Charla G Aldous PC v. Teresa Lugo & Darwin Nat'l Assurance Co.

• Decision Date: 12 November 2014
• Docket Number: Civil Action No. 3:13-CV -3310-L
• Parties: CHARLA G ALDOUS PC and CHARLA ALDOUS, Plaintiffs, v. TERESA LUGO and DARWIN NATIONAL ASSURANCE COMPANY, Defendants.
• Court: U.S. District Court — Northern District of Texas

CHARLA G ALDOUS PC and CHARLA ALDOUS, Plaintiffs, v. TERESA LUGO and DARWIN NATIONAL ASSURANCE COMPANY, Defendants.

Civil Action No. 3:13-CV -3310-L

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

November 12, 2014

MEMORANDUM OPINION AND ORDER

Before the court is Defendant Darwin National Assurance Company's ("Defendant" or "Darwin") Amended 12(b)(6) Motion to Dismiss (Doc. 33) ("Motion"), filed March 12, 2014. After careful consideration of the Motion, pleadings, record, and applicable law, the court grants in part and denies in part Defendant's Amended 12(b)(6) Motion to Dismiss ("Motion").

I. Procedural and Factual Background

A. Procedural Background

This case concerns a dispute over Defendant's alleged obligation to pay attorney's fees incurred by Plaintiffs Charla Aldous ("Aldous") and Charla G. Aldous PC ("Aldous PC") (collectively, "Plaintiffs"). The case was originally brought in County Court at Law No. 1 of Dallas County, Texas on November 14, 2012, against Darwin and Defendant Teresa Lugo ("Lugo"). On August 21, 2013, the action was removed to federal court because complete diversity of citizenship exists between the parties and the amount in controversy exceeds $75,000.

In Plaintiffs' Fourth Amended Complaint, they assert claims for fraudulent inducement and fraud against Lugo; and claims for breach of the insurance contract, violations of Texas Insurance Code, violations of the Texas Deceptive Trade Practice Act ("DTPA"), and breach of the duty of good faith and fair dealing against Darwin.¹ Plaintiffs also seek attorney's fees, additional and exemplary damages, and declaratory and injunctive relief from Darwin.

On March 12, 2014, Defendant filed its Motion, urging the court to dismiss Plaintiffs' claims of negligent misrepresentation, Texas Insurance Code violations, DTPA violations, and breach of the duty of good faith and fair dealing.² On September 30, 2014, Plaintiffs filed their Unopposed Motion for Leave to File Fourth Amended Complaint, which the court granted on October 1, 2014. Plaintiffs voluntarily withdrew their negligent misrepresentation claim against Lugo and their damage claim for mental anguish against Darwin. Plaintiffs' Fourth Amended Complaint is the live pleading, and the court will consider Defendant's Motion with regards to the claims set forth.³

B. Factual Background

Aldous is an attorney who decided to purchase professional liability insurance for herself and her law firm. Lugo acted as her insurance agent and assisted her in procuring Darwin, and on March 1, 2010, Darwin agreed to provide Plaintiffs with professional liability coverage.

Aldous was in a dispute with her former client, Albert G. Hill III ("Hill"). On February 15, 2011, she sued him to recover attorney's fees for services she rendered for him, and he, in turn, sued her for legal malpractice (the "Hill lawsuit"). According to Plaintiffs, the contract between Darwin and Plaintiffs (the "Policy") covers Hill's legal malpractice claim ("Hill's claim") and entitles them to recovery. Plaintiffs allege that Darwin breached its obligation under the Policy because Plaintiffs were entitled to a defense against Hill's claim, including payment of all attorney's fees necessary to defend it. Both parties agree that the Policy covers at least a portion of the fees. Darwin argues that Aldous is attempting to collect attorney's fees incurred as to her affirmative claims against Hill and that the parties agreed that if Plaintiffs were awarded fees in the Hill lawsuit, they would reimburse Darwin for the fees it already paid. Aldous argues that her law firm allocated attorney's fees relating to her affirmative claims and that Darwin knew that if an insurer has a duty to defend one covered claim, it has a duty to defend all claims regardless of whether they are covered. Pls.' Fourth Am. Compl. ¶ 18. In other words, Plaintiffs argue that the claims made pursuant to her defense were inextricably intertwined with their affirmative claims. Id. ¶ 58.

Plaintiffs specifically contend that Darwin represented that it was entitled to pay less than 100% of the defense expenses in accordance with the Policy; that more than 50% of the expenses were unrecoverable because they related to Aldous's affirmative claims; and that it had the right to refuse to compensate for secretarial overtime and computer research. Plaintiffs allege that Defendant's refusal is not supported by the Policy; that Aldous never agreed to such terms; and that Defendant knew these representations were false.

Aldous eventually won her lawsuit against Hill and obtained judgment. Plaintiffs additionally allege that Darwin wrongly represented that, once Aldous recovered judgment, it was entitled to reimbursement for attorney's fees it had already paid. Pl.'s Fourth Am. Compl. ¶ 21.

Defendant argues it is not liable because: (1) the parties agreed that Darwin was only liable for a limited share of the fees; (2) denial of coverage does not constitute a misrepresentation under the Texas Insurance Code or the DTPA; (3) Aldous suffered no injury independent from the denial of her claim; and (4) there is no common law duty of good faith and fair dealing to defend against third-party claims.

II. Standard for Rule 12(b)(6) - Failure to State a Claim

To defeat a motion to dismiss filed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); Reliable Consultants, Inc. v. Earle, 517 F.3d 738, 742 (5th Cir. 2008); Guidry v. American Pub. Life Ins. Co., 512 F.3d 177, 180 (5th Cir. 2007). A claim meets the plausibility test "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations omitted). While a complaint need not contain detailed factual allegations, it must set forth "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (citation omitted). The "[f]actual allegations of [a complaint] must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. (quotation marks,citations, and footnote omitted). When the allegations of the pleading do not allow the court to infer more than the mere possibility of wrongdoing, they fall short of showing that the pleader is entitled to relief. Iqbal, 556 U.S. at 679.

In reviewing a Rule 12(b)(6) motion, the court must accept all well-pleaded facts in the complaint as true and view them in the light most favorable to the plaintiff. Sonnier v. State Farm Mutual Auto. Ins. Co., 509 F.3d 673, 675 (5th Cir. 2007); Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). In ruling on such a motion, the court cannot look beyond the pleadings. Id.; Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999). The pleadings include the complaint and any documents attached to it. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000). Likewise, "'[d]ocuments that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to [the plaintiff's] claims.'" Id. (quoting Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993)). In this regard, a document that is part of the record but not referred to in a plaintiff's complaint and not attached to a motion to dismiss may not be considered by the court in ruling on a 12(b)(6) motion. Gines v. D.R. Horton, Inc., 699 F.3d 812, 820 & n.9 (5th Cir. 2012) (citation omitted).

The ultimate question in a Rule 12(b)(6) motion is whether the complaint states a valid claim when it is viewed in the light most favorable to the plaintiff. Great Plains Trust Co. v. Morgan Stanley Dean Witter, 313 F.3d 305, 312 (5th Cir. 2002). While well-pleaded facts of a complaint are to be accepted as true, legal conclusions are not "entitled to the assumption of truth." Iqbal, 556 U.S. at 679 (citation omitted). Further, a court is not to strain to find inferences favorable to the plaintiff and is not to accept conclusory allegations, unwarranted deductions, or legal conclusions.R2 Invs. LDC v. Phillips, 401 F.3d 638, 642 (5th Cir. 2005) (citations omitted). The court does not evaluate the plaintiff's likelihood of success; instead, it only determines whether the plaintiff has pleaded a legally cognizable claim. United States ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370, 376 (5th Cir. 2004). Stated another way, when a court deals with a Rule 12(b)(6) motion, its task is to test the sufficiency of the allegations contained in the pleadings to determine whether they are adequate enough to state a claim upon which relief can be granted. Mann v. Adams Realty Co., 556 F.2d 288, 293 (5th Cir. 1977); Doe v. Hillsboro Indep. Sch. Dist., 81 F.3d 1395, 1401 (5th Cir. 1996), rev'd on other grounds, 113 F.3d 1412 (5th Cir. 1997) (en banc). Accordingly, denial of a 12(b)(6) motion has no bearing on whether a plaintiff ultimately establishes the necessary proof to prevail on a claim that withstands a 12(b)(6) challenge. Adams, 556 F.2d at 293.

III. Plaintiffs' Causes of Action

A. Texas Insurance Code

In their Fourth Amended Complaint, Plaintiffs allege that Defendant violated the Texas Insurance Code § 541.060, which prohibits unfair settlement practices. Plaintiffs contend that this section not only applies to misrepresentations made prior to...