Cambridge Holdings Group, Inc. v. Federal Ins. Co.
| Citation | 357 F.Supp.2d 89 |
| Decision Date | 07 July 2004 |
| Docket Number | No. 01-2192 (RJL).,01-2192 (RJL). |
| Parties | CAMBRIDGE HOLDINGS GROUP, INC. et al., Plaintiffs, v. FEDERAL INSURANCE CO., et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
Thomas Angelo Mauro, Washington, DC, for Plaintiffs.
Edward Graham Gallagher, Wickwire Gavin, P.C., Vienna, VA, Scott A. Sinder, Collier Shannon Scott, PLLC, Washington, DC, for Defendants.
Before the Court are the defendants' motions to dismiss the plaintiff's complaint for failure to state a claim under the Federal Rule of Civil Procedure 12(b)(6). Defendants Federal Insurance Co. d/b/a Chubb Group of Insurance Companies ("Chubb") and Babb, Inc. ("Babb") separately move for dismissal of the contract and tort claims alleged in this action by Cambridge Holdings Group, Inc. and Cambridge Capital Group, Inc. (collectively referred to as "Cambridge" or "the plaintiff"). Chubb moves for dismissal of Counts I, II, and IV of the complaint on the grounds that the plaintiff has failed to allege that Chubb breached any contract or that it committed any tort related to such a breach. Similarly, Babb moves for dismissal of Counts I, II, III, and IV of the complaint on the grounds that the plaintiff has failed to allege that Babb was a party to any contract that was breached or that it committed any related tort. For the following reasons, the Court GRANTS defendant Chubb's motion to dismiss Counts I, II, and IV. The Court also GRANTS defendant Babb's motion to dismiss Counts I, II, III, and IV.
The claims in this diversity action arise from an escrow agreement and a fidelity bond insurance agreement that were executed as a part of a loan transaction to finance the purchase of thoroughbred racetracks. The plaintiff, Cambridge, is a financial service company engaged in commercial lending with real estate and assets as collateral. Compl. ¶ 8. The plaintiff alleges that at a September 22, 1999 real estate closing, held in Washington, D.C., it loaned three borrowers, Bradford L. Huebner, Edward R. Showalter, and Star Entertainment Group, Inc.,1 the sum of $2,100,000 as financing for the acquisition of several racetracks. Compl. ¶ 9.
The plaintiff alleges that as a part of this loan transaction, the Florida law firm of Altschul, Landy, and Collier, P.A. ("the Law Firm"), also a defendant in this case, was to maintain $1,525,000 of the loan proceeds in an escrow account, pursuant to a Guaranty Deposit Escrow Agreement, dated September 22, 1999 ("the Escrow Agreement"). Compl. ¶ 10. The parties to the Escrow Agreement were the three borrowers, the Law Firm, and the plaintiff. Compl., Ex. A. According to the plaintiff, the Law Firm was to serve as an escrow agent and was required under the Escrow Agreement to disburse the escrow funds only upon the specific, written instructions of the plaintiff. Compl. ¶ 12.
The plaintiff further alleges that the loan transaction and the Escrow Agreement were made in reliance on the requirement that the Law Firm secure a fidelity bond with a minimum principal amount of $2,000,000, payable to the plaintiff as a "loss payee" in the event of misfeasance by the Law Firm with regard to the escrow funds. Compl. ¶ 15; Ex. A at § 6(e). The plaintiff claims that it instructed defendant Chubb, an insurance company, through its agent, defendant Babb, with regard to the type and scope of coverage and the identities of the insured and the loss payee. Compl. ¶ 16.
On September 18, 1999, Babb issued an insurance binder for Policy No 8158-00-16 on behalf of Chubb, with coverage in the amount of $2,500,000. Compl. ¶ 16. The insurance binder lists the Law Firm as the "insured" and the plaintiff as a "loss payee." Compl., ¶ 17, Ex. B. The actual policy, which replaced the binder, was subsequently issued on November 16, 1999 ("Fidelity Bond insurance agreement"). Compl. ¶ 19; Chubb Mot. to Dismiss, Ex. A. According to the plaintiff, the agreement was delivered in Washington, D.C. Compl. ¶ 7.
Under the Fidelity Bond insurance agreement, the "insured" is the Law Firm. Chubb Mot. to Dismiss, Ex. A. The Fidelity Bond insurance agreement provides that Chubb shall be liable for "direct losses of Money, Securities and other property caused by Theft or forgery by any identifiable partner(s) or Employee(s) of an Insured acting alone or in collusion with others." Id. at § 1.1. Chubb's liability under the agreement applies to "Money, Securities and other property" that is owned by the Law Firm or owned by others, held by the Law Firm or for which the Law Firm is legally liable. Id. at § 3.1. Furthermore, the agreement provides that Id. at § 3.2.
According to the plaintiff, it learned in May 2000 that the Law Firm, allegedly acting together with Babb, had prepared documentation for the escrow funds to be withdrawn and moved to a bank in either Canada or Lebanon. Compl. ¶ 20. Thereafter, the plaintiff claims that it made numerous written demands on the Law Firm for repayment of the escrow funds. However, the Law Firm allegedly refused to repay the escrow funds and also refused to make a demand on Chubb for payment under the Fidelity Bond insurance agreement. Id. at ¶¶ 21-22. The plaintiff further claims that Chubb refuses to process, discuss, or pay the plaintiff the loss it suffered as a result of the actions of the Law Firm. Id. at ¶ 24.
Based on these allegations, the plaintiff asserts breach of contract (Count I), breach of good faith and fair dealing (Count II), and punitive damages (Count IV) claims against Babb and Chubb. The plaintiff also asserts a claim of tortious interference with contractual relations (Count III) against Babb.2 Babb moves to dismiss Counts I, II, III, and IV on the grounds that it was not a party to the Escrow Agreement or the Fidelity Bond insurance agreement. Babb asserts that in the absence of a valid agreement to which Babb was a party, the plaintiff cannot state a claim in contract or tort. In a separate motion to dismiss, Chubb argues that it that there has been no breach of the Fidelity Bond insurance agreement because its obligations were to insure the Law Firm against losses caused by its partners or employees, and the Law Firm was the only party under the contract who could assert a claim for coverage. As the policy did not insure against a loss caused by malfeasance by the Law Firm itself and the Law Firm has not made a claim under the policy, Chubb's failure to pay the plaintiff for its losses cannot be the grounds for claims in contract or tort. For the following reasons, the Court finds that the plaintiff has failed to state a claim in contract or tort against both Babb and Chubb.
The Court will only dismiss a complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Kowal v. MCI Communications Corp., 16 F.3d 1271, 1276 (D.C.Cir.1994). However, even if the Court accepts as true all of the factual allegations set forth in the complaint, Doe v. United States Dept. of Justice, 753 F.2d 1092, 1102 (D.C.Cir.1985), and construes the complaint liberally in favor of the plaintiff, Schuler v. United States, 617 F.2d 605, 608 (D.C.Cir.1979), it "need not accept inferences drawn by [the] plaintiffs if such inferences are unsupported by the facts set out in the complaint." Kowal, 16 F.3d at 1276.
A federal court sitting in diversity will apply the choice of law rules of the forum state or district, Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), and under District of Columbia law, insurance contracts are governed by the substantive law of the state in which the policy is delivered. Liberty Mutual Insurance Co. v. Travelers Indemnity Co., 78 F.3d 639, 642 (D.C.Cir.1996) (citing Levin v. John Hancock Mut. Life Ins. Co., 41 A.2d 841, 843 (D.C.1945)). The plaintiff has alleged that the Fidelity Bond insurance agreement was delivered in the District of Columbia and the Court will thus apply the law of this district and construe the terms of this insurance agreement "as a matter of law." Spears v. Nationwide Mutual Insurance Co., 254 F.Supp.2d 144, 152 (D.D.C.2003); John Akridge Co. v. Travelers Companies, 876 F.Supp. 1, 1-2 (D.D.C.1995). Accordingly, if the agreement is unambiguous, the Court will apply "the plain language used and should not consider extrinsic evidence as to how to interpret the policy." Id. The parties appear to agree that District of Columbia law also governs the interpretation of the Escrow Agreement.
Count I of the complaint alleges that Babb assisted the Law Firm in breaching the Escrow Agreement and alleges that Chubb breached the Fidelity Bond insurance agreement. Compl. ¶¶ 28-29. Under District of Columbia law, "for an enforceable agreement to exist ... there must be both (1) agreement as to all material terms and (2) intention of the parties to be bound." Georgetown Entertainment Corp. v. District of Columbia, 496 A.2d 587, 590 (D.C.1985). In the absence of a valid agreement, a breach of contract claim cannot be sustained. Virtual Defense and Development Int'l, Inc. v. Republic of Moldova, 133 F.Supp.2d 9, 19 (D.D.C.2001).
Babb argues in its motion to dismiss that the breach of contract must fail because the plaintiff has not alleged "a single contract to which de...
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