Valley Forge Insurance Company v. Hartford Iron & Metal Inc et al

Filing 609

OPINION AND ORDER granting in part and denying in part 521 Motion to Dismiss for Failure to State a Claim. Count 1 of Hartford Iron's counterclaim is DISMISSED only as to claims that Valley Forge presents an ongoing conflict of interest, Coun t 2 is DISMISSED in its entirety, Count 3 is DISMISSED in its entirety, and Count 4 is DISMISSED only as to claims regarding the conflict of interest. The court doesn't grant Hartford Iron leave to amend its counterclaims any further. The court recognizes that Hartford Iron has a pending motion for partial summary judgment [Doc. No. 514]. The court grants Hartford Iron until January 17, 2017 to modify or withdraw that motion in light of this order and the court's November 2016 order [Doc. No. 581]. Signed by Judge Robert L Miller, Jr on 1/4/17. (ksp)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
FORT WAYNE DIVISION
VALLEY FORGE INSURANCE COMPANY, )
)
Plaintiff,
)
)
v.
)
)
HARTFORD IRON & METAL, INC., et al., )
)
Defendants.
)

Cause No. 1:14-cv-6 RLM-SLC

OPINION AND ORDER
Hartford Iron doesn’t like the way Valley Forge has performed on its
contract. After three motions to dismiss, numerous excess parties and
numerous excess claims, what remains of Hartford Iron’s counterclaim is an
alleged breach of contract with a bad faith component. Everything else has
been dismissed.

I. BACKGROUND
No detailed factual summary is needed. In June 2016 [Doc. No. 469], the
court

dismissed

Hartford

Iron’s

third-party

claims

against

Resolute

Management Inc., which Valley Forge hired to act as a third-party claims
administrator. In August 2016 [Doc. No. 504], the court dismissed Hartford
Iron’s third party claims against fifteen other entities as well as its
counterclaims against Valley Forge. The court didn’t grant leave to amend as
against the third parties. Hartford Iron came back with a second amended
counterclaim against Valley Forge, which Valley Forge now moves to dismiss.

In its second amended counterclaim, Hartford Iron alleges that the
Indiana Department of Environmental Management requires costly excavation
and off-site disposal to remediate the contaminated soil, and that this process
has barely begun and will take years to complete. Through the settlement
agreements, Valley Forge agreed that it’s responsible for the costs of enabling
Hartford Iron to operate its business during the remediation. In the Second
Settlement Agreement, Valley Forge agreed, “effective immediately,” to take
responsibility for “prevention of illegal stormwater discharges” in the future.
Hartford Iron alleges that Valley Forge violated this duty, and that instead of
fixing the problem, it sued and blamed Hartford Iron.
Hartford Iron alleges that Valley Forge continues to operate with a
conflict of interest despite the court’s December 2015 order [Doc. No. 298]
requiring policies that disable the conflict. Valley Forge allegedly insists on
managing and controlling the response by using the same lawyers and
managers who are involved in the litigation against Hartford Iron.
Hartford Iron’s first claim against Valley Forge is for breach of contract,
which it alleges has been ongoing since December 2012. The relevant contracts
include the settlement agreements, the insurance policies, and the Master
Services Agreement between Valley Forge and August Mack, environmental
consultant, to which Hartford Iron alleges it’s an intended third party
beneficiary.
In support of the breach of contract claim, Hartford Iron alleges that
Valley Forge violated its duty under the Second Settlement Agreement to

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“defend Hartford Iron against the EPA and IDEM claims” without conflict of
interest. Valley Forge allegedly violated this duty by sharing information
amongst defense, claims management, and litigation personnel; withholding
information from Hartford Iron related to the defense; refusing to pay Hartford
Iron’s chosen counsel since December 31, 2013; insisting on appointment of
Jamie

Dameron

as

defense

counsel

and

obstructing

her

when

her

recommendations conflicted with those of Valley Forge; submitting regulatory
filings and negotiating with IDEM in ways that contradicted defense counsel;
and using litigation-tainted attorneys and staff to control the work of August
Mack.
In addition, Hartford Iron alleges that Valley Forge:
·

violated its duty “to supervise the environmental consultant;”

·

violated its duty “to handle negotiations with the agencies;”

·

violated its duty to seek agency approval of remediation steps;

·

violated its duty to “defend and indemnify Hartford Iron without
reservation of rights;”

·

violated a duty of good faith;

·

violated a duty to seek approval of the most cost-effective remediation
plan that minimizes business disruption, and a duty to cooperate with
Hartford Iron to minimize business disruption;

·

made false and misleading representations, and deceived Hartford Iron;

·

violated a duty to carry out the Remediation Work Plan approved by
IDEM and the EPA;
3

·

violated a duty to prevent discharges by disposing of PCB-contaminated
waste in unauthorized landfills under Hartford Iron’s name, using Mack
to create an illegal and unauthorized storage area for waste drums on the
Hartford Iron site, and altering drum labels without authorization;

·

violated a duty to provide advance notice to Hartford Iron regarding work
to be conducted by Mack;

·

violated a duty to be responsible for investigation of past contamination
and remediation;

·

through Mack, collected “biased samples” of contaminated stormwater;

·

through Mack, operated a management system that had to be
reconfigured at least a dozen times, violated the IDEM permit, and spilled
diesel fuel;

·

obstructed construction of the Keramida system since June 13 even
though it knows that remediation requires a retention basin and
acquisition of neighboring property to install it; and

·

caused millions of dollars of additional costs and liabilities.

For all these reasons, Hartford Iron believes it’s entitled to damages and a
declaration of rights in its favor under 28 U.S.C. § 2201.
Hartford Iron’s second count is that it has the right to a good faith,
contemporaneous accounting identifying categories of costs that Valley Forge
has paid. This accounting, Hartford Iron says, should be conducted under
supervision of a special master or independent auditors.

4

Hartford Iron’s third count is for tort claims of negligence, nuisance, and
trespass. Hartford Iron alleges that Valley Forge wrongfully took control of land
through Mack. Valley Forge created and maintained as a nuisance a storage
area for waste drums, a tank farm, open trenches that resulted in groundwater
contamination, and a gravel pit, and openly dumped wastes, flooding streets
and adjacent yards with untreated PCB-contaminated stormwater, and causing
ruts and other damage to land from vehicles, and closure of public streets.
Hartford Iron’s fourth count is for a declaratory judgment pursuant to 28
U.S.C. § 2201. Hartford Iron asks the court, first, to declare that Valley Forge
created a conflict of interest when it sued Hartford Iron. Second, that Hartford
Iron has the legal right to control the defense and remediation. And third, that
the conflict wasn’t remedied when Valley Forge assigned claims director Jerry
Alpine to manage projects. This is because Mr. Alpine works with David Paige.
David Paige directed Mr. Alpine to review Valley Forge’s litigation filings and
Mr. Paige is supervised by Valley Forge’s litigation counsel, Valerie Rodriguez.

I. STANDARD OF REVIEW
Valley Forge moves to dismiss for failure to state a claim under Federal
Rule of Civil Procedure 12(b)(6). A complaint need only contain a short and
plain statement showing that the plaintiff is entitled to relief. See EEOC v.
Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007). When ruling
on a Rule 12(b)(6) motion, the court must accept as true all well-pleaded
factual allegations in the complaint and draw all reasonable inferences in favor

5

of the non-moving party. See Hecker v. Deere & Co., 556 F.3d 575, 580 (7th
Cir. 2009). Facts included in documents that are attached to the complaint or
incorporated to it by reference may defeat contrary allegations in the
complaint. See Wright v. Assoc. Ins. Cos., Inc., 29 F.3d 1244, 1248 (7th Cir.
1994).
A complaint must contain sufficient factual allegations to “state a claim
to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (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.” Adams v. City of Indianapolis,
742 F.3d 720, 728 (7th Cir. 2014) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)). “Specific facts are not necessary; the statement need only give the
defendant fair notice of what . . . the claim is and the grounds upon which it
rests.” Erickson v. Pardus, 551 U.S. 89, 93 (2007). Nonetheless, “bare legal
conclusions” need not be accepted as true even if alleged as facts, and a
“formulaic recitation of a cause of action’s elements will not do.” Twombly, 550
U.S. at 547.

II. DISCUSSION
Hartford Iron states a plausible claim that Valley Forge breached the
Second Settlement Agreement, and that it did so in bad faith. No other parts of
the second amended counterclaim state a plausible claim. The case is well into

6

discovery, and Hartford Iron has had ample opportunity to plead, so the court
won’t grant Hartford Iron leave to amend its counterclaim yet again.

A. Duty of Good Faith and Attorney’s Fees
Hartford Iron alleges that Valley Forge violated the duty of good faith
inherent in its duty to defend and indemnify Hartford Iron without reservation
of rights when Valley Forge “deceiv[ed] Hartford Iron” and “caus[ed] tens of
millions of dollars of additional costs and liabilities for investigation,
containment and prevention, legal and other defense, eventual remediation,
[and] new regulatory labilities.”
“Indiana law recognizes an implied duty of good faith in all insurance
contracts requiring that an insurer will act in good faith with its insured. This
duty results from the unique nature of the insured/insurer relationship, which
may be at varying times arm’s-length, fiduciary, and/or adversarial.” Allen v.
Great Am. Reserve Ins. Co., 766 N.E.2d 1157, 1162 (Ind. 2002) (internal
quotations omitted). “The obligation of good faith and fair dealing with respect
to the discharge of the insurer’s contractual obligation includes the obligation
to refrain from (1) making an unfounded refusal to pay policy proceeds; (2)
causing an unfounded delay in making payment; (3) deceiving the insured; and
(4) exercising any unfair advantage to pressure an insured into a settlement of
his claim.” Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 519 (Ind. 1993).

7

Valley Forge argues that it’s not subject to the duty of good faith because
Hartford Iron is disputing Valley Forge’s performance under the Second
Settlement Agreement rather than under the original insurance policy. See
Empire Realty Invs., Inc. v. U.S. Affordable Hous., LLC, No. 1:14-cv-380, 2015
WL 2404375, at *8 (N.D. Ind. May 19, 2015) (a special relationship is needed to
assert a bad faith claim based on a breach of contract). Neither party points to
law addressing whether an agreement settling an insurance dispute should be
treated as an insurance contract that’s subject to the duty of good faith.
A duty of good faith requires a “special relationship” beyond mere
existence of a contract. Erie Ins. Co. v. Hickman, 622 N.E.2d at 518. The
rationale for recognizing a “special relationship” in the insurance policy context
applies equally well to recognizing a “special relationship” in a settlement
agreement to an insurance dispute. An insurance agreement “is at times a
traditional arms-length dealing between two parties, as in the initial purchase
of a policy, but is also at times one of a fiduciary nature, and, at other times,
an adversarial one, as here in the context of a first-party claim.” Id. (internal
citations omitted). In the same way, the creation of the settlement agreement
was at arms length. It’s fiduciary in nature because Valley Forge agreed to
defend and indemnify Hartford Iron without reservation of rights. Just as with
an insurance policy, that relationship can be strained by an insurer who
intentionally delays payment. As this litigation has made evident, the
relationship here is adversarial. The Second Settlement Agreement thus gives

8

rise to a potential “cause of action for the tortious breach of an insurer’s duty
to deal with its insured in good faith.” Id. at 519.1
For purposes of the purported conflict of interest, this court also applied
principles of insurance law to the agreement and analyzed the case through the
framework of Armstrong Cleaners, Inc. v. Erie Ins. Exchange, 364 F. Supp. 2d
797 (S.D. Ind. 2005). If the Second Settlement Agreement is to be treated as an
insurance agreement for purposes of the conflict of interest, there’s no reason
why it shouldn’t be treated identically for purposes of the duty of good faith.
Valley Forge cites Tate v. Orthopaedics-Indianapolis, P.C., No. 1:12-cv1188 WTL-DKL, 2014 WL 1091335, at *9-10 (S.D. Ind. Mar. 19, 2014) for the
proposition that settlement agreements aren’t subject to the duty of good faith.
This was correct in Tate, in which an agreement settled a discrimination claim
between employee and employer. Even though Indiana law recognizes implied
covenants of good faith and fair dealing in employment contracts, that
settlement didn’t resolve a dispute over the employment contract itself. Here
the settlement agreement arises directly out of a dispute over the insurance
policy and the agreement doesn’t state that it shouldn’t be construed as an
insurance policy.
The next question is whether Hartford Iron alleged facts that, if true,
plausibly violate the duty of good faith. Hartford Iron explains that Valley Forge
“fail[ed] to notify Hartford Iron of conflict of interest; fail[ed] to implement an
1

Unlike the First Settlement Agreement, the second doesn’t bargain away this obligation. The First
Settlement Agreement explains that the agreement “is not intended to nor will it be construed as
an insurance policy.” The Second Settlement doesn’t seem to so limit itself.

9

ethical screen between the claims/defense and coverage personnel and
lawyers; and improperly shar[ed] information between claims/defense and
coverage personnel.”
These allegations relate to the conflict of interest described in the court’s
orders of December 2015 [Doc. No. 298], April 2016 [Doc. No. 439], and
November 2016 [Doc. No. 581]. The alleged failure to notify Hartford Iron of the
existence of the conflict was a good faith dispute over whether Valley Forge, in
carrying out the settlement agreement while litigating against Hartford Iron,
could still control the remediation and defense. The other allegations are
addressed in greater detail in the November 2016 order, which explained that
“the weak ethical wall in place at the insurance company was insufficient to
cure the conflict.” In response, the court “mandate[d] that the insurer pay for
independent counsel. That was what cured the conflict, and it did so better
than an ethical wall could have.” Because Valley Forge, upon learning of its
ethical obligations, attempted to meet them by eliminating its control of the
defense and remediation, Hartford Iron’s conflict-based allegations don’t result
in bad faith.
Hartford Iron also alleges that Valley Forge misrepresented:
“concentrations of PCB contamination in subsurface soil in the
Phase 1 area; migration of stormwater to the subsurface via the
gravel pit; waste disposal documents and supporting materials for
those documents,; utility locating; the electrical trenches,
communications with defense counsel; concentration of PCBs and
other contaminants in stormwater discharging from the Site; a new
shipping address created at the Site by August Mack; staffing
based on weather reports; a claimed oil spill and resulting waste; a
claimed solvent spill in a ‘lost’ location; an actual spill of diesel oil

10

by August Mack through its subcontractor; and August Mack’s
claimed readiness to carry out project work . . . .”
Hartford Iron also alleges that Valley Forge refused to pay policy proceeds,
caused undue delay in making payment, and exercised unfair advantage to
pressure Hartford Iron into executing a third settlement agreement.
To proceed on the bad faith claim, Hartford Iron must show that Valley
Forge acted with “furtive design or ill will.” Mitchell v. Mitchell, 695 N.E.2d 920,
925 (Ind. 1998). Hartford Iron alleges enough to suggest that these facts, if
true, would make Valley Forge liable for bad faith. Unlike a fraud claim, “bad
faith does not need to be pled with particularity.” Skinner v. Metro. Life Ins.
Co., 829 F. Supp. 2d 669, 678 (N.D. Ind. 2010). Valley Forge is incorrect in
conflating bad faith and fraud. It isn’t obvious from the pleadings whether the
alleged misrepresentations had “furtive design or ill will,” but it’s plausible and
that’s enough to survive the motion to dismiss.
The final allegation, that Valley Forge used unfair advantage to pressure
Hartford Iron into executing a third settlement agreement, is described with no
factual support. Because Hartford Iron doesn’t allege facts that indicate this to
be plausible, Hartford Iron can’t argue it.
If Hartford Iron can prove the surviving bases for a bad faith claim, then
it also might be entitled to attorney fees arising from the alleged bad faith. IND.
CODE § 34-52-1-1(b)(3); Patel v. United Fire & Cas. Co., 80 F. Supp. 2d 948,
962-963 (N.D. Ind. 2002) (“[T]he conduct that formed the basis for the
lawsuit—also met the statutory legal standard for litigating in bad faith under §

11

34-52-1-1(b)(3) . . . .”). This is an exception to the general rule that “each party
is responsible for paying his or her legal expenses” where there’s a
compensatory damages remedy. SCI Propane, LLC v. Frederick, 39 N.E.2d 675,
681 (Ind. 2015). “[T]he decision of whether to award them, and the amount, lie
within the discretion of the trial court, post-trial.” Patel, 80 F. Supp. 2d at 963.
The pleadings thus stake out the minimal necessary conditions for an attorney
fees award, but the court is under no obligation to provide them if Hartford
Iron prevails.
Hartford Iron doesn’t state a plausible claim for bad faith as to the
conflict of interest or unfair advantage, but does so as to any alleged
misrepresentations. Only the misrepresentation-based bad faith claim survives
and Hartford Iron also states a valid request for attorney fees in connection
with it.

B. Independent Accounting
Hartford Iron seeks a “good faith, contemporaneous accounting that will
clearly identify the different categories of costs that Valley Forge has paid so
far, only some of which may be counted against Hartford Iron’s policy limits.”
Some of these categories include defense costs, costs arising from breach of
Valley Forge’s obligations, other damage response costs, costs for defective
work, costs tainted by the conflict of interest, and costs for work not approved
by IDEM. As Hartford Iron sees it, a court-appointed special master or
independent auditor should supervise the accounting.

12

“The necessary prerequisite to the right to maintain a suit for an
equitable accounting, like all other equitable remedies, is . . . the absence of an
adequate remedy at law. Consequently, in order to maintain such a suit on a
cause of action cognizable at law, as this one is, the plaintiff must be able to
show that the accounts between the parties are of such a complicated nature
that only a court of equity can satisfactorily unravel them.” Dairy Queen, Inc.
v. Wood, 369 U.S. 469, 478 (1962). Hartford Iron hasn’t alleged facts
suggesting that the accounts “are of such a complicated nature that only a
court of equity can satisfactorily unravel them,” and so the court dismisses this
claim. Id.
Even if Hartford Iron alleged that Valley Forge believed it reached its
policy limits and dispute remained over whether certain funds should be
classified against those policy limits, it still hasn’t alleged facts to support an
independent accounting. The court isn’t aware of what particular costs are
disputed, or whether certain kinds of costs arguably count against the policy
limits. The court doesn’t know what the policy limits are, or whether the policy
is cost-exclusive. Even if Hartford Iron alleged all of this, it’s not clear why
there would be no adequate remedy at law. The court dismisses Count 2
without leave to amend.

C. Tort Claims (Other than Bad Faith)
In addition to the contract claims, Hartford Iron brings tort claims of
negligence, nuisance, and trespass. It argues that Valley Forge trespassed on

13

Hartford Iron’s property, and created and maintained a nuisance there when it
put into place a storage area for waste drums, a tank farm, open trenches, and
a gravel pit, and when Valley Forge openly dumped waste and flooded streets
and yards with untreated, PCB-contaminated stormwater. It alleges that Valley
Forge “acted negligently with respect to each of these matters.”
This claim would duplicate Hartford Iron’s action in contract with an
action in tort. “[A] party may not restyle a breach-of-contract claim as a tort
claim simply to obtain additional damages. Where the source of a party’s duty
to another arises from a contract, tort law should not interfere.” JPMCC 2006CIBC14 Eads Parkway, LLC v. DBL Axel, LLC, 977 N.E.2d 354, 364 (Ind. Ct.
App. 2012) (internal quotations omitted); Greg Allen Constr. Co. v. Estelle, 798
N.E.2d 171, 173 (Ind. 2003) (“Because a tort may produce more generous
damages and open the door to the possibility of punitive damages, there is
obvious incentive to seek to frame a contract breach as a negligence claim.”).
“It is axiomatic that tort obligations arise, not from an agreement
between the parties, but by operation of law.” JPMCC 2006-CIBC14 Eads
Parkway, LLC, 977 N.E.2d at 365. The “economic loss rule” “preclud[es] tort
liability for purely economic loss—that is, pecuniary loss unaccompanied by
any property damage or personal injury (other than damage to the product or
service itself).” Indianapolis-Marion Cnty. Pub. Library v. Charlier Clark &
Linard, P.C., 929 N.E.2d 722, 727 (Ind. 2010). “[D]amage from a defective
product or service may be recoverable under a tort theory if the defect causes
personal injury or damage to other property, but contract law governs damage

14

to the product or service itself and purely economic loss arising from the failure
of the product or service to perform as expected.” Id. at 728.
The harms that Hartford Iron alleges are harms to Hartford Iron’s
property, but they don’t extend beyond damage to the “service itself” or reach
“other property.” The “service” here is the service “purchased by the plaintiff,
not the [service] furnished by the defendant.” Id. at 732. Pursuant to the
Second Settlement Agreement, Hartford Iron “purchased” Valley Forge’s
performance of the remediation and defense. Hartford Iron doesn’t allege any
negligence that impacted Hartford Iron’s property beyond the remediation
work. Subpar performance in contracted-for work on one’s property doesn’t
transform that claim into a tort. Hartford Iron alleges harms to other people’s
properties through pollution and runoff, but none of this impacts Hartford Iron
itself, and so Hartford Iron has no tort claim.
A tort action requires “negligence [that] goes beyond failure to perform up
to contractual standards, and constitutes a tort even if there was no
contractual relationship.” Greg Allen Constr. Co., 798 N.E.2d at 175. The
source of Valley Forge’s duty to Hartford Iron is solely its contractual
agreements, particularly the Second Settlement Agreement. Hartford Iron’s
allegations about Valley Forge are limited to dissatisfaction with whether Valley
Forge performed up to contractual standards.
Hartford Iron argues that an insured “may have available two distinct
legal theories, one in contract and one in tort, each with separate, although
often overlapping, elements, defenses, and recoveries.” McGrath v. Everest Nat’l

15

Ins. Co., 668 F. Supp. 2d 1085, 1108 (N.D. Ind. 2009) (quoting Erie, 622
N.E.2d at 520). In McGrath, the insurer’s negligent failure to defend the
insured resulted in a judgment against the insured in excess of the policy
limits, which the court held that the insurer could be obliged to pay. Dispute
over whether Valley Forge’s alleged mishandling of the remediation, and
additional costs about how to repair it would only impact whether certain costs
fall within the policy limits. There’s no risk of saddling Hartford Iron with a
burden above and beyond what it contracted for, as would have happened in
McGrath if the insured had to pay the brunt of a judgment even though the
insurer was negligent in its defense.
“[T]ort law is a superfluous and inapt tool for resolving purely
commercial disputes. We have a body of law designed for such disputes. It is
called contract law.” Indianapolis-Marion Cnty. Pub. Library, 929 N.E.2d at
729 (quoting Miller v. U.S. Steel Corp., 902 F.2d 573, 574 (7th Cir. 1990)). It’s
inappropriate for the tort claims to be raised here, and so Count 3 is dismissed.

D. Declaratory Judgment
Hartford Iron seeks a declaration of rights pursuant to 28 U.S.C. § 2201.
First, it asks the court to declare that Valley Forge created a conflict of interest
when it sued Hartford Iron, that the conflict gives Hartford Iron the legal right
to control the defense and remediation, that Hartford Iron had the right to seek
IDEM approval for the Keramida treatment system and that Hartford Iron has
the right to install it, and that Valley Forge’s actions didn’t cure the conflict.

16

The court has already resolved these issues related to the conflict of interest in
its orders of December 2015 [Doc. No. 298], April 2016 [Doc. No. 439], and
November 2016 [Doc. No. 581].
The court recognized the conflict of interest, and required Valley Forge to
relinquish control of the defense and remediation. But it already held in April
2016 that “it doesn’t necessarily follow that Hartford Iron inherits that control .
. . ; Valley Forge could comply with the court’s ruling, for example, by
arranging for a truly independent third party to manage the defense and
remediation.” Thus, there’s no reason Hartford Iron should still be claiming
that it has the legal right to control the defense and remediation, or that it has
the right to unilaterally install the treatment system. Further, in November
2016 the court explained that Valley Forge wasn’t obligated to implement an
“ethical wall,” so long as it gave control of defense and remediation either to
Harford Iron or to an independent third party. The court won’t readdress issues
it’s already decided.2
Second, Hartford Iron requests a declaration that Valley Forge’s costs of
stormwater collection and treatment, and that costs to preserve the status quo
without site cleanup, not be charged against policy limits. These are perfectly
2

The court also recognized in its November 2016 order that “rather than cooperate to decide on
an independent third party, Mr. Shere[, Hartford Iron’s counsel,] moved for partial summary
judgment seeking a declaratory judgment” of its right to an independent third party. Despite
the court’s continual recognition that Valley Forge needn’t cede control of remediation to
Hartford Iron if ceded to an independent third party, and that Valley Forge doesn’t need an
ethical wall if it does so, Hartford Iron continues to litigate this point. “Once it is obvious that
an asserted position has no factual or legal basis, the continued assertion of that position
exposes counsel to [28 U.S.C.] § 1927 sanctions.” GREGORY P. JOSEPH, SANCTIONS: THE FEDERAL
LAW OF LITIGATION ABUSE 447 (5th ed. 2013); see, e.g., Dreiling v. Peugeot Motors of Am., Inc.,
768 F.2d 1159, 1166 (10th Cir. 1985). Hartford Iron should keep this in mind. The court aims
to resolve this dispute, not to litigate the same points ad infinitum.

17

reasonable claims for an insurance litigation and Valley Forge doesn’t seem to
dispute their plausibility or basis in law at this stage.
Third, Hartford Iron requests a declaration that Valley Forge materially
breached its obligation to complete remediation to the satisfaction of regulatory
authorities regardless of whether the expense is above policy limits, and that
Valley Forge is obligated to excavate in a manner that minimizes business
disruption. These also seem to be good faith questions of interpretation of the
Second Settlement Agreement. Count 4 is thus dismissed as to the conflict of
interest-based requests only.

E. Breach of Contract Claims
After having eliminated the tort claim, equitable accounting claim, part of
the bad faith claim, and part of the request for declaratory relief, a more
straightforward breach of contract claim remains.
Valley Forge makes two attacks on the basic breach of contract claim.
First, it argues that Hartford Iron insufficiently demonstrated that various
entities acted as Hartford Iron’s agents. Second, it argues that Mr. Goldberg
shouldn’t be a party to the litigation at all.
Hartford Iron alleges that Valley Forge conducts its business through
consultants and subcontractors, including Continental Casualty Company,
Resolute Management, Inc., and August Mack Environmental, Inc., and that all

18

of these act as Valley Forge’s agents. Hartford Iron alleges that Valley Forge
didn’t breach the Second Settlement Agreement directly, but did so through
these agents and their employees.
“The test for agency is ‘whether the alleged principal has the right to
control the manner and method in which work is carried out by the alleged
agent and whether the alleged agent can affect the legal relationships of the
principal.’” Whitley v. Taylor Bean & Whitacker Mtg. Co., 607 F. Supp. 2d 885,
895 (N.D. Ill. 2009) (quoting Chemtool, Inc. v. Lubrication Techs., 148 F.3d
742, 745 (7th Cir. 1998)). “To plead the existence of an agency relationship, a
plaintiff must allege a factual predicate to create the inference of agency.” Id.;
see also Owens v. Republic of Sudan, 412 F. Supp. 2d 99, 109 (D.D.C. 2006)
(holding that Rule 8 doesn’t require “precise factual detail” when pleading
agency relationship).
Hartford Iron alleges actions taken by Continental Casualty’s employees,
including changing the classification of past Valley Forge payments from
‘defense’ to ‘indemnity.’ The alleged ability of Continental employees to use
Valley Forge’s cost-classification system creates an inference that Continental
worked on Valley Forge’s behalf.
Regarding Resolute, attorney Melissa King’s alleged receipt of many
emails from Valley Forge litigators about Hartford Iron’s defense and claims
management also allows an inference that Resolute worked on Valley Forge’s
behalf.

19

Regarding Mack, Hartford Iron’s allegation that the Services Agreement
explicitly establishes Mack as Valley Forge’s agent under the Second
Settlement Agreement is sufficient to show a plausible agency relationship.
Hartford Iron points to numerous contractual provisions allegedly
breached by Valley Forge or its agents. Hartford Iron also points out how it was
damaged by these breaches. Thus, there’s a plausible breach of contract claim.
Hartford Iron alleges that it’s the successor to the unincorporated
business, “Hartford Iron & Metal,” operated by Alan Goldberg until 2005. This
is the only fact alleged regarding Mr. Goldberg in the latest counterclaim. All
parties recognize, however, the Mr. Goldberg is party to the Second Settlement
Agreement, just as Hartford Iron is. The alleged breaches of the Second
Settlement Agreement thus impact him as well as Hartford Iron.

III. CONCLUSION
Based on the foregoing, the court DENIES IN PART and GRANTS IN PART
Valley Forge’s motion to dismiss [Doc. No. 521]. Count 1 of Hartford Iron’s
counterclaim is DISMISSED only as to claims that Valley Forge presents an
ongoing conflict of interest, Count 2 is DISMISSED in its entirety, Count 3 is
DISMISSED in its entirety, and Count 4 is DISMISSED only as to claims
regarding the conflict of interest. The court doesn’t grant Hartford Iron leave to
amend its counterclaims any further.

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The court recognizes that Hartford Iron has a pending motion for partial
summary judgment [Doc. No. 514]. The court grants Hartford Iron until
January 17, 2017 to modify or withdraw that motion in light of this order and
the court’s November 2016 order [Doc. No. 581].
SO ORDERED.
ENTERED: January 4, 2017

/s/ Robert L. Miller, Jr.
Judge
United States District Court

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