Toffel v. Nationwide Mutual Insurance Company et al

Filing 22

MEMORANDUM OPINION Signed by Chief Judge Karon O Bowdre on 8/15/16. (SAC )

FILED
2016 Aug-15 AM 10:36
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
ANDRE M. TOFFEL, in his capacity as
Trustee of the Bankruptcy Estate of
NINETEENTH STREET
INVESTMENTS, INC.,
Plaintiff,
v.
NATIONWIDE MUTUAL INS. CO., et
al.,
Defendants.

]
]
]
]
]
]
]
]
]
]
]
]
]

Case No.: 2:15-cv-01669-KOB

MEMORANDUM OPINION
This matter is before the court on the “Defendants’ Motion to Dismiss” and the Plaintiff’s
“Motion for Leave to Amend Complaint,” both filed on October 9, 2015. (Docs. 9 & 10).
This case began as an Adversary Proceeding in the United States Bankruptcy Court for
the Northern District of Alabama. Following this court’s withdrawal of the reference from the
bankruptcy court (doc. 7), the Defendants moved to dismiss the Plaintiff’s Complaint, and the
Plaintiff moved to amend his Complaint. Defendants argue that the Plaintiff’s Complaint should
be dismissed for lack of service of process, untimeliness under the applicable statute of
limitations, and for failure to state a claim. Plaintiff, on the other hand, seeks to amend his
Complaint by restating his existing claims, adding a party as a Defendant, and adding and
deleting claims. Because leave to amend should not be granted where the amendment would be
futile, the Plaintiff has acted with undue delay, or the amendment would be unduly prejudicial to
the Defendants, the court considers both the Defendant’s Motion to Dismiss and the Plaintiff’s
1

Motion for Leave to Amend together.
For the reasons set out in this Memorandum Opinion, the court finds that the Defendants’
Motion to Dismiss is due to be GRANTED and that the Plaintiff’s Motion for Leave to Amend is
due to be DENIED.
I.

Procedural History and Facts
In 2004, Nineteenth Street Investments began operating a convenience store at 600 14th

Street in Bessemer, Alabama, known as the 14th Street BP. In approximately October 2004,
Nineteenth sought to purchase general liability coverage and liquor liability coverage from
Nationwide Mutual Insurance Company, Patricia Donalson, and the Pat Donalson Agency – the
Defendants in this action. The Defendants issued an insurance policy, which included liquor
liability insurance coverage, for the premises located at 600 14th Street, Bessemer, Alabama. The
named insured on the policy, however, was an entity known as Sabbah Brothers Enterprises, Inc.
(“SBE”), not Nineteenth Street Investments. SBE is a related entity to Nineteenth Street. Ibrahim
Sabbah is the owner, sole shareholder, and director of both SBE and Nineteenth Street. The
Nationwide policy for SBE provided liquor liability coverage in the sum of $1,000,000 for each
occurrence and $1,000,000 in the aggregate. The insurance policy was renewed annually, at least
through April 2008.
On or about May 2, 2007, three teens were injured and another teen died in an automobile
accident. Those teens alleged that the accident was caused by alcohol consumption and that the
14th Street BP had illegally sold the minors alcohol. The injured teens and their representatives
brought four state law suits against Nineteenth Street, SBE, and Sabbah individually. Each of the
lawsuits alleged that Nineteenth, SBE, and Sabbah were responsible for the teens’ injuries under
2

Alabama’s Dram Shop laws. Each of the lawsuits also alleged that Nineteenth, SBE, and Sabbah
were related entities, and that Plaintiffs should be entitled to pierce the corporate veil to hold the
corporate entities as well as Sabbah in his individual capacity liable.
Nineteenth Street requested that Nationwide provide it defense and indemnity in each of
the lawsuits, pursuant to the terms of the insurance policy for the 14th Street BP. On July 19,
2007, Nationwide sent Nineteenth Street a letter indicating that it would not defend Nineteenth
Street in the state court lawsuits. Nationwide explained that after a review, it had determined that
“there is no coverage for The Nineteenth Street Investments, Inc. Therefore, Nationwide
respectfully disclaims coverage for the claim submitted as to The Nineteenth Street Investments,
Inc.” (Doc. 9-1, at 16).1
During the course of the state court actions, the Plaintiffs offered to settle all claims
against Sabbah, SBE, and Nineteenth Street for an amount within the limits of the Nationwide
policy. Nationwide refused to pay the settlement demands made against any of the Defendants.
Nineteenth Street Investments filed for Chapter 7 bankruptcy on September 9, 2011. On
or about February 8, 2013, the teens in the state court cases received jury verdicts totaling
$15,150,000.00.
1

“The district court generally must convert a motion to dismiss into a motion for
summary judgment if it considers materials outside the complaint.” Day v. Taylor, 400 F.3d
1272, 1275–76 (11th Cir. 2005). However, the Eleventh Circuit has held that “a document
attached to a motion to dismiss may be considered by the court without converting the motion
into one for summary judgment . . . if the attached document is: (1) central to the plaintiff's
claim; and (2) undisputed.” Horsley v. Feldt, 304 F.3d 1125, 1134 (11th Cir. 2002).
“‘Undisputed’ in this context means that the authenticity of the document is not challenged.” Id.
In the instant case, Nationwide’s letter denying coverage of Nineteenth Street’s claim is
central to Plaintiff Andre Toffel’s claim. Additionally, the authenticity of the letter is undisputed.
Therefore, the court may properly consider Nationwide’s letter without converting the
Defendants’ Motion to Dismiss into a motion for summary judgment.
3

On September 6, 2013, Plaintiff Andre Toffel, in his capacity as Trustee of the
Bankruptcy Estate of Nineteenth Street Investments, filed an Adversary Proceeding in
bankruptcy court against Defendants Nationwide Mutual Insurance Company, Patricia Donalson,
and the Pat Donalson Agency. Toffel brought claims for Negligent/Wanton Failure to Procure
Insurance Coverage; Breach of Contract; Bad Faith Refusal to Defend, Indemnify and Settle; and
Recovery of Property of Estate.
Valrey W. Early, III, who was Toffel’s former attorney, executed a Certificate of Service
dated September 10, 2013, which indicated that he had mailed summonses to Nationwide, c/o its
registered agent CT Corporation System; Patricia Donalson; and the Pat Donalson agency. See
(Doc. 16-1). Early, however, did not file this Certificate of Service with the bankruptcy court
until November 11, 2014.
On November 10, 2014, Valrey Early emailed Defendants’ counsel, indicating that,
because Defendants had not filed an Answer, he intended to file a Motion for Entry of Default in
the Adversary Proceeding. After receiving this email, Defendants’ counsel expressed her concern
that service had not been perfected, and Plaintiff’s counsel indicated that the Certificates of
Service had mistakenly not been filed. Early stated that he handed the Certificates of Service to a
paralegal to file at the time of service, and she did not do it. Realizing the mistake, Early filed the
Certificates of Service on November 11, 2014.
On November 12, 2014, after being alerted to the possibility of a Motion for Default,
Defendants’ counsel filed in the bankruptcy court a Motion to Dismiss the Adversary Proceeding,
making the same arguments that are now before this court. Plaintiff never responded to the
Defendants’ Motion to Dismiss in the bankruptcy court.
4

Toffel filed a Motion to Withdraw the Reference on September 23, 2015, which this court
granted on October 8, 2015. On October 9, 2015, Defendants filed the Motion to Dismiss and
Plaintiff filed the Motion for Leave to Amend that are the subject of this Opinion. Those Motions
have both been fully briefed.
II.

Legal Standard
A.

Motion to Dismiss

A Rule 12(b)(5) motion to dismiss attacks the sufficiency of service of process. Under
Federal Rule of Civil Procedure 4(m), “[i]f a defendant is not served within 120 days after the
complaint is filed, the court--on motion or on its own after notice to the plaintiff--must dismiss
the action without prejudice against that defendant or order that service be made within a
specified time.”2 The court must, however, extend the time for service if the plaintiff shows good
cause for his failure to serve the defendant. Fed. R. Civ. P. 4(m). Federal Rule of Bankruptcy
Procedure 7004(a)(1) states that Federal Rule of Civil Procedure 4(m) applies in adversary
proceedings.
A Rule 12(b)(6) motion to dismiss attacks the legal sufficiency of the complaint.
Generally, the Federal Rules of Civil Procedure require only that the complaint provide “‘a short
and plain statement of the claim’ that will give the defendant fair notice of what the plaintiff’s
claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957)
(quoting Fed. R. Civ. P. 8(a)). The Supreme Court explained that “[t]o survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to
2

Rule 4(m) now provides that a defendant must be served within 90 days; however, at the
time the Complaint was filed and allegedly served upon defendants, the 120 day rule was in
place.
5

relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting and
explaining its decision in Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). If the court
determines that the well-pleaded facts, accepted as true, do not state a claim that is plausible, the
claim must be dismissed. Id. at 679.
“A statute of limitations bar is ‘an affirmative defense, and . . . plaintiff[s][are] not
required to negate an affirmative defense in [their] complaint.’” La Grasta v. First Union Sec.,
Inc., 358 F.3d 840, 845 (11th Cir. 2004) (quoting Tregenza v. Great Am. Comm. Co., 12 F.3d
717, 718 (7th Cir. 1993)). “[A] Rule 12(b)(6) dismissal on statute of limitations grounds is
appropriate only if it is apparent from the face of the complaint that the claim is time-barred.” La
Grasta, 358 F.3d at 845 (internal citations and quotations omitted).
B.

Motion for Leave to Amend

Federal Rule of Civil Procedure 15 provides that a party may amend his Complaint “once
as a matter of course within . . . 21 days after serving it, or . . . if the pleading is one to which a
responsive pleading is required, 21 days after service of a responsive pleading . . . .” Fed. R. Civ.
P. 15(a)(1). In all other cases, a party must obtain leave of court to amend his Complaint. “The
court should freely give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2). This “rule
contemplates that leave shall be granted unless there is a substantial reason to deny it.”
Halliburton & Assoc., Inc. v. Henderson, Few & Co., 774 F.2d 441, 443 (11th Cir. 1985).
Substantial reasons justifying the denial of leave to amend include “undue delay, bad faith
or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by virtue of allowance of the

6

amendment, futility of amendment, etc. . . . .” Foman v. Davis, 371 U.S. 178, 182 (1962).
III.

Discussion
A.

Motion to Dismiss
1.

Service of Process

The Defendants first argue that the court should dismiss this case because they have not
been properly served.
The Defendants make two sets of arguments: one based on Plaintiff’s alleged failure to
comply with the procedural requirements of Federal Rule of Bankruptcy Procedure 7004 and one
based on Defendants’ assertions that they did not ever receive the summonses and Complaints
that were allegedly mailed to them.
The court finds that the first set of these arguments lacks merit.
Federal Rule of Bankruptcy Procedure 7004(b)(1) provides that service may be made by
first class mail upon an individual “by mailing a copy of the summons and complaint to the
individual’s dwelling house or usual place of abode or to the place where the individual regularly
conducts a business or profession.” Rule 7004(b)(3) provides that service may be made by first
class mail upon a corporation, partnership, or other unincorporated association “by mailing a
copy of the summons and complaint to the attention of an officer, a managing or general agent, or
to any other agent authorized by appointment or by law to receive service of process and, if the
agent is one authorized by statute to receive service and the statute so requires, by also mailing a
copy to the defendant.”
Defendants argue that service on Nationwide was improper because it was mailed only to
7

its registered agent CT Corporation System, and Rule 7004(b)(3) provides that service to an
agent also requires a copy to be mailed to the Defendant. Defendants misstate the rule. Rule
7004(b)(3) provides that “if the agent is one authorized by statute to receive service and the
statute so requires,” a copy of the summons and Complaint must also be mailed to the
Defendant. (emphasis added). Alabama Code § 10A-1-5.31 requires Nationwide to designate an
agent for service of process, but does not require that a copy also be mailed to the Defendant.
Additionally, Federal Rule of Civil Procedure 4(e)(2)(C) authorizes service upon an agent, but
contains no requirement that the Defendant also be served. Accordingly, this argument lacks
merit.
Defendants next argue that service on Patricia Donalson was improper under Rule
7004(b)(3) because she is an individual and Rule 7004(b)(3) provides for service by first class
mail to corporations. This argument is without merit because service upon individuals by mail is
allowed under Rule 7004(b)(1).
Defendants also argue that service on the Pat Donalson Agency was improper because
Rule 7004(b)(3) requires service on a corporation, partnership, or other association to be mailed
“to the attention of an officer, a managing or general agent, or to any other agent authorized by
appointment or by law to receive service of process,” and the Certificate of Service for the Pat
Donalson Agency does not show that service was mailed to an officer or agent of the agency.
While this rule does state that service should be mailed to the attention of an officer or agent, the
failure to properly address service to an officer or agent does not negate the effectiveness of
service. See In re Premium Sales Corp., 182 B.R. 349, 351 (Bankr. S.D. Fla. 1995) (“It makes
little sense to construe [rules relating to service of process] technically when actual notice has
8

been received; to do so would be inconsistent with the spirit of the federal rules as expressed in
Rule 1.”) (citations omitted). Had the summons allegedly mailed to the Pat Donalson Agency
been delivered, Patricia Donalson would have received the summons regardless of whether the
summons was designated to her attention. Accordingly, the court finds that this argument about
technical compliance with the statute also lacks merit.
The Defendants next contend that they never received the summonses and Complaints
that the Plaintiff’s counsel allegedly mailed to them. The court finds merit in this argument.
Defendant Patricia Donalson and Mara Velsaco, the Corporate Operations Manager for
CT Corporation System, have offered signed, sworn declarations, indicating that they have no
record of ever receiving a summons in this matter. See (Doc. 9-2). Donalson states that her
“routine practice is to forward any legal papers to Nationwide Mutual Insurance Company” and
that, had she received a summons in this matter, she “would have immediately contacted
Nationwide Mutual Insurance Company and forwarded the documents to it for advice.” (Id., at
6). Despite this practice, Donalson contends that she has no record of receiving a summons or
forwarding the summons to Nationwide.
Velasco likewise explains that CT Corporation “maintains records of all documents it
receives in its capacity as a registered agent for businesses all over the country. These records are
made by employees of CT Corp. at or near the time the documents are received by CT Corp.”
(Id., at 10). CT Corporation was Nationwide’s registered agent and “maintain[ed] records of all
documents that it received for Nationwide as its registered agent.” (Id.). Despite keeping these
records, Velasco states that CT Corporation has no records of ever receiving a Complaint or

9

summons for Nationwide in this case.
The court recognizes that “[a]n executed return of service is prima facie evidence of valid
service which may be overcome only by strong and convincing evidence.” In re Premium Sales
Corp., 182 B.R. at 351. However, a return of service is typically executed by a process server
who can attest that the summons and Complaint were delivered to a particular person on a
particular date and time. The return of service is also typically filed at or near the time of service.
The circumstances surrounding Plaintiff’s Certificates of Service in the instant case are
far weaker than the normal case involving an executed return of service. The Certificates of
Service in this case were completed by the Plaintiff’s attorney, not by a process server. Although
this method of service is an acceptable practice, Plaintiff’s counsel did not file the Certificates at
or near the time of service; he filed them fourteen months after the date on which he allegedly
mailed the summonses and Complaints. The court questions whether the late-filed Certificates of
Service in this case constitute prima facie evidence of valid service. However, even if these
Certificates do establish prima facie evidence of valid service, the court finds that the Defendants
have presented strong and convincing evidence, sufficient to rebut this presumption of effective
service.
The circumstances of this case as a whole support the conclusion that the Defendants
were not served. First, in signed, sworn statements, the Defendants have explained in detail their
normal procedures upon receipt of a summons. These explanations give credence to the
conclusion that if the Defendants had been served, they would have some record of receiving the
summons.

10

Second, the Defendants are sophisticated business people who are familiar with handling
summonses. The Pat Donalson Agency and Pat Donalson are an insurance agency and its owner
who have a routine practice for handling summonses. CT Corporation is a company whose sole
business purpose is to receive service of process on behalf of its customers. The court finds it
unlikely that all of these sophisticated Defendants would have no record of service if they had in
fact been served.
Third, the fact that none of the three Defendants received the summons and Complaint
suggests that the summons and Complaint were not mailed.
Finally, the suspicious circumstances surrounding the filing of the Certificates of Service
support the conclusion that the Defendants were not served. The fact that the Certificates of
Service executed by Valrey Early were filed over a year after the date upon which service was
allegedly perfected suggests that perhaps the summonses and Complaints were not actually
mailed as indicated in the Certificates of Services.
The court finds that these circumstances considered as a whole constitute strong and
convincing evidence that the Defendants were not served. Under Federal Rule of Civil Procedure
4(m), “[i]f a defendant is not served within 120 days after the complaint is filed, the court . . .
must dismiss the action without prejudice against the defendant or order that service be made
within a specified time.” (emphasis added).
Because the 120 day deadline for service expired more than two years ago – long before
the Defendants filed their Motion to Dismiss in the bankruptcy court and long before this court
withdrew the reference from the bankruptcy court –, the court finds that the prejudice caused to
the Defendants by the Plaintiff’s lack of service cannot be cured by ordering the Plaintiff to now
properly serve the Defendants within a specified period of time. The court also finds that the
11

Plaintiff has not shown good cause for his failure to properly serve the Defendants.
Accordingly, the court finds that the Plaintiff’s Complaint is due to be dismissed under
Federal Rules of Civil Procedure 12(b)(5) and 4(m) for insufficient service of process.
2.

Statute of Limitations

Alternatively, even if the Defendants had been properly served, the court finds that the
Defendants’ Motion to Dismiss is due to be granted because the Plaintiff’s claims are barred by
the applicable statute of limitations.
In his Complaint, Plaintiff Andre Toffel asserts claims for negligent/wanton failure to
procure insurance coverage, breach of contract, and bad faith refusal to defend, indemnify, and
settle. The Defendants contend that each of these claims are barred by the statute of limitations.
In his proposed Amended Complaint, Toffel no longer seeks to assert a claim for breach of
contract. Thus, the breach of contract claim is no longer at issue. However, the court finds that
the remaining negligent failure to procure insurance coverage claim and the bad faith refusal to
defend claim are untimely under the applicable statute of limitations.
a.

Negligent Failure to Procure Insurance

Under Alabama law, the statute of limitations applicable to negligence claims, including
claims for negligent failure to procure insurance coverage, is two years. Ala. Code § 6-2-38;
Bush v. Ford Life Ins. Co., 682 So. 2d 46, 47 (Ala. 1996). The statute of limitations period for a
negligent procurement claim begins “when a loss that would trigger liability under the policy
occurs” and when the insurer notifies the insured that it will not honor his claim. Id.
In the instant case, Nationwide informed Nineteenth Street Investments on July 19, 2007
that it would not honor its claim for the loss related to the car accident in the state court law suits
12

against Nineteenth Street. In its July 19, 2007 letter to Nineteenth Street, Nationwide stated in
clear terms: “[T]here is no coverage for The Nineteenth Street Investments, Inc. Therefore,
Nationwide respectfully disclaims coverage for the claim submitted as the Nineteenth Street
Investments, Inc.” (Doc. 9-1, at 16).
Thus, the cause of action for Nineteenth Street’s negligent failure to procure insurance
claim accrued on July 19, 2007, when Nationwide informed Nineteenth Street that it would not
honor its claim. The statute of limitations period for Nineteenth Street’s negligent procurement
claim expired on July 19, 2009, two years after the claim accrued. Consequently, when Trustee
Andre Toffel filed the adversarial proceeding against the Defendants on September 6, 2013, his
negligent procurement claim was untimely.
b.

Bad Faith Refusal to Defend

Under Alabama law, “‘[t]he statute of limitations for bad faith claims arising on or after
January 9, 1985, is two years.’” Jones v. Alfa Mut. Ins. Co., 875 So. 2d 1189, 1193 (Ala. 2003)
(quoting ALFA Mut. Ins. Co. v. Smith, 540 So. 2d 691, 692 (Ala. 1988)); see also Ala. Code
§ 6-2-38. “‘The cause of action for bad faith refusal to honor insurance benefits accrues upon the
event of the bad faith refusal, or upon the knowledge of facts which would reasonably lead the
insured to a discovery of the bad faith refusal.’” Jones, 875 So. 2d at 1193 (quoting Safeco Ins.
Co. of America v. Sims, 435 So. 2d 1219, 1222 (Ala. 1983)). A letter denying insurance coverage
should be sufficient to “put a reasonable mind on notice of the possible existence of fraud” and,
thus, to trigger the running of statute of limitations for a bad faith refusal claim. Farmers &
Merchants Bank v. Home Ins. Co., 514 So. 2d 825, 831-32 (Ala. 1987).
In the instant case, Nationwide’s July 19, 2007 letter denying coverage was sufficient to

13

put Nineteenth Street on notice of Nationwide’s possible bad faith. Nationwide’s denial is the
event that forms the basis for Toffel’s bad faith claim. Therefore, the court finds that the statute
of limitations for Toffel’s bad faith refusal to defend claim began to run on July 19, 2007 and
expired on July 19, 2009. Toffel’s bad faith claim asserted in the adversarial proceeding filed on
September 6, 2013 was untimely.
c.

Toffel’s Response

Toffel argues in response that, his claims are not barred by the statute of limitations
because Nineteenth Street’s claims did not accrue until a final judgment was entered against it in
the state court lawsuits.
Toffel contends that the Defendants have failed to recognize the distinction between firstparty and third-party insurance cases, and that in third-party insurance cases, the cause of action
does not accrue until a final judgment is entered against the insured.
In support of this argument, Toffel cites third-party failure to settle cases.3 In the context
of third-party failure to settle cases, Alabama courts have held that “a cause of action arising out
of a failure to settle a third-party claim made against the insured does not accrue unless and until
the claimant obtains a final judgment in excess of the policy limits.” Evans, 727 So. 2d at 67.

3

“First-party” insurance claims involve personal or property insurance with a “claim
wherein the insured allege[s] that the insurer ha[s], in bad faith, refused to pay a legitimate claim
made by the insured on his own policy.” Evans v. Mut. Assurance, Inc., 727 So. 2d 66, 68 (Ala.
1999).
“Third-party” failure to settle claims involve liability insurance in “situations where the
insurer wrongfully refuses, either negligently or intentionally, to settle his third party claim
within policy limits and where, as a result, the insured incurs a judgment against him in an
amount in excess of the policy.” Chavers v. Nat’l Sec. Fire. & Cas. Co., 405 So. 2d 1, 5 (Ala.
1981).
14

In his original Complaint, Toffel did not assert a failure to settle claim. Rather, Toffel
asserted claims for negligent failure to procure insurance and bad faith refusal to defend,
indemnify, and settle. Toffel argues, without citing any case law, that the distinction made
between first-party and third-party claims in the failure to settle context applies to claims for
negligent procurement and bad faith refusal to defend as well. Alabama courts, however, have
not pronounced this distinction as broadly as Toffel suggests.
Additionally, this case is distinguishable from the third-party cases that hold that a claim
does not accrue until final judgment. For example, in Evans, a doctor was sued in a wrongful
death action. 727 So. 2d 66. The doctor’s malpractice insurer undertook to represent him with a
reservation of rights in the wrongful death action. The case went to trial, and the jury returned a
verdict against the doctor. While the case was on appeal, the malpractice insurer settled the case
for an amount in excess of the doctor’s $1 million coverage limit. The doctor alleged that his
insurer should have settled the case before trial within his $1 million policy limit. No dispute
existed in Evans as to whether the doctor’s claim was covered. Id.
In the instant case, however, Nineteenth Street knew that Nationwide did not intend to
provide any coverage for its claim or defend it in the state court lawsuits as of the date it sent
Nineteenth Street the denial letter, July 19, 2007. Unlike the insurance company in Evans,
Nationwide did not agree that Nineteenth Street’s claim was covered and did not undertake to
defend the suits against it.
Moreover, in the typical liability insurance contract, “the insured expressly relinquishes to
the insurer the right to control the defense and settlement of any action arising under the contract.

15

The insured’s reliance on the abilities and the good faith of the insurer is therefore necessarily at
a maximum.” Federal Ins. Co. v. Travelers Cas. & Sur. Co., 843 So. 2d 140, 143 (Ala. 2002).
When a third-party files a claim against the insured, the insured sends that claim to the insurer,
and the insurer accepts coverage and controls the defense and settlement of the insured’s case.
The insured will not be injured, if at all, until the insurer fails to settle the case within the
insured’s policy limits.
In the present case, Nationwide never agreed to defend Nineteenth Street in the state court
lawsuits. Nationwide did not take control of the defense and settlement of the state court
lawsuits. Therefore, the policy concerns implicated in the typical third-party failure to settle case
are not present in the instant case. Nineteenth Street was injured, and its cause of action accrued,
on the date that Nationwide denied coverage of its claim, even though the full extent of its
damages were not known until the state court entered judgments against it. See Chandiwala v.
Pate Constr. Co., 89 So. 2d 540, 543 (Ala. 2004) (“A cause of action accrues as soon as the
claimant is entitled to maintain an action, regardless of whether the full amount of the damage is
apparent at the time of the first legal injury.”) (citations omitted). The statute of limitations on
Nineteenth Street’s claim began to run on the date Nationwide denied it coverage. The thirdparty failure to settle cases cited by Toffel are inapplicable to the present case.
Therefore, the court finds that Toffel’s claims against the Defendants are due to be
dismissed because they are barred under the applicable statutes of limitations.4

4

The Defendants also assert that Toffel’s claims are due to be dismissed because Toffel
has failed to state cognizable claims for relief. Because the court finds merit in the Defendants’
service and statute of limitations arguments, it does not need to address the Defendants’ final
argument.
16

B.

Motion for Leave to Amend

In his Motion for Leave to Amend, Plaintiff Andre Toffel asks the court for leave to
amend his original Complaint. In his proposed Amended Complaint, Toffel restates and
restructures his existing claims, adds Nationwide Mutual Fire Insurance Company as a
Defendant, deletes his breach of contract claim, and adds claims for negligent/wanton failure to
settle and equitable reformation.
In determining whether to grant a Motion for Leave to Amend, the court may consider
factors such as “undue delay, bad faith or dilatory motive on the part of the movant, repeated
failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing
party by virtue of allowance of the amendment, futility of amendment, etc. . . . .” Foman, 371
U.S. at 182.
Because the court finds that the Defendants’ Motion to Dismiss is due to be granted for
the reasons stated above, the court additionally finds that an amendment to the Plaintiff’s
Complaint would be futile. The Plaintiffs’ Complaint would still be due to be dismissed pursuant
to Federal Rules of Civil Procedure 4(m) and 12(b)(5) for insufficient service of process. More
significantly, Toffel’s claims that were asserted in his original Complaint for negligent
procurement and bad faith would still be barred under the applicable statutes of limitations.
Toffel’s new claim for negligent/wanton failure to settle would likewise be barred under
the applicable statute of limitations. As discussed previously, Nineteenth Street was injured when
Nationwide refused to provide it with coverage. The accrual rule stated in third-party failure to
settle claims is inapplicable to this case because Nationwide did not agree to defend Nineteenth

17

Street, and Nineteenth Street never relinquished its control or ability to settle the state court
lawsuits. Therefore, the statute of limitations period for Toffel’s negligent failure to settle claim
would have expired as of July 19, 2009 – two years from the date that Nationwide denied
coverage of Nineteenth Street’s claim. Toffel’s adversary proceeding filed in 2013 was untimely.
As to the newly proposed equitable reformation claim, Toffel argues that the claim is
timely, even if the statute of limitations period began to run on July 19, 2007. Toffel contends
that equitable reformation actions are subject to a six-year statute of limitations period, and that
bankruptcy law provides for equitable tolling of statutes of limitations for two years from the
date of the filing of a bankruptcy petition. See Branch Banking & Trust Co. v. McDonald, 2:13CV-000831-KOB, 2013 WL 5719084, at *6 (N.D. Ala. Oct. 18, 2013) (applying six year statute
of limitations to equitable reformation of a mortgage); 11 U.S.C. § 108(a) (“If applicable
nonbankruptcy law . . . fixes a period within which the debtor may commence an action, and
such period has not expired before the date of the filing of the petition, the trustee may
commence such action only before the later of . . . the end of such period . . . or . . . two years
after the order for relief.”); 11 U.S.C. § 301(b) (“The commencement of a voluntary case under a
chapter of this title constitutes an order for relief under such chapter.”).
Nineteenth Street filed for bankruptcy on September 9, 2011. If equitable tolling were to
apply to Toffel’s equitable reformation claim, then it would be timely because Nineteenth Street
filed for bankruptcy before the expiration of the six-year statute of limitations, and the Adversary
Proceeding was filed on September 6, 2013, within two years of Nineteenth Street’s bankruptcy
petition.

18

The court, however, does not need to decide whether equitable tolling applies and
whether Toffel’s proposed equitable reformation claim would be timely. Even if the proposed
equitable reformation claim is not barred by the applicable statute of limitations, Toffel’s
Complaint as a whole is still due to be dismissed for insufficient service of process, and Toffel’s
Motion for Leave to Amend is due to be denied because Toffel has acted with undue delay and
because an amendment would be unduly prejudicial to the Defendants, as the court will set out
below.
The court finds that Toffel has acted with undue delay in moving to amend his Complaint
and in responding to the Defendants’ Motion to Dismiss. The Defendants’ Motion to Dismiss
was filed in bankruptcy court in the Adversary Proceeding on November 12, 2014. Toffel never
responded to the Defendants’ Motion to Dismiss in the bankruptcy court. When this court
withdrew the reference on September 23, 2015 and the Defendants refiled their Motion to
Dismiss, Toffel promptly responded to the Defendants’ Motion to Dismiss and moved to amend
his Complaint in this court. However, Toffel’s promptness here does not excuse his lack of
diligence and undue delay in the bankruptcy court.
In light of Toffel’s undue delay, the court also finds that it would be unduly prejudicial to
the Defendants to allow Toffel to amend his Complaint at this stage. Toffel allowed this
Adversary Proceeding to sit stagnant in the bankruptcy court for two years. Toffel filed the
Adversary Proceeding in September 2013. Toffel took no further action until November 2014,
when his attorney emailed Defendants’ counsel to tell her that he would moving for entry of
default. When Defendants filed a Motion to Dismiss on November 12, 2014, Toffel took no
action again until he moved to withdraw the reference almost a year later. It would be unduly
19

prejudicial to the Defendants to wipe Toffel’s slate clean and to allow Toffel to file an Amended
Complaint when he has not shown diligence in pursuing his claims thus far.
Therefore, because the court finds that Toffel’s proposed amendment would be futile, that
Toffel has acted with undue delay, and that an amendment would be unduly prejudicial to the
Defendants, the court will DENY Toffel’s Motion for Leave to Amend.
IV.

Conclusion
As stated in this Opinion, the court finds that Plaintiff Andre Toffel’s Complaint is due to

be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(5) for insufficient service of
process and Federal Rule of Civil Procedure 12(b)(6) for untimeliness under the applicable
statutes of limitations. The court will, therefore, GRANT the Defendants’ Motion to Dismiss and
will DISMISS this action WITH PREJUDICE.
The court additionally finds that Toffel has acted with undue delay and that his proposed
amendment would be futile and unduly prejudicial to the Defendants. Accordingly, the court will
DENY Toffel’s Motion for Leave to Amend his Complaint.
The court will enter a separate Order along with this Opinion.
DONE and ORDERED this 15th day of August, 2016.

____________________________________
KARON OWEN BOWDRE
CHIEF UNITED STATES DISTRICT JUDGE

20