claim for relief exists.'” Hall v. Oliver, Civil Action No. 15-cv-01949-RBJ-MJW, 2017 WL 1437290, at *4 n.1 (citing 5B Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1357 (3d ed.)).

         III. ANALYSIS

         a. Fraud/Misrepresentation Claims

         Defendants' Second Claims for Relief allege that Pinon Sun, Solutions, and Shalz made false representations of material fact regarding the actual cost and scope of repairs; that Defendants relied on those misrepresentations; and that, as a result, they were damaged in the amount that they paid out under the policy. (Docket Nos. 49 ¶¶44- 53 & 51 ¶¶ 233-41.) In their Third Claims for Relief, they allege that Pinon Sun “and its agents, Solutions[, ] and Shalz, ” conspired to commit insurance fraud by providing “statements in support of a claim for payment of a benefit under the insurance policy in excess of the actual loss.” (Docket Nos. 49 ¶¶ 54-57 & 51 ¶¶ 242-45.)

         Movants argue that Defendants' misrepresentation and insurance fraud claims fail for several reasons. First, they contend that Defendants failed to plead these claims with particularity. Second, they claim that Defendants failed to allege that Shalz is an agent acting on Pinon Sun's behalf, or that Pinon Sun consented to any alleged fraudulent actions by Shalz or Solutions. Finally, Movants state that insurance fraud and claims for misrepresentation are only coverage defenses. Defendants maintain that they sufficiently alleged both claims.

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