Raja v. Ohio Security Insurance Company et al
Filing
17
MEMORANDUM OPINION AND ORDER by District Judge James O. Browning granting in part and denying in part Defendants Ohio Security Insurance Company and Liberty Mutual Insurance Company's Motion to Dismiss and for Declaratory Judgment and Supporting Authority 6 . (hj)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
NARESH RAJA d/b/a AMERICA’S BEST
VALUE INN,
Plaintiff,
vs.
No. CIV 17-0834 JB\CG
OHIO SECURITY INSURANCE
COMPANY; LIBERTY MUTUAL
INSURANCE COMPANY and JEFFERY
ROBINSON,
Defendants.
MEMORANDUM OPINION AND ORDER
THIS MATTER comes before the Court on Defendants Ohio Security Insurance
Company and Liberty Mutual Insurance Company’s Motion to Dismiss and for Declaratory
Judgment and Supporting Authority, filed August 22, 2017 (Doc. 6)(“MTD”). The primary
issues are: (i) whether the Court should dismiss the Complaint (Third Judicial District Court,
County of Doña Ana, State of New Mexico, filed May 22, 2017), filed in federal court August
15, 2017 (Doc. 1-4), because Plaintiff Naresh Raja1 d/b/a America’s Best Value Inn (“Value
Inn”) failed to meet its contractual conditions precedent for filing suit against Defendants Ohio
Security Insurance Company, Liberty Mutual Insurance Company, and Jeffery Robinson
(“Liberty Mutual”); (ii) whether Value Inn states claims upon which the Court can grant relief
under rule 12(b)(6) of the Federal Rules of Civil Procedure for breach of contract, insurance bad
faith, violations of New Mexico’s Unfair Insurance Practices Act, N.M. Stat. Ann. §§ 59A-16-1
1
The Plaintiff’s name is captioned as Naresh Raja, but the Court understands that his
surname name is Naresh, because he refers to himself as “Mr. Naresh” in his pleadings. E.g.,
Complaint ¶ 10, at 3; Plaintiff’s Response to Defendants’ Motion to Dismiss and Plaintiff’s Plea
in Abatement ¶ 5, at 2, filed August 28, 2017 (Doc. 9)(“Response”).
to -30 (“UIPA”), violations of New Mexico’s Unfair Practices Act, N.M. Stat. Ann. §§ 57-12-1
to -26 (“UPA”), and negligent misrepresentation; (iii) whether the Court should abate the action
to allow the parties to complete appraisal on Value Inn’s property damage claim; and
(iv) whether to award attorneys’ fees. The Court concludes that: (i) it will not dismiss the
Complaint for Value Inn’s failure to meet conditions precedent to filing suit, because there is a
substantial likelihood that Value Inn will be time barred from filing a complaint alleging these
claims again in the future; (ii) Value Inn states a claim for breach of contract, insurance bad
faith, and some UIPA violations; (iii) Value Inn does not state a claim for UPA violations,
negligent misrepresentation, or some UIPA violations, because Value Inn does not allege facts
supporting those claims; (iii) the Court will not abate the action; and (iv) the Court will not
award attorneys’ fees because Value Inn’s unsuccessful UIPA claims were not groundless and its
UPA claims were not groundless. Accordingly, the Court grants in part and denies in part the
MTD.
FACTUAL BACKGROUND
Value Inn purchased insurance from Liberty Mutual that covered wind and hail damage
to its commercial property in Las Cruces, New Mexico. See Complaint ¶ 6, at 2. The Building
and Personal Property Coverage Form and Commercial Property Conditions, filed August 22,
2017 (Doc. 6-1)(“Contract”) has an appraisal provision that states:
If we and you disagree on the value of the property or the amount of loss, either
may make written demand for an appraisal of the loss. In this event, each party
will select a competent and impartial appraiser. The two appraisers will select an
umpire. If they cannot agree, either may request that selection be made by a
judge of a court having jurisdiction. The appraisers will state separately the value
of the property and amount of loss. If they fail to agree, they will submit their
differences to the umpire. A decision agreed to by any two will be binding.
Contract ¶ E(2), at 8 (“Appraisal Clause”). The Contract also lists several “Duties In The Event
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Of Loss Or Damage”:
a.
You must see that the following are done in the event of loss or damage to
Covered Property:
....
(5) At our request, give us complete inventories of the damaged and
undamaged property. Include quantities, costs, values and amount of loss
claimed.
(6) As often as may be reasonably required, permit us to inspect the
property proving the loss or damage and examine your books and
records. . . .
(7) Send us a signed, sworn proof of loss containing the information we
request to investigate the claim. You must do this within 60 days after our
request. We will supply you with the necessary forms.
(8) Cooperate with us in the investigation or settlement of the claim.
b.
We may examine any insured under oath, while no in the presence of any
other insured and at such times as may be reasonably required, about any matter
relating to this insurance or the claim, including an insured’s books and records.
In the event of an examination, an insured’s answers must be signed.
Contract ¶¶ 3(a)-(b), at 8. The Contract also states:
No one may bring a legal action against us under this Coverage Part unless:
1. There has been full compliance with all the terms of this Coverage
Part; and
2. The action is brought within 2 years after the date on which the direct
physical loss or damage occurred.
Contract ¶ D, at 10.
On or about October 23, 2015, the Value Inn’s property sustained wind and hail damage.
See Complaint ¶ 7, at 2-3. Value Inn filed a claim with Liberty Mutual, but Value Inn believed
that the damage exceeded the $130,301.56 estimate that Liberty Mutual’s adjuster, Jeffery
Robinson, provided. See Complaint ¶ 8-9, at 3. Value Inn requested a settlement conference
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with Liberty Mutual, and Liberty Mutual requested an Examination Under Oath (“EUO”) of
Value Inn. Complaint ¶ 10, at 3.
PROCEDURAL BACKGROUND
On May 22, 2017, Value Inn filed the Complaint in state court alleging that Liberty
Mutual breached its contract, see Complaint ¶¶ 15-18, at 6-7; acted in bad faith, see Complaint
¶¶ 19-20, at 7-8; violated New Mexico’s UIPA; violated New Mexico’s UPA, see Complaint
¶¶ 25-27, at 9-10; and made negligent misrepresentations, see Complaint ¶¶ 28-29, at 10-11.
Value Inn also sought a court order declaring that an EUO “is not appropriate in this matter and
that this claim proceed through the appraisal process in the policy.” Complaint ¶ 38(a), at 12.
Liberty Mutual removed the case to federal court, asserting that the Court has diversity
jurisdiction. See Notice of Removal ¶ 2, at 1-2.
1.
The Motion to Dismiss.
In their MTD, Liberty Mutual asserts that, under their Contract, Value Inn may not bring
a legal action against Liberty Mutual or request an appraisal unless Value Inn has fully complied
with the Contract’s terms. See MTD at 7-8. According to Liberty Mutual, Value Inn has not
complied with the Contract’s terms, because it has refused to give an EUO or provide certain
requested documents. See MTD at 7-8. Liberty Mutual concludes that, because Value Inn has
not met the “conditions precedent” to bringing a legal action or demanding an appraisal, Value
Inn has failed to state a claim upon which relief may be granted. See MTD at 13.
Next, Liberty Mutual argues that Value Inn’s claims for breach of contract and bad faith
do not state a plausible claim, because Value Inn makes conclusory allegations that recite UIPA
provisions “without regard to applicability or any factual basis.” MTD at 13. Liberty Mutual
also contends that Value Inn’s recitations of UIPA provisions are irrelevant to the
breach-of-contract and insurance bad-faith claims, because those claims arise out of contract.
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See MTD at 13-14. Liberty Mutual contends, moreover, that Value Inn’s breach-of-contract and
bad-faith claims are premature, “because Plaintiff refuses to allow Liberty Mutual to conduct its
investigation.” MTD at 14.
As for Value Inn’s UIPA violation claim, Liberty Mutual argues Value Inn has not stated
a claim upon which relief can be granted, because Value Inn does not allege any facts to support
its conclusory allegations. See MTD at 16-17.
Liberty Mutual next addresses Value Inn’s UPA claim. See MTD at 17-21. Liberty
Mutual argues that UPA claims require proving deceptive practices in the sale of a product, see
MTD at 18-19, but Value Inn does not allege unfair practices relating to the insurance policy’s
sale, see MTD at 20. Liberty Mutual requests that the Court award Liberty Mutual attorneys’
fees and costs for defending Value Inn’s allegedly baseless UPA claims. See MTD at 21.
Next, Liberty Mutual argues that Value Inn does not “set forth the elements” of its
negligent misrepresentation claim. MTD at 21. Liberty Mutual contends that Value Inn appears
to be alleging a simple negligence claim, but, nonetheless, does not allege simple negligence’s
elements. See MTD at 21. Moreover, Liberty Mutual contends that the Court previously made
an Erie prediction under Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938) that “‘New Mexico
does not recognize a cause of action for negligence or professional negligence against an
insurance company.’” MTD at 21-22 (quoting Grasshopper Natural Medicine, LLC v. Hartford
Cas. Ins. Co., 2016 WL 4009834, *29 (D.N.M. July 7, 2016)(Browning, J)). Liberty Mutual
concludes that, because New Mexico does not recognize negligence claims against an insurer,
Value Inn’s negligence or negligent misrepresentation claim does not state a claim upon which
relief can be granted. See MTD at 22.
Liberty Mutual concludes by asking the Court to declare that Value Inn’s legal action and
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request for appraisal are premature, dismiss Value Inn’s Complaint in its entirety for failure to
state a claim upon which relief can be granted, and award Liberty Mutual its fees for defending
Value Inn’s baseless UPA and UIPA claims. See MTD at 22-23.
2.
The Response.
In the Plaintiff’s Response to Defendants’ Motion to Dismiss and Plaintiff’s Plea in
Abatement, filed August 28, 2017 (Doc. 9)(“Response”), Value Inn contends that it has agreed to
submit to an EUO and that the EUO is set for September 1, 2017. See Response ¶ 5, at 2. Value
Inn continues that Liberty Mutual’s EUO request letter is “extremely broad and unduly
burdensome and appears to be for the purpose of attempting to dissuade him from continuing
with his claim,” but, nonetheless, Value Inn asserts that it has agreed to “produce certain
documents and proceed with the EUO, cooperating in document production to the full extent
reasonably possible.” Response ¶ 5, at 2-3. Value Inn also contends that its appraisal demand is
valid under the policy provisions, but that Liberty Mutual has “refused to engage in appraisal
pending the EUO.” Response ¶ 5, at 3.
Value Inn notes that the policy has a limitations provision barring legal action against
Liberty Mutual after two years from the loss or damage date.
See Response ¶ 8, at 4.
Consequently, Value Inn contends, it had “no choice” but to file suit when it did. Response ¶ 8,
at 4. Value Inn asserts that many courts have refused to uphold limitations provisions that are
tied to the date of occurrence and not to the date on which the cause of action accrues. See
Response ¶ 9, at 4. Value Inn concludes that the “limitations clause in the subject policy should
be held void as against public policy.” Response ¶ 10, at 5 (citing Spicewood Summit Office
Condominiums Ass’n, Inc. v. American First Lloyd’s Ins. Co., 287 S.W.3d 461, 465 (Tex. App.
2009)).
Value Inn concludes that the “proper remedy” at this point is for the Court to “abate the
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case pending the additional investigation requested by Defendant and the appraisal.” Response
¶ 11, at 5 (citing Vanguard v. Smith, 999 S.W.2d 448 (Tex. App. 1999)). Value Inn contends
that allowing the EUO and appraisal processes to proceed will likely resolve many of the points
of dispute in this case. See Response ¶ 12, at 5. Value Inn asserts that dismissing the case would
“deprive Plaintiff to his right to Due Process and expose Plaintiff to a potential limitations
argument” for its claims. Response ¶ 13, at 5. Value Inn next argues that awarding Liberty
Mutual its attorneys’ fees is not appropriate. See Response ¶ 15, at 5-6. Value Inn argues that,
given the “wide disparity” between their damage estimates, there is a good-faith basis that
Liberty Mutual violated the UIPA and the UPA. Response ¶ 15 at 6. Value Inn asserts that
discovery “into the training and methods of the adjusters assigned to the claim and all
information in their possession will be needed in order to garner evidence of these allegations.”
Response ¶ 15 at 6. Value Inn also asks that, if the Court dismisses the suit, it do so without
prejudice. See Response ¶ 16(c), at 6.
3.
The Reply.
Liberty Mutual replies. See Ohio Security Insurance Company and Liberty Mutual
Insurance Company’s Reply in Support of Motion to Dismiss and for Declaratory Judgment
(Doc. 6) and Response to Plaintiff’s Plea for Abatement (Doc. 9), filed September 11, 2017
(Doc. 12)(“The Reply”). Liberty Mutual argues that Value Inn, in the Response, effectively
concedes that its Complaint is premature, because Value Inn does not address Liberty Mutual’s
prematurity arguments. See Reply at 3. Liberty Mutual further contends that Value Inn’s
request for the Court to order Liberty Mutual to conduct an appraisal is moot, because, after
Value Inn filed its Response, it submitted to an EUO and provided requested documents, and
Liberty Mutual agreed to an appraisal. See Reply at 4. “Furthermore, in the absence of any
appraisal award and any additional investigation relevant to appraisal, Plaintiff’s claims remain
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premature and fail to state a claim.” Reply at 4.
Next, Liberty Mutual revisits its argument that the Court should dismiss Value Inn’s
breach claims for breach of contract, insurance bad faith, and UPA and UIPA violations for
failing to state a claim. See Reply at 5. Liberty Mutual adds that Value Inn’s contract claims are
premature not only because it has not met the conditions precedent for taking this legal action,
but because its claims remain premature “as appraisal is now agreed to [but] has not been
completed.” Reply at 5. Liberty Mutual asserts that Value Inn provides no authority for its
argument that Liberty Mutual’s refusal to engage in appraisal pending the EUO “is a violation of
policy conditions and Liberty Mutual’s duties after loss.” Reply at 6 (citing Response ¶ 5, at 2-3;
D.N.M.LR-Civ. 7.3(a)).
Liberty Mutual asserts that Value Inn’s UIPA claim remains premature, because Value
Inn “only recently gave his EUO and provided documentation,” and Liberty Mutual has not yet
completed an appraisal. Reply at 7. Liberty Mutual also contends that Value Inn’s argument
that the disparity in their loss estimates establishes a good-faith basis to assert UIPA and UPA
violations lacks support in the law. See Reply at 7. According to Liberty Mutual, an insurer is
entitled to dispute an issue “if it is fairly debatable or if it believes the claim is overvalued.”
Reply at 7 (citing United Nuclear Corp. v. Allendale Mut. Ins. Co., 1985-NMSC-090, ¶ 17, 709
P.2d 649, 654).
Liberty Mutual also asserts that Value Inn does not address the majority of its arguments
against its UIPA and UPA violation claims, or the arguments against its negligent
misrepresentation claim, and, therefore, concedes the arguments. See Reply at 7- 9.
Next, Liberty Mutual requests that the Court deny Value Inn’s plea for abatement and
dismiss the case as premature and/or moot. See Reply at 10. Liberty Mutual argues that “filing a
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lawsuit ahead of a limitations period to preserve a claim that has not accrued” is not sufficient
reason for the Court to determine that Value Inn has met the pleading standard in Bell Atlantic v.
Twombly, 550 U.S. 544 (2007)(“Twombly”). Reply at 10. Liberty Mutual asserts:
Allowing a party to file a suit in anticipation of a breach of contract that may
not even occur is a dangerous precedent that would promote the filing of any
premature lawsuit, regardless of whether or not a cause of action has accrued.
Filing premature lawsuits would weigh against the interests of judicial
economy and is unfair and, therefore, prejudicial to a defendant.
Reply at 10. Moreover, Liberty Mutual argues, “preserving a timely limitations defense is not a
legal reason to decline to dismiss this case for failure to state a claim.” Reply at 11.
LAW REGARDING RULE 12(b)(1)
“Federal courts are courts of limited jurisdiction; they are empowered to hear only those
cases authorized and defined in the Constitution which have been entrusted to them under a
jurisdictional grant by Congress.” Henry v. Office of Thrift Supervision, 43 F.3d 507, 511 (10th
Cir. 1994)(citations omitted). A plaintiff generally bears the burden of demonstrating the court’s
jurisdiction to hear his or her claims. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83,
104 (1998)(“[T]he party invoking federal jurisdiction bears the burden of establishing its
existence.”). Rule 12(b)(1) allows a party to raise the defense of the court’s “lack of jurisdiction
over the subject matter” by motion. Fed. R. Civ. P. 12(b)(1). The Tenth Circuit has held that
motions to dismiss for lack of subject-matter jurisdiction “generally take one of two forms: (1) a
facial attack on the sufficiency of the complaint’s allegations as to subject-matter jurisdiction; or
(2) a challenge to the actual facts upon which subject matter jurisdiction is based.” Ruiz v.
McDonnell, 299 F .3d 1173, 1180 (10th Cir. 2002).
On a facial attack, a plaintiff is afforded safeguards similar to those provided in
opposing a rule 12(b)(6) motion: the court must consider the complaint’s
allegations to be true. See Ruiz v. McDonnell, 299 F.3d at 1180; Williamson v.
Tucker, 645 F.2d 404, 412 (5th Cir. 1981). But when the attack is aimed at the
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jurisdictional facts themselves, a district court may not presume the truthfulness
of those allegations. A court has wide discretion to allow affidavits, other
documents, and a limited evidentiary hearing to resolve disputed jurisdictional
facts under Rule 12(b)(1). In such instances, a court’s reference to evidence
outside the pleadings does not convert the motion to a Rule 56 motion.
Hill v. Vanderbilt Capital Advisors, LLC, No. CIV 10-0133, 2011 WL 6013025, at *8 (D.N.M.
Sept. 30, 2011)(Browning, J.)(quoting Alto Eldorado Partners v. City of Santa Fe, 2009 WL
1312856, at *8-9). The United States Court of Appeals for the Fifth Circuit has stated:
[T]he trial court may proceed as it never could under 12(b)(6) or Fed. R. Civ. P.
56. Because at issue in a factual 12(b)(1) motion is the trial court’s jurisdiction -its very power to hear the case -- there is substantial authority that the trial court is
free to weigh the evidence and satisfy itself as to the existence of its power to hear
the case. In short, no presumptive truthfulness attaches to plaintiff’s allegations,
and the existence of disputed material facts will not preclude the trial court from
evaluating for itself the merits of jurisdictional claims.
Williamson v. Tucker, 645 F.2d 404, 412-13 (5th Cir. 1981)(quoting Mortensen v. First Fed.
Sav. & Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977)).
When making a rule 12(b)(1) motion, a party may go beyond the allegations in the
complaint to challenge the facts upon which jurisdiction depends, and may do so by relying on
affidavits or other evidence properly before the court. See New Mexicans for Bill Richardson v.
Gonzales, 64 F.3d 1495, 1499 (10th Cir. 1995); Holt v. United States, 46 F.3d 1000, 1003 (10th
Cir. 1995). In those instances, a court’s reference to evidence outside the pleadings does not
necessarily convert the motion to a rule 56 motion for summary judgment. See Holt v. United
States, 46 F.3d at 1003 (citing Wheeler v. Hurdman, 825 F.2d 257, 259 n.5 (10th Cir. 1987)).
Where, however, the court determines that jurisdictional issues raised in a rule 12(b)(1) motion
are intertwined with the case’s merits, the court should resolve the motion under either rule
12(b)(6) of the Federal Rules of Civil Procedure or rule 56 of the Federal Rules of Civil
Procedure. See Franklin Sav. Corp. v. United States, 180 F.3d 1124, 1129 (10th Cir. 1999);
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Tippett v. United States, 108 F.3d 1194, 1196 (10th Cir. 1997). “When deciding whether
jurisdiction is intertwined with the merits of a particular dispute, ‘the underlying issue is whether
resolution of the jurisdictional question requires resolution of an aspect of the substantive
claim.’” Davis ex rel. Davis v. United States, 343 F.3d 1282, 1296 (10th Cir. 2003)(quoting
Sizova v. Nat’l Inst. of Standards & Tech., 282 F.3d 1320, 1324 (10th Cir. 2002)).
LAW REGARDING RULE 12(b)(6)
Rule 12(b)(6) authorizes a court to dismiss a complaint for “failure to state a claim upon
which relief can be granted.” Fed. R. Civ. P. 12(b)(6). “The nature of a Rule 12(b)(6) motion
tests the sufficiency of the allegations within the four corners of the complaint after taking those
allegations as true.” Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994)(Brorby, J.). The
sufficiency of a complaint is a question of law, and when considering a rule 12(b)(6) motion, a
court must accept as true all well-pled factual allegations in the complaint, view those allegations
in the light most favorable to the non-moving party, and draw all reasonable inferences in the
plaintiff’s favor.
See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007)(“[O]nly if a reasonable person could not draw . . . an inference [of plausibility] from the
alleged facts would the defendant prevail on a motion to dismiss.”); Smith v. United States, 561
F.3d 1090, 1098 (10th Cir. 2009)(Briscoe, J.)(“[F]or purposes of resolving a Rule 12(b)(6)
motion, we accept as true all well-pled factual allegations in a complaint and view these
allegations in the light most favorable to the plaintiff.”)(citing Moore v. Guthrie, 438 F.3d 1036,
1039 (10th Cir. 2006)(McKay, J.)).
A complaint need not set forth detailed factual allegations, yet a “pleading that offers
labels and conclusions or a formulaic recitation of the elements of a cause of action” is
insufficient. Ashcroft v. Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. at
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555). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. at 678. “Factual allegations must be
enough to raise a right to relief above the speculative level, on the assumption that all the
allegations in the complaint are true (even if doubtful in fact).” Bell Atl. Corp. v. Twombly, 550
U.S. at 555 (citation omitted).
To survive a motion to dismiss, a plaintiff’s complaint must contain sufficient facts that,
if assumed to be true, state a claim to relief that is plausible on its face. See Bell Atl. Corp. v.
Twombly, 550 U.S. at 570; Mink v. Knox, 613 F.3d 995, 1000 (10th Cir. 2010). “A claim has
facial plausibility when the pleaded factual content allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. at
678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. at 556). “Thus, the mere metaphysical
possibility that some plaintiff could prove some set of facts in support of the pleaded claims is
insufficient; the complainant must give the court reason to believe that this plaintiff has a
reasonable likelihood of mustering factual support for these claims.” Ridge at Red Hawk, LLC
v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007)(Kelly, J.)(emphasis omitted). The United
States Court of Appeals for the Tenth Circuit has stated:
“[P]lausibility” in this context must refer to the scope of the allegations in a
complaint: if they are so general that they encompass a wide swath of conduct,
much of it innocent, then the plaintiffs “have not nudged their claims across the
line from conceivable to plausible.” The allegations must be enough that, if
assumed to be true, the plaintiff plausibly (not just speculatively) has a claim for
relief.
Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008)(McConnell, J.)(citations
omitted)(quoting Bell Atl. Corp. v. Twombly, 550 U.S. at 570).
Although affirmative defenses must generally be pled in the defendant’s answer, not
argued on a motion to dismiss, see Fed. R. Civ. P. 8(c), there are exceptions. First, a defendant
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can argue an affirmative defense on a motion to dismiss where the defendant asserts an immunity
defense -- the courts handle these cases differently than other motions to dismiss. See Glover v.
Gartman, 899 F. Supp. 2d 1115, 1137-39, 1141 (D.N.M. 2012)(Browning, J.)(citing Pearson v.
Callahan, 555 U.S. 223 (2009)); Robbins v. Oklahoma, 519 F.3d at 1247. Second, the defendant
can raise the defense on a motion to dismiss where the facts establishing the affirmative defense
are apparent on the face of the complaint. See Miller v. Shell Oil Co., 345 F.2d 891, 893 (10th
Cir. 1965)(Hill, J.)(“Under Rule 12(b), a defendant may raise an affirmative defense by a motion
to dismiss for the failure to state a claim. If the defense appears plainly on the face of the
complaint itself, the motion may be disposed of under this rule.”). The defense of limitations is
the affirmative defense that the complaint’s uncontroverted facts is most likely to establish. See
5 Charles Alan Wright et al., Federal Practice & Procedure: Civil § 1277, at 643 (3d ed. 2004).
If the complaint sets forth dates that appear, in the first instance, to fall outside of the statutory
limitations period, then the defendant may move for dismissal under rule 12(b)(6). See Rohner
v. Union P. R. Co., 225 F.2d 272, 273-75 (10th Cir. 1955)(Wallace, J.); Gossard v. Gossard, 149
F.2d 111, 113 (10th Cir. 1945)(Phillips, J.); Andrew v. Schlumberger Tech. Co., 808 F. Supp.
2d 1288, 1292 (D.N.M. 2011)(Browning, J.).
The plaintiff may counter this motion with an assertion that a different statute of
limitations or an equitable tolling doctrine applies to bring the suit within the statute. The Tenth
Circuit has not clarified whether this assertion must be pled with supporting facts in the
complaint or may be merely argued in response to the motion. Cf. Kincheloe v. Farmer, 214
F.2d 604 (7th Cir. 1954)(Major, J.)(holding that, once a plaintiff has pled facts in the complaint
indicating that the statute of limitations is a complete or partial bar to an action, the plaintiff must
plead facts establishing an exception to the affirmative defense). It appears that, from case law
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in several Courts of Appeals, the plaintiff may avoid this problem altogether -- at least at the
motion-to-dismiss stage -- by refraining from pleading specific or identifiable dates.
See
Goodman v. Praxair, Inc., 494 F.3d 458, 465-66 (4th Cir. 2007)(Niemeyer, J.); Hollander v.
Brown, 457 F.3d 688, 691 n.1 (7th Cir. 2006)(Ripple, J.). Although the Tenth Circuit has not
squarely addressed this practice, the Court has permitted this practice. See Anderson Living
Trust v. WPX Energy Prod., LLC, 27 F. Supp. 3d 1188 (D.N.M. 2014)(Browning, J.).
LAW REGARDING DIVERSITY JURISDICTION AND ERIE
Under Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1983)(“Erie”), a federal district court
sitting in diversity applies “state law with the objective of obtaining the result that would be
reached in state court.” Butt v. Bank of Am., N.A., 477 F.3d 1171, 1179 (10th Cir. 2007).
Accord Mem. Hosp. v. Healthcare Realty Trust Inc., 509 F.3d 1225, 1229 (10th Cir. 2007). The
Court has held that if a district court exercising diversity jurisdiction cannot find a Supreme
Court of New Mexico “opinion that [governs] a particular area of substantive law . . . [the district
court] must . . . predict how the Supreme Court of New Mexico would [rule].” Guidance
Endodontics, LLC v. Dentsply Int’l., Inc., 708 F. Supp. 2d 1209, 1224-25 (D.N.M.
2010)(Browning, J.). “Just as a court engaging in statutory interpretation must always begin
with the statute’s text, a court formulating an Erie prediction should look first to the words of the
state supreme court.”
Peña v. Greffet, 110 F. Supp. 3d 1103, 1132 (D.N.M.
2015)(Browning, J.).2 If the Court finds only an opinion from the Court of Appeals of New
2
In performing its Erie-mandated duty to predict what a state supreme court would do if
faced with a case, see Comm’r v. Estate of Bosch, 387 U.S. 456 (1987), a federal court may
sometimes contradict the state supreme court’s own precedent if the federal court concludes that
the state supreme court would, given the opportunity, overrule its earlier holding, see Anderson
Living Trust v. WPX Energy Prod., LLC, 27 F. Supp. 3d at 1247 n.30. Courts should,
obviously, be reticent to formulate an Erie prediction that conflicts with state-court precedent;
even if the prediction turns out to be correct, such predictions produce disparate results between
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Mexico, while “certainly [the Court] may and will consider the Court of Appeal[s’] decision in
making its determination, the Court is not bound by the Court of Appeal[s’] decision in the same
way that it would be bound by a Supreme Court decision.” Mosley v. Titus, 762 F. Supp. 2d
1298, 1332 (D.N.M. 2010)(Browning, J.)(noting that, where the only opinion on point is “from
the Court of Appeals, [] the Court’s task, as a federal district court sitting in this district, is to
predict what the Supreme Court of New Mexico would do if the case were presented to
it”)(citing Wade v. EMCASCO Ins. Co., 483 F.3d 657, 666 (10th Cir. 2007)(explaining that,
“[w]here no controlling state decision exists, the federal court must attempt to predict what the
state’s highest court would do,” and that, “[i]n doing so, it may seek guidance from decisions
rendered by lower courts in the relevant state”)).3 The Court may also rely on Tenth Circuit
cases filed in state and federal courts, as the old state supreme court precedent usually binds state
trial courts. The factors to which a federal court should look before making an Erie prediction
that a state supreme court will overrule its prior precedent vary depending upon the case, but
some consistent ones include: (i) the age of the state supreme court decision from which the
federal court is considering departing -- the younger the state case is, the less likely it is that
departure is warranted; (ii) the amount of doctrinal reliance that the state courts -- especially the
state supreme court -- have placed on the state decision from which the federal court is
considering departing; (iii) apparent shifts away from the doctrine that the state decision
articulates, especially if the state supreme court has explicitly called an older case’s holding into
question; (iv) changes in the composition of the state supreme court, especially if mostly
dissenting justices from the earlier state decision remain on the court; and (v) the decision’s
patent illogic or its inapplicability to modern times. See Peña v. Greffet, 110 F. Supp. 3d at 1132
n.17. In short, a state supreme court case that a federal court Erie predicts will be overruled is
likely to be very old, neglected by subsequent state-court cases -- perhaps because it is in a dusty
corner of the common law which does not get much attention or have much application -- and
clearly wrong.
3
The Supreme Court of the United States of America has addressed what the federal
courts may use when there is not a decision on point from the state’s highest court:
The highest state court is the final authority on state law, but it is still the duty of
the federal courts, where the state law supplies the rule of decision, to ascertain
and apply that law even though it has not been expounded by the highest court of
the State. An intermediate state court in declaring and applying the state law is
acting as an organ of the State and its determination, in the absence of more
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decisions interpreting New Mexico law. See Anderson Living Trust v. WPX Energy Prod.,
LLC, 27 F. Supp. 3d at 1243 & n.30.4 Ultimately, “the Court’s task is to predict what the state
convincing evidence of what the state law is, should be followed by a federal
court in deciding a state question. We have declared that principle in West v.
American Telephone and Telegraph Co., 311 U.S. 223 (1940), decided this day.
It is true that in that case an intermediate appellate court of the State had
determined the immediate question as between the same parties in a prior suit, and
the highest state court had refused to review the lower court’s decision, but we set
forth the broader principle as applicable to the decision of an intermediate court,
in the absence of a decision by the highest court, whether the question is one of
statute or common law.
. . . We have held that the decision of the Supreme Court upon the construction of
a state statute should be followed in the absence of an expression of a
countervailing view by the State’s highest court, and we think that the decisions
of the Court of Chancery [the New Jersey trial court] are entitled to like respect as
announcing the law of the State.
....
The question has practical aspects of great importance in the proper
administration of justice in the federal courts. It is inadmissible that there should
be one rule of state law for litigants in the state courts and another rule for
litigants who bring the same question before the federal courts owing to the
circumstance of diversity of citizenship. In the absence of any contrary showing,
the rule [set forth by two New Jersey trial courts, but no appellate courts] appears
to be the one which would be applied in litigation in the state court, and whether
believed to be sound or unsound, it should have been followed by the Circuit
Court of Appeals.
Fid. Union Trust Co. v. Field, 311 U.S. 169, 177-80 (1940)(footnotes and citations omitted).
The Supreme Court has softened this position over the years; federal courts are no longer bound
by state trial or intermediate court opinions, but “should attribute [them] some weight . . . where
the highest court of the State has not spoken on the point.” Comm’r v. Estate of Bosch, 387 U.S.
at 465 (citing King v. Order of United Commercial Travelers, 333 U.S. 153, 159 (1948)). See
17A James Wm. Moore et al., Moore’s Federal Practice § 124.20 (3d ed.
1999)(“Moore’s”)(“Decisions of intermediate state appellate courts usually must be
followed . . . [and] federal courts should give some weight to state trial courts
decisions.”)(emphasis and title case omitted).
4
In determining the proper weight to accord Tenth Circuit precedent interpreting New
Mexico law, the Court must balance the need for uniformity between federal court and state
court interpretations of state law with the need for uniformity among federal judges. If the Court
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adheres too rigidly to Tenth Circuit case law, ignoring changes undergone by a state’s law in the
ensuing years, then parties litigating state-law claims will be subject to a different body of
substantive law, depending on whether they litigate in state court or federal court. This result
frustrates the purpose of Erie, which held that federal courts must apply state court
interpretations of state law, rather than their own, in part so that parties achieve a consistent
result regardless of the forum. This consideration pulls the Court toward according Tenth Circuit
precedent less weight, and according state court decisions issued in the ensuing years more
weight. On the other hand, when the state law is unclear, it is desirable for there to at least be
uniformity among federal judges as to its proper interpretation. Otherwise, different federal
judges within the same circuit -- or even the same district, as district courts’ decisions are not
binding, even upon themselves -- would be free to adopt differing interpretations of a state’s law.
This consideration pulls the Court towards a stronger respect for vertical stare decisis, because a
Tenth Circuit decision on point -- regardless whether it accurately reflects state law -- at least
provides consistency at the federal level, so long as federal district judges are required to follow
it.
The Court must decide how to weigh Tenth Circuit case law against more-recent state
court decisions, choosing a point on the spectrum between the two extremes: rigidly adhering to
Tenth Circuit precedent unless there is intervening case law directly on point from the state’s
highest court, on one end; and independently interpreting the state law, regarding the Tenth
Circuit precedent as no more than persuasive authority, on the other. In striking this balance, the
Court notes that it is generally more concerned about systemic inconsistency between the federal
courts and the state courts than it is about inconsistency among federal judges. Judges, even
those within a jurisdiction with ostensibly identical governing law, sometimes interpret and
apply the law differently from one another; this inconsistency is part and parcel of a commonlaw judicial system. More importantly, litigants seeking to use forum selection to gain a
substantive legal advantage cannot easily manipulate such inconsistency: cases are assigned
randomly to district judges in this and many federal districts; and, regardless, litigants cannot
know for certain how a given judge will interpret the state law, even if they could determine the
identity of the judge pre-filing or pre-removal. All litigants know in advance is that whomever
federal district judge they are assigned will look to the entirety of the state’s common law in
making his or her determination -- the same as a state judge would. Systemic inconsistency
between the federal courts and state courts, on the other hand, not only threatens the principles of
federalism, but litigants may more easily manipulate the inconsistency. When the Tenth Circuit
issues an opinion interpreting state law, and the state courts subsequently shift away from that
interpretation, litigants -- if the district courts strictly adhere to the Tenth Circuit opinion -- have
a definite substantive advantage in choosing the federal forum over the state forum, or vice
versa.
The Court further notes that district courts may be in a better position than the Tenth
Circuit to be responsive to changes in state law. Tenth Circuit decisions interpreting a particular
state’s law on a specific issue are further apart in time than the collective district courts’
decisions are. More importantly, the Tenth Circuit does not typically address such issues with
the frequency that the state’s courts themselves do. As such, Tenth Circuit precedent can lag
behind state law developments -- developments that the district courts may be nimble enough to
perceive and adopt. Additionally, much of the benefit of having a consistent Tenth Circuit-wide
interpretation of a particular state’s law is wasted. Other than Oklahoma, every state
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encompassed by the Tenth Circuit contains only one federal judicial district, and there is
relatively little need for federal judges in Wyoming and Kansas to have a uniform body of New
Mexico law to which to look. Last, the Court notes, respectfully, that district courts may be in a
better position than the Tenth Circuit to develop expertise on the state law of the state in which
they sit. Every federal judicial district in the nation, except the District of Wyoming, covers at
most one state. It is perhaps a more workable design for each district court to keep track of legal
developments in the state law of its own state(s) than it is for the Tenth Circuit to monitor
separate legal developments in eight states. The Tenth Circuit used to follow this rationale in
applying a clearly erroneous standard of review to district judge decisions of state law with no
controlling state Supreme Court precedent. See Weiss v. United States, 787 F.2d 518, 525 (10th
Cir. 1986); See Rawson v. Sears, Roebuck, & Co., 822 F.2d 908, 923 (10th Cir. 1987)(McKay,
J., dissenting)(collecting cases). Since the mid-1980s, however, the Tenth Circuit has abandoned
that rationale and applied a de novo standard of review to district judge decisions applying state
law with no governing state Supreme Court precedent. See Rawson v. Sears, Roebuck, & Co.,
822 F.2d at 908. See also id. at 923 (McKay, J., dissenting)(noting that the majority had
abandoned the “sanctified” clearly-erroneous standard or, the “so-called local-judge rule” in its
analysis). The Court regrets the Tenth Circuit’s retreat from the clearly erroneous standard.
Having outlined the relevant considerations, the Court thinks the proper stance on vertical
stare decisis in the context of federal court interpretations of state law is as follows: the Tenth
Circuit’s cases are binding as to their precise holding -- what the state law was on the day the
opinion was published -- but lack the positive precedential force that its cases interpreting a
federal statute or the Constitution of the United States of America possess. A district court
considering a state law issue after the publication of a Tenth Circuit opinion on point may not
come to a contrary conclusion based only on state court cases available to and considered by the
Tenth Circuit, but it may come to such a conclusion based on intervening state court cases.
When interpreting state law, the Tenth Circuit does not and cannot issue a case holding
that x is the law in New Mexico; it holds that the proper interpretation of New Mexico law, at the
time the opinion is released, is x. Its holdings are descriptive, not prescriptive -- interpretive, not
normative. Because federal judicial opinions lack independent substantive force on state law
issues, but possess such force regarding federal law issues, the Court thinks the following is not
an unfair summary of the judicial interpretive process: (i) when interpreting federal law, the
federal appellate courts consider the existing body of law, and then issue a holding that both
reflects and influences the body of law; that holding subsequently becomes a part of the body of
law; but (ii) when interpreting state law, the federal appellate courts consider the existing body of
law, and then issue a holding that only reflects the body of law; that holding does not
subsequently become a part of the body of law. The federal district courts are bound to conclude
that the Tenth Circuit’s reflection of the then-existing body of law was accurate. The question is
whether they should build a doctrine atop the case and use the existence of the Tenth Circuit’s
case to avoid any responsibility to independently consider the whole body of state law that exists
when the time comes that diversity litigants raise the issue in their courtrooms. Giving such
effect to the Tenth Circuit’s interpretations of state law is at tension with Erie, giving
independent substantive effect to federal judicial decisions -- i.e., applying federal law -- in a
case brought in diversity.
The purpose of Erie is well-known and simple, and the Court should not complicate it
beyond recognition: it is that the same substantive law governs litigants’ cases regardless
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whether they are brought in a federal or state forum. For simplicity’s sake, most courts have
settled on the formulation that “the federal court must attempt to predict how the states’ highest
court would rule if confronted with the issue.” Moore’s § 124.22[3] (citing Comm’r v. Estate of
Bosch, 387 U.S. at 465 (“[A]n intermediate appellate state court [decision] is a datum for
ascertaining state law which is not to be disregarded by a federal court unless it is convinced by
other persuasive data that the highest court of the state would decide otherwise.”)(citation and
internal quotation marks omitted). This may not be the most precise formulation if the goal is to
ensure identical outcomes in state and federal court -- the Honorable Milton I. Shadur, United
States District Judge, looks to state procedural rules to determine in which state appellate circuit
the suit would have been filed were it not in federal court, and then applies the state law as that
circuit court interprets it, see Abbott Laboratories v. Granite State Ins. Co., 573 F. Supp. 193,
196-200 (N.D. Ill. 1983)(noting that the approach of predicting the state supreme court’s
holdings will often lead to litigants obtaining a different result in federal court than they would in
state court, where only the law of the circuit in which they filed -- and certainly not nonexistent,
speculative state supreme court law -- governs) -- but it is a workable solution that has achieved
consensus. See Allstate Ins. Co. v. Menards, Inc., 285 F.3d 630, 637 (7th Cir. 2002)(“[W]e
adhere today to the general rule, articulated and applied throughout the United States, that, in
determining the content of state law, the federal courts must assume the perspective of the
highest court in that state and attempt to ascertain the governing substantive law on the point in
question.”). This formulation, built out of ease-of-use, does not relieve courts of their Supreme
Court-mandated obligation to consider state appellate and trial court decisions. To the contrary,
even non-judicial writings by influential authors, statements by state supreme court justices, the
closeness of the vote on a prior case addressing the issue, and personnel changes on the
court -- considerations that would never inform a federal court’s analysis of federal law -- may
validly come into play. The question is whether the district courts must abdicate, across-theboard, the “would decide” aspect of the Erie analysis to their parent appellate courts when the
Court of Appeals has declared an interpretation of state law.
The Erie doctrine results in federal cases that interpret state law withering with time.
While cases interpreting federal law become more powerful over time -- forming the
groundwork for doctrines, growing upward from one application (Congress may create a national
bank) to many (Congress may set quotas on wheat-growing for personal consumption),
expanding outward from the general (states must grant criminal jury trials) to the specific (the
jury need not be twelve people, nor must it be unanimous) -- federal cases interpreting state law
often become stale. New state court cases -- even when not directly rebuking the federal court’s
statement of law -- alter the common-law legal landscape with their dicta, their insinuations, and
their tone. The Supreme Court, which picks its cases sparingly and for maximum effect, almost
never grants certiorari to resolve issues of state law.
The Court’s views on Erie, of course, mean little if the Tenth Circuit does not agree. In
Wankier v. Crown Equipment Corp., the Tenth Circuit said that,
[w]here no controlling state decision exists, the federal court must attempt to
predict what the state’s highest court would do. In performing this ventriloquial
function, however, the federal court is bound by ordinary principles of stare
decisis. Thus, when a panel of this Court has rendered a decision interpreting
state law, that interpretation is binding on district courts in this circuit, and on
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subsequent panels of this Court, unless an intervening decision of the state’s
highest court has resolved the issue.
Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir. 2003)(McConnell, J.). From this
passage, it seems clear the Tenth Circuit permits a district court to deviate from its view of state
law only on the basis of a subsequent case “of the state’s highest court.” The American Heritage
Dictionary of the English Language 1402 (William Morris ed., New College ed. 1976)(defining
“unless” as “[e]xcept on the condition that; except under the circumstances that”). A more
aggressive reading of the passage -- namely the requirement that the intervening case “resolv[e]
the issue” -- might additionally compel the determination that any intervening case law must
definitively and directly contradict the Tenth Circuit interpretation in order to be considered
“intervening.”
It is difficult to know whether Judge McConnell’s limitation of “intervening decision” to
cases from the highest state court was an oversight or intentional. Most of the Tenth Circuit’s
previous formulations of this rule have defined intervening decisions inclusively as all
subsequent decisions of “that state’s courts,” a term which seems to include trial and
intermediate appellate courts. Even Koch v. Koch Industries, Inc., 203 F.3d 1202, 1231 (10th
Cir. 2000), the primary authority upon which Wankier v. Crown Equipment Corp. relies, uses the
more inclusive definition. In fact, Wankier v. Crown Equipment Corp. quotes its relevant
passage:
In the absence of intervening Utah authority indicating that a plaintiff is not
required to prove a safer, feasible alternative design, we are bound to follow the
rule of Allen [v. Minnstar, Inc., 8 F.3d 1470 (10th Cir. 1993), a Tenth Circuit case
interpreting an issue of Utah law], as was the district court. “Following the
doctrine of stare decisis, one panel of this court must follow a prior panel’s
interpretation of state law, absent a supervening declaration to the contrary by that
state’s courts or an intervening change in the state’s law.” Koch v. Koch Indus.,
Inc., 203 F.3d at 1231.
Wankier v. Crown Equip. Corp., 353 F.3d at 867.
Whether the decision to limit the intervening authority a district court can consider was
intentional or not, the Tenth Circuit has picked it up and run with it. In Kokins v. Teleflex, Inc.,
the Tenth Circuit, quoting Wankier v. Crown Equipment Corp., refused to consider an opinion
from the Court of Appeals of Colorado holding directly the opposite of an earlier Tenth Circuit
interpretation of Colorado law. See Kokins v. Teleflex, Inc., 621 F.3d 1290, 1297 (10th Cir.
2010)(Holmes, J.)(“[T]he Colorado Court of Appeals decided Biosera[, Inc. v. Forma Scientific,
Inc., 941 P.2d 284 (Colo. Ct. App. 1998)], so it is not an ‘intervening decision of the state’s
highest court.’”)(emphasis in original)(quoting Wankier v. Crown Equip. Corp., 353 F.3d at
866).
The Tenth Circuit has set forth a stringent restriction on its district courts’ ability to
independently administer the Erie doctrine. More importantly, the Tenth Circuit’s view may be
at tension with the above-quoted Supreme Court precedent, as well as its own prior case law.
Moore’s lists the Tenth Circuit as having been, at one time, a “court[ that] hold[s] that a prior
federal appellate decision [interpreting state law] is persuasive.” Moore’s § 124.22[4] (citing
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supreme court would do.” Wade v. EMCASCO Ins. Co., 483 F.3d at 666. Accord Mosley v.
Titus, 762 F. Supp. 2d at 1332 (citation omitted); Rimbert v. Eli Lilly & Co., 577 F. Supp. 2d
1174, 1188-89 (D.N.M. 2008)(Browning, J.)(quoting Wade v. EMCASCO Ins. Co., 483 F.3d at
665-66).
LAW REGARDING MOOTNESS
“Article III, Section 2 of the United States Constitution limits the federal courts’
jurisdiction to actual cases and controversies.” Salazar v. City of Albuquerque, 776 F.Supp.2d
1217, 1227 (D.N.M.2011)(Browning, J.).
“Federal courts are without authority to decide
questions that cannot affect the rights of litigants in the case before them.” Ford v. Sully, 773
F.Supp. 1457, 1464 (D.Kan.1991)(citing North Carolina v. Rice, 404 U.S. 244, 246 (1971)). See
Johansen v. City of Bartlesville, 862 F.2d 1423, 1426 (10th Cir.1988); Johnson v. Riveland, 855
F.2d 1477, 1480 (10th Cir.1988)). “To qualify as a case fit for federal-court adjudication, an
actual controversy must be extant at all stages of review, not merely at the time the complaint is
filed.” Arizonans for Official English v. Arizona, 520 U.S. 43, 67 (1997). See Rio Grande
Silvery Minnow v. Bureau of Reclamation, 601 F.3d 1096, 1121 (10th Cir.2010). Accordingly, if
a case is moot, or becomes moot during any stage of the case, the court does not have jurisdiction
to hear the case. A case becomes moot “when the issues presented are no longer ‘live’ or the
parties lack a legally cognizable interest in the outcome.” Cty. of L.A. v. Davis, 440 U.S. 625,
631 (1979)(citing Powell v. McCormack, 395 U.S. 486, 496 (1969)).
A court should not be quick to dismiss a claim for lack of jurisdiction. “Before deciding
that there is no jurisdiction, the district court must look at the way the complaint is drawn to see
State Farm Mut. Auto. Ins. Co. v. Travelers Indem. Co., 433 F.2d 311, 312 (10th Cir. 1970)).
Still, the Court is bound to abide by the Tenth Circuit’s interpretation of Erie.
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if it is drawn so as to claim a right to recover under the Constitution and the laws of the United
States.” Bell v. Hood, 327 U.S. 678, 682 (1946). Jurisdiction is not dependent on whether the
plaintiff will succeed in his cause of action; jurisdiction is determined before the details of the
cause of action, both in law and fact, are considered. See Bell v. Hood, 327 U.S. at 682.
LAW REGARDING SUMMARY JUDGMENT
Rule 56(a) of the Federal Rules of Civil Procedure states: “The court shall grant summary
judgment if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “The movant bears the
initial burden of ‘show[ing] that there is an absence of evidence to support the nonmoving
party’s case.’” Herrera v. Santa Fe Pub. Sch., 956 F. Supp. 2d 1191, 1221 (D.N.M. 2013)
(Browning, J.)(quoting Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d at 891). See Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986). “If the moving party will bear the burden of
persuasion at trial, that party must support its motion with credible evidence -- using any of the
materials specified in Rule 56(c) -- that would entitle it to a directed verdict if not controverted at
trial.” Celotex Corp. v. Catrett, 477 U.S. at 331 (Brennan, J., dissenting)(emphasis in original).5
The party opposing a motion for summary judgment must “set forth specific facts
showing that there is a genuine issue for trial as to those dispositive matters for which it carries
the burden of proof.” Applied Genetics Int’l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238,
1241 (10th Cir. 1990).
See Vitkus v. Beatrice Co., 11 F.3d 1535, 1539 (10th Cir. 1993)
(“However, the nonmoving party may not rest on its pleadings but must set forth specific facts
5
Although the Honorable William J. Brennan, Jr., Associate Justice of the Supreme Court
of the United States, dissented in Celotex Corp. v. Catrett, this sentence is widely understood to
be an accurate statement of the law. See 10A Charles Allen Wright & Arthur R. Miller, Federal
Practice and Procedure § 2727, at 470 (3d ed. 1998)(“Although the Court issued a five-to-four
decision, the majority and dissent both agreed as to how the summary-judgment burden of proof
operates; they disagreed as to how the standard was applied to the facts of the case.”).
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showing that there is a genuine issue for trial as to those dispositive matters for which it carries
the burden of proof.”). Rule 56(c)(1) provides: “A party asserting that a fact . . . is genuinely
disputed must support the assertion by . . . citing to particular parts of materials in the record,
including depositions, documents, electronically stored information, affidavits or declarations,
stipulations (including those made for purposes of the motion only), admissions, interrogatory
answers, or other materials.” Fed. R. Civ. P. 56(c)(1). It is not enough for the party opposing a
properly supported motion for summary judgment to “rest on mere allegations or denials of his
pleadings.” Anderson v. Liberty Lobby, Inc., 477 U.S. at 256. See Abercrombie v. City of
Catoosa, 896 F.2d 1228, 1231 (10th Cir. 1990); Otteson v. United States, 622 F.2d 516, 519
(10th Cir. 1980)(“However, once a properly supported summary judgment motion is made, the
opposing party may not rest on the allegations contained in his complaint, but must respond with
specific facts showing the existence of a genuine factual issue to be tried.”)(citation omitted).
Nor can a party “avoid summary judgment by repeating conclusory opinions, allegations
unsupported by specific facts, or speculation.” Colony Nat’l Ins. Co. v. Omer, 2008 U.S. Dist.
LEXIS 45838, at *1 (D. Kan. 2008)(Robinson, J.)(citing Argo v. Blue Cross & Blue Shield of
Kan., Inc., 452 F.3d 1193, 1199 (10th Cir. 2006); Fed. R. Civ. P. 56(e)).
To deny a motion for summary judgment, genuine factual issues must exist that “can be
resolved only by a finder of fact because they may reasonably be resolved in favor of either
party.” Anderson v. Liberty Lobby, Inc., 477 U.S. at 250. A mere “scintilla” of evidence will
not avoid summary judgment. Vitkus v. Beatrice Co., 11 F.3d at 1539 (citing Anderson v.
Liberty Lobby, Inc., 477 U.S. at 248). Rather, there must be sufficient evidence on which the
fact finder could reasonably find for the nonmoving party. See Anderson v. Liberty Lobby, Inc.,
477 U.S. at 251 (quoting Schuylkill & Dauphin Improvement Co. v. Munson, 81 U.S. 442, 448
- 23 -
(1871)); Vitkus v. Beatrice Co., 11 F.3d at 1539. “[T]here is no evidence for trial unless there is
sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If
the evidence is merely colorable . . . or is not significantly probative, . . . summary judgment may
be granted.” Anderson v. Liberty Lobby, Inc., 477 U.S. at 249 (citations omitted).
When reviewing a motion for summary judgment, the court should keep in mind certain
principles. First, the court’s role is not to weigh the evidence, but to assess the threshold issue
whether a genuine issue exists as to material facts requiring a trial. See Anderson v. Liberty
Lobby, Inc., 477 U.S. at 249. Second, the ultimate standard of proof is relevant for purposes of
ruling on a summary judgment, such that, when ruling on a summary judgment motion, the court
must “bear in mind the actual quantum and quality of proof necessary to support liability.”
Anderson v. Liberty Lobby, Inc., 477 U.S. at 254. Third, the court must resolve all reasonable
inferences and doubts in the nonmoving party’s favor, and construe all evidence in the light most
favorable to the nonmoving party.
See Hunt v. Cromartie, 526 U.S. 541, 550-55 (1999);
Anderson v. Liberty Lobby, Inc., 477 U.S. at 255 (“The evidence of the non-movant is to be
believed, and all justifiable inferences are to be drawn in his favor.”). Fourth, the court cannot
decide credibility issues. See Anderson v. Liberty Lobby, Inc., 477 U.S. at 255.
There are, however, limited circumstances in which the court may disregard a party’s
version of the facts. This doctrine developed most robustly in the qualified immunity arena. In
Scott v. Harris, 550 U.S. 372 (2007), the Supreme Court of the United States of America
concluded that summary judgment was appropriate where video evidence “quite clearly
contradicted” the plaintiff’s version of the facts. 550 U.S. at 378-81. The Supreme Court
explained:
At the summary judgment stage, facts must be viewed in the light most favorable
to the nonmoving party only if there is a “genuine” dispute as to those facts. Fed.
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Rule Civ. Proc. 56(c). As we have emphasized, “[w]hen the moving party has
carried its burden under Rule 56(c), its opponent must do more than simply show
that there is some metaphysical doubt as to the material facts . . . . Where the
record taken as a whole could not lead a rational trier of fact to find for the
nonmoving party, there is no ‘genuine issue for trial.’” Matsushita Elec.
Industrial Co. v. Zenith Radio Corp., 475 U.S. [at] 586-587 . . . (footnote
omitted). “[T]he mere existence of some alleged factual dispute between the
parties will not defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of material fact.”
Anderson v. Liberty Lobby, Inc., 477 U.S. [at] 247-248 . . . . When opposing
parties tell two different stories, one of which is blatantly contradicted by the
record, so that no reasonable jury could believe it, a court should not adopt that
version of the facts for purposes of ruling on a motion for summary judgment.
Scott v. Harris, 550 U.S. at 380 (emphases in original). Applying these standards to a factual
dispute over whether the plaintiff-respondent “was driving in such fashion as to endanger human
life,” the Supreme Court held that the plaintiff-respondent’s “version of events is so utterly
discredited by the record that no reasonable jury could have believed him.” 550 U.S. at 380.
Thus, the Supreme Court concluded, “[t]he Court of Appeals should not have relied on such
visible fiction; it should have viewed the facts in the light depicted by [a] videotape,” which
showed the plaintiff-respondent driving extremely dangerously. 550 U.S. at 381.
The United States Court of Appeals for the Tenth Circuit applied this doctrine in
Thomson v. Salt Lake County, 584 F.3d 1304 (10th Cir. 2009), and explained:
[B]ecause at summary judgment we are beyond the pleading phase of the
litigation, a plaintiff’s version of the facts must find support in the record: more
specifically, “[a]s with any motion for summary judgment, when opposing parties
tell two different stories, one of which is blatantly contradicted by the record, so
that no reasonable jury could believe it, a court should not adopt that version of
the facts.” York v. City of Las Cruces, 523 F.3d 1205, 1210 (10th Cir.
2008)(quoting Scott, 550 U.S. at 380); see also Estate of Larsen ex rel. Sturdivan
v. Murr, 511 F.3d 1255, 1258 (10th Cir. 2008).
Thomson v. Salt Lake Cty., 584 F.3d at 1312 (brackets omitted). “The Tenth Circuit, in Rhoads
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v. Miller, [352 F. App’x 289 (10th Cir. 2009)(Tymkovich, J.)(unpublished),6] explained that the
blatant contradictions of the record must be supported by more than other witnesses’
testimony[.]” Lymon v. Aramark Corp., 728 F. Supp. 2d 1222, 1249 (D.N.M. 2010)(Browning,
J.)(citation omitted), aff’d, 499 F. App’x 771 (2012).
In evaluating a motion for summary judgment based on qualified immunity, we
take the facts “in the light most favorable to the party asserting the injury.” Scott
v. Harris, 550 U.S. 372, 377 (2007). “[T]his usually means adopting . . . the
plaintiff’s version of the facts,” id. at 378, unless that version “is so utterly
discredited by the record that no reasonable jury could have believed him,” id.
at 380. In Scott, the plaintiff’s testimony was discredited by a videotape that
completely contradicted his version of the events. 550 U.S. at 379. Here, there is
no videotape or similar evidence in the record to blatantly contradict Mr. Rhoads’
testimony. There is only other witnesses’ testimony to oppose his version of the
facts, and our judicial system leaves credibility determinations to the jury. And
given the undisputed fact of injury, Mr. Rhoads’ alcoholism and memory
problems go to the weight of his testimony, not its admissibility . . . . Mr. Rhoads
alleges that his injuries resulted from a beating rendered without resistance or
provocation. If believed by the jury, the events he describes are sufficient to
support a claim of violation of clearly established law under Graham v. Connor,
490 U.S. 386, 395-96 (1989), and this court’s precedent.
Rhoads v. Miller, 352 F. App’x at 291-92. See Lymon v. Aramark Corp., 728 F. Supp. 2d at
1249-50 (quoting Rhoads v. Miller, 352 F. App’x at 291-92). In a concurring opinion in
Thomson v. Salt Lake County, the Honorable Jerome A. Holmes, United States Circuit Judge for
6
Rhoads v. Miller is an unpublished Tenth Circuit opinion, but the Court can rely on an
unpublished Tenth Circuit opinion to the extent its reasoned analysis is persuasive in the case
before it. See 10th Cir. R. 32.1(A), 28 U.S.C. (“Unpublished opinions are not precedential, but
may be cited for their persuasive value.”). The Tenth Circuit has stated: “In this circuit,
unpublished orders are not binding precedent, . . . and . . . citation to unpublished opinions is not
favored. . . . However, if an unpublished opinion . . . has persuasive value with respect to a
material issue in a case and would assist the court in its disposition, we allow a citation to that
decision.” United States v. Austin, 426 F.3d 1266, 1274 (10th Cir. 2005). The Court concludes
that Jaramillo v. Gov’t Employees Ins. Co., 573 F. App’x 733 (10th Cir. 2014)(Holmes, J.)
(unpublished); Keys v. State Farm Mut. Auto. Ins. Co., No. 2:12-CV-1181, 2013 WL 3198397,
at *4 (D. Nev. June 21, 2013)(Mahan, J.)(unpublished); Rhoads v. Miller, 352 F. App’x 289
(10th Cir. 2009)(Tymkovich, J.)(unpublished); and Armstead v. Allstate Prop. & Cas. Ins. Co.,
No. 1:14-CV-586, 2015 WL 2408049, at *3 (N.D. Ga. May 20, 2015)(Duffey Jr., J.)
(unpublished) have persuasive value with respect to a material issue, and will assist the Court in
its preparation of this Memorandum Opinion and Order.
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the Tenth Circuit, stated that courts must focus first on the legal question of qualified immunity
and “determine whether plaintiff’s factual allegations are sufficiently grounded in the record
such that they may permissibly comprise the universe of facts that will serve as the foundation
for answering the legal question before the court,” before inquiring into whether there are
genuine issues of material fact for resolution by the jury.
584 F.3d at 1326-27 (Holmes,
J., concurring)(citing Goddard v. Urrea, 847 F.2d 765, 770 (11th Cir. 1988)(Johnson, J.,
dissenting))(observing that, even if factual disputes exist, “these disputes are irrelevant to the
qualified immunity analysis because that analysis assumes the validity of the plaintiffs’ facts”).
See American Mechanical Solutions, L.L.C. v. Northland Process Piping, Inc., 184 F. Supp. 3d
1030, 1078 (D.N.M. 2016)(Browning, J.)(granting summary judgment on a breach-of-theimplied-warranty-of-merchantability claim); Payne v. Tri-State Careflight, LLC, No. CIV 141044, 2016 WL 6396214, at *18 (D.N.M. 2016)(Browning, J.)(denying summary judgment
because federal law did not preempt the Plaintiffs’ claims in the field of wage and labor
regulation for airline and railroad workers).
LAW REGARDING THE UIPA
The New Mexico Legislature passed the UIPA, N.M. Stat. Ann. § 59A-16-20, “to
regulate trade practices in the insurance business and related businesses,” including “practices in
this state which constitute unfair methods of competition or unfair or deceptive acts or
practices.”
N.M. Stat. Ann. § 59A-16-2.
N.M. Stat. Ann. § 59A-16-4 proscribes certain
misrepresentations that relate to insurance transactions, including “misrepresent[ing] the
benefits, advantages, conditions or terms of any policy.” N.M. Stat. Ann. § 59A-16-4. N.M.
Stat. Ann. § 59A-16-5 forbids “untrue, deceptive or misleading” advertisements that relate to
insurance. N.M. Stat. Ann. § 59A-16-5. N.M. Stat. Ann. § 59A-16-8 makes actionable certain
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falsifications of insurance records and the circulation of “any false statement of the financial
condition of an insurer.” Various provisions in the UIPA proscribe discrimination in relation to
insurance transactions. See, e.g., N.M. Stat. Ann. §§ 59A-16-11 to -13.2. N.M. Stat. Ann.
§ 59A-16-19 prohibits anti-competitive insurance practices “resulting or tending to result in
unreasonable restraint of, or monopoly in, the business of insurance.” N.M. Stat. Ann. § 59A16-19.
The UIPA imposes liability for a laundry list of unfair insurance claims practices,
including the following:
A.
misrepresenting to insureds pertinent facts or policy provisions relating to
coverages at issue;
B.
failing to acknowledge and act reasonably promptly upon communications
with respect to claims from insureds arising under policies;
C.
failing to adopt and implement reasonable standards for the prompt
investigation and processing of insureds’ claims arising under policies;
D.
failing to affirm or deny coverage of claims of insureds within a
reasonable time after proof of loss requirements under the policy have
been completed and submitted by the insured;
E.
not attempting in good faith to effectuate prompt, fair and equitable
settlements of an insured’s claims in which liability has become
reasonably clear;
F.
failing to settle all catastrophic claims within a ninety-day period after the
assignment of a catastrophic claim number when a catastrophic loss has
been declared;
G.
compelling insureds to institute litigation to recover amounts due under
policy by offering substantially less than the amounts ultimately recovered
in actions brought by such insureds when such insureds have made claims
for amounts reasonably similar to amounts ultimately recovered;
H.
attempting to settle a claim by an insured for less than the amount to
which a reasonable person would have believed he was entitled by
reference to written or printed advertising material accompanying or made
part of an application;
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I.
attempting to settle claims on the basis of an application that was altered
without notice to, or knowledge or consent of, the insured, his
representative, agent or broker;
J.
failing, after payment of a claim, to inform insureds or beneficiaries, upon
request by them, of the coverage under which payment has been made;
K.
making known to insureds or claimants a practice of insurer of appealing
from arbitration awards in favor of insureds or claimants for the purpose
of compelling them to accept settlements or compromises less than the
amount awarded in arbitration;
L.
delaying the investigation or payment of claims by requiring an insured,
claimant or the physician of either to submit a preliminary claim report
and then requiring the subsequent submission of formal proof of loss
forms, both of which submissions contain substantially the same
information;
M.
failing to settle an insured’s claims promptly where liability has become
apparent under one portion of the policy coverage in order to influence
settlement under other portions of the policy coverage;
N.
failing to promptly provide an insured a reasonable explanation of the
basis relied on in the policy in relation to the facts or applicable law for
denial of a claim or for the offer of a compromise settlement; or
O.
violating a provision of the Domestic Abuse Insurance Protection Act.
N.M. Stat. Ann. § 59A-16-20. N.M. Stat. Ann. § 59A-16-30 provides a cause of action for UIPA
violations and allows attorney’s fees for prevailing parties. See N.M. Stat. Ann. § 59A-16-30.
The Honorable Bruce D. Black, United States District Judge for the District of New Mexico,
concluded that a plaintiff failed to plausibly plead a UIPA claim:
Dr. Yumukoglu alleges generally that Provident’s conduct “violates one or more
of the provisions of Section 59A-16-20 NMSA 1978 (1984),” the section of the
New Mexico Unfair Insurance Practices Act that prohibits unfair claims practices.
Dr. Yumukoglu does not specify which of the fifteen provisions of this section he
feels Provident has violated, and after a review of the statute, the Court cannot
perceive which subsection could have been violated under the fact alleged. At the
very least, Dr. Yumukoglu has failed to comply with the pleading requirements of
Federal Rule of Civil Procedure 8(a)(2). Rule 8(a)(2) requires that a civil
complaint set forth “a short and plain statement of the claim showing that the
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pleader is entitled to relief.” Here, it is not clear either what Dr. Yumukoglu is
claiming or to what relief he is entitled under § 56A-16-20. Dr. Yumukoglu’s
claim appears, like his claim for breach of the duty of good faith and fair dealing,
to be based on Provident’s alleged bad faith in terminating his disability benefits.
As discussed above, the Court finds that Provident’s decision to terminate Dr.
Yumukoglu’s benefits did not amount to bad faith. Provident’s motion for
summary judgment on Plaintiff’s claim for statutory violation is granted.
Yumukoglu v. Provident Life & Accident Ins. Co., 131 F. Supp. 2d 1215, 1227 (D.N.M.
2001)(Black, J.)(footnote omitted)(citations omitted). The Court has previously found that a
plaintiff failed to state a claim under rule 12(b)(6) when the complaint did not contain even “a
formulaic recitation of the elements of a cause of action” under the UIPA. Estate of Gonzales v.
AAA Life Ins. Co., No. CIV 11-0486, 2012 WL 1132332, at *7 (D.N.M. March 28,
2012)(Browning, J.)(citing Bell Atl. Corp. v. Twombly, 550 U.S. at 555).
LAW REGARDING THE UPA
The UPA makes unlawful any “[u]nfair or deceptive trade practices [or] unconscionable
trade practices in the conduct of any trade or commerce.” N.M. Stat. Ann. § 57-12-3. The UPA
defines the term “unfair or deceptive trade practice” as
an act specifically declared unlawful pursuant to the Unfair Practices Act, a false
or misleading oral or written statement, visual description or other representation
of any kind knowingly made in connection with the sale, lease, rental or loan of
goods or services . . . by a person in the regular course of the person’s trade or
commerce, that may, tends to or does deceive or mislead any person.
N.M. Stat. Ann. § 57-12-2D.
The statute also provides examples of conduct that could
potentially violate the UPA. See N.M. Stat. Ann. §§ 57-12-2D(1)-(18) (stating that “unfair or
deceptive trade practice means . . . and includes. . . .”). See also Stevenson v. Louis Dreyfus
Corp., 1991-NMSC-051, ¶ 14, 811 P.2d 1308, 1311 (“After defining an unfair trade practice, the
statute then . . . list[s] examples of conduct which may constitute an unfair trade practice.”).
Relevant to this Memorandum Opinion and Order are the following: “(5) representing that goods
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or services have . . . benefits . . . that they do not have; . . . (8) disparaging the goods . . . of
another by false or misleading representations; . . . (14) using . . . ambiguity as to a material
fact . . . if doing so deceives or tends to deceive.” N.M. Stat. Ann. § 57–12–2D.
A claim under New Mexico’s UPA has four elements:
First, the complaining party must show that the party charged made an “oral or
written statement, visual description or other representation” that was either false
or misleading. Second, the false or misleading representation must have been
“knowingly made in connection with the sale, lease, rental or loan of goods or
services in the extension of credit or . . . collection of debts.” Third, the conduct
complained of must have occurred in the regular course of the representer’s trade
or commerce. Fourth, the representation must have been of the type that “may,
tends to or does, deceive or mislead any person.”
Stevenson v. Louis Dreyfus Corp., 1991-NMSC-051, ¶ 13, 811 P.2d at 1311. “The ‘knowingly
made’ requirement is met if a party was actually aware that the statement was false or misleading
when made, or in the exercise of reasonable diligence should have been aware that the statement
was false or misleading.” Stevenson v. Louis Dreyfus Corp., 1991-NMSC-051, ¶ 17, 811 P.2d at
1311-12. See Atherton v. Gopin, 2015-NMCA-003, ¶ 47, 340 P.3d 630, 640-41. Notably, a
plaintiff need not prove detrimental reliance upon the defendant’s representations. See Lohman
v. Daimler-Chrysler Corp., 2007-NMCA-100, ¶ 35, 166 P.3d at 1098; Smoot v. Physicians Life
Ins. Co., 2004-NMCA-027, ¶¶ 2, 20-23, 87 P.3d 545, 550-51.
The Court has previously
construed UPA and has noted that, “in the right circumstances, it could grant judgment as a
matter of law on whether a statement is deceptive or misleading” though “generally the question
is a matter of fact.” Guidance Endodontics, LLC v. Dentsply Int’l, Inc., 728 F. Supp. 2d 1170,
1193 (D.N.M. 2010)(Browning, J.). The Court has also concluded that a communication can
mislead even if it is not false. See Guidance Endodontics, LLC v. Dentsply Int’l, Inc., 728
F. Supp. 2d at 1194-95.
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NEW MEXICO LAW REGARDING NEGLIGENCE
Generally, a negligence claim requires the existence of a duty from a defendant to a
plaintiff, breach of that duty, which is typically based on a standard of reasonable care, and the
breach being a cause-in-fact and proximate cause7 of the plaintiff’s damages. See Coffey v.
United States, 870 F. Supp. 2d 1202, 1225 (D.N.M. 2012)(Browning, J.)(citing Herrera v.
Quality Pontiac, 2003-NMSC-018, ¶ 6, 73 P.3d 181, 185-86). “In New Mexico, negligence
encompasses the concepts of foreseeability of harm to the person injured and of a duty of care
toward that person.” Ramirez v. Armstrong, 1983-NMSC-104, ¶ 8, 673 P.2d 822, 825, overruled
on other grounds by Folz v. State, 1990-NMSC-075, ¶ 3, 797 P.2d 246, 249.
negligence is a question of fact for the jury.
Generally,
See Schear v. Bd. of Cty Comm’rs,
1984-NMSC-079, ¶ 4, 687 P.2d 728, 729. “A finding of negligence, however, is dependent upon
the existence of a duty on the part of the defendant.”
Schear v. Bd. of Cty Comm’rs,
1984-NMSC-079, ¶ 4, 687 P.2d at 729. “Whether a duty exists is a question of law for the courts
to decide.” Schear v. Bd. of Cty Comm’rs, 1984-NMSC-079, ¶ 4, 687 P.2d at 729 (citation
omitted). Once courts recognize that a duty exists, that duty triggers “a legal obligation to
conform to a certain standard of conduct to reduce the risk of harm to an individual or class of
persons.” Baxter v. Noce, 1988-NMSC-024, ¶ 11, 752 P.2d 240, 243.
New Mexico courts have stated that foreseeability of a plaintiff alone does not end the
inquiry into whether the defendant owes a duty to the plaintiff. See Herrera v. Quality Pontiac,
2003-NMSC-018, ¶ 7, 73 P.3d at 186. New Mexico courts have recognized that, “[u]ltimately, a
7
The 2004 amendments to Uniform Instruction 13-305 eliminated the word “proximate”
within the instruction. Use Note, N.M. Rul. Amend. Civ. UJI 13-305. The drafters added,
however, that the change was “intended to make the instruction clearer to the jury and do[es] not
signal any change in the law of proximate cause.” Editor’s Notes, N.M. Rul. Amend. Civ. UJI
13-305 (alteration added).
- 32 -
duty exists only if the obligation of the defendant [is] one to which the law will give recognition
and effect.” Herrera v. Quality Pontiac, 2003-NMSC-018, ¶ 9, 73 P.3d at 187 (internal quotation
marks omitted). To determine whether the defendant’s obligation is one to which the law will
give recognition and effect, courts consider legal precedent, statutes, and other principles of law.
See Herrera v. Quality Pontiac, 2003-NMSC-018, ¶ 9, 73 P.3d at 186.
“As a general rule, an individual has no duty to protect another from harm.” Grover v.
Stechel, 2002-NMCA-049, ¶ 11, 45 P.3d 80, 84. “[C]ertain relationships, however, that give rise
to such a duty [include]: (1) those involving common carriers, innkeepers, possessors of land;
and (2) those who voluntarily or by legal mandate take the custody of another so as to deprive
the other of his normal opportunities for protection.” Grover v. Stechel, 2002-NMCA-049, ¶ 11,
45 P.3d at 84. “[W]hen a person has a duty to protect and the third party’s act is foreseeable,
‘such an act whether innocent, negligent, intentionally tortious, or criminal does not prevent the
[person who has a duty to protect] from being liable for harm caused thereby.’” Reichert v.
Atler, 1994-NMSC-056, ¶ 11, 875 P.2d 379, 382.
“[T]he responsibility for determining whether the defendant has breached a duty owed to
the plaintiff entails a determination of what a reasonably prudent person would foresee, what an
unreasonable risk of injury would be, and what would constitute an exercise of ordinary care in
light of all the surrounding circumstances.” Herrera v. Quality Pontiac, 2003-NMSC-018, ¶ 33,
73 P.3d at 194. “The finder of fact must determine whether Defendant breached the duty of
ordinary care by considering what a reasonably prudent individual would foresee, what an
unreasonable risk of injury would be, and what would constitute an exercise of ordinary care in
light of all surrounding circumstances of the present case . . . .” Herrera v. Quality Pontiac,
2003-NMSC-018, ¶ 33, 73 P.3d at 195.
- 33 -
“A proximate cause of an injury is that which in a natural and continuous sequence
[unbroken by an independent intervening cause] produces the injury, and without which the
injury would not have occurred.” Herrera v. Quality Pontiac, 2003-NMSC-018, ¶ 34, 73 P.3d at
195. “It need not be the only cause, nor the last nor nearest cause.” Herrera v. Quality Pontiac,
2003-NMSC- 018, ¶ 34, 73 P.3d at 195. “It is sufficient if it occurs with some other cause acting
at the same time, which in combination with it, causes the injury.” Herrera v. Quality Pontiac,
2003-NMSC-018, ¶ 34, 73 P.3d at 195.
NEW MEXICO LAW REGARDING NEGLIGENT MISREPRESENTATION
To prevail on a negligent misrepresentation in New Mexico courts, a plaintiff must show:
“(1) the defendant made a material representation to plaintiff, (2) the plaintiff relied upon the
representation, (3) the defendant knew the representation was false or made it recklessly, and (4)
the defendant intended to induce reliance by the plaintiff.” Robey v. Parnell, 2017-NMCA-038,
¶ 31, 392 P.3d 642, 652 (citing Saylor v. Valles, 2003-NMCA-037, ¶ 17, 63 P.3d 1152, 1158).8
8
The Supreme Court of New Mexico has not expressly adopted this four-part negligent
misrepresentation definition, but has stated that New Mexico follows the Restatement (Second)
of Torts § 552 (1977) when it comes to negligent misrepresentation. See Garcia v. Rodey,
Dickason, Sloan, Akin & Robb, P.A., 1988-NMSC-014, ¶ 16, 750 P.2d 118, 122. That
restatement section states:
(1) One who, in the course of his business, profession or employment, or in any
other transaction in which he has a pecuniary interest, supplies false information
for the guidance of others in their business transactions, is subject to liability for
pecuniary loss caused to them by their justifiable reliance upon the information, if
he fails to exercise reasonable care or competence in obtaining or communicating
the information.
(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is
limited to loss suffered
(a) by the person or one of a limited group of persons for whose benefit
and guidance he intends to supply the information or knows that the
recipient intends to supply it; and
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“The theory of liability for this tort is one of negligence rather than of intent to mislead.” Sims
(b) through reliance upon it in a transaction that he intends the information
to influence or knows that the recipient so intends or in a substantially
similar transaction.
(3) The liability of one who is under a public duty to give the information extends
to loss suffered by any of the class of persons for whose benefit the duty is created,
in any of the transactions in which it is intended to protect them.
Restatement (Second) of Torts § 552 (1977). The Court cannot discern a meaningful difference
between the Court of Appeals of New Mexico’s four elements and the Restatement (Second) of
Torts § 552(1)-(2). Under those sections, a defendant is liable for negligent misrepresentation
when he or she “supplies false information” to the plaintiff; the plaintiff “justifiabl[y] reli[es]
upon the information”; the defendant “fail[ed] to exercise reasonable care or competence in
obtaining or communicating the information”; and the defendant “intend[ed] the information to
influence or knows that the recipient so intends” to use the information. Restatement (Second)
of Torts § 552. Those elements mirror the Court of Appeals of New Mexico’s negligent
misrepresentation test.
The Restatement (Second) of Torts § 552 does, however, state that those with a public
duty to give information may be liable for negligent misrepresentation for statements made to
“the class of persons for whose benefit the duty is created in any of the transactions in which it is
intended to protect them.” Restatement (Second) of Torts § 552(3). The Court could not locate
a New Mexico case applying negligent misrepresentation liability based on the public duty
theory. New Mexico’s Uniform Jury Instructions for negligent misrepresentation mirror Court
of Appeals of New Mexico’s test:
A party is liable for damages caused by his negligent and material
misrepresentation.
A material misrepresentation is an untrue statement which a party intends the
other party to rely on and upon which the other party did in fact rely.
A negligent misrepresentation is one where the speaker has no reasonable ground
for believing that the statement made was true.
N.M.R.A., Civ. UJI 13-1632. Although this jury instruction does not mention the public duty
theory of negligent misrepresentation, its omission is not determinative. See State v. Wilson,
1994-NMSC-009, ¶ 5, 116 N.M. 793, 796, 867 P.2d 1175, 1178 (stating that the Supreme Court
of New Mexico’s “adoption of uniform jury instructions proposed by standing committees . . .
establishes a presumption that the instructions are correct statements of law, that fact alone is not
sufficient precedent to tie the hands of the Court of Appeals”). Given the Supreme Court of New
Mexico’s express adoption of the Restatement (Second) of Torts’ definition for negligent
misrepresentation, see Garcia v. Rodey, Dickason, Sloan, Akin & Robb, P.A., 1988-NMSC-014,
¶ 16, 750 P.2d at 122, the Court sees no reason why the Supreme Court of New Mexico would
not, given the chance, recognize a public duty theory of negligent misrepresentation.
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v. Craig, 1981-NMSC-046, ¶ 4, 627 P.2d 875, 877 (citing W. Prosser, Handbook of the Law of
Torts § 107 (4th ed. 1971)). See Ledbetter v.Webb, 1985-NMSC-112, ¶ 26, 711 P.2d 874, 879
(distinguishing negligent misrepresentation from the intentional torts of fraud or deceit). These
elements do not require that the parties have entered into a contract or partnership. See Leon v.
Kelly, No. CIV 07-0467, 2008 WL 5978926, at *7 (D.N.M. Dec. 8, 2008)(Browning, J)
(“Negligent misrepresentation is a tort, and while it requires a professional or business
relationship to a certain degree, it does not require an actual contract or partnership.”); Sims v.
Craig, 1981-NMSC-046, ¶ 4, 627 P.2d at 876-77 (holding that the plaintiff could bring an action
for negligent misrepresentation although the plaintiff could not sue on the contract because the
contract was void).
NEW MEXICO LAW REGARDING CONTRACT INTERPRETATION
In contract cases, “the role of the court is to give effect to the intention of the contracting
parties.” Bogle Farms, Inc. v. Baca, 1996-NMSC-051, ¶ 21, 925 P.2d 1184, 1190. “The primary
objective in construing a contract is not to label it with specific definitions or to look at form
above substance, but to ascertain and enforce the intent of the parties as shown by the contents of
the instrument.” Bogle Farms, Inc. v. Baca, 1996-NMSC-051, ¶ 21 (citing Shaeffer v. Kelton,
1980-NMSC-117, ¶8, 619 P.2d 1226, 1229). “The parol evidence rule ‘bars admission of
evidence extrinsic to the contract to contradict and perhaps even supplement the writing.’”
Mem’l Med. Ctr., Inc. v. Tatsch Const., Inc., 2000-NMSC-030, ¶ 16, 12 P.3d 431, 437 (citation
omitted). If a contract is ambiguous, however, “evidence will be admitted to aid in interpreting
the parties’ expressions.” C.R. Anthony Co. v. Loretto Mall Partners, 1991 NMSC-070, ¶ 12,
817 P.2d 238, 242 (citation omitted). “On the other hand, if the court determines that the
contract is clear and unambiguous on its face, evidence of the circumstances surrounding the
- 36 -
transaction is inadmissible to vary or modify its terms.” C.R. Anthony Co. v. Loretto Mall
Partners, 1991 NMSC-070, ¶ 12, 817 P.2d at 242 (emphasis in original)(citation omitted).
The question whether an agreement contains an ambiguity is a matter of law. See Mark
V., Inc. v. Mellekas, 1993-NMSC-001, ¶ 12, 845 P.2d 1232, 1235 (citing Levenson v. Mobley,
1987-NMSC-102, ¶ 7, 744 P.2d 174, 176). “An ambiguity exists in an agreement when the
parties’ expressions of mutual assent lack clarity.” Mark V, Inc. v. Mellekas, 1993-NMSC-001,
¶ 12, 845 P.2d at 1235 (citation omitted). If, however, the “evidence presented is so plain that no
reasonable person could hold any way but one, then the court may interpret the meaning as a
matter of law.” Mark V, Inc. v. Mellekas, 1993-NMSC-001, ¶ 12, 845 P.2d at 1235. If,
however, the court finds that the contract is “reasonably and fairly susceptible of different
constructions, an ambiguity exists.” Mark V, Inc. v. Mellekas, 1993-NMSC-001, ¶ 12, 845 P.2d
at 1235 (citing Vickers v. North Am. Land Dev., Inc., 1980-NMSC-021, ¶ 9, 607 P.2d 603, 606).
New Mexico courts may consider extrinsic evidence to determine “whether the meaning of a
term or expression contained in the agreement is actually unclear.” Mark V. Inc. v. Mellekas,
1993-NMSC-001, ¶ 12, 845 P.2d at 1235 (“New Mexico law, then, allows the court to consider
extrinsic evidence to make a preliminary finding on the question of ambiguity.”); C.R. Anthony
Co. v. Loretto Mall Partners, 1991-NMSC-070, ¶ 15, 817 P.2d at 242-43 (“We hold today that in
determining whether a term or expression to which the parties have agreed is unclear, a court
may hear evidence of the circumstances surrounding the making of the contract and of any
relevant usage of trade, course of dealing, and course of performance.” (citation and footnote
omitted)). Once the court concludes that an ambiguity exists, the resolution of that ambiguity
becomes a question of fact. See Mark V, Inc. v. Mellekas, 1993-NMSC-001, ¶ 13, 845 P.2d at
1235. To decide an ambiguous term’s meaning, “the fact finder may consider extrinsic evidence
- 37 -
of the language and conduct of the parties and the circumstances surrounding the agreement, as
well as oral evidence of the parties’ intent.” Mark V, Inc. v. Mellekas, 1993-NMSC-001, ¶ 13,
845 P.2d at 1236. New Mexico contract law “requires the construction of ambiguities and
uncertainties in a contract most strongly against the party who drafted the contract.” Schultz &
Lindsay Const. Co., 1972-NMSC-013, ¶ 6, 494 P.2d 612, 614. See Rummel v. Lexington Ins.
Co., 1997-NMSC-041, ¶ 22, 945 P.2d 970, 977 (“An ambiguity in an insurance contract is
usually construed against the insurer, because courts will weigh their interpretation against the
party that drafted a contract’s language.”).
LAW REGARDING ATTORNEY’S FEES
The obligation to pay attorneys’ fees can arise by statute or contractual agreement. See
United States ex rel. Trustees of the Colo. Laborers Health & Welfare Trust Fund & Expert
Env’l Control, Inc., 790 F. Supp. 250, 251-52 (D. Colo. 1992)(Kane, J.)(citing F.D. Rich, Inc. v.
United States ex rel. Indus. Lumber Co., 417 U.S. 116 (1974)). See also Skyline Potato Co., Inc.
v. Hi-Land Potato Co., Inc., 188 F. Supp. 3d 1097, 1159 (D.N.M. 2016)(Browning, J.)(stating
that the Uniform Trust Code “provides the Court with broad discretion to award attorney’s fees
in litigation involving the administration of a trust as justice and equity may require”). Whether
the obligation to pay reasonable attorneys’ fees arises from statute or contract, the court’s
analysis of the reasonableness of the fees is similar. See United States ex rel. Trustees of the
Colo. Laborers Health & Welfare Trust Fund & Expert Env’l Control, Inc., 790 F. Supp. at 25152 (citing United States ex rel. C.J.C., Inc. v. Western States Mechanical Contractors, Inc., 834
F.2d 1533 (10th Cir. 1987)). The Tenth Circuit has explained that, in evaluating fees that a
contract awards, the Court may consider “the familiar factors from the federal court cases
awarding fees in the statutory context” as Ramos v. Lamm, 713 F.2d 546 (10th Cir. 1983),
- 38 -
defines them. United States ex rel. Trustees of the Colo. Laborers Health & Welfare Trust Fund
& Expert Env’l Control, Inc., 790 F. Supp. at 251-52 (citing United States ex rel. C.J.C., Inc. v.
Western States Mechanical Contractors, Inc., 834 F.2d at 1550).
“To determine the reasonableness of a fee request, a court must begin by calculating the
so-called ‘lodestar amount’ of a fee, and a claimant is entitled to the presumption that this
lodestar amount reflects a ‘reasonable’ fee.” Robinson v. City of Edmond, 160 F.3d 1275, 1281
(10th Cir. 1998). The lodestar is “‘the number of hours reasonably expended on the litigation
multiplied by a reasonable hourly rate,’ which produces a presumptively reasonable fee that may
in rare circumstances be adjusted to account for the presence of special circumstances.”
Anchondo v. Anderson, Crenshaw & Assoc., LLC, 616 F.3d 1098, 1102 (10th Cir.
2010)(quoting Hensley v. Eckerhart, 461 U.S. at 433, and Perdue v. Kenny A. ex rel. Winn, 559
U.S. 542, 543-44 (2010)). “The party requesting attorney fees bears the burden of proving” the
two components used to calculate the fee award: (i) “the amount of hours spent on the case”; and
(ii) “the appropriate hourly rates.” United Phosphorus, Ltd. v. Midland Fumigant, Inc., 205 F.3d
1219, 1233 (10th Cir. 2000). See New Mexico v. Valley Meat Co., LLC, 2015 WL 9703255, at
*22 (D.N.M. Dec. 14, 2015)(Browning, J.)(citing United Phosphorus, Ltd. v. Midland Fumigant,
Inc., 205 F.3d at 1233). Once the Court makes these two determinations, the fee “claimant is
entitled to the presumption that this lodestar amount reflects a ‘reasonable’ fee.” Robinson v.
City of Edmond, 160 F.3d at 1281.
“To determine what constitutes a reasonable rate, the district court considers the
prevailing market rate in the relevant community.” New Mexico v. Valley Meat Co., LLC, 2015
WL 9703255, at *23 (quoting Lippoldt v. Cole, 468 F.3d 1204, 1224-25 (10th Cir. 2006)). See
Malloy v. Monahan, 73 F.3d 1012, 1018 (10th Cir. 1996). The party entitled to fees must
- 39 -
provide the district court with sufficient information to evaluate prevailing market rates. See
Lippoldt v. Cole, 468 F.3d at 1225. Moreover, the party must also demonstrate that the rates are
similar to rates for similar services by “lawyers of reasonably comparable skill, experience, and
reputation” in the relevant community and for similar work. Blum v. Stenson, 465 U.S. 886, 895
n.11 (1984). See Case v. Unified Sch. Dist. No. 233, 157 F.3d 1243, 1255-56 (10th Cir. 1998);
Ramos v. Lamm, 713 F.2d at 555 (“The hourly rate should be based on the lawyers’ skill and
experience in civil rights or analogous litigation.”), overruled in part on other grounds,
Pennsylvania v. Del. Valley Citizens’ Council for Clean Air, 483 U.S. 711, 725 (1987). Courts
may also consider their own knowledge of market rates. See Lippoldt v. Cole, 468 F.3d at 1225.
The party seeking fees “should submit evidence supporting the hours worked and rates claimed.”
Hensley v. Eckerhart, 461 U.S. at 434. Although “[t]here is no precise rule or formula,” district
courts have discretion to make an “equitable judgment” as to “eliminate” or “reduce” requested
fees “to reflect a plaintiff’s overall success level.” Hensley v. Eckerhart, 461 U.S. at 436-37.
See General Protecht Grp., Inc. v. Leviton Manufacturing Co., 122 F. Supp. 3d 1114, 1135
(D.N.M. 2015)(Browning, J.)(“A district court may also make adjustments to the lodestar figure
to reflect a plaintiff’s overall success level.”); Ysasi v. Brown, 2015 WL 403930, at *10 (D.N.M.
Jan. 7, 2015)(Browning, J.). The court may adjust the lodestar figure to reflect various factors,
including the degree of success obtained, the significance of the legal issues involved, and the
public interest advanced by the litigation. See Farrar v. Hobby, 506 U.S. 503, 120-22 (1992).
The Court has discretion “to adjust or even deny a contractual award of fees if such an award
would be inequitable or unreasonable.” United States ex rel. Trustees of the Colo. Laborers
Health & Welfare Trust Fund & Expert Env’l Control, Inc., 790 F. Supp. at 251-52 (citing
United States ex rel. C.J.C., Inc. v. Western States Mechanical Contractors, Inc., 834 F.2d at
- 40 -
1548). In awarding fees, the district court should “provide a concise but clear explanation of its
reasons for [a] fee award.” Hensley v. Eckerhart, 461 U.S. at 438.
ANALYSIS
Liberty Mutual’s affirmative defense that Value Inn did not satisfy conditions precedent
for bringing legal action fails. The Court concludes that the Supreme Court of New Mexico
would require a showing that the defendant suffered substantial prejudice before it would dismiss
a complaint filed before the plaintiff satisfied a contract’s conditions precedent to filing suit
where there is a substantial probability that dismissing the claim would prevent the plaintiff from
ever obtaining relief. Here, if the Court dismissed Value Inn’s Complaint, there is a substantial
probability that any subsequent case asserting those claims would be untimely; moreover, there
is nothing that Court can properly consider when deciding this motion to dismiss indicating that
Liberty Mutual suffered substantial prejudice. Value Inn states a claim for relief for breach of
contract, insurance bad faith, and some UIPA violations. The Court will, however, dismiss some
of Value Inn’s UIPA claims, all of its UPA claims, and its negligent misrepresentation claim for
failing to state a claim upon which relief can be granted. The Court will not abate this action.
The Court, therefore, grants in part and denies in part the MTD.
I.
THAT VALUE INN FAILED TO SATISFY ITS INSURANCE POLICY’S
CONDITIONS PRECEDENT TO SUIT DOES NOT BAR VALUE INN’S
CLAIMS.
According to the
Complaint, Value Inn has not satisfied the Contract’s conditions
precedent for bringing action against Liberty Mutual. The Contract states that “[n]o one may
bring legal action against [Liberty Mutual] under this Coverage Part unless . . . there has been
full compliance with all the terms of this Coverage Part.” Contract ¶ D(1), at 10.9 The Contract
9
The Court can consider the Contract -- which Liberty Mutual attached to its MTD -- in
its analysis without converting the motion to dismiss to a motion for summary judgment under
- 41 -
also states -- in its “Duties In The Event Of Loss Or Damage” section -- that Liberty Mutual
“may examine any insured under oath . . . at such times as may be reasonably required, about any
matter relating to this insurance or the claim, including an insured’s books and records.”
Contract ¶ 3(b), at 8.
Liberty Mutual argues that “submitting to an EUO and providing documentation of the
alleged loss are conditions precedent to suit.” MTD at 8.10 The Court agrees. 11 The Court does
rule 56 of the Federal Rules of Civil Procedure, because Value Inn references the Contract
through its Complaint, and the Contract is central to Value Inn’s claim. The general rule for a
motion to dismiss is that, if “matters outside the pleadings are presented to and not excluded by
the court, the motion must be treated as one for summary judgment under Rule 56.” Fed. R. Civ.
P. 12(d). A court may, however, consider documents to which the complaint refers if the
documents are central to the plaintiff’s claim and the parties do not dispute the documents’
authenticity. See Jacobsen v. Deseret Book Co., 287 F.3d 936, 941-42 (10th Cir. 2002).
Consequently, if a complaint refers to a document central to the plaintiff’s claim without
attaching it or incorporating by reference, the defendant may submit an “indisputably authentic
copy to the court to be considered on a motion to dismiss.” GFF Corp. v. Assoc. Wholesale
Grocers, Inc., 130 F.3d at 1384. See 5A C. Wright & A. Miller, Fed. Prac. & Proc. § 1327, at
438-39 (3d ed. 2004).
Value Inn references the Contract throughout its Complaint. See, e.g., Complaint
¶¶ 11-13, at 4-5 (discussing and quoting the Contract’s appraisal clause); Complaint ¶ 14, at 5-6
(discussing and quoting the Contract’s requirements for taking legal action against Liberty
Mutual). The Contract is central to Value Inn’s Complaint, because he seeks enforcement of its
appraisal clause. See Complaint ¶ 38(a) (requesting that the Court order “that this claim proceed
through the appraisal process in the policy”). Moreover, Value Inn does not dispute the
Contract’s authenticity.
10
Affirmative defenses can be considered on a motion to dismiss when the facts
establishing the affirmative defense are apparent on the face of the complaint. See Miller v.
Shell Oil Co., 345 F.2d 891, 893 (10th Cir. 1965)(Hill, J.)(“Under Rule 12(b), a defendant may
raise an affirmative defense by a motion to dismiss for the failure to state a claim. If the defense
appears plainly on the face of the complaint itself, the motion may be disposed of under this
rule.”).
11
Federal courts sitting in diversity apply the state’s substantive law and federal
procedural law. See Am. Mech. Sols., L.L.C. v. Northland Process Piping, Inc., 184 F. Supp. 3d
1030, 1060 n.13 (D.N.M. 2016)(Browning, J.)(citing Trierweiler v. Croxton & Trench Holding
Corp., 90 F.3d 1523, 1539 (10th Cir.1996)). The Tenth Circuit explains:
- 42 -
not see a reasonable interpretation of the Contract besides that “full compliance with all the
terms of this Coverage Part,” Contract ¶ D(1), at 10, includes the Contract’s provision that, in the
event of loss or damage, an insured must submit to an EUO and provide requested documents,
see Contract ¶ 3(b).12 Neither party requests a Mark V. hearing13 nor do they argue that these
Although the distinction between substance and procedure is not always clear, we
can distinguish a substantive rule from a procedural rule by examining the
language and the policy of the rule in question. If these inquiries point to
achieving fair, accurate, and efficient resolutions of disputes, the rule is
procedural. If, however, the primary objective is directed to influencing conduct
through legal incentives, the rule is substantive.
Sims v. Great Am. Life Ins. Co., 469 F.3d 870, 883 (10th Cir. 2006). Federal law, specifically
rule 12(b)(6), structures the Court’s inquiry on a motion to dismiss, but New Mexico law
determines whether Value Inn’s failure to satisfy conditions precedent to suit means that it fails
to state a claim for relief upon which relief can be granted. To that end, New Mexico courts
have determined clearly worded contract provisions barring legal action against one party unless
the other party satisfies certain conditions precedent are valid. See Rushing v. Lovelace-Bataan
Health Program, 1979-NMSC-054, ¶¶ 3-5, 598 P.2d 211, 212 (concluding that the plaintiff could
not bring a legal action because he had not satisfied a contract’s condition precedent that he first
file a written claim to the defendant); Pillsbury v. Blumenthal, 1954-NMSC-066, ¶ 5, 272 P.2d
326, 328–29 (stating that “[t]he authorities are in accord that parties may agree to make
arbitration a condition precedent to suit, but the burden in this instance was upon appellants to
establish such affirmative defense by showing a complete and enforceable arbitration agreement”
(citation omitted)).
12
Several courts have determined that similar language is unambiguous with regard to
whether an insured’s duty after a loss is a condition precedent of bringing action against the
insurer. See, e.g., Armstead v. Allstate Prop. & Cas. Ins. Co., No. 1:14-CV-586, 2015 WL
2408049, at *3 (N.D. Ga. May 20, 2015)(Duffey Jr., J.)(unpublished)(indicating that an insured’s
contractual duties in the event of a loss are conditions precedent to bring a suit against the
insurer); Keys v. State Farm Mut. Auto. Ins. Co., No. 2:12-CV-1181, 2013 WL 3198397, at *4
(D. Nev. June 21, 2013)(Mahan, J.)(unpublished)(“The clear terms of this policy required
plaintiff to cooperate with defendant’s request in evaluating a UIM claim.”); State Farm Fire &
Cas. Co. v. Michael, 822 F. Supp. 575, 580 (W.D. Ark. 1993)(Waters, C.J.)(concluding that an
insured’s duties to promptly provide written notice of certain events are, “under any reasonable
and fair definition of the term,” conditions precedent to bringing legal action against the insurer).
13
A Mark V hearing refers to a hearing, required by the Supreme Court of New Mexico in
Mark V., Inc. v. Mellekas, 1993-NMSC-001, ¶¶ 12-13, 845 P.2d at 1235-36, to determine
whether an agreement contains an ambiguity. If the “evidence is so plain that no reasonable
person could hold any way but one, then the court may interpret the meaning as a matter of law.”
- 43 -
provisions are ambiguous. No party states that there is evidence that the Court needs to consider
to determine whether there is an ambiguity.
Moreover, Value Inn does not dispute that
submitting to an EUO and providing requested documents is a condition precedent to bringing
suit; in its Response, Value Inn contends only that Liberty Mutual is incorrect that Value Inn has
“refused to submit to an EUO,” because there is an EUO “set for September 1, 2017 in Las
Cruces, New Mexico.” Response ¶ 7, at 4. Value Inn references the Contract’s provision about
bringing a legal action against Liberty Mutual only to argue that it “had no choice but to file suit”
when it did, because the Contract requires that it bring action within two years form the date that
the loss or damage occurs. Response ¶ 7, at 4 (citing Contract ¶ D(2), at 10).
In considering a motion to dismiss, the Court must accept as true all well-pled factual
allegations in the complaint, view those allegations in the light most favorable to the non-moving
party, and draw all reasonable inferences in the plaintiff’s favor. See Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. at 322. Even taking the Complaint’s facts in the light most
favorable to Value Inn, however, the Complaint establishes that Value Inn, when it filed its
Complaint, had not submitted to an EUO or provided requested documents. See, e.g., Complaint
¶ 10, at 4 (“There is simply no need to force plaintiff to accumulate documents that are irrelevant
and serve no legitimate purpose.”); Complaint ¶ 12, at 4-5 (arguing that the “appraisal process
will address Defendants’ issues regarding pre existing damage and cause of loss, thus obviating
the need for extensive pre litigation document production and testimony”); Complaint ¶ 38(a), at
12 (requesting that the Court declare “that an EUO is not appropriate in this matter”).
The Court does not want to dismiss the importance of an EUO and providing information
Mark V, 1993-NMSC-001, ¶ 13, 845 P.2d at 1235. If, however, the court concludes that the
contract is “reasonably and fairly susceptible of different constructions, an ambiguity exists.”
1993-NMSC-001, ¶ 13, 845 P.2d at 1235.
- 44 -
to the insurance company before suing. The Supreme Court of New Mexico most likely does not
want its state courts flooded with suits against insurance companies filed before the insurance
company has some chance to investigate, evaluate, settle, or resolve its claims. The Court
concludes that, in most cases, the Supreme Court of New Mexico would enforce an insurance
policy’s provisions requiring that the insured submit to an EUO and provide certain documents
even if the insurance company does not show substantial prejudice. The Court not believe,
however, that the Supreme Court of New Mexico would apply that general rule to the unique
facts of this case, because there is a substantial probability that dismissing Value Inn’s
Complaint would effectively extinguish Value Inn’s ability to recover anything from Liberty
Mutual.14
14
Value Inn has not amended its Complaint or asked the Court to give it leave to do so.
The Court will not, in any case, give Value Inn an opportunity to amend its complaint sua sponte.
Although Value Inn may have satisfied the conditions precedent after it filed the Complaint but
before the Contract’s two-year limit barred its claim -- the Contract states that a legal action must
be brought within two years of the damage, see Contract ¶ D, at 10; the damage occurred on or
about October 21, 2015, see Complaint ¶ 6, at 2; and Value Inn apparently submitted to an EUO
on September 1, 2017, see Response ¶ 7, at 4 (stating, on August 28, 2017, that Value Inn had
agreed to submit to an EUO on September 1, 2017); Reply at 3 (stating that the EUO occurred
but that, as of September 11, 2017, Value Inn had not provided all requested
documents) -- amending the Complaint would not cure the Complaint’s deficiency that existed at
the time of its filing. Rule 15’s plain language states that an amendment “relates back to the date
of the original pleading.” Fed. R. Civ. P. 15(c)(1) (emphasis added). In Reynolds v. United
States, for example, a plaintiff filed a complaint before meeting a condition precedent for
bringing legal action against the United States under the Federal Tort Claims Act, 28 U.S.C.
§ 2671-80. See Reynolds v. United States, 784 F.2d 291, 292 (1984). After the district court
dismissed the complaint for being premature, the plaintiff met the condition precedent, served
the defendants, and filed an amended complaint. See Reynolds v. United States, 784 F.2d at
292-93. Looking to rule 15(c)’s plain language, the United States Court of Appeals for the Fifth
Circuit determined that the amended complaint related back to the date on which the plaintiff
filed the original complaint and not to the date on which she served the defendants. See
Reynolds v. United States, 748 F.2d at 293. The Fifth Circuit explained:
The date of Ms. Reynolds’ original pleading was August 10, 1982; Rule 15(c)
gave the district court no authority to relate Ms. Reynolds’ amended complaint
back to any date except August 10, 1092. On that date, the court lacked subject
- 45 -
The Court bases its prediction on the Supreme Court of New Mexico precedent indicating
that an insurance company’s obligations under an insurance policy may persist even when an
insured breaches a policy’s provision. In Found. Reserve Ins. Co. v. Esquibel, 1980-NMSC-019,
¶ 15, 607 P.2d 1150, 1152 (“Esquibel”), the Supreme Court of New Mexico faced “a matter of
first impression in New Mexico regarding the standard for voiding an insurance policy based on
a material breach by the insured.” 1980-NMSC-019, ¶ 2, 607 P.2d at 1150. The Supreme Court
of New Mexico indicated that, when an insurance company seeks to avoid paying a claim on an
insurance policy, i.e., “to be relieved of its obligation under [an] insurance policy,”
1980-NMSC-019, ¶ 9, 607 P.2d at 1151, because of an insured’s policy violation, a “threshold
issue” is whether the “breach of policy provisions is a substantial and material one.”
1980-NMSC-019, ¶ 11, 607 P.2d at 1150. The Supreme Court of New Mexico reasoned that,
according to “[t]he weight of authority and the trend nationally,” satisfying that threshold issue
means that “substantial prejudice to the insuror . . . may be advanced as an affirmative defense to
claims by the insured or third parties,” 1980-NMSC-019, ¶ 13, 607 P.2d at 1152, and “h[e]ld this
standard to be applicable in New Mexico as well, 1980-NMSC-019, ¶ 14, 607 P.2d at 1152. The
Supreme Court of New Mexico determined that Esquibel committed a “substantial and material”
matter jurisdiction of Ms. Reynolds’ claim. . . . Filed on a date on which the court
lacked jurisdiction, [the amended complaint] related back to a date on which the
court also lacked jurisdiction.
Reynolds v. United States, 748 F.2d at 293. Kreider Dairy Farms, Inc. v. Glickman, 190 F.3d
113, 121 (3d Cir. 1999)(“An amended complaint that purports to relate back to an original
complaint asserting an improper appeal which was filed on a date upon which the District Court
would have lacked jurisdiction over the appeal raised in the amended complaint, must be
dismissed for lack of jurisdiction.” (citing Reynolds v. United States, 748 F.2d 291, 293 (5th
Cir.1984)). Cf. Wilson v. People By & Through Dep’t of Pub. Works, 271 Cal. App. 2d 665,
669 (Cal. Ct. App. 1969)(“A subsequent pleading which sets out the subsequent performance of
a statutory condition precedent to suit cannot relate the time of performance of the condition
back to the time of the filing of the original complaint . . . .”).
- 46 -
breach, 1980-NMSC-019, ¶ 11, 607 P.2d at 1151, but that “the insuror must demonstrate
substantial prejudice as a result of a material breach of the insurance policy by the insured before
it will be relieved of its obligations under a policy,” 1980-NMSC-019, ¶ 15, 607 P.2d at 1152.
Exactly one year later, the Supreme Court of New Mexico refused to extend its Esquibel
reasoning to a time-to-sue provision in an insurance contract. See Sanchez v. Kemper Ins.
Companies, 1981-NMSC-032, ¶ 12, 632 P.2d 343, 345.
Sanchez draws a distinction by
observing that, in Esquibel, “this Court considered a cooperation provision in an insurance
contract,” and “held that such a cooperation provision could only be enforced upon (1) a showing
of lack of cooperation in some substantial and material respect, and (2) a showing of substantial
prejudice to the insurer as a result of the breach.” 1981-NMSC-032, ¶ 9, 632 P.2d at 344-45.
According to Sanchez, “[t]he purpose of a cooperation clause in an insurance contract is ‘to
prevent collusion between the insured and the injured, as well as to make possible the insurer’s
investigation.’” 1981-NMSC-032, ¶ 10, 632 P.2d at 345 (quoting M.F.A. Mut. Ins. Co. v.
Cheek, 363 N.E.2d 809, 811 (Ill. 1977)). Sanchez reasons that, because “the reason for such a
clause is fear of prejudice to the insurer, it is reasonable to require a showing of prejudice.”
1981-NMSC-032, ¶ 10, 632 P.2d at 345. Sanchez also reasons that “the policy considerations
are different for a time-to-sue provision,” and “the purpose of a time-to-sue provision is not
necessarily fear of prejudice to the insure[r].” 1981-NMSC-032, ¶ 11, 632 P.2d at 345. Sanchez
accordingly concludes that, “[w]here an insurer raises the affirmative defense of violation of a
time-to-sue provision, it need not show that it was prejudiced by violation of the provision. It
need only show the breach.” 1981-NMSC-032, ¶ 12, 632 P.2d at 345.
- 47 -
Eleven years later, the Supreme Court of New Mexico decided Roberts Oil Co. v.
Transamerica Ins. Co., 1992-NMSC-032, 833 P.2d 222 (“Roberts Oil”), in which two insurance
companies
defend[ed] two partial summary judgments relieving them of liability under their
respective insurance policies for an incident of groundwater contamination that
occurred several years before they were notified of the insured’s claims against
them and after the insured had assumed substantial obligations and incurred
significant expenses to remediate the contamination. The insured appeal[ed] from
the summary judgments, arguing that, even if it breached a clause in the policies
providing that it would not make such voluntary payments, the breach did not
discharge the insurers absent prejudice to them.
Roberts Oil, 1992-NMSC-032, ¶ 2, 833 P.2d at 222–23. In Roberts Oil, the Supreme Court of
New Mexico rejected an attempt to limit Esquibel in two ways. First, the Roberts Oil defendants
tried to restrict Esquibel to cases where requiring substantial prejudice protects innocent third
parties, see Roberts Oil 1992-NMSC-032, ¶ 23, 833 P.2d at 228, but the Supreme Court of New
Mexico “th[ought] that the rationale behind Esquibel cannot be limited so narrowly,” Roberts Oil
1992-NMSC-032, ¶ 24, 833 P.2d at 228. See id. (“There is no indication in the opinion, nor any
in the many other cases requiring a showing of actual prejudice, that the rule operates only when
an innocent third party is or has been injured.”). Second, the Roberts Oil defendants argued that
Esquibel applies to cases where an insured breaches only a cooperation clause in an insurance
contract and not “when the insured breaches other provisions, such as the voluntary payment and
no action provisions in this case.” 1992-NMSC-032, ¶ 25, 833 P.2d at 229. The voluntary
payment clause at issue in Roberts Oil states that, “‘[t]he insured shall not, except at his own
cost, voluntarily make any payment, assume any obligation or incur any expense,’”
1992-NMSC-032, ¶ 8, 833 P.2d at 224, while the no action clause states that, “‘[n]o action shall
lie against the company unless, as a condition precedent thereto, there shall have been full
compliance with all of the terms of this policy,’” 1992-NMSC-032, ¶ 9, 833 P.2d at 224. The
- 48 -
Supreme Court of New Mexico was “willing for purposes of this case to accede to the insurers’
argument that the no action clause does indeed convert the voluntary payment clause from a
promise by the insured to an express condition to the insurer’s obligations,” 1992-NMSC-032,
¶ 34, 833 P.2d at 231, but the Supreme Court of New Mexico concluded that “this
distinction” -- between the insurance policy provision at issue in Esquibel and “the voluntary
payment and no action provisions in this case” -- “is one without a difference,”
1992-NMSC-032, ¶ 25, 833 P.2d at 228.
Roberts Oil reaches that result by “focusing on the purpose of the particular clause in
question and inquiring whether that purpose will be advanced by applying it to the dispute in a
given case.” 1992-NMSC-032, ¶ 27, 833 P.2d at 229.
When enforcement does not serve the reasons for the provision’s inclusion in the
policy, the insured’s reasonable expectation that coverage will not be arbitrarily
denied must be given effect. In short, the authority of the provision is limited by
the reality of the way insurance policies are bought and sold; the effect of the
provision is limited by the reasonable expectations of the insured.
We hold that time limit on commencement of suit clauses, notice of loss clauses,
proof of loss clauses, and cooperation clauses should all be reviewed on the basis
of whether their application in a particular case advances the purpose for which
they were included in the policy. Only by so reviewing these clauses can courts
satisfy the consumer’s reasonable expectation that coverage will not be defeated
on arbitrary procedural grounds.
1992-NMSC-032, ¶ 25, 833 P.2d at 228 (citations omitted)(quoting Estes v. Alaska Ins. Guar.
Ass’n, 774 P.2d at 1318). Roberts Oil quotes the Supreme Court of Connecticut’s similar
reasoning:
In our judgment, a proper balance between the interests of the insurer and the
insured requires a factual inquiry into whether, in the circumstances of a
particular case, an insurer has been prejudiced by its insured’s delay in giving
notice of an event triggering insurance coverage. If it can be shown that the
insurer suffered no material prejudice from the delay, the nonoccurrence of the
condition of timely notice may be excused because it is not, in Restatement terms,
‘a material part of the agreed exchange.’ Literal enforcement of notice
- 49 -
provisions when there is no prejudice is no more appropriate than literal
enforcement of liquidated damages clauses when there are no damages.
Roberts Oil, 1992-NMSC-032, ¶ 30, 833 P.2d at 230 (emphasis added)(quoting Aetna Casualty
& Surety Co. v. Murphy, 538 A.2d at 223).
According to Roberts Oil, Sanchez correctly “undertook this same type of analysis,” but
it distinguished Esquibel’s policy analysis regarding cooperation clauses by relying on policy
“considerations [that] either duplicate those underlying a cooperation clause (preventing fraud or
collusion and protecting the insurer’s interests) or replicate policies behind the statute of
limitations (encouraging prompt assertion of legal claims and cutting off stale claims).” Roberts
Oil 1992-NMSC-032, ¶ 27, 833 P.2d at 229. Roberts Oil comments that, “while we agree with
the Sanchez approach of focusing on the purpose of the contractual provision at issue, we
question the Court’s analysis of the relevant considerations underlying the respective policy
provisions.” Roberts Oil, 1992-NMSC-032, ¶ 29, 833 P.2d at 230.
An argument can be made that Roberts Oil requires a showing of substantial prejudice
whenever an insured fails to satisfy a condition precedent to suit, including an insurance policy’s
EUO and document production requirements.15 The Court is not inclined to go that route. First,
15
The Supreme Court of New Mexico dismissed, out of hand, the suggestion that Roberts
Oil’s no action clause materially altered Esquibel’s analysis even though it was willing to read
the no action clause as converting ordinary contract provisions into “an express condition to the
insurer’s obligations,” 1992-NMSC-032, ¶ 34, 833 P.2d at 231. Roberts Oil instead declares that
that “this distinction” -- between the insurance policy provision at issue in Esquibel and “the
voluntary payment and no action provisions in this case” -- “is one without a difference,”
1992-NMSC-032, ¶ 25, 833 P.2d at 228. That declaration could reasonably be read as vitiating
the distinction between insurance policies that contain a “clause [that] makes full compliance
with all of the policy terms a condition precedent to an action against the company” and policies
that lack such a clause. Roberts Oil 1992-NMSC-032, ¶ 34, 833 P.2d at 231.
The Supreme Court of New Mexico has shown no sign of reversing course. On the
contrary, State Farm Mut. Auto. Ins. Co. v. Fennema, 2005-NMSC-010, 110 P.3d 491
(“Fennema”), extends Esquibel’s and Roberts Oil’s reasoning. Fennema reads Esquibel as
articulating a “substantial prejudice rule[, which] provides that an insurer ‘must demonstrate
substantial prejudice as a result of a material breach of the insurance policy by the insured before
- 50 -
Roberts Oil is distinguishable. Roberts Oil considers whether an insured’s material breach of an
insurance policy voids that policy. See 1992-NMSC-032, ¶ 2, 833 P.2d at 222-23 (“The insurers
defend two partial summary judgments relieving them of liability under their respective
insurance policies”), id. at ¶ 35, 833 P.2d at 231 (stating that an insured’s material “breach or
nonoccurrence of a condition does not discharge the insurer absent a showing that the insurer has
been substantially prejudiced”).
Here, by contrast, Liberty Mutual does not argue that the
Contract is void. See MTD at 13 (“Based upon the provisions of the Policy and the preceding
case law, Plaintiff’s appraisal demand is premature and fails to meet the Twombly plausibility
threshold.”); id. at 22 (asking the court to declare Value Inn’s “request for appraisal and this
lawsuit are premature” and to determine that the Complaint’s counts “fail to state a claim”).
Thus Roberts Oil does not consider the need for showing substantial prejudice when it comes to
conditions precedent to bringing suit, satisfaction of which can benefit the parties -- and the
courts -- by promoting settlement.
Second, the Court does not think that the Supreme Court of New Mexico would apply
Roberts Oil so broadly in this case, because requiring a showing of substantial prejudice every
time a plaintiff failed to satisfy the particular conditions precedent to bring suit might get close to
gutting the conditions precedent to bring suit altogether, because prejudice, much less
it will be relieved of its obligations under a policy.’” Fennema 2005-NMSC-010, ¶ 7, 110 P.3d
at 493 (quoting Esquibel 1980-NMSC-019, ¶ 15, 607 P.2d at 1152). “The rationale for the rule
is that failure by an insurer to show substantial prejudice by an insured’s breach will frustrate the
insured’s reasonable expectation that coverage will not be denied arbitrarily.” Fennema
2005-NMSC-010, ¶ 7, 110 P.3d at 493 (citing Roberts Oil 1992-NMSC-032, ¶¶ 27-28, 833 P.2d
at 229). Feenema observes that “[o]ur courts have applied the substantial prejudice rule to
cooperation provisions, voluntary payment provisions, and misrepresentation and concealment
provisions,” and extended the substantial prejudice rule to consent-to-settle provisions. Fennema
2005-NMSC-010 ¶ 11, 110 P.3d at 494.
- 51 -
substantive prejudice, may be rare. Further, in most situations, strict application of the EUO and
production document requirement conditions precedent to bring suit will be highly beneficial and
preferred by enabling parties to resolve claims outside the courtroom.
Nonetheless, Roberts Oil’s unwillingness to enforce -- absent substantial prejudice to the
insurer -- a provision to void a policy for the insured’s provision violation leads the Court to
believe that the Supreme Court of New Mexico would, in this case and under these
circumstances, not dismiss the Complaint for Value Inn’s failure to satisfy the Contract’s
conditions precedent to suit. Although Liberty Mutual does not ask the Court to void the
Contract nor to bar Value Inn from filing another claim against it in the future, granting Liberty
Mutual’s motion to dismiss would likely achieve effectively the same result. The Contract’s
time-to-sue provision states that Value Inn cannot bring legal action against Liberty Mutual
unless that action is brought within two years of the damage date. See Contract ¶ D, at 10. Here,
Value Inn allegedly suffered property damage on October 23, 2015. See Complaint ¶ 7, at 2-3.
Thus, the two-year window has closed. If the time-to-sue provision is enforceable, dismissing
the Complaint -- even without prejudice -- would mean that Value Inn could not sue on his
Contract, in which case there would be nothing stopping Liberty Mutual from not performing.
Value Inn’s only hope would be to fashion a clever cause of action that, somehow, falls outside
the time-to-sue provision’s scope, or for Value Inn to convince a court that applying the time-tosue provision violates public policy. The Court can imagine potential arguments why the timeto-sue provision is not enforceable,16 but their success is not guaranteed. The uncertainty about
16
Value Inn could at that time argue that the court should not enforce the Contract’s timeto-sue provision because Liberty Mutual is not substantially prejudiced by its filing after the
time-to-sue provision’s two-year limit. Although Sanchez states that enforcing a time-to-sue
provision does not require showing substantial prejudice, Roberts Oil strongly indicates that,
- 52 -
given the chance, it would overrule Sanchez on that point. See Roberts Oil, 1992-NMSC-032,
¶ 29, 833 P.2d at 230.
Value Inn might also argue that the Contract’s time-to-sue provision is unenforceable,
because it begins to run on the damage date and not the date of accrual. Liberty Mutual contends
that time-to-sue provisions are enforceable in New Mexico. See Reply at 11 (citing State ex rel.
Udall v. Colonial Penn Ins. Co., 1991-NMSC-048, ¶ 6, 812 P.2d 777, 779; Young v. Seven Bar
Flying Serv., Inc., 1984-NMSC-069, ¶¶ 10-12, 685 P.2d 953, 956; City of Santa Fe v. Travelers
Cas. & Sur. Co., No. 28,944, 2009 WL 6764000, at *1 (N.M. Ct. App. Jan. 14, 2009)). In New
Mexico, time-to-sue provisions are enforceable unless they violate public policy. See State ex
rel. Udall v. Colonial Penn Ins. Co.,1991-NMSC-048, ¶ 6, 812 P.2d at 779. The general rule is
that time-to-sue provisions setting limits shorter than New Mexico’s general six-year contract
claim statute of limitations do not violate public policy. See Elec. Gin Co. v. Firemen’s Fund
Ins. Co., 1935-NMSC-001, ¶¶ 1-6, 39 P.2d 1024, 1024-25. See also Turner v. New Brunswick
Fire Ins. Co. of New Brunswick, N. J., 1941-NMSC-014, ¶ 6, 112 P.2d 511, 513 (rejecting the
argument that “a one-year limitation period is void because it shortens the statutory period of six
years for commencing actions on written contracts” (citing Electric Gin Co. v. Firemen’s Fund
Insurance Co., 1935-NMSC-001, ¶¶ 1-6, 39 P.2d 1024, 1024-25)); Sandoval v. Valdez, 1978NMCA-016, ¶ 39 , 580 P.2d 131, 136 (“It is established law in New Mexico that a ‘No Cause of
Action’ clause in a fire insurance policy, or in a Livestock Transportation policy, is enforceable.”
(citing Elec. Gin Co. v. Firemen’s Fund Ins. Co., 1935-NMSC-001, ¶¶ 1-6, 39 P.2d 1024,
1024-25; Sandoval v. Valdez, 1978-NMCA-016, ¶ 39, 580 P.2d 131, 136; Wiseman v. Arrow
Freightways, Inc., 1976-NMCA-067, ¶ 8, 552 P.2d 1240, 1242); Wiseman v. Arrow
Freightways, Inc., 1976-NMCA-067, ¶ 8, 552 P.2d 1240, 1242 (concluding that a livestock
transportation policy’s time-to-sue provision is enforceable and not contrary to public policy).
The Court concludes that the Supreme Court of New Mexico would follow Sandoval v. Valdez,
1978-NMCA-016, ¶ 39, 580 P.2d at 136, and Wiseman v. Arrow Freightways, Inc.,
1976-NMCA-067, ¶ 8, 552 P.2d and 1242, because those Court of Appeals of New Mexico
cases’ holdings are consistent with the Supreme Court of New Mexico’s rulings in Elec. Gin Co.
v. Firemen’s Fund Ins. Co., 1935-NMSC-001, ¶¶ 1-6, 39 P.2d at 1024-25 and Whelan v. State
Farm Mut. Auto. Ins. Co., 2014-NMSC-021, 329 P.3d 646 (“Whelan”). Moreover, the Supreme
Court of New Mexico has cited those Court of Appeals of New Mexico cases’ time-to-sue
provision rulings without disapproving of them. See, e.g., Boradiansky v. State Farm Mut. Auto.
Ins. Co., 2007-NMSC-015, ¶¶ 6-7, 156 P.3d 25, 26 (citing Sandoval v. Valdez, 1978-NMCA016, ¶¶ 20-23, 580 P.2d at 136); Sanchez, 1981-NMSC-032, ¶ 8, 632 P.2d at 344 (citing
Wiseman v. Arrow Freightways, Inc., 1976-NMCA-067, ¶ 7, 552 P.2d at 1242).
New Mexico courts have determined that time-to-sue provisions in
uninsured/underinsured motorist (“UM/UIM”) contracts violate public policy if their time limit
begins running when the accident happens instead of when the claim accrues. See Whelan,
2014-NMSC-021, ¶ 3, 329 P.3d at 648. See also Sandoval v. Valdez, 1978-NMCA-016, ¶ 17,
580 P.2d 131, 134 (determining that time-to-sue provisions “are void where they place a
limitation upon or conflict with a statute granting uninsured motorist coverage”).
It is an open question whether a commercial property damage insurance policy’s time-tosue provision violates public policy when it begins running when the damage happens. The New
Mexico cases concluding that time-to-sue provisions are not contrary to public policy do not
address whether the moment the claims begin to run makes a difference. The cases to which
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Liberty Mutual cite also do not resolve the question. See State ex rel. Udall v. Colonial Penn Ins.
Co., 1991-NMSC-048, ¶¶ 7-10, 812 P.2d at 780-81 (rejecting the State’s argument that
“preservation of the public fisc” was a public policy requiring the Supreme Court of New
Mexico to void a bond contract’s time-to-sue provision); Young v. Seven Bar Flying Serv., Inc.,
1984-NMSC-069, ¶ 10, 685 P.2d at 956 (determining that “failure of an insurer to provide an
individual with a copy of an applicable insurance policy will not, in every case, release the
individual from the time-to-sue provisions in the policy”); City of Santa Fe v. Travelers Cas. &
Sur. Co., the New Mexico Court of Appeals, 2009 WL 6764000, at *3 (determining that a bond
agreement’s time-to-sue provision applied to the city, even though the city did not directly issue
the bond). The Court could not locate a case outside of New Mexico that voids a time-to-sue
provision in an insurance contract like Value Inn’s. Value Inn’s proffered authority, Spicewood
Summit Office Condominiums Ass’n, Inc. v. Am. First Lloyd’s Ins. Co., 287 S.W.3d at 466,
from Texas, is of little help. In that case, the court determined that a contractual provision with
the “practical effect” of establishing a time-to-sue limitation of less than two years is void. 287
S.W.3d at 466. The provision is void not for public policy reasons, but rather because a Texas
civil code says it is. See 287 S.W.3d 466 (citing Tex. Civ. Prac. & Rem. Code Ann. § 16.070);
Tex. Civ. Prac. & Rem. Code Ann. § 16.070 (stating that a “stipulation, contract, or agreement
that establishes a limitations period that is shorter than two years is void in this state”).
Whelan is thus the best resource for determining whether the Supreme Court of New
Mexico would expand its reasoning with regards to a UM/UIM contract to one relating to
commercial property damage. After a closer look, the Court concludes that the Supreme Court
of New Mexico’s UM/UIM-related reasoning in Whelan would not apply to Value Inn’s
commercial property insurance Contract, and, therefore, the Supreme Court of New Mexico
would not void the Contract’s time-to-sue provision.
Whelan’s time-to-sue provision analysis begins by identifying “the right that is being
limited.” 2014-NMSC-021, ¶ 10, 329 P.3d at 649. Whelan notes that the UM/UIM statute
“seeks ‘to protect individual members of the public against the hazard of culpable uninsured
motorists’” by requiring auto insurers to provide coverage for uninsured and underinsured
motorist coverage. 2014-NMSC-021, ¶ 10, 329 P.3d at 649 (quoting Romero v. Dairyland Ins.
Co., 1990-NMSC-111, ¶ 6, 803 P2.d 242). Whelan then cites Brooks v. State Farm Ins. Co., in
which the Court of Appeals of New Mexico “rejected an insurer’s argument that an insured’s
UM/UIM cause of action against an insurer accrues on the date of the underlying accident [and]
holding that the claim is based on an alleged breach of the insurance contract and therefore
accrues after the insurer refuses to pay the claim.” Whelan, 2014-NMSC-021, ¶ 11, 329 P.3d at
649 (citing Brooks v. State Farm Ins. Co., 2007-NMCA-033, ¶¶ 10–11, 154 P.3d at 697).
Whelan notes:
Brooks recognized that an insurer has the ability to protect itself from uncertainty
caused by prejudicial delays in assertion of UM/UIM claims by including
“appropriate time limitations” in its insurance contracts. But, significantly, it
concluded that because “the date of accident is particularly extraneous to actions
for specific performance of a contract to arbitrate involving UIM coverage,” it
would be “fundamentally unfair to time-bar an insured from compensation that
was bargained for because an insured may not be aware until sometime after the
accident.
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Whelan, 2014-NMSC-021, ¶ 11, 329 P.3d 646, 649 (citing Brooks v. State Farm Ins. Co.,
2007-NMCA-033, ¶¶ 10–11, 154 P.3d 697).
Whelan later notes that New Mexico courts, in deciding UM/UIM-related cases, have
“sought how to ‘best balance[ ] the interests in permitting private contractual relations between
parties, and honoring the broad intent of the [UM/UIM] statute.’” Whelan v. State Farm Mut.
Auto. Ins. Co., 2014-NMSC-021, ¶ 14, 329 P.3d 646, 650 (quoting Montaño v. Allstate
Indemnity Co., 2004-NMSC-020, ¶ 18, 92 P.3d 1255). Whelan then notes that, “following that
approach,” the Court of Appeals of New Mexico, in Sandoval v. Valdez,
held that a provision that barred suit one year after the date of the accident was
not enforceable because it was shorter than the statutory limitations period for
bringing a personal injury suit. Id. ¶¶ 23-24. The Court of Appeals reasoned that
the purpose of the UM/UIM statute was to protect the insured from the uninsured,
not the insurer from the insured, id. ¶ 16, stating that “[a]lthough many uninsured
motorist statutes do not include a limitation period, the intent to protect the victim
or the insured motorist from having to bear the total loss is obvious,” id. ¶ 20.
Whelan v. State Farm Mut. Auto. Ins. Co., 2014-NMSC-021, ¶ 14, 329 P.3d 646, 650 (citing
Sandoval v. Valdez, 1978-NMCA-016, 580 P.2d, 131). The Supreme Court of New Mexico
does not expressly adopt the Court of Appeals of New Mexico’s reasoning in Brooks v. State
Farm Ins. Co. and Sandoval v. Valdez, but Whelan’s ruling -- that time-to-sue provisions in
UM/UIM contracts violate public policy if their time limits begin running at the date of the
accident, see 2014-NMSC-021, ¶ 3, 329 P.3d at 648 -- incorporates the principles that those
cases express.
Whelan features some concern about the general fairness of a time-to-sue provision that
begins to run before a claim accrues, see 2014-NMSC-021, ¶¶ 15-16, 329 P.3d 646, 650-51
(“We can find no reasonable justification for a limitations period that may bar a claim before a
lawful cause of action accrues.”), but the Supreme Court of New Mexico does not cite to caselaw
for that proposition, and the bulk of Whelan’s reasoning relates to UM/UIM-specific concerns
and cases; Whelan discusses the time-to-sue provision for ten paragraphs without citing a single
case that concerns a non-UM/UIM insurance policy. Moreover, no court has applied Whelan to
non-UM/UIM contracts; so far, courts discuss Whelan only in other UM/UIM-related cases. See
Jaramillo v. Gov’t Employees Ins. Co., 573 F. App’x 733, 745 (10th Cir. 2014)(Holmes, J.);
Miller v. Cincinnati Ins. Co., No. CV 17-00271, 2018 WL 704719, at *5 (D.N.M. Feb. 2, 2018)
(Yarbrough, M.J.); Gov’t Employees Ins. Co. v. Shroyer, No. 115-CV-0306, 2015 WL
12669885, at *4 (D.N.M. Dec. 1, 2015)(Kelly, C.J.); Sinclair v. Zurich Am. Ins. Co., 141 F.
Supp. 3d 1162, 1168 (D.N.M. 2015)(Lynch, M.J.); Ullman v. Safeway Ins. Co., 2017-NMCA071, ¶ 10, 404 P.3d 434, 438.
The Court sees two significant differences between a UM/UIM-related automobile
insurance policy and Value Inn’s policy covering commercial property damage. First, a specific
statutory regime -- the UM/UIM statute -- governs an automobile insurance policy, which
demonstrates New Mexico’s deliberate policy for protecting an insured from financial
consequences from an accident with an uninsured or underinsured driver. Second, the UM/UIM
statute’s purpose is to protect individual drivers who may not be sophisticated insurance
customers and may find themselves at the wrong end of a power disparity when purchasing an
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Value Inn’s chances to enforce its contractual rights if the Court dismisses the Complaint leads
the Court to conclude that the Supreme Court of New Mexico would not dismiss those claims
unless Liberty Mutual suffered substantial prejudice.
An affirmative defense succeeds on a rule 12(b)(6) motion if the complaint has a “built-in
defense and is essentially self-defeating.” 5B C. Wright & A. Miller, Federal Practice and
Procedure § 1357, at 713 (3d. ed. 2004). Here, there is nothing in the Complaint or in the
Contract indicating that Liberty Mutual suffered substantial prejudice as a result of Value Inn’s
failure to satisfy conditions precedent before filing this legal action. Therefore, Liberty Mutual’s
affirmative defense that Value Inn failed to satisfy conditions precedent before filing suit fails.17
automobile insurance policy. Business owners who are in the market for insurance coverage for
damage to commercial property are more likely to be on roughly equal footing with the insurer
when negotiating a policy. In short, the reasons for voiding an unfavorable time-to-sue provision
in a UM/UIM policy do not apply to a commercial property insurance contract like Value Inn’s
policy with Liberty Mutual. In light of the above, the Court concludes that the Supreme Court of
New Mexico would enforce the Contract’s time-to-sue provision. Moreover, because the
Whelan reasoning depends on the statute governing the contract and not the claim’s category,
Whelan does not support UPA and UIPA claims prevailing over contractual time-to-sue
defenses. See Ryan v. Liberty Mut. Fire Ins. Co., 234 F. Supp. 3d 612, 618-19 (D.N.J. 2017)
(Walls, J)(applying a contract’s one-year time bar to suit to a claim brought under New Jersey’s
consumer fraud statute, N.J. Ann. § 56:8-1 to -210, because “[a]ll of Plaintiffs NJCFA claims
related directly to the insurance policy dispute over the denial of benefits”); Hays v. Mobil Oil
Corp., 736 F. Supp. 387, 396 (D. Mass. 1990)(Wolf, J.)(enforcing a contractual time bar to suit,
because “the provision is broad enough to reach all claims arising out of the business relationship
between the parties, including an unfair business practices claim”), order aff’d in part, vacated in
part, 930 F.2d 96 (1st Cir. 1991)(“We conclude, as did the district court, that this language is
sufficiently broad to encompass the present statutory claim.”). But see Hornsby v. Phillips, 378
S.E.2d 870, 875 (Ga. Ct. App. 1989)(“[W]e hold that contractual defenses are inapplicable when
an action is based not on the contract but solely on an alleged violation of the Sale of Business
Opportunities Act[, Ga. Code Ann. § 10-1-410 to -417].”).
17
Liberty Mutual argues that “preserving a timely limitations defense is not a legal reason
to decline to dismiss this case for failure to state a claim.” Reply at 11. Liberty Mutual states
that
[a]llowing a party to file suit in anticipation of a breach of contract that may not
even occur is a dangerous precedent that would promote the filing of any
- 56 -
The Court emphasizes the narrowness of its holding. Insureds should not use the Court’s
holding to justify refusing to submit to an EUO or provide requested documents to the insurance
company, and then file suit one week, one month, or even one year after the incident. In those
cases, the Court and state courts are likely to dismiss the case and require a second suit. It is
only when, for whatever reason, a second suit would mean no benefit of the insurance contract
that the Supreme Court of New Mexico would, the Court concludes, require a showing of
substantial prejudice to the insurance company to get around the condition precedent.
Experienced attorneys should also not delay filing a lawsuit until the last minute to avoid having
to submit to an EUO or provide requested documents. Even when substantial prejudice must be
shown, a material breach creates a presumption of prejudice, see Roberts Oil, 1992-NMSC-032,
¶ 43, 833 P.2d at 232 (“The courts seem fairly uniform in agreeing that when an insured breaches
one of these policy provisions, a presumption of prejudice to the insurer arises.), and the insuror
bears the ultimate burden to support that presumption, see Fennema, 2005-NMSC-010, ¶ 13, 110
P.3d at 495 (“Since it is the insurer who is seeking to be excused from this aleatory promise, the
insurer should, in the words of Rule 301, bear the ‘risk of nonpersuasion’ that the insured’s
conduct prejudiced the insurer.”); Roberts Oil, 1992-NMSC-032, ¶ 46, 833 P.2d at 234 (“The
presumption may be met or rebutted by the insured by presenting evidence that the insurer was
premature lawsuit, regardless of whether or not a cause of action has accrued.
Filing premature lawsuits would weigh against the interest of judicial economy
and is unfair and, therefore, prejudicial to a defendant.
Reply at 10. Liberty Mutual’s argument is sound, but many of Value Inn’s claims’ merits do not
depend on the appraisal’s outcome. For instance, its allegations that Liberty Mutual (i) breached
its contract and committed insurance bad faith by not agreeing to the appraisal promptly; and
(ii) violated the UIPA and UPA, and committed negligent misrepresentation by misleading him
about its policy and not settling its claim in good faith, are true regardless what the appraisal
concludes.
- 57 -
not substantially prejudiced.”). Thus Liberty Mutual may be able, sometime down the road, to
show it suffered substantial prejudice. For now, the Court determines that, under Iqbal and
Twombly, Value Inn has stated a plausible claim for relief.
II.
VALUE INN STATES A CLAIM FOR BREACH OF CONTRACT, INSURANCE
BAD FAITH, AND UIPA VIOLATIONS, BUT NOT FOR UPA VIOLATIONS OR
NEGLIGENT MISREPRESENTATION.
Value Inn states a claim for breach of contract, insurance bad faith, and some UIPA
violations. Value Inn does not properly allege a cause of action for UPA violations or negligent
misrepresentation.
The Court also dismisses Value Inn’s injunctive and declaratory relief
requests as moot, because, according to the parties’ briefings, Value Inn has achieved the
requested relief.
A.
VALUE INN STATES A CLAIM FOR BREACH OF CONTRACT.
In its Complaint, Value Inn first alleges that Liberty Mutual breached its Contract. See
Complaint ¶¶ 15-18, at 6-7. Value Inn alleges that Liberty Mutual breached its contractual
obligations by performing one or more of fifteen actions that appear to have been lifted verbatim
from UIPA’s list of unfair insurance practices. Compare Complaint ¶ 17, at 6-7, with N.M. Stat.
Ann. § 59A-16-20(A)-(O). Value Inn adds no facts to this list of actions, see Complaint ¶ 17, at
6 (“Liberty Mutual breached its contractual obligation to Plaintiff by . . . attempting to settle
claims on the basis of an application that was altered without notice, or knowledge or consent of,
the insured . . . .”), and so these generic allegations do not, on their own, establish plausible facts
for the Court to accept as true for its motion to dismiss analysis, see Iqbal, 556 U.S. at 678
(stating that a complaint need not set forth detailed factual allegations, yet a “pleading that offers
labels and conclusions or a formulaic recitation of the elements of a cause of action” is
insufficient); id. (“Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.”).
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Value Inn, however, alleges facts elsewhere in the Complaint supporting a
breach-of-contract claim. It asserts, for instance, that its Contract contains a clause stating that,
if they disagree on the amount of loss, either party may request an appraisal. See Complaint
¶ 11, at 4. The appraisal clause states:
If we and you disagree on the value of the property or the amount of loss, either
may make a written demand for an appraisal of the loss. In this event, each party
will select a competent and impartial appraiser. The two appraisers will select an
umpire. If they cannot agree, either may request that selection be made by judge
of a court having jurisdiction. The appraisers will state separately the value of the
property and amount of loss. If they fail to agree, they will submit their
differences to the umpire. A decision agreed to by any two will be binding.
Contract ¶ E(2), at 8. Value Inn avers that it “demanded appraisal per the policy” and named an
appraiser, but the “Defendants have refused to comply with the appraisal process,” so no umpire
has been selected. Complaint ¶ 13, at 5. According to Value Inn, the appraisal clause holds that,
once Value Inn requests an appraisal, both Value Inn and Liberty Mutual must select “a
competent and impartial appraiser.” Contract at 8. Value Inn asserts that Liberty Mutual has not
selected an appraiser, as the Contract requires. Assuming these facts as true, Value Inn states a
claim to relief that is plausible on its face. Value Inn also asserts that it suffered contract-related
damages. See Complaint ¶ 32, at 11. Consequently, Value Inn asserts facts that raise a right to
relief above a speculative level.18 See Twombly, 550 U.S. at 555.
B.
VALUE INN STATES A CLAIM FOR INSURANCE BAD FAITH.
The Court’s analysis whether Value Inn states a claim for insurance bad faith unfolds
roughly as does its analysis for Value Inn’s breach-of-contract claim. Although Value Inn
18
Liberty Mutual argues that Value Inn’s breach-of-contract claim is premature, because
the appraisal has not yet been performed. See Reply at 5. Value Inn alleges, however,
breach-of-contract damages arising from the time that Liberty Mutual allegedly refused to
proceed with the appraisal. See Complaint ¶ 32, at 11 (“Plaintiff incurred . . . costs of delay in
performance, costs of mitigation, [and] costs of substitute performance . . .”). Therefore, Value
Inn alleges harm not dependent on the appraisal’s outcome.
- 59 -
asserts that Liberty Mutual and Robinson acted in bad faith by listing, once again, UIPA’s list of
unfair insurance practices verbatim, compare Complaint ¶ 20, at 7-8, with N.M. Stat. Ann.
§ 59A-16-20(A)-(O), Value Inn, elsewhere in the Complaint, asserts facts establishing a
plausible claim for insurance bad faith. New Mexico’s insurance bad-faith cause of action
derives from “an implied covenant of fair dealing which creates an obligation between the parties
to act in good faith.” Ambassador Ins. Co. v. St. Paul Fire & Marine Ins. Co., 1984-NMSC-107,
¶ 11, 690 P.2d 1022, 1024 (citing 17 Am.Jur.2d Contracts § 256 (1964)). In its Complaint,
Value Inn alleges that Robinson “ignored clearly covered damage,” and “improperly requested
an[] EUO and authorized his counsel to request documents solely for the purpose of harassing
the insured in an attempt [t]o have him accept inadequate payments made on the claim.”
Complaint ¶ 8, at 3. it alleges that Liberty Mutual has requested irrelevant documents “made for
the sole purpose of harassing Plaintiff, prolonging the claims process and attempting to dissuade
him from continuing with his claim.” Complaint ¶ 10, at 4. These alleged facts establish a claim
for insurance bad faith.
Liberty Mutual argues that Value Inn’s insurance bad-faith claim is premature, because
Value Inn “refuses to allow Liberty Mutual to conduct its investigation” by not submitting to an
EUO or providing requested documents. MTD at 14. Liberty Mutual contends that “[c]ourts
that have addressed the issue of whether a bad faith claim can be maintained when the insured
refuses to submit to an EUO have dismissed the bad faith claim.” MTD at 14 (citing West v.
State Farm Fire & Cas. Co., 868 F.2d 348, 351 (9th Cir. 1989); Brizuela v. Calfarm Ins. Co., 116
Cal. App. 4th 578, 595 (2004); Globe Indem. Co. v. Superior Court, 6 Cal. App. 4th 725, 731
(1992)). This argument is unavailing. The cases to which Liberty Mutual cites respond to
motions for summary judgment. At the motion-to-dismiss stage, the Court must view Value
- 60 -
Inn’s factual allegations in the light most favorable to it and draw all reasonable inferences in its
favor. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. at 322. In its Complaint,
Value Inn alleges that its policy covers its claimed damages, and that Liberty Mutual and
Robinson improperly requested Value Inn to submit to an EUO and provide unnecessary
documents to harass him. See Complaint ¶ 8-10, at 3-4. Accepting these facts and drawing all
reasonable inferences in its favor, Value Inn’s refusal to submit to the EUO or provide the
requested documents does not negate these allegations.
C.
VALUE INN STATES A CLAIM FOR A UIPA VIOLATION.
Value Inn alleges that Liberty Mutual and Robinson violated the UIPA § 59A-16-4
specifically, by
knowingly misrepresenting to Plaintiff[] the benefits, advantages, conditions or
terms of the Policy; knowingly using any name or title of any policy or class of
policies misrepresenting the true nature of the Policy to Plaintiffs and by
knowingly failing to disclose material facts to the Plaintiffs reasonably necessary
to prevent other statements made from being misleading.
Complaint ¶ 23, at 9. These allegations mirror § 59A-16-4(A), (E), and (G). Value Inn also
alleges that Liberty Mutual and Robinson violated § 59A-16-20
by knowingly committing the following acts: (i) misrepresenting to Plaintiff’s
pertinent facts or policy provisions relating to coverages at issue; (ii) failing to
adopt and implement reasonable standards for the prompt investigation and
processing of Plaintiffs’ claims arising under the Liberty Mutual insurance policy;
and, (iii) not attempting in good faith to effectuate prompt, fair and equitable
settlements of Plaintiffs’ claims in which liability has become reasonably clear.
Complaint ¶ 24, at 9. These allegations mirror § 59A-16-20(A), (C), and (E).
These generic accusations mirroring the statutes’ language do not, on their own, state a
claim upon which relief can be granted. See Iqbal, 556 U.S. at 678 (“[A] pleading that offers
labels and conclusions or a formulaic recitation of the elements of a cause of action” is
insufficient.”). The majority of Value Inn’s UIPA allegations relate to making misleading
- 61 -
statements or withholding important information relating to Value Inn’s policy. Value Inn does
not, however, allege that anyone misrepresented the policy. Rather, Value Inn alleges that
Liberty Mutual and/or Robinson reached unreasonable conclusions about the merits of Value
Inn’s claim, see Complaint ¶¶ 8-10, at 3, and processed its claim in bad faith, see Complaint
¶¶ 10-13, at 3-5. The only UIPA allegations for which Value Inn provides corresponding factual
assertions are for “failing to adopt and implement reasonable standards for the prompt
investigation and processing of Plaintiffs’ claims arising under the Liberty Mutual insurance
policy; and . . . [for] not attempting in good faith to effectuate prompt, fair and equitable
settlements of Plaintiffs’ claims in which liability has become reasonably clear.” Complaint
¶ 24, at 9. Value Inn alleges that Liberty Mutual and Robinson unreasonably undervalued the
damages, see Complaint ¶ 8, at 3, and insisted on a EUO to “prolong[] the claim process and
attempt[] to dissuade him from continuing with his claim,” Complaint ¶ 10, at 3-4.
Consequently, Value Inn states a claim for a UIPA violation pursuant to § 59A-16-20(C)
(“failing to adopt and implement reasonable standards for the prompt investigation and
processing of insureds’ claims arising under policies”). Value Inn also states a claim for a UIPA
violation pursuant to § 59A-16-20(E) (“not attempting in good faith to effectuate prompt, fair
and equitable settlements of an insured’s claims in which liability has become reasonably clear”).
The Court dismisses all other UIPA allegations and theories.
D.
VALUE INN DOES NOT STATE A CLAIM FOR A UPA VIOLATION.
Value Inn alleges that Liberty Mutual and Robinson’s conduct violated the UPA by
[k]nowingly making false, misleading oral and written statements, visual
descriptions and other representations in connection with the sale of Liberty
Mutual’s goods and services, namely insurance policies, which may, tends to and
did deceive and mislead any person, including Plaintiff, and includes:
1. causing confusion or misunderstanding as to the source, sponsorship,
approval, and certification of Liberty Mutual’[s] goods and services;
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2. representing that Liberty Mutual’s goods and services have sponsorship,
approval, characteristics, ingredients, uses, benefits or quantities that they
do not have;
3. using exaggeration, innuendo or ambiguity as to a material fact or failing
to state a material fact when doing so deceives or tends to deceive;
4. stating that a transaction involves rights, remedies or obligations that it
does not involve; and
5. failing to deliver the quality or quantity of goods or services contracted for
by the parties.
Complaint ¶ 26, at 9-10. Value Inn adds that Liberty Mutual and Robinson “took advantage of
his lack of knowledge, ability, experience, or capacity to a grossly unfair degree that resulted in a
gross disparity between the value received by Plaintiff and the price paid by Liberty Mutual’s
goods and services.” Complaint ¶ 27, at 10. Value Inn’s UPA allegations closely track language
from UPA’s unfair practices definitions without adding additional facts. Compare Complaint
¶¶ 27-28, at 9-10, with N.M. Stat. Ann. § 57-12-2(D)(2), (3), (14), (15), (17); (E)(1), (2). Like
its UIPA allegations, Value Inn’s UPA lacks facts asserted elsewhere in the Complaint. See
Ashcroft v. Iqbal, 556 U.S. at 678 (stating that a complaint need not set forth detailed factual
allegations, yet a “pleading that offers labels and conclusions or a formulaic recitation of the
elements of a cause of action” is insufficient). Value Inn’s Complaint alleges that Liberty
Mutual and Robinson unreasonably undervalued the damages, see Complaint ¶ 8, at 3, and
insisted on a EUO to “prolong[] the claim process and attempt[] to dissuade him from continuing
with is claim,” Complaint ¶ 10, at 3-4. Nowhere does Value Inn allege specific facts relating to
Liberty Mutual or Robinson making unfair or misleading statements in selling him its insurance
policy. See Stevenson v. Louis Dreyfus Corp., 1991-NMSC-051, ¶ 13, 811 P.2d at 1311 (stating
that a UPA claim element is that the false or misleading representation was knowingly made in
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connection with a sale, lease, rental, or loan of goods or services); N.M. Stat. Ann. § 57-12-2(D)
(defining an unfair or deceptive practice as a false or misleading representation “knowingly
made in connection with the sale, lease, rental or loan of goods or services or in the extension of
credit or in the collection of debts by a person in the regular course of the person’s trade or
commerce”). Consequently, the Court will dismiss Value Inn’s UPA claims for failing to state a
claim upon which the Court can grant relief.
E.
VALUE INN DOES NOT STATE A CLAIM FOR NEGLIGENT
MISREPRESENTATION.
Value Inn alleges that Liberty Mutual and Robinson
made false representations of fact or representations of fact that, while literally
true, were misleading, Liberty Mutual and Robinson did not exercise ordinary
care in obtaining or communicating the information conveyed, Liberty Mutual
and Robinson should reasonably have foreseen Plaintiff would be harmed if the
information conveyed was incorrect or misleading, and that Plaintiff justifiably
relied on the information to each of his detriment.
Complaint ¶ 29, at 10-11.
A negligent misrepresentation claim in New Mexico requires showing: “(1) the defendant
made a material representation to plaintiff, (2) the plaintiff relied upon the representation, (3) the
defendant knew the representation was false or made it recklessly, and (4) the defendant intended
to induce reliance by the plaintiff.” Robey v. Parnell, 2017-NMCA-038, ¶ 31, 392 P.3d 642, 652
(citing Saylor v. Valles, 2003-NMCA-037, ¶ 17, 63 P.3d 1152). See UJI 13-1632 (stating that
“[a] material misrepresentation is an untrue statement which a party intends the other party to
rely on and upon which the other party did in fact rely,” and “where the speaker has no
reasonable ground for believing that the statement made was true”). Value Inn comes close to
reciting the negligent misrepresentation elements, omitting an allegation that Liberty Mutual
and/or Robinson intended to induce Value Inn to rely on the misrepresentations. In any case, the
count’s deeper problem is that Value Inn does not allege facts anywhere in the Complaint
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indicating what those false or misleading representations are, who said them, how Value Inn
relied on them, or why it was justified in doing so. Consequently, the Court would dismiss
Value Inn’s negligent misrepresentation claim for failure to state a claim.
F.
THE COURT DISMISSES VALUE INN’S DECLARATORY AND
INJUNCTIVE RELIEF REQUEST AS MOOT.
In its Complaint, Value Inn asks that the Court “order that an EUO is not appropriate in
this matter and that this claim proceed through the appraisal process in the policy.” Complaint
¶ 38(a), at 12. The Court determines that this claim is moot, because, since filing its Complaint,
Value Inn submitted to an EUO, see Response ¶ 7, at 4 (“Defendants’ assertion that Plaintiff has
refused to submit to an EUO is untrue as it is set for September 1, 2017”); Reply at 2 (“Plaintiff
finally submitted to an EUO on September 1, 2017”); and Liberty Mutual agreed to proceed with
the appraisal, see Reply at 3 (“During the EUO, Plaintiff again demanded appraisal, and Liberty
Mutual thereafter informed Plaintiff that liberty Mutual agrees to proceed with appraisal.”).19
19
To the extent that the Court dismisses Value Inn’s declaratory and injunctive relief
requests as moot based on what the post-Complaint pleadings raise, the Court may do so,
because the mootness inquiry implicates the Court’s subject-matter jurisdiction under rule
12(b)(1). See Doyle v. Midland Credit Mgmt., Inc., 722 F.3d 78, 80 (2d Cir. 2013)(“Under
Article III of the U.S. Constitution, ‘[w]hen a case becomes moot, the federal courts lack subject
matter jurisdiction over the action.’” (quoting Fox v. Bd. of Trs. of State Univ. of N.Y., 42 F.3d
135, 140 (2d Cir.1994))). Consequently, the Court is not restricted to the complaint, as it is on
rule 12(b)(6) challenges for failure to state a claim. When “resolution of the jurisdiction question
is intertwined with the merits of the case,” however, a court may have to convert the rule
12(b)(1) motion into a summary judgment motion under rule 56 of the Federal Rules of Civil
Procedure. Holt v. United States, 46 F.3d 1000, 1003 (10th Cir. 1995). See 5B C. Wright,
Miller, Federal Practice & Procedures § 1350, at 245-49 (4th ed.)(“If . . . a decision of the
jurisdictional issue requires a ruling on the underlying substantive merits of the case, the decision
should await a determination of the merits either by the district court on a summary judgment
motion or by the fact finder at the trial.”). The Court can convert part of a motion to dismiss into
a motion for summary judgment. See, e.g., Advanced Optics Elecs., Inc. v. Robins, 633 F. Supp.
2d 1237, 1256-57 (D.N.M. 2008)(Browning, J.)(treating a motion to dismiss as a motion for
summary judgment with regard to one issue but not others). Liberty Mutual’s subject-matter
jurisdiction argument -- that Value Inn’s declaratory and injunctive relief requests are moot -- go
to the case’s merits, because whether Value Inn has submitted to an EUO and Liberty Mutual has
agreed to an appraisal determines both whether the Court should grant Value Inn’s requests and
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III.
THE COURT WILL NOT ABATE THIS ACTION.
In its Response, Value Inn asks the Court to abate this case so that the parties can
complete the EUO and appraisal processes. See Response ¶¶ 11-12, at 5 (citing Vanguard
Underwriters Ins. Co. v. Smith, 999 S.W.2d at 451). Value Inn asserts that “the proper sequence
of events is to complete the EUO and appraisal processes and determine Liberty’s claims
position . . . [which will] likely dispense with many issues in this case and avoid unnecessary
time and expense. At that time, the abatement should be lifted and any necessary remaining
litigation can go forward.” Response ¶ 12, at 5.
Courts have abated legal actions in similar circumstances to permit appraisal to proceed.
See, e.g., Hallak v. Allstate Vehicle & Prop. Ins. Co., No. 4:17-CV-00237-O-BP, 2017 WL
4182198, at *3 (N.D. Tex. Aug. 29, 2017)(Ray Jr., J.); Johnson v. Liberty Mut. Fire Ins. Co., No.
4:14-CV-604, 2015 WL 11170153, at *2 (E.D. Tex. Oct. 30, 2015)(Mazzant, J.); Gutierrez v.
Geovera Specialty Ins. Co., No. CV H-12-3696, 2013 WL 12139381, at *2 (S.D. Tex. Feb. 20,
2013)(Stacy, J.); James v. Prop. & Cas. Ins. Co. of Hartford, No. CIV.A. H-10-1998, 2011 WL
whether those requests are still Article III controversies. When converting a motion to dismiss to
a motion for summary judgment, courts must be “given a reasonable opportunity to present all
the material that is pertinent to the motion.” Fed. R. Civ. P. 12(d). See GFF Corp. v. Associated
Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir.1997). For a motion for summary
judgment, the Court may also consider arguments raised in a reply so long as it affords the
opposing party a sufficient interval to “request time to file a surreply.” Pippin v. Burlington
Resources Oil and Gas Co., 440 F.3d 1186, 1192 (10th Cir. 2006). The Court can consider
Liberty Mutual’s assertion in its reply that it agreed to proceed with the appraisal, see Reply at 3,
because Liberty Mutual filed its reply over six months ago and Value Inn has not requested time
to file a surreply. Consequently, the Court may consider Liberty Mutual’s assertion that it has
begun complying with the appraisal process to be an undisputed fact. See Walton v. New
Mexico State Land Office, 49 F. Supp. 3d 920, 931 n.16 (D.N.M. 2014)(Browning, J.)
(determining that a defendant’s factual assertion in a reply is undisputed, because the plaintiff
did not request time to file a surreply to dispute it), supplemented, 113 F. Supp. 3d 1178 (D.N.M.
2015)(Browning, J.), aff’d sub nom. Walton v. Powell, 821 F.3d 1204 (10th Cir. 2016). If Value
Inn feels that it did not get a reasonable opportunity to provide evidence on this matter, it may
still do so, but, for now, the Court considers Value Inn’s declaratory and injunctive relief to be
moot.
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4067880, at *3 (S.D. Tex. Sept. 12, 2011)(Werlein, Jr., J.); Vanguard Underwriters Ins. Co. v.
Smith, 999 S.W.2d at 451. In those cases, however, courts granted the insurance companies’
requests for abatement to effect the insurance company’s contractual right to appraisal before
litigation. Here, the insured files a legal action and then requests abatement; the insurance
company is not requesting abatement. See Response at 5. It is requesting dismissal, to which it
is entitled. Value Inn may have a contractual right to an appraisal once it asks for one, see
Contract ¶ E(3)(b), but it does not have a contractual right to an appraisal before legal action
proceeds any further, and the Court does not, at this time, see a need to abate, see Gomez v.
Nationwide Prop. & Cas. Ins. Co., No. 5:15-CV-67, 2016 WL 6816217, at *2 (S.D. Tex. Jan. 28,
2016)(Quiroga, M.J.)(denying the plaintiff’s request to abate legal action while appraisal
proceeds, and stating that the “[p]laintiff is entitled to appraisal, but not necessarily to
abatement”).
IV.
THE COURT WILL NOT AWARD ATTORNEYS FEES FOR VALUE INN’S
DISMISSED UIPA AND UPA CLAIMS.
Liberty Mutual asks the Court to award it attorneys’ fees for defending against Value
Inn’s UIPA and UPA claims. According to Liberty Mutual, Value Inn knew those claims were
groundless but brought them anyway. See MTD at 23; Reply at 12. The Court will not award
attorneys’ fees for Value Inn’s UIPA or UPA claims, because there is no sound basis for the
Court to conclude that Value Inn brought those claims knowing them to be groundless or to
conclude that the claims are in fact groundless.
The UIPA states that a court may award attorneys’ fees to the prevailing party if “the
party complaining of the violation of that article has brought an action that he knew to be
groundless.” N.M. Stat. Ann. § 59A-16-30(A). To the extent that Liberty Mutual requests
attorneys’ fees incurred in defending against the UIPA claims that the Court dismisses, see supra
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§ II.C, at 61-62, the Court will not award those attorneys’ fees, because there is no sound basis
for the Court to determine that Value Inn alleges UIPA claims that it knows are baseless. In its
Complaint, Value Inn does not allege facts supporting its UIPA-based allegations that Liberty
Mutual and/or Robinson made misleading statements or withheld important information
regarding Value Inn’s policy. See supra § II.C, at 61-62. The lack of facts is a reason to
conclude that Value Inn fails to state a claim; it is not, however, a sound reason upon which to
conclude that Value Inn brought those claims knowing they were baseless.
The UPA states that courts “shall award attorney fees and costs to the party charged with
an unfair or deceptive trade practice or an unconscionable trade practice if it finds that the party
complaining of such trade practice brought an action that was groundless.” N.M. Stat. Ann.
§ 57-12-10(C). The Court determines that Value Inn does not state a claim for relief for its
UPA-based claims, because the UPA applies to unfair trade practices relating to a sale or
transaction, and Value Inn does not allege any facts relating to Liberty Mutual’s actions in
selling him its insurance policy. See supra § II.D at 62-64. Although the Court sees fit to
dismiss those UPA allegations for failing to state a claim, the Court sees no sound reason to
conclude, however, that these UPA claims were baseless.
IT IS ORDERED that Defendants Ohio Security Insurance Company and Liberty
Mutual Insurance Company’s Motion to Dismiss and for Declaratory Judgment and Supporting
Authority, filed August 22, 2017 (Doc. 6), is granted in part and dismissed in part.
_______________________________
UNITED STATES DISTRICT JUDGE
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Counsel:
Milad K. Farah
Guerra & Farah, PLLC
El Paso, Texas
Attorneys for the Plaintiff
Shannon A. Parden
Ray, McChristian & Jeans, P.C.
Albuquerque, New Mexico
Attorneys for the Defendants
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