IDS Property Casualty Insurance Company v. Martell et al

Filing 26

OPINION and ORDER Granting In Part and Denying In Part Plaintiff's 14 MOTION for Summary Judgment. (Plaintiff's Show Cause Response due by 2/15/2017) Signed by District Judge Robert H. Cleland. (SBur)

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

IDS PROPERTY CASUALTY INSURANCE
COMPANY,
Plaintiff,
v.

Case No. 13-11758

CARLOS MARTELL & CAMILLE GLYNN,
Defendants.
/
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT
Pending before the court is Plaintiff’s Motion for Summary Judgment. (Dkt. #14.)
The motion was originally to be heard on February 5, 2014, but a bankruptcy stay and
administrative closing have long left this case in limbo. (Dkt. #19.) The court having now
lifted the stay and reopened the case, (Dkt. #22.), Defendants have filed a response,
(Dkt. #23), and Plaintiffs have filed a reply, (Dkt. #24). After reviewing the briefs, the
court concludes that no hearing is necessary. See E.D. Mich. LR 7.1(f)(2). For the
following reasons, the court will grant in part and deny in part Plaintiff’s motion for
summary judgment.
I. BACKGROUND
The instant case follows a suit filed by Defendants against several insurance
companies, including Plaintiff IDS Property Casualty Insurance Company (“IDS”). (No.
10-14896). There, Defendants alleged that IDS had wrongly denied their claim for the
loss of their home following a fire on June 14, 2010. After this court denied the

claimants’ motion for summary judgment in that proceeding, the case continued to trial
where a jury found in favor of IDS, specifying that IDS had proved by the requisite
standard its affirmative defenses, including that the claimants had “intentionally
concealed or misrepresented [some] material fact or circumstance, or engaged in
fraudulent conduct, or made a materially false statement[.]” (Dkt. #14-6.) The Sixth
Circuit denied their appeal of this court’s ruling on the motion for summary judgment.
In the instant suit, Plaintiff IDS seeks recovery of moneys totaling $320,087.34
paid out to Defendants during their pursuit of the fraudulent claim. Defendants have not
responded point-by-point as directed in the court’s scheduling order, (Dkt. #9, Pg. ID 31,
32), but rather provided a narrative “Counter Statement of Facts.” The material facts are
not actually in dispute. In essence they are: 1) an intentionally-set fire destroyed
Defendants’ home; 2) Plaintiff, reserving its rights, paid out sums to Defendants and
their mortgage-holder based on Defendants’ statements about their claim; 3) Plaintiff
ultimately denied the claim after completing its investigation; 4) Defendants sued; and 5)
Defendants lost in large part because the jury determined that they had engaged in
misrepresentation and fraudulent conduct.
Plaintiff alleges here that Defendants’ conduct —filing the claim and asserting
that they were not the source of the fire— constituted fraud, and that Defendants were
never entitled to any of the amounts Plaintiff had paid out to them or others on their
behalf. Plaintiffs point to contract language that allows them to recover such wronglymade payments, including those paid to the mortgagee (Aurora Bank FSB). Plaintiff
also argues that public policy requires that Defendants repay the mortgage proceeds.
Plaintiff argues that the claims are not barred by Federal Rule 13(a) governing
2

compulsory counterclaims despite not having been brought in the original suit, because
the claims did not “mature” until the jury rendered its verdict and made its finding of
fraudulent conduct. Finally, IDS argues that it is due a declaratory judgment that it owns
the subject property, all rights title and interest in which was conveyed to IDS by Aurora
Bank FSB upon payment on the policy.
In response, Defendants argue that Plaintiff’s instant claims were compulsory
counterclaims to the previous suit, and thus they are barred under Michigan rules
governing res judicata and collateral estoppel. They argue that any claims IDS might
have against them would have “matured” when IDS denied their claims, which preceded
the filing of the first lawsuit.
In reply, Plaintiff contends that Defendants’ reliance on Michigan’s res judicata
law is inapplicable in cases such as this, which have been litigated exclusively in federal
District Court. It also points out that the verdict in the underlying case turned on a
determination that the Defendants had been untruthful.
II. STANDARD
Summary judgment is proper “if the movant shows that 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. P. 56(a). “In deciding a motion for summary judgment, the court must
view the evidence in the light most favorable to the non-moving party, drawing all
reasonable inferences in that party’s favor.” Sagan v. United States, 342 F.3d 493, 497
(6th Cir. 2003). The movant has the initial burden of showing the absence of a genuine
dispute as to a material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “[T]hat
burden may be discharged by showing . . . that there is an absence of evidence to
3

support the nonmoving party’s case.” Bennett v. City of Eastpointe, 410 F.3d 810, 817
(6th Cir. 2005) (internal quotation marks omitted).
The burden then shifts to the nonmovant, who must put forth enough evidence to
show that there exists “a genuine issue for trial.” Horton v. Potter, 369 F.3d 906, 909
(6th Cir. 2004) (citation omitted). Summary judgment is not appropriate when “the
evidence presents a sufficient disagreement to require submission to a jury.” Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 243 (1986). In evaluating a summary judgment
motion, “the judge’s function is not himself to weigh the evidence and determine the
truth of the matter but to determine whether there is a genuine issue for trial . . .
credibility judgments and weighing of the evidence are prohibited.” Moran v. Al Basit
LLC, 788 F.3d 201, 204 (6th Cir. 2015) (internal quotation marks and citations omitted).
III. DISCUSSION
Defendants do not attack the pertinent facts or claims advanced by Plaintiff in
this case, but instead argue that, whatever the merits of Plaintiff’s claims, because they
were not brought in the earlier action they are barred by doctrines of res judicata and
Federal Rule 13(a) governing compulsory counterclaims. Defendants tacitly admit that,
if the claims are not barred, Plaintiff has established sufficient facts to warrant the grant
of summary judgment.
Plaintiff is correct that it is Federal Rule 13(a) and not Michigan law that controls
here. The Supreme Court has established a framework for determining whether to apply
the Federal Rules of Civil Procedure or state law when the Federal Rules address a
question. In Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., the Court
explained:
4

The framework for our decision is familiar. We must first determine
whether [the Federal Rule] answers the question in dispute. If it does, it
governs–[state] law notwithstanding–unless it exceeds statutory
authorization or Congress's rulemaking power. We do not wade into Erie's
murky waters unless the federal rule is inapplicable or invalid.
559 U.S. 393, 398 (2010) (citations omitted). Federal Rule 13(a) answers the question
in dispute–whether IDS may pursue its claims against Defendants after having failed to
bring them as counter-claims to the prior proceeding. The rule provides guidance on
exactly this question as it states that, with certain exceptions:
A pleading must state as a counterclaim any claim that—at the time of its
service—the pleader has against an opposing party if the claim arises out
of the transaction or occurrence that is the subject matter of the opposing
party's claim; and does not require adding another party over whom the
court cannot acquire jurisdiction.1
Fed. R. Civ. P. 13(a)(1). Additionally, no suggestion has been made that it exceeds
statutory authorization or Congress’s rulemaking power. Thus, it governs.
“An opposing party's failure to plead a compulsory counterclaim forever bars that
party from raising the claim in another action.” Toltest, Inc. v. N. Am. Specialty Ins. Co.,
No. 07-15193, 2009 WL 877715, at *8 (E.D. Mich. Mar. 30, 2009), aff'd, 362 F. App'x
514 (6th Cir. 2010) (citation omitted). The Sixth Circuit employs a “logical relationship”
test, which looks to “whether the issues of law and fact raised by the claims are largely
the same and whether substantially the same evidence would support or refute both
claims.” Id. (citation omitted). IDS has brought four claims in the instant suit: fraud,
unjust enrichment, payment under mistake of fact, and declaratory relief. Plaintiff argues
that its counterclaims were not compulsory because they were acquired after

1

Neither party suggests that the counterclaims would have required adding a
party over whom the court in the original suit lacked jurisdiction.
5

Defendants filed their original suit. It reasons that it did not have a claim against
Defendants until the jury made its determination of fraudulent conduct, and in any case
it had not paid out some monies, including those paid to Aurora Bank FSB, until after
their answer was filed.
Defendants miss the mark in framing their arguments as sounding in res judicata
and collateral estoppel–doctrines which are not applicable to bar Plaintiff from bringing
its claims here. Some of the language in their brief, however, does correspond to
Plaintiffs’ Federal Rule 13 arguments. Specifically, they contend that the question of
fraud arose out of the transaction which was the subject of the previous suit (i.e. the
denial of their claim), and that nothing suggests Plaintiff would have been unable to
bring the counterclaims at that time.
Even if Defendants are correct that the claims for moneys paid out before their
case was filed were compulsory, it does not follow that Plaintiff’s request for declaratory
relief as to the ownership rights of the property at issue would also be compulsory, nor
would any other claim be compulsory for money paid out after IDS had filed its most
recent answer in that case on March 4, 2011. To be compulsory, the counterclaim must
be “one that the party ‘has’ at the time that the party is to file his responsive pleading.”
Kane v. Magna Mixer Co., 71 F.3d 555, 562 (6th Cir. 1995). No reason is given as to
why money paid out after the answer to the amended complaint was filed should have
been included in that pleading’s counterclaims. Claims for money paid out after the filing
of the answer to the amended complaint are not compulsory counter claims. These
appear to be the claim for attorney fees in the underlying suit, the payments to Aurora

6

Bank FSB, and the claim for declaratory judgment quieting title in Plaintiff’s name. The
court will therefore grant summary judgment in favor of Plaintiff as to those claims.
However, it may be that claims related to moneys paid out before that time were
compulsory, although not all of the same issues of law exist in this case as existed in
the earlier suit. Plaintiff’s claims all sound in state common-law torts. Defendants’
original suit was for breach of state insurance regulations and breach of the insurance
contract. These are different legal theories with different elements, though fraud indeed
served as an affirmative defense to Defendants’ claims in the prior suit. However, the
question of factual issues favors Defendants. Plaintiff relies on Allstate Ins. Co. v.
Valdez, which held that counterclaims for attorneys’ fees incurred in defending an action
were not compulsory counterclaims, because they were not matured at the time of the
earlier suit. 29 F.R.D. 479, 481 (E.D. Mich. 1962). Although the defendant in Valdez
“knew that if he defended that action he would have certain fees and expenses . . . he
did not know their extent[, and] his right to recover them might turn on the result of the
[earlier] action.” Id.
Only superficial similarities can be drawn between the two cases. Here, IDS
knew that it had paid out to Defendants and apparently believed that they had engaged
in fraudulent conduct, but it did not know the “extent” of additional money to be paid out
during the suit, and their right to recover might have turned on the result of the jury’s
determination. Had the jury concluded that Defendants were wrongly denied benefits,
then IDS would surely not have had any claim for fraud against Defendants. But in
Valdez, the court drew a distinction between “[t]he facts or law relative to the accident
and its coverage under the insurance policy” and “whether [plaintiff] has a right to
7

attorney's fees or expenses incurred in responding to the [suit].” Id. This distinction
cannot be ignored. Defendants’ fraudulent proof of loss was dated October 5, 2010,
long before IDS filed its answer to the amended complaint in the earlier case. (Dkt. #243.)
It appears to the court that the same evidence would tend to prove or disprove
the two sets of claims, because the fact that Defendants engaged in fraudulent conduct
prevented them from succeeding against IDS in the prior suit. At the same time, this fact
is the centerpiece of the instant suit against Defendants. The facts of the instant case
are not far from those discussed in Chan v. Priority Records L.L.C., where the court
held that compulsory counterclaims were barred because:
the allegations . . . clearly stem from alleged activity of the Defendant(s)
which Plaintiff discussed in great detail during the pendency of the
Underlying Lawsuit. . . . Plaintiff raised these issues . . . in the Underlying
Lawsuit. Second, most of the allegations cited by Plaintiff . . . involve
actions by the Defendant(s) that occurred prior to or concurrent with the
filing of the Underlying Lawsuit.

No. 07-15449, 2008 WL 2447147, at *2 (E.D. Mich. June 18, 2008). The key factual
issues of the instant suit were also raised in the previous case and involved actions by
Defendant that occurred prior to or concurrent with that case. Thus, the claims for
money paid out prior to the filing of the answer to the amended complaint are
compulsory counter-claims, and therefore barred. The court will deny summary
judgment as to those remaining claims.
No motion for summary judgment by Defendant is pending, but the conclusions
reached by the court, above, on the question of Plaintiff’s compulsory counterclaims
appear to warrant a grant of summary judgment in favor of Defendant as to those
8

claims. See Fed. R. Civ. P 56(f). The parties shall have a fair opportunity to respond to
that suggestion.
IV. CONCLUSION
The instant motion seeks summary judgment in favor of Plaintiff. As to the claim
for attorney fees in the underlying suit, the payments to Aurora Bank FSB, and the claim
for declaratory judgment quieting title in Plaintiff’s name, the material, operative facts
are not in dispute. Neither does Defendant dispute the sufficiency of the facts to warrant
a grant of summary judgment to Plaintiff on those claims.
The final disposition of the motion turns on whether the remaining claims founded
in fraud were compulsory, and therefore barred, as discussed above.
The court will order Plaintiff to respond and explain why those claims should not
be dismissed as forfeited compulsory counterclaims. In lieu of such a showing, the
parties may also submit for the court’s consideration a stipulated proposed order
regarding these claims.
IT IS ORDERED that Plaintiff’s Motion for Summary Judgment (Dkt. #14) is
GRANTED with respect to attorney fees in the underlying suit, the payments to Aurora
Bank FSB, and the claim for declaratory judgment quieting title in Plaintiff’s name.
IT IS FURTHER ORDERED that Plaintiff’s Motion for Summary Judgment (Dkt.
#14) is DENIED with respect to all other claims.
IT IS FURTHER ORDERED that Plaintiff show cause in writing by Wednesday,
February 15, 2017, why the claims for which summary judgment was denied should not
be dismissed as forfeited compulsory counterclaims.
s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: January 31, 2017
9

I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, January 31, 2017, by electronic and/or ordinary mail.

s/Shawna C. Burns
Case Manager Generalist
[phone]

Q:\Cleland\JUDGE'S DESK\C2 ORDERS\13-11758.IDS.grantsummaryjudgment.bss.RHC.wpd

10