Hiram Investments LLC v. Howmedica Osteonics Corp.

Filing 23

ORDER denying 13 Motion to Dismiss Counterclaim. Signed by Judge Jay C. Zainey. (jrc)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
HIRAM INVESTMENTS, LLC

CIVIL ACTION

VERSUS

NO. 17-11847

HOWMEDICA OSTEONICS CORP.

SECTION A(5)

ORDER AND REASONS
Before the Court is a Rule 12(b)(6) Motion to Dismiss Counterclaim (Rec. Doc. 13) filed
by Plaintiff Hiram Investments, LLC (“Hiram”).

Defendant Howmedica Osteonics Corp.

(“Stryker”) opposes the motion. (Rec. Doc. 14). 1 Hiram replied to the opposition (Rec. Doc. 22)
and Stryker has filed a sur-reply. (Rec. Doc. 20). The motion, set for submission on February 21,
2018, is before the Court on the briefs without oral argument. 2 This matter is set as a bench trial
to commence on October 3, 2018. Having considered the motion and memoranda of counsel, the
record, and the applicable law, the Court finds that Hiram’s motion is DENIED for the reasons set
forth below.
I.

Background

The parties bring suit in this Court pursuant to 28 U.S.C. § 1332—diversity jurisdiction.
Plaintiff Hiram alleges that it is a Louisiana Limited Liability Company with its principal place of
business in Louisiana. (Rec. Doc. 1, p. 1, ¶ 1). Defendant Stryker is alleged to be a limited liability
company, having its domicile and principal place of business in Mahwah, New Jersey. Id. at ¶ 2. 3

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Howmedica Osteonics Corporation is a subsidiary of the Stryker Corporation, a medical technology company.
According to the pleadings filed by counsel, Defendant is referred to as “Stryker.”
2
Hiram has requested oral argument, but the Court is not persuaded that oral argument would be helpful.
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The Court finds that the amount in controversy exceeds the jurisdictional threshold amount of $75,000.00.

The following well-pleaded facts, which must be viewed as true under the applicable legal
standard, are taken from Stryker’s counterclaim. On January 1, 2017, Stryker assumed the lease
between Hiram and a third party, Inmotion Medical Resources, LLC, for the property located at
2323 Bainbridge Street in Kenner, Louisiana (the “Leased Premises”).

Pursuant to the

Commercial Gross Lease Agreement through the Assignment and Assumption of the Lease &
Amendment (hereinafter collectively referred to as the “Lease Agreement”), Hiram, as lessor, was
responsible for, among other things, maintaining the roof and outside walls of the Leased Premises.
See (Rec. Doc. 13-2, p. 4, ¶ 17) (the Lease Agreement).
In January of 2017, immediately upon taking possession of the Leased Premises, Stryker
noticed significant water intrusion after inclement weather. Stryker immediately notified Hiram
of the water intrusion. Upon being notified, Hiram sent its repairmen to the Leased Premises, who
erroneously determined that the leak was caused by the air conditioning unit. Stryker then
contracted with an independent HVAC repair company who inspected the Leased Premises and
determined that the leak was caused by the roof and not the air conditioner. 4 Hiram allegedly
failed to make the necessary repairs to the roof. Subsequently, each time it rained, there was water
intrusion. In April of 2017, after another rainstorm, the water intrusion was so severe that it
flooded Stryker’s offices, damaged equipment, furniture, interior walls, and Stryker’s medical
inventory. Stryker alleges that the severe leakage and flooding caused damage to its medical
inventory forcing Stryker to dispose of the equipment due to water infiltration. The inventory had
a retail value of approximately $1,057,199.00.

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Stryker alleges that the repairman’s determination that the leak was caused by the air conditioning unit was erroneous.
Stryker believes that the leak was caused by a defect in the roof. The Court notes that at this 12(b)(6) motion stage it
must consider as true all of Stryker’s well-pleaded facts from the counterclaim. The Court understands that the cause
of the leak is a question of fact that may be decided at a later stage.

2

On April 30, 2017, Hiram was again placed on notice of the roof leakage and the damages,
and failed to make the necessary repairs. In May of 2017, Hiram’s foreman was sent to the Leased
Premises by Hiram’s property manager.

The foreman inspected the damage after another

rainstorm and determined that the water intrusion was due to improper construction of the exterior
of the Leased Premises and the downspouts. After each rain event, Hiram was provided notice,
photographs, and videos of the damage to the Leased Premises. Stryker argues that Hiram’s
alleged refusal to make the necessary repairs was a material breach of the Lease Agreement.
Stryker further argues that pursuant to Paragraph 8 of the Lease Agreement, Hiram was
obligated to maintain a commercial general liability policy naming Stryker as an additional
insured. Hiram allegedly failed to name Stryker as an additional insured, which Stryker contends
is also a material breach of Hiram’s Lease obligations.
On August 10, 2017, formal written notice was sent to Hiram regarding its material breach
of the Lease. Stryker contends that Hiram is indebted to Stryker for its damaged inventory in the
amount of approximately $1,057,199.00 plus damages for its other property losses. Stryker also
asks this Court to find Hiram indebted to Stryker for the return of the security deposit, the
prepayment of the last two months of rent, and reasonable attorney’s fees pursuant to the terms of
the Lease. (Rec. Doc. 9).
II.

Legal Standard

Under well-settled standards governing Rule 12(b)(6) motions to dismiss, a claim may not
be dismissed unless it appears certain that the plaintiff cannot prove any set of facts that would
entitle him to legal relief. In re Supreme Beef Processors, Inc., 468 F.3d 248, 251 (5th Cir. 2006)
(citing Benton v. United States, 960 F.2d 19 (5th Cir. 1992)). To survive a Rule 12(b)(6) motion
to dismiss, the plaintiff must plead enough facts to “state a claim to relief that is plausible on its

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face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)). A claim is facially plausible “when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id. A court must accept all well-pleaded facts as true and must draw all reasonable
inferences in favor of the plaintiff. Lormand v. US Unwired, Inc., 565 F.3d 228, 239 (5th Cir.
2009). But the Court is not bound to accept as true legal conclusions couched as factual
allegations. Iqbal, 556 U.S. at 678.
A legally sufficient complaint need not contain detailed factual allegations, but it must go
beyond labels, legal conclusions, or formulaic recitations of the elements of a cause of action. Id.
In other words, the face of the complaint must contain enough factual matter to raise a reasonable
expectation that discovery will reveal evidence of each element of the plaintiff’s claim. Lormand,
565 F.3d at 257. If there are insufficient factual allegations to raise a right to relief above the
speculation level, or if it is apparent from the face of the complaint that there is an insuperable bar
to relief, the claim must be dismissed. Twombly, 550 U.S. at 555.
III.

Law and Analysis

Hiram’s motion seeks to dismiss Stryker’s counterclaim on the basis that Stryker waived
any claim for property damage against its landlord (Hiram) in Paragraph 30 of the Lease. (Rec.
Doc. 13-1, p. 4). Hiram argues that the following provision from the Lease constitutes a waiver
of any and all claims that Stryker may have against Hiram for property damage, regardless of any
alleged negligence on the part of Hiram:
30) SUBROGATION: Neither the Lessor nor the Lessee shall be liable to the other
for the loss arising out of damage to or destruction of the Premises or the building
or improvements of which the Premises are a part thereof, when such loss is caused
by any of the perils which are or could be included within or are insured against
by a standard form of fire insurance with extended coverage, including sprinkler
leakage insurance, if any. All such claims for any and all loss, however caused,
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hereby are waived. Said absence of liability shall exist whether or not the damage
or destruction is caused by the negligence of either Lessor or Lessee or by any of
their respective agents, servants or employees. It is the intention and agreement of
the Lessor and the Lessee that the rentals reserved by this Lease have been fixed in
contemplation that each party shall fully provide his own insurance protection at
his own expense, and that each party shall look to his respective agents, servants or
employees. It is the intention and agreement of Lessor and the carriers involved
shall not be entitled to subrogation under any circumstances against any party to
this lease. Neither the Lessor nor the Lessee shall have any interest or claim in the
other’s insurance policy or policies, or the proceeds thereof, unless specifically
covered therein as a joint assured.
(Rec. Doc. 13-2, p. 6) (emphasis added). According to Hiram, this clause prevents recovery as
Stryker’s alleged losses (destruction of medical equipment) arise out of damages to the Leased
Premises (alleged water leakage) and the loss was caused by a peril that could be insured “against
by a standard form of fire insurance with extended coverage, including sprinkler leakage insurance,
if any.” Id.
In support of this argument, Hiram cites the Louisiana Fifth Circuit Court of Appeal’s
decision in Certified Cleaning & Restoration, Inc. v. Lafayette Ins. Co., 96 So.3d 1248 (La. App.
5 Cir. 2012). In that case, a subrogation clause, nearly identical to the one currently at issue,
precluded a lessee from recovering against its landlord for losses to personal property that lessee
suffered as a result of fire damage to the property. The relevant portion of that clause stated as
follows:
28. SUBROGATION: Neither the Lessor nor the Lessee shall be liable to the other
for the loss arising out of damage to or destruction of the leased premises, or the
building or improvements of which the leased premises are a part thereof, when
such lost [sic] is caused by any of the perils which are or could be included within
or are insured against by a standard form of fire insurance with extended coverage,
including sprinkler leakage insurance, if any. All such claims for any and all loss,
however caused, hereby are waived. Said absence of liability shall exist whether
or not the damage or destruction is caused by the negligence of either lessor or . . .
any of their respective agents, servants, or employees.

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Id. at 1250. The Louisiana Fifth Circuit found that under this mutual waiver clause, the lessee
consented to waiving any claims against lessor for losses suffered as a result of damage or
destruction of the leased premises.
In opposition, Stryker distinguishes Certified Cleaning from the instant case by noting that
the damage in Certified Cleaning arose out of a fire in the leased building while the damage to
Stryker’s medical equipment in the instant case resulted from alleged water leakage in the roof,
flooding, and Hiram’s negligence in failing to repair the roof. (Rec. Doc. 14, p. 3). Stryker’s reply
acknowledges that the waiver provision in Lease Paragraph 30 applies to perils that could be
included in a fire policy with extended coverage, but notes that roof defects and failing to make
repairs are not “perils” that can be included in such a policy. (Rec. Doc. 22, p. 2). Hiram goes on
to argue that the “extended coverage” language covers perils beyond fire damage to include
damages caused by rain, flooding, or other severe weather conditions. In short, Hiram contends
that both “rain” and “fire” are perils that may be insured against in a “standard form of fire
insurance with extended coverage,” and therefore, the waiver provision applies. (Rec. Doc. 22,
pp. 2–3).
The Court finds merit in Stryker’s arguments in defense of its claim. First, the Court agrees
that Certified Cleaning is distinguishable from the case currently before this Court. In Certified
Cleaning, a roofer accidently started a fire causing damage to the building. Such an incident was
precisely the type of incident covered in the “SUBROGATION” clause at issue in Certified
Cleaning. See Certified Cleaning, 96 So.3d at 1250. In the case at hand, Stryker does not allege
that the roof damage was caused by accident or negligence, but by a deliberate failure to fix a
defect in the roof after being put on notice.

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The allegations set out in Stryker’s counterclaim do not claim that the damage was caused
by a single episode of severe weather. Rather, Stryker alleges Hiram’s persistent refusal to repair
the roof was the primary cause of the damage. The Court agrees with Stryker when holding that a
landlord’s failure to make necessary repairs is not a peril “which . . . could be included within . . .
a standard form of fire insurance with extended coverage, including sprinkler leakage insurance,
if any” as contemplated by Paragraph 30. (Rec. Doc. 13-2, p. 6).
According to Stryker’s alleged facts, which the Court must view as true at this stage,
Hiram’s alleged failure to repair the roof did constitute a breach of the Lease because Hiram was
required to maintain and repair the roof under Paragraph 17 of the Lease. Paragraph 17 provides,
in relevant part:
17) CONDITION AND UPKEEP OF PREMISES: . . . Lessor shall be responsible
only to maintain the roof, foundations, and outside walls (not including doors and
floors). . . . Lessor shall not be liable for any damages or loss in consequences of
defects in the Premises causing leaks, stoppage of water, sewer or drains or any
other defects about the building and Premises, unless it shall have failed to repair
defects for which it is responsible within a reasonable time following written
demand of Lessee to do so.
(Rec. Doc. 13-2, p. 4) (emphasis added).
The Court finds that Stryker’s counterclaim sufficiently states a cause of action. Stryker
provides well-pleaded facts that may entitle it to relief. The alleged facts provided in Stryker’s
counterclaim fall squarely within the confines of Paragraph 17 of the Lease. Reading Paragraph
17 in conjunction with Paragraph 30, it appears that Paragraph 30 contemplates situations in which
an unexpected occurrence, such as severe weather episodes, flooding, or a spontaneous fire caused
by accident or negligence, results in damage to the Leased Premises. Paragraph 30 goes further to
state that no liability shall exist “whether or not the damage or destruction is caused by the

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negligence of either Lessor or Lessee or by any of their respective agents, servants or employees.”
(Rec. Doc. 13-2, p. 6).
However, what Stryker alleges in its counterclaim is not mere negligence in failing to fix
the roof, but rather, a deliberate failure to repair the roof after being put on notice that the roof was
faulty. Such a situation is covered in the language of Paragraph 17. (Rec. Doc. 13-2, p. 4) (stating
that Lessor shall be responsible to maintain the roof, but will not be liable for damages caused by
leaks in the Leased Premises “unless [Lessor] shall have failed to repair defects for which [Lessor]
is responsible within a reasonable time following written demand of Lessee to do so.”).
The Court agrees with Plaintiff in finding that Paragraph 9b of the Assignment and
Assumption is inapplicable as that Paragraph’s language does not specify that the obligation to
indemnify covers first party claims asserted between the indemnitor and the indemnitee. That
Paragraph provides, in relevant part:
b. Landlord’s Indemnification. Notwithstanding any other provision in this Lease,
Landlord [Hiram] shall indemnify, defend and hold harmless Tenant [Stryker] . . .
from . . . all losses . . . arising from Landlord’s use, maintenance, occupancy or
ownership of the Building and Common Areas or from the conduct of its business
or from any activity, work, or other act or things done, permitted or suffered
by Landlord in or about the Building, Common Areas, or Premises, or arising
from any environmental condition at the Building that arose on or prior to
the Commencement Date, or arising from any breach or default in the performance
of any obligation on Landlord’s part to be performed under the terms of this Lease,
or arising from the negligence or willful or criminal misconduct of Landlord, or
any officer, agent, employee, independent contractor, guest, or invitee thereof,
and from all costs, reasonable attorney fees and disbursements, and liabilities
incurred in the defense of any such claim or any action or proceeding which may
be brought against, out of or in any way related to this Lease, provided, however,
that this indemnity shall not apply where due to Tenant’s negligence or willful
misconduct. The provisions of this Section shall survive the expiration or sooner
termination of this Lease.
(Rec. Doc. 13-3, p. 4) (emphasis added). The Court cannot say that this provision’s language
contemplates a circumstance in which the landlord would be required to indemnify the tenant when

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the tenant directly brings suit against the landlord—i.e., a first-party claim. Rather, the provision
contemplates a situation in which the landlord must indemnify and defend the tenant when suit is
brought against the tenant by a third-party for losses that occurred due to the landlord’s actions.
The Court finds Hiram’s application of Judge Feldman’s reasoning in New Orleans Baseball, Inc.
v. Moore, to be on point. No. 93–253, 1993 WL 322984, *1 (E.D. La. Aug. 18, 1993).
Finally, the Court acknowledges that there are many outstanding questions of fact that,
once decided, could have a significant impact on interpreting the contract. For example, questions
of what caused the leak, where the leak originated, when Hiram was put on notice of the leak and
in what manner it was put on notice, and whether Hiram actually made an effort to fix the leak are
all questions of fact that may alter the course of this litigation once discovered. However, at this
early stage of litigation, the Court views Stryker’s allegations as true and finds that it has
sufficiently pleaded a cause of action for which relief can be granted.
IV.

Conclusion

For the foregoing reasons, Plaintiff’s motion is denied.
Accordingly;
IT IS ORDERED that Plaintiff’s Rule 12(b)(6) Motion to Dismiss Counterclaim (Rec.
Doc. 13) is DENIED.
April 23, 2018
__________________________________
JUDGE JAY C. ZAINEY
UNITED STATES DISTRICT JUDGE

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