Porto v. Allstate Property and Casualty Insurance Company
OPINION AND ORDER granting 7 Allstate's motion to dismiss; and dismissing the complaint, without prejudice. Signed by Judge J. Leon Holmes on 10/16/2017. (kdr)
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
BOB PORTO, d/b/a BOB PORTO BUILDERS,
on behalf of himself and others similarly situated
No. 4:17CV00440 JLH
ALLSTATE PROPERTY AND
CASUALTY INSURANCE COMPANY
OPINION AND ORDER
Bob Porto, doing business as Bob Porto Builders, commenced this putative class action in
the Circuit Court of Pulaski County against Allstate Property and Casualty Insurance on June 6,
2017. Allstate removed the action to this Court on July 7, 2017. Porto is a licensed roofer. He
works on storm-damaged homes. Porto says he has been passed over for jobs because Allstate
forces its customers to select the roofer who submits the lowest bid, even though Allstate knows
those roofers will not comply with Arkansas building codes. Count I of the class action complaint
alleges violations of the Arkansas Deceptive Trade Practices Act, Ark. Code Ann. §§ 4-88-101
through 116, and Count II seeks relief pursuant to the Arkansas Declaratory Judgment Act, Ark.
Code Ann. §§ 16-111-101 through 117. Allstate has filed a motion to dismiss pursuant to Federal
Rule of Civil Procedure 12(b)(6). For the following reasons, the motion is granted.
The complaint alleges the following facts. See Document #2. Porto has been a builder for
more than twenty years. He formerly built new homes and renovated kitchens and bathrooms. Now
he replaces the roofs of storm-damaged homes. Porto is licensed by the Arkansas Contractors
Licensing Board to replace roofs and is familiar with the building codes. Since January 1, 2016,
Porto has bid on roofing jobs, but his bids have been passed over for lower bids submitted by roofers
who “have no intention of replacing the roofs consistent with Arkansas’s roofing codes.” Document
#2 at 3, ¶10. According to Porto, Allstate knows that the lower bidders will not comply with the
codes but forces its customers to select those bidders so that Allstate can save money. Porto and
other licensed roofers are damaged by Allstate’s practice because their bids are not selected.
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint
must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.”
Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are not required, the complaint must
set forth “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662,
678, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009). The Court accepts as true all of the factual
allegations contained in the complaint and draws all reasonable inferences in favor of the nonmoving
party. Gorog v. Best Buy Co., Inc., 760 F.3d 787, 792 (8th Cir. 2014). The complaint must contain
more than labels, conclusions, or a formulaic recitation of the elements of a cause of action, which
means that the court is “not bound to accept as true a legal conclusion couched as a factual
allegation.” Twombly, 550 U.S. at 555, 127 S. Ct. at 1965.
Count I alleges violations of the Arkansas Deceptive Trade Practices Act, which protects
consumers from a variety of unfair and misleading business practices. Ark. Code Ann. §§ 4-88-101
through 116. The “safe harbor provision,” however, precludes the Act’s application to “[a]ctions
or transactions permitted under laws administered by the Insurance Commissioner” and other
regulatory bodies acting under statutory authority of the state and federal governments. Ark. Code
Ann. § 4-88-101(3). Allstate maintains that because it is a regulated entity engaged in regulated
conduct, the Act does not apply.
The scope of the safe harbor provision and its interpretation by the Arkansas Supreme Court
have been the subject of much litigation in federal court. See Tuohey v. Chenal Healthcare, LLC,
173 F. Supp. 3d 804, 809 (E.D. Ark. 2016) (collecting cases and interpreting the safe harbor
provision broadly to preclude actions against regulated entities engaged in regulated conduct);
Gabriele v. Conagra Foods, Inc., No. 5:14-cv-05183-TLB, 2015 WL 3904386 at *7 (W.D. Ark.
June 25, 2015) (holding “[c]onsistent with the plain language of the ADTPA, it appears that the
Arkansas Supreme Court recognizes and applies the so-called general-activity rule”); Williams v.
State Farm Mut. Auto. Ins. Co., No. 5:10CV00032-JLH, 2010 WL 2573196 at *4 (E.D. Ark. June
22, 2010) (reasoning that if the safe harbor provision only applied to permitted conduct, “the
ADTPA would apply to any action or transaction alleged to be unlawful, which would render the
exceptions listed in section 4-88-101 meaningless and doubtless run afoul of the statutory scheme
created by the Arkansas General Assembly.”). But see Willsey v. Shelter Mut. Ins. Co., Civil No.
12-2320, 2013 WL 4453122 at *2 (W.D. Ark. Aug. 16, 2013) (“The Eastern District of Arkansas
has stated that the insurance activity exception of the ADTPA excludes all insurance activity in the
State of Arkansas whether permissible or not . . . With all due respect to these decisions, this Court
does not need to engage in speculation or conjecture regarding state law. The plain meaning of the
safe harbor provision only excludes activity permitted by the Insurance Trade Act.”).
On February 7, 2017, Chief Judge Brian S. Miller entered a Certification Order certifying
two questions to the Arkansas Supreme Court, which under Ark. Sup. Ct. R. 6-8 may resolve
questions of Arkansas law before a federal court if the questions are determinative and there is no
controlling precedent. Air Evac EMS Inc. v. USAble Mut. Ins. Co., 4:16-cv-00266-BSM (E.D. Ark.).
The first question asks whether the Arkansas Supreme Court cases interpreting the scope of the safe
harbor —DePriest v. AstraZeneca Pharm., L.P. and Arloe Designs, LLC v. Ark. Capital Corp.—are
in conflict and if so, how to resolve that conflict. DePriest, 2009 Ark. 547, 351 S.W.3d 168; Arloe,
2014 Ark. 21, 431 S.W.3d 277. The second question asks whether the safe harbor applies to conduct
prohibited under laws administered by state and federal regulators. The Arkansas Supreme Court
accepted the questions on March 2, 2017, briefing has been completed, and the court is working to
schedule oral argument. Air Evac EMS, Inc. v. USAble Mut. Ins. Co., CV-17-103. Porto requests
that the Court refrain from ruling on whether the conduct alleged in the complaint falls within the
safe harbor provision until the Arkansas Supreme Court answers the certified questions. Document
#20 at 3. That request is granted. Porto’s complaint must be dismissed for other reasons.
Article III, § 1 limits the jurisdiction of federal courts to “Cases” and “Controversies.” See
Whitmore v. Ark., 495 U.S. 149, 155, 110 S. Ct. 1717, 1722, 109 L. Ed. 2d 135 (1990). To identify
“those disputes which are appropriately resolved through the judicial process,” the courts consider
whether a party bringing suit has standing. See Clinton v. City of New York, 524 U.S. 417, 430, 118
S. Ct. 2091, 2099, 141 L. Ed. 2d 393 (1998). The United States Supreme Court in Lujan v.
Defenders of Wildlife explained that standing contains three elements:
First, the plaintiff must have suffered an “injury in fact”—an invasion of a legally
protected interest which is (a) concrete and particularized, see [Allen, 468 U.S.] at
756, 104 S. Ct., at 3327; Warth v. Seldin, 422 U.S. 490, 508, 95 S. Ct. 2197, 2210,
45 L. Ed. 2d 343 (1975); Sierra Club v. Morton, 405 U.S. 727, 740-741, n. 16, 92 S.
Ct. 1361, 1368-1369, n. 16, 31 L. Ed. 2d 636 (1972);1 and (b) “actual or imminent,
not ‘conjectural’ or ‘hypothetical,’ ” Whitmore, supra, 495 U.S., at 155, 110 S. Ct.,
at 1723 (quoting Los Angeles v. Lyons, 461 U.S. 95, 102, 103 S. Ct. 1660, 1665, 75
L. Ed. 2d 675 (1983)). Second, there must be a causal connection between the injury
and the conduct complained of—the injury has to be “fairly ... trace[able] to the
challenged action of the defendant, and not ... th[e] result [of] the independent action
of some third party not before the court.” Simon v. Eastern Ky. Welfare Rights
Organization, 426 U.S. 26, 41-42, 96 S. Ct. 1917, 1926, 48 L. Ed. 2d 450 (1976).
Third, it must be “likely,” as opposed to merely “speculative,” that the injury will be
“redressed by a favorable decision.” Id., at 38, 43, 96 S. Ct., at 1924, 1926.
504 U.S. 555, 560-61, 112 S. Ct. 2130, 2136, 119 L. Ed. 2d 351 (1992). The burden to establish
these elements is on the party invoking federal jurisdiction. Id. While Allstate removed this action,
Porto is considered “the party invoking federal jurisdiction” for the purpose of establishing standing.
See DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 343 n.3, 1861 n.3, 126 S. Ct. 1854, 164 L. Ed.
2d 589 (2006). At this stage in the litigation, Porto must merely plausibly allege that he can
establish the elements of standing. See Susan B. Anthony List v. Driehaus, 134 S. Ct. 2334, 2342,
189 L. Ed. 2d 246 (2014).
The issue here is causation. “[T]here must be a causal connection between the injury and
the conduct complained of—the injury has to be ‘fairly . . . trace[able] to the challenged action of
the defendant, and not . . . th[e] result [of] the independent action of some third party not before the
court.’” Lujan, 504 U.S. at 560-61, 112 S. Ct. 2130 (quoting Simon v. E. Ky. Welfare Rights Org.,
426 U.S. 26, 41-42, 96 S. Ct. 1917, 48 L. Ed. 2d 450 (1976)). Porto alleges that he and other roofers
lost jobs as a result of Allstate’s unfair business practice of steering its customers to select the lowest
bidder, even though Allstate knows that bidder will not comply with the building codes. Document
#2 at 5-6, ¶¶ 37-41. The alleged connection between Porto’s injuries and Allstate’s unlawful
conduct is too tenuous for purposes of Article III. See Miller, 688 F.3d at 935. Allstate did not
select the bidder; its insured selected the bidder. The complaint gives no detail as to how many
roofers bid on each project, or how those roofers’ qualifications compared to Porto’s qualifications.
In short, the complaint does not plausibly allege facts from which the Court can infer that but for
Allstate’s unlawful conduct, Porto would have been selected for any specific roofing job. Therefore,
“[f]or purposes of Article III, too many factors stand in the way of a direct causal relationship.”
Miller, 688 F.3d at 936.
Even if Porto sufficiently alleged that he has standing, the complaint would fail for lack of
particularity. Porto alleges that Allstate’s practice violates the Act’s “catch-all provision,” which
prohibits “[e]ngaging in any other unconscionable, false, or deceptive act or practice in business,
commerce, or trade.” Ark. Code Ann. § 4-88-107(a)(10). While section 107(a)(10) does not use
the word “fraud,” the other provisions of section 107 prohibit making false representations, engaging
in fraud, and improperly using economic leverage in a trade transaction. See Universal Coop., Inc.
v. AAC Flying Serv., Inc., 710 F.3d 790, 795 (8th Cir. 2013). The Eighth Circuit has therefore
interpreted the catch-all provision “to reach similar instances of false representation, fraud, or the
improper use of economic leverage in a trade transaction.” Id. at 795-96. To state a claim for a
violation of section 107(a)(10), Porto must allege (1) a deceptive consumer-oriented act or practice
which is misleading in a material respect, and (2) injury resulting from such act. Skalla v. Canepari,
2013 Ark. 415, 14, 430 S.W.3d 72, 82. The heightened pleading standard set forth in Federal Rule
of Civil Procedure 9(b) applies to the first element. See Universal Coop. Inc., 710 F.3d at 795, n.
5; see also Dickinson v. SunTrust Mortg., Inc., No. 3:12CV00112 BSM, 2015 WL 1868827 at *2
(E.D. Ark. April 23, 2015).
“In alleging fraud or mistake, a party must state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b). The Eighth Circuit has explained: “We
interpret this rule in harmony with the principles of notice pleading, and to satisfy it, the complaint
must allege such matters as the time, place, and contents of false representations, as well as the
identity of the person making the misrepresentation and what was obtained or given up thereby.”
Star City Sch. Dist. v. ACI Bldg. Sys., LLC, 844 F.3d 1011, 1016 (8th Cir. 2017) (quoting Drobnak
v. Andersen Corp., 561 F.3d 778, 783 (8th Cir. 2009)). “Put another way, the complaint must
identify the ‘who, what, where, when, and how’ of the alleged fraud.” United States ex. rel. Joshi
v. St. Luke’s Hosp., Inc., 441 F.3d 552, 556 (8th Cir. 2006) (quoting United States ex. rel. Costner
v. URS Consultants, Inc., 317 F.3d 883, 888 (8th Cir. 2003)). Rule 9(b) “is designed to protect
defendants in fraud cases from frivolous accusations and allow them to prepare an appropriate
response.” Roberts v. Accenture, LLP, 707 F.3d 1011, 1018 (8th Cir. 2013) (quoting United States
ex rel. Batiste v. SLM Corp., 659 F.3d 1204, 1210 (D.C. Cir. 2011)).
The fraud allegations in the complaint are:
Since on or about January 1, 2016, Plaintiff has lost roofing jobs to
lower bidders because the lower bids ignore roofing codes and these roofers have no
intention of replacing the roofs consistent with Arkansas’s roofing codes.
Allstate is completely aware that the lower bidders are not going to
replace the roofs within code, and even though its policy with its customer
specifically provides that repairs will be made within code.
Indeed, Allstate acts with knowledge and forces its customers to use
the lower bidders who are not going to replace their roofs within Arkansas’s building
codes, because it will only pay the lowest bidders’ price in order to save money in
As a result, roofers licensed by the Arkansas Contractors Licensing
Board, such as Plaintiff, are damaged by Allstate’s purposeful decisions to choose
bidders and bids incapable of meeting building codes to repair or replace its
Allstate’s wrongdoing, as alleged above, is continuing to the
detriment of Plaintiff and other Arkansas licensed roofers.
Document #2 at 3. The complaint never alleges the “who, what, when, where, and how” of any
fraudulent transaction. See Document #2 at 2-3, ¶¶ 4-15. No specific roofing job is identified
anywhere in the complaint. No specific Allstate insured who was forced to hire a bad roofer is
identified. No date is stated on which any bids were submitted on any roofing job. No roofer or
roofing company who won bids to work Allstate customers without intending to perform the work
according to code is identified. No specific code violations are identified. No explanation is given
as to how or the extent to which any code violations caused discrepancies in the bids submitted by
roofers. The complaint fails to allege the who, what, when, where, and how of any fraudulent
transaction. In short, the complaint wholly fails to meet the particularity requirement of Rule 9(b).
Count II cites the Arkansas Declaratory Judgment Act, Ark. Code Ann. § 16-111-101
through 117, as independent grounds for relief. Document #2 at 6, ¶¶ 37-38. Document #2 at 6.
The complaint also seeks injunctive relief. Document #2 at 6, ¶39. But a federal court exercising
diversity jurisdiction applies state substantive law and federal procedural law. The Federal
Declaratory Judgment Act, 28 U.S.C. § 2201, does not grant jurisdiction where it otherwise would
not exist, it merely provides an additional procedural remedy to the court. Therefore, when a state
court declaratory judgment action is removed, the federal district court treats the action as one
invoking the Federal Declaratory Judgment Act. Fed. R. Civ. P. 27; see Kelly v. Maxum Specialty
Ins. Grp., 868 F.3d 274, 281 n. 4 (3rd Cir. 2017); Hartford Fire Ins. Co. v. Harleysville Mut. Ins.
Co., 736 F.3d 255, 261-62 (4th Cir. 2013); Budach v. NIBCO, Inc., No. 2:14-cv-04324, 2015 WL
3853298 at *9 (W.D. Mo. June 22, 2015); Krave Entm’t, LLC v. Liberty Mut. Ins. Co., 667 F. Supp.
2d 1213, 1237 (D. Nev. 2009).
The Federal Declaratory Judgment Act provides that “[in] a case of actual controversy within
its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may
declare the rights and other legal relations of any interested party seeking such declaration, whether
or not further relief is or could be sought.” 28 U.S.C. § 2201(a) (emphasis added). Here, for the
reasons stated above, the complaint fails to allege facts showing that Porto has standing and it fails
to meet the pleading requirements of the Federal Rules of Civil Procedure. Therefore, Porto’s
claims for declaratory and injunctive relief must be dismissed along with his other claims for relief.
For the foregoing reasons, Allstate’s motion to dismiss is GRANTED. Document #7. The
complaint is dismissed without prejudice.
IT IS SO ORDERED this 16th day of October, 2017.
J. LEON HOLMES
UNITED STATES DISTRICT JUDGE
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