Hudson Specialty Insurance Company v. Talex Enterprises, LLC et al
Filing
97
ORDER granting 86 motion to dismiss. The Court dismisses, without prejudice, counts I, II, and III of Faraway, LLC's amended counterclaim. Signed by Honorable David C. Bramlette, III on July 26, 2018 (JBR)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
WESTERN DIVISION
HUDSON SPECIALTY INSURANCE COMPANY
PLAINTIFF
V.
NO. 5:17-CV-137-DCB-MTP
TALEX ENTERPRISES, LLC,
JUBILEE PERFORMING ARTS CENTER, INC.,
TERRANCE L. ALEXANDER, and the
BOARD OF MAYOR AND SELECTMEN
OF MCCOMB, MISSISSIPPI, et al.
DEFENDANTS
ORDER AND OPINION
Hudson
Specialty
Insurance
Company
moves
the
Court
to
dismiss, in part, the amended counterclaim of Faraway, LLC. For
the reasons that follow, Hudson’s motion is GRANTED.
Background
This dispute arises from the collapse of a McComb, Mississippi
building owned by Talex Enterprises, LLC, subject to a mortgage in
favor of Faraway, and insured under Hudson policy HBD 10027329.1
After the building collapsed, Talex submitted to Hudson a
proof of loss under the Policy, claiming its $660,000 limit. Doc.
1
The Court refers to Hudson policy number HBD 10027329 as the “Policy.”
80-2. Hudson then sued for declaratory relief and rescission of
the policies; Faraway counterclaimed against it.
Faraway’s amended counterclaim seeks an equitable lien and
damages for breach of contract, tortious breach of contract, and
gross negligence. It relies on the Policy’s “union” mortgage clause
and theorizes that Hudson should have paid Faraway the balance on
its mortgage —— $621,111 —— when Talex submitted its proof of loss.
Faraway’s theory assumes three things.
First, the “union” mortgage clause in the Policy creates a
separate
policy
of
insurance
between
it
and
Hudson.
Second,
Faraway’s right to payment of the balance of its mortgage under
the Policy is not affected by Talex’s or Alexander’s misconduct.
Third, Faraway’s right to payment —— as mortgageholder —— was
triggered when Talex submitted its proof of loss.
Hudson attacks the third assumption and moves the Court to
dismiss,
contract,
without
tortious
prejudice,
breach
of
Faraway’s
contract,
claims
and
for
gross
breach
of
negligence.
Faraway opposes. It counters that its interest in the Policy
withstands any misconduct by Hudson’s insureds. But it offers no
authority to support its theory equating Talex’s submission of a
proof of loss with its own initiation of a separate mortgageholder
claim under the Policy’s “union” mortgage clause.
2
I
To overcome Hudson’s motion, Faraway must plead a plausible
claim for relief. Romero v. City of Grapevine, Tex., 888 F.3d 170,
176 (5th Cir. 2018) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)). A claim is plausible if it is pleaded with factual content
that allows the Court to reasonably infer that Hudson is liable
for the misconduct alleged. Edionwe v. Bailey, 860 F.3d 287, 291
(5th Cir. 2017) (citing Iqbal, 556 U.S. at 678). But no matter the
factual content, a claim is not plausible if it rests on a legal
theory that is not cognizable. Shandong Yinguang Chem. Indus. Joint
Stock Co. v. Potter, 607 F.3d 1029, 1032 (5th Cir. 2010) (per
curiam).
In ruling on Hudson’s motion, the Court accepts the amended
counterclaim’s well-pleaded facts as true and views them in the
light most favorable to Faraway. Midwest Feeders, Inc. v. Bank of
Franklin, 886 F.3d 507, 513 (5th Cir. 2018).
II
Under
Mississippi
law,
certain
insurance
policies
must
include a “union” mortgage clause. MISS. CODE ANN. § 83-13-9. A
“union” mortgage clause creates a separate insurance contract
between the mortgageholder and the insurer. Lumbermens Mut. Cas.
Co. v. Thomas, 555 So. 2d 67, 69 (Miss. 1989). That way, a
mortgageholder’s right to recover under an insurance policy is not
3
negated by the conduct of the mortgagor. See IDs Property Cas.
Ins. Co. v. Meeks, F. App’x 513, 516 (5th Cir. July 31, 2012) (per
curiam).
Here, the “union” mortgage clause in the Policy creates a
separate insurance contract between Hudson and Faraway.2 Doc. 133, p.62. That much is undisputed. What is disputed is when Hudson’s
obligations
under
the
Policy’s
“union”
mortgage
clause
were
triggered. Hudson says its obligations were not triggered when
Talex submitted its proof of loss. The Court agrees.
Talex’s claim cannot qualify as a separate mortgageholder
claim under the Policy’s “union” mortgage clause. First, Talex’s
proof of loss is signed only by Alexander, Talex’s principal; it
is not signed by David Feldman, Faraway’s principal. Second,
Talex’s claim seeks the policy limit of $660,000 —— $40,000 more
than the balance of Faraway’s mortgage. Third, Hudson’s payment of
a “union” mortgage clause claim would change Talex’s obligations
in fundamental ways: It would transfer Faraway’s mortgageholder
rights to Hudson. Doc. 13-3, p.62. The two claims carry different
legal consequences, so one claim cannot operate as the other.
The Policy’s “union” mortgage clause provides, in part: “If we pay the
mortgageholder for any loss or damage and deny payment to you because of your
acts or because you have failed to comply with the terms of this Coverage Part:
(1) The mortgageholder’s rights under the mortgage will be transferred to us to
the extent of the amount we pay; and (2) The mortgageholder’s right to recover
the full amount of the mortgageholder’s claim will not be impaired.” Doc. 133, p.62.
2
4
Because
Talex’s
claim
does
not
qualify
as
a
separate
mortgageholder claim under the Policy’s “union” mortgage clause,
Talex’s claim did not trigger Hudson’s obligation to pay Faraway
the balance of its mortgage under that clause. And because Talex’s
claim did not trigger Hudson’s obligations under the “union”
mortgage clause, Hudson cannot be liable to Faraway under breach
of contract, tortious breach of contract, or gross negligence
theories for failing to pay Faraway the balance of its mortgage in
response
to
Talex’s
claim.
The
theory
Faraway’s
amended
counterclaim advances is not cognizable, so all claims except for
its request for an equitable lien are not plausible. Potter, 607
F.3d at 1032.
To be clear, the Court expresses no opinion on Faraway’s right
to recover against Hudson under the Policy’s “union” mortgage
clause after Faraway makes a proper, independent mortgageholder
claim. The Court holds only that Talex’s submission of a proof of
loss does not qualify as a separate mortgageholder claim, made on
Faraway’s behalf, under the Policy’s “union” mortgage clause.
5
III
Faraway’s amended counterclaim fails to allege plausible
claims for breach of contract, tortious breach of contract, and
gross negligence because the claims rely on the flawed legal
conclusion that Talex’s submission of a claim through a proof of
loss form operated as a separate “union” mortgage clause claim
that triggered Hudson’s obligations to Faraway under the Policy.
Accordingly,
IT
IS
ORDERED
that
Hudson
Specialty
Insurance
Company’s
motion [Doc. 86] to dismiss, in part, the amended counterclaim of
Faraway, LLC is GRANTED and counts I, II, and III of Faraway, LLC’s
amended counterclaim are DISMISSED WITHOUT PREJUDICE.
SO ORDERED, this the 26th day of July, 2018.
/s/ David Bramlette_________
UNITED STATES DISTRICT JUDGE
6
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