American Southern Insurance Company v. Gemcraft Homes Group, Inc. et al
MEMORANDUM OPINION. Signed by Judge George Levi Russell, III on 7/10/2017. (krs, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Civil Action No. GLR-16-3628
DLM, LLC, et al.
THIS MATTER is before the Court on Defendants’ Motion to
Dismiss Amended Complaint (ECF No. 18).
and ripe for disposition.
105.6 (D.Md. 2016).
The Motion is fully briefed
No hearing is necessary.
See Local Rule
For the reasons that follow, the Court will
deny the Motion.
ASIC is a “national surety company engaged in the
business of construction and surety bonding.”
(Am. Compl. ¶ 1, ECF
ASIC requires indemnity from all parties seeking bonding.
(Id. ¶ 10).
In September 2004, Defendants William R. Luther, Jr.,
Sharon L. Babcock, and Brian E. Fromme (the “Original Indemnitors”)
sought bonding from ASIC and executed a General Agreement of
Indemnity in favor of ASIC (the “2004 GAI”) in exchange for ASIC
issuing surety bonds on behalf of Defendant DLM, LLC (“DLM”).
In July 2005, DLM executed two public works agreements (the
“Agreements”) with the Department of Public Works of Cecil County,
Maryland (“Cecil County”).
¶¶ 11, 12).
In the first, DLM
agreed to build roads and storm drains for the Mendenhall Square
development (the “Construction Agreement”).
(Id. ¶ 11).
second, DLM agreed to inspect and maintain storm water management
facilities at Mendenhall Square (the “Inspection and Maintenance
(Id. ¶ 12).
To secure performance of the Agreements,
ASIC issued two surety bonds (the “Bonds”) on behalf of DLM (the
“principal”), naming Cecil County as the “obligee.”1
(Id. ¶¶ 13–
In November 2008, in exchange for ASIC renewing and continuing
the Bonds, Defendants Bluffs at Big Elk II, LLC, DLM, Vickie E.
The Court uses the terms “surety,” “subrogee,” “principal,”
and “obligee” throughout this Opinion. To avoid any confusion, the
Court notes that it uses these terms based on their definitions in
the context of surety bonds. In Maryland, “[a] surety bond is a
three-party agreement between a principal obligor, an obligee, and a
Atl. Contracting & Material Co. v. Ulico Cas. Co.,
844 A.2d 460, 468 (Md. 2004) (citing Gen. Motors Acceptance Corp. v.
Daniels, 492 A.2d 1306, 1309 (Md. 1985)). When a surety issues a
performance bond, like the Bonds in this case, “the surety assures
the obligee that if the principal fails to perform its contractual
duties, the surety will discharge the duties itself, either by
performing them or paying the obligee the excess costs of
performance.” Id. (citing Daniels, 492 A.2d at 1309). A subrogee
is a party that exercises the right of subrogation and “is
substituted for another in having a right, duty, or claim;
esp[ecially], the person or entity that assumes the right to attempt
to collect on another’s claim against a third party by paying the
other’s claim-related debts or expenses.” Subrogee, Black’s Law
Dictionary (9th ed. 2009).
agreement (the “2008 GAI”).
(Id. ¶ 16).
are identical to those of the 2004 GAI.
at 2–6 with ECF No. 1-5 at 7–13).
The terms of the 2008 GAI
(Id.); (compare ECF No. 1-5
Both the 2004 and 2008 GAI (the
“GAIs”) require the Indemnitors to “indemnify and save [ASIC]
harmless from and against every claim, demand, liability, cost,
charge, suit, judgment and expense which [ASIC] may pay or incur in
consequence of having executed, or procured the execution of [the
(ECF No. 1-5 at 2, 7).
Under the GAIs, the Indemnitors
agreed that if Cecil County asserted breach, delay, or default under
the Agreements, ASIC had the right “to take possession of any part
or all of the work under [the Agreements], and at the expense of the
. . . Indemnitors to complete or arrange for the completion of the
(Id. at 4, 9).
The Indemnitors further agreed that if ASIC
(Id. at 4, 9).
protection under Chapter 11 of the United States Bankruptcy Code.
See In re Gemcraft Homes, Inc., No. 09-31696-NVA (Bankr.D.Md. closed
June 30, 2011).
In September 2010, the United States Bankruptcy
confirmed DLM’s Third Amended Joint Plan of Reorganization (the
(See ECF No. 18-2).
Plan provided that with the exception of the liabilities under the
contracts that DLM expressly agreed to assume, all liabilities that
arose before the Bankruptcy Court confirmed the Reorganization Plan
were deemed “fully satisfied, discharged, waived and released.” (Id.
at 14, 22).
DLM expressly agreed to assume continued liability for
the Bonds and the Agreements -- but not the GAIs.
(See ECF No. 18-3
In November 2014, Cecil County notified ASIC that DLM defaulted
under the Agreements by failing to build roads and storm drains and
inspect private storm water facilities at Mendenhall Square.
Compl. ¶¶ 22, 23).
In response, ASIC engaged a construction
construction work at Mendenhall Square.
(Id. ¶ 26).
investigation, ASIC paid Cecil County $511,265.80 in exchange for
full release and exoneration of the Bonds.
(Id. ¶ 27).
notified Defendants of the payment to Cecil County and demanded that
Defendants indemnify ASIC.
(Id. ¶ 28).
Defendants failed to
(Id. ¶ 29).
ASIC initiated this action on November 3, 2016, invoking the
Court’s diversity jurisdiction.2
(ECF No. 1).
In their original
Because this case arises under the Court’s diversity
jurisdiction, the Court will apply federal procedural law and state
substantive law. See Hartford Fire Ins. Co. v. Harleysville Mut.
Ins. Co., 736 F.3d 255, 261 n.3 (4th Cir. 2013). And because ASIC’s
claims arose in Maryland, the Court will apply Maryland substantive
law. See Nationwide Mut. Ins. Co. v. Welker, 792 F.Supp. 433, 437
(D.Md. 1992) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78
(Compl. ¶¶ 33–39, ECF No. 1).
On December 16, 2016, Defendants
moved to dismiss the Complaint in its entirety, arguing that when
discharged DLM’s indemnity obligations.
(ECF No. 12-1 at 2).
January 6, 2017, before responding in opposition to Defendants’
Motion, ASIC filed a timely First Amended Complaint.
(ECF No. 15).
In its amended pleading, ASIC removes DLM from the Indemnity Claim
and adds a new claim against DLM only for breach of the Agreements
(the “Subrogation Claim”).
(See ECF No. 15-1).
ASIC asserts that
it “is equitably subrogated to the rights of Cecil County to assert
its rights against DLM for DLM’s breaches” of the Agreements.
Compl. ¶ 46).3
On February 3, 2017, Defendants filed the present Motion to
Dismiss Amended Complaint.
(ECF No. 18).
ASIC responded on March
3, 2017 (ECF No. 20), and Defendants replied on March 17, 2017 (ECF
When a plaintiff files an amended complaint, it generally
moots any pending motions to dismiss because the original complaint
is superseded. See Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc.,
555 U.S. 438, 456 n.4 (2009) (“Normally, an amended complaint
supersedes the original complaint.”). The Court, therefore, will
deny Defendants’ first Motion to Dismiss (ECF No. 12) as moot.
Standard of Review
“The purpose of a Rule 12(b)(6) motion is to
test the sufficiency of a complaint,” not to “resolve contests
surrounding the facts, the merits of a claim, or the applicability
of defenses.” Edwards v. City of Goldsboro, 178 F.3d 231, 243–44
(4th Cir. 1999) (quoting Republican Party v. Martin, 980 F.2d 943,
952 (4th Cir. 1992)).
A complaint fails to state a claim if it does
not contain “a short and plain statement of the claim showing that
the pleader is entitled to relief,” Fed.R.Civ.P. 8(a)(2), or does
not “state a claim to relief that is plausible on its 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. (citing Twombly, 550 U.S. at 556).
statements, do not suffice.”
“Threadbare recitals of the
Id. (citing Twombly, 550 U.S. at 555).
Though the plaintiff is not required to forecast evidence to prove
the elements of the claim, the complaint must allege sufficient
facts to establish each element.
Goss v. Bank of Am., N.A.,
917 F.Supp.2d 445, 449 (D.Md. 2013) (quoting Walters v. McMahen,
684 F.3d 435, 439 (4th Cir. 2012)), aff’d sub nom., Goss v. Bank of
Am., NA, 546 F.App’x 165 (4th Cir. 2013).
In considering a Rule 12(b)(6) motion, a court must examine the
complaint as a whole, consider the factual allegations in the
complaint as true, and construe the factual allegations in the light
most favorable to the plaintiff.
Albright v. Oliver, 510 U.S. 266,
268 (1994); Lambeth v. Bd. of Comm’rs of Davidson Cty., 407 F.3d
266, 268 (4th Cir. 2005) (citing Scheuer v. Rhodes, 416 U.S. 232,
conclusory factual allegations devoid of any reference to actual
events, United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th
Cir. 1979), or legal conclusions couched as factual allegations,
Iqbal, 556 U.S. at 678.
Generally, a court may not consider extrinsic evidence when
resolving a Rule 12(b)(6) motion.
See Chesapeake Bay Found., Inc.
v. Severstal Sparrows Point, LLC, 794 F.Supp.2d 602, 611 (D.Md.
See Fed.R.Civ.P. 10(c).
If those attached documents
conflict with the “bare allegations of the complaint,” the attached
Fare Deals Ltd. v. World Choice Travel.Com,
Inc., 180 F.Supp.2d 678, 683 (D.Md. 2001).
DLM advances three main arguments.
First, the Court must
dismiss the Subrogation Claim because when the Bankruptcy Court
discharged the GAIs, it also discharged the Subrogation Claim.
Second, assuming the Subrogation Claim survived DLM’s Chapter 11
reorganization, the Court must dismiss the Subrogation Claim insofar
as it alleges breach of the Construction Agreement because that
claim is barred by the statute of limitations.
Third, the Court
must dismiss the Amended Complaint to the extent it seeks damages in
excess of $375,000 because ASIC attaches a demand letter to its
Complaint in which it seeks only that amount.
The Court addresses
these arguments in turn.
Whether the Subrogation Claim was Discharged.
Subrogation Claim because the Bankruptcy Court discharged the GAIs
and the GAIs encompassed any debts that ASIC could pursue as a
DLM highlights that the GAIs require DLM to “indemnify
and save [ASIC] harmless from and against every claim, demand,
liability, cost, charge, suit, judgment and expense which [ASIC] may
pay or incur in consequence of having executed, or procured the
execution of [the Bonds].”
(ECF No. 18-1 at 11 (some emphasis
omitted) (quoting ECF No. 1-5 at 2, 7)).
DLM characterizes this
memoralize[s] ‘every’ conceivable obligation from which DLM might be
liable to pay ASIC for sums paid in connection with the [B]onds,
whether ASIC asserted those obligations directly or, as is the case
here, derivatively as a subrogee.”
DLM reasons that because
DLM did not assume the GAIs and the Reorganization Plan provides
that all debts and other liabilities not expressly assumed are
arising from ASIC’s right of subrogation are discharged.
(quoting ECF No. 18-2 at 22).
ASIC disagrees, arguing that the Bankruptcy Court did not
discharge the Subrogation Claim because DLM expressly assumed the
Agreements and Bonds and ASIC seeks reimbursement based on the
liabilities that those instruments create.
The Court agrees with
ASIC for two principal reasons.
First, ASIC’s position is consistent with the holdings of a
series of cases stretching across the Fourth, Fifth, and Eleventh
following analogous issue: If 11 U.S.C. § 5234 provides that a debt
of a principal to an obligee is non-dischargeable, is the surety’s
right of subrogation to assert a claim against the principal also
This issue is analogous to the issue ASIC
presents here because in both, the central question is the same:
When a bankruptcy court does not discharge obligations a principal
owes to an obligee, either because a statute proscribes it or the
principal assumes the obligations, does the surety retain the right
to enforce those obligations as a subrogee against the principal?
11 U.S.C. § 523 provides an extensive list of debts that are
In Gilbert v. United States Fidelity & Guaranty Co., the
defendant issued surety bonds on behalf of the plaintiff, the
principal, to secure plaintiff’s payment of taxes to the State of
Georgia, the obligee.
180 F.Supp. 794, 794 (M.D.Ga. 1959), aff’d,
274 F.2d 823 (5th Cir. 1960) (per curiam).
When the plaintiff
failed to pay his taxes, the defendant paid them on the plaintiff’s
Id. at 794–95.
a bankruptcy discharge.
Shortly thereafter, the plaintiff received
Id. at 795.
The plaintiff then sued the
defendant, seeking a declaration that his bankruptcy discharge
reimbursement of the tax payment.
The United States District
Court for the Middle District of Georgia held that not only was the
plaintiff’s tax debt to the State of Georgia non-dischargeable under
11 U.S.C. § 35,5 but also that the defendant retained the right of
subrogation and could pursue, as a subrogee, plaintiff’s tax debt as
if defendant never paid the State. Id. at 796.
The United States
Court of Appeals for the Fifth Circuit summarily affirmed.
274 F.2d at 823.
More than two decades later, in Matter of Waite, the United
States Court of Appeals for the Fifth Circuit adopted the reasoning
in Gilbert, holding that the plaintiff surety was entitled to
subrogate itself to the rights of the State of Tennessee, the
not discharged in bankruptcy.
See 11 U.S.C. § 523 (2012).
obligee, to attempt to collect the defendant’s non-dischargeable tax
debt for unpaid liquor sales taxes.
698 F.2d 1177, 1178 (11th Cir.
Then, in Matter of Fields, the Fifth Circuit followed Matter
of Waite and Gilbert to hold that that the surety, having paid the
Bankruptcy Chapter 7 debtor’s taxes to the Texas Alcoholic Beverages
Commission, the obligee, was entitled to subrogate itself to the
State of Texas’s right to pursue collection of the non-dischargeable
926 F.2d 501, 504–05 (5th Cir. 1991).
The Fifth Circuit
underscored that at that time, the majority of courts that had
addressed the issue of whether a surety’s right to pursue collection
of non-dischargeable debts as a subrogee survived a bankruptcy
Id. at 504; id. at 504 n.8 (collecting cases).
Only two years after Matter of Fields, in In re Miller, the
United States District Court for the Eastern District of Virginia
likewise held that the plaintiff debtor’s bankruptcy discharge did
not preclude the insurance company, with whom the debtor had an
automobile policy, from asserting a subrogation claim against the
plaintiff to attempt to recover a debt for causing injury while
No. 92-3189-S, 1993 WL 13152206, at *3, 4
(E.D.Va. May 24, 1993).
The district court concluded that because
11 U.S.C. § 523 excepts from discharge “any debt” arising under that
11 U.S.C. § 35 was the precursor to 11 U.S.C. § 523. See
Matter of Waite, 698 F.2d 1177, 1178 (11th Cir. 1983) (describing
relationship between § 35 and § 523).
section, neither the debt to the victim of the automobile accident
nor the insurance company’s subrogation claim was discharged.
The Court acknowledges that not every court that has considered
the issue presented in Gilbert, Matter of Waite, Matter of Fields,
and In re Miller reached the same conclusion that those courts did.
To be sure, in National Collection Agency, Inc. v. Trahan, 624 F.2d
906 (9th Cir. 1980) -- the sole case upon which DLM relies -- the
United States Court of Appeals for the Ninth Circuit reached the
In Trahan, the plaintiff surety posted a bond with the State of
California, the obligee, to secure the defendant’s payment of state
624 F.2d at 907.
The surety satisfied the defendant’s
state sales tax obligations when the defendant failed to pay.
The surety’s assignee then brought a subrogation action against the
defendant, seeking reimbursement for the tax payment.
response, the defendant petitioned for voluntary bankruptcy and
sought a declaration that the debt to the surety was discharged. Id.
The bankruptcy court, and later the district court, found that the
subrogation claim was, indeed, discharged.
On appeal, the
Ninth Circuit agreed, holding that although the tax debt to the
State of California was non-dischargeable under 11 U.S.C. § 35, the
statutory exception to discharge did not extend to the surety’s
Id. at 907, 908.
The Court finds that DLM’s reliance on Trahan is misplaced and
unavailing because Trahan is an outlier.
When expressly “refus[ing]
to follow Trahan,” the court in In re Miller highlighted that as of
1993, “[m]ost courts ha[d] distinguished, dismissed or questioned
In re Miller, 1993 WL 13152206, at *3.
And the Court’s
research shows that since 1993, no court outside the Ninth Circuit
has adopted the reasoning in Trahan to rule that a subrogation claim
Thus, like the In re Miller court -- another
district court in the Fourth Circuit -- the Court declines to follow
Trahan and will rely instead on Gilbert, Matter of Waite, Matter of
Fields, and In re Miller.
The second reason that the Court agrees with ASIC is that when
DLM assumed the Agreements, it accepted both the benefits and the
burdens of the Agreements.
Under 11 U.S.C. § 365(a) (2012), subject
to the court’s approval, a bankruptcy trustee “may assume or reject
Permitting a debtor to assume certain contracts benefits the debtor
by “forc[ing] others to continue to do business with it when the
bankruptcy filing might otherwise make them reluctant to do so.”
re Chateaugay Corp., 10 F.3d 944, 954–55 (2d Cir. 1993) (quoting
See, e.g., In re Menna, 16 F.3d 7, 10 n.4 (1st Cir. 1994)
(contrasting Matter of Fields with Trahan); In re Richardson,
178 B.R. 19, 24 (Bankr.D.D.C. 1995) (describing Trahan as “much
criticized”), aff’d, 193 B.R. 378 (D.D.C. 1995), aff’d sub nom.
Richardson v. Old Republic Sur. Co., 107 F.3d 923 (D.C.Cir. 1997);
In re Marshall, 302 B.R. 711, 719 (Bankr.D.Kan. 2003) (contrasting
Matter of Fields with Trahan).
Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1310 (5th
Cir. 1985) (per curiam)) (internal quotation marks omitted).
six decades ago, the United States Court of Appeals for the Third
Circuit explained that the tradeoff for this benefit is that the
trustee, on behalf of the debtor, must also accept the burden of the
contracts that it elects to assume: “The trustee . . . may not blow
hot and cold.
If he accepts the contract he accepts it cum onere.
If he receives the benefits he must adopt the burdens.
accept one and reject the other.”
In re Italian Cook Oil Corp.,
190 F.2d 994, 997 (3d Cir. 1951).
Since then, the Third, Fifth,
Sixth, Ninth, Tenth, and Eleventh Circuits have all adopted or cited
this rule with favor.7
Here, having already received the benefit of forcing Cecil
County to do business with it, DLM seeks to reject the burden of
recognizing ASIC’s right of subrogation under the Agreements.
Court cannot countenance this.
See In re Italian Cook Oil Corp.,
190 F.2d at 997.
Consonant with the holding in the series of analogous cases
beginning with Gilbert and the rule from In re Italian Cook Oil
See Bank of Am. Nat. Trust & Sav. Ass’n v. Smith, 336 F.2d
528, 529 (9th Cir. 1964); Kirby v. United States, 329 F.2d 735, 737
(10th Cir. 1964); In re Ralston, 401 F.2d 293, 295 (6th Cir. 1968);
Schokbeton Indus., Inc. v. Schokbeton Prod. Corp., 466 F.2d 171, 175
(5th Cir. 1972) (referring to the proposition set forth in In re
Italian Cook Oil Corp as a “universally recognized rule”); In re
Airlift Int'l, Inc., 761 F.2d 1503, 1512 (11th Cir. 1985)
(characterizing the proposition set forth in In re Italian Cook Oil
Accordingly, the Court will deny DLM’s Motion to the
extent it seeks to dismiss that claim.
Whether the Subrogation Claim is Time-barred.
DLM argues that the Subrogation Claim for breach of the
Construction Agreement is barred by Maryland’s three-year statute of
limitations because that agreement, which ASIC attaches to the
completed” by “July 25, 2006.”
(ECF No. 15-2 at 4).
that ASIC did not file this action until November 2016 -- more than
seven years after the statute of limitations expired.
ASIC responds that for the Court to grant DLM’s motion based on
an affirmative defense, like the statute of limitations, the basis
for the affirmative defense must be clear on the face of the
ASIC asserts that the face of the Amended Complaint does
not clearly show that ASIC failed to sue within the statute of
limitations because the Amended Complaint identifies November 24,
2014 as the first date on which ASIC learned that DLM was in breach
of the Construction Agreement.
(See Am. Compl. ¶ 22).
contends that because it filed this action in November 2016 -- one
year before the statute of limitations expired -- the Court must
deny DLM’s Motion. The Court agrees with ASIC.
Corp as “well-settled”); In re Fleming Cos., Inc., 499 F.3d 300, 308
(3d Cir. 2007).
In Maryland, § 5-101 of the Courts and Judicial Proceeding
limitations for breach-of-contract actions.
Catholic Univ. of Am.
Contractors, Inc. v. Catholic Univ. of Am., 796 A.2d 744 (Md. 2002).
CJP § 5-101 provides that “[a] civil action at law shall be filed
within three years from the date it accrues.”
Typically, a breach-
of-contract claim accrues “at the time of the breach.”
Kumar, P.A. v. Dhanda, 43 A.3d 1029, 1035 (Md. 2012).
statute of limitations does not begin to run until the plaintiff
Poffenberger v. Risser, 431 A.2d 677, 680 (Md. 1981) (“[W]e now hold
the discovery rule to be applicable generally in all actions and the
cause of action accrues when the claimant in fact knew or reasonably
should have known of the wrong.”).
Because the purpose of a Rule 12(b)(6) motion is to test the
legal adequacy of a complaint, when resolving a Rule 12(b)(6)
motion, the Court “cannot reach the merits of an affirmative
defense, such as the defense that the plaintiff’s claim is timebarred.”
Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir.
But the Court may grant a Rule 12(b)(6) motion based on an
affirmative defense when that defense “clearly appears on the face
of the complaint.”
Richmond, Fredericksburg & Potomac R. Co. v.
Forst, 4 F.3d 244, 250 (4th Cir. 1993) (citation omitted).
Here, the Amended Complaint incorporates the
Agreement, (Am. Compl. ¶ 11), and that agreement, which ASIC
attaches to the Amended Complaint, (ECF No. 15-2), provides that
“all construction must be completed” by “July 25, 2006,” (ECF No.
15-2 at 4).
Because ASIC was not the party originally tasked with
performing the construction work -- DLM was -- the Court cannot
conclude that the Construction Agreement alone is clear that ASIC
knew or reasonably should have known that DLM was in breach of the
agreement on July 25, 2006.
And the body of the Amended Complaint
contains no allegations making this clear, either.
contrary, the Amended Complaint states that “[o]n or around November
24, 2014, Cecil County provided ASIC notice of DLM’s default” under
the Construction Agreement.
(Am. Compl. ¶ 22).
Thus, if the
Amended Complaint makes anything clear, it is that the three-year
statute of limitations began to run on November 24, 2014 -- the
earliest date on which ASIC knew or should have known that DLM was
in breach of the Construction Agreement.
See Poffenberger, 431 A.2d
Accordingly, because ASIC filed this action in November 2016 -one year before the three-year statute of limitations expired -- the
Court concludes that it is not clear on the face of the Amended
Complaint that the Subrogation Claim is time-barred.
therefore, will deny DLM’s Motion to the extent it seeks to dismiss
the Subrogation Claim based on the statute of limitations.
pursue its statute-of-limitations argument in a motion for summary
Whether the Court Should Limit Damages to $375,000.
Defendants contend that the Court must dismiss the Amended
Complaint to the extent it seeks damages in excess of $375,000
because ASIC attaches a demand letter to its Complaint in which it
seeks only that amount -- not the $526,260.78 in the ad damnum
clause for the Indemnification Claim, (Am. Compl. ¶ 38), or the
$511,265.80 in the ad damnum clause for the Subrogation Claim, (id.
¶ 46). Defendants assert that because the demand letter conflicts
with ad damnum clauses, the demand letter controls.
that the demand letter does not conflict with the ad damnum clauses
because the demand letter does not limit the amount of damages that
ASIC may seek in litigation.
The Court agrees with ASIC.
As the Court explained above when discussing the standard of
review for Rule 12(b)(6) motions, if documents attached to the
complaint conflict with the “bare allegations of the complaint,” the
attached documents “prevail.”
Fare Deals, 180 F.Supp.2d at 683.
Before treating the contents of an attached document as true,
however, “the district court should consider the nature of the
document and why the plaintiff attached it.”
Goines v. Valley Cmty.
Servs. Bd., 822 F.3d 159, 167 (4th Cir. 2016).
“When the plaintiff
attaches . . . a document upon which his claim is based, or when the
contents of the document, crediting the document over conflicting
allegations in the complaint is proper.”
But when “the
plaintiff attaches or incorporates a document for purposes other
than the truthfulness of the document, it is inappropriate to treat
the contents of that document as true.”
As Exhibit 8 to its Original Complaint, ASIC attached a July
21, 2015 demand letter in which it demanded reimbursement “in the
amount of $375,000, representing [ASIC’s] losses as a result of
having issued the Bonds.”
(ECF No. 1-8 at 3).
The Court agrees
with ASIC that this demand letter does not conflict with the ad
damnum clauses in the Amended Complaint because the demand letter
expressly states that “nothing contained herein shall be deemed a
waiver of [ASIC’s] rights and remedies, all of which are hereby
(Id.) (emphasis added).
By including this proviso, ASIC
implied that if it resorted to litigation, it might pursue damages
in an amount other than $375,000.
Because the Court finds that
there is no conflict between the demand letter and the ad damnum
clauses, there is no legal basis for the Court to credit the
$511,265.80 in the ad damnum clauses.
See Fare Deals, 180 F.Supp.2d
at 683 (“When the bare allegations of the complaint conflict with
any exhibits or other documents, whether attached or adopted by
reference, the exhibits or documents prevail.” (emphasis added)
(citing Fayetteville Inv’rs v. Commercial Builders, Inc., 936 F.2d
1462, 1465 (4th Cir. 1991))).
And, even assuming the demand letter conflicts with the ad
damnum clauses, Defendants acknowledge that ASIC “obviously included
the demand letter as part of its amended complaint to demonstrate
that it satisfied its obligation of having made demand for payment
under the bonds.”
(ECF No. 18-1 at 14).
Thus, because ASIC
attaches the demand letter for purposes other than the truthfulness
of the amount of damages -- i.e., to demonstrate that it made demand
for payment -- the Court cannot accept as true that ASIC is only
seeking $375,000 in damages.
See Goines, 822 F.3d at 167.
Court, therefore, will deny Defendants’ Motion to the degree that
they argue that the Court must limit ASIC’s potential recovery to no
more than $375,000.
For the foregoing reasons, the Court will deny Defendants’
Motion to Dismiss Amended Complaint (ECF No. 18) and deny as moot
Defendants’ Motion to Dismiss the Complaint (ECF No. 12).
separate Order follows.
Entered this 10th day of July, 2017
George L. Russell, III
United States District Judge
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