Stoner v. Farm Bureau Mutual Insurance Company of Arkansas Inc et al

Filing 60

ORDER granting deft's 40 Motion to Dismiss; pltf's claims for the tort of bad faith and declaratory relief, and pltf's requests for attorney's fees and punitive damages are DISMISSED WITH PREJUDICE. Signed by Judge Billy Roy Wilson on 2/15/13. (vjt)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
EASTERN DIVISION
JENNIE LEE STONER

PLAINTIFF
NO. 2:12-CV-00073-BRW

SOUTHERN FARM BUREAU
CASUALTY INSURANCE COMPANY

DEFENDANT

ORDER
Pending is Defendant’s Motion to Dismiss (Doc. No. 40). Plaintiff has responded and
Defendant has replied.1 For the reasons discussed below, Defendant’s Motion to Dismiss is
GRANTED.
I.

BACKGROUND2
Defendant issued Plaintiff a flood-insurance policy for Plaintiff’s property in Phillips

County, Arkansas. Plaintiff’s property flooded and she submitted a claim for her loss, which
Defendant denied.
Plaintiff sued Defendant claiming Defendant breached the flood-insurance policy and
acted in bad faith. She seeks declaratory relief, compensatory and punitive damages, and
attorney’s fees for the breach and under the Equal Access to Justice Act3 (“EAJA”).

1

Doc. Nos. 49 and 50.

2

Unless noted, all information in the Background section is from Plaintiff’s Complaint
(Doc. No. 1).
3

28 U.S.C. § 2412.
1

Defendant urges me to strike Plaintiff’s request for declaratory relief under Federal Rule
of Civil Procedure 12(f), and to dismiss Plaintiff’s claims for bad faith, punitive damages, and
attorney’s fees under Federal Rules of Civil Procedure 12(b)(6) or 12(c).4
The parties agree to the dismissal of Plaintiff’s claims for bad faith and punitive
damages,5 which leaves the requests for declaratory relief and attorney’s fees.
II.

JURISDICTION
The flood-insurance policy giving rise to Plaintiff’s claims was issued under the National

Flood Insurance Program (the “Program”).6 The Federal Emergency Management Agency
(“FEMA”), which currently administers the Program, has two options for implementing the
Program: Part A and Part B.7
Part A allows a pool of private companies to underwrite flood insurance with optional
financial backing from the government. Section 4053 grants jurisdiction over claims arising
under Plan A.8 Part A proved unworkable and was scrapped by the late 1970s.9 Since then, the
Program has been administered under Part B.10

4

Doc. Nos. 40, 41, 50.

5

Doc. Nos. 40, 49.

6

The Program is authorized under the National Flood Insurance Act of 1968, which is
codified at 42 U.S.C. §§ 4001-4130.
7

Part A is codified at 42 U.S.C. §§ 4051-4056 and Part B at 42 U.S.C. §§ 4071-4072.

8

See Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 166 (3d Cir. 1998).

9

Id.

10

Id.
2

Part B allows the government to underwrite flood insurance with optional administrative
assistance from private companies.11 Under Part B of the Program, the government underwrites
flood insurance policies, but consumers choose between buying flood insurance policies from
FEMA directly, or from private insurance companies known as Write-Your-Own (“WYO”)
companies.12 Section 4072 grants jurisdiction over certain claims arising under Plan B. The
relevant portions of § 4072 provide:
In the event the program is carried out [under Plan B] . . . and upon the disallowance
by the Administrator [of FEMA]13 of any such claim, . . . the claimant . . . may
institute an action against the Administrator [of FEMA] on such claim in the United
States district court for the district in which the insured property or the major part
thereof shall have been situated, and original exclusive jurisdiction is hereby
conferred upon such court to hear and determine such action without regard to the
amount in controversy.14
Plaintiff invokes subject-matter jurisdiction under 42 U.S.C. § 4053.15 Defendant does
not challenge jurisdiction, but suggests that it exists under 42 U.S.C. § 4072.16
Plaintiff’s claims arise out of a policy issued in 2011, under Plan B of the Program.
Section 4053 -- the jurisdictional grant under the now-defunct Part A -- does not confer
jurisdiction here.17

11

42 U.S.C. § 4071.

12

42 U.S.C. § 4081.

13

42 U.S.C. § 4021(a)(6) (defining “Administrator” to mean Administrator of FEMA).

14

42 U.S.C. § 4072.

15

Doc. No. 1.

16

Doc. No. 41 at 4.

17

See, e.g., Stanton v. State Farm Fire and Cas. Co., Inc., 78 F. Supp. 2d 1029, 1034
(D.S.D. 1999).
3

Section 4072 clearly allows suits against the Administrator of FEMA when the
Administrator denies a claim; however, it does not mention claims denied by or actions against
WYO carriers. Defendant has not sued the Administrator of FEMA, nor did the Administrator
disallow Plaintiff’s claim. Concluding that jurisdiction exists under § 4072 might well require
me to ignore its plain language.18 The Eighth Circuit has never addressed the issue, and there is
no consensus among those circuits who have.19 Saving me from such a predicament is 28
U.S.C. § 1331 -- federal-question jurisdiction -- which all courts that have addressed the issue
agree grants jurisdiction over policies issued under the Program. Whether or not § 4072 provides
jurisdiction over suits against a WYO carrier, I will leave for another day for it is clear that I have
jurisdiction under 28 U.S.C. § 1331.20 Satisfied that proper jurisdiction exists, I now turn to the
merits of the Motion.

18

Id. at 1034 (“This Court declines to expand the clear language of § 4072.”).

19

The Seventh Circuit has held that subject-matter jurisdiction does not exist under
§ 4072. Downey v. State Farm Fire & Cas. Co., 266 F.3d 675, 680–81 (7th Cir. 2001).
The Second, Third, and Sixth Circuits have held that jurisdiction does exist under § 4072.
Palmieri v. Allstate Ins. Co., 445 F.3d 179, 181 (2d Cir. 2006); Van Holt, 163 F.3d at 167;
Gibson v. Am. Bankers Ins. Co., 289 F.3d 943, 946–47 (6th Cir. 2002).
The First, Fourth, and Eleventh Circuits have declined to address the issue, noting instead
that federal-question jurisdiction exists under 28 U.S.C. § 1331. McGair v. Am. Bankers Ins. Co.
of Florida, 693 F.3d 94, 98 (1st Cir. 2012); Studio Frames Ltd. v. Standard Fire Ins. Co., 369
F.3d 376, 379–80 (4th Cir. 2004); Newton v. Capital Assurance Co., Inc., 245 F.3d 1306,
1308–09 (11th Cir. 2001).
The Fifth Circuit, despite the large number of NFIP claims brought under § 4072 after
Hurricane Katrina, has not addressed the issue. Caudle Aviation, Inc. v. Hartford Fire Ins. Co.,
No. 06-CV-04653, 2007 WL 60993 (E.D. La. Jan. 5, 2007) (“The circuit courts are divided over
(and the Fifth Circuit has not yet ruled) whether the Act itself grants federal jurisdiction for
breach of contract lawsuits against Write-Your-Own insurers, who issue and administer floodrisk policies as FEMA's fiscal agents.”) (parenthesis in original).
20

See, e.g., Palmieri v. Allstate Ins. Co., 445 F.3d 179, 184 (2d Cir. 2006).
4

III.

DECLARATORY RELIEF
Plaintiff asserts a breach of contract claim in Count I of her complaint and a claim for

declaratory relief in Count II.21 Defendant admits that Plaintiff may properly seek declaratory
relief,22 but argues that the two claims are procedurally incompatible, redundant, and that the
claim for declaratory relief is immaterial; thus, Defendant wants to strike the claim under Rule
12(f).23
A.

Motion to Strike Standard

Striking a pleading or a portion of a pleading is a drastic remedy; therefore, motions to
strike are viewed with disfavor and infrequently granted.24 Nonetheless, district courts have
liberal discretion under Rule 12(f) to strike any redundant, immaterial, impertinent, or scandalous
matter.25 Defendant suggests that Plaintiff’s substantive rights will not be prejudiced by the
dismissal of her request for declaratory relief,26 and Plaintiff does not argue that she would be
prejudiced. Instead, Plaintiff expressed in a January 23, 2012 phone conference, that she hopes
to use the claim for declaratory relief as a means for me to determine whether Defendant
breached the SFIP at issue as a matter of law.

21

Doc. No. 1.

22

Doc. No. 41, at 28.

23

Doc. No. 40.

24

Stanbury Law Firm v. IRS, 221 F.3d 1059, 1063 (8th Cir. 2000).

25

Id.

26

Doc. 50, at 2.
5

B.

Analysis

It is clear there is a dispute about the rights and obligations of the parties under the SFIP.
Yet, Plaintiff has not stated any facts that taken as true would suggest an ongoing need to
interpret the SFIP because of possible future events. Plaintiff will get nothing more from a
declaratory judgment than she would from prevailing on her breach of contract claim -- which
Defendant has not sought to dismiss. Although Plaintiff hopes to have a ruling on the breach of
contract as a matter of law, dismissing the request for declaratory judgment will not prejudice
her, for she may still seek summary judgment.27
In the absence of any readily apparent prejudice, Plaintiff’s claims for declaratory relief
are DISMISSED.
IV.

ATTORNEY’S FEES
Defendant asks that I dismiss Plaintiff’s requests for attorneys fees under Rule 12(b)(6) or

Rule 12(c) because (1) federal law preempts state law to the extent Plaintiff might be entitled to
attorney’s fees under state law; and (2) the EAJA does not apply to suits against WYO
companies, only to suits against the United States or United States agencies or officials.
Plaintiff asserts that state law is not preempted by federal law and the EAJA allows fees
here because a WYO company is the functional equivalent of FEMA -- an agency of the United
States. Plaintiff also adds, that she is entitled to attorney’s fees under common law principles of
equity.28

27

Jakobson Shipyard, Inc. v. Aetna Cas. and Sur. Co., 775 F. Supp. 606, 609
(S.D.N.Y. 1991) (“Where the sole question presented on a motion for summary judgment is the
interpretation of a clear and unambiguous written agreement, the issue is one of law for the court
and may be decided upon a motion for summary judgment.”).
28

Doc. No. 49.
6

A.

Motion to Dismiss Standard

In ruling on a Rule 12(b)(6) or 12(c) motion to dismiss, I must “accept as true all of the
factual allegations contained in the complaint, and review the complaint to determine whether its
allegations show that the pleader is entitled to relief.”29 Conclusory allegations “are not entitled
to the assumption of truth,”30 but all reasonable inferences from the complaint must be drawn in
favor of the nonmoving party.31 A complaint need only contain “a short and plain statement of
the claim showing that the pleader is entitled to relief,”32 but to survive a motion to dismiss, a
complaint must “contain sufficient factual matter, accepted as true, to state a claim to relief that
is plausible on its face.”33 Judgment on the pleadings under Rule 12(c), “is appropriate only
when there is no dispute as to any material facts and the moving party is entitled to judgment as a
matter of law.”34
B.

Analysis

Any rights to attorney’s fees Plaintiff might have are tied to her claim for breach of the
SFIP and the EAJA.

1.

Federal Preemption

29

Schaaf v. Residential Funding Corp., 517 F.3d 544, 549 (8th Cir. 2008).

30

Ashcroft v. Iqbal, 556 U.S. 662, 678-679 (2009).

31

Crumpley-Patterson v. Trinity Lutheran Hosp., 388 F.3d 588, 590 (8th Cir. 2004).

32

Id. (quoting Fed. R. Civ. P. 8(a)).

33

Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

34

Ashley County, Ark. v. Pfizer, Inc., 552 F.3d 659, 665 (2009).
7

Under the Supremacy Clause of the United States Constitution, courts are bound to apply
federal law that preempts state law.35 To determine whether federal law preempts state law, I
must look to Congressional intent. When a federal statute or regulation36 expresses clear intent to
preempt state law, state law must give way to federal law.
I note, the issue here is whether federal law preempts state law regarding disputes arising
from the handling of a claim made on SFIPs issued under the Program. This distinction is
important because, while there may be some dispute whether federal law preempts state-law
procurement claims,37 federal law expressly preempts state-law claims related to the handling of
policy claims.38 Thus, cases related to the procurement of flood insurance offer little guidance.39
The federal law relevant here is found both in a federal regulation and the SFIP that
Plaintiff claims Defendant breached.40 Article nine of the SFIP reads:
This policy and all disputes arising from the handling of any claim under the policy
are governed exclusively by the flood insurance regulations issued by FEMA, the
National Flood Insurance Act of 1968, as amended (42 U.S.C. § 4001 et seq.) and
Federal common law.41

35

U.S. Const., Art. VI, cl. 2.

36

Fid. Fed. Sav. and Loan Ass’n v. de la Cuesta, 458 U.S. 141, 153 (1982) (“Federal
regulations have no less pre-emptive effect than federal statutes.”).
37

Compare Williams v. Stand. Fire Ins. Co., No. 3:12-CV-354, 2012 WL 3779225
(M.D. Pa. Aug. 30, 2012) (holding “state causes of action dealing with procuring a policy are not
preempted”); with Davis v. Nationwide Mut. Fire Ins. Co., 783 F. Supp. 2d 825, 833-34
(E.D. Va. 2011) (concluding that federal law preempts state law with respect to policy issuance
and administration of any SFIP contract issued by a WYO).
38

See Davis, 783 F. Supp. 2d at 832.

39

E.g., Stanton v. State Farm Fire and Cas. Co., Inc., 78 F. Supp. 2d 1029, 1034
(D.S.D. 1999).
40

44 C.F.R. Pt. 61, App. A(1), Article IX.

41

Id. (emphasis added).
8

FEMA clarified that the
policy language pertaining to jurisdiction, venue and applicable law to emphasize
that matters pertaining to the Standard Flood Insurance Policy, including issues
relating to and arising out of claims handling, must be heard in Federal court and are
governed exclusively by Federal law.42
I find the SFIP -- a federal law -- expressly preempts state law with respect to issues
related to and arising out of claims handling. This conclusion is consistent with one reached
recently by Chief Judge Miller in Gunter v. Farmers Ins. Co., Inc.43 Plaintiff disagrees with the
holding in Gunter and urges44 me to rely instead on Stanton v. State Farm Fire and Casualty
Company, Inc.45 But Stanton offers little guidance. First, Stanton, as pointed out in Gunter,
occurred before FEMA added the express preemption in article nine of the SFIP. Next, the issue
in Stanton was whether federal law preempts state-law tort claims related to the procurement of
flood insurance. The court in Stanton made it clear that it agreed that federal law applies to
claim-disputes under the Program, but held that federal law does not preempt state-law based
procurement claims.46
Accordingly, there must be a federal law entitling Plaintiff to attorney’s fees for her
request to survive.

42

65 Fed. Reg. 34824, 34827 (May 31, 2000).

43

Gunter v. Farmers Ins. Co., Inc., No. 4:11CV00161 BSM (E.D. Ark. July 11, 2012).

44

Doc. No. 49.

45

Stanton v. State Farm Fire and Cas. Co., Inc., 78 F. Supp. 2d 1029, 1034 (D.S.D.

46

Id.

1999).

9

2.

Equal Access to Justice Act

The only federal law that Plaintiff cites in support of her request for attorney’s fees is the
EAJA. Under the EAJA, courts may award attorney’s fees to the prevailing party in civil actions
against “the United States or any agency or any official of the United States acting in his or her
official capacity . . . .”47
The flaw in Plaintiff’s argument, is that Defendant is not “the United States or any agency
or any official of the United States acting his or her official capacity” as required by the EAJA.48
Plaintiff argues that Defendant is the functional equivalent of FEMA, which is a United States
agency.49 While that may well be true, it does not make Defendant a United States agency under
the EAJA.50
Lastly, Plaintiff cautions that if claimants are not entitled to attorney’s fees under the
EAJA, then “FEMA can shield itself from an award of attorney’s fees by simply replacing
themselves as a party to a lawsuit with the named WYO carrier.”51 But the decision of who will
be a party is not FEMA’s, it is the claimant’s decision. Here, Plaintiff has not sued FEMA -- she
sued the WYO carrier. Moreover, claimants decide whether to purchase insurance from FEMA
directly or from a WYO carrier. Accordingly, Plaintiff is not entitled to attorney’s fees under the
EAJA.

47

28 U.S.C. § 2412.

48

Id.

49

Doc. No. 49 (citing Gibson v. Am. Bankers Ins. Co., 289 F.3d 943 (6th. Cir. 2002)).

50

Dwyer v. Fid. Nat. Prop. and Cas. Ins. Co., 565 F.3d 284, 290 (5th Cir. 2009).

51

Doc. No. 49, at 3.
10

3.

Common Law Principles of Equity

Lastly, in her response to Defendant’s Motion to Dismiss, Plaintiff acknowledges that the
traditional “American Rule” ordinarily disfavors an award of attorney’s fees without statutory or
contractual authority,52 but argues federal courts have equitable powers to award attorney’s fees
when required by the interests of justice.53 Plaintiff points to Hall v. Cole in support of her
argument; however, I cannot see how Hall offers much help.54
The plaintiff in Hall was a union member who was expelled from his union for speaking
out against the union.55 He sued for reinstatement, claiming that his expulsion was a violation of
his right of free speech as secured by the Labor-Management Reporting and Disclosure Act of
1959.56 The lower court ordered the union to reinstate the plaintiff and to pay his attorney’s fees;
however, the union appealed because there was no statutory provision to award the attorney’s
fees.57 The Court affirmed the award of attorney’s fees under the “common benefit” rationale
because the Court felt that having the labor union pay those fees out of the union treasury simply
shifted the costs of litigation to the class that has benefitted from them -- other union members.58
Here, the benefit received from a successful outcome will not inure to anyone except
Plaintiff. Moreover, the treasury from which the fees would be paid is not Defendant’s -- it is the

52

See, e.g., Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 271 (1975).

53

Doc. No. 49.

54

Hall v. Cole, 412 U.S. 1 (1973).

55

Id. at 2-3.

56

Id. at 3.

57

Id.

58

Id. at 9.
11

Treasury of the United States.59 A treasury from which “No Money shall be drawn . . . but in
Consequence of Appropriations made by Law.”60
Accordingly, Plaintiff’s claims for attorney’s fees are DISMISSED with prejudice.
CONCLUSION
Based on the above, Defendant’s Motion to Dismiss (Doc. No. 40) is GRANTED and
Plaintiff’s claims for the tort of bad faith and declaratory relief and Plaintiff’s requests for
attorney’s fees and punitive damages are DISMISSED with prejudice.
IT IS SO ORDERED this 15th day of February, 2013.

/s/Billy Roy Wilson
UNITED STATES DISTRICT JUDGE

59

42 U.S.C. § 4017.

60

U.S. Const. art. I, § 9, cl. 7.
12