Rapid Funding, LLC v. James River Insurance Company

Filing 60

ORDER DENYING MOTION TO DISMISS. Motion for Judgment on the Pleadings, Based on Res Judicata, Statute of Limitations, and Twombly 12 is DENIED. By Judge Robert E. Blackburn on 9/28/12.(kfinn, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
Civil Action No. 12-cv-00036-REB-CBS
RAPID FUNDING, LLC, a Colorado limited liability company,
Plaintiff,
v.
JAMES RIVER INSURANCE COMPANY, an Ohio corporation,
Defendant.

ORDER DENYING MOTION TO DISMISS
Blackburn, J.
This matter is before me on the defendant’s Motion for Judgment on the
Pleadings, Based on Res Judicata, Statute of Limitations, and Twombly [#12]1 filed
February 22, 2012. The plaintiff filed a response [#17] and the defendant filed a
reply[#18]. I deny the motion.
I. JURISDICTION
I have jurisdiction over this case under 28 U.S.C. § 1332 (diversity).
II. STANDARD OF REVIEW
According to the defendant, the plaintiff’s claim is barred by the doctrine of res
judicata. Res judicata is an affirmative defense. As the defendant notes, technically, a
motion to dismiss asserting this affirmative defense is brought as a motion for judgment
on the pleadings under FED. R. CIV. P. 12(c). A motion for judgment on the pleadings is
1

“[#12]” is an example of the convention I use to identify the docket number assigned to a
specific paper by the court’s case management and electronic case filing system (CM/ECF). I use this
convention throughout this order.

evaluated under the same standard as a motion to dismiss for failure to state a claim
under FED. R. CIV. P. 12(b)(6). Jacobsen v. Deseret Book Co., 287 F.3d 936, 941 n. 2
(10th Cir. 2002).
When ruling on a motion to dismiss under FED. R. CIV. P. 12(b)(6), I must
determine whether the allegations of the complaint are sufficient to state a claim within
the meaning of FED. R. CIV. P. 8(a). For many years, “courts followed the axiom that
dismissal is only appropriate where ‘it appears beyond doubt that the plaintiff can prove
no set of facts in support of his claim which would entitle him to relief.’” Kansas Penn
Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (quoting Conley v.
Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957)). Noting that this
standard “has been questioned, criticized, and explained away long enough,” the
Supreme Court of the United States supplanted the standard in Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 562, 127 S.Ct. 1955, 1969, 167 L.Ed.2d 929 (2007). Under
Twombly, I now review the complaint to determine whether it “‘contains enough facts to
state a claim to relief that is plausible on its face.’” Ridge at Red Hawk, L.L.C. v.
Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Twombly, 127 S.Ct. at 1974).
“This pleading requirement serves two purposes: to ensure that a defendant is placed
on notice of his or her alleged misconduct sufficient to prepare an appropriate defense,
and to avoid ginning up the costly machinery associated with our civil discovery regime
on the basis of a largely groundless claim.” Kansas Penn Gaming, 656 F.3d at 1215
(citation and internal quotation marks omitted).
As previously, I must accept all well-pleaded factual allegations of the complaint
as true. McDonald v. Kinder-Morgan, Inc., 287 F.3d 992, 997 (10th Cir. 2002).
Contrastingly, mere “labels and conclusions or a formulaic recitation of the elements of
2

a cause of action” will not be sufficient to defeat a motion to dismiss. Ashcroft v. Iqbal,
556 U.S. 662, – , 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citations and internal
quotation marks omitted). See also Robbins v. Oklahoma, 519 F.3d 1242, 1247-48
(10th Cir. 2008) (“Without some factual allegation in the complaint, it is hard to see how
a claimant could satisfy the requirement of providing not only ‘fair notice’ of the nature of
the claim, but also ‘grounds' on which the claim rests.”) (quoting Twombly, 127 S.Ct. at
1974) (internal citations and footnote omitted). Moreover, to meet the plausibility
standard, the complaint must suggest “more than a sheer possibility that a defendant
has acted unlawfully.” Iqbal, 129 S.Ct. at 1949. See also Ridge at Red Hawk, 493
F.3d at 1177 (“[T]he mere metaphysical possibility that some plaintiff could prove some
set of facts in support of the pleaded claims is insufficient; the complaint must give the
court reason to believe that this plaintiff has a reasonable likelihood of mustering factual
support for these claims.") (emphases in original). For this reason, the complaint must
allege facts sufficient to “raise a right to relief above the speculative level.” Kansas
Penn Gaming, 656 F.3d at 1214 (quoting Twombly, 127 S.Ct. at 1965). The standard
will not be met when the allegations of the complaint are “so general that they
encompass a wide swath of conduct, much of it innocent.” Robbins, 519 F.3d at 1248.
Instead “[t]he allegations must be enough that, if assumed to be true, the plaintiff
plausibly (not just speculatively) has a claim for relief.” Id.
The nature and specificity of the allegations required to state a plausible claim
will vary based on context and will “require[] the reviewing court to draw on its judicial
experience and common sense.” Iqbal, 129 S.Ct. at 1950; see also Kansas Penn
Gaming, 656 F.3d at 1215. Nevertheless, the standard remains a liberal one, and “a
well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of
3

those facts is improbable, and that a recovery is very remote and unlikely.“ Dias v. City
and County of Denver, 567 F.3d 1169, 1178 (10th Cir. 2009) (quoting Twombly, 127
S.Ct. at 1965) (internal quotation marks omitted).
III. FACTUAL ALLEGATIONS
On October 12, 2006, plaintiff, Rapid Funding, LLC, purchased from defendant,
James River Insurance Company, a property damage insurance policy covering an
apartment complex. The policy allowed Rapid Funding to make a claim for property
damage to the apartment complex. The policy covered the actual cash value of the
buildings in the complex. On January 24, 2007, a fire destroyed one building in the
complex. Rapid Funding made a claim on the James River policy. James River
concluded that the loss is covered under the policy, but denied that it owed any money
to Rapid Funding under the policy. James River asserted that the building destroyed in
the fire had an actual cash value of less than zero.
James River filed a declaratory judgment action in this court seeking a judgment
declaring that the building had a value of zero or less than zero at the time of the fire.
Rapid Funding filed counterclaims, including a counterclaim asserting a claim for
unreasonable denial of insurance benefits under §§10-3-1115, 1116, C.R.S. (§§1115 &
1116). United States District Judge Christine Arguello granted James River’s motion to
dismiss this counterclaim, with prejudice, finding that the alleged denial of insurance
benefits took place before §§1115 & 1116 had taken effect. James River Ins. Co. v.
Rapid Funding, LLC, Civil Action No. 07-cv-01146-CMA-BNB, Order [#128] filed
March 2, 2009. Sections 1115 & 1116 took effect on August 5, 2008.
Subsequently, Rapid Funding’s breach of insurance contract and bad faith
breach of insurance contract counterclaims went to trial in Judge Arguello’s case. The
4

jury found (1) James River breached the insurance contract by failing to pay to Rapid
Funding the actual cash value of the building; and (2) James River acted in bad faith by
unreasonably delaying or denying payment to Rapid Funding of the actual cash value of
the building. In addition, the jury awarded punitive damages to Rapid Funding based on
its finding that James River acted in a malicious or willful and wanton manner in denying
payment to Rapid Funding. The jury rejected James River’s contention that the actual
cash value of the building was less than zero. Complaint [#2], ¶ 16. On March 16,
2010, Judge Arguello denied James River’s Rule 59 post trial motions, including its
motion for remittitur.
James River appealed the jury verdict and judgment. Ultimately, the United
States Court of Appeals for the Tenth Circuit remanded the case to the district court for
a new trial on damages only. The Tenth Circuit concluded that key building valuation
evidence admitted at trial was not admissible.
The Federal Rules of Evidence applied to the admissibility of Mr. Miller's
valuation testimony. Because that testimony was based on technical or
specialized knowledge, it was erroneously admitted under Federal Rule
701. The remaining evidence cannot support the jury's damages verdict.
The error in admitting Mr. Miller's valuation testimony was reversible and
not harmless. The damages verdict is REVERSED and the case is
REMANDED for a new trial to determine damages.
James River Ins. Co. v. Rapid Funding, LLC, 658 F.3d 1207, 1222 (10th Cir. 2011).
The portions of the verdict finding that James River breached the terms of the insurance
policy by failing to pay the actual cash value of the building to Rapid Funding, that
James River acted in bad faith when it failed to pay, and that James River must pay
punitive damages were not appealed and still stand.
In the present case, Rapid Funding asserts a §§1115 & 1116 claim against
James River. Rapid Funding asserts:
5

Despite the fact that the breach of the duty to pay the “actual cash value”
of the fire destroyed North Building became a final, non-appealable
judgment on July 29, 2011, James River still made no payment of any
kind to Rapid Funding for the “actual cash value.” James River had and
has no reasonable basis for denying and/or delaying and/or failing to
timely pay for the loss.
Complaint [#2], ¶ 23.
IV. ANALYSIS
A. RES JUDICATA
The doctrine res judicata, or, in its modern form, claim preclusion, will "prevent a
party from re-litigating a legal claim that was or could have been the subject of a
previously issued final judgment." MACTEC, Inc. v. Gorelick, 427 F.3d 821, 831 (10th
Cir. 2005). Three elements are required to apply the doctrine of claim preclusion: (1) a
final judgment on the merits in an earlier action; (2) identify of the parties in the two
suits; and (3) identity of the cause of action in both suits. Id. (citing Wilkes v. Wyo.
Dep't of Employment Div. of Labor Standards, 314 F.3d 501, 504 (10th Cir. 2003)).
"If these requirements are met, [claim preclusion] is appropriate unless the party
seeking to avoid preclusion did not have a ‘full and fair opportunity' to litigate the claim
in the prior suit." Id. (citing Yapp v. Excel Corp., 186 F.3d 1222, 1226 n.4 (10th Cir.
1999)).
In this case, Judge Arguello’s dismissal of Rapid Funding’s §§1115 & 1116 claim
is a final judgment on the merits of that claim, and the parties in Judge Arguello’s case
are the same as the parties in this case. The key question is whether Rapid Funding is
asserting in this case the same §§1115 & 1116 claim it asserted in Judge Arguello’s
case. Rapid Funding argues that its §§1115 & 1116 claim in this case is different
because its claim in this case is based on James River’s allegedly unreasonable

6

reaction to the final, non-appealable verdict holding that James River acted
unreasonably and in bad faith when it failed to pay Rapid Funding the reasonable value
of the building. Although the exact value of the building has yet to be determined in
Judge Arguello’s case, Rapid Funding alleges and argues that the final and nonappealable portions of the verdict in Judge Arguello’s case establish, without dispute,
that some payment is due to Rapid Funding. Given this legal landscape, Rapid Funding
contends it is not reasonable for James River to refuse to make payment of any kind to
Rapid Funding.
James River argues that the dismissal of the §§1115 & 1116 claim in Judge
Arguello’s case is res judicata and bars any §§1115 & 1116 claim by Rapid Funding
concerning any denial of payment by James River based on the January 24, 2007, fire
and destruction of the building. I disagree. The requirements of §§1115 & 1116 apply
“to an insurer’s acts of unreasonable delay or denial that occur after August 5, 2008,
regardless of when the original claim for benefits was made.” Kisselman v. American
Family Mutual Ins. Co., ___ P.3d ___, 2011 WL 6091708 (Colo. App. 2011). The
requirements of §§ 1115 & 1116 impose a continuing duty on insurers as they adjust
and process policy claims.2
Judge Arguello dismissed Rapid Funding’s §§1115 & 1116 claim because it was
based on facts that occurred before §§1115 & 1116 were effective. Distinctly, Rapid
Funding’s claim in this case differs from its earlier claim because the present claim is
based on James River’s alleged unreasonable inaction after §§1115 & 1116 were
effective and after key portions of the verdict in Judge Arguello’s case became final and
2

The fact that James River's earlier claims handling actions have been held not to be subject to
the requirements of §§1115 & 1116 does not cleanse James River of its obligation to comply with §§ 1115
& 1116 after §§1115 & 1116 became effective.

7

non-appealable. Allegedly, the verdict in Judge Arguello’s case and the resolution of
the appeal constitute a significant changes in the claims handling landscape and
implicate James River’s continuing duty under §§1115 & 1116 to act reasonably in view
of that changed landscape. For these reasons, I conclude that Rapid Funding’s §§1115
& 1116 claim in this case is a different claim than the §§1115 & 1116 claim asserted in
Judge Arguello’s case. Thus, Rapid Funding’s §§1115 & 1116 claim is not subject to
dismissal based on res judicata because the third element of that doctrine, identity of
the cause of action in both suits, has not been established.
B. STATUTE OF LIMITATIONS
For the sake of the motion to dismiss, the parties agree that a two year period of
limitations is applicable to Rapid Funding’s §§1115 & 1116 claim. This case was filed
on December 9, 2011, and James River argues that Rapid funding cannot assert a
§§1115 & 1116 claim based on events prior to December 9, 2009. James River reads
Rapid Funding’s current claim as a claim that James River reacted unreasonably to the
verdict in Judge Arguello’s case, which was rendered on May 4, 2009. Rapid Funding
argues that its claim is based on James River’s allegedly unreasonable reaction after
the verdict in Judge Arguello’s case “became a final, non-appealable judgment on July
29, 2011, (and) James River still made no payment of any kind to Rapid Funding for
the ‘actual cash value’ of the building.” Complaint, ¶ 23 (emphasis in original). Rapid
Funding alleges that July 29, 2011, is the point in time at which James River’s nonpayment became unreasonable. In the context of these allegations, I conclude that
Rapid Funding’s §§1115 & 1116 claim is not barred by the applicable statute of
limitaions.

8

C. FAILURE TO STATE A CLAIM
James River argues that Rapid Funding’s §§1115 & 1116 claim is based only on
a claim that James River continues to refuse to make payment on Rapid Funding’s
insurance claim. This refusal began, James River contends, before §§1115 & 1116
were effective. According to James River, Rapid Funding cannot state a claim for
violation of §§1115 & 1116 based solely on the allegation that James River’s refusal has
continued beyond the time at which §§1115 & 1116 became effective. Under Colorado
law, a common law claim of bad faith breach of insurance contract may not be based on
an alleged continuing or ongoing refusal to pay. Kisselman, ___ P.2d at ___, 2011 WL
6091708, at *12. However, as the court noted in Kisselman,
nothing in the Statutes suggests, as American Family contends, that
insurers may unreasonably delay or deny payment of a pre-effective date
claim for benefits owed after the Statutes' effective date and thereby avoid
the proscriptions and remedies set forth in the Statutes. Taken to its
logical extreme, American Family's argument would mean that an insured
who made a claim for benefits on August 4, 2008, would be foreclosed
from bringing an action under the Statutes for an insurer's acts of
unreasonable delay or denial starting on August 5, 2008 and continuing
thereafter. In our view, this result would be contrary to the intent of the
General Assembly.
Kisselman, ___ P.2d at ___, 2011 WL 6091708, at *13.
Given this legal landscape, I conclude that Rapid Funding adequately has
alleged facts in support of its §§1115 & 1116 claim. As described above, Rapid
Funding alleges that the circumstances surrounding its claim changed significantly after
§§1115 & 1116 were effective when portions of the jury’s verdict in Judge Arguello’s
case became final and non-appealable. Again, those portions of the verdict hold that
James River acted unreasonably and in bad faith when it failed to pay Rapid Funding
the reasonable value of the building. Given this change in the circumstances of its

9

insurance claim, Rapid Funding alleges that James River acted unreasonably when it
failed to pay any amount on Rapid Funding’s claim after July 29, 2011. Assuming the
allegations in the complaint to be true, such inaction constitutes a new iteration of
unreasonable conduct, and is more than a claim that previous unreasonable conduct
continued beyond the effective date of §§1115 & 1116. The allegations in Rapid
Funding’s complaint are sufficient to state a claim on which relief can be granted under
§§1115 & 1116.
V. CONCLUSION & ORDER
Rapid Funding’s claim under §§1115 & 1116 is not barred by res judicata or
under the two year statute of limitations asserted by James River. The allegations in
Rapid Funding’s complaint are sufficient to state a claim on which relief can be granted.
THEREFORE, IT IS ORDERED that the defendant’s Motion for Judgment on
the Pleadings, Based on Res Judicata, Statute of Limitations, and Twombly [#12]
filed February 22, 2012, is DENIED.
Dated September 28, 2012, at Denver, Colorado.
BY THE COURT:

10