HBE Corporation v. Arch Specialty Insurance Company

Filing 13

MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that defendants motion to dismiss Count I of the complaint [Doc. #4] is denied. Signed by District Judge Carol E. Jackson on 1/20/2015. (KMS)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
HBE CORPORATION,

)
)
Plaintiff,
)
)
vs.
)
)
ARCH SPECIALTY INSURANCE COMPANY, )
)
Defendant.
)

Case No. 4:14-CV-1454-CEJ

MEMORANDUM AND ORDER
This matter is before the Court on defendant’s motion to dismiss Count I of
the complaint for failure to state a claim, pursuant to Fed. R. Civ. P. 12(b)(6), and
for lack of subject matter jurisdiction, pursuant to Fed. R. Civ. P. 12(b)(1).

The

issues are fully briefed.
I.

Background

Plaintiff HBE Corporation designs and constructs hospitals.

In 2008, HBE

contracted with Kaiser Foundation Hospitals to design and build a hospital complex
in Harbor City, California. HBE sought to protect itself from any loss it might suffer
if it breached its contract with Kaiser by purchasing project-specific professional
liability insurance (the policy) from defendant Arch Specialty Insurance Company.
The policy requires Arch to defend HBE on claims related to HBE’s errors or
omissions in its performance of architectural, engineering, and other professional
services on the hospital project, with some exceptions. The policy contains a selfinsured retention clause (i.e., a deductible) that requires HBE to spend $1 million
defending itself before Arch’s obligation to defend commences.

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Kaiser terminated HBE’s right to participate in the hospital project on
November 1, 2011, alleging that HBE’s design work was deficient. HBE informed
Arch about the termination, in writing, on January 5, 2012. On February 17, 2012,
Kaiser demanded arbitration.

The matter was consolidated for arbitration with

several other claims that Kaiser brought against HBE’s subcontractors.
Under the policy, Arch is not obligated to defend HBE, or contribute toward
HBE’s defense, for any cause of action that is not covered. On May 13, 2014, Arch
notified HBE that Arch would not defend or indemnify HBE in the arbitration unless
HBE demonstrated that it had met the $1 million deductible. HBE responded that it
had already spent over $4.5 million defending itself against Kaiser.

To date,

however, Arch has not contributed any funds toward HBE’s defense in the
arbitration.
In Count I, HBE claims that Arch breached or anticipatorily repudiated the
policy by refusing to defend HBE in the arbitration against Kaiser. HBE alleges that,
after tendering the Kaiser claim to Arch, “HBE’s counsel . . . informed Arch’s
counsel that HBE’s costs of its defense are well in excess of $1,000,000.00”
Complaint ¶ 26.

HBE further alleges that it “estimates that its attorneys’ fees,

expert fees and other costs for HBE’s defense [in the arbitration proceeding] are
well in excess of $4,500,000.00 and are continuing.” Id. at ¶ 29. HBE also alleges
that it “has performed its respective obligations under the Policy” and “has satisfied
all conditions precedent set forth in the Policy to maintain its rights to insurance
coverage.” Id. at ¶ 30. Arch moves to dismiss Count I, arguing that allegations
show that HBE has not provided evidence to Arch that it has paid the $1 million

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deductible and, thus, HBE has not satisfied a condition precedent to coverage under
the policy.
II.

Legal Standard

The purpose of a motion to dismiss under Rule 12(b)(6) of the Federal Rules
of Civil Procedure is to test the legal sufficiency of the complaint.

The factual

allegations of a complaint are assumed true and construed in favor of the plaintiff,
“even if it strikes a savvy judge that actual proof of those facts is improbable.” Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007) (citing Swierkiewicz v.
Sorema N.A., 534 U.S. 506, 508 n.1 (2002)); Neitzke v. Williams, 490 U.S. 319,
327 (1989) (“Rule 12(b)(6) does not countenance . . . dismissals

based on a

judge’s disbelief of a complaint’s factual allegations”); Scheuer v. Rhodes, 416 U.S.
232, 236 (1974) (a well-pleaded complaint may proceed even if it appears “that a
recovery is very remote and unlikely”). The issue is not whether the plaintiff will
ultimately prevail, but whether the plaintiff is entitled to present evidence in
support of his claim. Id. A viable complaint must include “enough facts to state a
claim to relief that is plausible on its face.” Bell Atlantic Corp., 550 U.S. at 570; see
also id. at 563 (“no set of facts” language in Conley v. Gibson, 355 U.S. 41, 45–46
(1957), “has earned its retirement.”) “Factual allegations must be enough to raise
a right to relief above the speculative level.” Id. at 555.
II.

Discussion
A. Choice of Law

The parties disagree about whether Missouri or California law governs this
case.

Because this motion can be resolved by reference to the Federal Rules of

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Civil Procedure and the relevant case law, it is unnecessary to address the choice of
law dispute.
B. Breach of Contract
Under Missouri law, “[a] breach of contract action includes the following
essential elements: (1) the existence and terms of a contract; (2) that plaintiff
performed or tendered performance pursuant to the contract; (3) breach of the
contract by the defendant; and (4) damages suffered by the plaintiff.” Keveney v.
Missouri Military Acad., 304 S.W.3d 98, 104 (Mo. 2010) (en banc) (citation
omitted).

Under California law, “the elements of a cause of action for breach of

contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse
for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the
plaintiff.”

Oasis W. Realty, LLC v. Goldman, 250 P.3d 1115, 1121 (Cal. 2011)

(citation omitted). Thus, under either Missouri or California law, satisfaction of all
conditions precedent is an essential element of a plaintiff’s claim for breach of
contract.

A complaint must therefore allege satisfaction of all conditions

precedent.1
“The Federal Rules of Civil Procedure expressly permit generalized pleading
of compliance with conditions precedent.”

Cummins Law Office, P.A. v. Norman

Graphic Printing Co., 826 F. Supp. 2d 1127, 1129 (D. Minn. 2011). Fed. R. Civ. P.
9(c) states as follows: “In pleading conditions precedent, it suffices to allege
generally that all conditions precedent have occurred or been performed.”

Here,

the allegations of the complaint clearly state that HBE informed Arch that it had
exceeded the $1 million deductible and that HBE has satisfied the relevant condition
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The parties agree that, under either Missouri or California law, HBE has satisfied the other elements
to state a claim for breach of contract.

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precedent to coverage.

Therefore, Count I of the complaint sufficiently states a

claim for breach of contract.2
C. Subject Matter Jurisdiction
Arch contends that HBE’s claim is not ripe for adjudication. See KCCP Trust
v. City of N. Kansas City, 432 F.3d 897, 899 (8th Cir. 2005) (citing Abbott
Laboratories v. Gardner, 387 U.S. 136, 149 (1967)).

Arch reasons that HBE’s

alleged failure to satisfy all conditions precedent means that Arch is not yet in
breach and HBE’s claim is not yet ripe.

This argument is based on the faulty

premise that Count I fails to state a claim for breach of contract.

Because the

Court has concluded that Count I is legally sufficient, a justiciable controversy
exists.
*****
For the reasons set forth above,
IT IS HEREBY ORDERED that defendant’s motion to dismiss Count I of the
complaint [Doc. #4] is denied.

___________________________
CAROL E. JACKSON
UNITED STATES DISTRICT JUDGE
Dated this 20th day of January, 2015.

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Because HBE has alleged a plausible claim for breach of contract, the Court does not address HBE’s
alternative argument that Arch anticipatorily repudiated the contract.

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