Progressive Casualty Insurance Company v. Delaney et al

Filing 199

ORDER denying 138 Motion to Dismiss. Signed by Judge Larry R. Hicks on 11/13/2014. (Copies have been distributed pursuant to the NEF - DKJ)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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***
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PROGRESSIVE CASUALTY INSURANCE )
COMPANY,
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Plaintiff,
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v.
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JACKIE K. DELANEY; et al.,
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Defendants.
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2:11-CV-0678-LRH-PAL
ORDER

Before the court is plaintiff Progressive Casualty Insurance Company’s (“Progressive”)

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motion to dismiss counterclaims. Doc. #138.1 Defendant Kenneth Templeton (“Templeton”) filed

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an opposition to the motion (Doc. #156) to which defendants Jackie K. Delaney, Larry E. Carter,

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Mark A. Stout, John Shively, Steven C. Kalb, Jerome F. Snyder, Hugh Templeton, and Rick

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Dreschler (collectively “director and officer defendants”) joined (Doc. #158). Progressive then filed

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a reply. Doc. #169.

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I.

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Facts and Procedural History
This is a declaratory relief action brought by plaintiff Progressive to determine whether a

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company liability insurance policy issued by Progressive to defendant Sun West Bank

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(“Sun West”) covers an underlying claim made by the Federal Deposit Insurance Corporation2

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Refers to the court’s docket entry number.

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The FDIC is currently operating as the receiver for Sun West.

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(“FDIC”) against Sun West’s board of directors and company officers, the individual defendants in

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this action.

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On April 29, 2011, Progressive filed the underlying complaint for declaratory relief.

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Doc. #1. On June 13, 2011, Templeton and the other director and officer defendants filed a

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consolidated answer to Progressive’s complaint. Doc. #13. This action was then stayed to allow

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time for the FDIC to complete its investigation into Sun West.

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After the investigation, Progressive filed a motion to amend on December 13, 2013.

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Doc. #84. Progressive then filed its first amended complaint on March 26, 2014. Doc. #114. On

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April 9, 2014, the director and officer defendants filed an answer to the amended complaint along

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with five counterclaims: (1) breach of contract; (2) breach of the implied covenant of good faith

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and fair dealing; (3) breach of the implied covenant of good faith and fair dealing - tort damages;

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(4) violation of N.R.S. 686A.310; and (5) declaratory relief. Doc. #122. Also on April 9, 2014,

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defendant Templeton filed his separate answer to the amended complaint along with four

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counterclaims: (1) breach of contract; (2) breach of the implied covenant of good faith and fair

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dealing - contract damages; (3) breach of the implied covenant of good faith and fair dealing - tort

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damages; and (4) violation of N.R.S. 686A.310. Doc. #124. All defendants also sought punitive

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damages against Progressive. See Doc. ##122, 124. Thereafter, Progressive filed the present motion

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to dismiss. Doc. #138.

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II.

Legal Standard

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Progressive seeks dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure

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to state a claim upon which relief can be granted. To survive a motion to dismiss for failure to state

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a claim, a complaint must satisfy the Federal Rule of Civil Procedure 8(a)(2) notice pleading

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standard. See Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1103 (9th Cir. 2008). That

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is, a complaint must contain “a short and plain statement of the claim showing that the pleader is

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entitled to relief.” Fed. R. Civ. P. 8(a)(2). The Rule 8(a)(2) pleading standard does not require

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detailed factual allegations; however, a pleading that offers “‘labels and conclusions’ or ‘a
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formulaic recitation of the elements of a cause of action’” will not suffice. Ashcroft v. Iqbal, 129 S.

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Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

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Furthermore, Rule 8(a)(2) requires a complaint to “contain sufficient factual matter,

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accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. at 1949 (quoting

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Twombly, 550 U.S. at 570). A claim has facial plausibility when the pleaded factual content allows

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the court to draw the reasonable inference, based on the court’s judicial experience and common

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sense, that the defendant is liable for the misconduct alleged. See id. at 1949-50. “The plausibility

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standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a

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defendant has acted unlawfully. Where a complaint pleads facts that are merely consistent with a

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defendant’s liability, it stops short of the line between possibility and plausibility of entitlement to

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relief.” Id. at 1949 (internal quotation marks and citation omitted).

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In reviewing a motion to dismiss, the court accepts the facts alleged in the complaint as

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true. Id. However, “bare assertions . . . amount[ing] to nothing more than a formulaic recitation of

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the elements of a . . . claim . . . are not entitled to an assumption of truth.” Moss v. U.S. Secret

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Serv., 572 F.3d 962, 969 (9th Cir. 2009) (quoting Iqbal, 129 S. Ct. at 1951) (brackets in original)

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(internal quotation marks omitted). The court discounts these allegations because “they do nothing

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more than state a legal conclusion—even if that conclusion is cast in the form of a factual

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allegation.” Id. (citing Iqbal, 129 S. Ct. at 1951.) “In sum, for a complaint to survive a motion to

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dismiss, the non-conclusory ‘factual content,’ and reasonable inferences from that content, must be

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plausibly suggestive of a claim entitling the plaintiff to relief.” Id.

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III.

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Discussion
Defendants’ counterclaims for breach of contract and breach of the implied covenants of

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good faith and fair dealing are based on Progressive’s alleged breach of the terms of the Sun West

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company liability policy, namely, the alleged failure by Progressive to timely acknowledge

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coverage under the policy and alleged failure to timely and completely participate in the

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defendants’ defense of the FDIC investigation. Similarly, defendants’ counterclaim for a violation
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of NRS 686A.310, Nevada’s unfair practices act, is based on Progressive’s alleged failure to timely

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communicate with defendants and make a prompt coverage determination.

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In its motion to dismiss, Progressive argues that these counterclaims should be dismissed

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because it is currently participating in defendants’ defense pursuant to a reservation of rights and

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has recently begun advancing reasonable and necessary defense costs. Thus, Progressive argues that

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while it is true that it has not made a final coverage determination, its decision to proceed under a

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reservation of rights does not and cannot constitute a breach of any provision of the policy or

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constitute conduct that is contrary to, or in contravention of, the purpose of the policy. Therefore,

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Progressive argues that the court should dismiss these counterclaims in their entirety.

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The court has reviewed the documents and pleadings on file in this matter and finds that

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Progressive’s motion is premature. The issues identified in the counterclaims require an

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interpretation of the policy language and how coverage is to be applied. For example, a

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determination that Progressive did not breach the policy or act contrary to the policy’s purpose

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requires information not presently before the court including how and when Progressive became

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aware of the FDIC’s investigation, what the nature of the FDIC’s investigation entailed, what

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claims against the defendants are being sought by the FDIC, and how and when Progressive

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decided to act pursuant to a reservation of rights and began advancing defense costs. The

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counterclaims encapsulate the same coverage issues that Progressive seeks a determination about in

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its complaint. Yet, the circumstances surrounding the application of coverage is still being

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developed. Therefore, the court finds that it would be more appropriate to address all of the parties’

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claims at the same time when the court has all of the necessary and relevant information before it.

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Accordingly, the court shall deny Progressive’s motion.

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IT IS THEREFORE ORDERED that plaintiff’s motion to dismiss (Doc. #138) is DENIED.

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IT IS SO ORDERED.

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DATED this 13th day of November, 2014.
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LARRY R. HICKS
UNITED STATES DISTRICT JUDGE

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