CX Reinsurance Co. v. Leader Realty Co.

• Decision Date: 22 November 2016
• Docket Number: CIVIL NO. JKB–15–3054
• Citation: 219 F.Supp.3d 542
• Parties: CX REINSURANCE COMPANY LTD., Plaintiff v. LEADER REALTY COMPANY et al., Defendants
• Court: U.S. District Court — District of Maryland

219 F.Supp.3d 542

CX REINSURANCE COMPANY LTD., Plaintiff

v.LEADER REALTY COMPANY et al., Defendants

CIVIL NO. JKB–15–3054

United States District Court, D. Maryland.

Signed November 22, 2016

Filed November 23, 2016

Stuart M. G. Seraina, Kramon and Graham PA, Baltimore, MD, Edward Francis Ruberry, Ellen D. Jenkins, Ruberry Stalmack and Garvey, LLC, Chicago, IL, for Plaintiff.

Joseph Lanham Beavers, Alexander Peter Creticos, Miles and Stockbridge PC, Baltimore, MD, for Defendants.

MEMORANDUM

James K. Bredar, United States District Judge

I. Background

This case was brought by CX Reinsurance Company Limited ("CX Re") against Leader Realty Company and Charles Piccinini. The complaint was filed October 7, 2015. (ECF No. 1.) Before any responsive pleading or motion was filed, CX Re filed an amended complaint adding Leader, Inc., as a party defendant¹ and refining its allegations. (ECF No. 14.) Generally, CX Re alleges Defendants own and operate various residential rental properties in Baltimore, Maryland, and that Defendants applied for liability insurance to protect Defendants and other insureds against loss based upon tenants' claims for bodily injury and property damage. CX Re also alleges that Defendants, in filling out the insurance applications, gave a false answer of "No" to the question of whether any of Defendants' properties had been cited for lead-paint violations; in fact, Defendants' properties had received numerous citations for lead-paint problems. Thus, CX Re seeks damages for fraud and the equitable remedy of rescission. (Id. )

Pending before the Court are several motions, two of which are addressed in this opinion; others will be addressed in a separate opinion. The motions decided herein are Defendants' motion to dismiss or, in the alternative, for summary judgment (ECF No. 18) and CX Re's motion for leave to file a second amended complaint (ECF No. 30). The motions have been briefed (ECF Nos. 19, 28, 31, 35), and no hearing is required, Local Rule 105.6 (D. Md. 2016). Defendants' motion will be denied and CX Re's motion will be granted.

II. Standard of Dismissal for Failure to State a Claim

A complaint must contain "sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Facial plausibility exists "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. An inference of a mere possibility of misconduct is not sufficient to support a plausible claim. Id. at 679, 129 S.Ct. 1937. As the Twombly opinion stated, "Factual allegations must be enough to raise a right to relief above the speculative level." 550 U.S. at 555, 127 S.Ct. 1955. "A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.'...Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’ " Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 555, 557, 127 S.Ct. 1955 ). Although when considering a motion to dismiss a court must accept as true all factual allegations in the complaint, this principle does not apply to legal conclusions couched as factual allegations. Twombly , 550 U.S. at 555, 127 S.Ct. 1955.

III. Standard for Summary Judgment

"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (citing predecessor to current Rule 56(a) ). The burden is on the moving party to demonstrate the absence of any genuine dispute of material fact. Adickes v. S.H. Kress & Co. , 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). If sufficient evidence exists for a reasonable jury to render a verdict in favor of the party opposing the motion, then a genuine dispute of material fact is presented and summary judgment should be denied. See Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). However, the "mere existence of a scintilla of evidence in support of the [opposing party's] position" is insufficient to defeat a motion for summary judgment. Id. at 252, 106 S.Ct. 2505. The facts themselves, and the inferences to be drawn from the underlying facts, must be viewed in the light most favorable to the opposing party, Scott v. Harris , 550 U.S. 372, 378, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007) ; Iko v. Shreve , 535 F.3d 225, 230 (4th Cir. 2008), who may not rest upon the mere allegations or denials of his pleading but instead must, by affidavit or other evidentiary showing, set out specific facts showing a genuine dispute for trial, Fed. R. Civ. P. 56(c)(1). Supporting and opposing affidavits are to be made on personal knowledge, contain such facts as would be admissible in evidence, and show affirmatively the competence of the affiant to testify to the matters stated in the affidavit. Fed. R. Civ. P. 56(c)(4).

IV. Analysis

Defendants' motion is narrowly focused on their argument that the suit before the Court is barred by the statute of limitations and by laches. They do not otherwise assert entitlement to dismissal based upon a failure to state a claim for relief or an entitlement to summary judgment.

Both sides agree that the allegedly material misrepresentation was made on an insurance application dated July 11, 1997. (Defs.' Mot. Supp. Mem. 2, ECF No. 19; Pl.'s Opp'n 1, ECF No. 28.) They also agree that the applicable statute of limitations is three years from the date of the wrong. (Defs.' Mot. Supp. Mem. 1; Pl.'s Opp'n 6.) Defendants contend CX Re has failed to plead with particularity facts supporting a theory that CX Re's belated discovery of the misrepresentation was prevented by Defendants' fraudulent conduct; thus, they contend they are entitled to dismissal for failure to state a claim for relief. (Defs.' Mot. Supp. Mem. 1–2.) Defendants alternatively argue they are entitled to summary judgment because evidence outside of the complaint shows that CX Re learned about the alleged misrepresentation earlier than three years before suit was filed. The Court first addresses Defendants' argument under Federal Rule of Civil Procedure 12(b)(6).

Normally, an affirmative defense such as statute of limitations or laches must be raised by a defendant, who bears the burden of establishing the defense. Goodman v. Praxair, Inc. , 494 F.3d 458, 464 (4th Cir. 2007). Consequently, a motion to dismiss under Rule 12(b)(6) is ordinarily not the proper vehicle for testing the validity of an affirmative defense. Id. However, an exception to that rule arises when "all facts necessary to the affirmative defense ‘clearly appear[ ] on the face of the complaint. ’ " Id. (alteration in original; citations omitted). Even so, Defendants' argument incorrectly suggests that a plaintiff has a duty to plead facts to negate affirmative defenses. A plaintiff is only required under Rule 8(a) to state a claim for relief, not to state also why affirmative defenses do not apply. Nevertheless, it may well behoove a plaintiff to anticipate an affirmative defense and plead accordingly.

CX Re's amended complaint (referred to hereinafter as the "complaint") alleges it "only recently discovered the [lead-paint] violations and the misrepresentation on the Application" (Am. Compl. ¶ 27) and further alleges it "[p]romptly after learning of and investigating Leader Realty's misrepresentation of material fact on the Application,...filed this rescission action" (id. ¶ 37). Defendants contend dismissal is warranted because CX Re did not comply with the "particularity" pleading standard of Rule 9(b), which they say applies to the fraudulent concealment doctrine purportedly invoked by CX Re. Their contention is without merit.

Defendants rely upon a Maryland statute, which provides, "If the knowledge of a cause of action is kept from a party by the fraud of an adverse party, the cause of action shall be deemed to accrue at the time when the party discovered, or by the exercise of ordinary diligence should have discovered the fraud." Md. Code Ann., Cts. & Jud. Proc. § 5–203 (LexisNexis 2013). CX Re does not allege that Defendants fraudulently kept CX Re from discovering the misrepresentation; thus, it is not relying upon the fraudulent concealment doctrine and, therefore, does not need to plead particular facts supporting application of that doctrine. Instead, CX Re's complaint simply invokes the "discovery rule." See Green v. Pro Football, Inc. , 31 F.Supp.3d 714, 722–24 (D. Md. 2014) (distinguishing between fraudulent concealment doctrine embodied in § 5–203 and common-law discovery rule). The discovery rule applies generally in all civil actions brought pursuant to Maryland state law, and it provides that "the cause of action accrues when the claimant in fact knew or reasonably should have known of the wrong." Poffenberger v. Risser , 290 Md. 631, 431 A.2d 677, 680 (1981).

The Court is required under governing precedent to construe factual allegations in the light most favorable to a plaintiff and to draw all reasonable inferences in a plaintiff's favor when judging the sufficiency of a complaint. United States ex rel. Oberg v. Pa. Higher Educ. Assistance Agency , 745 F.3d 131, 136 (4th Cir. 2014). Applying that standard, the Court concludes CX Re has plausibly pled it discovered Defendants' alleged misrepresentation within three years of filing the instant suit. Thus, it is not barred by either the statute of limitations or laches. SeeFrederick Rd. Ltd. P'ship v. Brown & Sturm , 360 Md. 76, 756 A.2d 963, 985–86 (2000) ("When a case involves...