AXIS Surplus Ins. Co. v. Mitsubishi Caterpillar Forklift America Inc.
| Decision Date | 16 May 2012 |
| Docket Number | CIVIL ACTION NO. H-11-3745 |
| Parties | AXIS SURPLUS INSURANCE COMPANY a/s/o O'Neil & Associates, Inc., Plaintiff, v. MITSUBISHI CATERPILLAR FORKLIFT AMERICA INC., Defendant. |
| Court | U.S. District Court — Southern District of Texas |
This case is before the Court on the Motion to Dismiss [Doc. # 34] filed by Defendant Mitsubishi Caterpillar Forklift America Inc. ("MCFA"), to which Plaintiff AXIS Surplus Insurance Company ("AXIS") filed a Response [Doc. # 40], and Defendant filed a Reply [Doc. # 41]. Having reviewed the full record and applicable legal authorities, the Court denies the Motion to Dismiss the equitable-subrogation-based breach of contract claim and grants the Motion to Dismiss as to the negligent misrepresentation, equitable estoppel, promissory estoppel, and quasi-estoppel claims.
AXIS filed this lawsuit asserting that it is subrogee to O'Neil & Associates, Inc. ("O'Neil").1 In 2005, MCFA entered into a license agreement with the predecessor-in-interest to Snap-On Business Solutions, Inc. ("SBS") for SBS to create and maintain MCFA's web-based electronic parts management system.
After a dispute arose between SBS and MCFA, MCFA contracted for O'Neil to create a parts management system. Specifically, AXIS alleges that MCFA and O'Neil entered into a Consulting Services Agreement. O'Neil was to run a software program known as a "Scraper Program" in order to obtain a copy of MCFA's parts information from the SBS website. To facilitate the work, MCFA agreed to provide O'Neil with all necessary user names and passwords to enable O'Neil to access the SBS website. AXIS alleges that O'Neil and MCFA amended the Consulting Services Agreement to include a provision for MCFA to defend and indemnify O'Neil from any claims arising out of O'Neil's acquisition of source data from third parties ("Amended Indemnity Provision").
In July 2009, SBS sued O'Neil based on O'Neil's access to and operation of SBS's program with user names and passwords provided by MCFA. SBS assertedclaims for violations of the Federal Computer Fraud and Abuse Act, a claim for trespass to chattels, breach of contract, copyright infringement, and misappropriation of trade secrets. O'Neil notified AXIS of the lawsuit and AXIS provided a defense. Following a May 2010 jury trial on all claims except the misappropriation of trade secrets claim, the jury returned a general verdict in favor of SBS for the sum of $658,000.00.2 O'Neil and SBS subsequently settled the dispute and O'Neil obtained a full release of all claims SBS had against O'Neil and/or MCFA. The total amount of the settlement plus defense costs exceeded the $1,000,000.00 policy limits. As equitable subrogee to O'Neil, AXIS seeks reimbursement from MCFA for $1,000,000.00.
In the Third Amended Complaint, AXIS asserts a breach of contract claim for breach of the indemnity agreement, a negligent misrepresentation claim, and claims for equitable estoppel, promissory estoppel, and quasi-estoppel. MCFA moved to dismiss the Third Amended Complaint. The Motion to Dismiss has been fully briefed and is ripe for decision.
A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure is viewed with disfavor and is rarely granted. Harrington v. State Farm Fire & Cas. Co., 563 F.3d 141, 147 (5th Cir. 2009). The complaint must be liberally construed in favor of the plaintiff, and all facts pleaded in the complaint must be taken as true. Id. The complaint must, however, contain sufficient factual allegations, as opposed to legal conclusions, to state a claim for relief that is "plausible on its face." See Ashcroft v. Iqbal, 556 U.S. 662, ___, 129 S. Ct. 1937, 1949 (2009). When there are well-pleaded factual allegations, a court should presume they are true, even if doubtful, and then determine whether they plausibly give rise to an entitlement to relief. Id. at 1950. Additionally, regardless of how well-pleaded the factual allegations may be, they must demonstrate that the plaintiff is entitled to relief under a valid legal theory. See Neitzke v. Williams, 490 U.S. 319, 327 (1989); McCormick v. Stalder, 105 F.3d 1059, 1061 (5th Cir. 1997).
AXIS asserts that it is entitled, under the doctrine of equitable subrogation, to stand in O'Neil's shoes and assert claims against MCFA for breach of contract, negligent misrepresentation, equitable estoppel, promissory estoppel, and quasi-estoppel. MCFA asserts that AXIS has failed to allege a factual basis for the application of equitable estoppel. MCFA argues additionally that AXIS, standing inthe shoes of O'Neil, cannot state a claim for relief for negligent misrepresentation, equitable estoppel, promissory estoppel, and quasi-estoppel.
"When an insurer pays a loss, the insurer becomes equitably subrogated to its insured's rights and stands in the insured's shoes against the tortfeasor who caused the loss." Bennett Truck Transport, LLC v. Williams Bros. Construction, 256 S.W.3d 730, 733 (Tex. App. - Houston [14th Dist.] 2008). "The party claiming entitlement to equitable subrogation must prove that it acted involuntarily in paying a debt and that the debt was one on which the other party is primarily liable." Id. (citing Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d 765, 774 (Tex. 2007)). "Texas courts are particularly hospitable to the doctrine." Id. at 734.
AXIS alleges in the Third Amended Complaint that it paid the cost of O'Neil's defense in the lawsuit by SBS because it was obligated to do so under its insurance policy issued to O'Neil. See Third Amended Complaint, ¶ 53. AXIS alleges further that it paid O'Neil's debt to SBS as required by the insurance policy. See id., ¶ 69. AXIS alleges that the operation of the Scraper Program - on which O'Neil's liability to SBS was based - was done pursuant to MCFA's direction. See id., ¶¶ 42, 45. As a result, AXIS has alleged a factual basis for equitable subrogation.
In order to prevail on a breach of contract claim, a plaintiff must establish the existence of a contract, the performance or tender of performance by the plaintiff, a breach by the defendant and damages as a result of that breach. Bridgmon v. Array Sys. Corp., 325 F.3d 572, 577 (5th Cir. 2003) (). In this case, AXIS, standing in the shoes of O'Neil, alleges that O'Neil entered into a valid contract for MCFA to indemnify O'Neil for "any claims arising from O'Neil's efforts to acquire MCFA's electronically keyed base line parts and source data . . .." See Third Amended Complaint, ¶ 28. AXIS alleges that O'Neil performed its obligations under the contract by running the Scraper Program, but that MCFA breached the contract by refusing to provide indemnity for SBS's lawsuit against O'Neil, causing O'Neil to suffer monetary damages. See id., ¶¶ 82, 83, 85, 88. These allegations sufficiently state a breach of contract claim and dismissal of this claim is denied.
"The elements of a cause of action for negligent misrepresentation are: (1) the defendant's making a representation in the course of its business, or in a transaction in which it has a pecuniary interest; (2) the defendant's supplying 'false information' for the guidance of others in their business; (3) the defendant's failure to exercise reasonable care or competence in obtaining or communicating the information; and(4) the plaintiff's suffering pecuniary loss by justifiably relying on the representation." Beal Bank, S.S.B. v. Schleider, 124 S.W.3d 640, 651 (Tex. App. - Houston [14th Dist.] 2003) (citing Allied Vista, Inc. v. Holt, 987 S.W.2d 138, 141 (Tex. App. - Houston [14th Dist.] 1999, pet. denied) (citing Fed. Land Bank Ass'n v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991))). "[N]egligent misrepresentation is a cause of action recognized in lieu of a breach of contract claim, not usually available where a contract was actually in force between the parties." Id. (quoting Airborne Freight Corp., Inc. v. C.R. Lee Enters., Inc., 847 S.W.2d 289, 295 (Tex. App. - El Paso 1992, writ denied)).
In the Third Amended Complaint, AXIS alleges specifically that the subject representations were made "in the express provisions of the Consulting Services Agreement" and "in the express provisions of the Amended Indemnity Provision." See Third Amended Complaint, ¶¶ 91-93. Because there was a contract in force between O'Neil and MCFA in which the alleged representations were included, AXIS fails to state a claim for negligent misrepresentation under Texas law. MCFA's motion to dismiss the negligent misrepresentation claim is granted.
The doctrine of equitable estoppel requires (1) a false representation or concealment of material facts; (2) made with knowledge, actual or constructive, ofthose facts; (3) with the intention that it should be acted on; (4) to a party without knowledge or means of obtaining knowledge of the facts; (5) who detrimentally relies on the representations. Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 515-16 (Tex. 1998); Dean v. Frank W. Neal & Associates, Inc., 166 S.W.3d 352, 357-58 (Tex. App.- Fort Worth 2005, no pet.). A party is presumed to know the terms of its contracts and, consequently, assertions that an opposing party misrepresented the terms of the contract do not constitute equitable estoppel. See Frumanite Worldwide, Inc. v. NextCorp, Ltd., 339 S.W.3d 326, 335 (Tex. App. - Dallas 2011).
As was true in connection with the negligent misrepresentation claim, AXIS alleges that MCFA made representations "in the express provisions of the Consulting Services Agreement" and "in the express provisions of the Amended Indemnity Provision . . .." See Third Amended Complaint, ¶¶ 99, 101. AXIS now seeks to...
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