Jaskulske v. State Farm Mutual Automobile Insurance Co. et al

Filing 60

MEMORANDUM AND ORDER: 1. Granting State Farm's Motion to Dismiss 47 ; 2. Granting AudaExplore's Motion to Dismiss 51 ; and 3. Dismissing without prejudice Count I of Jaskulske's Complaint, and Dismissing with prejudice Counts II and III. LET JUDGMENT BE ENTERED ACCORDINGLY. (Written Opinion). Signed by The Hon. Paul A. Magnuson on 10/31/2014. (LLM)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
John Jaskulske, on behalf of himself and
all others similarly situated,

Case No. 14-cv-869 (PAM/TNL)

Plaintiff,
v.

MEMORANDUM AND ORDER

State Farm Mutual Automobile Insurance
Co., Audatex North America, Inc.,
Explore Information Services, LLC, and
Solera Holdings, Inc.,
Defendants.
___________________________________________________________
This matter is before the Court on two Motions to Dismiss filed by State Farm
Mutual Automobile Insurance Co. and Audatex North America, Inc., Explore
Information Services, LLC, and Solera Holdings, Inc. (collectively “AudaExplore”). For
the reasons that follow, the Court grants the Motions.
BACKGROUND
In February 2012, John Jaskulske’s 2004 Honda Odyssey was damaged in a car
accident with a State Farm-insured driver. (Am. Compl. (Docket No. 37) ¶ 41.) The
vehicle was a “total loss” because its repair cost was greater than its value. (Id.)
To recover for the damage to his vehicle, Jaskulske made an insurance claim to
State Farm. (Id. ¶ 42.) State Farm hired AudaExplore to generate a valuation of the
vehicle, which State Farm would use to determine the amount that it would pay to settle
Jaskulske’s claim. (Id.) In March 2012, State Farm informed Jaskulske by letter that it
declared the vehicle a total loss and had assessed the vehicle’s value. (Id. ¶¶ 36, 43.)

Believing that the valuation was too low, Jaskulske requested details about how
State Farm reached the valuation.

(Id. ¶¶ 43-45.)

In response, State Farm faxed

Jaskulske a copy of AudaExplore’s valuation report. (Id. ¶ 45.) The report indicated that
the vehicle’s value was reduced by 7% to account for the difference between the typical
asking and selling price of his vehicle:
The asking or actual sale price is displayed for each vehicle. If a vehicle
has been sold, the sold price is displayed with an (S) indicator. The selling
price may be substantially less than the asking price. In the case of this
2004 Honda Odyssey, the difference between the asking price and selling
price is generally 7%. This selling price adjustment has been applied to the
typical price.
(Id. ¶ 46.)
State Farm eventually issued Jaskulske a settlement payment on his claim. (Id.
¶ 48.)

After bringing additional, unrelated conditions to State Farm’s attention and

obtaining an increase in the settlement amount, Jaskulske accepted the payment. (Id. ¶ 48
n.1.)
Jaskulske then brought a putative class action against State Farm and
AudaExplore, alleging that, in settling third-party car insurance claims for total-loss
vehicles in Minnesota, they systematically reduce every vehicle’s value by an arbitrary
7%. (Compl. (Docket No. 1, Ex. A) ¶¶ 1-13.) This settlement practice, according to
Jaskulske, was unlawful in two ways. First, he contended that the practice itself violated
State Farm’s obligations under Minnesota’s Uniform Consumer Protection Act and its
own insurance policies to pay third-party beneficiaries of policyholders the “actual cash
value” of total-loss vehicles. (Id. ¶¶ 22-33.) Under that theory, he asserted claims for
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declaratory judgment, breach of contract, and injunctive relief. (Id. ¶¶ 58-68, 78-84, 10407.) Second, he contended that State Farm concealed the practice from claimants by
omitting from settlement communications that it applied the 7% reduction and the basis
for the reduction. (Id. ¶¶ 34-37.) Under that theory, he asserted claims for fraud,
deceptive trade practices through the private-attorney-general statute, and false
advertising. (Id. ¶¶ 69-77, 85-103.)
State Farm and AudaExplore each moved to dismiss Jaskulske’s claims. (State
Farm Mot. to Dismiss (Docket No. 13); AudaExplore Mot. to Dismiss (Docket No. 15).)
They primarily argued that: the declaratory-judgment claim failed because a private party
cannot enforce the UCPA and the UCPA is limited to first-party insureds, not third-party
claimants like Jaskulske; the fraud claim failed to plead any misrepresentation or
omission with particularity; the breach-of-contract claim failed because Minnesota law
forbids third-party enforcement of insurance policies and the insurance policy allows the
7% reduction; the deceptive-trade-practices claim failed because Jaskulske would neither
be likely to suffer future harm nor secure a public benefit; and the false-advertising claim
failed because Jaskulske did not challenge any advertisements.

(State Farm Mem.

(Docket No. 31); AudaExplore Mem. (Docket No. 34).)
Made aware of the defects in some of his claims, Jaskulske amended the
Complaint. (Am. Compl.) He dropped the declaratory-judgment, false-advertising, and
injunctive-relief claims, and kept the fraud, breach-of-contract, and deceptive-tradepractices claims. (Id. ¶¶ 64-90.) In doing so, he acknowledged that the UCPA does not

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provide a private right of action but maintained that it is “instructive” and “corroborates”
the fraudulent and deceptive nature of the settlement practice. (Id. ¶¶ 8, 11, 35.)
State Farm and AudaExplore again move to dismiss for failure to state a claim and
for failure to plead fraud with particularity. In briefing, Jaskulske concedes that his
breach-of-contract claim lacks merit.
DISCUSSION
To survive a motion to dismiss for failure to state a claim, a complaint “must
contain sufficient factual matter, accepted as true, to ‘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)); see also Fed. R. Civ. P. 12(b)(6). A claim
bears facial plausibility when it allows the Court “to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Id. When evaluating a motion to
dismiss, the Court must accept factual allegations as true, Gomez v. Wells Fargo Bank,
N.A., 676 F.3d 655, 660 (8th Cir. 2012), but it need not give effect to those that simply
assert legal conclusions, McAdams v. McCord, 584 F.3d 1111, 1113 (8th Cir. 2009).
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements,” are insufficient to support a claim. Iqbal, 556 U.S. at 678.
In addition, a complaint that asserts a fraud claim must plead “with particularity
the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). A fraud claim is pleaded
with particularity when it alleges “such matters as the time, place, and contents of false
representations, as well as the identity of the person making the misrepresentation and
what was obtained or given up thereby.” Schaller Tel. Co. v. Golden Sky Sys., Inc., 298
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F.3d 736, 746 (8th Cir. 2002). In other words, the complaint must plead the “who, what,
where, when, and how” of the alleged fraud. Drobnak v. Andersen Corp., 561 F.3d 778,
783 (8th Cir. 2009) (citation and quotation marks omitted). “Conclusory allegations that
a defendant’s conduct was fraudulent and deceptive” are not enough. Id.
Advocating for dismissal of the Amended Complaint, State Farm and
AudaExplore start with the same overarching challenge that they made against the
original Complaint: all of Jaskulske’s claims are predicated on the assumption that the
settlement practice violates the UCPA and the UCPA bars private enforcement whether
the claims are asserted directly or indirectly under the statute. By extension, State Farm
and AudaExplore argue that Jaskulske’s remaining fraud and deceptive-trade-practices
claims are UCPA claims in disguise and must be dismissed because a private party
cannot enforce the UCPA. They are partly right.
No private cause of action exists under the UCPA; only the Minnesota
Commissioner of Insurance and Attorney General may enforce the statute. See Morris v.
Am. Family Mut. Ins. Co., 386 N.W.2d 233, 236-38 (Minn. 1986) (explaining that the
UCPA establishes a “comprehensive scheme of administrative enforcement” for
“investigating and regulating an insurer’s general business practices” and concluding that
the Minnesota Legislature tasked the Commissioner of Commerce—and not private
parties—with responsibility for enforcing the statute’s regulatory regime); see also Minn.
Stat. § 72A.201, subd. 1. And to thwart any effort to circumvent that enforcement
scheme, a private party may not assert other claims based on alleged UCPA violations.
See Schermer v. State Farm Fire & Cas. Co., 702 N.W.2d 898, 905 (Minn. App. 2005)
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(rejecting the plaintiff’s attempt to recast a purported UCPA violation as other commonlaw and statutory claims); Glass Serv. Co. v. State Farm Mut. Auto. Ins. Co., 530 N.W.2d
867, 872 (Minn. App. 1995) (dismissing claims based on alleged UCPA violations).
But not all of the Amended Complaint relies on the assumption that the settlement
practice violates the UCPA. Although the Amended Complaint is not easily discernible,
Jaskulske seems to make two sets of allegations:
1.

the systematic and arbitrary 7% reduction violates the UCPA, (see,
e.g., Am. Comp. ¶ 7 (“Defendants’ conduct of systematically
reducing the actual cash value of consumers’ vehicles by 7% is
deceptive, misleading, and unfair.”), ¶ 27 (“State Farm . . . through
its use of AudaExplore valuations systematically reduc[es] the actual
cash value by an arbitrary approximate 7%, which results in
settlements that are not based upon the actual cost of purchase of
comparable vehicles.”), ¶ 29 (“The deceptive and misleading nature
of Defendants’ conduct is further confirmed in analyzing what
constitutes an unfair settlement practice under the UCPA.”)); and

2.

the failure to disclose the 7% reduction and its basis constitutes fraud
and deceptive trade practice, (see, e.g., id. ¶ 6 (“To keep consumers
from finding out that State Farm reduces its payments by
approximately 7%, State Farm provides letters to settlement
recipients which discuss the base value of their vehicles . . . but omit
any mention of the 7% reduction. That behavior misleads settlement
recipients . . . .”), ¶ 26 (“In determining the actual cash value of a
total loss vehicle, Defendants omit material facts from consumers
and deceive consumers when they fail to explain the systematic
reduction of the actual cash value by approximately 7%.”)).

The first set of allegations undoubtedly strikes at the lawfulness of the 7% reduction. It is
a camouflaged attempt to perpetuate a barred UCPA claim, and the Court will disregard
those allegations. Yet the second set of allegations speaks to the disclosure of the 7%
reduction. This is a matter distinct from a UCPA claim, and the Court will examine those
allegations.
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Given that the second set of allegations supports Jaskulske’s fraud and deceptivetrade-practices claims, the Court turns to address those claims.
A.

Fraud
State Farm and AudaExplore argue that Jaskulske’s fraud claim should be

dismissed because it fails to plead with either plausibility or particularity that they had a
duty to disclose any omitted information or that he reasonably relied on any misleading
representation.
Before it can analyze the fraud claim, the Court must first resolve whether that
claim is based on a misrepresentation, an omission, or both. See Graphic Commc’ns.
Local 1B Health & Welfare Fund A v. CVS Caremark Corp., 850 N.W.2d 682, 695
(Minn. 2014) (explaining that “a party may be liable for fraud either by making an
affirmative statement that is false or by concealing or not disclosing facts under certain
circumstances”). In the Amended Complaint—which, as noted above, is not a model of
clarity and coherence—Jaskulske labels the claim as one of “Misrepresentation and/or
Omission” and proceeds to assert both theories in the alternative. (See Am. Compl.
¶¶ 65-66.)
On closer scrutiny, Jaskulske’s allegations, taken as a whole, show that the fraud
claim is one of omission, not misrepresentation. At its core, the claim asserts that State
Farm’s failure to disclose both that the 7% reduction applies systematically and that the
basis for the 7% reduction is arbitrary is what renders the settlement practice misleading.
(See id. ¶ 5 (“AudaExplore, working in concert with State Farm, then systematically
reduces that amount by approximately 7%. . . . [T]his reduction is made without regard to
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any data from the local market regarding the difference between asking and selling price.
State Farm applies this reduction in every total loss settlement in Minnesota.”), ¶ 26
(“Defendants omit material facts from consumers and deceive consumers when they fail
to explain the systematic reduction of the actual cash value by approximately 7%.”), ¶ 39
(“The intent and effect of Defendants’ scheme is to intentionally obscure the most
controversial aspects of the valuation and mislead consumers concerning the quality of
the valuation and in particular the approximate 7% reduction.”).) It does not assert that
any affirmative statement does the same. The Court will therefore analyze the fraud
claim as an omission-based claim.
To prevail on a fraudulent-omission claim in Minnesota, the plaintiff must show
that the defendant had a duty to disclose the omitted information. CVS Caremark, 850
N.W.2d at 695-96 (Minn. 2014). At common law, “one party to a transaction has no duty
to disclose material facts to the other party.” Id. at 695. But three special circumstances
could trigger a duty to disclose: (1) if one party “has a confidential or fiduciary
relationship” with the other party; (2) if one party “has special knowledge of material
facts” to which the other party “does not have access”; and (3) if one party “who speaks
must say enough to prevent the words communicated from misleading” the other party.
Id.
Just one of these three circumstances is relevant here. Jaskulske has not alleged
that either a fiduciary relationship exists or that State Farm and AudaExplore needed to
say more to dispel a misleading statement. Jaskulske only alleges that State Farm and

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AudaExplore owe a duty to disclose because they have specialized knowledge of material
facts.
For the specialized-knowledge circumstance to trigger a duty to disclose, however,
the plaintiff must allege that the defendant had “actual knowledge of fraudulent
activities.” Richfield Bank & Trust Co. v. Sjogren, 244 N.W.2d 648, 652 (Minn. 1976).
In Sjogren, borrowers sought to finance the purchase of business equipment from a
company through a loan with the bank. Id. at 649. As the company happened to be one
of the bank’s depositors and the bank’s loan officer had a close relationship with the
company, the bank knew that the loan proceeds would go to the company but also knew
that the company was insolvent and had no reasonable expectation of fulfilling its
contractual obligations.

Id. at 649-50.

Without disclosing the company’s financial

condition, the bank approved the loan. Id. at 649. The borrowers later discovered that
the company would not be delivering the equipment. Id. The borrowers thus argued that
they were induced to accept the loan by the bank’s fraudulent concealment of the
company’s financial condition.

Id. at 650.

The Minnesota Supreme Court agreed,

holding that, when the bank had “actual knowledge of fraudulent activities” of the
company, it had a duty to disclose the company’s financial condition and its failure to do
so constituted fraud. Id. at 651-52.
By contrast, Jaskulske has not alleged enough facts to satisfy the specializedknowledge circumstance and give rise to a duty to disclose. Jaskulske alleges that State
Farm and AudaExplore have specialized knowledge “by virtue of their experience, access
to information, and superior bargaining position.”
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(Am. Compl. ¶ 66.)

But under

Sjogren, those broad allegations do not demonstrate that State Farm and AudaExplore
had actual knowledge of any fraudulent activity. See also CVS Caremark, 850 N.W.2d at
697-98 (holding that pharmacies had no duty to disclose prescription-drug acquisition
costs to the funds under a specialized-knowledge theory because they did not actually
know of any fraudulent conduct). And merely omitting the 7% reduction from the
settlement letter and how the 7% figure was reached from the valuation report does not
alone trigger a duty to disclose.
Absent a duty to disclose, Jaskulske has not pleaded with particularity a plausible
omission-based fraud claim. The Court will dismiss the claim without prejudice.
B.

Deceptive Trade Practices
State Farm and AudaExplore also argue that Jaskulske’s deceptive-trade-practices

claim should be dismissed because it fails to plead with plausibility that he is likely to
suffer future harm from the ongoing practice of systematically reducing total-loss
settlements by 7% and that his case will benefit the public.
Under the Deceptive Trade Practices Act, “[a] person likely to be damaged by a
deceptive trade practice of another may be granted an injunction against it under the
principles of equity and on terms that the court considers reasonable.” Minn. Stat.
§ 325D.45, subd. 1.

Because the DTPA provides relief for “a person likely to be

damaged,” it provides only injunctive relief “from future damage, not past damage.”
Gardner v. First Am. Title Ins. Co., 296 F. Supp. 2d 1011, 1020 (D. Minn. 2003) (citation
and quotation marks omitted). Thus, to state a DTPA claim, the plaintiff must allege “a
likelihood of future harm.” Id.
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Jaskulske cannot show that he is likely to suffer future harm. To do so, he would
again have to be (1) involved in an accident, (2) caused by a State Farm-insured driver,
(3) resulting in his vehicle being determined a total loss, and (4) induced by the practice
of systematically reducing total-loss settlements by 7% in accepting State Farm’s
settlement offer. The first three events could happen, but the fourth could not. Having
experienced, investigated, and alleged the settlement practice, Jaskulske is on notice of
the practice and can no longer say that he will again be deceived by the practice. See
Tuttle v. Lorillard Tobacco Co., No. 99-cv-1550 (PAM/JGL), 2001 WL 821831, at *5
(D. Minn. July 5, 2001) (Magnuson, J.) (reasoning that the plaintiff alleging DTPA
violations “can no longer be harmed by continued violations”); see also Olen v. N. Tier
Retail, LLC, No. 11-cv-2665 (DWF/JJG), 2012 WL 1580994, at *6 (D. Minn. May 4,
2012) (Frank, J.) (explaining that the plaintiff who “personally experienced” the allegedly
deceptive practice was “clearly aware of the practice and is unlikely to be confused in the
future”); Indep. Glass Ass’n, Inc. v. Safelite Grp., Inc., No. 05-cv-238 (ADM/FLN), 2005
WL 3079084, at *2 (D. Minn. Nov. 16, 2005) (Montgomery, J.) (holding that a plaintiff
who “was not persuaded” by the allegedly deceptive practice and is now aware of the
practice “is even more likely to be vigilant in the future”).
Unable to allege that he will suffer future harm, Jaskulske has not plausibly
pleaded a deceptive-trade-practices claim.

The Court will dismiss the claim with

prejudice. Because the Court dismisses the deceptive-trade-practices claim for failure to
plead the future-harm requirement, it need not and will not address whether Jaskulske has
satisfied the public-benefit requirement under the private-attorney-general statute.
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CONCLUSION
In sum, the fraud claim fails because Jaskulske has not pleaded that State Farm
and AudaExplore owed him a duty to disclose the settlement practice. The deceptivetrade-practices claim fails because Jaskulske cannot plead that he is likely to suffer future
harm from the settlement practice.

And the breach-of-contract claim fails because

Jaskulske agrees that it lacks merit. Accordingly, IT IS HEREBY ORDERED that:
1.

State Farm’s Motion to Dismiss (Docket No. 47) is GRANTED;

2.

AudaExplore’s Motion to Dismiss (Docket No. 51) is GRANTED; and

3.

Count I of Jaskulske’s Complaint (Docket No. 37) is DISMISSED without
prejudice, and Counts II and III are DISMISSED with prejudice.

LET JUDGMENT BE ENTERED ACCORDINGLY.

Dated: October 31, 2014

s/ Paul A. Magnuson
Paul A. Magnuson
United States District Court Judge

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