Board of Trustees of the Southern Nevada Joint Management and Culinary and Bartenders Training Fund v. Fava et al
Filing
62
ORDER that #29 Federal's Motion to Dismiss is GRANTED. Signed by Judge James C. Mahan on 7/2/2018. (Copies have been distributed pursuant to the NEF - MMM)
1
2
3
4
UNITED STATES DISTRICT COURT
5
DISTRICT OF NEVADA
6
***
7
8
9
BOARD OF TRUSTEES OF THE
SOUTHERN NEVADA JOINT
MANAGEMENT AND CULINARY AND
BARTENDERS TRAINING FUND,
ORDER
Plaintiff(s),
10
v.
11
12
Case No. 2:18-CV-36 JCM (CWH)
CHRISTOPHER FAVA, et al.,
Defendant(s).
13
14
Presently before the court is defendant Federal Insurance Company’s (“Federal”) motion
15
16
17
18
19
20
21
22
23
24
25
26
27
28
James C. Mahan
U.S. District Judge
to dismiss. (ECF No. 29). Plaintiff Culinary Academy of Las Vegas (“CALV”) filed a response
(ECF No. 42), to which Federal replied (ECF No. 46).
I.
Facts
This case involves an insurance coverage dispute related to a claim involving two former
CALV employees’ alleged breaches of their fiduciary duty.
In January of 2012, CALV hired Christopher Fava as vice president of food and beverage
and chief operating officer, and later as its chief executive officer. (ECF No. 1). CALV is a
Nevada nonprofit employee benefit trust fund and is a provider of training for entry-level and
incumbent workers in the Las Vegas hospitality industry. Id. Fava’s position involved overseeing
and managing CALV’s assets and expenditures. Id.
In April of 2015, Jaime Monardes joined CALV as vice president of finance and
accounting. Id. Monardes was responsible for oversight of program operations, including the
expenditure and use of CALV’s assets. Id.
On January 19, 2016, Fava and Monardes entered into an allegedly impermissible
1
2
transaction with the Eclipse Theater LLC (“Eclipse Theater”). Id.
3
CALV maintained a policy of fiduciary liability insurance (“the policy”) with Federal. Id.
4
Fava and Monardes were insureds under the policy because of their employment at CALV and
5
their actions as functional fiduciaries of CALV. Id.
6
On December 19, 2016, CALV notified Federal of potential prohibited transactions
7
incurred by Fava and Monardes and requested a coverage determination. Id. On December 21,
8
2016, Federal told CALV it would conduct an investigation and evaluation for possible coverage.
9
Id. During phone calls between CALV and Federal, Federal indicated it did not believe CALV
10
could make a claim against Fava and Monardes because all parties were insured under the policy.
11
Id.
12
On June 22, 2017, CALV filed a formal claim on the Federal policy, including details of
13
its claims against Fava and Monardes. Id. On July 12, 2017, Federal responded to CALV and
14
stated that no claim had been made because no third party asserted liability. Id.
15
On August 4, 2017, Federal wrote to CALV and stated that it had not received CALV’s
16
claim against Fava and Monardes. Id. On August 14, 2017, CALV sent Federal a copy of its latest
17
claims against Fava and Monardes. Id.
18
On August 16, 2017, Federal wrote to CALV and said it would wait for Fava and Monardes
19
to ask Federal for coverage. Id. On August 22, 2017, CALV replied to Federal and pointed out
20
that the policy did not require that Fava and Monardes invoke coverage. Id.
21
On August 28, 2017, CALV wrote to Federal demanding payment under the policy and
22
noting that Federal had not articulated any basis for denying its claim. Id. On September 1, 2017,
23
Federal refused to discuss the matter further with CALV. Id.
24
On January 9, 2018, CALV filed the underlying complaint asserting fourteen claims for
25
relief against several individual and entity defendants. Id. In the instant motion, Federal moves
26
to dismiss the two state law claims CALV asserts against it. (ECF No. 29).
27
...
28
...
James C. Mahan
U.S. District Judge
-2-
1
II.
Legal Standard
2
A court may dismiss a complaint for “failure to state a claim upon which relief can be
3
granted.” Fed. R. Civ. P. 12(b)(6). A properly pled complaint must provide “[a] short and plain
4
statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2); Bell
5
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While Rule 8 does not require detailed
6
factual allegations, it demands “more than labels and conclusions” or a “formulaic recitation of the
7
elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted).
8
“Factual allegations must be enough to rise above the speculative level.” Twombly, 550
9
U.S. at 555. Thus, to survive a motion to dismiss, a complaint must contain sufficient factual
10
matter to “state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. 662, 678 (citation
11
omitted).
12
In Iqbal, the Supreme Court clarified the two-step approach district courts are to apply
13
when considering motions to dismiss. First, the court must accept as true all well-pled factual
14
allegations in the complaint; however, legal conclusions are not entitled to the assumption of truth.
15
Id. at 678–79. Mere recitals of the elements of a cause of action, supported only by conclusory
16
statements, do not suffice. Id. at 678.
17
Second, the court must consider whether the factual allegations in the complaint allege a
18
plausible claim for relief. Id. at 679. A claim is facially plausible when the plaintiff’s complaint
19
alleges facts that allow the court to draw a reasonable inference that the defendant is liable for the
20
alleged misconduct. Id. at 678.
21
Where the complaint does not permit the court to infer more than the mere possibility of
22
misconduct, the complaint has “alleged—but not shown—that the pleader is entitled to relief.” Id.
23
(internal quotation marks omitted). When the allegations in a complaint have not crossed the line
24
from conceivable to plausible, plaintiff's claim must be dismissed. Twombly, 550 U.S. at 570.
25
26
27
28
James C. Mahan
U.S. District Judge
The Ninth Circuit addressed post-Iqbal pleading standards in Starr v. Baca, 652 F.3d 1202,
1216 (9th Cir. 2011). The Starr court stated, in relevant part:
First, to be entitled to the presumption of truth, allegations in a complaint or
counterclaim may not simply recite the elements of a cause of action, but must
contain sufficient allegations of underlying facts to give fair notice and to enable
the opposing party to defend itself effectively. Second, the factual allegations that
-3-
are taken as true must plausibly suggest an entitlement to relief, such that it is not
unfair to require the opposing party to be subjected to the expense of discovery and
continued litigation.
1
2
3
Id.
4
III.
Discussion
5
CALV asserts two claims for relief against Federal: (1) breach of contract and (2) bad
6
faith for refusing to pay on its insurance claim. The court will analyze the claims separately.
7
a. Breach of contract
8
Under Nevada law, breach of contract is “a material failure of performance of a duty arising
9
under or imposed by agreement.” Bernard v. Rockhill Dev. Co., 734 P.2d 1238, 1240 (Nev. 1987).
10
A claim for breach of contract requires that a plaintiff demonstrate the following elements: (1) the
11
existence of a valid contract; (2) a breach by the defendant; and (3) damages as a result of the
12
breach. Cohen-Breen v. Gray TV Grp., Inc., 661 F. Supp. 2d 1158, 1171 (D. Nev. 2009).
13
Here, the parties do not dispute the validity of the policy. 1 Accordingly, the court will
14
determine whether Federal breached. See Cohen-Breen, 661 F. Supp. 2d. at 1171 (D. Nev. 2009).
1. Breach
15
16
CALV contends that it “made a claim on Federal for payment on the losses caused by Fava
17
and Monardes’ wrongful acts.” (ECF No. 1 at 25). CALV alleges that “Federal failed to pay the
18
claim, in breach of the terms of the policy.” Id. CALV argues that it is entitled to relief as either
19
(a) a claimant attempting to recover from Fava and Monardes or (b) as an insured party attempting
20
to recover under the policy. See (ECF No. 42).
i. Claimant
21
22
CALV, as a claimant against Fava and Monardes, argues that Federal breached the policy
23
by failing to pay its claim. See id. Federal contends that Nevada’s bar against direct actions
24
prohibits CALV’s recovery. (ECF No. 29).
25
1
26
27
28
James C. Mahan
U.S. District Judge
CALV did not include the insurance policy in its complaint. See (ECF No. 1). However,
Federal attached the policy as an exhibit and CALV’s claims against Federal are based on the
policy. (ECF No. 29, Ex. A). Accordingly, the court will consider the policy. See Coto Settlement
v. Eisenberg, 593 F.3d 1031, 1039 (9th Cir. 2010) (holding that on a motion to dismiss, a court
may consider documents outside the complaint when the contents of the document are alleged in
the complaint, the document’s authenticity is not in question, and there are no disputed issues as
to the document’s relevance); see also Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).
-4-
1
Under Nevada law, relief between a third party claimant and an insurer is proper only after
2
the third party obtains a final judgment against the insured wrongdoer. 2 Knittle v. Progressive
3
Cas. Ins. Co., 908 P.2d 724, 726 (Nev. 1996). The rights of a third party claimant against an
4
alleged wrongdoer’s insurer do not mature until the claimant obtains a judgment against the
5
wrongdoer. Roberts v. Farmers Ins. Co., 533 P.2d 158, 159 (Nev. 1975).
6
Therefore, a plaintiff has “no legally protectable interest” until he establishes liability of
7
the insured wrongdoer. See Knittle, 908 P.2d at 725-26. Prior to obtaining judgment against the
8
wrongdoer, plaintiff’s rights against the wrongdoer’s insurer are not ripe for relief. Id. at 726.
9
Here, CALV, as a third party claimant, cannot sue Federal before obtaining judgment
10
against Fava and Monardes.3 See Roberts, 533 P.2d at 159. Accordingly, plaintiff is not entitled
11
to relief as a claimant. See Knittle, 908 P.2d at 725-26.
ii. Insured
12
13
CALV argues that it asserted a claim in its capacity as an insured party under the policy.
14
(ECF No. 42). CALV alleges that Federal breached the policy by failing to pay the claim. Id.
15
Federal contends that CALV’s recovery is barred by the policy’s terms. (ECF No. 29).
16
“The interpretation of a contract when the facts are not in dispute is a question of law.”
17
Musser v. Bank of Am., 964 P.2d 51, 52 (Nev. 1999). Moreover, whether a contract is ambiguous
18
presents a question of law. See Margrave v. Dermody Props., 878 P.2d 291, 293 (Nev. 1994).
19
“The question of whether an insurance contract is ambiguous turns on whether it creates a
20
reasonable expectation of coverage as drafted.” United Nat’l Ins. Co. v. Frontier Ins. Co., 99 P.3d
21
1153, 1157 (Nev. 2004).
22
interpretation. See Anvui, LLC v. G.L. Dragon, LLC, 163 P.3d 405, 407 (Nev. 2007). However,
A contract is ambiguous if it is susceptible to more than one
23
2
24
25
A third party claimant is a plaintiff who attempts to recover from an insurer prior to
obtaining final judgment against the insured party. See Vignola v. Gillman, 804 F. Supp. 2d 1072,
1077 (D. Nev. 2011).
The policy defines insured as “(a) trust or plans; (b) natural persons serving as a past,
present, or future trustee or employee of a trust or plan; and (c) other natural person or organization
designated as an additional insured by endorsement to this policy.” (ECF No. 29, Ex. A).
Therefore, Fava and Monardes are insured by Federal under the policy because they are former
CALV employees. See id.; see also (ECF No. 1).
3
26
27
28
James C. Mahan
U.S. District Judge
-5-
1
“ambiguity does not arise simply because the parties disagree on how to interpret their contract.”
2
Galardi v. Naples Polaris, LLC, 301 P.3d 364, 366 (Nev. 2013).
3
If a provision in an insurance contract is unambiguous, the court will interpret and enforce
4
it according to the plain and ordinary meaning of its terms. Powell v. Liberty Mut. Fire Ins. Co.,
5
252 P.3d 668, 672 (Nev. 2011). The court is “not free to modify or vary the terms of an
6
unambiguous agreement.” All Star Bonding v. State, 62 P.3d 1124, 1126 (Nev. 2003).
7
8
9
10
11
12
Here, Federal contends that the policy’s no action clause bars CALV’s direct action against
Federal.4 (ECF No. 29). The no action clause states that:
No action shall lie against the company unless, as a condition precedent thereto,
there shall have been full compliance with all the terms of this policy. No person
shall have the right under this policy to join the company as a party to any action
against the insured to determine the insured’s liability nor shall the company be
impleaded by the insured or the insured’s legal representatives.
(ECF No. 29, Ex. A).
13
Additionally, the policy defines insured as “(a) trust or plans; (b) natural persons serving
14
as a past, present, or future trustee or employee of a trust or plan; and (c) other natural person or
15
organization designated as an additional insured by endorsement to this policy.” Id.
16
In its response, CALV contends that it satisfied the requirements of the no action clause
17
and offers two arguments to support its assertion. (ECF No. 42). First, CALV asserts that
18
“judgment is not required prior to suit against the insurer.” Id. at 8. Second, CALV argues that
19
“the insureds are not impleading the insurer here.” Id. at 10. CALV does not allege that the no
20
action clause is ambiguous. See (ECF Nos. 1, 42).
21
CALV’s arguments are unpersuasive because they fail to address the crucial phrase in the
22
no action clause – “no person shall have the right under this policy to join the company as a party
23
to any action against the insured to determine the insured’s liability.” See (ECF No. 29, Ex. A).
24
CALV’s first argument does not address compliance with the no action clause. CALV’s second
25
26
27
28
James C. Mahan
U.S. District Judge
The Ninth Circuit has held that no action clauses are intended to prevent “(1) actions
against the insurer for money judgment by the injured party until the damages have been fixed by
final judgment or agreed settlement; (2) nuisance suits against the insurance company; and (3) an
injured party or an insured from bringing the insurance company into the underlying litigation with
possible resultant prejudice.” Eureka Fed. Sav. & Loan Ass’n v. American Cas. Co., 873 F.3d 229,
233 (9th Cir. 1989).
4
-6-
1
argument is unavailing because the no action clause is not limited to impleader as CALV suggests.5
2
See (ECF No. 29, Ex. A).
3
Because the no action clause is unambiguous, the court will enforce it according to the
4
plain meaning of its terms. See Powell, 252 P.3d at 672. The plain language of the no action
5
clause, when viewed in conjunction with the definition of insured, prohibits CALV from joining
6
Federal in “any action against the insured to determine the insured’s liability.” See (ECF No. 27,
7
Ex. A). Further, Fava and Monardes are insured by Federal under the policy because they are
8
former CALV employees. See (ECF No. 1); see also (ECF No. 27, Ex. A).
9
In its complaint, CALV asserts several ERISA claims against Fava and Monardes in
10
addition to two state law claims against Federal. (ECF No. 1). Therefore, CALV is attempting to
11
join Federal in an action against Fava and Monardes to determine the insured’s liability. See id.;
12
see also (ECF No. 27, Ex. A). Accordingly, CALV’s recovery under the policy is precluded by
13
the no action clause. See Musser, 964 P.2d at 52.
14
b. Bad faith
15
CALV contends that it is entitled to relief because “Federal denied and refused to pay on
16
CALV’s claim.” (ECF No. 1 at 26). CALV argues that it can recover as either (a) a claimant
17
attempting to recover from Fava and Monardes or (b) as an insured party attempting to recover
18
under the policy. (ECF No. 42).
1.
19
Claimant
20
In Nevada, “liability for bad faith is strictly tied to the implied covenant of good faith and
21
fair dealing arising out of an underlying contractual relationship.” United Fire Ins. Co. v.
22
McClelland, 780 P.2d 193, 197 (Nev. 1989) (citing Kmart Corp. v. Ponsock, 732 P.2d 1335, 1336
23
(Nev. 1987)). When no contractual relationship exists, no recovery for bad faith is allowed. Id.
24
Here, CALV, as a claimant against Fava and Monardes, seeks to recover from Federal. See
25
(ECF No. 1). CALV is attempting to recover from Federal as an injured third party. See id.
26
27
The no action clause states that “no person shall have the right under this policy to join
the company as a party to any action . . . nor shall the company be impleaded by the insured.”
(ECF No. 27, Ex. A).
5
28
James C. Mahan
U.S. District Judge
-7-
1
Therefore, CALV is not suing as a policyholder. See id. Accordingly, CALV is not entitled to
2
relief because no contractual relationship exists. See United Fire Ins. Co., 780 P.2d at 197.
2.
3
Insured
4
Under Nevada law, a plaintiff asserting a bad faith claim must show: “(1) an insurer’s
5
denial (or refusal to pay) an insured’s claim; (2) without any reasonable basis; and (3) the insurer’s
6
knowledge or awareness of the lack of any reasonable basis to deny coverage.” Moreover, if a
7
plaintiff does not prevail on its breach of contract claim, there can be no basis for concluding that
8
the defendant acted in bad faith. See American Excess Ins. Co. v. MGM Grand Hotels, Inc., 729
9
P.2d 1352, 1354 (Nev. 1986).
Here, because the court concludes that Federal did not breach the policy, CALV is not
10
11
entitled to relief on its bad faith claim. See American Excess Ins. Co., 729 P.2d at 1354.
12
IV.
13
14
Conclusion
Consistent with the foregoing, the court will dismiss CALV’s breach of contract and bad
faith claims without prejudice.
15
Accordingly,
16
IT IS HEREBY ORDERED, ADJUDGED, and DECREED that Federal’s motion to
17
18
19
20
dismiss (ECF No. 29) be, and the same hereby is, GRANTED.
DATED July 2, 2018.
__________________________________________
UNITED STATES DISTRICT JUDGE
21
22
23
24
25
26
27
28
James C. Mahan
U.S. District Judge
-8-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?