Travelers Prop. Cas. Co. of Am. v. Fed. Recovery Servs., Inc.

• Decision Date: 12 January 2016
• Docket Number: Case No. 2:14-CV-170 TS
• Citation: Travelers Prop. Cas. Co. of Am. v. Fed. Recovery Servs., Inc., 156 F.Supp.3d 1330 (D. Utah 2016)
• Parties: Travelers Property Casualty Company of America, a Connecticut corporation, and Travelers Casualty Insurance Company of America, Plaintiffs, v. Federal Recovery Services, Inc., a Utah corporation, and Federal Recovery Acceptance, Inc., a Utah corporation doing business as Paramount Acceptance, Defendants.
• Court: U.S. District Court — District of Utah

156 F.Supp.3d 1330

Travelers Property Casualty Company of America, a Connecticut corporation, and Travelers Casualty Insurance Company of America, Plaintiffs,

v.Federal Recovery Services, Inc., a Utah corporation, and Federal Recovery Acceptance, Inc., a Utah corporation doing business as Paramount Acceptance, Defendants.

Case No. 2:14-CV-170 TS

United States District Court, D. Utah.

Signed January 12, 2016

Bruce D. Celebrezze, Nicholas J. Boos, Sedgwick LLP, San Francisco, CA, Gary L. Johnson, Jennifer H. Mastrorocco, Richards Brandt Miller Nelson, Salt Lake City, UT, for Plaintiff.

Heather L. Thuet, Christensen & Jensen PC, L. Rich Humpherys, Humpherys Law PLLC, Salt Lake City, UT, for Defendant.

MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

Ted Stewart, United States District Judge

This matter is before the Court on Plaintiffs Travelers Property Casualty Company of America and Travelers Casualty Insurance Company of America's (collectively, “Travelers”) Motion for Summary Judgment. Travelers request the Court dismiss Federal Recovery Services, Inc. (“FRS”) and Federal Recovery Acceptance, Inc.'s (“FRA”) dba Paramount Acceptance (“Paramount”) (collectively, “Defendants”) counterclaims for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) breach of fiduciary duty. The Court will grant in part and deny in part Travelers' Motion for the reasons discussed below.

I. BACKGROUND

Defendants are in the business of providing processing, storage, transmission, and other handling of electronic data for its customers. Travelers issued a CyberFirst Technology Errors and Omissions Liability Form Policy (the “CyberFirst Policy”) to Defendants and Defendants are the named insureds under the policy.

Global Fitness Holdings, LLC (“Global Fitness”) owns and operates fitness centers in several states. As part of its operations, Global Fitness had numerous members who contracted with Global Fitness for access to its fitness centers. Members provided either credit card or bank account information to Global Fitness for billing purposes (“Member Accounts Data”).

Global Fitness entered into a Servicing Retail Installment Agreement with FRA that required FRA to process the Member Accounts and transfer the members' fees to Global Fitness. Global Fitness alleged that FRA retained possession of Member Accounts Data and interfered with its business dealings, thereby causing Global Fitness irreparable harm and loss. On October 10, 2012, Global Fitness filed suit against Defendants claiming tortious interference, promissory estoppel, conversion, breach of contract, and breach of the implied covenant of good faith and fair dealing. Global Fitness sought attorney fees and punitive damages.

On December 17, 2012, FRA informed Travelers of its lawsuit with Global Fitness via email to its insurance broker, Mike Rice.¹ Mr. Rice responded that he had spoken with Travelers on the phone regarding the matter.² In his deposition, Mr. Rice testified that Travelers represented that there was a possibility that the Global Fitness lawsuit may be covered under the breach of contract clause, but advised Mr. Rice to wait to file a claim until formal papers had been served.³ Mr. Rice did not file a claim with Travelers until May 22, 2013.⁴ Travelers responded in writing on June 28, 2013, with its first denial of the claim, stating that the Global Fitness lawsuit fell outside of coverage under the CyberFirst Policy.⁵

FRA requested reconsideration of the denial on July 26, 2013, and again on August 27, 2013.⁶ On September 6, 2013, Travelers granted FRA's request for reconsideration and asked that FRA provide formal legal authority in support of its opposition to the denial.⁷ FRA submitted its memorandum with legal authority to Travelers on November 13, 2013.⁸ On December 11, 2013, Travelers again denied the claim having considered the legal authority provided by FRA.⁹

On March 7, 2014, Travelers filed the instant action for declaratory relief against Defendants seeking determination of its duty to defend under the CyberFirst Policy. On April 10, 2014, Defendants again tendered defense of the Global Fitness action to Travelers.¹⁰ Travelers accepted the tender of defense on April 23, 2014, but with a full and complete reservation of rights, including the right to seek a judicial declaration as to its rights and obligations under the policy.¹¹

On November 13, 2014, Defendants filed a motion for partial summary judgment seeking the Court's determination as to whether Travelers owed a duty to defend Defendants under the CyberFirst Policy. The Court issued its ruling on May 11, 2015, denying Defendants' motion. The Court found that Travelers did not owe Defendants a duty to defend under the CyberFirst Policy.¹² Travelers now submits this Motion for Summary Judgment requesting the Court dismiss Defendants' counterclaims against it.

II. LEGAL STANDARD

Summary judgment is appropriate “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.”¹³ In considering whether a genuine dispute of material fact exists, the Court determines whether a reasonable jury could return a verdict for the nonmoving party in the face of all the evidence presented.¹⁴ The Court is required to construe all facts and reasonable inferences in the light most favorable to the nonmoving party.¹⁵

III. DISCUSSION

Travelers moves for summary judgment and request this Court dismiss Defendants' counterclaims for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) breach of fiduciary duty. Each will be discussed in turn below.

1. Breach of Contract

“The elements of a prima facie case for breach of contract are (1) a contract, (2) performance by the party seeking recovery, (3) breach of the contract by the other party, and (4) damages.”¹⁶ Travelers argues that Defendants' breach of contract claim fails as a matter of law because this Court ruled in its May 11, 2015 Order that Travelers does not owe Defendants a duty to defend under the CyberFirst Policy.

In its Response, Defendants argue that Travelers incorrectly interprets the Court's May 11, 2015 Order. Defendants argue that the “the narrow issue before the Court in that motion was whether viewing only the ‘eight corners' of the complaint and policy triggered the duty to defend.”¹⁷ Defendants assert that the Court's Order “did not pertain to, and this Court has not yet had an opportunity to consider, the extrinsic evidence which is relevant to a determination as to whether Travelers owes a duty to defend.”¹⁸ Defendants essentially seek to relitigate the issue of whether Travelers owes them a duty to defend.

In its May 11, 2015 Order, the Court stated that “[a]s a general rule, ‘an insurer's duty to defend is determined by comparing the language of the insurance policy with the allegations in the complaint.”¹⁹ “ ‘If the language found within the collective ‘eight corners' of these documents clearly and unambiguously indicates that a duty to defend does or does not exist, the analysis is complete.’ ”²⁰ The Court determined that a comparison of the language of the policy and the allegations in the complaint made clear that the Global Fitness action was not covered under the CyberFirst Policy.

The policy states that coverage is provided if the loss is caused by an “errors and omissions wrongful act.”²¹ “Errors and omissions wrongful act” is defined as “any error, omission or negligent act.”²² Global Fitness's Complaint and Amended Complaint against Defendants alleged that Defendants knowingly withheld information and refused to turn it over until Global Fitness met certain demands. Thus, while the policy provides coverage for errors, omissions, and negligent acts, Global Fitness' claims against Defendants allege knowledge, willfulness, and malice. Accordingly, the Court determined that the policy did not extend coverage to the Global Fitness suit.

Having lost its earlier motion, Defendants cannot seek to relitigate the same issue. It is improper for Defendants to now argue that extrinsic evidence must be used in determining the duty to defend when they failed to do so previously and failed to respond to Travelers' argument that extrinsic evidence should not be considered. As Travelers correctly indicates, Defendants did not dispute that extrinsic evidence is inadmissible and Defendants did not offer such evidence nor suggest that such evidence should be considered.²³ Defendants' argument misrepresents its prior briefing and the Court's ruling and is a disingenuous and transparent attempt to reargue an issue that this Court already decided.

Generally, once a court decides an issue, the same issue may not be relitigated in subsequent proceedings in the same case. Unlike res judicata, the law of the case doctrine is not an inexorable command, but is to be applied with good sense. Accordingly, the doctrine is subject to three exceptions: (1) when the evidence in a subsequent trial is substantially different; (2) when controlling authority has subsequently made a contrary decision of the law applicable to such issues; or (3) when the decision was clearly erroneous and would work a manifest injustice .... [T]hese exceptions [are read] narrowly, requiring district courts to apply the law of the case unless one of the exceptions specifically and unquestionably applies.²⁴

Here, none of the above exceptions specifically and unquestionably apply.

Under Utah law, consideration of extrinsic evidence to determine the scope of an insurer's duty to defend is generally prohibited, but may be considered if the parties contractually make the duty to defend dependent on whether there is actually a covered claim or suit.²⁵ In Fire Insurance Exchange v. Estate of Therkelsen, the Utah Supreme Court explained that the duty to defend “ ‘arises solely under...