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Factory Mutual Insurance Co. v. Derby Industries, LLC

United States District Court, W.D. Kentucky, Louisville Division

September 13, 2018

FACTORY MUTUAL INSURANCE PLAINTIFF COMPANY, as subrogee of General Electric Company,
v.
DERBY INDUSTRIES, LLC DEFENDANT

          MEMORANDUM OPINION AND ORDER

          JOSEPH H. MCKINIEY, JR., CHIEF JUDGE

         This matter is before the court on a partial motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) by Defendant Derby Industries, LLC ("Derby"). [DN 69]. Fully briefed, this matter is ripe for decision.

         I. Background

         The present dispute stems from a large fire that occurred at General Electric Company's ("GE") Appliance Park, a 1, 000 acre industrial manufacturing campus in Louisville, Kentucky. (PL's Compl. [DN 1] ¶ 7.) Appliance Park had six main buildings at the time of the fire, one of which was known as "AP6." On April 3, 2015, a fire originated in AP6 and quickly spread, completely destroying the 650, 000 square foot warehouse section of AP6 and its contents. (Id. ¶ 17.) The fire also significantly damaged the 100, 000 square foot office section of AP6 and its contents, and smoke caused extensive soot damage to the adjacent building and its contents. (Id. ¶¶ 17-18.) Additionally, GE claims that the fire damage disrupted manufacturing and business operations throughout Appliance Park and the United States. (Id. ¶ 19.)

         At the time of the fire, GE was leasing approximately 450, 000 square feet of floor space in AP6 to Derby pursuant to a written lease agreement ("Lease Agreement"). GE exclusively used and occupied the 100, 000 square feet of office space in AP6, while the remaining floor space was used and occupied in various ways by GE and its subcontractors/tenants. GE and Derby were also parties to a Supplier Distribution Center Agreement ("SDC Agreement"). Pursuant to this agreement, Derby used its leased floor space in AP6 as a supplier distribution center for palletized bulk and high rack storage. (Id. ¶ 12.) The complaint alleges that the majority of the palletized bulk stored by Derby was comprised of flammable, plastic parts stacked up to twenty-six feet in the air. (Id. ¶ 17.) The complaint also claims that the rapid spread of fire across AP6 was the direct and proximate result of the "enormous fuel load" created by Derby's bulk storage and high rack storage practices. (Id.) Factory Mutual, which at all relevant times provided property and business interruption insurance to GE, alleges that damages from the fire total approximately $140 million. (Id. ¶¶ 8, 20.) Factory Mutual reimbursed GE for damages in the amount of $134 million, as the policy imposed a $6 million deductible on GE. (Id. ¶ 28.)

         Factory Mutual, as subrogee of GE, filed this complaint against Derby on April 3, 2017, alleging negligence/negligence per se, breach of contract, and contractual indemnification and seeking $140 million in damages. (Id.) Derby filed a motion to partially dismiss the complaint arguing in part that Factory Mutual, as subrogee of GE, failed to state a claim for the $6 million deductible paid by GE because such claim belonged to GE and that GE was the real party in interest with respect to the claim for its deductible. (DN 19.) In response to Derby's partial motion to dismiss, Factory Mutual attached an assignment of claims dated June 27, 2017, by which GE assigned its right to pursue the deductible to Factory Mutual. In its reply, Derby argued that even if the assignment was valid, Factory Mutual's claim for the deductible was time-barred by the applicable two-year statute of limitations.

         By Memorandum Opinion and Order dated March 20, 2018, the Court granted Derby's motion to dismiss the $6 million deductible claim finding that Factory Mutual "cannot maintain a claim for the $6 million deductible, as the subrogee of GE, as it never actually paid that amount." (DN 47 at 5.) While recognizing that GE assigned its personal claim for this $6 million against Derby to Factory Mutual (Assignment Agreement [DN 28-1] ¶ 2), the Court concluded the assignment did not resolve this pleading deficiency, as Factory Mutual could only recover as the real party in interest if it had brought a claim in that capacity. The Court instructed that if Factory Mutual wished to pursue claims against Derby for the $6 million deductible as the real party in interest, it should file a proper motion for leave to amend its complaint, which should include a proposed amended complaint that alleged that theory of recovery.

         Factory Mutual has since filed a First Amended Complaint alleging that GE assigned its right to pursue the deductible to Factory Mutual, and Factory Mutual is suing in its capacity as real party in interest for the deductible amount. (PL's First Amended Compl. at ¶ 23 [DN 63].) Derby now moves to dismiss Plaintiffs claim for the deductible with prejudice arguing that GE's assignment of its claim to Factory Mutual is invalid, as it was executed on June 28, 2017, outside the two-year statute of limitations for property damage claims.

         II. Standard of Review

         Upon a motion to dismiss for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6), a court "must construe the complaint in the light most favorable to plaintiff," League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007) (citation omitted), "accept all well-pled factual allegations as true[, ]" id., and determine whether the "complaint states a plausible claim for relief[, ]" Ashcroft v. Iqbal 556 U.S. 662, 679 (2009). Under this standard, the plaintiff must provide the grounds for his or her entitlement to relief which "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A plaintiff satisfies this standard only when he or she "pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. A complaint falls short if it pleads facts "merely consistent with a defendant's liability" or if the alleged facts do not "permit the court to infer more than the mere possibility of misconduct." Id. at 678, 679. Instead, the allegations must "'show[ ] that the pleader is entitled to relief" Id. at 679 (quoting Fed.R.Civ.P. 8(a)(2)).

         III. Discussion

         While GE's total loss from the fire was $140 million, it was required to pay $6 million towards the loss as a deductible. (Assignment Agreement [DN 28-1] ¶ E.) In its original complaint filed on April 3, 2017, Factory Mutual, as subrogee of GE, sought to recover the entire value of GE's $140 million loss from Derby, including the $6 million deductible that Factory Mutual never paid to GE. Based on the June 27, 2017, assignment from GE, Factory Mutual now asserts a claim for the $6 million deductible as the real party in interest. Derby argues that Factory Mutual may not recover the $6 million deductible paid by GE because neither GE nor Factory Mutual as assignee of that claim filed its claim for the deductible within the applicable two-year statute of limitations pursuant to KRS § 413.125.[1] In response, Factory Mutual maintains that the motion to dismiss should be denied because under both Fed.R.Civ.P. 15(c)(1)(B) and 17(a)(3), the substitution of Factory Mutual as the real party in interest as to the claim for recovery of the deductible relates back to the original complaint.

         A. Fed.R.Civ.P. 15(c)(1)(B)

         Fed. R. Civ. P. 15(c)(1) applies in three types of situations involving ...


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