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Inc. v. State Farm Mutual Automobile Insurance Co.

United States District Court, M.D. Florida, Orlando Division

May 8, 2017

CRAWFORD'S AUTO CENTER, INC. and K & M COLLISION, LLC, on behalf of themselves and all others similarly situated, Plaintiffs,



         This matter comes before the Court after a hearing on various motions to dismiss (Doc. 209-211) filed by the Defendants, the response in opposition (Doc. 216) filed by the Plaintiffs, the replies (Doc. 224, 226, 228) filed by the Defendants, and the sur-reply (Doc. 235).

         I. Background

         The instant case is one of 24 similar actions, consolidated for pretrial purposes, in which auto repair shops in a particular state have accused insurance companies improperly attempting to suppress the amounts they are obligated to pay for automobile repairs. The other 23 cases primarily asserted antitrust claims; the instant case proceeds primarily under the Racketeer Influenced and Corrupt Organizations Act rather than the Sherman Act.

         The lead case among these actions - henceforth, the “Florida Action” - was filed in this court in February 2014. The initial complaint in that case was dismissed sua sponte in June 2014 on the grounds that it was a prohibited “shotgun” pleading, that it failed to properly set forth the basis for the Court's jurisdiction, that it failed to identify which parties had ongoing contracts with one another, and that all of the alleged misdeeds were attributed, collectively, to every Defendant, even where such collective attribution made no sense. (Doc. 110 at 1-2 in Case No. 6:14-cv-310-Orl-31TBS).

         The plaintiffs in the Florida Action filed an amended complaint later that same month. (Doc. 167 in Case No. 6:14-cv-310-Orl-31TBS). Subsequently, various defendants moved to dismiss. In January 2015, this court granted those motions in part, dismissing all the claims in the Florida Action, some with prejudice. (Doc. 291 in Case No. 6:14-cv-310-Orl-31TBS). The Sherman Act claims in that case - one for price-fixing, and one for an illegal boycott - were dismissed because the Florida Action Plaintiffs had failed to adequately plead the existence of an agreement and had failed to adequately allege a concerted refusal to deal, respectively. (Doc. 291 at 20-21 in Case No. 6:14-cv-310-Orl-31TBS). After another amended complaint and another round of motions to dismiss, the Court dismissed the Florid Action with prejudice in September 2015. (Doc. 341 in Case No. 6:14-cv-310-Orl-31TBS). In regard to the antitrust claims, the court again found that the plaintiffs had failed to adequately allege the existence of an agreement or a concerted refusal to deal. (Doc. 341 at 20-21 in Case No. 6:14-cv-310-Orl-31TBS). The plaintiffs in the Florida Action did not appeal that dismissal.[1]

         The instant case was filed in the United States District Court for the Northern District of Illinois in April 2014. (Doc. 1). On December 61, 2014, the United States Judicial Panel on Multidistrict Litigation transferred the case to this Court. (Doc. 61). In February, 2015, three groups of Defendants filed motions to dismiss. On November 25, 2015, the Court granted the motions and dismissed the First Amended Complaint (Doc. 138). The Plaintiffs then filed their Second Amended Complaint (Doc. 213); in response, the Defendants filed the motions that are the subject of this order.

         Except where indicated, the following is taken from the Second Amended Complaint (Doc. 205) (henceforth, the “SAC”), which is accepted as true in pertinent part for purposes of resolving the instant motions. The Plaintiffs in this putative class action - Crawford's Auto Center, Inc. (“Crawford's”) and K&M Collision, LLC (“K&M”) - operate automobile collision repair facilities in Pennsylvania and North Carolina, respectively. (SAC at 8-9). The Defendants are seventy-odd automobile insurance companies, [2] arranged into seven groups, with principal places of business scattered across the United States.[3] Collectively, the seven groups are referred to as the “Defendant Insurers.”

         According to the Plaintiffs, the Defendant Insurers have engaged in fraud and extortion to reduce the amounts they would otherwise have to pay for repairs to vehicles owned (or damaged) by their insureds. (SAC at 116-17). The Plaintiffs allege that the Defendant Insurers have made misrepresentations and omitted material facts as to the “prevailing rate”[4] for automobile repairs “for the purpose of deceiving Plaintiffs … to accept artificially suppressed compensation for insured repairs.” (SAC at 119). In addition and/or in the alternative, the Plaintiffs allege that they were, among other things, “coerced or forced to accept suppressed compensation for insured repairs predicated on fear of economic harm, i.e., if the repair facilities wanted to do business with Defendant Insurers.” (SAC at 121).

         In carrying out their schemes, the Plaintiffs allege, the Defendant Insurers have been assisted by three “Information Providers” - CCC Information Services, Inc. (“CCC”), Mitchell International, Inc. (“Mitchell”), and AudaExplore North America, Inc. (“Audaexplore”). The Information Providers gather data regarding such things as labor rates and material costs and provide software for estimating the cost of automobile repairs. (SAC at 13-14). The Information Providers have not been named as defendants in this suit.

         In the first seven counts of the Second Amended Complaint, the Plaintiffs assert seven claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968 - one against each Defendant Insurer. (In addition to the direct allegations of fraud and extortion, each of the RICO counts also includes allegations that the Defendant Insurer conspired to defraud and extort the Plaintiffs, in violation of 18 U.S.C. § 1962(c).) In Count VIII and Count IX, the Plaintiffs assert state law claims for unjust enrichment and fraud. The state law claims are asserted against all of the Defendants collectively.

         II. Legal Standards

         A. Motions to Dismiss

         Federal Rule of Civil Procedure 8(a)(2) requires “a short and plain statement of the claim showing that the pleader is entitled to relief” so as to give the defendant fair notice of what the claim is and the grounds upon which it rests, Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957), overruled on other grounds, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A Rule 12(b)(6) motion to dismiss for failure to state a claim merely tests the sufficiency of the complaint; it does not decide the merits of the case. Milbum v. United States, 734 F.2d 762, 765 (11th Cir.1984). In ruling on a motion to dismiss, the Court must accept the factual allegations as true and construe the complaint in the light most favorable to the plaintiff. SEC v. ESM Group, Inc., 835 F.2d 270, 272 (11th Cir.1988). The Court must also limit its consideration to the pleadings and any exhibits attached thereto. Fed.R.Civ.P. 10(c); see also GSW, Inc. v. Long County, Ga., 999 F.2d 1508, 1510 (11th Cir. 1993).

         The plaintiff must provide enough factual allegations to raise a right to relief above the speculative level, Twombly, 550 U.S. at 555, 127 S.Ct. at 1966, and to indicate the presence of the required elements, Watts v. Fla. Int'l Univ., 495 F.3d 1289, 1302 (11th Cir.2007). Conclusory allegations, unwarranted factual deductions or legal conclusions masquerading as facts will not prevent dismissal. Davila v. Delta Air Lines, Inc., 326 F.3d 1183, 1185 (11th Cir. 2003).

         In Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), the Supreme Court explained that a complaint need not contain detailed factual allegations, “but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation. A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertions devoid of further factual enhancement.” Id. at 1949 (internal citations and quotations omitted). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘show[n]' - ‘that the plaintiff is entitled to relief.'” Id. at 1950 (quoting Fed.R.Civ.P. 8(a)(2)).

         B. RICO

         The Racketeer Influenced and Corrupt Organizations Act provides a civil action to recover treble damages for injury “by reason of a violation of” its substantive provisions. 18 U.S.C. § 1964(c). It prohibits, inter alia, the conducting of an enterprise's affairs “through a pattern of racketeering activity.” 18 U.S.C. §1962(c). When a plaintiff's Section 1962(c) claim is based on an alleged pattern of racketeering consisting entirely of the predicate acts of mail and wire fraud, the substantive RICO allegations must comply not only with the plausibility criteria articulated in Twombly and Iqbal but also with Fed.R.Civ.P. 9(b)'s heightened pleading standard, which requires that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1291 (11th Cir. 2010). See also Ambrosia Coal & Constr. Co. v. Pages Morales, 482 F.3d 1309, 1316 (11th Cir. 2007) (holding that civil RICO claims, which are “essentially a certain breed of fraud claims, must be pled with an increased level of specificity” under Rule 9(b)). The RICO Act also prohibits any conspiracy to violate its substantive provisions. 18 U.S.C. §1962(d).

         C. Conflict of Laws

         In a case where federal law is at issue, a transferee court is obligated to apply the law of its own circuit rather than that of the circuit where the case was originally filed. Murphy v. F.D.I.C., 208 F.3d 959, 965-66 (11th Cir. 2000) (citing, inter alia, In re Korean Air Lines Disaster of September 1, 1983, 829 F.2d 1171 (D.C. Cir. 1987)). However, in cases transferred pursuant to 28 U.S.C. § 1407, the transferee court must apply the state law, including the choice of law rules, that would have been applied had there been no change of venue. See, e.g. In re Managed Care Litigation, 298 F.Supp.2d 1259, 1296-97 (S.D.Fla. 2003) (citing Van Dusen v. Barrack, 376 U.S. 612 (1964)).

         III. Analysis

         The Plaintiffs allege that the Defendant Insurers, who hold “almost two-thirds of the national market share” of the private passenger automobile insurance market, “have been able to establish the industry standards for collision repairs, including the compensation for collision repair services.” (SAC at 18-19). In the policies between the Defendant Insurers and their insureds, the Plaintiffs say, the Defendant Insurers are obligated to pay the “prevailing competitive price” (or equivalent language) for the repairs required to return the vehicles to “pre-loss condition”. (SAC at 19). However, the Plaintiffs allege,

Defendant Insurers (and other insurers) have tortured the meaning of the policy provision, and instituted a false prevailing rate that is not accurate, and does not represent the prevailing rate for repairs to properly restore vehicles to pre-loss condition. Rather, Defendant Insurers' fabricated prevailing rates are merely the rates imposed upon their respective direct repair program facilities

(SAC at 19-20).

         According to the Plaintiffs, all of the Defendant Insurers have direct repair programs (henceforth, “DRPs”) involving auto repair facilities that agree to abide by uniform standards and procedures. (SAC at 22). Though the DRP agreements differ in the particulars, generally speaking they require the insurer to recommend the DRP shop to policyholders; in exchange for the increased volume of business, the repair shop agrees to such things as caps on their labor rates and maximum prices for parts and paint. (SAC at 23). The DRP agreements generally also require the repair shop to use a particular piece of software - produced by one of the three Information Providers - to estimate the cost and scope of a repair to an insured's vehicle, as well as the amount of hours each aspect of a repair should take. (SAC at 22-23). According to the Plaintiffs, around a third of insured repairs are performed at DRP shops. (SAC at 24).

         When an insured takes a vehicle to a non-DRP facility for a covered repair, the Defendant Insurer will offer to pay the same amount as it would have paid to have the repair performed at a DRP facility, even though the non-DRP shop has not agreed to abide by the standards and procedures of that Defendant Insurer's DRP program. (SAC at 23-24). The Plaintiffs complain that the Defendant Insureds use the DRP rates to establish what they call “the artificial prevailing rate, ” and this rate is then “imposed upon the entire collision repair industry, ” (SAC at 205), because the insurers refuse to pay more even at non-DRP shops.

         The Plaintiffs' First Amended Complaint (Doc. 138) told essentially the same story as the instant pleading. In it, the Plaintiffs asserted extortion- and fraud-based RICO claims against the same seven Defendant Insurers and state law unjust enrichment and fraud claims against all the Defendants collectively. In granting the Defendants' motions to dismiss that earlier pleading, the Court noted, among other things, that

• The Plaintiffs' assertions that they accepted “suppressed compensation” to perform repairs for fear that otherwise some other repair shop would otherwise get the work could not, as a matter of ...

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