G & S Holdings LLC v. Cont'l Cas. Co.

• Decision Date: 20 September 2012
• Docket Number: No. 11–1813.,11–1813.
• Citation: 697 F.3d 534
• Parties: G & S HOLDINGS LLC, et al., Plaintiffs–Appellants, v. CONTINENTAL CASUALTY COMPANY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

697 F.3d 534

G & S HOLDINGS LLC, et al., Plaintiffs–Appellants,

v.CONTINENTAL CASUALTY COMPANY, Defendant–Appellee.

No. 11–1813.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 2, 2011.

Decided Sept. 20, 2012.

Emily C. Guenin–Hodson (argued), Attorney, Guenin Law, Wabash, IN, Mark Guenin (argued), for Plaintiffs–Appellants.

Barry C. Cope, Attorney, Bingham Greenebaum Doll, LLP, Indianapolis, IN, Joseph A. Hinkhouse (argued), Attorney, Hinkhouse Williams Walsh, LLP, Chicago, IL, Cynthia Galley (argued), for Defendant–Appellee.

Before RIPPLE and ROVNER, Circuit Judges, and FEINERMAN, District Judge.^*

ROVNER, Circuit Judge.

On November 29, 2007, an explosion occurred at a metal processing plant in Manchester, Georgia owned by G & S Metal Consultants, Inc. (“GSMC”). GSMC had obtained insurance through Continental Casualty Co. (“Continental”) which covered damage to the plant caused by the explosion. Pursuant to that policy, Continental made some payments to GSMC, but GSMC subsequently filed suit against Continental alleging that the payments were inadequate. That case by GSMC, however,is not the one before the court today. GSMC is now in bankruptcy, and is not a party to the case before this court. Instead, this case was filed by others who claim that the failure of Continental to pay adequate damages to GSMC in a timely manner caused them damages. The plaintiffs brought suit against Continental and against Hylant Group, Inc., their former insurance broker.

Three of the plaintiffs, G & S Metal Trading, LLC., G & S Holdings, LLC, and Aluminum Sizing, Inc., are businesses affiliated with GSMC, and are additional named insureds under the policy that covered the Manchester plant. The other plaintiffs, R. Scott Galley, II, and Cynthia Galley, are owners and operators of GSMC, and allege that they are third-party beneficiaries of the policy. The district court granted Continental's motion to dismiss the complaint as to all parties, and plaintiffs now appeal.

The plaintiffs' complaint included seven counts, all arising from the alleged failure of Continental to pay damages to GSMC in a timely and adequate manner. Those counts include claims of: breach of contract against Continental (Count I); promissory estoppel against Continental and Hylant (Count II); bad faith claims handling against Continental (Count III); negligent claims handling against Continental (Count IV); tortious interference with contract against Continental (Count V); negligent infliction of emotional distress against Continental (Count VI); and breach of fiduciary duties against Continental and Hylant (Count VII). The claims against Hylant were dismissed during this appeal and are not before the court, leaving only the challenges to the district court's dismissal of the claims against Continental.

The crux of the complaint was that as a result of the failure to receive timely and adequate payments, GSMC experienced financial difficulties and the plaintiffs were adversely affected by the ensuing loss of business with GSMC. That core claim was the thread running through each of the independent counts in the complaint.

The district court applied Indiana law in deciding the motion to dismiss, and the parties do not challenge that determination. The court held that the plaintiffs lacked standing to pursue a number of claims, and dismissed the remaining claims for failure to state a claim.

On appeal, plaintiffs raise a number of challenges. With respect to the claims as a whole, the plaintiffs assert that the district court erred in applying the heightened pleading requirements of Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), in deciding the motion to dismiss. In addition, the plaintiffs assert that the court erred in granting dismissal with respect to each of the seven counts. We will examine these claims in turn.

First, the plaintiffs assert that the court erred in applying the federal pleading standard as set forth in Twombly and Iqbal because their complaint was filed in state court and subsequently removed to federal court. In Twombly and Iqbal, the Supreme Court held that in order to survive a motion to dismiss, a complaint must be plausible on its face, meaning that the plaintiff must have pled “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;Twombly, 550 U.S. at 556, 127 S.Ct. 1955. A complaint need not contain detailed factual allegations to meet that standard, but must go beyond mere labels and conclusions, and must “be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955.

Although the plaintiffs argue that the federal pleading standard is more stringent, they never actually identify in their briefs exactly what that standard is and in fact merely reference Twombly and Iqbal without setting forth the holding as we did above; nor do they explain how it deviates from the Indiana standard. Instead, the plaintiffs focus solely on identifying the Indiana pleading standard, summarily concluding that it is more liberal than the federal one and that it requires only a short and plain statement of the claim and does not require that the plaintiffs allege facts which constitute a cause of action.

We need not explore which standard applies, nor whether they are materially different, because the plaintiffs failed to raise this argument in the district court. In fact, the plaintiffs identified the Twombly and Iqbal cases as the relevant law in their response to the motion to dismiss in the district court. In their memorandum in response to the motion to dismiss, the plaintiffs declared that:

“[A] complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face....’ A complaint is facially plausible if a court can reasonably infer from factual content in the pleading that the defendant is liable for the alleged wrongdoing.” Double v. Flair Interiors, Inc., 2010 WL 405550, 2010 U.S. Dist. LEXIS 6312 (N.D.Ind. Jan. 25, 2010).

Memorandum In Support of Plaintiffs' Response to Continental Casualty Company's Motion to Dismiss Pursuant to Federal Rule Of Civil Procedure 12(b)(6) at 1. The memorandum cites to Double, but that case in the passage quoted is itself quoting Twombly and Iqbal.Double v. Flair Interiors, Inc., 2010 WL 405550, at *1 (N.D.Ind.2010). The only other case cited in this section by the plaintiffs, Panasuk v. Steel Dynamics, Inc., 2009 WL 5176193, at *4–5 (N.D.Ind.2009), also quotes Twombly and sets forth the federal pleading standard that the plaintiffs now disavow.

We have repeatedly held that a party waives an argument by failing to make it before the district court. Hayes v. City of Chicago, 670 F.3d 810, 815 (7th Cir.2012); Alioto v. Town of Lisbon, 651 F.3d 715, 721 (7th Cir.2011); Lekas v. Briley, 405 F.3d 602, 614 (7th Cir.2005). That is true whether it is an affirmative argument in support of a motion to dismiss or an argument establishing that dismissal is inappropriate. Alioto, 651 F.3d at 721;Lekas, 405 F.3d at 614–15. The obligation to raise the relevant arguments rests squarely with the parties, because, as we have repeatedly explained: “Our system of justice is adversarial, and our judges are busy people. If they are given plausible reasons for dismissing a complaint, they are not going to do the plaintiff's research and try to discover whether there might be something to say against the defendants' reasoning.” Kirksey v. R.J. Reynolds Tobacco Co., 168 F.3d 1039, 1041 (7th Cir.1999); Alioto, 651 F.3d at 721;Lekas, 405 F.3d at 614–15. The plaintiffs in the present case went beyond failing to raise a relevant argument—they affirmatively relied on the federal pleading standard that they now argue is erroneous. That is a waiver in the truest sense. See Alioto, 651 F.3d at 719 n. 1. Accordingly, the plaintiffs cannot succeed on their claim that the wrong standard was applied to the motion to dismiss.

The plaintiffs also assert that with respect to each individual count the court erred in granting the motion to dismiss. Before turning to each of those counts, it is important to understand the nature of the complaint as a whole. It does not allege that Continental failed to make payments owed to the plaintiffs under the policy, even though some of the plaintiffs are additional named insureds under the policy. In fact, none of the counts relate to the failure of Continental to fulfill its direct obligation to the plaintiffs under the policy. There is no allegation that any plaintiff submitted a claim for coverage under the policy arising from the explosion at the plant, nor is there any indication that Continental failed to make payments due to the plaintiffs under the policy. In its memorandum in response to the motion to dismiss, the plaintiffs explicitly acknowledged that they were not claiming damages related to the explosion or coverage owed to them:

[Continental] is correct in stating that Plaintiffs did not allege that any property damage or business loss claim was made by any of the additional named insureds from the explosion. In this case, the damage sustained by the Plaintiffs did not occur due to the explosion at the Georgia plant. Instead, the damages occurred as a result of [Continental] failing to timely and fully pay the claim owed to G & S Metal Consultants, Inc. If the claim owed to G & S Metal Consultants, Inc. had been paid, the additional insureds would not have suffered injury.

Memorandum In Support of Plaintiffs' Response to Continental Casualty Company's Motion to Dismiss Pursuant to Federal Rule Of Civil Procedure 12(b)(6) at 5. The claims in the complaint, therefore, are not premised on any obligation owed directly to the plaintiffs by...