Bartch v. American Family Mutual Insurance Company et al
Filing
48
ORDER denying 22 Motion to Dismiss by Judge R. Brooke Jackson on 5/13/14.(jdyne, ) Modified on 5/14/2014 to correct date of filing (jdyne, ).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge R. Brooke Jackson
Civil Action No 13-cv-01931-RBJ
DAVID BARTCH,
Plaintiff,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin corporation,
AMERICAN FAMILY LIFE INSURANCE COMPANY, a Wisconsin Insurance company,
AMERICAN STANDARD INSURANCE COMPANY OF WISCONSIN, a Wisconsin
Insurance company,
Defendants.
ORDER
Before the Court is American Family Mutual, American Family Life, and American
Standard’s [hereinafter “defendants’] motion to dismiss Claim Three of plaintiff’s amended
complaint alleging negligent misrepresentation. [ECF No. 22.] The Court has jurisdiction
pursuant to 28 U.S.C. §§ 1332, 1441, and 1446. The motion has been fully briefed by the parties
and is ripe for review.
I.
Factual Background
David Bartch, the plaintiff in this case, is a former insurance agent who sold policies on
behalf of the defendants. Mr. Bartch first began working for the defendants in 1978, was
appointed as a sales trainer in 1981, and returned to working as an agent in 1983. [ECF No. 20
at 2.] In 2007, Mr. Bartch relocated his family and his insurance agency to Greenwood Village,
Colorado. He claims that one of American Family’s managers, George Saponas, encouraged this
1
move by promising that Mr. Bartch would receive a number of insurance policies at his new
Greenwood Village location sufficient to replace any policies lost as a result of the move. [ECF
No. 20 at 5.] The defendants’ also promised, according to Mr. Bartch, to allow him to review the
policies before transfer in order to verify that he could service them, and that they would
generate sufficient revenue. Id. at 6. Apparently defendants failed to deliver on any of these
assurances, and Mr. Bartch ended up stuck in Greenwood Village with a paltry number of
policies. Id. Mr. Bartch’s relationship with defendants ended in 2012, and this lawsuit
followed. 1
As a part of his association with the defendants, Mr. Bartch entered into several written
agreements. The latest agreement, and apparently the one that was in effect at the time of Mr.
Bartch’s move to Greenwood Village, is the so-called 1993 Agreement. This agreement
established Mr. Bartch’s role as an independent contractor of the defendants’ and set out the
parameters of that relationship. 2
Mr. Bartch brings claims related to various alleged breaches of that agreement, but for
purposes of this motion to dismiss, only a few sections are arguably relevant. Perhaps it goes
without saying, but the fact that Mr. Bartch signed any agreement at all is what gave rise to his
ability to market American Family policies in the first place. The parties also identify several
individual sections of the 1993 Agreement that are pertinent to the motion to dismiss.
First, Section 6.e, “Assigned Policies,” states that
1
Mr. Bartch’s complaint includes additional factual allegations regarding his termination that are
not relevant to defendants’ motion to dismiss and are not summarized in this order.
2
Mr. Bartch claims Exhibit A is materially different from the 1993 Agreement, but does not bother to
identify a single difference between the copies. Therefore, I treat Exhibit A as an indisputably authentic
copy of a document central to the claim and see no need to convert this motion to dismiss into one for
summary judgment.
2
[t]he renewal service fee will be withheld for twelve months following the date of
the assignment of any Mutual policy and the renewal service fee will be withheld
for a period of six months on any Standard policy assigned to you. There will be
no service fees paid on assigned Life policies. The Company may reassign any
policy assigned to you at any time.
[ECF No. 32, Ex. A at 4 (AMFAM 006755).]
Second, Section 6.w, “Partial Assignment,” explains the circumstances under which Mr.
Bartch would be paid if he and defendants “agree[d] to reassign to another agent, a Mutual or
Standard policy for which [Mr. Bartch] received new business commission. . . .” Id. at 8
(AMFAM 006759). Third and finally, the notes from the Agent Compensation Schedule explain
how reassigned policies will be counted for compensation purposes. Id. at 14 (AMFAM
006765).
The parties have not identified any provision of the agreement explaining whether
defendants have an obligation to reassign policies for an agent who is relocating, how the
defendants will determine whether to transfer policies, or what obligations defendant incurs after
it agrees to transfer policies. Nor can the Court, after examining the agreement, find any such
provision.
On July 2, 2013 Mr. Bartch filed a complaint in the Arapahoe County District Court.
Defendants filed a notice of removal on July 19, 2013 under 28 U.S.C. §§ 1332, 1441, and 1446.
Mr. Bartch’s Second and Fourth Claims were dismissed without prejudice as moot at a
September 30, 2013 scheduling conference. [ECF No. 15 at 2.] With leave from the Court, he
then filed an amended complaint on November 21, 2013. [ECF No. 20.] 3 Mr. Bartch eliminated
some claims and revised others, but the important issue in this motion to dismiss is the new Third
3
The Court granted leave to amend the complaint except for Mr. Bartch’s Second Claim for Relief. The
relevant motions and orders are at ECF Nos. 17-19.
3
Claim for Relief that asserts negligent misrepresentation causing financial loss. 4 American
Family moved to dismiss this claim as being barred by the economic loss rule. [ECF No. 22.]
II.
Discussion
a. Standard of Review.
In reviewing a motion to dismiss, the Court must accept the well-pleaded allegations of
the complaint as true and construe them in plaintiff’s favor. However, the facts alleged must be
enough to state a claim for relief that is plausible, not merely speculative. Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555, 570 (2007). A plausible claim is a claim 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, 129 S. Ct. 1937, 1949 (2009). Allegations that are purely conclusory
need not be assumed to be true. Id. at 1951.
b. Economic Loss Rule.
American Family’s sole justification for dismissing Mr. Bartch’s Third Claim is that the
claim arises out of duties created by contract and therefore is barred by the economic loss rule.
As I explain below, I disagree with American Family.
“The economic loss rule is intended to maintain the sometimes blurred boundary between
tort law and contract law.” A.C. Excavating v. Yacht Club I Homeowners Ass’n, Inc., 114 P.3d
862, 865 (Colo. 2005). The Colorado Supreme Court has explained that “a party suffering only
economic loss from the breach of an express or implied contractual duty may not assert a tort
claim for such a breach absent an independent duty of care under tort law.” Id. at 865 (quoting
Town of Alma, 10 P.3d 1256, 1264 (Colo. 2000)). While contract obligations develop from
promises made by the parties, tort obligations arise from legal duties. Id. at 865-66. “The key to
determining whether the economic loss rule bars a tort claim is ‘determining the source of the
4
This claim is identical to Claim Five in Mr. Bartch’s original complaint.
4
duty that forms the basis of the action.’” Jorgensen v. Colorado Rural Properties, LLC, 226
P.3d 1255, 1258 (Colo. App. 2010) (quoting Town of Alma, 10 P.3d at 1262). In other words,
claims for a breach of a duty arising in tort law are normally not barred by the economic loss
rule. Town of Alma, 10 P.3d at 1263. “However, even a duty separately recognized under tort
law is not independent if it is also imposed under the parties’ contract.” A Good Time Rental,
LLC v. First American Title Agency, Inc., 259 P.3d 534, 537 (Colo. App. 2011) (citing BRW, Inc.
v. Dufficy & Sons, Inc., 99 P.3d 66, 74 (Colo. 2004). “That is, even if the duty would be
imposed in the absence of a contract, it is not independent of a contract that ‘memorialize[s]’ it.”
Haynes Trane Serv. Agency, Inc. v. Am. Standard, Inc., 573 F.3d 947, 962 (10th Cir. 2009)
(quoting BRW, 99 P.3d at 74).
In Colorado, the elements of negligent misrepresentation are
(1) one in the course of his or her business, profession or employment; (2) makes
a misrepresentation of a material fact, without reasonable care; (3) for the
guidance of others in their business transactions; (4) with knowledge that his or
her representations will be relied upon by the injured party; and (5) the injured
party justifiably relied on the misrepresentation to his or her detriment.
Allen v. Steele, 252 P.3d 476, 482 (Colo. 2011) (citation omitted). “The duty underlying the tort
of negligent misrepresentation—to refrain from supplying false information to others for
guidance in a transaction involving a pecuniary interest—is recognized at common law. A Good
Time Rental, 259 P.3d at 541 (citing Town of Alma, 10 P.3d at 1263 and Keller v. A.O. Smith
Harvestore Prods., Inc., 819 P.2d 69, 72 (Colo. 1991)). Colorado courts have expounded on the
scope of negligent misrepresentation claims, clarifying that “the scope of this tort pertains to
conduct that leads or induces another to enter into a transaction or agreement, not to
representations directly related to performance of a contract.” A Good Time Rental, 259 P.3d at
541.
5
Representations made prior to entry into a contract appear to be susceptible to negligent
misrepresentation claims even where the resulting contract “memorializes” the applicable duties.
The Colorado Supreme Court has explained that a claim for negligent misrepresentation made
prior to the execution of an agreement may provide the basis for an independent tort claim. See
BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 74 (Colo. 2004); see also URS Group, Inc. v.
Tetra Tech FW, Inc., 181 P.3d 380, 391 (Colo. App. 2008) (economic loss rule did not bar a
subcontractor’s recovery for project manager’s alleged negligent misrepresentation where the
alleged misrepresentation occurred before the parties entered into the contract). See also Keller
v. A.O. Smith Harvestore Products, Inc., 819 P.2d 69, 73 (Colo. 1991) (“[C]laims of negligent
misrepresentation are based not on principles of contractual obligation but on principles of duty
and reasonable conduct.”
The preceding case law can be distilled down to this: claims of negligent
misrepresentation are not necessarily barred by the economic loss rule as long as they are based
on (1) duties that exist independently of the contract and are not subsumed within the contract, or
(2) duties that are subsumed by the contract but where the alleged misrepresentation occurred
before the parties entered into the contract. 5 Here, it appears that Mr. Bartch’s Third Claim
could fit into either category. The alleged misrepresentations in this case were either unrelated to
duties imposed by the contract or occurred prior to a modification of the contract. Either way,
the economic loss rule does not bar Mr. Bartch’s claim.
The defendants offer two reasons why the economic loss rule applies in this case. First,
they suggest that but for the existence of the 1993 Agreement, Mr. Bartch would not have any
policies at all, and therefore any claims he brings are derivative of that contract and barred by the
5
Town of Alma also recognizes exceptions to the economic loss rule where public policy provides that
tort liability should not be allocated via contract, 10 P.3d at 1263, but that sort of exception is inapplicable
in the instant case.
6
economic loss rule. This argument proves too much. As the Colorado Supreme Court made
clear in Town of Alma, what matters for purposes of applying the economic loss rule is whether
the relevant duty arises in the contract. That is a much narrower question than whether the
subject matter of a dispute is covered by a contract.
Defendants advance a second, stronger argument that the 1993 Agreement contains
provisions regarding the transfer of policies, and therefore the duties associated with those
transfers are contained within the contract. Specifically, they urge that BRW indicates that the
economic loss rule bars claims of negligent misrepresentation “where the duty allegedly
breached is contained in or arises out of a contract.” [ECF No. 22 at 4.] But the negligent
misrepresentation claim in BRW was based on alleged breaches of duties unambiguously
contained within the underlying contract. BRW, 99 P.3d at 68 (“Dufficy's tort claims are based
on duties that are imposed by contract and therefore, contract law provides the remedies.
Accordingly, the economic loss rule bars Dufficy's tort claims.”). The contract in BRW
sets out BRW's standard of care and its duties. Specifically, BRW agreed to
complete all work performed under the BRW contract “in accordance with the
standards of care, skill and diligence provided by competent professionals who
perform work or services of a similar nature.” BRW also agreed that its drawings
and specifications for the Project would “represent a thorough study and
competent solution for the Project as per usual and customary professional
standards and shall reflect all architectural and engineering skills applicable to
that phase of the Project.” BRW also agreed to inspect the performance of the
contract to determine that the work “has been or is being installed in conformance
with the Contract Documents.”
BRW, 99 P.3d at 68. Dufficy’s negligent misrepresentation claim alleged that one of the
defendant subcontractors “inaccurately ‘represented to Dufficy . . . that Coblaco was performing
its contractual obligations with Dufficy . . . in strict accordance with Sherwin–Williams’
instructions and the Contract Documents.’” Id. at 70. The contract, therefore, assigned specific
duties to the parties involved in the construction at issue in BRW, and Dufficy’s tort claims
7
alleged breaches of those specific duties. That direct relationship between the duties in the
contract and the tort claims caused the court to apply the economic loss rule.
In contrast, the unmodified 1993 Agreement in this case does not explain the duties that
Mr. Bartch claims were breached. The relevant portions merely provide the generic statement
that policies may be reassigned at any time but do not discuss obligations to transfer policies
when an agent relocates or what to do when a transfer has been promised. As Mr. Bartch
explains, “[w]hile the 1993 Agreement in general terms addresses the assignment or transfer of
policies, it does not address specifically the Loss of Policies or provide or memorialize an agreed
upon remedy or measure of damages among the parties for such a scenario.” [ECF No. 27 at 8
(citation omitted).]
Alternatively, it is possible that the 1993 Agreement was modified by the defendants’
promises to transfer a certain number of policies. The parties do not suggest this alternative, but
it seems like an equally plausible factual scenario. Cf. Haynes Trane Serv. Agency, Inc., 573
F.3d at 963 (observing that a policy giving rise to a duty between the parties may have become a
contract and therefore memorialized the duty in question, but declining to reach the issue
because an earlier trial established that the policy, as a matter of fact, did not impose contractual
duties). Such a modification would, of course, mean that the new contract “memorialized” the
duty to transfer the policies. Even if that were the case, the economic loss rule would be
inapplicable because the alleged misrepresentation would have occurred prior to the modification
and may have induced Mr. Bartch to modify the contract. See BRW, 99 P.3d at 74; URS Group,
Inc., 181 P.3d at 391.
8
III.
Conclusion
The American Family defendants make no effort to have the Court dismiss Mr. Bartch’s
breach of contract claims. Rather they simply argue that the agency agreement between them
and Mr. Bartch covers any duty the defendants might have with regard to transfer of policies, and
therefor, Mr. Bartch’s claims are barred by the economic loss rule. This argument misapplies the
economic loss doctrine. The agency agreement, at least in its unmodified form, gives rise to no
duties regarding transfer of policies or how to compensate agents for lost policies, and negligent
misrepresentation is a common law tort that exists independently of contract law. Finally, in the
event that Mr. Bartch can prove that the parties modified the agency agreement on the issue of
whether to transfer policies and how many to transfer, his tort claim is still viable because the
alleged misrepresentation occurred prior to the modification. Therefore, defendants’ Motion to
Dismiss [ECF No. 22] is DENIED.
DATED this 13th day of May, 2014.
BY THE COURT:
___________________________________
R. Brooke Jackson
United States District Judge
9
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?