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Phoenix Packaging Operations, LLC v. M&O Agencies, Inc.

United States District Court, W.D. Virginia, Roanoke Division

June 3, 2016

PHOENIX PACKAGING, OPERATIONS, LLC, et al., Plaintiffs,
v.
M&O AGENCIES, INC., et al., Defendants.

          MEMORANDUM OPINION

          MICHAEL F. URBANSKI UNITED STATES DISTRICT JUDGE

         In this commercial health insurance dispute, Plaintiff Phoenix Packaging Operations, LLC ("Phoenix") alleges it hired M&O Agencies, Inc. d/b/a/ The Mahoney Group ("Mahoney") in 2013 to serve as a health insurance broker and consultant. After deciding to self-insure, Phoenix alleges it hired Tall Tree Administrators, LLC ("Tall Tree") to administer a self-insurance trust and Gerber Life Insurance Company ("Gerber") to provide stop loss insurance. Plaintiff Roberto Richards ("Richards") is the trustee of Phoenix's self-insurance healthcare trust (the "Trust"). During negotiations for renewal of the stop loss coverage, a dispute arose over certain unpaid claims. As a result, Phoenix and Richards (collectively "Plaintiffs") brought suit in Pulaski County Circuit Court, which was subsequently removed to federal court. ECF No. 1.

         Count I alleges that Mahoney breached its contract with Phoenix by failing to acquire for Plaintiffs a stop loss insurance policy, with Gerber for the 2014-15 coverage year. Count II alleges Mahoney engaged in professional negligence by failing to procure stop loss insurance for the 2014-15 coverage year, instructing Gerber and Tall Tree to cut off communications with Phoenix, failing to timely notify Phoenix of a stop loss insurance lapse, and advising Phoenix to forego payment of claims to secure lower premiums for the subsequent coverage period. Counts III and IV allege Mahoney committed constructive fraud and fraud in the inducement by representing that negotiations with Gerber regarding stop loss coverage for the 2014-15 coverage year were going well and completed. Count V alleges Tall Tree breached its contract with Phoenix by representing that Gerber would reimburse claims paid by the Trust after October 1, 2014. Counts VI and VII allege Tall Tree engaged in constructive fraud and fraud in the inducement by advising Phoenix that Gerber would reimburse claims paid by the Trust after October 1, 2014.

         Pursuant to Fed.R.Civ.P. 12(b)(6), Mahoney moves to dismiss Counts I, II, III, and IV, ECF No. 5, and Tall Tree moves to dismiss Counts VI and VII, ECF No. 20. After a hearing on these motions, Mahoney filed a motion craving oyer or, in the alternative, to amend its motion to dismiss, seeking to incorporate certain documents into their motion to dismiss. ECF No. 46.

         As preliminary matter, the court will consider Mahoney's motion craving oyer, or in the alternative, to amend its motion to dismiss. ECF No. 46. The court will then recount the standard of review and the allegations before addressing the merits of Tall Tree and Mahoney's Fed R. Civ. P. 12(b)(6) motions.

         I.

         Mahoney craves oyer of any records which could bear on the contractual relationship between Mahoney and Plaintiffs, or in the alternative, moves to amend its motion to dismiss to incorporate contractual documents between Phoenix and Mahoney. ECF No. 46. Attached to the motion are a document titled "Agent/Broker Record of Change" and a letter written from Phoenix to Anthem confirming that Mahoney agreed to serve as Phoenix's exclusive insurance Agent/Broker of Record. ECF Nos. 46-1, 46-2. Phoenix references an Agent/Broker Record of Change, dated July 26, 2013, as the contract breached by Mahoney, ECF 1-1, ¶¶ 13, 47-48. Neither Plaintiffs' complaint, ECF No. 1-1, nor Mahoney's motion to dismiss, ECF No. 20, contain a copy of the Agent/Broker Record of Change. In ruling on a motion to dismiss, the court may consider documents attached to briefs that "are integral to die complaint and audientic." Philips v. Pitt County Memorial Hosp.. 572 F.3d 176, 180 (4th Cir. 2009).

         The Agent/Broker Record of Change is an integral part of Plaintiffs' claims against Mahoney. The copy is signed and dated July 26, 2013 and comports with Phoenix's description in the complaint, indicating the copy is audientic. ECF No. 46-1. Furthermore, consideration of the Agent/Broker Record of Change will aid the court in determining whether Phoenix has stated a contract claim against Mahoney. The court will GRANT Mahoney's motion to amend its motion to dismiss, ECF No. 46, and consider die Agent/Broker Record of Change (hereinafter die "ROC") ECF No. 46-1, in assessing Mahoney's motion to dismiss. Because die letter, ECF No. 46-2, is not integral to Mahoney's motion, the court will not consider it.

         II.

         To survive a motion to dismiss, a complaint must contain sufficient factual matter which, accepted as true, "state[s] a claim to relief that is plausible on its face." Ashcroft v. Iqbal. 556 U.S. 662, 678 (2009) (quoting Bell Ad. Corp. v. Twombly. 550 U.S. 544, 570 (2007)). Under the plausibility standard, a complaint must contain "more dian labels and conclusions" or a "formulaic recitation of the elements of a cause of action." Twombly. 550 U.S. at 555. This plausibility standard requires a plaintiff to demonstrate more than "a sheer possibility that a defendant has acted unlawfully." Iqbal. 556 U.S. at 678. When ruling on a motion to dismiss, the court must "accept the well-pled allegations of the complaint as true" and "construe the facts and reasonable inferences derived therefrom in die light most favorable to the plaintiff." Ibarra v. United States. 120 F.3d 472, 474 (4th Cir. 1997). While the court must accept as true all well-pled factual allegations, the same is not true for legal conclusions. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678; see also Wag More Dogs. LLC v. Cozart. 680 F.3d 359, 365 (4th Cir. 2012) ("Although we are constrained to take die facts in the light most favorable to the plaintiff, we need not accept legal conclusions couched as facts or unwarranted inferences, unreasonable conclusions, or arguments.") (internal quotation marks omitted). Thus, in order to survive a motion to dismiss, the complaint must present sufficient nonconclusory factual allegations to support a reasonable inference that the plaintiff is entitled to relief and the defendant is liable for the unlawful act or omission alleged. See Francis v. Giacomelli. 588 F.3d 186, 196-197 (4th Cir. 2009) (citing Iqbal. 556 U.S. at 678-79, and Gooden v. Howard Cnty.. Md.. 954 F.2d 960, 969-70 (4th Cir. 1992) (en banc)). Determining whether a complaint states a plausible claim for relief is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal. 556 U.S. at 679.

         III.

         Phoenix operates a commercial food packaging plant in Pulaski County, Virginia. ECF No. 1-1, ¶ 1. On July 26, 2013, Phoenix hired Mahoney to serve as Phoenix's "exclusive insurance broker of record." Id at ¶13. Plaintiffs allege that Mahoney's contractual obligations stem from the ROC, Id. at ¶¶ 13, 47, and that Mahoney agreed to advise Phoenix on health insurance, procure health insurance for Phoenix employees, and provide ongoing consultation related to such insurance, Id. at ¶¶14-15. In the summer and fall of 2013, Mahoney advised Phoenix to self-insure. Id. at ¶16. Specifically, Mahoney advised Phoenix to create and pay premiums into the Trust that would then pay out employee healthcare claims. Id at ¶17. Mahoney further recommended that Phoenix procure stop loss insurance to cover employee claims in excess of the funds in the Trust. Id. Mahoney suggested that Phoenix hire Tall Tree to administer the Trust and engage Gerber to provide stop loss insurance. Id. at ¶¶ 18-19.

         In September 2013, Phoenix formed the Trust and appointed Richards trustee. Id at ¶ 20. Phoenix hired Tall Tree to administer the Trust and to monitor and process employee claims. Id. at ¶ 21. The agreement with Tall Tree is memorialized in a written and signed agreement (the "Tall Tree Agreement"). Id. at Exhibit l[1]. The 2013-14 stop loss agreement with Gerber provided aggregate stop loss and specific stop loss insurance, Id at ¶¶ 23-24. Aggregate stop loss coverage of $1, 000, 000 took effect only if the total employee health care claims exceeded $1, 297, 095 for the 2013-14 coverage year. Id.. at ¶25. The specific stop loss applied to those employees whose health care costs exceeded $100, 000 for the 2013-14 coverage year. Id at ¶ 26. The specific stop loss policy covered up to $2, 400, 000 of expenses for individual employees to the extent their claims exceeded $100, 000. Id.

         On July 30, 2014, Mahoney represented that die self-insurance plan was succeeding and discussions with Gerber for the coverage year beginning October 1, 2014 were going well. Id. at ¶ 28. On August 12, 2014, Mahoney informed Phoenix of Gerber's renewal proposal for the 2014-15 coverage year. Id at ¶ 29. Phoenix approved the renewal proposal on the same day. Id. On September 8, 2014, Mahoney advised Phoenix that Tall Tree required an additional $135, 462 to satisfy employee claims as the Trust lacked sufficient funds. Id at ¶ 30. On September 9, 2014, Mahoney advised Phoenix that it need not pay outstanding health insurance claims. Id at ¶ 31. Tall Tree similarly advised Phoenix on September 10, 2014, explaining that Gerber would pay all claims accruing on after May 1, 2014 pursuant to the aggregate stop loss provision for coverage year 2014-15. Id at ¶ 32. On September 12, 2014, Tall Tree advised Phoenix not to pay the outstanding claims or seek reimbursement until October, as doing so earlier would jeopardize the renewal process with Gerber. Id at ¶34.

         On October 13, 2014, Mahoney informed Phoenix that negotiations with Gerber to set rates for the policy period beginning on October 1, 2014 were ongoing. Id at ¶ 36. Mahoney also informed Phoenix that Gerber conditioned renewal of the stop loss coverage on Phoenix providing onsite medical staff. Id at ¶37. On October 22, 2014, Mahoney informed Phoenix that Gerber had not agreed to a renewal for the 2014-15 coverage year, but that an amended policy was forthcoming. Id at ¶ 38. On October 24, 2014, Mahoney advised Phoenix that Gerber refused to renew stop loss coverage unless Phoenix paid all outstanding claims from the 2013-14 coverage year. Id. at ¶ 39. Though Phoenix incurred out of pocket expenses related to outstanding claims near the end of the 2013-14 coverage year, Phoenix received no reimbursement under the stop loss contract with Gerber. Id at ¶ 40.

         On November 3, 2014, Phoenix terminated its relationship with Mahoney and hired a new health insurance broker. Id at ¶ 41. Phoenix learned that Mahoney had instructed both Gerber and Tall Tree not to engage in direct communication with Phoenix. Id at ¶ 42. On December 19, 2014, Phoenix procured stop loss coverage from Gerber for the 2014-15 coverage year. Id at ¶ 43. Gerber conditioned the renewed policy on Phoenix paying approximately $1, 200, 000 in unpaid claims. Id at ΒΆ 44. Additionally, the renewed insurance policy contained a $1, 300, 000 exclusion for claims arising during the 2014-2015 ...


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