Ocean Gold Seafoods Inc et al v. Hartford Steam Boiler Inspection and Insurance Company, No. 3:2018cv05425 - Document 157 (W.D. Wash. 2020)
Court Description: ORDER denying Defendant HSB's 141 Motion to Dismiss Count Six of Plaintiffs' Second Amended Complaint. Signed by Judge James L. Robart. (LH)
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Ocean Gold Seafoods Inc et al v. Hartford Steam Boiler Inspection and Insurance Company 1 Doc. 157 HONORABLE JAMES L. ROBART 2 3 4 5 6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA 7 8 9 OCEAN GOLD SEAFOODS INC., et al. ORDER 10 Plaintiffs, v. 11 12 13 CASE NO. C18-5425JLR HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY, 14 Defendant. 15 I. INTRODUCTION 16 17 THIS MATTER is before the court on Defendant Hartford Steam Boiler 18 Inspection and Insurance Company’s (“HSB”) Motion to Dismiss Count Six 19 (Reformation—Mutual Mistake) of Plaintiffs Ocean Gold Seafoods Inc. (“Ocean Gold”), 20 Ocean Cold, LLC (“Ocean Cold”), and Ocean Protein, LLC’s (“Ocean Protein”) 21 (collectively, “Ocean Companies”) second amended complaint. (Mot. (Dkt. # 141).) The 22 23 case involves an insurance coverage dispute. Ocean Gold claims that it and HSB intended that the HSB policies Ocean Gold purchased would provide coverage for its 24 ORDER - 1 Dockets.Justia.com 1 sister corporations, Ocean Cold and Ocean Protein. HSB argues that Ocean Gold has 2 failed to plausibly plead the elements of a reformation claim based on mutual mistake 3 under Federal Rule of Civil Procedure 12(b)(6) and failed to plead such facts with 4 5 particularity as required by Rule 9(b). The court has considered the motion, the parties’ submissions in support of and in opposition to the motion, the relevant portions of the 6 record, and the applicable law. Being fully advised, the court DENIES HSB’s motion. 7 II. BACKGROUND. 8 9 10 The facts were detailed in the court’s prior order (6/22/20 Order (Dkt. # 138)) denying HSB’s Motion for Summary Judgment (see 1st MSJ (Dkt. # 74)) and granting 11 Ocean Gold’s Motion for Leave to Amend its complaint (MTA (Dkt. # 76)). 1 The 12 contract reformation claim that is the subject of the current motion was added in response 13 to that order. 14 Ocean Gold is a custom seafood processor. It has two subsidiaries, or sister 15 companies—Ocean Cold and Ocean Protein. Ocean Gold’s primary facility is located on 16 Yearout Drive in Westport, Washington. Ocean Gold owns the fish processing 17 18 equipment at the Yearout location, but Ocean Cold owns the cold storage facility and its extensive refrigeration equipment. Ocean Protein owns a separate fish meal processing 19 facility in Hoquiam, Washington 20 21 22 23 24 1 The prior order also resolved a separate pair of summary judgment motions, on whether the loss was caused by a covered accident. (See 2d MSJ (Dkt. # 87); 3d MSJ (Dkt. # 90).) The facts in the current order were gleaned from the comprehensive record supplied in connection with the prior motions. ORDER - 2 1 Ocean Gold purchased a series of HSB “Equipment Breakdown” property 2 insurance policies beginning in 2008. These are not “all risk” policies; they are “named 3 peril” policies, providing coverage for “fortuitous events [accidents] causing direct 4 5 physical damage to covered property.” (Anderson Decl. (Dkt. ## 22-1, 22-2).) The policies were effective from August 29 of one year to August 29 of the next. Each policy 6 names Ocean Gold as the Named Insured, and the Yearout facility as the covered 7 location. They do not name Ocean Cold or Ocean Protein. 8 9 10 In May 2016, Ocean Gold hired a contractor to recover and clean 9,000 pounds of R-22 Freon refrigerant from one of its systems. Ocean Gold planned to, and did, place 11 the recovered Freon into Ocean Cold’s refrigeration system. Over the summer of 2016, 12 the Ocean Cold facility began leaking and losing its ability to hold the required negative 13 20-degree Fahrenheit temperature. On September 2, 2016, Ocean Cold moved the 14 product out of a portion of the cold storage facility because the refrigeration system could 15 not keep the facility cold enough to preserve its contents—millions of pounds of frozen 16 seafood. HSB claims this was a business decision, not the result of an accident. Ocean 17 18 Gold claims it was forced to move the product to avoid spoilage and a greater loss. Some of that seafood was apparently moved to Ocean Protein’s facility in Hoquiam. 19 Ocean Gold made a claim under its HSB Equipment Breakdown policy a week 20 later. HSB investigated and determined that the system had suffered a “breakdown” and 21 22 23 could not maintain the required temperatures. HSB’s investigator also determined that a 2001 Teikoku liquid motor pump had catastrophically failed. HSB did not pay or deny 24 ORDER - 3 1 the claim, or inform Ocean Gold of its coverage position, for more than a year. Ocean 2 Gold hired its own claim consultant to investigate the loss and assist with the claim. 3 4 5 In October 2017, HSB paid Ocean Gold $717,000 for the failed liquid motor pump and for related business interruption and extra expenses losses under its policies. 2 In April 2018, HSB denied coverage for any other losses. Ocean Gold sued a month later, 6 asserting breach of contract and extra-contractual bad faith claims. (Compl. (Dkt. # 1).) 7 HSB moved for summary judgment on its defense that its insured, Ocean Gold, 8 9 10 did not own or control the damaged Ocean Cold refrigeration system, and that Ocean Cold was not a named insured under HSB’s policies. (See generally 1st MSJ.) Ocean 11 Gold sought leave to amend, to add a Washington Consumer Protection Act claim and to 12 add Ocean Cold and Ocean Protein as plaintiffs. Ocean Gold argued persuasively that 13 HSB did not raise the “named insured” defense when the claim was tendered in 2016, or 14 in its 2018 coverage denial letters. It argues now that HSB’s claims file does not reflect 15 that the issue was analyzed, discussed or even noticed, and that HSB did not raise it until 16 Rule 30(b)(6) depositions earlier this year. (Resp. (Dkt. # 147) at 3.) 17 18 The court denied HSB’s motion for summary judgment because there was evidence from which a reasonable jury could find that Ocean Gold and HSB intended the 19 HSB policies to cover all of Ocean Gold’s entities, locations, and equipment. (6/22/20 20 21 2 22 23 24 Two HSB policies are at issue because the events took place between May and September, and the policy renewed in August. Ocean Gold demonstrated in response to a prior summary judgment motion that it had purchased similar HSB policies each year since 2008. HSB now claims that its policies were not identical, but does not articulate how they differ or how those differences relate to the issues in the case or on this motion. ORDER - 4 1 Order at 11.) This evidence included the fact that, in 2010, HSB issued an endorsement 2 adding Ocean Cold and its Yearout refrigeration facility to that year’s policy, without 3 changing the premium it charged for it. That facility remained on the policies’ “Schedule 4 5 of Locations” in subsequent years, though Ocean Cold was not listed as a named insured on subsequent policies. Most compellingly, on the loss that is the subject of this lawsuit, 6 HSB paid more than $700,000 for damage caused by the liquid pump motor. Ocean 7 Cold, not named insured Ocean Gold, owned—and continues to own—the pump motor 8 9 10 11 12 and the pump system. The court concluded there was evidence from which a reasonable jury could find that both parties were honestly mistaken about who and what was insured. (Id.) The court also granted Ocean Gold’s motion to amend, concluding that 13 amendment would not prejudice HSB and that the claim for coverage for Ocean Cold and 14 Ocean Protein would not be futile. As to the latter point, the court specifically concluded 15 that Ocean Gold’s claim that both parties intended to include the other entities and 16 locations was “plausible on its face, and could survive a Rule 12(b)(6) motion to 17 18 dismiss.” (6/22/20 Order at 7.) Ocean Gold filed its second amended complaint (“SAC”) in June 2020. (SAC 19 (Dkt. # 139).) Ocean Cold and Ocean Protein are now plaintiffs. The Ocean Companies’ 20 SAC alleges most of the facts described above. It includes a claim to reform the contract 21 22 23 to include Ocean Cold and Ocean Protein and their respective locations on the policy, based on what they claim was a mutual mistake about who was insured under the HSB 24 ORDER - 5 1 policies they purchased. The claim relies on these factual allegations, and is set forth 2 below: 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 (SAC at 12.) 24 ORDER - 6 1 HSB now asks the court to dismiss this claim under Rules 12(b)(6) and 9(b), 2 arguing that the SAC does not plausibly or particularly state a claim for contract 3 reformation based on a mutual mistake. It intentionally and unusually frames its motion 4 5 as a challenge to the Ocean Companies’ pleading, not to the evidence that the court has already viewed, analyzed, and discussed. 6 Ocean Companies argue HSB’s motion is frivolous, and that it “flies in the face” 7 of the court’s prior order. They point to all the evidence submitted and considered on the 8 9 10 prior round of motions, and the court’s conclusions about what that evidence showed. It argues its SAC does state a plausible reformation claim and that it does so with the 11 requisite particularity. It argues that under Rule 12(d), if the court considers the evidence 12 in support of its claim, HSB’s motion should be converted to a summary judgment 13 motion. Finally, Ocean Companies point out that the corrective for a complaint that fails 14 to state a plausible claim is amendment, not dismissal, unless the deficiencies cannot be 15 cured as a matter of law. 16 17 18 HSB replies that the evidence Ocean Gold cites to “back fill” the gaps in its complaint are insufficient, and emphasizes that it does not seek summary judgment. Implicit in this argument is a concession that there is evidence supporting a reformation 19 claim, but HSB claims the SAC is insufficiently pled and should be dismissed. If the 20 court converts the motion to one for summary judgment, HSB asks the court to permit it 21 22 to provide its own evidence on the issue. 23 24 ORDER - 7 1 III. DISCUSSION. 2 Dismissal under Rule 12(b)(6) may be based on either the lack of a cognizable 3 legal theory or the absence of sufficient facts alleged under a cognizable legal theory. 4 5 Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A plaintiff’s complaint must allege facts to state a claim for relief that is plausible on its face. See 6 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim has “facial plausibility” when the 7 party seeking relief “pleads factual content that allows the court to draw the reasonable 8 9 10 inference that the defendant is liable for the misconduct alleged.” Id. Although the court must accept as true the Complaint’s well-pled facts, conclusory allegations of law and 11 unwarranted inferences will not defeat an otherwise proper Rule 12(b)(6) motion to 12 dismiss. Vazquez v. Los Angeles Cty., 487 F.3d 1246, 1249 (9th Cir. 2007); Sprewell v. 13 Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). “[A] plaintiff’s obligation to 14 provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and 15 conclusions, and a formulaic recitation of the elements of a cause of action will not do. 16 Factual allegations must be enough to raise a right to relief above the speculative level.” 17 18 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations and footnotes omitted). This requires a plaintiff to plead “more than an unadorned, the-defendant-unlawfully- 19 harmed-me-accusation.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. 544). 20 On a Rule 12(b)(6) motion, “a district court should grant leave to amend even if no 21 22 23 24 request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts.” Cook, Perkiss & Liehe v. N. Cal. Collection Serv., 911 F.2d 242, 247 (9th Cir. 1990). However, where the facts are not in ORDER - 8 1 dispute, and the sole issue is whether there is liability as a matter of substantive law, the 2 court may deny leave to amend. Albrecht v. Lund, 845 F.2d 193, 195–96 (9th Cir. 1988). 3 4 5 To state a plausible claim for reformation based on mutual mistake, the party seeking reformation must plead that (1) both parties to the instrument had an identical intention as to the contract’s terms, (2) the executed writing materially varies from that 6 identical intention, and (3) reformation to express that identical intention will not unfairly 7 affect innocent third parties. See Leonard v. Washington Emp., Inc., 461 P.2d 538, 543 8 9 10 (Wash. 1969). “A mutual mistake occurs if the parties had the same intentions but their written agreement does not accurately express their intentions.” GLEPCO, LLC v. 11 Reinstra, 307 P.3d 744, 752 (Wash. Ct. App. 2013). Under Washington law, mutual 12 mistake can be grounds for reformation, an equitable remedy that brings a writing that is 13 materially different from the parties’ agreement into conformity with that agreement. Id. 14 “A party seeking reformation must prove the facts supporting it by clear, cogent, and 15 convincing evidence.” Id. (citing Akers v. Sinclair, 226 P.2d 225, 231 (Wash. Ct. App. 16 1950)). 17 18 The court is not inclined to convert HSB’s motion into one for summary judgment, and it need not do so to resolve the motion. The straightforward issue is whether the 19 SAC plausibly states a reformation claim, and whether it does so with enough 20 particularity to satisfy Rule 9(b). Even if it does not, the follow-on issue—whether the 21 22 23 24 SAC could be amended to plausibly state a reformation claim—has already been decided. The court previously ruled that there is evidence from which a reasonable jury could find that the parties were mistaken about the named insureds under the policy. ORDER - 9 1 HSB has yet to explain, for example, why it paid for Ocean Cold’s pump motor if it did 2 not intend to insure that entity or that equipment. HSB does not dispute that Ocean 3 Companies’ reformation claim could be so amended, even if it also argues that it could 4 5 attack the evidentiary support for such an amended claim under Rule 56 in yet another round of motions practice. 6 As Ocean Companies accurately point out, the purpose of Rule 9(b)’s specificity 7 requirement for claims based on mistake is to “afford defendant fair notice of the 8 9 10 plaintiffs claim and the factual ground upon which it is based.” (Resp. at 13 (citing Ross v. Bolton, 904 F.2d 819, 823 (2d. Cir. 1990)); see also Kearns v. Ford Motor Co., 567 11 F.3d 1120, 1124 (9th Cir. 2009) (fraud allegations “must be specific enough to give 12 defendants notice of the particular misconduct . . . so that they can defend against the 13 charge[.]”). The SAC’s factual allegations are not as detailed as those in the briefs, and, 14 at times, are conclusory. If HSB’s motion was aimed at an initial complaint containing 15 only the facts described above, the court may have been inclined to order Ocean 16 Companies to amend their complaint to more fully flesh out the factual allegations 17 18 supporting their claim that the parties were mutually mistaken about who and what was covered under the HSB policies. But HSB’s motion to dismiss follows discovery and 19 three prior motions for summary judgment. (See 1st MSJ; 2d MSJ; 3d MSJ.) The court 20 has already reviewed a banker’s box of exhibits and testimony. HSB is fully aware of the 21 22 facts upon which Ocean Companies’ claim is based, and upon which the court previously 23 24 ORDER - 10 1 ruled. 3 Indeed, HSB is already prepared to produce new and different facts in opposition 2 to Plaintiffs’ evidence. (See Reply (Dkt. # 155) at 3, n.2 (“As noted in HSB’s opening 3 brief, evidence outside the four corners of the SAC establishes a lack of mutual intent to 4 5 include Ocean Cold and Ocean Protein as named insureds.”).) There is little to be gained in inviting another amended complaint and perhaps 6 another motion on this issue. The dispute is not about the allegations, it is about the facts, 7 and it is not amenable to resolution under Rule 12(b)(6). Thus, the court DENIES HSB’s 8 9 motion to dismiss. IV. CONCLUSION 10 11 For the reasons set forth above, HSB’s motion to dismiss Count Six 12 (Reformation—Mutual Mistake) of Plaintiffs’ second amended complaint (Dkt. # 141) is 13 DENIED. 14 IT IS SO ORDERED. 15 Dated this 9th day of November, 2020. 16 A 17 JAMES L. ROBART United States District Judge 18 19 20 21 22 23 24 3 To the extent HSB’s motion is effectively one for reconsideration of the court’s prior Order, it is denied as untimely under Local Rule 7. See Local Rules W.D. Wash. LCR 7(h)(1). ORDER - 11
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