Boardwalk Apartments, L.C. v. State Auto Property and Casualty Insurance Co.

Filing 103

MEMORANDUM AND ORDER granting 63 Plaintiff's Motion to Dismiss Counts III and IV of State Auto's Counterclaim and Motion to Strike State Auto's Fifth Affirmative Defense. Signed by District Judge Julie A. Robinson on 3/12/2013. (pp)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
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)
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Plaintiff,
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v.
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)
STATE AUTO PROPERTY AND
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CASUALTY INSURANCE COMPANY,
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Defendant.
)
__________________________________________)
BOARDWALK APARTMENTS, L.C.,

Case No. 11-2714-JAR-KMH

MEMORANDUM AND ORDER
On December 30, 2011, Plaintiff Boardwalk Apartments, L.C., filed a breach of contract
claim against Defendant State Auto Property and Casualty Insurance Co., alleging that
Defendant failed to pay Plaintiff’s business income loss resulting from a fire that destroyed one
of Plaintiff’s apartment buildings (“Business Income Claim”), as required by Plaintiff’s
insurance policy with Defendant. Defendant answered Plaintiff’s Complaint on February 27,
2012, asserting affirmative defenses. After a long procedural history, including three efforts by
Defendant to file an amended answer, Plaintiff filed an Amended Complaint in October 2012,
adding a Replacement Cost Claim and a claim for business personal property lost in the October
2005 fire. After Plaintiff filed its Amended Complaint, Defendant filed a new Answer and
Counterclaim (Doc. 57), and Plaintiff filed a Motion to Dismiss Counts III and IV of State
Auto’s Counterclaim and Motion to Strike State Auto’s Fifth Affirmative Defense (Doc. 63).
Counts III and IV of Defendant’s Counterclaim, and Defendant’s fifth affirmative defense allege
fraud, and Plaintiff argues that they fail to state the circumstances of the alleged fraud with
particularity as required by Fed. R. Civ. P. 9(b). Plaintiff also argues that Defendant's fifth

affirmative defense is insufficient, under Fed. R. Civ. P. 12(f), and that counts III and IV of
Defendant’s counterclaim fail to state a plausible claim of fraud as required by Fed. R. Civ. P.
8(a) and so should be dismissed pursuant to Fed. R. Civ. P. 12(b)(6). The motion is fully briefed
and the Court is prepared to rule. As described more fully below, the Court grants Plaintiff’s
motion, striking Defendant’s fifth affirmative defense and dismissing counts III and IV of
Defendant’s counterclaim. In light of its ruling, the Court does not address the parties’
particularity arguments.
I.

Legal Standard
The Court analyzes a motion to strike an affirmative defense pursuant to Rule 12(f).

Under Rule 12(f), a court “may strike from a pleading an insufficient defense.” “Within the
meaning of Rule 12(f), a defense is insufficient if it cannot succeed, as a matter of law, under any
circumstances.”1 To warrant striking a defense, its insufficiency must be “clearly apparent” and
“no factual issues exist that should be determined in a hearing on the merits.”2 Rule 12(f) is
intended to minimize delay, prejudice and confusion by narrowing the issues for discovery and
trial.3 “[T]he decision to grant a motion to strike is within the discretion of the court. If the
defense is clearly insufficient as a matter of law, it should be stricken.”4
The Court analyzes a motion to dismiss counterclaims pursuant to Rule 12(b)(6), which
provides a vehicle for a party to challenge the legal sufficiency of a counterclaim. The

1

Layne Christensen Co. v. Bro–Tech Corp., No. 09–2381, 2011 WL 3847076, at *6 (D. Kan. Aug. 29,

2011).
2

Hayne v. Green Ford Sales, Inc., 263 F.R.D. 647, 649 (D. Kan.2009).

3

Resolution Trust Corp. v. Fleischer, 835 F. Supp. 1318, 1320 (D. Kan.1993).

4

Resolution Trust Corp. v. Scaletty, 810 F. Supp. 1505, 1515 (D. Kan. 1992).

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requirements underlying the legal sufficiency of a counterclaim stem from Rule 8(a), which
requires that a claim for relief must contain “a short and plain statement of the claim showing
that the pleader is entitled to relief.”5 The claim must present factual allegations, assumed to be
true, that “raise a right to relief above the speculative level” and contain “enough facts to state a
claim to relief that is plausible on its face.”6 “[T]he complaint must give the court reason to
believe that this plaintiff has a reasonable likelihood of mustering factual support for these
claims.”7 The plausibility standard does not require a showing of probability that a defendant
has acted unlawfully, but requires more than “a sheer possibility.”8 “[M]ere ‘labels and
conclusions,’ and ‘a formulaic recitation of the elements of a cause of action’ will not suffice; a
plaintiff must offer specific factual allegations to support each claim.”9 Finally, the Court must
accept the nonmoving party’s factual allegations as true and may not dismiss on the ground that
it appears unlikely the allegations can be proven.10
The Supreme Court has explained the analysis as a two-step process. For the purposes of
a motion to dismiss, the court “must take all the factual allegations in the complaint as true, [but]
we ‘are not bound to accept as true a legal conclusion couched as a factual allegation.’”11 Thus,
the court must first determine if the allegations are factual and entitled to an assumption of truth,
5

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

6

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007).

7

Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007).

8

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

9

Kansas Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (quoting Twombly, 550 U.S.

at 555).
10

Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).

11

Id.

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or merely legal conclusions that are not entitled to an assumption of truth.12 Second, the court
must determine whether the factual allegations, when assumed true, “plausibly give rise to an
entitlement to relief.”13
II.

Analysis
The Court will strike Defendant’s fifth affirmative defense under Rule 12(f) because it is

legally insufficient and will dismiss counts III and IV of Defendant’s counterclaim under Rule
12(b)(6) because they do not state plausible claims. Defendant’s fifth affirmative defense argues
that Plaintiff breached the insurance policy provision addressing concealment, misrepresentation,
or fraud by misrepresenting a material fact, concealing a material fact, or committing fraud when
submitting its Business Income Claim. Count III of Defendant’s counterclaim makes the same
argument, and count IV alleges common law fraud based on the same facts. The Court examines
the affirmative defense and the two counterclaims together, because all three rely on the same
alleged facts, and in all three cases the facts are legally insufficient to support an allegation of
fraud, concealment, or misrepresentation.
In a typical insurance fraud claim, the insured misrepresents or conceals a material fact, a
fact which the insurer does not know, either when purchasing the policy or when filing a claim.14
But in this case, Defendant attempts to make a fraud claim out of an insurance dispute. Plaintiff
submitted a claim based on facts known to both parties; while the parties may disagree about the
interpretation of those facts in the insurance claim context, such a disagreement does not make

12

Id. at 679.

13

Id.

14

Bomhoff v. Nelnet Loan Services, Inc., 279 Kan. 415, 422 (2005).

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the claim submission fraudulent.
To review the factual background, on October 7, 2005, an apartment building in the
Boardwalk complex was destroyed by fire. Defendant, who provided insurance coverage for the
building and for associated business income, paid Plaintiff roughly $2.1 million for Building #1
and believed that it had fulfilled its obligation under the Policy. Defendant initiated a lawsuit on
March 27, 2006, in the United States District Court for the Western District of Missouri,15
seeking a determination concerning its rights and obligations under the insurance policy.
Plaintiff filed a counterclaim in that case.16 Plaintiff did not begin construction of its building
during the suit, because it did not know whether Defendant would pay the replacement cost or a
lesser valuation. In April 2008, the parties entered into an Agreed Stipulation of Dismissal
Without Prejudice, under which they agreed that
Boardwalk has the right to replace Building #1 based on the
condition that, within six months of the Court’s Orders, including any
appeals thereof, becoming final, Boardwalk has initiated the process
of replacing the destroyed building by formally seeking municipal
approval thereof and thereafter proceeds diligently to replace such
building.17
Plaintiff appealed several of the orders entered in the Western District of Missouri Case, and,
following action by the Eighth Circuit Court of Appeals, the orders in the Western District of
Missouri Case became final on September 8, 2009. Defendant admits that it received a letter
from Boardwalk’s counsel, dated January 26, 2010, indicating that it anticipated filing an

15

State Auto Prop. & Cas. Ins. Co. v. Boardwalk Apartments, L. C., No. 06-00252, 2008 WL 474333 (W.D.
Mo. Feb. 15, 2008).
16

Id., Answer and Counterclaim.

17

Doc. 36-3 at 1–2.

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application for a building permit in mid-February 2010. Plaintiff informed Defendant that the
replacement building was completed as of July 22, 2011.
Based on these facts, known to both parties, Plaintiffs made a claim for business income
damages from the time of the fire to the date that normal business operations resumed.
Defendant argues that this claim is grossly inflated, basing its calculation on the actual
restoration period, not the full period Plaintiff had no income from the lost building. In making
their claim, Plaintiff also stated that it was prepared to rebuild the lost building immediately
following the fire; Defendant maintains that Plaintiff deliberately delayed the rebuilding based
on consideration of other factors that the direct physical loss of the building, which would
increase the claim for lost business income. Although Defendant tries to build a case for fraud
out of these facts, they do not support such a claim. Certainly, the parties disagree about what
the facts mean, but the underlying facts themselves—when the building was destroyed, when
rebuilding began, how long the rebuilding took, when the rebuilding was completed—are not
and were not in dispute. Under Defendant’s allegations, Plaintiff’s claim submission did not
falsify a fact, misrepresent a material fact, or conceal a material fact. Without that element,
Defendant cannot state an affirmative defense based on a policy breach through concealment,
misrepresentation, or fraud. Further, without that element, Defendant cannot make an successful
counterclaim relying on concealment, misrepresentation, or fraud. Thus the Court strikes
Defendant’s fifth affirmative defense and dismisses counts III and IV of Defendant’s
counterclaim. The counterclaims do not state a plausible claim, and the affirmative defense is
clearly insufficient as a matter of law.
Finally, the Court notes that an affirmative defense or counter claim based on

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concealment, misrepresentation, or fraud is unlikely to be well pled on the current allegations. A
successful motion for leave to amend would likely require a basis of new facts.
IT IS THEREFORE ORDERED THAT Plaintiff’s Motion to Dismiss Counts III and
IV of State Auto’s Counterclaim and Motion to Strike State Auto’s Fifth Affirmative Defense
(Doc. 63) is GRANTED.
IT IS SO ORDERED.
Dated: March 12, 2013
S/ Julie A. Robinson
JULIE A. ROBINSON
UNITED STATES DISTRICT JUDGE

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