Romfo v. Scottsdale Insurance Company

Filing 13

ORDER denying 9 Motion to Dismiss for Failure to State a Claim; denying 9 Motion to Dismiss for Lack of Jurisdiction. Signed by Chief Judge James C. Dever III on 12/27/2017. (Briggeman, N.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No. 5:17-CV-422-D

RANDY R. ROMFO,
Plaintiff,
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)
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)

ORDER

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SCOTTSDALE INSURANCE COMPANY, )
)
Defendant. )

On September 25, 2017, Scottsdale Insurance Company ("Scottsdale" or "defendant") moved
to dismiss Randy Romfo' s ("Romfo" or "plaintiff') complaint for failure to state a claim upon which
relief can be granted [D.E. 9] and filed a memorandum in support [D.E. 10]. Scottsdale contends
that the statute of limitations bars Romfo's breach of contract claim and that Romfo lacks standing
to seek declaratory relief. On October 10, 2017, Romfo responded in opposition [D.E. 11]. On
October 24, 2017, Scottsdale replied [D.E. 12]. As explained below, the court denies Scottsdale's
motion to dismiss.

I.
On January 10, 2007, Romfo sued Stephen J. Witt ("Witt") and C&S ·Tree Service Inc.
("C&S Tree") in Wayne County Superior Court for negligence. See Compl. [D.E. 1-1]

~~

7-8.

Romfo alleged that he sustained severe injuries on January 30, 2004, due to Witt's negligent removal
of a tree that occurred on a job site where Romfo was working as an independent contractor. See
id.

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8-9. On June 24, 2008, in Wayne County Superior Court, Witt and C&S Tree were found

liable to Romfo. See id. ~ 42. On August 11, 2008, Wayne County Superior Court conducted a
hearing on damages, and on August 12, 2008, that court entered judgment against Witt and C&S

Tree in the amount of$1.5 million plus costs. See id. ~~ 43-44.

.
On June 1, 2017, the Wayne County Clerk of Court issued a writ of execution for the
judgment. See id. ~ 47. On June 30, 2017, the writ of execution was returned unsatisfied. See id.
~ 49.

Romfo then asked Scottsdale (who insured Witt on January 30, 2004) to pay the judgment and

Scottsdale refused. See id.

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49-50. Scottsdale's commercial general liability insurance policy

provided coverage in the amount of$500,000 per occurrence and up to $5,000 for medical expenses.
See id.

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15-17.

Romfo seeks a declaratory judgment that Scottsdale is responsible for paying the judgment.
See id.

~53.

Romfo also asserts a breach of contract claim. See id.

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72-76. Both claims arise

under North Carolina law. Romfo contends that Scottsdale breached its duties under the insurance
policy, which required it to defend and indemnify Witt. See id.

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73. Romfo states that he is an

intended third-party beneficiary of the insurance policy and has suffered damages due to the breach
of contract. See id.

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74-75. Romfo requests relief for the entire amount of judgment entered

against Witt plus interest and costs. See id. ~ 76.
Scottsdale responds that the three-year statute oflimitations under North Carolina law bars
Romfo' s breach ofcontract claim because the statute oflimitations began to run on August 12, 2008,
when Romfo obtained the judgment against Witt. See [D.E. 10] 4-5. Scottsdale also contends that
Romfo lacks standing to seek declaratory reliefbecause the statute oflimitations bars his third-party
beneficiary claim, and he has no direct cause of action under the insurance policy because he was
not in privity with Scottsdale. See [D.E. 9]

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3-4. Romfo replies that the three-year statute of

limitations did not begin to run until the judgment against Witt was returned unsatisfied on June 30,
2017. See [D.E. 11] 5.

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II.
This court has subject-matter jurisdiction based on diversity. Thus, the court applies state
substantive law and federal procedural rules. See Erie R.R. v. Tompkins, 304 U.S. 64, 78-80
{1938); Dixon v. Edwards, 290 F.3d 699, 710 (4th Cir. 2002).
A motion to dismiss under Rule 12(b)(6) tests the legal and factual sufficiency of the
complaint. See Fed. R. Civ. P. 12(b)(6);Ashcroftv. Iqbal, 556U.S. 662,678 (2009); BellAtl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007); Coleman v. Md. Court of Appeals, 626 F.3d 187, 190 (4th
Cir. 2010), aff'd, 566 U.S. 30 (2012); Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008);
accordEricksonv. Pardus, 551 U.S. 89, 93-94(2007) (per curiam). Thecourt"acceptsall well-pled
facts as true and construes these facts in the light most favorable to the plaintiff in weighing the legal
sufficiency of the complaint." Nemet Chevrolet Ltd. v. Consumeraffairs.com. Inc., 5.91 F.3d 250,
255 (4th Cir. 2009); see Burbach Broad. Co. of Del. v. Elkins Radio Corp., 278 F.3d 401, 405--06
(4th Cir. 2002). The court need not, however, accept as true a complaint's "legal conclusions,
elements of a cause of action, and bare assertions devoid of further factual enhancement." Nemet
Chevrolet Ltd., 591 F.3d at 255. Moreover, this court can consider documents if they are integral
to and explicitly relied on in the complaint, and their authenticity is undisputed. See Occupy
Columbia v. Haley, 738 F.3d 107, 117 n.7 (4th Cir. 2013).
A motion to dismiss under Rule 12(b)(6) "generally cannot reach the merits of an affirmative
defense, such as the defense that the plaintiff's claim is time-barred." Goodman v. Praxair, Inc., 494
F.3d 458,464 (4th Cir. 2007) (en bane). Nevertheless, a district court may reach the merits of an
affirmative defense "if all facts necessary to the affirmative defense clearly appear on the face of the
complaint." ld. (emphasis and alteration omitted). "A complaint showing that the statute of
limitations has run on the claim is the most common situation in which the affirmative defense
3

appears on the face of the pleading, rendering dismissal appropriate." Brooks v. City of WinstonSalem. N.C., 85 F.3d 178, 181 (4th Cir. 1996) (quotation omitted). Thus, failure to comply with the
statute of limitations is "a recognized basis for dismissal" under Rule 12(b)(6). Evans v. Trinity
Indus .. Inc., 137 F. Supp. 3d 877, 881 (E.D. Va. 2015); see Brooks, 85 F.3d at 181; West v. ITT
Cont'l Baking Co., 683 F.2d 845, 846 (4th Cir. 1982).
Scottsdale's motion to dismiss requires the court to consider the parties' state-law claims
and defenses, and the parties agree that North Carolina law applies. Accordingly, this court must
predict how the Supreme Court of North Carolina would rule on any disputed state-law issue. See
Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 365, 369 (4th Cir.
2005). In doing so, the court must look first to opinions of the Supreme Court ofNorth Carolina.
See Stahle v. CTS Cotp., 817 F.3d 96, 100 (4th Cir. 2016). If there are no governing opinions from
that court, this court may consider the opinions ofNorth Carolina Court of Appeals, treatises, and
''the practices of other states." Twin City Fire Ins. Co., 433 F.3d at 369 (quotation and citation
omitted). 1 In doing so, this court "should not create or expand a [s]tate's public policy." Time
Warner Entm't-Advance/Newhouse P'ship v. Carteret-Craven Elec. Membership Cotp., 506 F.3d
304, 314 (4th Cir. 2007) (alteration and quotation omitted); see Wade v. Danek Med.. Inc., 182 F.3d
281, 286 (4th Cir. 1999). Moreover, in predicting how the highest court of a state would address an
issue that it has not yet resolved, this court must "follow the decision of an intermediate state
appellate court unless there is persuasive data that the highest court would decide differently."
Toloczko, 728 F.3d at 398 (quotation omitted).
Under North Carolina law, the statute oflimitations for breach of contract is three years and

1

North Carolina does not have a "mechanism ... to certify questions of state law to its
Supreme Court." Town ofNags Head v. Toloczko, 728 F.3d 391,397-98 (4th Cir. 2013).

4

begins to run "as soon as the right to institute and maintain a suit arises." Penley v. Penley, 314 N.C.
1, 20, 332 S.E.2d 51, 62 (1985). Thus, the dispute about the statute of limitations turns on when
Romfo's right to institute and maintain this action against Scottsdale arose.

In Taylor v. Green, the plaintiff sued the defendant for negligence arising from an automobile
accident. 242 N.C. 156, 157, 87 S.E.2d 11, 12-13 (1955). The plaintiff sought to join the
defendant's automobile insurer as a party defendant. See id. at 157-58, 87 S.E.2d at 13. The
Supreme Court of North Carolina rejected the joinder and discussed why an insurer may not be made
a party "in an action in tort against its insured." Id. at 158, 87 S.E.2d at 13. First, the Supreme Court
of North Carolina observed that no privity exists between the insurer and the injured third party. See
id. The Supreme Court of North Carolina then held that absent "an enabling statute ... or a policy
provision having that effect, the [third party] may not proceed against the insurer, at least not until
he has secured a judgment against the insured with an execution thereon returned unsatisfied." ld.,
87 S.E.2d. at 13; see Small v. Morrison, 185 N.C. 577, 118 S.E. 12, 12 (1923); Selective Ins. Co.
v. Mid-Carolina Insulation Co., 126 N.C. App. 217, 220, 484 S.E.2d 443, 445 (1997). Thus, this
court predicts that the Supreme Court of North Carolina would hold that Romfo' s right to institute
and maintain the action against Scottsdale arose on June 30, 2017, when the writ of execution was
returned unsatisfied; therefore, the three-year statute of limitations does not bar the action.

In opposition to this conclusion, Scottsdale argues that Romfo' s claim is barred by the statute
of limitations because he had to sue Scottsdale within three years of August 12,2008, which is the
date of the entry of judgment against Witt. See [D.E. 10] 1. In support, Scottsdale cites Hall v.
Harleysville Mutual Casualty Company, 233 N.C. 339,64 S.E.2d 160 (1951). In Hall, the plaintiff
alleged that the insured negligently operated a motor vehicle and proximately caused the death of
the plaintiff's intestate. See id. at 340, 64 S.E.2d at 160. The plaintiff obtained a judgment against

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the insured which was returned unsatisfied. See id., 64 S.E.2d at 160.

Plaintiff then sued

Harleysville Mutual Casualty Insurance Company as a third-party beneficiary of the insurance
contract. See id., 64 S.E.2d at 160. Harleysville Mutual Casualty Insurance Company moved to
dismiss plaintiffs complaint for failure to state a claim upon which relief can be granted. See id.,
64 S.E.2d at 160. The trial court denied the motion to dismiss, and Mutual Casualty Insurance
Company appealed. See id., 64 S.E.2d at 160. The Supreme Court of North Carolina reviewed the
insurance policy at issue and stated that, ''where the policy of insurance is against liability and not
of indemnity and the liability of the insured has been established by judgment, the injured person
may maintain an action on the policy of insurance ...." Id., 64 S.E.2d at 160. Thus, the Supreme
Court of North Carolina held that plaintiffhad stated a breach of contract claim against the insurance
company. See id., 64 S.E.2d at 160.
Hall does not help Scottsdale. In Hall, the Supreme Court of North Carolina held that
analyzing precedent was not necessary because the policy itself provided the third-party beneficiary
with the right of action once liability attached. See id. at 340, 64 S.E.2d at 160. Moreover, in Hall,
the Supreme Court of North Carolina did not address an argument concerning the statute of
limitations, and the plaintiff in Hall alleged that the judgment was returned unsatisfied. See id., 64
S.E.2d at 160.. Thus, Hall comports with the Supreme Court ofNorth Carolina's holding in Taylor
v. Green, which recognized that a policy provision could alter the general rule not permitting a third
party to proceed against the insurer until securing a judgment against the insured with an execution
thereon returned unsatisfied. See Taylor, 242 N.C. at 158, 87 S.E.2d at 13.
Sco~dale

also cites Lavender v. State Farm Mutual Auto Insurance Company, 117 N.C.

App. 135, 450 S.E.2d 34 (1994). ·In Lavender, the plaintiff obtained a judgment against an insured
party on July 5, 1989. See id. at 135-36,450 S.E.2d at35. On July 13, 1989, the insured party paid

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the compensatory damages portion of the judgment, but did not pay the punitive damages portion
of the judgment. See id. at 136, 450 S.E.2d at 35. On March 22, 1993, the plaintiff sued the
insurance company and sought a declaration of his rights under the policy, including that the
insurance company had to pay the punitive damages portion of the judgment. See id. at 135, 450
S.E.2d at 35. The insurance company argued that the three-year statute of limitations barred the
claim because the plaintiff filed suit more than three years after obtaining the judgment against the
insured. See id. at 136, 450 S.E.2d at 35. The North Carolina Court of Appeals cited Hall and held
that the statute oflimitations began to run "at the time of entry ofjudgment against the insured." Id.,
450 S.E.2d at 35 (quotation omitted).
The court rejects Scottsdale's reliance on Lavender. In Lavender, the North Carolina Court
of Appeals failed to cite or discuss the Supreme Court ofNorth Carolina's decisions in Taylor v.
Green and Small v. Morrison. Instead, the North Carolina Court of Appeals quoted a portion of
Hall, but failed to note that the judgment in Hall was returned unsatisfied before the plaintiff filed
suit. In Lavender, the North Carolina Court of Appeals also failed to note that the Supreme Court
· ofNorth Carolina in Hall did not address when the clock began to run for purposes of the statute of
(

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limitations and that the thlee-year statute oflimitations had expired whether the clock began running
on July 5, 1989 or July 13, 1989. See Lavender, 117 N.C. App. at 136, 450 S.E.2d at 35. Thus,
Lavender is not persuasive authority in predicting North Carolina law in this case.
Taylor v. Green or Small v. Morrison constitute the best precedent for predicting how the
Supreme Court ofNorth Carolina would rule on the parties' dispute concerning North Carolina law.
See Twin City Fire Ins. Co., 433 F.3d at 369. Likewise, in light of Taylor and Small, the citation of
Lavender in the treatise Couch on Insurance does not alter this conclusion. See id. Thus, the statute
of limitations does not bar Romfo' s breach of contract claim.
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The North Carolina Declaratory Judgment Act "permits a litigant to seek a declaration ofthe
rights or obligations of parties to a written contract when there is some dispute among the parties
concerning those respective rights or obligations."

White v. Chase Bank USA. N.A., No.

5:16-CV-00176-BR, 2017 WL 1131898, at *7 (E.D.N.C. Mar. 24, 2017) (unpublished) (quotation
omitted); N.C. Gen. Stat. § 1-253 et seq. In order for a court to render a declaratory judgment, there
must be an "actual controversy" between parties. See Marx Indus .. Inc. v. Chestnut Ridge Foam.
Inc., 903 F. Supp. 2d 358, 366 (W.D.N.C. 2012); Abbington SPE. LLC v. U.S. Bank. Nat'l Ass'n.,
No. 7:16-CV-249-D, 2016 WL 6330389, at *7 (E.D.N.C. Oct. 27, 2016) (unpublished), aff'd, 698
F. App'x 750 (4th Cir. 20 17) (per curiam) (unpublished); Conner v. North Carolina Council of State,
365 N.C. 242, 258, 716 S.E.2d 836, 846 (2011). Under North Carolina law, a court may issue a
declaratory judgment when: "(1) when it will serve a useful purpose in clarifying and settling the
legal relations at issue, and (2) when it will terminate and afford relief from the uncertainty,
insecurity and controversy giving rise to the proceeding." Conner, 365 N.C. at 258, 716 S.E.2d at
846 (quotation and alteration omitted); see Marx Indus .• Inc., 903 F. Supp. 2d at 366. "Absent an
enforceable contract right, an action for declaratory relief to construe or apply a contract will not lie."
Terrell v. La\Y}'ers Mut. Liab. Ins. Co., 131 N.C. App. 655, 661, 507 S.E.2d 923,

92~27

(1998).

A court sitting in diversity should look to federal standards to determine whether declaratory
relief is appropriate. White v. Nat'l Union Fire Ins. Co., 913 F.2d 165, 167 (4th Cir. 1990); see
Miller v. Augusta Mut. Ins. Co., 157 F. App'x 632, 635-36 (4th Cir. 2005) (per curiam)
(unpublished). In order for a federal court to adjudicate a claim for a declaratory judgment, both
Article ill of the Constitution and the Federal Declaratory Judgment Act require an "actual
controversy." Steffel v. Thompson, 415 U.S. 452, 458 (1974); 28 U.S.C. § 2201. A federal court
has jurisdiction over a declaratory judgment action when three elements are met: "(1) the complaint

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alleges an 'actual controversy' between the parties of sufficient immediacy and reality to warrant
issuance of a declaratory judgment; (2) the court possesses an independent basis for jurisdiction over
the parties (e.g., federal question or diversity jurisdiction); and (3) the court does not abuse its
discretion in its exercise ofjurisdiction." Volvo Constr. Equip. N. Am. Inc. v. CLM Equip. Co., 386
F.3d 581, 592 (4th Cir. 2004). An actual controversy exists when the dispute is "definite and
concrete, touching the legal relations of parties having adverse legal interests." Aetna Life Ins. Co.
v. Haworth, 300 U.S. 227,240-41 (1937).
Under both the federal and North Carolina law, Romfo has standing to bring his claim for
declaratory relief. An actual controversy exists between Romfo and Scottsdale. Romfo is an injured
party with a valid judgment against the insured party. See Miller, 157 F. App'x at 63 7-38; American
Auto. Ins. Co. v. Murray, 658 F.3d311, 318-19 (3dCir. 2011). Additionally, under North Carolina
law, Romfo has plausibly alleged a valid contractual right. See Craven v. Demidovich, 172 N.C.
App. 340, 342, 615 S.E.2d 722, 724 (2005) ("[I]t is settled law that where the liability of the insured
has been established by judgment, the injured person may maintain an action as a third-party
beneficiary on the insured's policy of liability insurance.") (alterations, quotations, and emphasis
omitted). Issuing a declaratory judgment will provide relief from uncertainty because both parties
will learn whether Scottsdale is liable to pay the judgment Romfo obtained against Witt.
III.

In sum, the court DENIES defendant's motion to dismiss [D.E. 9].
SO ORDERED. This .fl day of December 2017.

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