Slay's Restoration, LLC v. Wright Nat'l Flood Ins. Co., 17-1106

• Citation: 884 F.3d 489
• Decision Date: 09 March 2018
• Docket Number: No. 17-1106,17-1106
• Parties: SLAY'S RESTORATION, LLC, Plaintiff–Appellant, v. WRIGHT NATIONAL FLOOD INSURANCE COMPANY ; Colonial Claims Corporation; KLSM Consulting Group, Inc., d/b/a JD Consulting & Appraisal Group; CIS Group LLC; Samuel Woodard; Jeffrey Nicholl; Jeffrey P. Kaiser ; Michael Carmelia, Defendants–Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

884 F.3d 489

SLAY'S RESTORATION, LLC, Plaintiff–Appellant,

v.WRIGHT NATIONAL FLOOD INSURANCE COMPANY ; Colonial Claims Corporation; KLSM Consulting Group, Inc., d/b/a JD Consulting & Appraisal Group; CIS Group LLC; Samuel Woodard; Jeffrey Nicholl; Jeffrey P. Kaiser ; Michael Carmelia, Defendants–Appellees.

No. 17-1106

United States Court of Appeals, Fourth Circuit.

Argued: December 7, 2017

Decided: March 9, 2018

ARGUED: Joseph H. Langerak, IV, JACKSON KELLY PLLC, Evansville, Indiana, for Appellant. Theodore Ira Brenner, FREEBORN & PETERS, LLP, Richmond, Virginia, for Appellees Wright National Flood Insurance Company, Colonial Claims Corporation, and Jeffrey Nicholl. ON BRIEF: James D. Johnson, JACKSON KELLY PLLC, Evansville, Indiana; John S. Wilson, WILSON & MCINTYRE PLLC, Norfolk, Virginia, for Appellant. Alexander S. de Witt, FREEBORN & PETERS LLP, Richmond, Virginia, for Appellees Wright National Flood Insurance Company, Colonial Claims Corporation, and Jeffrey Nicholl. Ramsay C. McCullough, Kristina H. Vaquera, JACKSON LEWIS PC, Norfolk, Virginia, for Appellees KLSM Consulting Group, Inc., CIS Group, Inc., Samuel Woodard, and Jeffrey Kaiser.

Before NIEMEYER and AGEE, Circuit Judges, and Paula XINIS, United States District Judge for the District of Maryland, sitting by designation.

Affirmed by published opinion. Judge Niemeyer wrote the opinion, in which Judge Agee and Judge Xinis joined.

NIEMEYER, Circuit Judge:

In this appeal, we hold that a subcontractor hired by a property owner's contractor to repair flood damage to the owner's property was not injured in its business or property by reason of a pattern of racketeering allegedly carried out by the property owner's insurance company and its independent consultants to reduce the amount paid on the property owner's insurance claims for reimbursement of the repair costs. Accordingly, the injury alleged by the property owner's subcontractor—in this case, Slay's Restoration, LLC—was not proximately caused by conduct of the insurance company, and Slay's Restoration therefore failed to state a plausible claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO") against the insurance company and its consultants upon which relief could be granted. See 18 U.S.C. §§ 1962(c), 1964(c).

When an apartment complex owned by City Line Associates, LP, was damaged by flooding, City Line hired First Atlantic Restoration, Inc., to make repairs. First Atlantic, in turn, hired the plaintiff, Slay's Restoration, as a subcontractor to perform some of the work. Using documentation provided by Slay's Restoration describing the work it did, City Line submitted several insurance claims for payment of its costs of repair to its insurance company, Wright National Flood Insurance Company. To adjust the claim, Wright Insurance hired Colonial Claims Corporation, and Colonial Claims, in turn, hired two consulting firms to provide professional assessments of the repair work done. Based on the consulting firms' assessments, Wright Insurance offered to pay its insured, City Line, less than one-half of the amount City Line requested.

Slay's Restoration commenced this action against Wright Insurance and its consultants contending that they fraudulently conspired to reduce City Line's claim, in violation of RICO, thereby injuring City Line's ability to pay Slay's Restoration fully for its work. On the defendants' motions, the district court dismissed Slay's Restoration's complaint, concluding (1) that Slay's Restoration did not plausibly allege that its injury was proximately caused by the defendants' alleged violation of RICO, as required by the statute, and, alternatively, (2) that Slay's Restoration's claim was precluded by restrictions contained in City Line's insurance policy issued under the National Flood Insurance Program.

Concluding that Slay's Restoration has not and cannot, in the circumstances of this case, adequately allege proximate causation as required for a civil RICO claim, we affirm.

I

As a result of heavy rainfall in Newport News, Virginia, in September 2014, a 200–unit apartment complex owned by City Line was damaged by flooding. City Line hired First Atlantic to effect repairs, and First Atlantic hired Slay's Restoration to perform "drying services." Upon completion of the work, Slay's Restoration submitted documentation of its work to First Atlantic and City Line for use by City Line in its presentation of claims to Wright Insurance, its insurance company. Wright Insurance provided flood insurance to City Line under the National Flood Insurance Program administered by the Federal Emergency Management Agency ("FEMA"). Under that program, Wright Insurance is responsible for adjusting claims made under the policy, but FEMA ultimately pays the loss. See Woodson v. Allstate Ins. Co. , 855 F.3d 628, 631 (4th Cir. 2017). City Line submitted 18 claims to Wright Insurance for over $1.2 million in the aggregate to reimburse it for the costs of repairs to 18 apartment buildings.

To adjust the claims, Wright Insurance hired Colonial Claims, a claims-adjusting firm, and Colonial Claims hired two consulting firms to evaluate the work done in repairing the flood damage, including that done by Slay's Restoration. These firms submitted reports concluding that First Atlantic and Slay's Restoration had not adhered to applicable industry standards in repairing the apartments. After receiving these reports, Wright Insurance offered to pay City Line a total amount of roughly $530,000 in satisfaction of its 18 claims.

Slay's Restoration commenced this action, alleging in some detail that the reduction of City Line's claims resulted from the two consulting firms' wrongful assessment of its work and their fraudulent representations that the work was not performed in accordance with applicable standards. Contending that the conduct amounted to violations of 18 U.S.C. §§ 1341 and 1343, which prohibit the use of the mails or wire to obtain money by fraud or false pretenses, Slay's Restoration alleged that Wright Insurance, Colonial Claims, and the two consulting firms participated in a "fraudulent scheme" to create "false reports [about the repair work done] to deny policy benefits to insureds and payments to contractors," in violation of RICO, 18 U.S.C. § 1962(c). According to Slay's Restoration, the substantial reduction of City Line's claims as a result of this scheme prevented First Atlantic and ultimately Slay's Restoration from receiving full payment for their work. It claimed that it suffered a loss exceeding $900,000 and sought treble damages, as provided by 18 U.S.C. § 1964(c).

The defendants filed motions to dismiss under Federal Rule of Civil Procedure 12(b)(6), contending, among other things, (1) that Slay's Restoration lacked "standing" to bring its civil RICO claim because Slay's Restoration could not show that the defendants were the proximate cause of its injury, given that the parties had no contractual relationship with each other that would require the defendants to disburse FEMA funds directly to Slay's Restoration; and (2) that Slay's Restoration was, in any event, foreclosed from pursuing its claim because City Line's standard form insurance policy, as fixed by FEMA, required that any dispute from the handling of a claim be governed exclusively by FEMA regulations, the National Flood Insurance Act, and federal common law.

Agreeing with both arguments, the district court granted the defendants' motions and dismissed Slay's Restoration's complaint. On the issue of causation, the court noted that Slay's Restoration was "a subcontractor of First Atlantic, who [was] a contractor of City Line, who ha[d] an insurance policy with Wright [Insurance], who employed the [defendants]," concluding that, "on these facts, any financial injury [that Slay's Restoration] ha[d] endured was proximately caused by First Atlantic," not by any of the defendants' actions. In addition, the district court determined that Slay's Restoration's claim was precluded by the provisions regulating the National Flood Insurance Program and the terms of the standard form insurance policy issued by Wright Insurance as required under that program.

From the district court's judgment dated January 3, 2017, Slay's Restoration filed this appeal.

II

The question presented is whether Slay's Restoration sufficiently alleged that its injury was proximately caused by the alleged racketeering—i.e. , that it was "injured in [its] business or property by reason of a violation of [RICO]." 18 U.S.C. § 1964(c). Slay's Restoration insists that it suffered an injury "by reason of" the defendants' conduct and contends that the district court's reliance on a lack of privity between it and Wright Insurance "place[d] unwarranted limitations on the RICO proximate cause requirement." According to Slay's Restoration, the defendants—particularly the consulting firms—engaged in a scheme to commit mail and wire fraud "primarily directed at Slay's [Restoration] ," causing it to "accept[ ] [a $535,152] reduction off its billing." (Emphasis added).

Section 1964(c) provides in relevant part:

Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee.

18 U.S.C. § 1964(c) (emphasis added). While this language could be construed as simply requiring "but for" causation of a plaintiff's injury and thereby allowing "all factually injured plaintiffs to recover," it is clear from context that Congress did not intend "such an expansive reading." Holmes v. Sec. Inv'r Prot. Corp. , 503 U.S. 258, 265–66, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992).

In Holmes , the Court observed that because Congress had modeled the § 1964(c) language after similar language in § 4 of the Clayton Act,¹ it undoubtedly intended that § 1964(c) have the same ...