Webb Operating Company v. Zurich American Insurance Company

Filing 11

OPINION AND ORDER granting 5 Motion to Dismiss. Signed by District Judge Marianne O. Battani. (BThe)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

WEBB OPERATING CO.,
Plaintiff,
CASE NO. 12-12149

v.
ZURICH AMERICAN INS. CO.,

HON. MARIANNE O. BATTANI
Defendant.
_______________________ __________/
OPINION AND ORDER GRANTING DEFENDANT
ZURICH AMERICAN INS. CO.’S MOTION TO DISMISS
This matter is before the Court on Defendant Zurich American Insurance
Company=s Motion to Dismiss Plaintiff=s Complaint Pursuant to Fed. R. Civ. P. 12(b)(6)
or, Alternatively, For Summary Judgment Pursuant to Fed. R. Civ. P. 56(a) (Doc. 5).
The Court heard oral argument on August 2, 2012, and at the conclusion of the hearing,
took this matter under advisement. For the reasons that follow, the Court GRANTS
Zurich’s motion.
I.

STATEMENT OF FACTS
Plaintiff Webb Operating Company (“Webb”) operates a gas station in Highland

Park, Michigan. Plaintiff purchased a AStorage Tank System Third Party Liability and
Cleanup Policy@ from Defendant Zurich American Insurance Company (“Zurich”) in 2002
and renewed the policy every year since. (Doc. 10). The insurance policy covers
clean-up costs resulting from a leak or Arelease@ of fuel from the underground storage
tanks (“UST”).

In June of 2006, a UST inspection revealed flaking in or around one of the four
USTs in Webb’s gas station.

This flaking led to a “release” and environmental

contamination requiring remedial action in accordance with the Michigan Department of
Environmental Quality (“MDEQ”) rules and regulations.

The failing UST was “closed”

by empting and sealing it to prevent any further contamination, and Huron Consultants
(“Huron”) cleaned the contaminated areas at a substantial cost.
In October of 2009, Webb filed a claim with Zurich under the 2006 Policy and,
alternatively, under the 2010 Policy for coverage of the costs it had incurred in cleaning
up the contaminated areas discovered in June 2006. Zurich denied Webb’s claim on
March 2, 2010, because Webb failed to timely report the claim under the terms of
Webb’s current clean-up policy.
In September 2010, three of the four USTs were removed from Plaintiff’s gas
station. (Doc. 7 Ex. A). Thereafter, an inspection revealed further contaminated areas,
which Webb reported to MDEQ in October 2010. Again, MDEQ’s rules and regulations
required remedial action, and Huron performed the remediation of the wells from which
the USTs had been.
On December 14, 2010, Webb filed a lawsuit against Zurich in Wayne County
Circuit Court, which Zurich removed to the Eastern District of Michigan, for coverage of
the clean-up costs associated with the June 2006 contamination (the “2010 Action”).
The 2010 Action ended July 8, 2011, after the Court awarded summary judgment
to the defendant because the claim for coverage of the 2006 contamination was
untimely. (See Doc. 5, Ex. E). The Sixth Circuit affirmed the decision on July 18, 2012.
(Doc. 10).

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Several months before Webb filed the 2010 Action, it filed a claim with Zurich
under the 2010 Policy for coverage of the costs it had incurred in cleaning up the
contaminated well areas. On February 1, 2011, Zurich denied Webb’s claim, asserting
that the clean-up costs related to the September 2010 UST removal were part of the
June 2006 release, and any claims under the 2006 Policy for the June 2006 release
were untimely. (Doc. 7 Ex. D).
On January 24, 2012, Webb filed the instant lawsuit against Zurich, seeking
coverage of the clean-up costs associated with the September 2010 UST removal (the
“2012 Action”). (Doc. 1). Zurich argues that the 2012 Action is barred by the doctrine of
res judicata, and therefore, this case must be dismissed.
II.

STANDARD OF REVIEW
A.

Rule 12(b)(6)

A complaint may be dismissed for failure to state a claim if A>it fails to give the
defendant fair notice of what the . . . claim is and the ground upon which it rests.=” Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355
U.S. 41, 45-46 (1957)). A complaint need not contain detailed factual allegations, but it
must include more than labels and conclusions. Twombly, 550 U.S. at 555; Ashcroft v.
Iqbal, 129 S. Ct. 1937, 1949 (2009) (AThreadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.@).

A court must

determine whether the complaint contains Aenough facts to state a claim to relief that is
plausible on its face.@ Twombly, 550 U.S. at 570. AA 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.@ Iqbal, 129 S. Ct. at 1949. The

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Court must accept the well-pleaded factual allegations as true.

Hensley Mfg. v.

ProPride, Inc., 579 F.3d 603 (6th Cir. 2009) (citing Twombly, 550 U.S. at 555).
Although the plausibility standard is not equivalent to a A>probability requirement,= . . . it
asks for more than a sheer possibility that a defendant has acted unlawfully.@

Id.

(quoting Twombly, 550 U.S. at 556). A[W]here the well-pleaded facts do not permit the
court to infer more than the mere possibility of misconduct, the complaint has alleged,
but it has not >show[n],= that the pleader is entitled to relief.@ Iqbal, 129 S. Ct. at 1950
(quoting F.R. Civ. P. 8(a)(2)).
B.

Rule 56

Summary judgment is appropriate only when there is “no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. Pro. 56(a).

The central inquiry is “whether the evidence presents a sufficient

disagreement to require submission to a jury or whether it is so one-sided that one party
must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52,
(1986). Rule 56 mandates summary judgment against a party who fails to establish the
existence of an element essential to the party's case and on which that party bears the
burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
The moving party bears the initial burden of showing the absence of a genuine
issue of material fact. Celotex, 477 U.S. at 323. Once the moving party meets this
burden, the non-movant must come forward with specific facts showing that there is a
genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
587 (1986).

In evaluating a motion for summary judgment, the evidence must be

viewed in the light most favorable to the non-moving party. Adickes v. S.H. Kress &

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Co., 398 U.S. 144, 157 (1970). The Court “must lend credence” to the non-moving
party’s interpretation of the disputed facts. Marvin v. City of Taylor, 509 F.3d 234, 238
(6th Cir. 2007) (citing Scott v. Harris, 127 S. Ct. 1769, 1775 (2007)). The non-moving
party may not rest upon its mere allegations, but rather must set out specific facts
showing a genuine issue for trial. See, Fed. R. Civ. P. 56(c)(1). The mere existence of
a scintilla of evidence in support of the non-moving party's position will not suffice.
Rather, there must be evidence on which the jury could reasonably find for the nonmoving party. Hopson v. Daimler Chrysler Corp., 306 F.3d 427, 432 (6th Cir. 2002).
III.

ANALYSIS
The preclusive effect of a federal court judgment in a diversity case is determined

by federal common law. Taylor v. Sturgell, 553 U.S. 880, 891 n. 4 2008) (citing Semtek
Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001). It incorporates the rules
of preclusion applied by the State in which the rendering court sits. Id. Accordingly, the
preclusive effect of a judgment of a federal court sitting in diversity in Michigan is
determined with reference to Michigan rules of claim preclusion.
Under Michigan law, res judicata “bars a subsequent action when (1) the prior
action was decided on the merits, (2) both actions involve the same parties or their
privies, and (3) the matter in the second case was, or could have been resolved in the
first.” ANR Pipeline Co. v. Dep't of Treasury, 699 N.W.2d 707, 720 (Mich. Ct. App.
2005) (citing Adair v. Michigan, 680 N.W.2d 386, 396 (Mich. 2004)).
In considering the third element of res judicata under Michigan law, the Sixth
Circuit observed that:
Res judicata bars not only claims already litigated, but also every claim
arising from the same transaction that the parties, exercising reasonable
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diligence, could have raised but did not. Whether a factual grouping
constitutes a transaction for purposes of res judicata is to be determined
pragmatically, by considering whether the facts are related in time, space,
origin or motivation, [and] whether they form a convenient trial unit.
Buck v. Thomas M. Cooley Law Sch., 597 F.3d 812, 817 (6th Cir. 2010). The Buck
court expressly recognized that “under Michigan law, a plaintiff has a duty to
supplement her complaint with related factual allegations that develop during the
pendency of her state suit or have them barred by res judicata.” Id. (citing Adair v.
State, 680 N.W.2d 386, 398 (Mich. 2004) (internal quotations omitted)); Dubuc v. Green
Oak Twp., 312 F.3d 736 (6th Cir. 2002). It further noted that “[t]he Michigan Court
Rules allow a party to supplement a complaint with facts that were not available to it at
the onset of the litigation.” Id. (citing Mich. Ct. R. 2.118(E)). Accord Elder v. Harrison
Twp., 786 F. Supp. 2d 1314, 1326 (E.D. Mich. 2011) (observing that causes of action
that did not exist at the time plaintiffs filed their complaint could be subject to dismissal
on res judicata grounds if they did not amend their complaint to include new claims that
arose out related factual developments); O'Leary v. Charter Twp. of Flint, No. 09-13075,
2010 WL 2870400 (E.D. Mich. July 21, 2010) (noting that “Michigan [preclusion law]
imposes a duty upon plaintiffs to supplement their complaints with allegations
developing during the pendency of the action.”).
The only res judicata element in dispute here is whether the claim in this 2012
Action could have been resolved in the 2010 Action. The 2010 Action is based on
Zurich’s March 3, 2010, denial of Webb’s October 2009 claim. The 2012 Action is
based on Zurich’s February 1, 2011, denial of Webb’s September 2010 claim.
Although Webb’s claim relating to the February 1, 2011 denial did not exist at the
time Webb filed the 2010 Action, it accrued a mere six weeks after Webb filed the 2010
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Action. Consequently, the Court considers whether Webb should have amended its
complaint to include that claim.
The Court notes the facts and circumstances of the 2012 Action undeniably
relate to those of the 2010 Action. Each lawsuit involves the same location, the same
USTs, the same insurance policy, and the same coverage issue. The 2010 Action
relates to the clean-up costs arising out of a release of petroleum contaminants
discovered in June 2006, and Zurich’s denial of coverage. The 2012 Action relates to
contamination discovered or rediscovered during removal of the USTs, Webb's clean-up
costs, and Zurich's denial of the second claim. Both actions concern coverage for the
clean-up costs under the 2010 Policy, relate to the same "claim" as that term is defined
in the 2010 Policy, and relate to a single body of contamination that was first discovered
in June 2006 and remained in existence at the time Webb removed the tanks in 2009.
The Court concludes that this “factual grouping” forms a “convenient trial unit” for res
judicata purposes. Buck, 597 F.3d at 817.
Consequently, the Court must decide whether the 2012 Action is precluded by
Webb’s failure to amend its complaint in the 2010 Action. The Sixth Circuit clearly holds
that Michigan law imposes a duty upon a plaintiff to amend its complaint to include new
claims that arise out of factual developments related to the underlying complaint. See
Buck, 597 F.3d at 817. This Court’s duty to apply that analysis is not undermined by
unpublished state appellate decisions using the doctrine to bar only those claims that
were in existence at the time a complaint is filed. See Schenden v. Addison Township,
2004 W.L. 1908231, *4 (holding that “[i]f a second claim has not ripened when the first
claim is filed, res judicata does not bar the second claim.”); United Industrial

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Engineering Corp. v. Fluty, 2006 W.L. 2683318, *3 “(res judicata will not bar a claim if
that claim was not ripe at the time the initial complaint was filed.”); Dietrich v. Stephens,
2008 WL 2389502, *2 (“res judicata does not bar claims that are not yet ripe at the time
a complaint is filed.”). Here, Plaintiff had a duty to supplement its complaint to advance
the new claim.
IV.

CONCLUSION
The Court finds that the 2010 Action precludes the 2012 Action. Accordingly, the

Court GRANTS Defendant’s request for summary judgment (Doc. 30).

IT IS SO ORDERED.
s/Marianne O. Battani
MARIANNE O. BATTANI
UNITED STATES DISTRICT JUDGE

DATE: August 31, 2012

CERTIFICATE OF SERVICE
Copies of this Opinion and Order were served upon counsel of record on this
date by ordinary mail and/or electronic filing.

s/Bernadette M. Thebolt
Case Manager

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