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Ironshore Europe DAC v. Schiff Hardin, LLP

United States District Court, E.D. Texas, Marshall Division

January 9, 2018




         Before the Court is Defendant Schiff Hardin, LLP's (“Schiff”) Motion to Dismiss Plaintiff Ironshore Europe DAC's (“Ironshore”) First Amended Complaint (Dkt. No. 17) (“the Motion”). Having considered the same, and for the reasons set forth herein, the Motion is GRANTED-IN-PART and DENIED-IN-PART.

         I. Background

         In November 2014, Ironshore issued an insurance policy to Dorel Juvenile Group, Inc. (“Dorel”). (Dkt. No. 10 ¶ 2.) On May 13, 2015, Dorel was sued by Nicole and Cameron Hinson on behalf of their minor child who was injured in a car accident involving a product manufactured by Dorel. See Hinson v. Dorel Juvenile Group, Inc., No. 2:15-cv-713-JRG-RSP, Dkt. No. 1 (E.D. Tex. May 13, 2015). In this underlying case, Dorel was represented by Schiff, the defendant in the instant case. (Dkt. No. 10 ¶ 2.)

         While representing Dorel, Schiff regularly communicated with Ironshore. Id. at ¶ 3. Specifically, Ironshore was concerned that if the Hinson case resulted in an award or settlement in excess of $6 million, then Ironshore might have to pay out on its insurance policy with Dorel. Id. at ¶ 19. Against this backdrop, Ironshore alleges that on several occasions Schiff misled Ironshore into believing it was unlikely the Hinson case would result in any exposure for Ironshore. See, e.g., Id. at ¶ 20 (“At various times during the Lawsuit, Schiff misrepresented to Ironshore that a settlement within Ironshore's policy limits was ‘unwarranted.'”). Ironshore also alleges that Schiff withheld other critical information about developments in the lawsuit. For example, Ironshore alleges that “Schiff falsely represented that the last offer of settlement received from Plaintiffs was $6.5 million” when in reality the Hinson Plaintiffs had expressed a willingness to settle for as little as $3.25 million. Id. at ¶ 48. Ironshore further alleges that “Schiff's various misrepresentations led Ironshore to believe that the Ironshore Policy was not at risk. Thus, Ironshore did not associate in the defense of the lawsuit.” Id. at ¶ 20. Had Ironshore been given an accurate picture of the Hinson case, Ironshore alleges it “would have exercised its right to settle the case . . . [or] paid the Plaintiffs to release all claims.” Id. at ¶ 49. Instead, the case went to trial and the jury awarded the Hinson Plaintiffs $34 million. Id. at ¶ 46. This verdict, being in excess of $6 million, would have required Ironshore to pay out on its policy with Dorel. Id. at ¶¶ 46-47. After eventually settling with the Hinson Plaintiffs after trial, Ironshore filed this case against Schiff. Id. Defendant has now moved to dismiss Ironshore's negligent misrepresentation claim, which is the only claim in this case.

         II. Legal Standard

         A. Applicable Law

         When a federal court hears state law claims based on diversity jurisdiction, it generally applies the substantive law of the state in which it sits. See, e.g., Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d 589, 593-94 (5th Cir. 2011); Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). For example, if there is precedent from that state's highest court, or other binding authority interpreting such precedent, that authority controls with respect to questions of state law. Gilbane, 664 F.3d at 593-594; Motiva Enterprises, LLC v. St. Paul Fire & Marine Ins. Co., 445 F.3d 381, 385 (5th Cir. 2006) (“Under Erie, we are, of course, obliged to decide questions of state law as we believe the state supreme court would decide the issue.”). To the extent there is uncertainty about a question of state law, federal courts must make an “Erie guess” as to how the state's highest court would decide the question. Gilbane, 664 F.3d at 593-594. Generally, this “Erie guess” is based on “cases that, while not deciding the issue, provide guidance as to how the [state high court] would decide the question.” Id. (internal quotations omitted). These cases can include decisions from lower state courts or others who have ventured a similar Erie guess. Id.

         In spite of these general choice-of-law rules, Parties to a contract may also specify that a particular state's laws should govern the interpretation of their agreement through what is often called a forum-selection clause. In these circumstances, interpretation of the agreement is guided by the substantive law of the chosen forum state. See, e.g., Barnett v. DynCorp Int'l, L.L.C., 831 F.3d 296, 301-302 (5th Cir. 2016) (explaining that federal law controls question of the enforceability of forum-selection clauses, while interpretation of such clauses is governed by the law of the chosen forum).

         Finally, regardless of whether state law controls questions of substantive law or contract interpretation, “federal courts sitting in diversity apply . . . federal procedural law.” Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996); Taylor v. Bailey Tool Mfg. Co., 744 F.3d 944, 947 (5th Cir. 2014) (federal procedural rules apply once a case has been removed).

         B. Motions to Dismiss for Failure to State a Claim

         A motion to dismiss under Federal Rule of Procedure 12(b)(6) should be granted when a complaint fails to state a plausible claim for relief even where all well-pleaded facts are accepted as true and viewed in the light most favorable to the plaintiff. Bustos v. Martini Club, Inc., 599 F.3d 458, 461 (5th Cir. 2010); Brand Coupon Network, L.L.C. v. Catalina Mktg. Corp., 748 F.3d 631, 633 (5th Cir. 2014) (applying 12(b)(6) framework to case removed from state court).[1] In considering such a motion, a court may rely on “the complaint, any documents attached to the complaint, and any documents attached to the motion to dismiss that are central to the claim and referenced by the complaint.” Lone Star Fund V (U.S.) L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010). “[M]atters or theories raised in a response are not part of the pleadings” and thus do not supplement the allegations in the complaint. Lohr v. Gilman, No. 3:15-CV-1931-L, 2017 WL 1178259, at *11 (N.D. Tex. Mar. 30, 2017).

         C. Attorney Immunity

         Texas law recognizes that “as a general rule, attorneys are immune from civil liability to non-clients for actions taken in connection with representing a client in litigation.” Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 481 (Tex. 2015) (internal quotation marks omitted). This immunity allows attorneys “to advise their clients and interpose any defense or supposed defense, without making themselves liable for damages.” Id. (quoting Kruegel v. Murphy, 126 S.W. 343, 345 (Tex. Civ. App.-Dallas 1910, writ ref'd)); Renfroe v. Jones & Assocs., 947 S.W.2d 285, 287 (Tex. App.-Forth Worth 1997, writ denied) (“An attorney may assert any of his client's rights without being personally liable for damages to the opposing party.”). Without such an immunity, an attorney would face an “inevitable conflict” in “balanc[ing] his own potential exposure against his client's best interest.” Id.

         D. Negligent Misrepresentation

         Texas law has also long recognized that an attorney may be liable for negligent misrepresentation under Section 552 of the Restatement of Torts[2] where a third party, even a non-client, justifiably relies on the attorney's misrepresentations. McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 792-794 (Tex. 1999). The duty imposed in this context is “limited, ” and it arises “only when (1) the attorney is aware of the non-client and intends that the non-client rely on the representation; and (2) the non-client justifiably relies on the attorney's representation of a material fact.” Blankinship v. Brown, 399 S.W.3d 303, 309-310 (Tex. App.-Dallas 2013) (citing McCamish, 991 S.W.2d at 794). Liability under McCamish is further limited by the same principles that constrain the tort of negligent misrepresentation. For example, negligent misrepresentation applies to misstatements of existing facts rather than predictions that simply turn out to be wrong. See, e.g., Moncrief Oil Int'l Inc. v. OAO Gazprom, 481 F.3d 309, 314 (5th Cir. 2007) (“[T]he complaint alleged a misstatement of a future event, rather than misstatement of an already existing fact. It therefore fails as a negligent misrepresentation claim . . . .”).

         III. Discussion

         A. Attorney Immunity

         Defendant argues that because the misrepresentations identified by Plaintiff in its Amended Complaint were made while Schiff was representing its client Dorel in the Hinson case, Plaintiff's claim is barred by the doctrine of attorney immunity. (Dkt. No. 17 at 20-25.) In particular, Defendant argues that because it provided information to Ironshore pursuant to Dorel's obligations under its insurance contract with Ironshore, whatever representations Defendant made to Ironshore fall within the scope of attorney immunity. Id.

         Plaintiff responds that attorney immunity does not apply in this case because Schiff “expressly assumed an independent duty to guide Ironshore, ” which, under McCamish, can provide the basis for a negligent misrepresentation claim where, as here, Plaintiff justifiably relies on misstatements by a defendant. (Dkt. No. 28 at 5, 20-21.) Plaintiff further argues that Schiff's statements were made out of court and “in discharge of an independent duty Schiff knowingly assumed to ...

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