RG Steel Wheeling, LLC v. The Health Plan of the Upper Ohio Valley Inc.

Filing 31

MEMORANDUM OPINION AND ORDER CONFIRMING PRONOUNCED ORDER OF THE COURT DENYING IN PART AND GRANTING IN PART 6 DEFENDANT'S FIRST MOTION TO DISMISS. The defendant's first motion to dismiss is DENIED except that this motion is GRANTED as to the claim for prejudgment interest on the fiduciary duty and negligence claims. Signed by Senior Judge Frederick P. Stamp, Jr. on 9/12/2013 (received in Clerk's office on 9/13/2013). (copy to counsel of record via CM/ECF) (nmm)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
RG STEEL WHEELING, LLC,
a Delaware limited liability
company, debtor-in-possession,
Plaintiff,
v.

Civil Action No. 5:13CV7
(STAMP)

THE HEALTH PLAN OF THE
UPPER OHIO VALLEY INC.,
a West Virginia corporation,
Defendant.
MEMORANDUM OPINION AND ORDER
CONFIRMING PRONOUNCED ORDER OF THE COURT
DENYING IN PART AND GRANTING IN PART
DEFENDANT’S FIRST MOTION TO DISMISS
I.
A.

Background

The Complaint
The

plaintiff,

RG

Steel

Wheeling,

LLC,

(“RG

Steel”

or

“plaintiff”) filed this civil action in this Court on January 18,
2013.

The plaintiff’s complaint alleges that The Health Plan of

the Upper Ohio Valley, Inc. (“The Health Plan” or “defendant”) had
entered into a contract, the Administrative Services Agreement,
with RG Steel which required The Health Plan to manage two medical
benefit plans for retirees: (1) those who were eligible before
August

1,

2003,

Voluntary

Employee

Beneficiary

Association

beneficiaries (“VEBA beneficiaries”), and (2) those who were not
eligible before that date, “non-VEBA beneficiaries.” The complaint
further asserts that The Health Plan mismanaged the two retirement
funds resulting in the overpayment of $1,455,522.03 to the VEBA

beneficiaries’ trust account, causing a loss of the same amount to
RG Steel.

The plaintiff alleges that this loss occurred when RG

Steel entered bankruptcy in May 2012, and the VEBA beneficiaries
offset the payment that The Health Plan had negligently placed in
the wrong bank account.
Based on the alleged mismanagement of the accounts, the
plaintiff asserts three causes of action.

The first cause of

action alleges that the defendant breached its contractual duties
under the Administrative Services Agreement by failing to take
appropriate steps while enrolling members in the benefit plans,
failing to apply the appropriate payments to the correct bank
accounts, failing to appropriately communicate with RG Steel about
premiums collected for the benefit plans, and failing to adequately
and timely audit the benefit plans and report those findings to the
plaintiff.

The second cause of action asserts that the defendant

was negligent in administering the benefit plans, failing to
adequately communicate and facilitate information to the plaintiff,
failing to use appropriate reports when transferring the funds to
the bank account, failing to assist employees appropriately in
completing forms and other paper work for the benefits plans,
failing to adequately or timely audit and report to RG Steel those
findings

and,

finally,

maintaining

deficient

administration

policies and procedures.
The final cause of action sets forth a claim for breach of a
fiduciary duty that the plaintiff claims was owed it by The Health

2

Plan.

The plaintiff claims that because the defendant agreed to

collect premium payments from both groups of beneficiaries, manage
the payments, and deposit them in the appropriate bank account,
that the defendant assumed a fiduciary duty owed to the plaintiff.
This duty, the plaintiff contends, was breached when the defendant
failed to exercise due care in the administration and depositing of
the premium payments that it collected for both benefit plans.
B.

Defendant’s Motion to Dismiss
In response to the complaint, the defendant filed a motion to

dismiss this case in its entirety for failure to state a claim
pursuant to Federal Rule of Civil Procedure 12(b)(6) and/or for
failure to join an indispensable party under Federal Rule of Civil
Procedure 12(b)(7).1
The defendant asserts two justifications for the Rule 12(b)(6)
dismissal. First, the defendant contends that the plaintiff failed
to refer to a specific term of the contract that was breached and
further failed to attach a copy of the contract to the complaint.
Second, the defendant contends further that the plaintiff is
asserting tort claims that fail under the “gist of the action”
doctrine.

The defendant claims that both the fiduciary duty and

negligence claims arise solely from the Administrative Services

1

This Court heard oral argument on the motion to dismiss on
September 6, 2013. This memorandum opinion and order confirms in
slightly more detail the rulings made at the conclusion of that
hearing.
3

Agreement. Therefore, those claims actually arise from a breach of
contract and not from a breach of social policy.
Lastly,

the

defendant

asserts,

under

Rule

12(b)(7)

that

dismissal is appropriate because the plaintiff failed to join the
VEBA beneficiaries as an indispensable party.

The defendant

contends that this Court cannot give complete relief because of the
possibility that RG Steel could win in this action, receive the pay
out from the defendant, but then also get a judgment in bankruptcy
court that the money does not belong to RG Steel.

Further, the

defendant claims that the VEBA beneficiaries’ ability to protect
its interest would be impaired because both RG Steel and the VEBA
beneficiaries are claiming the same money.

Finally, the defendant

contends that it may be subject to an inconsistent ruling or
unnecessary payment obligation if the VEBA beneficiaries are not
joined.

Because the ruling in this Court may be different than

that of the bankruptcy court in Delaware, the VEBA beneficiaries
should be joined so that The Health Plan is not subject to having
to pay twice (once to RG Steel and then possibly once to the VEBA
beneficiaries).
The

plaintiff

responded,

offering

opposition

to

the

defendant’s motion. The plaintiff first asserts that the complaint
did offer sufficient notice and that the standard for a breach of
contract action complaint only requires that the complaint identify
the contract and allege a breach of that contract.

The plaintiff

asserts that it has done so in its complaint.

Further, the

4

plaintiff claims that the negligence and breach of fiduciary duty
actions are separate tort actions, not contract actions.

The

plaintiff contends that the “gist of the action” doctrine is not
applicable because the breach in this case was a breach of a
positive legal duty and not just an omission to perform a contract
obligation.

The

plaintiff

cites

legal

precedent

from

North

Carolina and West Virginia in defending its claim.
Finally, the plaintiff contends that the VEBA beneficiaries
are not indispensable parties.

The plaintiff asserts that this

Court can grant complete relief without the VEBA beneficiaries
because if RG Steel were granted relief in this case, the money
would go to the RG Steel bankruptcy estate and thus be available to
the beneficiaries.

Also, the plaintiff contends that the VEBA

beneficiaries are already protecting their claims by being in
bankruptcy court.

Lastly, the plaintiff asserts that The Health

Plan will not be subject to inconsistent rulings because the
determination in this case is not dependent on the bankruptcy
proceedings.
The defendant replied, first asserting that it did not admit
to mismanaging the funds placed in the VEBA beneficiaries’ account.
The defendant next asserts the same Rule 12(b)(6) argument that the
plaintiff did not meet the requirements for specificity in a
complaint insofar as its contract claim is concerned, and went
further to argue that there may actually not even be an agreement
between The Health Plan and RG Steel.

5

Further, the defendant

argues that the plaintiff was incorrect in applying North Carolina
precedent to its “gist of the action” review.

The Health Plan

asserts that under West Virginia law and the doctrine of lex loci
delicti, the plaintiff has failed to overcome the “gist of the
action” doctrine because no relationship would have arisen between
the two parties without the contract.
Finally, the defendant reasserts that the VEBA beneficiaries
are indispensable. This litigation, the defendant argues, turns on
the true and correct ownership of the $1,700,000.00 involved in the
litigation.

Thus, there could in fact be inconsistent rulings for

all three parties if this Court were to go ahead without the
joinder of the VEBA beneficiaries.
The defendant thereafter filed a supplemental brief to the
motion to dismiss or, in the alternative, a second motion to
dismiss.

This Court has ordered that this filing be treated as a

second motion to dismiss and has directed the parties to submit
further briefs on the issues raised in the defendant’s second
motion to dismiss, as well as potential issues raised by this Court
during oral argument on the motion held on September 6, 2013.

See

ECF No. 29.
Having reviewed the parties’ pleadings and the relevant law,
this

Court

finds

that

the

defendant’s

6

motion

to

dismiss

(hereinafter “first motion to dismiss”) should be denied in part
and granted in part.2
II.
A.

Applicable Law

Rule 12(b)(6) Motion to Dismiss For Failure to State a Claim
Rule 12(b)(6) of the Federal Rules of Civil Procedure allows

a defendant to raise the defense of “failure to state a claim upon
which

relief

can

be

granted”

as

a

motion

in

response

to

a

plaintiff’s complaint before filing a responsive pleading.
In assessing a motion to dismiss for failure to state a claim
under Rule 12(b)(6), a court must accept the factual allegations
contained in the complaint as true.

Advanced Health-Care Servs.,

Inc. v. Radford Cmty. Hosp., 910 F.2d 139, 143 (4th Cir. 1990).
Dismissal is appropriate only if “‘it appears to be a certainty
that the plaintiff would be entitled to no relief under any state
of facts which could be proven in support of its claim.’”

Id. at

143-44 (quoting Johnson v. Mueller, 415 F.2d 354, 355 (4th Cir.
1969)); see also Rogers v. Jefferson-Pilot Life Ins. Co., 883 F.2d
324, 325 (4th Cir. 1989).
A motion to dismiss for failure to state a claim under Rule
12(b)(6) should be granted only in very limited circumstances, as
the pleading requirements of Federal Rule of Civil Procedure
8(a)(2) only mandate “a short and plain statement of a claim

2

Those matters raised by the supplemental motion, based upon
a settlement by the VEBA beneficiaries in the Bankruptcy Court in
Delaware, will be considered as a “second motion to dismiss.” An
order calling for additional briefing based upon a theory of setoff was entered following oral argument. ECF No. 29.
7

showing that the pleader is entitled to relief.”

Fed. R. Civ. P.

8(a)(2). Still, to survive a motion to dismiss, the complaint must
demonstrate the grounds to entitlement to relief with “more than
labels and conclusions . . . factual allegations must be enough to
raise a right to relief above the speculative level.”

Bell

Atlantic v. Twombly, 550 U.S. 544, 555 (2007); see also Ashcroft v.
Iqbal, 556 U.S. 662, 663-666 (2009).3
B.

Rule 12(b)(7) Motion to Dismiss For Failure to Join an
Indispensable Party
Federal Rule of Civil Procedure 19 establishes a two-step

inquiry to determine whether an action may continue without the
joinder of additional parties.

Nat’l Union Fire Ins. Co. v. Rite

Aid of South Carolina, Inc., 210 F.3d 246, 249 (4th Cir. 2000).
The

Court

first

must

determine

whether

the

absent

party

is

“necessary” to the action such that, in the party’s absence, “the
court cannot afford complete relief.”

Fed. R. Civ. P. 19(a).

The

Court must then determine whether “in equity and good conscience,
the action should proceed among the existing parties or should be
dismissed.”

Fed. R. Civ. P. 19(b).

factors

the

for

Court

to

consider

Rule 19 outlines several
in

determining

whether

a

necessary party’s absence warrants dismissal, including “the extent
to

which

a

judgment

rendered

in

3

the

person’s

absence

might

While the complaint paints with an extremely “broad brush,”
it contains at least enough information to pass muster under
Twombly and Iqbal; and whatever its deficiencies, those should be
readily cured by interrogatories, requests for documents or
admissions, and even depositions.
8

prejudice that person or the existing parties,” the available
options for mitigating any prejudice, the adequacy of a judgment in
the necessary party’s absence, and “whether the plaintiff would
have an adequate remedy if the action were dismissed for nonjoinder.”

Id.

“Dismissal of a case is a drastic remedy, however, which
should be employed only sparingly.”
F.3d

at

250

(quoting

Teamsters

Nat’l Union Fire Ins., 210

Local

Union

No.

171

v.

Keal

Driveaway Co., 173 F.3d 915, 918 (4th Cir. 1999)). “In determining
whether to dismiss a complaint, a court must proceed pragmatically,
‘examin[ing] the facts of the particular controversy to determine
the potential for prejudice to all parties, including those not
before it.’”
12(b)(7)

bears

indispensable.

Id.
the

The party moving for dismissal under Rule
burden

of

showing

an

absent

party

is

Branch Banking & Trust Co. v. First Am. Title Ins.

Co., No. 5:11CV473, 2012 WL 529926, at *6 (S.D. W. Va. Feb. 17,
2012).
III.
A.

Discussion

Rule 12(b)(6) Motion to Dismiss For Failure to State a Claim
In order to satisfy the pleading requirements of Federal Rule

of Civil Procedure 8, the plaintiff must simply present a “short
and plain statement of the claim showing that the pleader is
entitled to relief.” Fed. R. Civ. P. 8(a)(2). As explained above,
this does not mandate that the plaintiff prove its claim at the
point of pleading, but only that it present sufficient facts to

9

convince the Court that its claim is “plausible.”

Twombly, 550

U.S. at 555 (2007).
1.

Breach of Contract

The defendant first contends that the plaintiff failed to
refer to a specific term of the contract that was breached and
further failed to attach a copy of the contract to the complaint,
thus the plaintiff’s contract claim as pleaded was deficient.

The

defendant, however, has failed to cite any case law that supports
the assertion that a copy of the contract or reference to a
specific term that was breached is necessary for a complaint to
fulfill the requirements of Twombly or Iqbal, or the Federal Rules
of Civil Procedure.
Again, Federal Rule of Civil Procedure 8, as well as the
United States Supreme Court in Twombly and Iqbal, only require a
plaintiff to plead sufficient facts as to raise the possibility of
liability above a speculative level. The plaintiff is not required
to prove its case at the pleading stage.

The complaint does name

a specific agreement, the Administrative Services Agreement, and
notes what breaches the plaintiff believes have occurred.

The

defendant has sufficient notice of the contract claim by way of the
name of the contract and the allegations as to what part(s) of that
contract was breached.

Thus, this Court finds that the defendant

has not shown that the plaintiff’s complaint is so deficient as to
warrant the granting of a motion to dismiss.

10

2.

“Gist of the Action” Doctrine

The defendant’s second contention is that the plaintiff is
asserting tort claims that fail under the “gist of the action”
doctrine.

The defendant claims that both the fiduciary duty and

negligence claims arise solely from the Administrative Services
Agreement, thus, those claims actually arise from a breach of
contract and not from a breach of social policy.
At oral argument, the plaintiff made clear that its breach of
contract claim and its tort claims were alternatives to each other
and therefore would not fall under the application of the “gist of
the action” doctrine.

Thus, the plaintiff asserts that it is only

seeking the breach of fiduciary duty claim or the negligence claim
as an alternative to the breach of contract claim.

As the

plaintiff is pleading its claims in this way, this Court finds that
the defendant’s contention under the “gist of the action” doctrine
fails and thus the motion to dismiss should not be granted on this
ground.
Additionally, even if the plaintiff were not asserting the
tort claims as alternatives, this Court believes that it is not
absolutely clear that all three claims arise solely out of the
contract.

An action in tort will not arise for breach of contract

unless the action in tort would arise independent of the existence
of the contract.

Lockhart v. Airco Heating & Cooling, Inc., 567

S.E.2d 619, 624 (2002).

Based on the plaintiff’s complaint

(notwithstanding oral argument), this Court cannot find that the

11

tort actions would not have an independent existence without the
Administrative Services Agreement. Thus, this ground would fail on
both the defendant’s theory and based on the assertions raised by
the plaintiff in oral argument.
Further, the plaintiff also conceded during oral argument that
the breach of contract claim was the only claim in which it could
claim prejudgment interest.
finds

that

the

Based on that concession, this Court

plaintiff’s

claims

in

the

complaint

as

to

prejudgment interest for the fiduciary and negligence claims should
be dismissed and the first motion to dismiss be granted as to that
contention.
B.

Rule 12(b)(7) Motion to Dismiss For Failure to Join an
Indispensable Party
In determining whether a party is “indispensable,” the Court

must consider the following four factors: (1) the extent to which
a judgment rendered in its absence might prejudice that party or
existing parties; (2) the extent to which that prejudice could be
avoided or lessened through a remedy fashioned by the court; (3)
whether the judgment would be adequate in the party’s absence; and
(4) whether the plaintiff would have an adequate remedy if the
action is dismissed for non-joinder.

Id. at Rule 19(b).

The Health Plan argues that the VEBA beneficiaries are both
necessary and indispensable, however, the more important question
for the first motion to dismiss is whether they are indispensable.
The defendant contends that the four factors of Rule 19(b) are met.
First, the VEBA beneficiaries would be prejudiced because they have
12

an interest in the same money at issue in this case.

The money

that RG Steel is claiming, the defendant argues, is the same pot of
money that the VEBA beneficiaries were claiming in bankruptcy
court.

Second, the defendant asserts that this Court would be

better able to fashion a remedy to the VEBA beneficiaries because
all three parties are joined to this action whereas the bankruptcy
action only contained two of the interested parties.

Third, the

defendant argues that the outcome would not be adequate because if
the defendant is found to owe RG Steel the money, it may then have
to enter litigation with the VEBA beneficiaries that would not be
necessary if the VEBA beneficiaries were joined in this action.
To reiterate, “dismissal of a case is a drastic remedy []
which should be employed only sparingly.”
210 F.3d at 250.

Nat’l Union Fire Ins.,

This Court believes that dismissing this case

based on the non-joinder of the VEBA beneficiaries is a drastic
measure

that

should

not

be

taken.

Based

on

the

bankruptcy

proceeding that has been brought to this Court’s attention, the
VEBA beneficiaries would not be prejudiced if this case were to go
forward because they have already had their claim setoff against RG
Steel.

ECF No. 20.

Those beneficiaries have clearly been able to

secure a satisfactory remedy and a remedy fashioned by this Court
would not prejudice those beneficiaries.

On the other hand, it

would significantly hinder the plaintiff’s ability to pursue its
claim if this Court were to dismiss this case at this time, on this
ground. At this point in the proceedings, based on the information

13

given

to

this

Court,

the

VEBA

beneficiaries

are

not

an

indispensable party and therefore did not need to be joined.
This Court believes that discovery and further investigation
by the parties is necessary, however, to show whether or not the
VEBA beneficiaries are a necessary party. At this time, this Court
finds that the defendant has not shown that the VEBA beneficiaries
are an indispensable party and will not grant the defendant’s first
motion to dismiss on that ground.
IV.

Conclusion

For the reasons stated above, the defendant’s first motion to
dismiss (ECF No. 6) is DENIED except that this motion is GRANTED as
to the claim for prejudgment interest on the fiduciary duty and
negligence claims.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein.
DATED:

September 12, 2013

/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE

14