XL Specialty Insurance Company et al v. Truland et al
Filing
145
MEMORANDUM OPINION in re 107 to Dismiss for Failure to State a Claim. Signed by District Judge James C. Cacheris on 03/03/2015. (jlan)
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Alexandria Division
XL SPECIALTY INSURANCE
COMPANY, et al.,
Plaintiffs,
v.
ROBERT W. TRULAND, et al.,
Defendants.
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M E M O R A N D U M
1:14cv1058(JCC/JFA)
O P I N I O N
This matter is before the Court on Plaintiffs XL
Specialty Insurance Co., XL Reinsurance America Inc., and
Greenwich Insurance Co.’s (“Plaintiffs” or “XL”) Motion to
Dismiss Robert and Mary Truland’s Counterclaims.
[Dkt. 107.]
For the following reasons, the Court will grant XL’s motion and
dismiss the counterclaims.
I. Background
Though this litigation has only been pending since
August of 2014, the Court is well-versed with the facts.
As
relevant here, Plaintiffs, sureties for construction
contractors, issued numerous payment and performance bonds on
behalf of the Truland Entities in reliance upon the terms of an
Indemnity Agreement and two subsequent amendments.
[Dkt. 94] ¶¶ 32, 53-59.)
(Am. Compl.
The indemnitors included various
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corporate entities as well as Robert and Mary Truland
individually.
(Id. ¶ 9.)
According to the terms of the
Indemnity Agreement, the indemnitors promised to deposit
collateral security to exonerate and hold Plaintiffs harmless
from any losses or liability that Plaintiffs may incur by
issuing payment and performance bonds on behalf of the Truland
Entities.
(Id. ¶¶ 41-42.)
The Indemnity Agreement also
contained an indemnification clause, requiring the indemnitors
to reimburse Plaintiffs for any losses, claims, liabilities,
damages, and fees incurred as a result of Plaintiffs’ issuance
of the bonds.
(Id.)
On or about July 23, 2014, the Truland Entities ceased
operations on all ongoing projects and filed for bankruptcy.
(Id. ¶ 98.)
Consequently, Plaintiffs received demands bonds
totally approximately $24 million.
(Id. ¶ 105.)
Plaintiffs
commenced this litigation in August 2014 to enforce the
collateral security and indemnification provisions of the
Indemnity Agreement, naming the sole non-bankrupt Truland
Entity, A&E Technologies, Inc., and Robert and Mary Truland as
defendants.
(Id. ¶¶ 3-7.)
Plaintiffs requested a temporary restraining order
(“TRO”), which was granted in part.
Order [Dkts. 11-12].)
(See 8/21/14 Mem. Op. &
The parties were able to reach an
agreement on the terms of a preliminary injunction.
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(See
12/19/14 Consent Order [Dkt. 87].)
With leave of Court,
Plaintiffs filed an Amended Complaint on January 6, 2015.
1/5/15 Order [Dkt. 93]; Am. Compl. [Dkt. 94].)
(See
Defendants
counterclaimed, asserting four causes of action: a laundry list
of violations of Title 8.9A of the Uniform Commercial Code
(“UCC”) (“Count One”); breach of contract (“Count Two”); failure
to provide accounting (“Count Three”); and “damages and
injunction” related to the unlawful financing statements (“Count
Four”).
(Countercl. [Dkt. 95] ¶¶ 97-119.)
Defendants also answered.
several affirmative defenses.
Robert Truland asserted
He argues Plaintiffs’ claims are
barred to the extent that Plaintiffs did not comply with all
applicable provisions of the UCC and that they breached their
obligations to Robert Truland under the Indemnity Agreement.
(Robert Truland’s Answer [Dkt. 100] at 24-25.)
He also asserts
Plaintiffs’ claims are barred due to their failure to account.
(Id. at 25.)
In her answer, Mary Truland asserts twenty-two
affirmative defenses.
She claims Plaintiffs are barred from
recovery by their failure: to use reasonable care in the custody
and preservation of collateral, to proceed in a commercially
reasonable manner to enforce the Truland Entity Contracts and to
collect sums owed to the Truland Entities, to comply with their
obligation as a secured party under the UCC to dispose of
collateral in a commercially reasonable manner; to provide a
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full accounting of unpaid obligations under the bonds subject to
the Indemnity Agreement, and to mitigate damages.
Truland’s Answer [Dkt. 101] at 10.)
(Mary
Mary Truland also asserts
Plaintiffs cannot recover because of their bad faith and
material breaches of contract.
(Id. at 11.)
Her answer adopts
any affirmative defenses raised by Robert Truland.
(Id.)
Plaintiffs moved to dismiss the counterclaims,
arguing that they are repetitive of Defendants’ affirmative
defenses.
(Pls.’ Mem. in Supp. [Dkt. 107] at 4-9.)
Alternatively, Plaintiffs argue that the counterclaims fail on
the merits.
(Id. at 9-22.)
Having been fully briefed and
argued, this motion is ripe for disposition.
II. Legal Standard
“A motion to dismiss under Rule 12(b)(6) tests the
sufficiency of a complaint[.]”
Republican Party of N.C. v.
Martin, 980 F.2d 943, 952 (4th Cir. 1992) (citation omitted).
The Supreme Court has stated that in order “[t]o survive a
motion to dismiss, a [c]omplaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)).
“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
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alleged.”
Id.
The issue in resolving such a motion is not
whether the non-movant will ultimately prevail, but whether the
non-movant is entitled to offer evidence to support his or her
claims.
“Determining whether a complaint states a plausible
claim for relief [is] . . . a context-specific task that
requires the reviewing court to draw on its judicial experience
and common sense.”
Iqbal, 556 U.S. at 679 (citations omitted).
To survive a motion to dismiss, a plaintiff’s complaint must
demand more than “an unadorned, the-defendant-unlawfully-harmedme accusation.”
555.
Iqbal, 556 U.S. at 678; Twombly, 550 U.S. at
Legal conclusions couched as factual allegations are not
sufficient.
Twombly, 550 U.S. at 555.
Hence, a pleading that
offers only “formulaic recitation of the elements of a cause of
action will not do.”
at 557.
Iqbal, 556 U.S. at 678; Twombly, 550 U.S.
Nor will a complaint that tenders mere “naked
assertion[s]” devoid of “further factual enhancement.”
Iqbal,
556 U.S. at 678; Twombly, 550 U.S. at 557.
Moreover, the plaintiff does not have to show a
likelihood of success on the merits.
Rather, the complaint must
merely allege – directly or indirectly – each element of a
“viable legal theory.”
Twombly, 550 U.S. at 562-63.
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III. Analysis
Plaintiffs argue that the four counterclaims must
fail because the claims are merely Defendants’ affirmative
defenses in disguise.
(Pls.’ Mem. in Supp. at 6.)
Where a
counterclaim mirrors an affirmative defense, courts have
dismissed the counterclaims.
See Penn Mut. Life Ins. Co. v.
Berck, No. DKC 09-0578, 2010 WL 3294305, at *3 (D. Md. Aug. 20,
2010); Penn Mut. Life Ins. Co. v. GreatBanc Trust Co., No. 09 C
6129, 2010 WL 2928054, at *5 (N.D. Ill. July 21, 2010)
(“Counterclaims that mimic affirmative defenses are no less
duplicative [than] counterclaims that mirror the plaintiff’s
request for declaratory relief.”); see also Boone v.
MountainMade Found., 684 F. Supp. 2d 1, 12 (D.D.C. 2010)
(collecting cases dismissing declaratory relief counterclaims
duplicative of affirmative defenses).
Thus, the Court must
resolve whether Defendants’ counterclaims and affirmative
defenses are duplicative.
“A counterclaim is a cause of action which seeks
affirmative relief, while an affirmative defense defeats the
plaintiff’s cause of action by denial or confession and
avoidance.”
61A Am. Jur. 2d Pleading § 276.
Black’s Law
Dictionary defines an affirmative defense as “a defendant’s
assertion of facts and arguments that, if true, will defeat the
plaintiff’s or prosecution’s claim, even if all the allegations
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in the complaint are true.”
1999).
Black’s Law Dictionary 451 (8th ed.
In contrast, a counterclaim is “a claim for relief
asserted against an opposing party after an original claim has
been made; especially, a defendant’s claim in opposition to or
as a setoff against the plaintiff’s claim.”
Id. at 376.
These
definitions contemplate that a successful affirmative defense
renders a plaintiff’s claim void, whereas a successful
counterclaim permits monetary recovery by the defendant.
See
CMF Virginia Land, L.P. v. Brinson, 806 F. Supp. 90, 93 (E.D.
Va. 1992) (converting defendants’ “affirmative defenses” to
compulsory counterclaims because “the defendants’
[counterclaims] cannot, as a matter of law, render their debt
void, but still allows them the opportunity at trial to prove
the alleged violation and their entitlement to recoupment
damages.”); see also Silicon Graphics, Inc. v. ATI Techs., Inc.,
No. 06-cv-611-bbc, 2011 WL 322664, at *3 (W.D. Wisc. Jan. 31,
2011) (“One difference between a counterclaim and an affirmative
defense is that resolution of a plaintiff’s claim in favor of a
defendant always moots the affirmative defense . . . .”).
Here, assuming, arguendo, that Defendants could assert
such counterclaims and were successful in doing so, Plaintiffs
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would pay Defendants a $40 million judgment. 1
And though not
entirely clear from the face of the pleading, it appears that
Defendants do not seek this $40 million for themselves
personally, but rather that it be applied toward whatever debt
they owe Plaintiffs.
(See Countercl. ¶ 103 (“Had no violation
of Title 8.9A of the UCC occurred, XL would have collected over
$40,000,000 from the Truland Entity Contracts and other Truland
Entity collateral (vehicles etc.) in its possession.
As a
result of XL’s violations of Title 8.9A of the UCC, the Trulands
were damaged and suffered loss, including, without limitation,
the loss of funds, money, property and other collateral for
obligations owing to XL and loss of security for the Trulands’
obligations under the Indemnity Agreement.”) (emphasis added).)
Defendants’ counterclaims raise issues that, if successful,
would reduce or eliminate the debt they owe to Plaintiffs,
relief more properly sought through the assertion of affirmative
defenses rather than counterclaims.
Therefore, Plaintiffs’
motion to dismiss the counterclaims will be granted.
In light
of this ruling, the Court does not have occasion to consider the
merits of the counterclaims, which are, as noted, essentially
affirmative defenses.
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It is worth noting that to the Court’s knowledge, Defendants
have personally pledged far less than $40 million they seek in
damages. (See 12/19/14 Consent Order.)
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IV. Conclusion
For the reasons set forth above, the Court will grant
Plaintiffs’ motion and dismiss the counterclaims.
An
appropriate order will follow.
March 3, 2015
Alexandria, Virginia
/s/
James C. Cacheris
UNITED STATES DISTRICT COURT JUDGE
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