United States District Court, S.D. New York
May 14, 2015
IN RE: METHYL TERTIARY BUTYL ETHER (
Robin Greenwald, Esq., Robert Gordon, Esq., William A. Walsh, Esq., Weitz & Luxenberg, P.C., New York, NY, Liaison Counsel for Plaintiffs.
Peter John Sacripanti, Esq., James A. Pardo, Esq., Lisa A. Gerson, Esq., Stephen J. Riccardulli, Esq., McDermott Will & Emery LLP, New York, NY, Liaison Counsel for Defendants.
Stephen A. Corr, Esq., John A. Corr, Esq., Stark & Stark, Yardley, PA,
Dennis G. Pantazis, Esq., Wiggins, Childs, Pantazis, Fisher, & Goldfarb, LLC, Birmingham, AL, Counsel for the Commonwealth.
Mark S. Lillie, P.C., Kirkland & Ellis LLP, Chicago, IL, Counsel for Insurance Defendants.
OPINION AND ORDER
SHIRA A. SCHEINDLIN, District Judge.
This is a consolidated multi-district litigation ("MDL") relating to contamination - actual or threatened - of groundwater from various defendants' use of the gasoline additive methyl tertiary butyl ether ("MTBE") and/or tertiary butyl alcohol, a product formed by the breakdown of MTBE in water. On December 23, 2014, certain defendants (collectively, "Insurance Defendants") moved to dismiss Counts VII through IX of the Commonwealth's Complaint.For the reasons stated below, Insurance Defendants' motion to dismiss is GRANTED in part, and DENIED in part.
A. The Insurance Defendants
The Commonwealth alleges that the Insurance Defendants have wrongfully obtained a double-recovery for claims stemming from "environmental remediation costs" associated with releases from Insurance Defendants' underground storage tanks ("USTs"). The Insurance Defendants have received payments from the Underground Storage Tank Indemnification Fund ("the Fund") - a program enacted by the Commonwealth in 1994 to provide "primary coverage" for such remediation costs. In addition, the Insurance Defendants have received payments from a number of insurance policies issued by other insurers. Specifically, the Commonwealth alleges, "upon information and belief, " that the Insurance Defendants - unbeknownst to the Commonwealth - "made claims against their various insurance policies seeking to recover the very same [environmental] remediation costs for which they received payments from the [Fund]." The Insurance Defendants neither disclosed these payments to the Fund, nor reimbursed the Fund from funds received from commercial, captive, and mutual insurers.
The Commonwealth seeks reimbursement for the Insurance Defendants' alleged double-recovery. The Commonwealth's primary legal theory is that the Insurance Defendants' conduct caused the Commonwealth to lose subrogation rights explicitly provided to it by the Underground Storage Tank Indemnification Fund Act ("USTIF Act"). The USTIF Act provides that once the Fund reimburses the Fund applicants for remediation costs, the Commonwealth steps into their shoes and inherits their legal rights against their insurance carriers. The Commonwealth complains that, by taking actions against their insurers without notifying the Commonwealth, the Insurance Defendants denied the Commonwealth its opportunity to exercise its subrogation rights.
B. The Commonwealth's Claims
The Commonwealth asserts three claims to "seek recovery of amounts [the Insurance] Defendants received from their insurers for remediation costs that were also included in claims paid by [the Fund]."
1. Count VII: The Subrogation Claim
The Commonwealth argues that the Insurance Defendants' failure to disclose that they received, or were pursuing, coverage for environmental remediation costs from their commercial, captive, and mutual insurers, caused the Commonwealth to lose its subrogation rights expressly granted by Section 977.40 of Title 25 of the Pennsylvania Code ("Section 977.40"). Accordingly, the Commonwealth asserts subgrogation claims against the Insurance Defendants "for the disgorgement of every dollar Defendants received from their environmental remediation costs which the [Fund] also paid." Although the Commonwealth recognizes its subrogation claim is atypical, it trumpets the equitable nature of subrogation claims. Therefore, the Commonwealth argues, it should not be precluded from bringing a subrogation claim simply because the Insurance Defendants have already "exercised the Commonwealth's subrogation rights by pursuing and collecting from  their insurers." Rather, "considerations of unjust enrichment and unconscionable retention of property" should counsel in favor of permitting the Commonwealth to pursue a subrogation claim against the Insurance Defendants.
The Insurance Defendants, in turn, argue that Pennsylvania law adheres to a longstanding "anti-subrogation rule, " which prohibits a subrogee from recovering from its subrogor by means of subrogation. "The Commonwealth purports to step into [the Insurance] Defendants' shoes and assert [the Insurance] Defendants' legal claim against [the Insurance] Defendants, and not third parties." Therefore, the Insurance Defendants claim that the Commonwealth does not assert a cognizable subrogation claim under Pennsylvania law. Furthermore, the Insurance Defendants point to the lack of precedent supporting the Commonwealth's subrogation claim. The cases that the Commonwealth relies on, the Insurance Defendants argue, "do not relate in any way to whether a subrogee can pursue a subrogation claim against its subrogor" - they "merely recite general principles of subrogation." Consequently, the Insurance Defendants argue that Count VII should be dismissed.
2. Count VIII: Unjust Enrichment
The Commonwealth also advances a claim - in the alternative - on the basis of the equitable, common law doctrine of unjust enrichment. Under Pennsylvania law, the Commonwealth argues that a claim of unjust enrichment is cognizable so long as a plaintiff alleges: "(1) [the] plaintiff conferred a benefit on the defendant; (2) the defendant appreciated the benefit; and (3)... retention by the defendant of the benefits, under the circumstances, would make it inequitable for the defendant to retain the benefit without paying for the value of the benefit." Here, the Insurance Defendants (1) received the benefit of Fund payments for environmental remediation costs; (2) pursued claims against their commercial, captive, and mutual insurers for those same environmental remediation costs; and (3) were unjustly enriched by retaining double recovery of those costs, at the expense of the Fund. Therefore, the Commonwealth claims its unjust enrichment claim complies with Pennsylvania law.
The Insurance Defendants "agree that, as a general matter, a plaintiff can plead in the alternative." However, they dispute that a plaintiff may assert a claim for equitable relief "when the plaintiff has an adequate remedy at law." Here, the STSPA's "Enforcement" chapter, which governs "when and how suits may be brought to restrain violations' of the statute, " provides an adequate remedy at law. Therefore, the Insurance Defendants argue that the Commonwealth should be precluded from asserting an unjust enrichment claim.
3. Count IX: Storage Tank and Spill Prevention Act Claim
The Commonwealth claims that the Insurance Defendants were required to abide by the Storage Tank and Spill Prevention Act ("STSPA"), including the eligibility and minimum cooperation requirements set forth by the regulations promulgated pursuant to the STSPA. The Commonwealth alleges two violations of the STSPA in Count IX. First, the Commonwealth claims the Insurance Defendants fraudulently "submitted claims for releases that occurred before February 1, 1994" in violation of Section 977.33(b)(3) of Title 25 of the Pennsylvania Code ("Section 977.33"). Second, the Insurance Defendants failed to protect the Commonwealth's subrogation rights expressly granted by Section 977.32, in violation of the duty to cooperate imposed by Section 977.32. The Commonwealth argues that it is "entitled to recover all payments made to [Insurance] Defendants by the Fund and to cease payment of further payments on any claim filed."
With respect to the first alleged violation, the Insurance Defendants argue that the Commonwealth has failed to plead sufficient facts that show the Insurance Defendants engaged in any proscribed conduct. Fund claimants "bear a heavy burden of proof' of demonstrating... that a given release occurred after February 1, 1994." Because the Commonwealth does not suggest the Insurance Defendants were exempt from this requirement, it is uncontested that Insurance Defendants satisfied their burden of proof when submitting claims which the Commonwealth now alleges were fraudulent.
With respect to the second alleged violation of the STSPA, the Insurance Defendants claim that neither the STSPA, nor its underlying regulations, impose an affirmative duty "to protect the Commonwealth's subrogation rights in the abstract." Rather this duty is contingent on the presence of a subrogation action initiated by the Fund. Because the Commonwealth does not allege it pursued a subrogation action, Sections 977.32 and 977.40 are inapposite.
III. LEGAL STANDARD
In deciding a motion to dismiss pursuant to Rule 12(b)(6), the court evaluates the sufficiency of the complaint under the "two-pronged approach" dictated by the Supreme Court in Ashcroft v. Iqbal .  First, a court "can choose to begin by identifying the pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth." "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements do not suffice" to withstand a motion to dismiss. Second, "accept[ing] as true all factual allegations contained in the complaint" and "drawing all reasonable inferences in the plaintiff's favor, " a court must find that the plaintiff's complaint has "nudged" his or her claims "across the line from the conceivable to plausible." "A claim has facial plausibility when the pleaded content allows the reasonable inference that the defendant is liable for the misconduct alleged."
IV. APPLICABLE LAW
A. Subrogation Under Pennsylvania Law
Under Pennsylvania law, "it is well settled that an insurer cannot recover by means of subrogation against its own insured." "By definition, subrogation can arise only with respect to the rights of an insured against third persons to whom the insurer owes no duty. '" Rather, the equitable doctrine of subrogation "permits an insurer that pays on a claim of its insured [to] assume any rights which the insured would have against any other person responsible for the loss.'" This limitation on the applicability of subrogation claims is referred to as Pennsylvania's "anti-subrogation rule."
B. Unjust Enrichment Under Pennsylvania Law
"[T]o sustain a claim of unjust enrichment, a claimant must show that the party against whom recovery is sought either wrongfully secured or passively received a benefit that it would be unconscionable for [him or] her to retain." "[T]he essential elements of unjust enrichment are benefits conferred on defendant by plaintiff, appreciation of such benefits by the defendant, and acceptance and retention of such benefits under such circumstances that it would be inequitable for defendant to retain the benefit without payment of the value." Under Pennsylvania law, intent is irrelevant to the unjust enrichment inquiry. Rather, the "polestar" of unjust enrichment is equity and fairness.
C. Disclosure Under the USTIF Act and Its Regulations
The Pennsylvania State Legislature created the Fund in 1994, with the intent of providing owners and operators of gasoline retail service stations with "primary coverage" for environmental remediation costs. The Fund operates by charging owners and operators of USTs with a fee, "assessed by the Commonwealth for every gallon [of gasoline] that enters a UST." In the event that gasoline is released from a UST, owners and operators may file a claim with the Fund for reimbursement.
Under the STSPA, there are two primary regulations governing the standard of conduct that applicants must adhere to in order to receive payments from the Fund. First, Section 977.33 lays out eligibility requirements. Under this provision, applicants must show that the UST release for which they are claiming reimbursement occurred after February 1, 1994. Second, the Fund's minimum cooperation requirements enumerated in Section 977.32 require that owners and operators provide "all information... pertinent to the claim" upon request by the Fund. In the recent case of Gnagey Gas & Oil Co., Inc. v. Pennsylvania Underground Storage Tank Indemnification Fund, (" Gnagey ") the Commonwealth Court of Pennsylvania held, in interpreting Section 977.32, that:
[T]he import of 25 Pa. Code § 977.32(a)(1) and (b) mandates that during the investigation of a claim, a claimant must "cooperate" by revealing all information in its possession that falls within the scope of the request and additional information that is generally associated with the request and is reasonably likely to be germane to the claim. To interpret 25 Pa. Code § 977.32(a)(1) in a more restrictive manner... would eviscerate the terms "including, " "other, " and "pertinent, " which connote that in a request for information, a claimant will not only disclose... the precise information requested, but also supplemental and related information that is relevant to the request and resolution of the claim.
A. Count VII: The Commonwealth's Subrogation Claim Is Dismissed
As a matter of Pennsylvania law, the Commonwealth is precluded from asserting a subrogation claim against the Insurance Defendants. The antisubrogation rule prohibits an insurer from bringing a subrogation claim against its own insureds. Here, the Commonwealth is the insurer and the Insurance Defendants are the insured. Although the Commonwealth accurately characterizes the doctrine of subrogation as equitable in nature, allowing the Commonwealth to bring this subrogation claim would "turn the equitable doctrine of subrogation on its head" and contravene well-settled Pennsylvania law. For that reason, Count VII of the Complaint is dismissed, with prejudice.
B. Count VIII: The Commonwealth's Unjust Enrichment Claim Is Properly Pled
The Commonwealth has alleged - consistent with Pennsylvania law - that the Insurance Defendants obtained a double-recovery by receiving money from both the Fund and their insurance companies covering the same releases. If true, this would be a textbook example of unjust enrichment. The Insurance Defendants do not necessarily disagree with this - instead, their argument is technical: that Pennsylvania law precludes the Commonwealth from asserting this common law cause of action, because the STSPA "Enforcement" provision sets a statutory standard for recovery to the exclusion of any equitable claims.
The law is not so restrictive. The Commonwealth may plead in the alternative under Federal Rule of Civil Procedure 8(a)(3). "Moreover, causes of action that are inconsistent are permitted so long as they are plead in separate counts." Thus, the Insurance Defendants' motion to dismiss the unjust enrichment claim is denied.
C. Count IX:
1. The Commonwealth Has Not Adequately Pled that the Insurance Defendants Failed to Comply With a Request for Information
The central legal dispute between the parties is whether the Insurance Defendants had a legal duty to disclose their insurance policies to the Fund, when they sought reimbursement from the Fund. In order to resolve the first alleged violation in the Commonwealth's statutory claim, it is important to determine whether Sections 977.32 and 977.40 collectively impose an implied duty on the Insurance Defendants to protect the Commonwealth's subrogation rights. The regulatory scheme was created to allow the Commonwealth to pursue subrogation claims against the Insurance Defendants' insurance companies. To enable the Commonwealth to do that, the USTIF Act requires applicants to the Fund to cooperate very broadly with any information requests pursuant to an investigation stemming from their claims. Conceivably, this could include information regarding applicants' insurance policies so that the Fund could protect the subrogation rights that are specifically provided for in Sections 977.32 and 977.40.
But Gnagey makes clear that this duty to cooperate is not triggered until the Fund makes a request for information or an investigation has been commenced. The Commonwealth has not alleged either of these events. It is possible that in granting the Insurance Defendants' claims for reimbursement, the Fund may have investigated and requested insurance information. However, nothing in the Complaint supports the notion that it is plausible that the Insurance Defendants concealed the existence of additional insurance in response to a request by the Fund.
For this reason, the Commonwealth's claim that the Insurance Defendants violated Section 977.32 - the USTIF Act's cooperation provision - fails as a matter of law. Section 977.32 does not impose any affirmative legal duty upon applicants to protect the subrogation rights of the Commonwealth. Because it is conceivable that the Commonwealth did make such requests, or commence such investigations, an amendment would not necessarily be futile if the Commonwealth can allege that the Insurance Defendants refused to cooperate. For that reason, the Commonwealth's claim that the Insurance Defendants violated Section 977.32 by failing to disclose additional insurance coverage for environmental remediation costs is dismissed with leave to replead.
2. The Commonwealth Has Sufficiently Pled that the Insurance Defendants Filed Claims for Fund Reimbursement for Releases that Occurred Prior to February 1, 1994
The Commonwealth claims that all Insurance Defendants "submitted claims for releases that occurred before February 1, 1994, " and failed to disclose records and documentation that "would have established the date of releases." Such conduct would violate Section 977.33, which requires that all claims to the Fund must be for UST releases that occurred after February 1, 1994. This is not the time to test the veracity of the Commonwealth's allegations. Whether these allegations are true will become apparent during discovery, but here I must view them in the light most favorable to the Commonwealth. Because the Commonwealth has adequately pled that the Insurance Defendants submitted claims for releases that occurred prior to February 1, 1994, the claim that Insurance Defendants violated Section 977.33(b) cannot be dismissed at this time.
For the foregoing reasons, the Insurance Defendants' motion to dismiss is GRANTED as to the Commonwealth's subrogation claim, but is DENIED with respect to the Commonwealth's unjust enrichment and STSPA claims. The Commonwealth is DENIED leave to replead its subrogation claim, but is GRANTED leave to replead its STSPA claim. The Clerk of Court is directed to close this motion (Dkt. No. 83).