Coleman v. Cubesmart

• Decision Date: 20 June 2018
• Docket Number: Case Number: 16-25009-CIV-MARTINEZ-GOODMAN
• Citation: 328 F.Supp.3d 1349
• Parties: Jerry Lee COLEMAN, on behalf of himself and all others similarly situated, Plaintiff, v. CUBESMART, Defendant.
• Court: U.S. District Court — Southern District of Florida

328 F.Supp.3d 1349

Jerry Lee COLEMAN, on behalf of himself and all others similarly situated, Plaintiff,

v.CUBESMART, Defendant.

Case Number: 16-25009-CIV-MARTINEZ-GOODMAN

United States District Court, S.D. Florida, Miami Division.

Signed June 20, 2018

Filed June 21, 2018

Alec Huff Schultz, John Richard Byrne, Jordi CarloSantiago Martinez-Cid, Scott Brian Cosgrove, Leon Cosgrove LLC, Coral Gables, FL, Brett Elliott von Borke, David Buckner, Seth Eric Miles, Buckner and Miles, Miami, FL, for Plaintiff.

Brian Michael Ercole, Clay Matthew Carlton, Robert Mark Brochin, Matthew Michael Papkin, Morgan, Lewis, Bockius LLP, Miami, FL, Eugene M. Paige, Paven Malhotra, Ryan K. Wong, Keker, Van Nest & Peters LLP, San Francisco, CA, Quyen Ta, Boies Schiller Flexner LLP, Oakland, CA, for Defendant.

ORDER ADOPTING MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION

JOSE E. MARTINEZ, UNITED STATES DISTRICT JUDGE

THIS MATTER was referred to the Honorable Jonathan Goodman, United States Magistrate Judge, for a Report and Recommendation on Defendant's Motion to Dismiss Plaintiff's Class Action Complaint [ECF No. 21]. Magistrate Judge Goodman filed a Report and Recommendation [ECF No. 55], recommending that this Court deny Defendant's Motion to Dismiss, except for Count III and Count IV, which should be dismissed without prejudice with leave to amend. This Court has reviewed the entire file and record and notes that no objections have been filed. After careful consideration, it is hereby:

ADJUDGEDthat United States Magistrate Judge Goodman's Report and Recommendation [ECF No. 55] is AFFIRMEDand ADOPTED. Accordingly, it is:

ADJUDGEDthat

1. Defendant's Motion to Dismiss Plaintiff's Class Action Complaint [ECF No. 21] is GRANTED, in part, AND DENIED, in part,as set forth herein.

2. Counts I, II, and V shall proceed as pleaded.

3. Counts III and IV are DISMISSED WITHOUT PREJUDICE, with leave to amend.

4. Plaintiff may file an amended complaint for the sole purpose of properly pleading a unconscionability claim (Count III) and unjust enrichment claim (Count IV), curing the pleading deficiencies set forth in Magistrate Judge Goodman's Report and Recommendation [ECF No. 55 at 28–32]. Plaintiff may file an amended complaint on or before July 6, 2018.

DONE AND ORDERED in Chambers at Miami, Florida, this 20 day of June, 2018.

REPORT AND RECOMMENDATIONS ON DEFENDANT'S MOTION TO DISMISS

Jonathan Goodman, UNITED STATES MAGISTRATE JUDGE

In 1963–1969 and again in 1975, NBC, and then CBS, broadcasted a popular and well-watched television game show called "You Don't Say!" That show used the tagline, "It's not what you say that counts, it's what you DON'T say."¹ In this case, evaluating both what was said and what was not said -- but that helped create a net impression -- is an approach used to assess Defendant CubeSmart's motion to dismiss a putative class-action lawsuit targeting the wording of a storage-rental unit insurance contract.

Plaintiff Jerry Lee Coleman rented storage space from CubeSmart and also purchased self-storage insurance from an insurer (Great American) whose policy CubeSmart made available to its customers. Coleman alleges in his Class Action Complaint that CubeSmart collected a hidden commission each time a customer purchased a storage-insurance policy from a specific third-party insurance company. Coleman labels CubeSmart's practice deceptive and unconscionable. At bottom, Coleman's theory is that CubeSmart dupes customers into believing (1) that it is keeping a portion of the insurance premiums it collects to cover only the expense of processing and remitting the remaining portion of the payments to the insurance carrier, and (2) that it does not retain any portion of the premiums for profit beyond the reimbursement of pure expenses.

The documents at issue, however, do not contain the words "only" or "remaining," nor do they expressly represent that CubeSmart's portion is limited only to reimburse expenses. Coleman alleges that CubeSmart's "cut of the premium far exceeds the amount necessary to cover its ‘expense’ in serving as collection agent." [ECF No. 1, p. 2 ¶ 8]. Indeed, he alleges that "CubeSmart generates substantial revenues and profits from its customers' purchases of [the insurance carrier] policies." Id. He adds that "CubeSmart identifies this income [in financial reporting documents] as ‘customer insurance commissions’ " and that "[t]hese commissions serve as a hidden profit center for CubeSmart." [ECF No. 1, pp. 2–3 ¶ 8].

Because the contract and related documents do not say everything that Coleman alleges is deceptive, he theorizes that the words said and not said create a net impression of deception. For example, Coleman alleges that "CubeSmart misled and deceived its customers by claiming that it only collected a portion of the premium sufficient to cover its expenses when, in fact, it collected ‘commissions’ that served as a significant profit center for CubeSmart." [ECF No. 1, p. 12 ¶ 61 (emphasis added) ]. But, as noted, the documents do not contain the word "only."

CubeSmart argues that it had no duty to disclose to its customers that it would earn a profit when they brought Great American's insurance. And it emphasizes Coleman's concession that a portion of his insurance premium did cover CubeSmart's expenses.

Plaintiff raised five counts: (1) violation of the Florida Deceptive and Unfair Trade Practices Act ("FDUTPA") (Count I); (2) breach of contract (Count II); (3) unconscionability (Count III); (4) unjust enrichment (Count IV); and (5) breach of the implied covenant of good faith and fair dealing (Count V). [ECF No. 1]. CubeSmart's motion to dismiss challenges all counts. [ECF No. 21]. Coleman filed a response, and CubeSmart filed a reply. [ECF Nos. 29; 36]. United States District Judge Jose E. Martinez granted Coleman's motion to refer the motion to dismiss to me for a Report and Recommendations. [ECF Nos. 42; 45]. The Undersigned granted Coleman's motion for oral argument and held a hearing on April 18, 2018. [ECF Nos. 47; 51; 53]

For the reasons outlined below, the Undersigned respectfully recommends that Judge Martinez dismiss without prejudice the unjust-enrichment claim and unconscionability claim, but not all other counts.

Coleman might not ultimately be able to certify a class, and he might not later survive a summary judgment motion either. But for now, for purposes of a threshold motion to dismiss, most of the Class Action Complaint survives (and he will be permitted to file an Amended Complaint to cure the deficiencies that plagued two of the counts.).

I. Factual and Procedural Background

Because this Report addresses a motion to dismiss, the Undersigned will deem all well-pled allegations to be true. The Complaint alleges the following scenario:

CubeSmart's core business is the rental of storage space to customers. CubeSmart is not an insurer and is not registered as such in the State of Florida. CubeSmart is not engaged in the sale of insurance.

If a customer wants to rent storage space at a CubeSmart location, then he or she must execute a rental agreement. CubeSmart's rental agreements are standardized, and the company uses the same standard rental agreement nationwide.

CubeSmart's rental agreement requires customers to maintain insurance on the contents of their storage unit. This insurance must be sufficient to cover the full replacement value of the property the customer is storing in the unit. Specifically, the rental agreement states that the customer "WILL MAINTAIN INSURANCE FOR THE FULL REPLACEMENT VALUE OF THE CUBE CONTENTS." [ECF No. 1, p. 4 ¶ 20]. In the rental agreement, CubeSmart also expressly represents that it does not insure the contents of storage units, stating that "OWNER DOES NOT INSURE THE CUBE CONTENTS." [ECF No. 1, p. 5 ¶ 21].

CubeSmart makes available the "Great American Stored Property Insurance Program" to its customers. [ECF No. 1, p. 5 ¶ 22]. This "program" is an insurance policy underwritten by the Great American Assurance Company. The Great American policy is the only policy that CubeSmart makes available to its customers.

The Great American policy was offered at three coverage levels: (1) $2,000 of coverage for $12 per month; (2) $3,000 of coverage for $17 per month; and (3) $5,000 of coverage for $27 per month.

Every time a customer elects to buy a Great American insurance policy, CubeSmart receives a share of the monthly insurance premium paid by the customer. In the insurance participation form completed by customers who purchase the Great American policy, CubeSmart represents that a "portion" of the insurance premium is covering CubeSmart's "expense" in serving as a collection agent for the third-party insurance company. [ECF No. 1, p. 5 ¶ 25].

But in its own securities filings, CubeSmart has characterized the income from this "portion" of the insurance premium as "customer insurance commissions ." [ECF No. 1, p. 5 ¶ 26 (emphasis added) ]. CubeSmart's share of these insurance premiums generates substantial revenues and profits for the company. In CubeSmart's Form 10-K for the 2015 fiscal year, the company reported taking in $45.2 million in non-rental revenue, including "customer insurance commissions." [ECF No. 1, p. 5 ¶ 27]. The 2015 non-rental revenue was a $5.1 million increase from the 2014 fiscal year. CubeSmart attributed part of this $5.1 million increase in revenue to "increased insurance penetration." [ECF No. 1, p. 6 ¶ 27].

CubeSmart's reliance on the Great American insurance policy as a profit driver was expressly envisioned by the policy's administrator, City Securities Insurance, LLC. In a press release announcing the launch of the Great American Stored Property Insurance Program, City Securities noted that "storage operators" would receive "a revenue boost to the bottom line." [ECF No. 1, p. 6 ¶ 28].

Although CubeSmart profits from the sale of Great American policies to its customers, the company expressly deceives its customers about its financial interest....