American General Life Insurance v. Bagley et al
Filing
32
MEMORANDUM DECISION denying without prejudice 18 Motion to Dismiss Counterclaim. Signed by Judge Robert J. Shelby on 11/04/2013. (tls)
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
AMERICAN GENERAL
LIFE INSURANCE,
MEMORANDUM DECISION AND
ORDER DENYING MOTION TO
DISMISS COUNTERCLAIM
Plaintiff,
Case No.: 2:13-cv-00089-RJS
v.
Judge Robert J. Shelby
BARBARA BAGLEY,
as Personal Representative
of the Estate of Bradley M. Vom Baur,
and BUSINESS LOAN CENTER,
Defendants.
The parties in this case have asked the court for declaratory relief concerning a life
insurance policy Plaintiff issued in 2005 to the now-deceased Bradley Vom Baur (the Policy).
Vom Baur died in 2012. In its sole claim, Plaintiff American General Life Insurance asks the
court to declare that the Policy is subject to rescission and void ab initio due to Vom Baur’s
alleged misrepresentations in a 2011 application to reinstate the Policy, as well as undisclosed
health issues treated between the time of Vom Baur’s reinstatement application and Plaintiff’s
reinstatement of the Policy. Defendants are Barbara Bagley, the personal representative for Vom
Baur’s estate, and Business Loan Center, an entity to which Vom Baur assigned part of the
Policy proceeds. Defendants jointly assert a lone Counterclaim seeking a declaration that the
Policy is valid and binding, and that Plaintiff must pay Defendants a $350,000 death benefit.
Plaintiff now moves to dismiss Defendants’ Counterclaim on the ground that “the
declaratory relief sought by Defendants (that the Policy is valid) is the mirror image of the relief
sought by [Plaintiff] (that the Policy is void) and should be dismissed as redundant.” (Dkt. 18 at
2.) The court concludes oral argument on the Motion is unnecessary, and issues this ruling after
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careful consideration of the parties’ briefing and relevant legal authorities. For the reasons stated
below, the court declines to exercise its discretion to dismiss Defendants’ Counterclaim at this
time.
I.
FACTUAL BACKGROUND
Plaintiff’s Motion turns on a comparison of the allegations in the Complaint with those
set forth in Defendants’ Counterclaim. These pleadings are reviewed in turn.
A. Plaintiff’s Complaint
In its Complaint, Plaintiff alleges that decedent Vom Baur applied to Plaintiff in October
2005 for a life insurance policy. Plaintiff approved Vom Baur’s application and, on November
25, 2005, delivered the Policy with a death benefit of $350,000. Before the Policy was
delivered, Vom Baur assigned a $317,000 interest in the policy as collateral to Defendant
Business Loan Center.
The Policy lapsed for nonpayment of premiums on July 25, 2011. Vom Baur then sought
reinstatement of the Policy. On August 23, 2011, he completed and signed an application for
reinstatement in which he answered questions about his health. Plaintiff reinstated the Policy on
October 4, 2011. On January 6, 2012, Vom Baur died in a traffic accident.
Plaintiff claims that Vom Baur provided material misrepresentations in his application for
reinstatement concerning his weight and other health issues. Plaintiff claims that if Vom Baur
had been truthful about his health, it would not have reinstated the Policy. Further, the
reinstatement application Vom Baur signed allegedly informed him that no health changes could
occur between the date he signed the application and the date of the policy reinstatement.
Plaintiff claims that Vom Baur saw a health care provider on October 1, 2011, “for a condition or
conditions that would have changed his answers” on the application.
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Plaintiff’s sole claim for relief is a request for declaratory judgment that the Policy is
null, void and rescinded ab initio, and that no insurance was ever in effect due to “(1) Mr. [Vom]
Baur’s failure to meet the conditions in the Reinstatement Application that required no change in
health that would change the answers on the Reinstatement Application before reinstatement,
and (2) the fraudulent and/or material misrepresentations and omissions that Mr. [Vom] Baur
made on the Reinstatement Application.” (Dkt. 2 at ¶ 28.) Plaintiff also seeks its costs of suit
and any “such other relief as the Court deems equitable and just to [Plaintiff].” (Dkt. 2 at 8.)
B. Defendants’ Answer and Counterclaim
Defendants responded to Plaintiff’s Complaint with a jointly-filed Answer and
Counterclaim. (Dkt. 12.) In their Answer, Defendants deny that Plaintiff is entitled to any
recovery. Defendants seek dismissal of the Complaint and their attorney’s fees and costs. In
their Counterclaim, Defendants allege quite briefly that Vom Baur obtained in 2005 a life
insurance policy from the Plaintiff with a death benefit of “at least $350,000”; that he assigned a
portion of the proceeds of the Policy to Defendant Business Loan Center “to secure a business
loan”; that Vom Baur died in a traffic accident on January 6, 2012; and that Plaintiff has paid no
benefits under the Policy to date. (Dkt. 12 at 8, ¶¶ 8-12.) Defendants seek a declaration from the
court that the Policy is “valid and binding upon the parties, with all payments associated
therewith to be due and payable in-full” to the Defendants.
II.
DISCUSSION
The issue before the court is whether Defendants’ Counterclaim should be dismissed on
the grounds that it presents a mirror-image of Plaintiff’s Complaint and therefore is redundant.
According to Plaintiff, the Counterclaim should be dismissed because disposition of the
Complaint will render Defendants’ Counterclaim moot, as the court “will necessarily determine
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the issue of policy validity and payment of any benefits when adjudicating [Plaintiff’s] claim for
a declaratory judgment.” (Dkt. 18 at 5.)
Defendants dispute that their Counterclaim is a mirror image of the Complaint.
Defendants note that even if the court denies Plaintiff its requested relief, and indeed concludes
that the Policy is not void for the reasons alleged in the Complaint, Plaintiff “could potentially
stall and thwart the payment of benefits…by asserting some additional basis or reason for not
paying the benefits.” (Dkt. 21 at 4.) Defendants claim that they have asserted their
Counterclaim to avoid this result and to ensure that they are protected from any new contentions
that the Policy is somehow invalid or that Plaintiff need not pay the death benefit owing under
the Policy. In short, Defendants submit that the Counterclaim promotes efficiency and judicial
economy by resolving in a single action all issues relating to the validity of the Policy and
payment of its proceeds.
As discussed below, the court agrees with Defendants that the Counterclaim is not strictly
a mirror image of Plaintiff’s Complaint. At this early stage in the litigation, the court concludes
that dismissal of the Counterclaim is unwarranted and premature, particularly as Plaintiff
identifies no unfair prejudice to it resulting from inclusion of the Counterclaim.
A. Legal Principles
In moving to dismiss Defendants’ Counterclaim, Plaintiff cites Rules 12(b)(6)
and 8(a)(2), Federal Rules of Civil Procedure. Plaintiff correctly notes that under these Rules, a
party may move to dismiss a claim when a claimant fails to “state a claim upon which relief may
be granted,” and that a complaint must contain a “short and plain statement of the claim showing
that the pleader is entitled to relief.” (Dkt. 18 at 3.) But Plaintiff’s argument is not directed to
showing why Defendants’ Counterclaim is deficient under these Rules. Rather, Plaintiff argues
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that the court should “dismiss Defendants’ Counterclaim because it is a mirror image of
[Plaintiff’s] claim for declaratory judgment and unnecessarily duplicative.” (Dkt. 23 at 3.)
In substance, the court views Plaintiff’s motion as one to strike Defendants’
Counterclaim. Under Rule 12(f), Federal Rules of Civil Procedure, the court “may strike from a
pleading. . . any redundant . . . matter.” Courts addressing dismissal of allegedly redundant
counterclaims alternatively cite this Rule, or sometimes Rule 8(c)(2), which provides that if a
party mistakenly designates a defense as a counterclaim, “the court must, if justice requires, treat
the pleading as though it were correctly designated, and may impose terms for doing so.” See,
e.g., MRSI International, Inc. v. Bluespan, Inc., 2006 WL 2711791 (D.Utah Sept. 21, 2006) (J.
Kimball) (citing Rules 12(f) and 8(c)(2)); Cincinnati Specialty v. DMH Holdings, LLC, 2013 WL
683493, at *4, n.2 (N.D.Ind. Feb. 22, 2013) (dismissing mirror image counterclaim pursuant to
Rule 12(f)).
The Tenth Circuit Court of Appeals has not addressed whether a counterclaim that is the
mirror image of a plaintiff’s initial complaint should be dismissed on the grounds that it is
redundant and will be rendered moot upon disposition of the complaint. It has, however, warned
that although a ruling on a motion to strike is reviewed for abuse of discretion, “[a] court should
proceed with extreme caution in striking a pleading.” MRSI, 2006 WL 2711791, at *1 (quoting
Colorado Milling & Elevator Co. v. Howbert, 57 F.2d 769, 771 (10th Cir. 1932)); Durham v.
Xerox Corp., 18 F.3d 836, 840 (10th Cir. 1994) (motions to strike reviewed for abuse of
discretion) (other citations omitted).
In the patent context, this court has addressed the issue of whether to strike or dismiss
counterclaims that were allegedly duplicative of the defendant’s affirmative defenses and a
mirror image of the plaintiff’s own claims. MRSI, 2006 WL 2711791. In MRSI, the allegedly
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infringing defendant had asserted affirmative defenses of noninfringement and invalidity. It also
asserted counterclaims for declaratory judgment of non-infringement and invalidity of the
accused patents. Id. at *1. Pursuant to Rule 12(f), the plaintiff moved to dismiss or strike the
counterclaims as redundant. Id.
This court denied the motion, citing the possibility that the infringement issues could be
determined without adjudicating the validity issues, which would leave part of the defendant’s
counterclaim unresolved. Id. at *1 (noting that “allowing a counterclaim for declaratory relief
assures that a patent’s validity will be determined regardless of the outcome of the infringement
suit.”) (citing Altvater v. Freeman, 319 U.S. 359, 363 (1943) (noting that “the issue of validity
may be raised by a counterclaim in an infringement suit.”) (other citations omitted)). Further,
although the court noted that Rule 8(c) allowed it to treat a counterclaim as an affirmative
defense, such treatment was unwarranted where it would not assure that validity issues would be
adjudicated, but allowing the counterclaim would. Id. Finally, this court noted that the plaintiff
had not cited any notable prejudice that would ensue if the counterclaims survived. Id. at *2.
Outside the patent context, courts considering the issue before the court differ widely in
their approach. See 6 Charles Alan Wright, Arthur R. Miller, et. al., Federal Practice and
Procedure § 1406 (3d ed.) (noting split) and Penn Mutual Life Ins. Co. v. Espinosa, 2010 WL
3023402 (D.Del. July 30, 2010), at *6 (noting that while courts in the Third Circuit “have
dismissed declaratory judgment counterclaims when a complete identity of legal and factual
issues exists,” at least one court in that circuit refused to do so on the basis that it knew of “no
rule preventing the assertion of a counterclaim merely because the theory relied upon is the
converse of that in the complaint.” (quoting Iron Mountain Sec. Storage v. Am. Specialty Foods,
Inc., 457 F.Supp. 1158, 1161-62 (E.D. Pa. 1978))).
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For instance, one court in the Northern District of Indiana recently dismissed a
counterclaim in which an insured sought declaratory relief that nearly identically mirrored the
liability insurer’s original complaint on the issues of policy limits, coverage for punitive
damages, and coverage for all underlying claims. Cincinnati Specialty, 2013 WL 683493, at *45. Because the counterclaim was redundant, the court found that it “should be stricken pursuant
to Rule 12(f).” Id. at *5.
In contrast, the District Court for the District of Kansas denied an insured plaintiff’s
motion to dismiss a counterclaim asserted by an insurer. Blue Cross and Blue Shield of Kansas,
Inc. v. St. Paul Mercury Ins. Co., et. al., 1990 WL 41403 (D.Kan. March 23, 1990). There, the
plaintiff asserted tort and contract claims against the defendant insurers, alleging that they had
“breached their obligation to defend [it] or provide indemnity benefits in connection with a
lawsuit against [it].” Id. at *1. One defendant filed a counterclaim seeking a declaration as to its
“liability to plaintiff in connection with its insurance policy and the lawsuit against plaintiff.” Id.
Plaintiff moved to dismiss the counterclaim on the grounds that “it raises no issues beyond the
scope of plaintiff’s complaint.” Id. The defendant agreed that its counterclaim raised no new
issues, but did not want to waive any potentially compulsory counterclaims. Thus, the defendant
asked that dismissal only be granted “with the express finding that declaratory relief is an
inherent part of plaintiff’s prayer in this case.” Id.
Instead, the court determined simply to deny the plaintiff’s motion to dismiss. In doing
so, it cited the following excerpt from Iron Mountain:
Defendants would have every right to seek a judgment declaring that their
interpretation of the contract is the correct one. A ruling adverse to the plaintiff
on plaintiff’s claim would merely result in a judgment that plaintiff was not
entitled to the relief requested; although it might logically follow from that
judgment that defendants’ interpretation of the contract was the correct one,
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defendants would not be entitled to a judgment to that effect unless they
specifically requested one.
Id. (quoting Iron Mountain, 457 F.Supp. at 1161-62).
Even courts adopting the approach here urged by Plaintiff do so with caution. For
example, although the Espinosa court dismissed a redundant counterclaim, it emphasized that
“the difficulty in determining whether a declaratory judgment counterclaim is in fact redundant
prior to trial” requires that a court should dismiss such counterclaims “only when there is no
doubt that they will be rendered moot by adjudication of the main action.” 2010 WL 3023402
(D.Del. July 30, 2010), at *6 (quoting Principal Life Ins. Co. v. Lawrence Rucker 2007 Ins.
Trust, 674 F.Supp.2d 562, 566 (D.Del. 2009) (other citations omitted)).
B. Plaintiff’s Motion to Dismiss Defendants’ Counterclaim
In light of the above-cited authorities, the court exercises caution in analyzing Plaintiff’s
Motion, which it construes as a motion to strike. While the court may strike and dismiss
Defendants’ Counterclaim if it proves redundant, this should only occur if there exists “no
doubt” that the Counterclaim will be rendered moot by adjudication of the Plaintiff’s Complaint.
If such doubt exists, and particularly if there is no discernible prejudice to the Plaintiff, the
motion to strike should be denied.
Plaintiff’s lone claim is for declaratory judgment that the Policy is null, void and
rescinded on two specific grounds: 1) that Vom Baur’s health changed between the time he
completed the Policy reinstatement application and the time the Policy was reinstated; and 2) that
Vom Baur made material misrepresentations in the reinstatement application. (Dkt. 2 at 7-8.)
Defendants seek in their Counterclaim a declaratory judgment that the Policy is valid and
binding, and that they are entitled to the benefits outlined in the Policy.
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Resolution of the two discrete issues presented by Plaintiff’s Complaint will not
necessarily render Defendants’ Counterclaim moot. If the court concludes Plaintiff is not
entitled to the declaration sought, the issues raised in Defendants’ Counterclaim may remain
unresolved. Even if it is determined that Plaintiff is not entitled to rescission, it does not
necessarily follow that Defendants are entitled to receive the Policy’s death benefit, particularly
where Plaintiff has not stipulated that it will waive any and all other Policy defenses, and will
pay the death benefit to Defendants in full in the event of an adverse ruling on Plaintiff’s
declaratory judgment claim. Thus, the court finds that the Counterclaim is not strictly redundant
of the claim Plaintiff asserts for rescission based on Vom Baur’s health issues and alleged
misrepresentations.
This conclusion is further supported by the lack of any notable prejudice cited by Plaintiff
if Defendants’ Counterclaim is permitted. If, as the case develops, it becomes clear that the
resolution of Plaintiff’s Complaint necessarily will moot Defendants’ Counterclaim in its
entirety, then Plaintiff may renew its Motion. At this time, however, the Motion is DENIED
without prejudice.
It is so ORDERED.
Dated this
4th
day of November 2013
BY THE COURT
Robert J. Shelby
United State District Court
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