United States District Court, S.D. Iowa, Central Division
[Copyrighted Material Omitted]
For Weitz Company LLC, The, Plaintiff: Laura A. Freid-Studlo, LEAD ATTORNEY, David T Dekker, Laura R. Thomson, Melissa C Lesmes, PRO HAC VICE, PILLSBURY WINTHROP SHAW PITTMAN LLP, Washington, DC; John A Templer, Jr, WHITFIELD & EDDY PLC, WEST DES MOINES, IA; Richard J Kirschman, Stephen D Marso, WHITFIELD & EDDY PLC, DES MOINES, IA.
For Lexington Insurance Company, Allied World Assurance Company (U.S.), Inc., Defendants: John Anderson Camp, LEAD ATTORNEY, Bruce C. King, David Lanier Luck, Gary Michael Pappas, Steven J. Brodie, PRO HAC VICE, CARLTON FIELDS PA, Miami, FL; Daniel C. Brown, PRO HAC VICE, CARLTON FIELDS, P.A., Tallahassee, FL; John F Lorentzen, Richard J Sapp, NYEMASTER GOODE WEST HANSELL & O'BRIEN PC, DES MOINES, IA.
For Westchester Surplus Lines Insurance Company, Defendant: William Roderick Lewis, LEAD ATTORNEY, PRO HAC VICE, BUTLER PAPPAS WEIHMULLER KATZ CRAIG LLP, Tampa, FL; Joan M Fletcher, DICKINSON MACKAMAN TYLER & HAGEN PC, DES MOINES, IA; Terry J Abernathy, PICKENS BARNES & ABERNATHY, CEDAR RAPIDS, IA.
For Essex Insurance Company, Defendant: Joan M Fletcher, DICKINSON MACKAMAN TYLER & HAGEN PC, DES MOINES, IA; Kelly A Jorgensen, CLAUSEN MILLER PC, CHICAGO, IL.
For Lloyds of London, also known as Underwriters at Lloyds, Defendant: James M Hoey, James Robert Swinehart, Kelly A Jorgensen, Thomas S Gozdziak, PRO HAC VICE, CLAUSEN MILLER PC, CHICAGO, IL; Joan M Fletcher, DICKINSON MACKAMAN TYLER & HAGEN PC, DES MOINES, IA.
JOHN A. JARVEY, UNITED STATES DISTRICT JUDGE.
Plaintiff, the Weitz Company, LLC (" Weitz" ) filed a Complaint against the Defendants on June 4, 2010. [Dkt. No. 1.] Defendants are Lexington Insurance Company (" Lexington" ); Allied World Assurance Company (U.S.), Inc. (" Allied" ); Westchester Surplus Lines Insurance Company (" Westchester" ); Essex Insurance Company (" Essex" ); and Lloyd's of London, et. al., a/k/a/ Underwriters at Lloyd's (" Lloyd's Underwriters" ).  Weitz filed an amended complaint on October 28, 2010, a second amended complaint on March 3, 2011, and a third amended complaint on October 30, 2013.  [Dkt. Nos. 24, 68, 204.] The second amended complaint alleges two causes of action in equity: (1) subrogation and (2) unjust enrichment.  [Dkt. No. 68.] Defendants filed motions to dismiss pursuant to the second amended complaint.  On May 25, 2011, this Court issued an order denying Defendants' motions to dismiss. [Dkt. Nos. 89.]
This matter now comes before the Court pursuant to Lexington/Allied's motion for
summary judgment filed on April 4, 2013. [Dkt. No. 148.] The other Defendants, including Westchester, Essex, and Lloyd's Underwriters, joined Lexington/Allied's motion for summary judgment in part and filed separate briefs in support of summary judgment.  [Dkt. Nos. 152, 153.] On May 10, 2013, Weitz filed its resistance to Lexington/Allied's motion for summary judgment. [Dkt. No. 156.] The Court held oral argument on July 12, 2013.
This Court has diversity jurisdiction over the subject matter of this case pursuant to 28 U.S.C. § 1332(a)(1) and (a)(2) because there is complete diversity of citizenship between Weitz and the Defendants,  and an amount in controversy that exceeds $75,000, exclusive of interest and costs.  Venue is proper in the Southern District of Iowa under 28 U.S.C. § 1391(a)(2) because a substantial part of the events giving rise to the claim occurred therein. After reviewing the parties' briefs and relevant case law, this Court finds that there is no genuine issue of material fact, and Defendants' motions for summary judgment are GRANTED.
This case arises from the construction of a retirement community in Aventura, Florida. On January 8, 2001, the plaintiff, The Weitz Company, LLC (" Weitz" ), entered into a contract with CC-Aventura, Inc., an affiliate of the Hyatt Corporation (" Hyatt" ), to build a luxury-life residential
community. It consisted of two 23-story residential buildings (" the towers" ), an amenities building, an adjacent health center (" the care center" ), a plaza deck, and a parking garage. Upon its completion, Hyatt noticed defects in the property's workmanship. The damage was severe: there were cracks in the stucco on the towers and care center; cracks and water intrusion in the concrete floor slabs in the towers; defects in waterproofing and inadequate drainage in the towers and care center; water and moisture intrusion through the window system in the towers and care center; and damage to the plaza deck.
According to the second amended complaint, Allied, Axis, Essex, Lexington, Lloyd's Underwriters, and Westchester provided " all risk" property insurance policies to Hyatt covering the project. [Dkt. No. 142 Page 5]; [Dkt. No. 89 Page 4.] For instance, in late 2003, Lexington and Allied World issued commercial first-party property insurance policies to Hyatt insuring multiple Hyatt properties throughout the United States. [Dkt. No. 148-2 Page 4.] These policies included the Classic-Aventura property in Florida. [Dkt. No. 148-2 Page 4.] The policies provided insurance coverage for " direct physical loss or damage" to the covered properties for certain periods of time.  [Dkt. No. 148-2 Page 6.] The policies covered losses occurring during the policy time periods, and included contractual limitations and notice provisions.
In 2005, Hyatt, Lexington, and Allied entered into a settlement agreement, in which Lexington/Allied agreed to pay Hyatt $750,000 for the reported claims arising from the project.  In return, Hyatt released Lexington/Allied from liability. Weitz alleges that the agreement was coerced--that is, Lexington/Allied threatened not to renew Hyatt's coverage unless Hyatt agreed to a low settlement offer. The settlement agreement related to the reports Hyatt made about damages to the care center in or about September 2004, and damages to the towers in or about July 2005. Damages to the plaza deck were not reported until in or about the fall of 2008.
In 2006, after settling with Lexington/Allied, Hyatt filed a lawsuit against Weitz and MSA Architects, Inc. (" MSA" ) in the United States District Court for the Southern District of Florida, Miami Division, on grounds of breach of contract, breach of guaranty, and breach of applicable building codes.  Hyatt sought to recover $102 million for the costs it incurred to repair the construction and design defects, and to remediate the impact the
project had on Hyatt's business. Weitz blamed its subcontractors, bringing third-party claims against them, and Weitz made claims against its liability insurers. At that time, Weitz did not bring any third-party claims against Hyatt's first-party property insurers--the Defendants in this case.
In 2010, shortly before trial, Weitz entered into a settlement agreement with Hyatt. Pursuant to the agreement, Weitz paid Hyatt approximately $53 million for the property damage Hyatt suffered.  The Defendants allege that Weitz recovered $55,799,684 in connection with the litigation in Florida from settlements with its own liability insurers, subcontractors, and the sureties and insurers of its subcontractors.
Later that same year, Weitz sued Hyatt's first-party property insurers--the Defendants--in this Court on a breach-of-contract theory. Weitz amended its initial complaint to seek recovery in equity through subrogation and unjust enrichment. [Dkt. No. 68 Page 6.] Weitz alleges that the $53 million Weitz paid Hyatt for property damages should have been covered by Hyatt's insurance policies that were issued by the Defendants. Based on assignments from entities that contributed to the Hyatt/Weitz settlement, Weitz now seeks to recover a counterclaim of $4,963,404.18 that Weitz gave up as a part of that settlement.
As to the equitable and/or legal subrogation claim, Weitz argues that the Defendants are primarily liable for the property damage to the project because: (1) Weitz paid Hyatt for the property damage covered by the Defendants' policies; (2) Weitz made the settlement payment to Hyatt to protect its own interests; (3) Weitz's settlement payment to Hyatt was not voluntary; (4) Weitz's settlement payment served as payment of Defendants' entire debt; and (5) given that the settlement payment made by Weitz to Hyatt should have been made by the Defendants, subrogation against the Defendants would not work any injustice to them. See In re Chapala Intern., Inc., No. 94-1208-CH, 1995 WL 17911422, at *3-4 (Bankr. S.D. Iowa May 26, 1995) (articulating the five-part test to prove an equitable subrogation claim) (citing In re Hagen, 147 B.R. 166, 167 (Bankr. N.D. Iowa 1992)).
Regarding the unjust enrichment claim, Weitz asserts that it conferred a benefit on the Defendants because it covered the property damages that were the responsibility of the Defendants under their insurance policies. For that reason, Defendants were unjustly enriched by the benefit that Weitz conferred. It would be inequitable, Weitz argues, to allow the Defendants to retain the benefit without paying for its value.
The Defendants argue that Weitz has already been made whole from the payments it received after settling with Hyatt. Therefore, Weitz cannot collect at law or in equity because it has already been reimbursed for everything it paid Hyatt in 2010. In addition, the Defendants contend that no amount of the settlement paid by Weitz to Hyatt was a liability owed by the Defendant insurers. Finally, the Defendants also argue that Weitz's claims fail as a matter of law because Weitz's claims are barred by the release Lexington/Allied received from Hyatt, and the suit limitation clauses and notice provisions in Defendants' insurance policies. Because the Defendants
only insured against " direct physical loss or damage" to the insured property, they argue that Weitz cannot recover for an alleged breach-of-contract counterclaim.
III. STANDARD FOR SUMMARY JUDGMENT
" Summary judgment is proper if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Carraher v. Target Corp., 503 F.3d 714, 716 (8th Cir. 2007) (citing Fed.R.Civ.P.56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). The moving party has the initial burden of demonstrating the absence of a genuine issue of material fact. See Celotex Corp., 477 U.S. at 323. The requirement of a " genuine" issue of fact means that " the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In other words, the nonmoving party is not " relieved" of its " own burden of producing in turn evidence that would support a jury verdict." Id. at 256.
This Court " must view the evidence, and the inferences that may be reasonably drawn from it, in the light most favorable to the nonmoving party." Carraher, 503 F.3d at 716. The nonmoving party, or party opposing a properly supported motion for summary judgment, " 'may not rest upon the mere allegations or denials of his pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial.'" Anderson, 477 U.S. at 248 (quoting Fed.R.Civ.P. 56(e)). " One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses, and . . . [the rule] should be interpreted in a way that allows it to accomplish this purpose." Celotex Corp., 477 U.S. at 323--24. In this case, there is no genuine issue of material fact for trial because the Plaintiff did not present evidence from which a jury might return a verdict in its favor. See Anderson, 477 U.S. at 257.
A. Choice-of-Law Analysis
An analysis of whether the Defendants' contractual limitations provisions apply to Weitz's claims, and whether Weitz's unjust enrichment claim is separate from Weitz's equitable subrogation claim, presents a choice-of-law issue as to which of the following three states' laws applies: Illinois (location of the named insurer's headquarters); Florida (location of the loss); or Iowa (location of Weitz's headquarters).
A court makes four analytical steps in resolving a choice-of-law issue: (1) characterize the nature of the cause of action; (2) decide if a conflict of law exists; (3) identify the law that applies based on the forum state's choice-of-law principles; and (4) determine which state's substantive law applies based on the application of the forum state's choice-of-law principles. See Jackson v. Travelers Insurance Co., 26 F.Supp.2d 1153, 1156-57 (S.D. Iowa 1998).
In deciding the choice-of-law questions presented here, this Court finds the following: (1) Weitz's claims are properly characterized as contract claims; (2) A " true conflict" exists between the laws of Florida and Iowa, and the laws of Illinois regarding whether an unjust enrichment claim is a separate cause of action, and whether contractual limitations clauses that shorten an applicable statutory limitations period are permissible; (3) Under the Iowa choice-of-law rules, the " most significant relationship" test of the Restatement (Second) Conflict of Laws § 188
is applicable, not § § 145 or 193; and (4) In applying the factors set forth under § 188, Illinois substantive law applies.
1. Nature of the Claims
This Court's jurisdiction is based upon diversity jurisdiction; therefore, this Court must follow the choice-of-law rules of the state in which it sits. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496--97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); see also Colonial Ins. Co. of Cal. v. Spirco Envtl. Inc., 137 F.3d 560, 561 (8th Cir. 1998). In this case, the parties agree that Iowa's choice-of-law rules govern the Court's determination of the applicable substantive law because Iowa is the forum state. See Carton v. General Motors Acceptance Corp., 639 F.Supp.2d 982, 987 (N.D. Iowa 2009) (citing Alumbaugh v. Union P. R.R. Co., 322 F.3d 520, 523 (8th Cir. 2003)). The parties' agreement ends there.
The first step in determining a choice-of-law question is to properly characterize the type of case involved, and the law of the forum state controls this question. See Drinkall v. Used Car Rentals, Inc., 32 F.3d 329, 331 (8th Cir. 1994) (quoting O'Neal v. Kennamer, 958 F.2d 1044, 1046 (11th Cir. 1992)). The " nature of the causes of action" must first be decided because " a state may have adopted different choice of law approaches depending on the nature of the claim." Jackson, 26 F.Supp.2d at 1156 (citing Drinkall, 32 F.3d at 331).
a. Summary of the Arguments Regarding the Nature of the Claims
The first question in this case is whether equitable subrogation and unjust enrichment claims are properly characterized as tort or contract claims.
In their motion for summary judgment, Lexington/Allied contend that Weitz's equitable subrogation and unjust enrichment claims implicate Lexington/Allied's obligations under their property insurance contracts with Hyatt. Lexington/Allied argue that " [f]or choice of law purposes these [Weitz's] claims most closely resemble contract claims." [Dkt. No. 148-1 Page 15.] This point was reiterated at the hearing on Defendants' motions for summary judgment in July of this year. [Dkt. No. 185 Page 81.] Lexington/Allied rely on Duchardt v. Midland Nat'l Life Ins. Co., 265 F.R.D. 436, 446--48 (S.D. Iowa 2009), and Dethmers Mfg. Co. v. Automatic Equipment, Mfg. Co., 23 F.Supp.2d 974, 1001--04 (N.D. Iowa 1998), for the proposition that Iowa's contract choice-of-law principles apply here.
Weitz counters that it has a right to recover based on legally valid assignments to Weitz by its subcontactors and insurers. Weitz disagrees with Lexington/Allied that Weitz " stand[s] in Hyatt's shoes against [Lexington/Allied] as an insured" or it is a " contractual subrogee." [Dkt. No. 156 Page 8.] Rather, Weitz stresses that it brings claims for equitable-- not contractual --subrogation and unjust enrichment. Since Weitz brings claims " solely in equity, not contract," it contends that Iowa's tort choice-of-law rules apply. [Dkt. No. 156 Pages 12--13.] According to Weitz, Am. Online, Inc. v. National Health Care Discount, Inc., 121 F.Supp.2d 1255 (N.D. Iowa 2000), is the most persuasive precedent, and any reliance on Dethmers is misplaced.
b. Analysis of the Arguments Regarding the Nature of the Claims
This Court disagrees with Weitz's characterization of its claims. Under the laws of the forum state, Iowa, all of Weitz's claims are in contract.
On the one hand, it is true that " [t]he right of subrogation is not founded on contract." Pearlman v. Reliance Ins. Co., 371 U.S. 132, 136 n.12, 83 S.Ct. 232, 9 L.Ed.2d 190 (1962). Rather, subrogation is a " creature of equity." Id. It is formed independent of contractual relationships. See Id. On the other hand, the unjust enrichment and equitable subrogation claims Weitz brings against Lexington/Allied are based on insurance policies between Hyatt Corporation and Lexington/Allied. Therefore, Weitz's allegations against Lexington/Allied relate to contracts, not torts. See Weitz Co. v. Lloyd's of London, No. 4:04-CV-90353-TJS, 2008 WL 7796651 (S.D. Iowa Mar. 31, 2008), rev'd on other grounds, 574 F.3d 885 (8th Cir. 2009) (finding that Weitz's claim for water damage against other insurers was based on policies of insurance, and therefore, was a contract claim); see also Weitz Co. v. Travelers Cas. & Sur. Co. of Am., 266 F.Supp.2d 984, 992 (S.D. Iowa 2003) (finding plaintiff's allegations related to contracts where plaintiff brought claims based on policies of insurance, and defendant denied coverage for a variety of reasons); Grinnell Mut. Reinsurance Co. v. Jungling Jr., 654 N.W.2d 530, 536 (Iowa 2002) (indicating that " insurance policies are in the nature of adhesion contracts" ).
In addition, the case law relied upon by Weitz is distinguishable. In Am. Online, Inc., the court correctly applied Restatement (Second) § 145's tort choice-of-law principles because the claims at issue were properly characterized as tort claims. 121 F.Supp.2d at 1269--70. There, an Iowa corporation hired e-mailers to send unauthorized and unsolicited bulk e-mail advertisements to customers of AOL, an Internet Service Provider (ISP), in violation of state and federal laws. Id. at 1270. By relying on Am. Online, Inc., Weitz incorrectly argues that Iowa's tort choice-of-law rules apply here. In sum, if there is a " true conflict" between the laws of Florida, Illinois, and Iowa, this Court must apply Iowa's contract, not tort, choice-of-law rules.
2. Existence of Conflicts of Laws
The second step in determining a choice-of-law question requires the Court to decide if there is any conflict or difference between the state laws regarding the claims presented. See Jackson, 26 F.Supp.2d at 1156--1157 (citing Phillips v. Marist Soc'y, 80 F.3d 274, 276 (8th Cir. 1996)). " Before any choice of law need be made, there must be a 'true conflict' between the laws of the possible jurisdictions on the pertinent issue." Harlan Feeders, Inc. v. Grand Lab., 881 F.Supp. 1400, 1404 (N.D. Iowa 1995) (citing Nesladek v. Ford Motor Co., 46 F.3d 734, 736 (8th Cir. 1995)). Federal district courts in Iowa have used the term " conflict" or " difference" to indicate the situation where two or more laws are contradictory to each other. Jackson, 26 F.Supp.2d at 1157.
For example, in Harlan Feeders, Inc., the U.S. District Court for the Northern District of Iowa held that there was a " true conflict" between Nebraska's prohibition of punitive or exemplary damages by its Constitution, and Iowa's establishment by statute and common law of the availability and substantive requirements for punitive damages. Harlan Feeders, Inc., 881 F.Supp. at 1404--05. The court concluded that there was a " true conflict" between the laws of Nebraska and Iowa regarding the right to seek punitive damages in a civil action. Id. The court reasoned that the availability of punitive damages was a question of " substantive law," rather than " procedural law." Id. at 1408. Therefore, the court held that " punitive damages must be considered in this case in accordance with the substantive law of the
state selected by application of Iowa's conflict-of-laws rules." Id.
a. Summary of the Arguments Regarding Unjust Enrichment Claims
At issue is whether a " true conflict" between the laws of Iowa, Florida, or Illinois exists. If no conflict or difference between the laws exists, then the law of the forum applies without a choice-of-law analysis being necessary. Phillips, 80 F.3d at 276.
Lexington/Allied contend that differences exist between the states' laws relating to (1) if unjust enrichment is a separate cause of action, and (2) if contractual limitations clauses that shorten an applicable statutory limitations period are permissible. [Dkt. No. 148-1 Pages 23, 31.] They cite Siegel v. Shell Oil Co., 612 F.3d 932, 937 (7th Cir. 2010), and this Court's May 25, 2011 order denying Defendants' motions to dismiss for the proposition that Illinois does not recognize unjust enrichment as a separate cause of action. [Dkt. No. 89.] By contrast, Lexington/Allied assert that Florida and Iowa generally recognize a separate cause of action for unjust enrichment. See Moynet v. Courtois, 8 So.3d 377, 379 (Fla. Dist. Ct. App. 2009); see also Iowa Waste Sys., Inc. v. Buchanan County, 617 N.W.2d 23, 29--31 (Iowa Ct. App. 2003).
Responding, Weitz disagrees with Lexington/Allied's characterization of the law. According to Weitz, no conflict of law exists to justify a choice-of-law analysis. [Dkt. No. 156 Page 15.] Weitz refers this Court to Cleary v. Philip Morris Inc., 656 F.3d 511 (7th Cir. 2011), and Control Solutions, LLC v. Oshkosh Corp., No. 10 C 121, 2012 WL 3096678 (N.D.Ill. July 27, 2012), contending that Illinois does recognize a stand-alone cause of action for unjust enrichment.
b. Analysis of the Arguments Regarding Unjust Enrichment Claims
There is a difference between the laws of Illinois, and the laws of Florida and Iowa regarding unjust enrichment claims. Under Illinois law, a claim for unjust enrichment is not a separate cause of action based on the facts confronting this Court. See Siegel, 612 F.3d at 937.
Contrary to the arguments presented in Weitz's brief, the Seventh Circuit Court of Appeals in Cleary does not definitively resolve whether Illinois recognizes unjust enrichment as a separate cause of action. Cleary, 656 F.3d at 518. It is true that the Seventh Circuit in Cleary cites Illinois Supreme Court cases that recognize unjust enrichment as an independent cause of action, such as Raintree Homes, Inc. v. Vill. of Long Grove, 209 Ill.2d 248, 807 N.E.2d 439, 445, 282 Ill.Dec. 815 (Ill. 2004); Peddinghaus v. Peddinghaus, 295 Ill.App.3d 943, 692 N.E.2d 1221, 1225, 230 Ill.Dec. 55 (Ill. 1998); HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 131 Ill.2d 145, 545 N.E.2d 672, 679, 137 Ill.Dec. 19 (Ill. 1989); and Indep. Voters v. Ill. Commerce Comm'n, 117 Ill.2d 90, 510 N.E.2d 850, 852--58, 109 Ill.Dec. 782 (Ill. 1987). However, Weitz overlooks the Seventh Circuit's analysis of recent Illinois case law suggesting an opposite ...