VOLUME XXII, NUMBER 2
February, 2010

LANDMARK SUPREME COURT DECISION ALTERS MANNER IN WHICH COURTS DETERMINE MOTIONS TO DISMISS UNDER RULE 12( b)(6)

On May 23, 2007, the U.S. Supreme Court, in Bell Atlantic Corp. v. Twombly, changed the standard that had been utilized by federal courts since 1957 to assess the sufficiency of a complaint being attacked by a motion to dismiss. Twombly involved a potential class action brought against local telephone carriers for alleged antitrust violations of the Sherman Act, but the facts of the case are not germane to this article. The holding in Twombly has been held to be applicable to all civil actions, not just antitrust claims, because the Supreme Court’s decision was based upon its “interpretation and application” of Fed.R.Civ.P. 8 and it therefore "expounded the pleading standard for 'all civil actions.'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1953 (2009) (quoting Fed.R.Civ.P. 1). Under the standard set forth in Twombly, a complaint must "state a claim to relief that is plausible on its face" in order to survive a motion to dismiss. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).

Prior to the Supreme Court’s decision in Twombly, federal courts had used the less stringent standard set out in Conley v. Gibson, which held that dismissal of a complaint for failure to state a claim was improper "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In Twombly, the Court explained that this oft-quoted passage from Conley was "best forgotten as an incomplete, negative gloss on an accepted pleading standard; once a claim has been stated adequately, it may be supported by showing any asset of facts consistent with the allegations in the complaint." Twombly, 550 U.S. at 563. The Court noted that immediately preceding this oft-quoted passage from Conley was the court’s summary of the “concrete allegations” of the complaint which amply stated a claim for relief. Id. In other words, the standard enunciated in Conley, which the federal courts had relied upon since 1957, was taken out of context and Conley actually “described the breadth of opportunity to prove what an adequate complaint claims, not the minimum standard of adequate pleading to govern a complaint’s survival.” Id.

The Supreme Court’s holding in Twombly makes clear that in order to survive a motion to dismiss and state a "plausible" claim for relief, the complaint must plead sufficient factual allegations that enable a court to draw a reasonable inference that the defendant is liable for the conduct asserted in the complaint. Id. at 556. The Court was careful to note that its decision did not amount to requiring a “heightened fact pleading of specifics,” but rather, required that one plead “only enough facts to state a claim to relief that is plausible on its face." Id. at 570. Thus, Twombly makes clear that while it is not necessary to set out in detail the facts supporting a claim in a pleading, it is necessary to at least allege some facts to support each element of the claim asserted. Id. at 556, fn. 3. “Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirement of not only providing ‘fair notice’ of the nature of the claim, but also the ‘grounds’ upon which the claim rests. Rule 8(a) ‘contemplate[s] the statement of circumstances, occurrences, and events in support of the claim presented’ and does not authorize a pleader’s ‘bare averment that he wants relief and is entitled to it.’” Id., (citations omitted). Accordingly, Plaintiffs will no longer be able to rely upon legal conclusions posing as factual allegations to support their claims. Instead, Twombly now requires that they plead facts that support each element of the claim asserted in order to survive a motion to dismiss.

 Karen J. Jerome Smith

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SUBCONTRACTOR LIABLE FOR PREJUDGMENT INTEREST ON ALL DAMAGES INCLUDING ATTORNEYS’ FEES FOR FAILURE TO PROCURE INSURANCE NAMING CONTRACTOR AS INSURED

In Capital Environmentalist Services, Inc. v. Earth Tech, Inc., 34 Fla. L. Weekly D2467 (Fla. 1 st DCA 2009), the First District Court of Appeal recently affirmed the trial court’s ruling allowing the jury to award attorney’s fees and costs incurred by Earth Tech in a separate but related declaratory judgment action, and reversed the trial court’s ruling denying Earth Tech prejudgment interest on those same attorney’s fees and costs.

The facts were as follows: Earth Tech, Inc., hereafter “Earth Tech”, contracted with the State of Florida to clean up a hazardous waste site. Earth Tech subcontracted with Capital Environmentalist Services, Inc., (hereinafter “CES”), to transport the waste from the site. Pursuant to the terms of the subcontractor contract entered into between Earth Tech and CES, CES had to obtain insurance to protect Earth Tech from claims that might arise out of the actions of CES or any of its subcontractors. The contract specifically required CES obtain insurance that named Earth Tech as a named insured. To comply with the terms of the contract, CES obtained an insurance policy from United States Fire Insurance Company, (hereinafter “US Fire”), which included coverage for automobile accidents. However, unbeknownst to Earth Tech, it was not a named insured on that policy.

Fast forward a couple of years, a woman and her husband were injured in an automobile accident near the waste site. The couple sued Earth Tech, Earth Tech’s employee, and Freehold for negligence. Earth Tech turned to US Fire to defend the claim filed against it. But, US Fire denied coverage for the accident because Earth Tech was not a named insured under the insurance contract purchased by CES.

In hopes of establishing that US Fire was required to defend Earth Tech in the lawsuit filed against it, Earth Tech filed a Petition for Declaratory Judgment in Federal Court. Earth Tech sought a ruling that US Fire had a duty to defend the negligence lawsuit on its behalf. The Federal District Court denied Earth Tech’s Petition. The court ruled that US Fire had no duty to defend Earth Tech in the negligence suit.

Soon after the Federal Court’s ruling, Earth Tech and Freehold settled the negligence suit, with each agreeing to pay $250,000.00 in damages. Thereupon, Earth Tech filed a complaint for damages sounding in breach of contract among other claims against CES. Earth Tech alleged that CES breached the subcontractor contract by failing to obtain the proper insurance policy which included Earth Tech as a named insured. Both parties moved for summary judgment. The trial court granted Earth Tech’s Motion and denied CES’ Motion. The trial court then set the issue of causation and damages for jury trial.

The jury found for Earth Tech. The jury awarded Earth Tech $554,000.00 in damages arising from the negligence suit and an additional $31,535.00 in damages arising from the declaratory judgment action against US Fire. The trial court entered a final judgment which included prejudgment interest for the negligence case but not for the declaratory judgment case.

Both CES and Earth Tech appealed the final judgment.

The only issue raised by CES addressed by the District Court of Appeal was whether Earth Tech was entitled to an award of attorney’s fees and costs for the declaratory judgment action filed by Earth Tech against US Fire. The District Court held that Earth Tech was entitled to an award of fees and costs because an “injured party is entitled to recover all damages that are causally related to the breach so long as the damages were reasonably foreseeable at the time the parties entered into the contract.” In this case, all the damages awarded by the jury were causally related and a foreseeable result of CES’ breach. If CES had not breached the contract, i.e. if it had obtained the proper insurance policy which included Earth Tech as a named insured, Earth Tech would not have had to pursue the declaratory judgment action against US Fire. The District Court affirmed the trial court’s ruling on this issue.

Regarding Earth Tech’s appeal of the trial court’s denial of its request for prejudgment interest on the entire jury award, the District Court of Appeal reversed the trial court’s ruling. The District Court held that the trial court erred by not including prejudgment interest for the entire verdict amount, specifically for all attorney’s fees and costs awarded by the jury in relation to the declaratory judgment action, in its final judgment. Since the attorney’s fees and costs were specific elements of damage awarded by the jury, Earth Tech was entitled to interest on those awards as well. The Court fixed the date for determining the prejudgment interest for the declaratory judgment action as the date that the Federal Court denied Earth Tech’s petition.

Joshua S. Leroy

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THIRD DCA LOOKS OUTSIDE THE BOX TO DETERMINE WHETHER REJECTION OF PROPOSAL FOR SETTLEMENT IS REASONABLE

 In Segundo v. Reid, 34 Fla. L. Weekly D1995 (Fla. 3d DCA, September 30, 2009), the Third District Court of Appeal ruled that all relevant criteria regarding the facts and circumstances of each case should be analyzed to determine whether or not the rejection of a Proposal for Settlement is reasonable.

Cedric Reid (“the Plaintiff”) filed an auto negligence action against Eucenda Segundo (“the Defendant”) following a car accident caused by the Defendant’s failure to stop at a stop sign. The Defendant admitted liability, but disputed the amount of damages claimed by the Plaintiff. The Plaintiff initially claimed injuries to his neck and back as a result of the car accident. During the proceedings, the Plaintiff filed a Proposal for Settlement, which the Defendant rejected.

Subsequently, the Plaintiff amended his claim for damages, alleging that his shoulder was also injured as a result of the car accident. The Plaintiff did not file a second Proposal for Settlement. At trial, the jury returned an award to the Plaintiff for Plaintiff’s injuries to his neck, back and shoulder, which was at least 25% greater than the amount of Plaintiff’s Proposal for Settlement. Accordingly, the Plaintiff filed a motion for attorney’s fees and costs, which the trial court granted pursuant to the unaccepted Proposal for Settlement. The Defendant appealed the trial court’s ruling.

The Third District Court of Appeal held that although the Proposal for Settlement was made in good faith at the time it was submitted, the trial court abused its discretion in failing to consider all relevant criteria regarding the relationship between the submission of the Proposal for Settlement and the jury’s award of damages to determine whether the Defendant’s rejection of the Proposal for Settlement was unreasonable. Given that at the time it was submitted, the Proposal for Settlement encompassed only the Plaintiff’s claim for injuries to his neck and back, the Third District Court of Appeal reversed the trial court’s order and ruled that an award of attorney’s fees was not reasonable given the facts and circumstances of the instant case. Specifically, if the jury verdict was reduced by the amount of damages the Plaintiff claimed for the shoulder injury, which was not known by either party at the time the Proposal for Settlement was submitted, then the amount of the verdict would not total at least 25% of the amount of the Proposal for Settlement, and an award of attorney’s fees to the Plaintiff would be improper.

In addition, the Third District Court of Appeal made a point of distinguishing the facts of this case, stating that an award of attorney’s fees would result in unjust punishment to the Defendant for rejecting a Proposal for Settlement that encompassed only part of the damages claimed by the Plaintiff. An award of attorney’s fees in this instance would also result in a windfall to the Plaintiff, who would benefit from increasing the amount of claimed damages without changing the scope of the damages encompassed by the Proposal for Settlement. The Third District Court of Appeal reversed the trial court’s order and ruled that the award of attorney’s fees was unreasonable given the circumstances of this case.

 Meghan Wilson