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Brock v. Jim Hipner, LLC

United States District Court, D. North Dakota

January 25, 2017

Huey Brock, Plaintiff,
v.
Jim Hipner, LLC, Robert Lopez, Does 1 Through 50, Inclusive, Defendants.

          ORDER DENYING DEFENDANTS' MOTION TO DISMISS

          CHARLES S. MILLER, JR., MAGISTRATE JUDGE UNITED STATES DISTRICT COURT.

         I. BACKGROUND

         A. The accident and the partial settlement

         On March 31, 2011, Huey Brock (“Brock”) was involved in a car accident with a truck owned by Jim Hipner, LLC (“Hipner”) and operated by Robert Lopez, Hipner's employee. As a result of injuries sustained in the accident, Brock became quadriplegic. At the time of the accident, Hipner had a $1 million primary insurance policy with Great West Casualty Company (“Great West”). Hipner also carried a $2 million excess insurance policy with Century Surety Company (“Century”). Prior to any litigation, Brock, Hipner, Lopez, and Great West entered into a settlement agreement dated March 23, 2013 (Docket No. 9-1), under which Great West agreed to pay Brock the policy limit of $1 million. The motion currently before the court focuses upon the effect of this agreement in relation to Brock's current negligence claim against Hipner and Lopez.

         The settlement agreement, in pertinent part, provides:s

         SETTLEMENT AGREEMENT AND RELEASE

         WHEREAS a motor vehicle collision occurred on March 31, 2011, at or about 6:15 p.m., on U.S. Highway 2 east of Williston, North Dakota, involving multiple motor vehicles, including one owned by Jim Hipner, LLC, WHEREAS Huey Brock sustained injuries as a result of that accident, which include, but are not limited to: Quadriplegia, WHEREAS at the time, Jim Hipner LLC had a policy of liability insurance coverage providing $1, 000, 000.00 per occurrence combined single policy limit coverage with Great West Insurance Company to indemnify it and, furthermore, had a $2, 000, 000.00 excess or umbrella insurance policy with Century Surety Company, which would indemnify him to said amount.

         * * * *

         WHEREAS Huey Brock claims that the amount needed to fully compensate him for his damages, injuries and losses exceeds the sum of the liability of both the Great West Insurance Company policy and the Century Surety Company policy, WHEREAS Huey Brock and Jim Hipner LLC are desirous of resolving that portion of Huey Brock's claim that involves the financial responsibility of Great West Insurance Company, and of limiting the financial exposure of Jim Hipner LLC, its owners, agents, and employees (including Robert Lopez) on the basis of an agreement consistent with Drake v. Ryan, 514 N.W.2d 786 (Minn. 1994), allowing Huey Brock to take the $1, 000, 000.00 policy limit of the liability insurance coverage from Great West Insurance Company and preserving his claims related to any and all coverage provided by Century Surety Company, WHEREAS Huey Brock expressly reserves any and all rights and claims he has against Jim Hipner LLC and Robert Lopez to the extent of any insurance coverage provided by the Century Surety Company policy, and accordingly, this Settlement Agreement and Release does not have the effect of a general release, NOW THEREFORE in consideration of the payment of the policy limit of $1, 000, 000.00 by Great West Insurance Company on behalf of Jim Hipner LLC and Robert Lopez, the receipt of which is acknowledged, Huey Brock agrees as follows:

1. Settlement. Huey Brock and Jim Hipner LLC agree that the reasonable value of all of Huey Brock's claims for damages growing out of the injuries sustained in the motor vehicle collision of March 31, 2011, are in an amount in excess of $3, 000, 000.00. Huey Brock stipulates and agrees to settle a portion of his claim against Jim Hipner LLC and Robert Lopez for a total of the policy limit of $1, 000, 000.00, pursuant to the principles of Drake v. Ryan, 514 N.W.2d 786 (Minn. 1994), and agrees that said damages will be collectable only from applicable liability insurance coverage, and not from the personal assets of Jim Hipner LLC, its owners, agents and employees, including Robert Lopez. In the event that a judgment is entered upon Huey Brock's claims, Huey Brock will only seek to satisfy such judgment from Century Surety Company or any other liability insurance company providing coverage to Jim Hipner LLC or Robert Lopez, and any such judgment is explicitly not satisfiable by attachment of, nor shall it become a lien upon, any assets or property of Jim Hipner LLC or Robert Lopez.
2. Release. Huey Brock, upon payment of the $1, 000, 000.00 liability limits by Great West Insurance Company, hereby releases Jim Hipner LLC, its owners, employees (including Robert Lopez), or any other person or entity affiliated with Jim Hipner LLC, and Great West Insurance Company, from any and all liability arising out of the injures and damages which he sustained as a result of the motor vehicle collision of March 31, 2011, on U.S. Highway 2 east of Williston, North Dakota, except as such claims are preserved herein and satisfiable out of liability insurance coverage provided by Century Surety Company or any other liability insurance company.
* * * *
4. Limitation of Claim Against Jim Hipner LLC and Robert Lopez. Huey Brock agrees to limit his claim against Jim Hipner LLC, its owners, agents or employees, including Robert Lopez, to the available liability insurance coverage from Century Surety Company and not to pursue Jim Hipner LLC or Robert Lopez for any personal assets. Huey Brock expressly agrees and acknowledges that Jim Hipner LLC, its owners, agents, or employees, including Robert Lopez, are not personally exposed to any liability to Huey Brock beyond insurance coverage available from Century Surety Company and Huey Brock will only seek to satisfy any judgment he obtains against Jim Hipner LLC or Robert Lopez by means of insurance coverage available to them. However, if a verdict or judgment is obtained by Huey Brock in excess of the insurance coverage available from Century Surety Company, Huey Brock will seek to satisfy any judgment against Century Surety Company for any and all amounts in excess of the umbrella or excess insurance coverage amount.
5. All Other Claims Preserved. Consistent with the above terms, Huey Brock preserves every other claim, against every person, by this agreement. It is agreed that Huey Brock is not fully compensated by the payment of $1, 000, 000.00 by Great West Insurance Company for the injures which he received in this collision.
6. Assignment. Jim Hipner LLC hereby assigns to Huey Brock its right to indemnity from Century Surety Company, and all other rights and/or claims against Century Surety Company, or any other liability insurance company providing coverage to Jim Hipner LLC, including but not limited to claims for breach of the covenant of good faith and fair dealings, bad faith, breach of contract, and/or for the amount of this settlement, together with its right to recover attorney's fees, costs and expenses in pursuing his claim and coverage under the Century Surety Company policy of insurance.

(Docket No. 9-1).

         B. The two other cases

         Following the settlement agreement, three separate litigations ensued before this court, including this case. The current motion requires examination of the two other cases.

         1.Century Surety Co. v. Jim Hipner LLC, Case No. 4-12-cv-164

         On December 4, 2012, Century filed a declaratory judgment action seeking a declaration it had no obligation to defend or indemnify Hipner in connection with any claims relating to the accident. Century Surety Co. v. Hipner, LLC, No. 4-12-cv-164, 2015 WL 11143135 (D.N.D. April 24, 2015). Both parties moved for summary judgment. Id. at *1. The court granted Century's motion, in part, on April 25, 2015. In the order, the court concluded Wyoming law controlled interpretation of the insurance contract between Century and Hipner. Id. at **4-7. The court also concluded Hipner complied with the notice requirement necessary to trigger insurance coverage. Id. at **8-10.

         With respect to whether Century had a duty to defend and indemnify the defendants, the court concluded that, given the “ultimate net loss” provision of its policy, its coverage was not triggered until liability and the amount of damages were determined by either a settlement or a judgment in excess of the underlying policy limits. And, because there was neither, the court concluded there was no present duty to defend or indemnify. Id. at *12 (“There is arguably no right of action or claim under the excess insurer's policy until such time as liability and the amount of damages have been determined by reason of a settlement or a judgment in excess of the underlying policy limits.”). The court then limited its declaration to the following:

[Century] is not obligated to defend or indemnify Hipner LLC or Lopez at this point in connection with any claims arising out of or relating to the accident that occurred on March 31, 2011. However, in the event a justiciable controversy exists in the future, both the primary carrier and the excess carrier may be obligated to defend or indemnify.

Id. at *13.

         While there is some language in the court's decision which suggests that the court read the settlement agreement as Brock having released defendants from all liability whatsoever with respect all claims, there are other statements, including that set forth above, where the court notes the possibility of Brock still being able to file an action against them and that Century may be obligated to provide both a defense and indemnity. The court will return to this later. Suffice it to say now, however, that anything the court stated about the extent of the release was not necessary to the limited declaration that Century had no present duty to defend or indemnify since there was neither a judgment of liability on the part of the defendants, much less an action filed against them seeking a determination of their liability, or a triggering settlement.

         Even though Century was the prevailing party with respect to the court's limited declaration, it appealed that part of the court's decision that Hipner had complied with the notice provision under its policy. On appeal, the Eighth Circuit Court of Appeals certified questions to the Wyoming Supreme Court regarding the effect of the notice requirement in the insurance contract between Century and Hipner, which were answered in Century Surety Co. v. Jim Hipner, LLC, 377 P.3d 784 (Wyo. 2016). After this response, the Eighth Circuit affirmed this court's judgment, albeit on the alternative grounds Century had not shown any prejudice resulting from Hipner's failure to provide Century with timely notice of the accident. Century Surety Co. v. Jim Hipner, LLC, 842 F.3d 606, 612 (8th Cir. 2016).

         2. Brock v. Century Surety Co., Case No. 4-14-cv-156

         On December 4, 2014, Brock filed an action against Century, as assignee of Hipner's rights under the settlement agreement, for breach of contract and tortuous breach of the implied covenant of good faith and fair dealing. (Docket No. 1). Brock alleged Century, despite having proper notice of the accident, actively sought to deny coverage in bath faith. Century filed a motion to dismiss for failure to state a claim. (Docket No. 17). Century argued Brock's claims were compulsory counterclaims that must have been asserted in the declaratory action and, in the alternative, that the settlement agreement released the defendants from all liability. On September 16, 2015, the court denied Century's motion to dismiss. (Docket No. 30). The court concluded Brock's claims were not compulsory counterclaims because the claims operated on facts distinct, and subsequent to, those facts implicated in the previous declaratory action. (Id. at pp. 9-10). With regard to whether the settlement agreement precluded any liability on the part of the defendants in this action, the court stated:

Century Surety next contends that because Brock released Hipner LLC from all liability for the underlying accident in the underlying settlement agreement, Brock can no longer sue Hipner LLC for that liability and potentially trigger excess coverage under the Century Surety umbrella policy. See Docket No. 25. Brock argues that whether Hipner LLC has been released of all liability is immaterial for purposes of Brock's bad faith claims against Century Surety. See Docket No. 27. The Court notes that liability regarding the motor vehicle accident is the crux of Case No. 4:15-cv-84. Because a jury or a court will adjudicate liability and liability-related issues in Case No. 4:15-cv-84, as well as other disputed factual or legal issues, including the effect of the release, the Court finds that it is premature to decide the implications of the release in this particular case at this time. Accordingly, the Court will defer ruling on the legal effects of the release in this case until it has been fully addressed and adjudicated in Case No. 4:15-cv-84.

(Id. at p. 10). Based on these conclusions, the court denied Century's motion to dismiss. (Id.).

         C. This action

         On June 23, 2015, Brock initiated this action alleging negligence against Hipner, Lopez, and Does 1-50 (collectively “defendants”). (Docket No. 1). Without answering, defendants filed the motion currently before the court, moving to dismiss Brock's complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. (Docket No. 7). The motion was held in abeyance while the appeal in Century's declaratory action was being decided. With the resolution of that appeal, the motion is now back before the court.

         II. DISCUSSION

         A. Introduction

         The standard for whether to grant a motion to dismiss under Fed.R.Civ.P. 12(b)(6) for failure to state a claim is well-established. Under Rule 12(b)(6), the court must accept all factual allegations set forth in the complaint as true. Although the court may generally look only to those allegations set forth in the complaint, “the district court may sometimes consider materials outside the pleadings, such as materials that are necessarily embraced by the pleadings and exhibits attached to the complaint.” Mattes v. AVC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003) (citing Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999)).

         Defendants advance three arguments for why the complaint should be dismissed. First, they contend that this court decided in Century's declaratory judgment action that Brock did not reserve any claim against them under the settlement agreement and that he is now collaterally estopped from contending otherwise. Second, even if the court did not conclude that Brock had released all of his claims against defendants, they make that argument now. Third, defendants argue that, even if Brock reserved a claim, the reservation is void under North Dakota law.

         Technically speaking, defendants are “jumping the gun” in raising these issues by way of a Rule 12(b)(6) motion. Nowhere in the complaint is the settlement agreement mentioned. Further, release and collateral estoppel are affirmative defenses that normally must be asserted in an answer. Nominally, the issue now is whether Brock's complaint states a claim as a matter of law, which it clearly does, at least on its face.

         That being said, in response to defendants' motion, Brock has not disputed that the settlement agreement was entered into nor has he objected to the court's consideration of defendants' release arguments, choosing instead to address them on the merits. Consequently, the court will address them now. Also, the court will address the collateral estoppel issue, even though it was not raised by defendants until their reply brief, since it can be resolved in Brock's favor.[1]

         B. Brock is not collaterally estopped from bringing this action

         Defendants argue collateral estoppel applies to Brock's current action because, according to them, the court's decision in the earlier declaratory judgment action held Brock released all of his claims against Hipner and Lopez under the Settlement Agreement. Under North Dakota law, collateral estoppel, or issue preclusion, “bars relitigation of issues which were necessarily litigated and decided, or which by implication must have been litigated and decided, in a prior action.” Riverwood Commercial Park, L.L.C. v. Standard Oil Co., Inc., 2007 ND 36, ¶ 20, 729 N.W.2d 201. An issue was “necessarily decided” if “‘the determination of the former action could not have been made without determining' the issue in question.” Id. at ¶ 21 (quoting Knutson v. Ekren, 72 N.D. 118, 125, 5 N.W.2d 74, 78 (1942)). This principle allows revisiting of incidental or collateral determinations of nonessential issues in subsequent litigation. Id.

         Here, defendants' collateral estoppel argument fails for two reasons. What the court ultimately concluded in the declaratory action was Century was not then obligated to defend or indemnify defendants because Brock had yet to acquire a judgment of liability or settlement in excess of the primary insurance binding upon Century, which the court concluded was a condition precedent to Century's obligation to defend given the “ultimate net loss” provision of its policy. Century Surety Co. v. Jim Hipner, LLC, 2015 WL 11143135, at *12.[2] What the court did not finally declare was that Century was under no obligation to defend or indemnify because Brock had failed to reserve any claim against defendants. The court repeatedly noted that future litigation could possibly provide a triggering judgment. See id. at p. 24 (stating “Century Surety is not legally obligated at this point in time to defend and indemnify” the Defendants); id. at p. 25 (stating “in the event a justiciable controversy exists in the future, both the primary carrier and the excess carrier may be obligated to defend or indemnify.”) (emphasis added). That future litigation is now currently before the court.[3]

         Second, to the extent the court's prior order in the declaratory judgment action can be read as opining on the legal effect of the settlement agreement in terms of the extent of any release, that discussion was not necessary for the final conclusion reached by the court. This is because, rather than broadly declaring that the settlement agreement foreclosed any duty on the part of Century to defend or indemnify defendants, the court limited its decision to declaring only that Century had no present duty because one had not yet been triggered under the “ultimate net loss” provision of the policy. As a result, the legal effect of the settlement agreement in terms of what is at issue in this case was not of necessity decided in the prior litigation, rendering collateral estoppel inapplicable.

         C. Defendants are not entitled to a Rule 12(b)(6) dismissal for failure to state a claim based on their proffered interpretation of the settlement agreement

         Defendants next argue that Brock's complaint must be dismissed because Brock did not reserve a viable claim against defendants under the Settlement Agreement. In support, they cite to particular phrases in the agreement that they contend fully released them from all claims arising from the accident.[4] Brock disagrees, citing to other provisions of the agreement that, under his ...


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