Spring Street Apts Waco, Llc v. Philadelphia Indemnity Insurance Company

Motion to Dismiss for Failure to State a Claim

W.D. Tex.December 28, 2016

1 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS WACO DIVISION SPRING STREET APTS WACO, LLC, § § Plaintiff, § § v. § CASE NO. 6:16-CV-00315-RP-JCM § PHILADELPHIA INDEMNITY INSURANCE COMPANY AND CRAWFORD & COMPANY, § § § Defendants. § § PLAINTIFF, SPRING STREET APTS WACO LLC’S MOTION TO DISMISS DEFENDANT’S PHILADELPHIA INSURANCE COMPANY’S AMENDED COUNTERCLAIM PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(B)(6) The Bukowski Law Firm, P.C. Sean Bukowski Texas Bar No. 24031896 1601 Rio Grande, Suite 300A Austin, Texas 78701 sbukowski@bukowskilawfirm.com Attorneys for Plaintiff Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 1 of 22 2 TABLE OF CONTENTS Statement of the Case……………………………………………………………………………... 3 Standard of Review……………………………………………………………………………..... 3 Arguments………………………………………………………………………………………... 4 A. Defendant’s fraud counterclaim is barred by the economic loss rule…………………. 4 B. Defendant fails to sufficiently plead fraud under Rule 9(b)…………………………… 9 C. Defendant relied on its own investigation, rather than the representations of Plaintiff 16 D. Defendant’s conspiracy claim is derivate of its fraud claim and Defendant fails to sufficiently plead conspiracy under Rule 9(b)…………………………………………... 19 Conclusion and Prayer…………………………………………………………………………... 21 Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 2 of 22 3 I. Statement of the Case: On December 14, 2016, Defendant/Counter-plaintiff, Philadelphia Indemnity Insurance Company (hereinafter “Defendant”) filed its Second Amended Answer and Amended Counterclaim against Plaintiff/Counter-defendant, Spring Street Apts Waco, LLC (hereinafter “Plaintiff”). Defendant’s counterclaims against Plaintiff are merely a recitation of conclusory allegations with no supporting facts. Defendant has not-because it cannot-plead any specific facts supporting its allegations. This is in direct violation of Federal Rules of Civil Procedure 8(a) and 9(b). As a result, Plaintiff requests this Court dismiss Defendant’s amended counterclaims. Specifically, Defendant’s fraud counterclaim should be dismissed as it is barred by the economic loss rule, it is not plead with the requisite specificity of Rule 9(b) and it fails to allege that Defendant relied on Plaintiff’s representations. Defendant’s conspiracy counterclaim should likewise be dismissed because it is derivative of Defendant’s faulty fraud counterclaim and it is not plead with the requisite specificity of Rule 9(b). II. Standard of Review on a Motion to Dismiss: Pursuant to Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a short and plain statement of the claim showing that the pleader is entitled to relief. If a pleader fails to satisfy Rule 8(a), the opposing party may file a motion to dismiss the claims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6); Davis v. Seterus, Inc., No. 5:16-CV-933-DAE, 2016 WL 6242368 (W.D. Tex. Nov. 15, 2016). A court must construe the complaint in favor of the plaintiff and accept all well-pleaded facts as true. Harbert v. Farmers Texas County Mutual Insurance Co., No. W-13-CV-143, 2013 WL 12130312 (W.D. Tex. Oct. 15 2013). “However, a court need not blindly accept each and Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 3 of 22 4 every allegation of fact; properly pleaded allegations of fact amount to more than just conclusory allegations or legal conclusions ‘masquerading as factual conclusions.’” Id. *2 citing Taylor v. Books A Million, Inc., 296 F.3d 376 (5th Cir. 2002). See Also Kiggundu v. CQHEQ, Inc., No. A- 16-CA-242-SS, 2016 WL 6534270 (W.D. Tex. Nov. 2 2016) (“However, a court is not bound to accept legal conclusions couched as factual allegations”). “A Plaintiff need not make detailed factual allegations, but must make more than an ‘unadorned, the-defendant-unlawfully-harmed- me’ allegation.” Id. Finally, “[w]hen reviewing a motion to dismiss, a district court must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Funk v. Stryker Corp., 631 F.3d 777 (5th Cir. 2011). III. Arguments A. Defendant’s fraud counterclaim is barred by the economic loss rule Because Defendant’s fraud counterclaim does not allege any injury independent of the contractual obligations in the policy, it is barred by the economic loss rule. Under Texas law, “[t]he economic loss rule precludes recovery in tort when the loss complained of is the subject matter of a contract between the parties.” Farshchi v. Wells Fargo Bank, N.A., No. H-15-1692, 2016 WL 2858903 (S.D. Tex. May 13, 2016). “A claim in tort will not lie when the only injury alleged is for economic damages that are caused by the failure to perform a contract. Nevertheless, a plaintiff may bring a tort claim if she can establish that she suffered an injury independent of the economic losses caused by the breach of contract.” Id. *7; See Also Walker v. Citimortgage, Inc., No. H-13-03111, 2014 WL 67245 (S.D. Tex. 2014) Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 4 of 22 5 (“Under the economic loss rule, mere nonfeasance under a contract creates liability only for breach of contract. When the injury is only the economic loss to the subject of a contract itself, the action sounds in contract alone. Thus, generally a plaintiff cannot recover for a tort claim unless he or she suffers damages that are separate and independent from the economic losses recoverable under a breach of contract claim.” (internal citations omitted)). Although the Texas Supreme Court has found that the economic loss rule does not to apply to fraudulent inducement claims, the rule does apply to other fraud claims including common law fraud. See Rivers v. Wells Fargo Home Mortg., No. H-12-2616, 2013 WL 1389977 (S.D. Tex. Apr. 4 2013) (“The Texas Supreme Court has stated that fraudulent inducement claims, unlike other fraud claims, are not subject to the economic-loss rule”); Walker, 2014 WL 67245 *5 (“An independent injury is still required for other types of fraud claims…”). The Fifth Circuit and the United States District Courts in Texas have repeatedly found that the economic loss rule bars common law fraud claims that do not allege an independent injury. See Payne v. Wells Fargo Bank Nat. Ass’n, 637 Fed. Appx. 833 (5th Cir. 2016); Yumilicious Franchise, L.L.C v. Barrie, 819 F3d 170 (5th Cir. 2016) (“Why Not's fraud and negligent misrepresentation claims are based on its franchise agreements with Yumilicious…Therefore, the economic loss rule dictates that any losses Why Not suffered as a result of the franchise agreements give rise to claims sounding in contract, not tort”); Farshchi, 2016 WL 2858903 *7 (“These alleged representations do not give rise to liability independent of Farshchi's contractual relationship with Wells Fargo under the promissory note and Deed of Trust; rather, the alleged tort damages are economic and arise from claims dependent upon the existence of a contract. Farshchi has not alleged an independent injury” (internal citations omitted)); Walker, 2014 WL 67245 *5; Rivers, 2013 WL 1389977 *3; Gonzales v. Bank of America, N.A., No. G-12-292, 2013 WL 140093 (S.D. Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 5 of 22 6 Tex. Jan. 10, 2013); Garcia v. Universal Mortg. Corp., No. 3:12-CV-2460, 2013 WL 1858195 (N.D. Tex. May 3, 2012); Daryani v. Wells Fargo Bank, N.A., No. 4:10-cv-0518, 2012 WL 3527924 (S.D. Tex. Aug. 13, 2012) (“Here, any complaints by Plaintiff about Wells Fargo's misrepresentations, or their failure to provide information relating to the loan or the alleged modification agreement relate to the parties' contractual relationship, and cannot, as a matter of law, form the basis of a fraud claim”). In Payne, the plaintiff signed a promissory note and deed of trust with Wells Fargo for her home. Id. at 834. After that home was damaged by fire, the plaintiff defaulted on her loan and thereafter filed for bankruptcy. Id. During the bankruptcy, pursuant to the terms of the deed of trust, the plaintiff’s insurer tendered payment of insurance proceeds to Wells Fargo. Id. Per the deed of trust, Wells Fargo was supposed to either reduce the indebtedness of the loan or repair the property. Id. Wells Fargo did neither. Id. Once the plaintiff’s bankruptcy proceedings were dismissed, Wells Fargo foreclosed on the property and purchased it at the foreclosure sale. Id. The plaintiff then sued Wells Fargo for, among other causes of action, common law fraud by failing to disclose the receipt of the insurance proceeds. Id. On appeal, the Fifth Circuit stated that the economic loss rule, “generally precludes recovery in tort for economic losses resulting from the failure of a party to perform under a contract.” Id. at 837. With respect to Payne’s fraud allegations, the Court explained that, “[t]he various misrepresentations that Payne alleges caused her injury are directly related to the deed of trust and arise solely from her contractual relationship with Wells Fargo.” Id. The Court therefore concluded that, “[b]ecause her fraud claim is premised on Wells Fargo’s performance under the note, her claim is barred by the economic loss rule.” Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 6 of 22 7 Just as the Fifth Circuit applied the economic loss rule to the plaintiff’s common law fraud claims in Payne, this Court should apply the economic loss rule to dismiss Defendant’s counterclaim for fraud. In the instant case, with respect to damages, Defendant vaguely alleges that “the acts, omissions and other wrongful conduct, as described above, have caused Philadelphia to suffer actual damages in the amount of $100,000 or less, including damages of any penalties, costs, pre- judgment interest, and attorneys fees.” It is unclear from Defendant’s allegations exactly what damages it is claiming, aside from attorney’s fees. But any expenses incurred by Defendant in investigating the claim would be merely incidental to its duties under the policy contract and corresponding to the litigation. Under Texas law “expenses incurred in prosecuting or defending a suit are not recoverable as costs unless recovery for those items is expressly provided for by statute, rule, or under principles of equity.” Gumpert v. ABF Freight System, Inc., 312 S.W.3d 237 (Tex. Ct. App. - Dallas 2010, no pet.); See Also Profitlive Partnership v. Surber, 2010 WL 1999461 (Tex. Ct. App. - Fort Worth 2010, no pet.) (“litigation expenses, including the value of time lost due to litigation, generally are not recoverable unless expressly provided by statute or contract or recoverable under equitable principles”); Griffin v. Carson, 2009 WL 1493467 (Tex. Ct. App. - Houston (1st Dist.) 2009, pet denied) (“Regardless of any good cause shown, costs of experts are incidental expenses in preparation for trial and not recoverable”). Moreover, the policy contract at issue, which Defendant referenced in its Counterclaim, provides coverage for Plaintiff’s covered property losses. The policy obligates Plaintiff to report its losses and cooperate in Defendant’s investigation of its claim. The policy contract specifically provides an exclusion to coverage for “dishonest acts by you, anyone else with an interest in your property, your or their employees or authorized representatives or anyone else entrusted with the Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 7 of 22 8 property whether or not acting alone or in collusion with other person occurring during hours of employment.” The policy further provides in its General Conditions section that “This Coverage Part is void in any case of fraud, intentional concealment or misrepresentation of a material fact by you or any other insured, at any time, concerning.: 1. This Coverage Part; 2. The Covered Property; Your interest in the Covered Property; or 4. A claim under this Coverage Part.”1 Based on the allegations of the counterclaim and the contract provisions, it is clear that Defendant is merely seeking to hold Plaintiff liable for actions that, if they were true, would breach the terms of the policy contract. Similar to Payne, the various misrepresentations that Defendant alleges to have caused its injury, including Plaintiff’s “false” reporting of its loss and alleged concealment of facts during Defendant’s investigation, are directly related to the insurance policy and arise solely from Plaintiff’s contractual relationship with Defendant. Put more simply, in Payne, the plaintiff alleged that Wells Fargo committed fraud by concealing receipt of insurance proceeds in direct violation of the deed of trust conditions for receipt of insurance proceeds. Here, Defendant alleges that Plaintiff committed fraud by “false” reporting of its loss and concealing “man-made” damage in direct violation of the policy conditions for reporting covered losses and cooperating in Defendant’s investigation. The Policy, therefore, contains actual provisions dealing with the very scenario for which Defendant is suing. Therefore, as in Payne, because Defendant’s allegations are directly covered by the policy between the parties, its claim is barred by the economic loss rule. 1 The existence of these policy provisions further evidences Defendant’s bad faith and dilatory motives in filing its counterclaim. Defendant has not denied coverage to Plaintiff or sought a declaratory action to void the policy pursuant to these provisions as such baseless accusations would clearly amount to a bad faith denial. Rather, Defendant is attempting in bad faith to avoid its contractual obligations by intimidating and harassing Plaintiff with a fraud counterclaim. Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 8 of 22 9 B. Defendant fails to sufficiently plead fraud under Rule 9(b) Even if Defendant’s fraud claim were not barred by the economic loss rule, Defendant has failed to properly allege a cause of action for fraud under the heightened Rule 9(b) pleading standard. Although Defendant attempts to allege that Plaintiff has committed fraud by reporting a false date of loss and by reporting “man-made” damage, it has instead alleged a mere dispute as to the cause and extent of property damage. Under Texas law, the elements of fraud are: “(1) a material representation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of its truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury.” Garcia v. Ocwen Loan Servicing, LLC, No. 5:15-CV-743-DAE, 2016 WL 4734740 (W.D. Tex. Sept. 8, 2016). See Also Harbert, 2013 WL 12130312 *4 (same). In addition to Texas law, the Federal Rules of Civil Procedure require a heightened pleading standard for alleging fraud claims. Rule 9(b) provides that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). “In order to avoid dismissal under Rule 9(b) for lack of particularity, the Fifth Circuit has held a plaintiff must: (1) specify each statement alleged to have been misleading, i.e., contended to be fraudulent; (2) identify the speaker; (3) state where and when the statement was made; (4) plead with particularity the contents of the false representations; (5) plead with particularity what the person making the misrepresentation obtained thereby; and (6) explain the reason or reasons Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 9 of 22 10 why the statement is misleading, i.e., why the statement is fraudulent.” City of Pontiac General Employees’ Retirement System v. Asar, No. A-14-CA-1026-SS, 2016 WL 1322484 (W.D. Tex. Apr. 1, 2016) citing Rosenzweig v. Azurix Corp., 332 F.3d 854 (5th Cir. 2003) (stating that the particularity requirement under the PSLRA incorporates at a minimum, the pleading standard for fraud under Rule 9(b) and listing the above six prongs as necessary to avoid dismissal under Rule 9(b)). See Also Matassarin v. Grosvenor, No. SA-13-CA-913-RP, 2015 WL 12734174 (W.D. Tex. Oct. 19, 2015) (“To satisfy the pleading requirements, Grosvernor and Deseo must specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent”). The 9(b) requirements are intended to “provide fair notice to the defendant of the plaintiff's claim, protect the defendant from harm to his reputation and goodwill, reduce strike suits, and prevent plaintiffs from filing baseless claims and then attempting to discover unknown wrongs.” Andres Holding Corp. v. Villaje Del Rio, Ltd., No. SA-09-CV-127, 2011 WL 3444010 (W.D. Tex. Aug. 8, 2011) (internal citations omitted) Facts and circumstances constituting fraud must be specifically demonstrated and cannot be presumed from vague allegations. Whiddon v. Chase Home Finance, LLC, 666 F.Supp.2d 681 (E.D. Tex. 2009) citing Howard v. Sun Oil Co., 404 F.2d 596, 601 (5th Cir.1968), Nathenson v. Zonagen Inc., 267 F.3d 400, 419-20 (5th Cir.2001). Moreover, the fact and circumstances constituting fraud must be plead “before access to discovery is granted.” Id. at 691 (“Rule 9(b) does not permit a party to make conclusory allegations and then, through the discovery process, gain more specific information and amend his pleadings to satisfy the particularity requirement”). Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 10 of 22 11 A party alleging common law fraud must further provide significant factual detail to support an inference of scienter, a knowing misrepresentation. In re Enron Corp. Securities, Derivative & ERISA Litigation, 761 F.Supp.2d 504 (S.D. Tex. 2011) citing Flaherty & Crumrine Preferred Income Fund, Inc. v. TXU Corp., 565 F.3d 200 (5th Cir. 2009). Although intent and knowledge under Rule 9(b) may be pled generally, scienter requires “more than a simple allegation that a defendant had fraudulent intent; the pleading must set forth specific facts that support an inference of fraud.” Andres Holding Corp. v. Villaje Del Rio, Ltd., No. SA-09-CV-127, 2011 WL 3444010 (W.D. Tex. Aug. 8, 2011) (internal citations omitted); See Also Encompass Office Solutions, Inc. v. Ingenix, Inc., 775 F.Supp.2d 938 (E.D. Tex. 2011) (“While Rule 9(b) provides that intent and knowledge ‘may be alleged generally,’ this is not a license to base claims of fraud upon conclusory allegations”). The scienter requirement for fraud can be satisfied by showing (1) the defendant’s motive to commit fraud or (2) identifying circumstances that indicate conscious behavior of the part of the fraudster. Andres Holding Corp., 2011 WL 3444010 *3. Encompass Office Solutions, Inc., 775 F.Supp.2d at 955. (“The requirements for such specific facts can be satisfied by (1) alleging facts that show a defendant’s motive to commit fraud, or (2) identifying circumstances that indicate conscious behavior on the part of the defendant, with the strength of such circumstantial allegations being correspondingly greater.”) “A plaintiff will not survive a Rule 9(b) motion to dismiss on the pleadings by simply alleging that a defendant had fraudulent intent.” Lovelace v. Software Spectrum Inc., 78 F.3d 1015 (5th Cir. 1996). A showing of scienter by recklessness similarly requires that the plaintiff “allege facts showing that the speaker made a statement as a definitive assertion knowing he was without knowledge as to the truth.” In re Enron Corp. Securities, Derivative & ERISA Litigation, 761 Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 11 of 22 12 F.Supp.2d at 536. In order to raise a question of recklessness for a fraud claim, there must be more evidence than merely that the person making the representation turned out to be wrong. American Dream Team, Inc. v. Citizens State Bank, 481 S.W.3d 725 (Tex. Ct. App. - Tyler 2015, pet. denied). In the instant case, Defendant does not specifically demonstrate the facts and circumstances surrounding Plaintiff’s alleged fraud. The only factual allegations with respect to Plaintiff are: (1) Plaintiff reported a claim for hail damage through its authorized agent at PIA-Pathfinder/LL&D Insurance Group; (2) an unnamed independent third party contractor Plaintiff previously hired to perform repairs did not point out hail damage to Defendant’s adjuster, but did point out damages to three-tab shingles on the buildings consistent with high winds; (3) Plaintiff submitted an initial damage estimate prepared by its independent contractor to Defendant’s adjuster; (4) Plaintiff’s unnamed independent contractor mentioned to Defendant’s engineer that there had been a storm in April, which he believed to have caused the damage at issue; (5) Plaintiff’s insurance agent asked Defendant to resend its check to Plaintiff’s attorney; (6) After Defendant issued payment for a mere fraction of Plaintiff’s initial estimate, Plaintiff retained an independent consultant to prepare damage estimates; (7) Plaintiff replaced the roofs of its buildings; (8) Plaintiff’s independent third party claims consultant as well as its other independent consultants prepared reports for Defendant regarding their independent assessment of damages and necessary repairs; (9) Plaintiff’s own retained experts issued rebuttals to Defendant’s Marshall report, disputing nearly every detailed included in the report; and (10) Plaintiff filed suit. Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 12 of 22 13 (Def.’s 2nd Am. Answer and Countercl., ¶ 100, 103, 104, 107, 116, 117, 118, 119, 125, 126, ECF 31) 2. In addition to these factual allegations, to support its claims of falsity, Defendant relies on what it refers to as the “report issued by Plaintiff’s expert Lewis O’Leary” from December 2014. (Id. ¶100, 107). Specifically, Defendant alleges that “[t]he statement that the buildings had sustained hail damage, on April 14, 2014, was not true. One of Plaintiff’s own experts, Lewis O’Leary, issued a report in 2014 stating, in relevant part, ‘The evidence will later show that the hail event was miles away from this location.’” (Id. ¶100). Defendant further alleges, “[a]s noted in the preceding paragraph 100, a report issued by Plaintiff’s expert Lewis O’Leary concludes, in part, that the buildings were not damaged by hail in April 2014.” (Id. ¶107). However, Defendant is blatantly, and in bad faith, mispresenting this document and its contents. The quotation to which Defendant refers is not from a report by Lewis O’Leary, but rather directly from an engineering report by Daniel C. Smith, PE, provided to Defendant in December 2014. This report, as well as other reports-that Mr. O’Leary actually prepared-fully support Plaintiff’s position and refute Defendant’s counterclaims. Moreover, Defendant has quoted only a snippet of a longer paragraph, which discusses how the loss notice was filled out by the Broker for this policy, who did not take the time to investigate the true date of loss on behalf of Plaintiff. The paragraph from Mr. Smith’s report specifically states: Based upon our 4 decades of experience and training as a Property Loss Consultant, and input from involved individuals, we believe that the original Loss Notice was filled out by the Broker for this policy and that the absence of any reported significant wind speed at any of the area monitoring stations on either the 13th or 14th (40 mph max on the 13th and 45 mph on the 14th), the broker elected to not investigate further and assigned the incident to hail, based solely upon the fact that a hail storm did occur in the general area during 2 The listing of Defendant’s factual allegations shall not be construed as an admission of any of Defendant’s allegations, including, but not limited to those listed. Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 13 of 22 14 the April 13th - 14th period. The evidence will later show that the hail event was miles away from this location. (emphasis added). Indeed, the evidence provided by Mr. Smith in his report did later show that the date of loss was March 28, 2014, and explained why it had been initially reported in April. More specifically, Smith stated: By delving deeper into the readily available weather data, the more specific data afforded us the visibility to see that the reason no one was able to put the entire picture together here, regarding what happened and when, was because the wind damages created went unnoticed because the March 28th event was largely a wind event with only 0.15” of rain, whereas the April 13th - 14th event included 0.65” of rain (see attachment #10). Simply put, the wind force available on March 28th was higher than any of the storms before it, at least as far back as the year since the property was last inspected for the April 2013 purchase. This same storm produced wind force at least 50% higher than the wind force on either April 13th or 14th. Accordingly, it appears that the damage was more than likely done on March 28th but that the storm lacked sufficient rain fall to alert the construction crew of the problem until the significantly wetter event that occurred 2 weeks later. This conclusion by Mr. Smith, along with several others in his report, not only support the March 28, 2014 date of loss, but also make clear that Defendant has been on notice regarding this date of loss and the explanation for it for nearly two years.3 Defendant even recognizes in its Counterclaim that the date of Plaintiff’s loss as alleged in the Petition is March 28, 2014. (Id. ¶98). The aforementioned pretextual, conclusory, and misleading factual allegations of Defendant’s counterclaim therefore fail to meet the Rule 9(b) standard with respect to both the allegedly “false” date of loss and the alleged “man-made” damage. Defendant has not shown how any of Plaintiff’s representations or actions as alleged, taken independently or together, were 3 Plaintiff’s corrected proof of loss for its date of loss on March 28, 2014 was attached along with Mr. Smith’s December 2014 report provided to Defendant in December 2014. Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 14 of 22 15 fraudulent. Indeed, throughout Defendant’s investigation of the claim, Plaintiff has provided Defendant with damage estimates and reports prepared by independent third party consultants supporting and explaining all of Plaintiff’s representations. (Id. ¶ 104, 117, 119, 125). Plaintiff was likewise fully within its rights to correct its proof of loss with the proper date of loss, and provided Defendant with an explanation of its correction approximately two years ago, through its expert report by Mr. Smith. See U. S. Fire Ins. Co. v. Lynd Co., 399 S.W.3d 206 (Tex. App. - San Antonio 2012. pet. denied) (finding that errors and mistakes in a proof of loss may be correct or explained by the insured); In re Republic Lloyds, 104 S.W.3d 354, 359 (Tex.App.-Houston [14th Dist.] 2003, no pet.) (same). Furthermore, with respect to scienter, Defendant fails to allege that Plaintiff made a knowing misrepresentation. Defendant has failed to allege any facts from which the Court could plausibly infer that Plaintiff’s representations were false, or made with knowledge of falsity. Although Plaintiff’s engineer concluded that there was man-made damage to the shingles (which Plaintiff disputes), it does not follow that Plaintiff made the damage or knew the damage was man- made. In fact, in pursuing its claim, Plaintiff relied largely on the damage estimates and reports prepared by independent consultants which supported Plaintiff’s representations and, as Defendant acknowledged, refute all of Defendant’s allegations. (Id. ¶ 104, 117, 119, 125). Defendant has further provided no facts regarding Plaintiff’s motive to commit fraud or identified any circumstances that indicate Plaintiff’s conscious behavior to commit fraud. It is not enough for Defendant to simply allege that Plaintiff had fraudulent intent. See Lovelace, 78 F.3d at 1018. Defendant is also required to allege specific facts showing that Plaintiff made a statement as a definitive assertion knowing it had no knowledge of its truth. Defendant has not made this showing Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 15 of 22 16 because it cannot do so. As Defendant admitted in its pleadings, Plaintiff relied on third party experts who refuted nearly every detail made by Defendant’s expert. (Id. ¶ 125). At most, Defendant’s allegations show a standard dispute between an insured and insurer regarding the cause and extent of property damage. Defendant does not explain why such a dispute gives rise to fraud and, as shown above, the law supports no such inference. As a result, in the instant case, this Court should apply Rule 9(b) as it is intended-to protect Plaintiff from harm to its reputation and good will by a baseless fraud claim and to prevent insurance companies like Defendant from filing strike suits to force insureds to drop their claims or settle privately. Therefore, as Defendant has failed to adequately plead fraud under Rule 9(b), its fraud counterclaim should be dismissed for failure to state a cause of action. C. Defendant relied on its own investigation, rather than the representations of Plaintiff Defendant’s fraud counterclaim further fails to allege that it relied on any representations made by Plaintiff. Rather, Defendant relied solely on its own investigation and expert opinions, and was not hindered or hampered in its investigation by the actions of Plaintiff. The Fifth Circuit has stated broadly that, “[w]here a party makes its own investigation of the facts, or relies on an expert opinion it has itself obtained, it cannot sustain a cause of action based on misrepresentation by others.” Truitt v. Unum Life Ins. Co. of America, 729 F.3d 497 (5th Cir. 2013) quoting Ehler v. St. Paul Fire and Marine Ins. Co., 66 F.3d 771 (5th Cir. 1995). More recently, a Dallas appellate court provided a narrower holding regarding an insurer’s reliance on an insured’s representations. Fulgham v. Allied Property and Cas. Ins. Co., 2015 WL 3413525 (Tex. Ct. App. - Dallas 2015). The Court in Fulgham stated that “[a] party who claims to have been defrauded and conducted his own investigation will not be prevented from relying on representations made to him by the alleged fraudster so long as the party was hindered or hampered Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 16 of 22 17 in his investigation by the alleged fraudster or did not rely solely on his investigation.” Id. *3 (finding that the insurer could rely on the insured’s representations for purposes of alleging fraud as the insurer relied on the insured’s documents including the insured’s damage estimates in making payment and the insured affirmatively acted to hamper insurer’s investigation by forging documents and instructing employees to lie). Following the Fifth Circuit’s broader holding in Truitt, Defendant cannot sustain a cause of action based on Plaintiff’s alleged misrepresentations because it is clear from Defendant’s counterclaim that it made its own investigation and relied solely on expert opinions it obtained itself. Following the Dallas appellate court’s more narrow holding in Fulgham, Defendant still cannot sustain a cause of action for fraud against Plaintiff as Defendant relied solely on its own investigation and was not hampered or hindered by Plaintiff. Unlike Fulgham, where the insurer actually relied on the documents provided by the insured, here, Defendant conducted its own complete investigation. It hired an outside adjuster (Doug Lumpkin) and two Engineers (Scott Podres and Timothy Marshall) to prepare comprehensive reports. (Def.’s 2nd Am. Answer and Countercl., ¶ 103-115, 120-124, ECF 31). Defendant based the $6,143.36 payment it made to Plaintiff solely on the conclusions of Mr. Lumpkin and Mr. Podres’ reports. (Id. ¶ 113-114) (“Relying upon Scott Podres’ accounting of 501 wind-damages shingles, Mr. Lumpkin used the Xactimate estimating software to develop an estimate to spot-replace a total of 1,002 roof shingles…The insurance policy Philadelphia issued to Spring Street contains a $5,000.00 deductible. Applying this deductible to Doug Lumpkin’s estimate resulted in a net claim of $6,143.36”). Defendant’s refusal to pay any further amounts is based solely on Mr. Marshall’s conclusions. (Id. ¶121-122) (“Based on the foregoing [excerpts from Mr. Marshall’s report], as Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 17 of 22 18 supported by the various attachments, exhibits and references Mr. Marshall included in his report, Philadelphia has reason to believe that the apparent wind-related damage to the roofs of Spring Street’s building was “mechanical damage” - a technical term for man-made damage”). Indeed, Defendant’s entire fraud claim is based upon the conclusion by Defendant’s own retained engineer that there was man-made damage. See Camden Mac. & Tool, Inc. v. Cascade Co., 870 S.W.2d 304 (Tex. Ct. App. - Fort. Worth 1993) (“However, when a person makes his own investigation of the facts, and knows the representations are false, he cannot, as a matter of law, be said to have relied upon the misrepresentations of another”). Because Defendant made its own investigation, it allegedly “knows” that Plaintiff’s representations are false and therefore did not rely on Plaintiff’s representations. As a result, Defendant cannot as a matter of law be said to have relied upon Plaintiff’s alleged misrepresentations. Defendant has furthermore not alleged that Plaintiff hindered or hampered Defendant’s investigation in any way. Rather, Defendant alleges that its adjuster and engineers conducted inspections on the property on at least three separate occasions and were accordingly, without any issue, able to prepare comprehensive opinions rejecting the damages that Plaintiff’s adjusters and engineers had reported. Even assuming arguendo that Plaintiff’s independent third party damage estimates and engineering reports contain false information (which they do not), Defendant clearly ignored those estimates and reports in their entirety in reaching its own, opposite conclusions. Defendant conducted its own investigation, obtained reports from its adjuster and engineer, and relied solely on those expert opinions in making, and refusing to make payment to Plaintiff. Defendant did not rely on any representations made by Plaintiff and Defendant has alleged no actions by Plaintiff that hindered or hampered its investigation. Indeed, the majority of Defendant’s counterclaim details the in-depth and complete investigation that Defendant completed with Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 18 of 22 19 respect to the damages. There are only approximately ten out of the twenty-nine total factual allegations in Defendant’s counterclaim that even mention representations or actions by Plaintiff. (Id. ¶ 100, 103, 104, 107, 116, 117, 118, 119, 125, 126). Therefore, Defendant did not rely on any representations made by Plaintiff for purposes of alleging fraud and its fraud counterclaim should be dismissed as a matter of law. D. Defendant’s conspiracy claim is derivate of its fraud claim and Defendant fails to sufficiently plead conspiracy under Rule 9(b) Defendant’s conspiracy claim must fail because it is derivative of its fraud claim and because Defendant fails to sufficiently plead conspiracy under Rule 9(b). Under Texas law, the elements of conspiracy are: “(1) two or more persons, (2) an object to be accomplished, (3) a meeting of the minds on the object or course of action, (4) one or more unlawful, overt acts, and (5) damages as a proximate result.” County of El Paso, Tex. v. Jones, No. EP-09-CV-00119-KC, 2009 WL 4730345 (W.D. Tex. 2009). A conspiracy claim which is derivative of a fraud claim must be dismissed if the underlying fraud claim is not plead with the particularity required by Rule 9(b). Casares v. Agri-Placement Intern., Inc., 12 F.Supp.3d 956 (S.D. Tex. 2014); See Also County of El Paso, Tex. v. Jones, 2009 WL 4730345 *8 (“Allegations of conspiracy alone, however, are insufficient to sustain a claim of conspiracy to commit fraud. A plaintiff must also state a claim for the underlying fraud offense”). “A pleading alleging civil conspiracy to commit fraud must meet the heightened pleading standard of Federal Rule of Civil Procedure 9(b).” U.S. Enercorp, Ltd. v. SDC Montana Bakken Exploration, LLC, No. SA:12-CV-1231-DAE, 2014 WL 1491252 (W.D. Tex. Apr. 15, 2014); See Also Hernandez v. CIBA-GEIGY Corp. USA, No. Civ. A. B-00-82, 2000 WL 33187524 (S.D.Tex. Oct. 17, 2000) (“The weight of Fifth Circuit precedent holds that a civil conspiracy to commit a tort that sounds in fraud must be pleaded with particularity”). Therefore, a claim Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 19 of 22 20 for conspiracy to commit fraud must plead with particularity the conspiracy as well as the overt acts taken in furtherance of the conspiracy. Id. *4.; See Also U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009). As shown above, Defendant has not-and cannot-plead a cause of action for fraud that meets the standard of Rule 9(b). That claim, therefore, should be dismissed. Likewise, Defendant’s conspiracy counterclaim, as derivative of its fraud counterclaim, should also be dismissed. Defendant’s conspiracy counterclaim should further be dismissed because it fails to sufficiently plead facts demonstrating a conspiracy to commit fraud under Rule 9(b). Defendant alleges that “Spring Street combined, conspired and agreed with one or more persons, the identity of which Philadelphia intends upon learning through discovery, roofing to defraud Philadelphia in connection with the claims described in this pleading. More particularly, Spring Street had knowledge of, agreed to, and intended a common objective or course of action with other persons by seeking to induce Philadelphia to make payments in the insurance policy it issued to Spring Street, all with the intention of obtaining financial benefits to which Spring Street was not entitled.” (Def.’s 2nd Am. Answer and Countercl., ¶ 135, ECF 31). This is a mere conclusory statement lacking any of the requisite specifity of Rule 9(b). First and foremost, Defendant has failed to identify the participants of this alleged conspiracy. Defendant asserts that it will learn who participants are during discovery. (Id. ¶ 122). However, “Rule 9(b) does not permit a party to make conclusory allegations and then, through the discovery process, gain more specific information and amend his pleadings to satisfy the particularity requirement.” Whiddon v. Chase Home Finance, LLC, 666 F.Supp.2d 681 (E.D. Tex. 2009). Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 20 of 22 21 Defendant further fails to specify any interactions between persons, what actions were decided upon, or when any of the meeting of the minds occurred between those unnamed and unknown conspirators. Defendant does not provide a factual background to allow an understanding of how Defendant and its conspirators reached an agreement equivalent to a conspiracy to defraud. None of Defendant’s factual allegations provide details of independent actions taken by Plaintiff and its conspirators. None of Defendant’s factual allegations relate to Plaintiff and its conspirators acting in concert together, reaching an agreement to defraud or any situations where they could have a meeting of the minds. The only allegation relating to such an agreement is the conclusory allegation mentioned above, which contains no factual support. See Murex LLC v. GRC Fuels, Inc., No. 3:15-CV-3789-B, 2016 WL 4207994 (N.D. Tex. Aug. 10, 2016) (granting motion to dismiss conspiracy to commit fraud claims based on these same deficiencies). Therefore, as Defendant fails to allege the requisite particularity for conspiracy to commit fraud under Rule 9(b), Defendant’s conspiracy counterclaim should be dismissed as a matter of law. IV. Conclusion and Prayer As shown above, Defendant’s counterclaim for fraud is barred by the economic loss rule. Moreover, Defendant’s allegations are merely conclusory with no supporting facts and do not state a claim under Rule 8 or Rule 9(b). Defendant also did not rely on any statements of misrepresentation made by Plaintiff. As a result, Defendant’s counterclaims for fraud and conspiracy to commit fraud fail as a matter of law. For the foregoing reasons, Defendant prays that this Court will grant Plaintiff’s Motion and dismiss Defendant’s amended counterclaims. Plaintiff further requests an oral hearing on its Motion pursuant to Federal Rule of Civil Procedure 27 and Local Rule CV-7. Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 21 of 22 22 DATED this 28th day of December, 2016. The Bukowski Law Firm, P.C. ______________________ Sean Bukowski Texas Bar No. 24031896 1601 Rio Grande, Suite 300A Austin, Texas 78701 sbukowski@bukowskilawfirm.com (512) 614-0335 (832) 201-0822 (fax) ATTORNEYS FOR PLAINTIFF CERTIFICATE OF SERVICE This is to certify that on December 28th, 2016, a true and correct copy of the foregoing document was served electronically on the following parties: Ramona Martinez Cobb Martinez Woodward PLLC 1700 Pacific Avenue, Suite 3100 Dallas, TX 75201 rmartinez@cobbmartinez.com William R. Pilat Kane Russell Coleman & Logan PC 5051 Westheimer Road, 10th Floor Houston, TX 77056 wpilat@krcl.com John P. Palmer Naman, Howell, Smith & Lee, PLLC P.O. Box 1470 Waco, Texas 76703 palmer@namanhowell.com Sean Bukowski Case 6:16-cv-00315-JCM Document 35 Filed 12/28/16 Page 22 of 22