Hertz Global Holdings, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh

• Decision Date: 30 March 2021
• Docket Number: 19-cv-06957 (AJN)
• Citation: 530 F.Supp.3d 447
• Parties: HERTZ GLOBAL HOLDINGS, INC., Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

530 F.Supp.3d 447

HERTZ GLOBAL HOLDINGS, INC., Plaintiff,

v.NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, et al., Defendants.

19-cv-06957 (AJN)

United States District Court, S.D. New York.

Signed March 30, 2021

Herbert Beigel, Tucson, AZ, Leslie C. Thorne, Haynes and Boone, LLP, Austin, TX, Robert R. Viducich, Law Office of Robert R. Viducich, New York, NY, Benjamin L. Mesches, George Thomas Graves, Michael John Stoner, Haynes and Boone, LLP, Dallas, TX, David Paul Bender, Jr., Marco A. Pulido, Haynes and Boone, LLP, Costa Mesa, CA, for Plaintiff.

Alexander Seton Lorenzo, Alston & Bird, LLP, New York, NY, Kelsey Kingsbery, Alston & Bird LLP, Raleigh, NC, for Defendant National Union Fire Insurance Company of Pittsburgh.

Joseph Anselm Bailey, III, Elderidge Austin Nichols, Jr., Clyde & Co. US LLP, Washington, DC, Scott Warren Schwartz, Clyde & Co. US LLP, New York, NY, for Defendant U.S. Specialty Insurance Company.

MEMORANDUM OPINION & ORDER

ALISON J. NATHAN, District Judge:

Plaintiff brings claims for breach of contract against its insurers for denying coverage under a liability policy for an investigation into the company by the Securities and Exchange Commission. Defendants moved to dismiss Plaintiff's claims for failure to state a claim. For the reasons that follow, that motion is GRANTED.

I. BACKGROUND

The following facts are drawn from Plaintiff's Second Amended Complaint. Dkt. No. 65-2. Plaintiff Hertz Global Holdings, Inc. purchased a $15 million insurance policy from Defendant National Union Fire Insurance Company of Pittsburgh on November 16, 2013. Id. ¶ 8. The same day, Plaintiff purchased a "follow form" policy from Defendant U.S. Specialty Insurance Company, which provided an additional $15 million layer of insurance coverage for claims made and paid under the policy with National Union. Id. ¶ 9. The policy permitted Plaintiff to recover for "Securities Claims" made against Hertz and for "Claims" made against "Insured Persons," which generally consisted of officers and persons indemnified by Hertz. Dkt. No. 71-3, Policy ¶ 1. Although Plaintiff did not attach a copy of the insurance policy to its Second Amended Complaint or Memorandum of Law in Opposition to Defendants’ motion, Defendants submitted a copy to the Court. "[O]n a motion to dismiss, a court may consider documents attached to the complaint as an exhibit or incorporated in it by reference" so long as "a plaintiff[ ] reli[ed] on the terms and effect of a document in drafting the complaint." Chambers v. Time Warner, Inc. , 282 F.3d 147, 153 (2d Cir. 2002). The Court will consider the insurance policy because Plaintiff relies on the terms of the written policy throughout the Second Amended Complaint.

On November 20, 2013, a securities class action was filed against Hertz in the U.S. District Court for the District of New Jersey, In Re Hertz Global Holdings, Inc. , 2:13-cv-07050 ("Ramirez "). Id. ¶¶ 12, 14. Then on or about July 10, 2014, Plaintiff provided Defendants notice that the SEC was demanding documents relating to the company's financial statements for certain prior years. Id. ¶ 11. On July 28, 2014, Defendant National Union wrote a letter to Plaintiff stating that the Ramirez action qualified as a "Securities Claim" under the policy, triggering coverage, but that the SEC investigation into the company did not. Id. ¶¶ 13-14. Defendant U.S. Specialty followed up with a letter adopting National Union's stance. Id. ¶ 16.

On September 8, 2014, the SEC issued an Order titled "ORDER DIRECTING PRIVATE INVESTIGATION AND DESIGNATING OFFICERS TO TAKE TESTIMONY," which specifically stated that the SEC had "information that tends to show" violations of securities laws and rules, and authorized SEC officials to issue subpoenas for witnesses and documents. Id. ¶¶ 17-18. Plaintiff attached a copy of the SEC Formal Order of Investigation to the Second Amended Complaint and quoted and referenced the document throughout, thus the Court will consider it as part of Plaintiff's complaint. Chambers, 282 F.3d at 153.

Hertz expended millions of dollars in defense of the SEC investigation, including paying the fees and costs of current and former employees, including former senior executives – one of whom remains under investigation. Id. ¶ 19. To date, the Plaintiff has incurred $27 million in fees and costs related to the investigation. Id. ¶ 30. Plaintiff has continued to keep Defendants regularly informed of the status of the Ramirez actions and any significant developments in the SEC's investigations. Id. ¶ 22. At some point, Hertz and three former senior executives signed tolling agreements with the SEC. Id. ¶ 20.

In or around October 2018, representatives of Plaintiff met with Defendant National Union to discuss the status of the SEC investigation, and at that meeting Plaintiff's argued again that the costs should be covered, which Defendant National Union denied. Id. ¶ 23. Defendants also sent letters in December of 2018 again denying coverage of the SEC investigation. Id. ¶ 25.

On December 31, 2018, Plaintiff entered into a settlement agreement with the SEC, which provided for a $16 million penalty. Id. ¶ 32. Plaintiff paid the penalty. Id.

On July 25, 2019, Plaintiff filed a complaint in this Court asserting claims for breach of contract against Defendants for failing to cover the costs of the SEC investigation under the policy, as well as for a declaratory judgment that Defendants are to pay the costs of the SEC Settlement and reimburse Plaintiff for future legal fees and costs related to the investigation. Dkt. No. 3 at 8-9. Plaintiff has since amended twice in response to Defendants’ motions to dismiss, and in the Second Amended Complaint (the operative complaint in this action), it has abandoned its cause of action for declaratory judgment and its claims related to payment of the $16 million penalty to the SEC. Dkt. No. 65-2 at 10-11. Defendants now move to dismiss the operative complaint for failure to state a claim.

II. DISCUSSION

Defendants move to dismiss on the grounds that Plaintiff has failed to state a claim for breach of contract primarily because the SEC investigation is expressly excluded from coverage under the plain terms of the parties’ insurance agreement. For the reasons that follow, the Court agrees and dismisses Plaintiff's claims.

A. Choice of Law

The parties have declined to directly address the question of what state's law applies to this dispute. At various points in their briefs, the parties rely on New York law, though Plaintiff suggests in its reply brief that Delaware law might apply to some aspects of the dispute. Moreover, Plaintiff's principal place of business in Florida.

Because "jurisdiction is predicated on diversity of citizenship," the Court "must apply the choice-of-law rules of the forum state." Thea v. Kleinhandler , 807 F.3d 492, 497 (2d Cir. 2015) (citing Klaxon Co. v. Stentor Elec. Mfg. Co. , 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941) ). "Under New York's choice-of-law rules, the interpretation and validity of a contract is governed by the law of the jurisdiction which is the ‘center of gravity’ of the transaction." Alderman v. Pan Am World Airways , 169 F.3d 99, 103 (2d Cir. 1999). In order "to determine the center of gravity," courts generally consider "the places of negotiation and performance; the location of the subject matter; and the domicile or place of business of the contracting parties." Longo v. KeyBank Nat'l Ass'n , 357 F. Supp. 3d 263, 270 (S.D.N.Y. 2019) (citing Zurich Ins. Co. v. Shearson Lehman Hutton, Inc. , 84 N.Y.2d 309, 618 N.Y.S.2d 609, 642 N.E.2d 1065, 1068 (1994) ).

However, "[b]ecause a choice of law analysis is fact intensive, courts often decline to make a choice of law determination at the motion to dismiss stage."

Smith v. Railworks Corp., No. 10-cv-3980 (NRB), 2011 WL 2016293, at * 6 n.12 (S.D.N.Y. May 17, 2011). "Declining to engage in a choice of law analysis is especially appropriate," where, like here, "the parties have failed to brief the question," Walker v. Thompson , 404 F. Supp. 3d 819, 823 n.3 (S.D.N.Y. 2019), and especially where Plaintiff has failed to provide in its complaint adequate factual detail regarding the negotiation of the contract.

Here, the Court will not engage in an analysis of whether New York, Florida, or Delaware law applies, because the Court "need not make a choice-of-law determination" where "under [all the relevant] states’ regimes, the applicable legal principles are aligned." MBIA Inc. v. Fed. Ins. Co., 652 F.3d 152, 158 (2d Cir. 2011). "[T]he general precepts of insurance policy construction are substantially the same in both" Florida and New York. Office Depot, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. , 734 F. Supp. 2d 1304, 1313 (S.D. Fla. 2010). Likewise, "New York and Delaware ‘apply the same general principles of contract interpretation.’ " Nasdaq, Inc. v. Exch. Traded Managers Grp. , LLC, 431 F. Supp. 3d 176, 235 (S.D.N.Y. 2019) (quoting Viking Pump, Inc. v. Century Indem. Co. , 2 A.3d 76, 90 (Del. Ch. 2009) ). Because only the most basic contract law principles are necessary for resolving this dispute, and the Court sees no variation in the states laws that would impact the analysis, the Court will resolve this motion applying New York law.

Moreover, to the extent the parties both apply New York law to certain aspects of Plaintiffs claims in their briefs, the Court would also apply New York law to those issues anyway because where "the parties’ briefs assume that New York substantive law governs the issues ... such implied consent is, of course, sufficient to establish the applicable choice of law." Nat'l Union Fire Ins. Co. of Pittsburg v. Beelman Truck Co. , 203 F. Supp. 3d 312, 317 (S.D.N.Y. 2016) (citing Arch Ins. Co. v. Precision Stone, Inc., 584 F.3d 33, 39 (2d Cir. 2009) ).

B. Claims for Breach of Contract

Plaintiff's Second Amended Complaint is premised on only one cause of action: breach of contract. "[T...