Kenney Props. v. Phila. Indem. Ins. Co.

• Decision Date: 13 July 2022
• Docket Number: 5:21-CV-308-D
• Parties: KENNEY PROPERTIES, INC., KENNEY HOLDINGS, LLC, KENNEY REALTY SERVICES, LLC, and GRESHAM PARK, LLC, Plaintiffs, v. PHILADELPHIA INDEMNITY INSURANCE COMPANY, Defendant
• Court: U.S. District Court — Eastern District of North Carolina

KENNEY PROPERTIES, INC., KENNEY HOLDINGS, LLC, KENNEY REALTY SERVICES, LLC, and GRESHAM PARK, LLC, Plaintiffs, v. PHILADELPHIA INDEMNITY INSURANCE COMPANY, Defendant

No. 5:21-CV-308-D

United States District Court, E.D. North Carolina, Western Division

July 13, 2022

ORDER

JAMES C. DEVER III UNITED STATES DISTRICT JUDGE

On July 27,2021, Kenney Properties, Inc., Kenney Holdings, LLC Kenney Realty Services, LLC, and Gresham Park, LLC doing business as Autumn Pointe Apartments (collectively “Kenney” or “plaintiffs”) filed a complaint against Philadelphia Indemnity Insurance Company (“Philadelphia” or “defendant”) alleging breach of contract for Philadelphia's failure to defend and indemnify Kenney in an underlying state court action, and alleging violations of North Carolina's Unfair and Deceptive Trade Practices Act (“UDTPA”), N.C. Gen. Stat. §§ 75-1.et seq. [D.E. 1]. On September 7,2021, Philadelphia answered Kenney's complaint and filed a counterclaim seeking a declaratory judgment that it was not required to defend or indemnify Kenney [D.E. 12]. On September28,2021, Kenney answered Philadelphia's counterclaim [D.E. 14]. On November 11, 2021, Philadelphia moved for judgment on the pleadings [D.E. 17] and filed a memorandum in support [D.E 18]. On December 17, 2021, Kenney responded in opposition [D.E. 22]. On December 31, 2021, Philadelphia replied [D.E 23]. As explained below, the court grants Philadelphia's motion for judgment on the pleadings and dismisses Kenney's complaint.

I.

Kenney Properties is a North Carolina corporation with its principal place of business in Raleigh, North Carolina. See Compl. [D.E. 1] ¶ 4; Answer [D.E. 12] ¶ 4. Kenney Holdings, Kenney Realty, and) Gresham Park are North Carolina limited liability companies with member/managers and principal places of business in Raleigh, North Carolina. See Compl. ¶¶ 5-7; Answer ¶¶ 5-7. Philadelphia Indemnity Insurance Company is a Pennsylvania insurance company with its principal place of business in Pennsylvania. See Compl. ¶ 8; Answer ¶ 8. The Kenney entities offer apartments for rent in North Carolina. See Compl. ¶ 17. During the relevant period, Philadelphia insured Kenney Properties under a commercial lines policy. See Compl. ¶¶ 12-16; Answer ¶¶ 12-16; 2016-2017Policy [D.E. 12-1]; 2017-2018 Policy [D.E. 12-2]; Mem. Supp. Mot. [D.E. 18] 7; Resp. [D.E. 22] 7-8,7 n.3.

The North Carolina Residential Rental Agreements Act (“RRAA”), N.C. Gen. Stat §§ 42-38, et seq., governs the rights, obligations, and remedies of parties to a North Carolina residential rental agreement. The RRAA specifies what fees, costs, and expenses a landlord can charge if a tenant fails to timely pay the agreed-upon rent. See N.C. Gen. Stat. § 42-46. Before 2018, the statute explicitly allowed landlords to charge a “Late Fee” and one of the following: “Complaint-Filing, Fee,” “Court-Appearance Fee,” or “Second Trial Fee.” Id. § 42-46(a), (e), (f), (g), (h)(1). In 2018, after a court decision holding that charging other eviction fees violated North Carolina law, the North Carolina General Assembly amended the RRAA to allow landlords to charge additional “out-of-pocket expenses,” including filing fees charged by the court, costs for service of process, and reasonable attorneys' fees. See N.C. Gen. Stat. § 42-46(i); Brogden Compl. [D.E. 1-1] 5 n.1. . Because the RRAA did not specifically delineate these expenses before the 2018 amendment, some litigants argued that the RRAA did not authorize these “out-of-pocket expenses” before the effective date of the 2018 amendment. These litigants filed numerous lawsuits seeking reimbursement of such expenses that tenants paid before the 2018 amendment took effect. See, e.g., Hampton v. KPM LLC, 423 F.Supp.3d 172 (E.D. N.C. 2019).

The action underlying this coverage'dispute is one such suit. On September 4,2018, Alisa Brogden filed the underlying state court action (the “Brogden Action”) in Wake County Superior Court. See Mem. Supp. Mot. at 5-6; Resp. at 2; Brogden Compl.[D.E. 1-1]. On June 19,2020, the United States Court of Appeals for the Fourth Circuit addressed the pre-2018 scope of the RRAA in Suarez v. Camden Property Trust, 818 Fed.Appx. 204 (4th Cir. 2020) (unpublished). On October 8,2020, after the Fourth Circuit's Suarez decision, Kenney settled the Brogden Action. See Resp. at 6 n.2. In the settlement, Kenney agreed to pay $500,000 into a settlement fund to be disbursed to two classes. See Order Appr. Settl. [D.E. 1-2] ¶¶ 15-16. On January 14,2021, the Wake County Superior Court approved the settlement. See Resp. at 6 n.2; Order Appr. Settl. at 13.

II.

The parties agree that Philadelphia insured Kenney^[1] under a commercial lines policy that governed Philadelphia's duties to Kenney regarding the Brogden Action.^[2] The parties agree that Coverage A of the policy does not apply. See [D.E. 14]; Mem. Supp. Mot. at 3. And regardless of immaterial disputes about which version of the policy applies, the parties cite the same policy language for Coverage B and the applicable endorsement See Mem. Supp. Mot at 10-12; Resp. at 9-10.

Under Coverage B, Philadelphia “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘personal and advertising injury' to which this insurance applies.” Policy [D.E. 12-1] 79. Philadelphia “will have the right and duty to defend the insured against any ‘suit' seeking those damages. However, [Philadelphia] will have no duty to defend the insured against any ‘suit' seeking damages for ‘personal and advertising injury' to which this insurance does not apply.” Id. The policy defines “personal and advertising injury” as “injury, including consequential ‘bodily injury', arising out of one or more of the following offenses:

a. False arrest, detention or imprisonment;

b. Malicious prosecution;

c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;

d. Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;

e. Oral or written publication, in any manner, of material that violates a person's right of privacy;

f. The use of another's advertising idea in your ‘advertisement'; or

g. Infringing upon another's copyright, trade dress or slogan in your ‘advertisement'.

Id. at 88. The General Liability Deluxe Endorsement Schools provision modifies the definition of “personal and advertising injury” by, inter alia, changing paragraph 14b. to read: “Malicious prosecution or abuse of process.” Id. at 112.

III.

Federal Rule of Civil Procedure 12(c) permits a party to move for judgment on the pleadings “[a]fter the pleadings are closed-but early enough not to delay trial.” The court may consider the pleadings along with any materials referenced in or attached to the pleadings that are incorporated by reference. See Fed.R.Civ.P. 10(c). A court also may consider “matters of which a court may take judicial notice.” Tellabs, Inc, v, Makor Issues & Rights, Ltd., 551 U.S. 308,322 (2007); see, e.g., Thompson v. Greene, 427 F.3d 263,268 (4th Cir. 2005); Fayetteville Invs. v. Com. Builders, Inc.,936 F.2d 1462,1465 (4th Cir. 1991).

The same standard applies under Rule 12(b)(6) and Rule 12(c); therefore, a Rule 12(c) motion tests whether the complaint is legally and factually sufficient. See, e.g., Drager v. PLIVA USA, Inc., 741 F.3d470,474 (4th Cir. 2014); Edwards v. City of Goldsboro, 178 F.3d231,243 (4th Cir. 1999). Accordingly, “judgment on the pleadings requires a court to accept all well-pleaded allegations as true and draw all reasonable factual inferences from those facts in the non-moving party's favor.” United States v. Cox, 743 Fed.Appx. 509, 511 (4th Cir. 2018) (per curiam) (unpublished) (cleaned up); Drager, 741 F.3d at 474; Edwards, 178 F.3d at 244. A court need not, however, acceptapleading's legal conclusions drawnfrom the facts. See Ashcroft v. Iqbal, 556 U.S. 662,678-79 (2009); Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). Similarly, a court “need not accept as true unwarranted inferences, unreasonable conclusions, or arguments.” Giarratano, 521 F.3d at 302 (quotation omitted). Judgment on the pleadings is appropriate when the well-pleaded factual allegations in the complaint and the uncontroverted allegations in the answer, along with any documents attached to the pleadings, show that the case can be decided as a matter of law. See Massey v. Ojanjit, 759 F.3d 343, 353 (4th Cir. 2014); Drager, 741 F.3d at 474; Firemen's Ins. Co. v. Glen-Tree Invs., LLC. No. 7:11-CV-59-D, 2012 WL4191383, at *4 (E.D. N.C. Sept. 19,2012) (unpublished).

The court has diversity jurisdiction, and North Carolina law governs plaintiffs' claims. See Mem. Supp. Mot at 8; Resp. at 17. Thus, this court must determine how the Supreme Court of North Carolina would rule. See Twin City Fire Ins. Co, v. Ben Amold-Sunbelt Beverage Co. of S.C., 433 F.3d 365,369 (4th Cir. 2005). In doing so, the court must look first to opinions of the Supreme Court of North Carolina. See id.; Parkway 1046, LLC v. U.S. Home Corp., 961 F.3d 301, 306 (4th Cir. 2020); Stable v CTS Corp., 817 F.3d 96,100 (4th Cir. 2016). Ifthere are no governing opinions from the Supreme Court of North Carolina, this court may consider the opinions of the North Carolina Court of Appeals, treatises, and “the practices of other states.” Twin City Fire Ins. Co., 433 F.3d at 369 (quotation omitted).^[3] In predicting how the highest court of a state would address an issue, this court “must follow the decision of an intermediate state appellate court unless there is persuasive...