Philadelphia Indemnity Insurance Company et al v. Lacey

Filing 53

MEMORANDUM OPINION: For the reasons set forth above, the Court GRANTS Defendants motions (Docs. 45, 46).Plaintiffs claim is hereby DISMISSED WITH PREJUDICE.AN APPROPRIATE JUDGMENT WILL FOLLOW. Signed by District Judge Travis R McDonough on 8/21/2018. (DJH, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
PHILADELPHIA INDEMNITY
INSURANCE COMPANY and RUSH
FITNESS CORPORATION d/b/a THE
RUSH FITNESS COMPLEX,
Plaintiffs,
v.
CHERYN LARK LACEY,
Defendant.

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Case No. 3:18-cv-38
Judge Travis R. McDonough
Magistrate Judge Debra C. Poplin

MEMORANDUM OPINION

Before the Court are Defendant Cheryn Lark Lacey’s motions for the Court to take
judicial notice (Doc. 45) and for judgment on the pleadings (Doc. 46). For the reasons stated
hereafter, Defendant’s motions will be GRANTED.
I.

BACKGROUND
In July 2009, Defendant joined a health and fitness club operated by Plaintiff Rush

Fitness Corporation (“Rush Fitness”) in Knoxville, Tennessee. (Doc. 42, at 3.) Upon joining the
club, Defendant signed a membership agreement with Rush Fitness. (Id.; see Doc. 42-1, at 1–2.)
About a month after joining, Defendant entered another agreement with Rush Fitness for “the
use of a personal fitness trainer to further her physical pursuits.” (Doc. 42, at 3; see Doc. 42-1, at
3–5.)

Defendant ultimately filed a civil lawsuit against Rush Fitness in the Circuit Court for
Knox County, Tennessee, alleging that, during a training session in October 2009, she slipped on
a wet floor while completing an obstacle course, causing subsequent neck and back pain. (Doc.
42, at 3–4.) As insurer for Rush Fitness and pursuant to the insurance policy, Plaintiff
Philadelphia Indemnity Insurance Corporation (“PIIC”) “engaged the services of the law firm of
Spears, Moore, Rebman & Williams, P.C. to defend against [Defendant’s] allegations.” (Id. at
4.) The civil action between Rush Fitness and Defendant was resolved in favor of Rush Fitness,
and Plaintiffs now bring a claim against Defendant1 for breach of her contract with Rush Fitness,
seeking attorneys’ fees, costs, and charges associated with the defense of the civil action. (Id. at
4, 6.) The operative language of the contract reads, in relevant part:
RELEASE OF LIABILITY AND ASSUMPTION OF RISK: The use of the
CLUB and its facilities naturally involves the risk of injury to you and your guest,
whether you or someone else causes it. As such, you understand and voluntarily
accept this risk and agree that CLUB will not be liable for any injury, including,
without limitation, personal, bodily or mental injury, economic loss or any
damage to you, your spouse, guests, unborn child, or relatives resulting from the
negligence of CLUB or any on CLUB’s behalf or anyone using the CLUB or its
facilities . . . . If there is any claim by anyone based on any injury, loss, or
damage described in this section which involves you or your guest, you agree to
(1) defend CLUB against such claims and (2) indemnify CLUB for all liabilities
to you, your spouse, guests, relatives, or anyone else resulting from such claims.
(Doc. 45-1, at 1.)
According to Plaintiffs, Defendant breached the terms of the membership agreements
when she “brought suit against Rush Fitness for injuries she alleged she sustained at Rush
Fitness’ facility . . . [and] refused Plaintiffs’ demands for her to defend Rush Fitness or
indemnify it from the costs of defending the suit against Rush Fitness . . . .” (See Doc. 42, at 5–

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According to the amended complaint, “[t]o the extent that PIIC provided reimbursement to its
insured pursuant to its liability insurance policy, it is now subrogated to the interests of its
insured and has a claim against [Defendant] as well.” (Doc. 42, at 6.)
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6.) Plaintiffs initiated the instant action on June 2, 2017, and amended their complaint on April
4, 2018. (Docs. 1, 42.) Defendant filed a motion for judgment on the pleadings, and the Court
heard oral argument on this motion on July 24, 2018. This motion is now ripe for the Court’s
review.
II.

MOTION TO TAKE JUDICIAL NOTICE
Defendant requests this Court take judicial notice of certain certified public records of the

Circuit Court for Knox County, Tennessee, in the case of Lacey v. Rush Fitness Corp., Civil
Action No. 2-501-10 (the “Prior Action”). (See Doc. 45.) In response, Plaintiffs concede that
the Court may take judicial notice of the proposed records, but “may only take judicial notice of
the existence of these filings and their contents, nothing more.” (Doc. 49, at 5.)
A court may consider matters of public record in deciding a motion for judgment on the
pleadings without converting the motion to one for summary judgment. See, e.g., Commercial
Money Ctr., Inc. v. Illinois Union Ins. Co., 508 F.3d 327, 335–36 (6th Cir. 2007) (“[W]hen a
document is referred to in the pleadings and is integral to the claims, it may be considered
without converting a motion to dismiss into one for summary judgment.”); see also Passa v. City
of Columbus, 123 F. App’x 694, 697 (6th Cir. 2005) (noting that “[a]ll circuits to consider the
issue have noted that a court may take judicial notice of at least some documents of public
record” when deciding a Rule 12 motion). However, “taking judicial notice of documents has
been limited by some courts to allow only ‘the use of such documents . . . for the fact of the
documents’ existence, and not for the truth of the matters asserted therein.’” Stafford v. Jewelers
Mut. Ins. Co., 554 F. App’x 360, 369 (6th Cir. 2014) (quoting Passa, 123 F. App’x at 697); see
also Commercial Money, 508 F.3d at 336 (taking judicial notice of a brief which “was a public

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record and was offered not to establish any disputed facts, but to incorporate the arguments
articulated in an analogous situation”). In Passa, the Sixth Circuit explained:
[T]he majority of the cases which do not allow a court to take judicial notice of
the contents of a public record do so because there is no way for an opposing
party, prior to the issuance of the court’s decision, to register his or her
disagreement with the facts in the document of which the court was taking notice.
Thus, in order to preserve a party’s right to a fair hearing, a court, on a motion
[for judgment on the pleadings], must only take judicial notice of facts which are
not subject to reasonable dispute.
123 F. App’x at 697. The Court will GRANT Defendant’s motion (Doc. 45), limiting its
consideration only to the existence of the documents and those facts therein not subject to
reasonable dispute.
III.

MOTION FOR JUDGMENT ON THE PLEADINGS
A. Standard of Review
According to Rule 8 of the Federal Rules of Civil Procedure, a plaintiff’s complaint must

contain “a short and plain statement of the claim showing that the pleader is entitled to relief.”
Fed. R. Civ. P. 8(a)(2). Though the statement need not contain detailed factual allegations, it
must contain “factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Rule 8 “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”
Id.
A defendant may obtain dismissal of a claim that fails to satisfy Rule 8 by filing a motion
pursuant to Rule 12(c). A Rule 12(c) motion for judgment on the pleadings is analyzed using the
same standards that apply to 12(b)(6) motions for failure to state a claim. Lindsay v. Yates, 498
F.3d 434, 438 (6th Cir. 2007). Thus, on a Rule 12(c) motion, the Court considers not whether
the plaintiff will ultimately prevail, but whether the facts permit the court to infer “more than the

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mere possibility of misconduct.” Iqbal, 556 U.S. at 679. For purposes of this determination, “all
well-pleaded material allegations of the pleadings of the opposing party must be taken as true,
and the motion may be granted only if the moving party is nevertheless clearly entitled to
judgment.” Tucker v. Middleburg-Legacy Place, 539 F.3d 545, 549 (6th Cir. 2008) (quoting
JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 581 (6th Cir. 2007)). This assumption of
veracity, however, does not extend to bare assertions of legal conclusions, Iqbal, 556 U.S. at 679,
nor is the Court “bound to accept as true a legal conclusion couched as a factual allegation.”
Papasan v. Allain, 478 U.S. 265, 286 (1986).
After sorting the factual allegations from the legal conclusions, the Court next considers
whether the factual allegations, if true, would support a claim entitling the plaintiff to relief.
Thurman v. Pfizer, Inc., 484 F.3d 855, 859 (6th Cir. 2007). This factual matter must “state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007). Plausibility “is not akin to a ‘probability requirement,’ but it asks for more than a sheer
possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550
U.S. at 556). “[W]here the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader
is entitled to relief.’” Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)). “A motion brought pursuant to
Rule 12(c) is appropriately granted ‘when no material issue of fact exists and the party making
the motion is entitled to judgment as a matter of law.’” Tucker, 539 F.3d at 549.
B. Analysis
Defendant raises five arguments in support of her motion for judgment on the pleadings:
(1) Tennessee’s compulsory-counterclaim rule bars Plaintiffs’ claims; (2) the defense and
indemnity provisions of the Agreement (the “D&I Clauses”) violate Tennessee public policy and

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are therefore void and unenforceable; (3) the D&I Clauses violate Tennessee Code Annotated §
47-18-301 and are therefore void and unenforceable; (4) Plaintiffs’ claimed damages do not fall
within the scope of the D&I Clauses; and (5) Tennessee’s application of the “American Rule”2
bars any award to Plaintiffs for recovery of attorney fees. (See Doc. 46.)
Defendant first argues that Plaintiffs’ claim against her is barred by Tennessee’s
compulsory-counterclaim rule.3 (Doc. 46, at 9–15.) In response, Plaintiffs argue that, although
they could have asserted their claim as a counterclaim in the Prior Action, they were not required
to bring it as a compulsory counterclaim. (Doc. 49, at 16.) Specifically, Plaintiffs argue their
claim for breach of contract was not a compulsory counterclaim because: (1) it had not fully
matured at the time of the pleading; and (2) it did not arise out of the same transaction or
occurrence as Defendant’s claim in the Prior Action. (Id. at 17–19.)
Tennessee Rule of Civil Procedure 13.01 provides:
A pleading shall state as a counterclaim any claim, other than a tort claim, which
at the time of serving the pleading the pleader has against any opposing party, if it
arises out of the transaction or occurrence that is the subject matter of the
opposing party’s claim and does not require for its adjudication the presence of
third parties of whom the court cannot acquire jurisdiction, except that a claim
need not be stated as a counterclaim if at the time the action was commenced the
claim was the subject to another pending action. This rule shall not be construed
as requiring a counterclaim to be filed in any court whose jurisdiction is limited
either as to subject matter or as to monetary amount so as to be unable to entertain
such counterclaim.

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The “American Rule” provides that “a party in a civil action may recover attorney fees only if:
(1) a contractual or statutory provision creates a right to recover attorney fees; or (2) some other
recognized exception to the American rule applies, allowing for recovery of such fees in a
particular case.” Cracker Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303, 308
(Tenn. 2009).
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The parties do not dispute that the Court should apply the Tennessee compulsory-counterclaim
rule in deciding whether Plaintiffs’ claims should have been brought in the underlying state-court
action. (See Doc. 46, at 9; Doc. 49, at 16–19.)
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“The purpose of the compulsory counterclaim rule is to insure that only one judicial proceeding
be required to settle all those matters determinable by the same facts or law, that is, to bring all
logically related claims into a single litigation, thereby avoiding multiplicity of suits.” Quelette
v. Whittemore, 627 S.W.2d 681, 682 (Tenn. Ct. App. 1981). Accordingly, “if a party fails to file
a counterclaim, other than those excluded by the Rule itself, in response to a pleading in
accordance with Rule 13.01 and the controversy results in a final judgment, then that party
would be precluded from filing suit on that claim.” Crain v. CRST Van Expedited, Inc., 360
S.W.3d 374, 379 (Tenn. Ct. App. 2011).
An exception exists under Tennessee’s compulsory-counterclaim rule when all the
elements of a cause of action have not yet “accrued” at the time the answer is filed. See 1 Tenn.
Cir. Ct. Prac. § 13:3. Plaintiffs argue their claim falls within this exception because
counterclaims for indemnity do not mature until the “party seeking indemnification . . . suffer[s]
the loss for which indemnity is claimed . . . .” (Doc. 49, at 7 (citing Hindmon v. Jones, No.
E200700670COAR3CV, 2008 WL 2557373, at *7 (Tenn. Ct. App. June 27, 2008)).) According
to Plaintiffs, because no defense-cost payments had been made before Rush Fitness initially
answered the complaint in the Prior Action, and the payments did not conclude until after the
underlying lawsuit concluded, the full claim did not mature until the conclusion of the Prior
Action. (Id. at 17.) In response, Defendant argues that Plaintiffs’ claim accrued as soon as
Plaintiffs consulted with an attorney to defend them in the Prior Action. (Doc. 50, at 7.) In
support of her argument, Defendant cites only a Missouri state-law case, Port v. Maple Tree
Investments, Inc., 900 S.W.2d 3 (Mo. Ct. App. 1995).
Although Plaintiffs now classify their claim as one for indemnification, it is actually a
claim for breach of contract. (See Doc. 42.) Specifically, Plaintiffs’ amended complaint alleges

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Defendant breached the terms of the Membership Agreement when she “brought suit against
Rush Fitness for injuries she alleged she sustained at Rush Fitness’ facility and . . . refused
Plaintiffs’ demands for her to defend Rush Fitness or indemnify it from the costs of defending
the suit against Rush Fitness for injuries . . . .” (Id. at 5.) In Tennessee, “a breach of contract
claim generally ‘accrues’ when the breach occurs rather than the time that actual damages are
sustained as a consequence of the breach.” Dean Witter Reynolds, Inc. v. McCoy, 853 F. Supp.
1023, 1036 (E.D. Tenn. 1994) (citations omitted); see also, e.g., Greene v. THGC, Inc., 915
S.W.2d 809, 810 (Tenn. Ct. App. 1995) (“The statute of limitations begins to run as of the date
of the breach.”). As Plaintiffs contend in their own amended complaint, PIIC “engaged the
services of the law firm of Spears, Moore, Rebman & Williams, P.C. to defend against
[Defendant’s] allegations.” (Id. at 4.) Accordingly, Plaintiffs were aware at the time they filed
their answer in the Prior Action that Defendant was in breach of the duty-to-defend clause of the
Membership Agreement.
Plaintiffs next argue that their claims did not arise out of the same transaction or
occurrence as Defendant’s claim in the Prior Action.4 Explicit in the text of Rule 13.01 itself is
the requirement that compulsory counterclaims arise out of the same transaction or occurrence
that is the subject matter of the opposing party’s claim. See Tenn. R. Civ. P. 13.01. In Creech v.
Addington, 281 S.W.3d 363 (Tenn. 2009), the Tennessee Supreme Court explained that
“transaction or occurrence” as used in the Tennessee Rules of Civil Procedure is analogous to its
meaning in the Federal Rules of Civil Procedure. Id. at 380 (“Of course, Tennessee’s procedural
rules match the federal rules in this regard.”); see also Clements v. Austin, 673 S.W.2d 867, 869

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It should be noted, however, that Plaintiffs conceded at oral argument that whether Plaintiffs’
breach-of-contract claim arises out of the same transaction or occurrence as Defendant’s claim in
the Prior Action is a “close call.”
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(Tenn. Ct. App. 1983) (“Rule 13, Tennessee Rules of Civil Procedure, is closely akin to Rule 13
of the Federal Rules of Civil Procedure.”). The Sixth Circuit applies a “logical relationship” test
to determine whether claims arise out of the same “transaction or occurrence” as that phrase is
used in the federal rule on compulsory counterclaims. Sanders v. First Nat’l Bank & Trust Co.
in Great Bend, 936 F.2d 273, 277 (6th Cir. 1991) (determining whether a counterclaim was
compulsory under Fed. R. Civ. P. 13(a)). Under this approach, claims arise out of the same
transaction or occurrence if “the issues of law and fact raised by the claims are largely the same
and whether substantially the same evidence would support or refute both claims.” Id. (citing
Moore v. N.Y. Cotton Exch., 270 U.S. 593 (1926)).
Plaintiffs argue that “while there [is] overlap of some issues, the instant action and the
[Prior] Action primarily involve different sets of operative law and facts.” (Doc. 49, at 18.)
Specifically, Plaintiffs argue the Prior Action “arose solely from Defendant’s slip and fall at
Rush Fitness on a specific date and time . . . [and] concerned Defendant’s injuries and whether
Rush Fitness caused those injuries . . . [whereas] Plaintiffs’ claim is for breach of a contract that
occurred long after Defendant was injured.” (Id. at 18–19.)
Plaintiffs’ characterization of Defendant’s original claim as a “slip and fall” is not
entirely accurate. In the Prior Action, Defendant also brought claims for violation of the
Tennessee Consumer Protection Act (“TCPA”) and intentional misrepresentation—both of
which brought the Agreement into dispute. (See Doc. 45-2, at 6–8.) Accordingly, Plaintiffs’
current claim for breach of contract and Defendants’ earlier TCPA and intentionalmisrepresentation claims all arise out of the contractual relationship between Plaintiffs and
Defendant. See Suddarth v. Household Commercial Fin. Servs., Inc., No.
M200401664COAR3CV, 2006 WL 334031, at *4 (Tenn. Ct. App. Feb. 13, 2006) (holding that

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claim was a compulsory counterclaim under Federal Rule of Civil Procedure 13 because “[i]t is
undisputed the former action arose out of the same business relationship . . . at issue in the
present action, and specifically out of the guaranty agreement sued on in the former action.”).
They also require similar proof and similar issues of law and fact relating to the validity and
construction of the Agreement. See Lowe, 1994 WL 570082, at *4 (finding claim did not arise
out of the same transaction or occurrence in part because the “claims embody different causes of
action, involve different issues of law and fact, and require different proof”). Moreover, the
purpose of the compulsory-counterclaim rule—to bring all logically related claims into a single
litigation—would be furthered by treating Plaintiffs’ current breach-of-contract claim as a
compulsory counterclaim. See Quelette, 627 S.W.2d at 682. Accordingly, the Court finds that
Plaintiffs’ claim should have been brought in the Prior Action under Tennessee Rule of Civil
Procedure 13.01 and is now barred by the compulsory-counterclaim rule.5
IV.

CONCLUSION
For the reasons set forth above, the Court GRANTS Defendant’s motions (Docs. 45, 46).

Plaintiffs’ claim is hereby DISMISSED WITH PREJUDICE.
AN APPROPRIATE JUDGMENT WILL FOLLOW.
/s/ Travis R. McDonough
TRAVIS R. MCDONOUGH
UNITED STATES DISTRICT JUDGE

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Because the Court grants Defendant’s motion for judgment on the pleadings on this basis, it
need not address Defendant’s remaining arguments.
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