Merenstein v. St. Paul Fire & Marine Insurance , 142 F. App'x 136 ( 2005 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-1631
DANIEL J. MERENSTEIN, M.D.,
Plaintiff - Appellant,
versus
ST. PAUL FIRE & MARINE INSURANCE COMPANY,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Claude M. Hilton, Chief
District Judge. (CA-04-139-A)
Argued: May 26, 2005 Decided: July 12, 2005
Before MICHAEL, MOTZ, and KING, Circuit Judges.
Reversed and remanded by unpublished per curiam opinion.
ARGUED: Bruce Philip Merenstein, SCHNADER, HARRISON, SEGAL & LEWIS,
Philadelphia, Pennsylvania, for Appellant. Elizabeth Stanulis
Skilling, HARMAN, CLAYTOR, CORRIGAN & WELLMAN, Glen Allen,
Virginia, for Appellee. ON BRIEF: Nancy Winkelman, SCHNADER,
HARRISON, SEGAL & LEWIS, Philadelphia, Pennsylvania, for Appellant.
John M. Claytor, HARMAN, CLAYTOR, CORRIGAN & WELLMAN, Glen Allen,
Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
Daniel J. Merenstein, M.D., appeals the district court’s
dismissal, pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure, of his claim for actual fraud against St. Paul Fire &
Marine Insurance Company (“St. Paul”). As explained below,
Merenstein’s Complaint sufficiently alleges the elements of actual
fraud under Virginia law, and we therefore reverse and remand.
I.
A.
Merenstein filed his Complaint on February 9, 2004, in the
Eastern District of Virginia, pursuant to that court’s diversity
jurisdiction. See 28 U.S.C. § 1332(a). Merenstein is a physician
residing in the District of Columbia, and St. Paul is a Minnesota
corporation. Compl. at ¶¶ 2-3.1 From July 1, 2000, to July 1,
2001, Merenstein was an insured under a professional liability
insurance policy issued by St. Paul to his employer, INOVA Health
System Foundation. Id. at ¶¶ 4-5. While covered by this policy,
Merenstein was sued for medical malpractice in the Circuit Court
for the County of Fairfax, Virginia. Id. at ¶ 6.
1
We recite the facts substantially as they are alleged in the
Complaint. We are obliged, in our review of the district court’s
Rule 12(b)(6) dismissal, to accept all well-pleaded facts as true
and to view the allegations of the Complaint in the light most
favorable to Merenstein. See Lambeth v. Bd. of Comm’rs, 407 F.3d
266, 268 (4th Cir. 2005).
2
On approximately March 1, 2003, Bill Rigsbee, a St. Paul
employee experienced in adjusting medical malpractice claims,
requested that Merenstein provide approval to St. Paul for
settlement of his exposure in the malpractice action for the sum of
$466,666.66. Compl. at ¶¶ 9, 11, 22. At that time, Merenstein
asked Rigsbee if the payment of such a settlement “would be likely
to have any possible adverse implications on [Merenstein’s] ability
to obtain liability insurance coverage in the future, or to
practice medicine.” Id. at ¶ 12. Rigsbee responded “in
unequivocal terms that the proposed settlement . . . would have no
adverse or negative effect whatsoever on [Merenstein’s] future
ability to obtain liability insurance coverage.” Id. at ¶ 13.
In reliance upon this assurance by Rigsbee, Merenstein
approved the proposed settlement. Compl. at ¶ 14. As a result, on
approximately March 14, 2003, the malpractice action was dismissed
as having been settled by agreement of all parties. Id. at ¶ 8.
Thereafter, Merenstein attempted to obtain liability insurance
coverage from several different insurance carriers, only to be
rejected based upon the malpractice settlement. Id. at ¶ 15.2
Without liability insurance coverage, Merenstein has been unable to
continue his private medical practice. Id. at ¶ 16.
2
The Complaint does not specify whether Merenstein has ever
sought such coverage from St. Paul.
3
In support of his actual fraud claim, Merenstein alleges that
Rigsbee’s assurance to him constituted an intentional
misrepresentation of material fact. Compl. at ¶ 17, 24.
Merenstein also maintains that Rigsbee knew that his representation
was false because his job involved adjusting medical malpractice
claims for St. Paul. Id. at ¶ 22. According to the Complaint,
Rigsbee assured Merenstein of the foregoing not only to obtain his
approval of the proposed settlement, but also, at least in part, to
keep INOVA satisfied with St. Paul’s adjusting services. Id. at
¶ 23. As a result of his reliance on Rigsbee’s assurance,
Merenstein lost the ability to practice medicine in the private
sector. Id. at ¶ 25. He therefore seeks compensatory damages from
St. Paul for loss of his earning capacity and for his mental
anguish, as well as an award of punitive damages.
B.
On March 1, 2004, St. Paul moved to dismiss the Complaint
pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure
for failure to state a claim upon which relief can be granted. St.
Paul contended that the alleged representation made by Rigsbee is
not actionable under Virginia law, because (1) it was not of a
present, existing fact, but rather was merely his opinion; and (2)
it was not one on which Merenstein could have reasonably relied.
Addressing only St. Paul’s first contention, the court dismissed
4
Merenstein’s Complaint by Order of April 15, 2004 (the “Order”).
Merenstein has filed a timely notice of appeal, and we possess
jurisdiction under 28 U.S.C. § 1291.3II.
We review de novo a district court’s dismissal of a complaint
under Rule 12(b)(6). Lambeth v. Bd. of Comm’rs, 407 F.3d 266, 268
(4th Cir. 2005). Such a dismissal is appropriate only if it
appears beyond doubt that the plaintiff can prove no set of facts
that would entitle him to relief. Id. Viewing the plaintiff’s
allegations in the light most favorable to him, we must assess
whether the complaint “adequately state[s] a set of facts which, if
proven to be true, would entitle [him] to judicial relief.” Id.(internal quotation marks omitted).
III.
As recognized by the district court, in order to state a claim
for actual fraud under Virginia law, a plaintiff must establish the
following: “(1) a false representation, (2) of a material fact,
(3) made intentionally and knowingly, (4) with intent to mislead,
(5) reliance by the party misled, and (6) resulting damage to the
3
In addition to the claim of actual fraud, the Complaint
asserts a constructive fraud claim. The district court did not
distinguish between those claims in its Order dismissing the
Complaint. The viability of the constructive fraud claim is not
before us on appeal.
5
party misled.” Order at 3 (citing Evaluation Research Corp. v.
Alequin, 439 S.E.2d 387, 390 (Va. 1994)).4 In assessing
Merenstein’s actual fraud claim, the district court appears to have
conflated two general legal principles of Virginia law — first,
that neither unfulfilled promises nor statements as to future
events can constitute fraud, and second, that opinions also are
nonactionable as fraud. Applying these general rules, the court
concluded that Rigsbee’s assurance did not constitute an adequate
predicate for Merenstein’s actual fraud claim. Specifically, the
district court observed that a claim of fraud
must relate to a present or pre-existing fact and cannot
be predicated on unfulfilled promises or statements as to
future events. Patrick v. Summers, 235 Va. 452, 454
(1988). Such promises or statements are merely opinions
which are not actionable under Virginia law. See Lambert
v. Downtown Garage, Inc., 262 Va. 707, 717 (2001); See
Saxby v. Southern Land Co., 109 Va. 196, 198 (1909).
In the case at hand, the alleged representation is
a statement about the likelihood of occurrence of a
future event, that is, the likelihood that insurance
carriers would or would not provide future insurance
coverage to the Plaintiff after the settlement. Such a
statement can only be characterized as an opinion. As
such, Plaintiff has failed to state a claim for actual
. . . fraud.
Order at 3.
As explained below, we are unable to agree with the district
court for two reasons. First, although the court recognized
4
In this diversity matter, it is undisputed that we apply the
substantive law of Virginia. See Seabulk Offshore, Ltd. v. Am.
Home Assurance Co., 377 F.3d 408, 418 (4th Cir. 2004) (citing Erie
R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)).
6
Virginia’s general rule that a fraud claim cannot be predicated on
unfulfilled promises or statements as to future events, it failed
to address an applicable exception (the “exception”): a promise
made in the absence of a present intention of performing can
constitute fraud. Second, the court improperly characterized
Rigsbee’s assurance to Merenstein as a nonactionable “opinion”
under Virginia law, failing to recognize that it instead could be
construed as a litigable affirmation of present fact. We address
these issues in turn.
A.
As the district court observed, under the general rule, a
fraud claim must be premised on the misrepresentation of a present
or pre-existing fact, and it cannot ordinarily be predicated on
unfulfilled promises or statements as to future events. Patrick v.
Summers, 369 S.E.2d 162, 164 (Va. 1988); Lloyd v. Smith, 142 S.E.
363, 365 (Va. 1928). However, the Supreme Court of Virginia has
also recognized the exception: that is, a fraud claim “may
sometimes be predicated on promises which are made with a present
intention not to perform them, or on promises made without any
intention to perform them.” Lloyd, 142 S.E. at 365; see also
Patrick, 369 S.E.2d at 164. The basis for the exception is that
“the state of the promisor’s mind at the time he makes the promise
7
is a fact,” so that, if he misrepresents his state of mind, “he
misrepresents a then existing fact.” Lloyd, 142 S.E. at 366.5
Merenstein’s actual fraud claim, as spelled out in the
Complaint, is readily analogous to those underlying the fraud
claims in Boykin v. Hermitage Realty, 360 S.E.2d 177 (Va. 1987),
where the Supreme Court of Virginia applied the exception. The
Boykin plaintiffs (four married couples) purchased condominiums,
and the defendants (Hermitage Realty and its representative) served
as the exclusive sales agent of the condominium developer. 360
S.E.2d at 177-78. The agent had assured the plaintiffs, prior to
their purchases, that a wooded area behind the condominiums would
not be developed in the future. Id. at 178. At the time of these
representations, however, the agent was aware that the wooded area
was a proposed playground site. Id. The plaintiffs, unaware of
any such plans and relying upon the agent’s assurances, purchased
the condominiums; several months later, the developer constructed
the planned playground. Id. In upholding the verdict for the
5
The Supreme Court of Virginia has consistently upheld fraud
claims predicated on promises made without the present intent to
perform. See Elliott v. Shore Stop, Inc., 384 S.E.2d 752, 756 (Va.
1989); Colonial Ford Truck Sales, Inc. v. Schneider, 325 S.E.2d 91,
94 (Va. 1985); Sea-Land Serv., Inc. v. O’Neal, 297 S.E.2d 647, 651-
52 (Va. 1982); see also Flip Mortgage Corp. v. McElhone, 841 F.2d
531, 537 (4th Cir. 1988) (allowing fraud claim, under Virginia law,
based on breach of contract where evidence was sufficient to
establish that defendant never intended to perform); cf. Patrick,
369 S.E.2d at 164 (denying fraud claim absent sufficient proof that
defendant had intent to defraud at time he promised to purchase
plaintiff’s property).
8
plaintiffs on their fraud claims, the Supreme Court of Virginia
observed that the agent’s assurances — regarding the future
conduct of the third-party developer — “were promises of privacy
made in reply to express inquiries.” Id. at 179. The court also
concluded that these assurances constituted “deliberate
misrepresentations of existing facts, all made to induce the
several plaintiffs to pay a premium price for property they
otherwise would not have bought.” Id.
In this matter, analogously, the Complaint alleges that
Rigsbee gave an unequivocal assurance respecting Merenstein’s
future insurability to induce him to agree to the malpractice
settlement — something he otherwise would not have done. As in
Boykin, Rigsbee’s assurance related to the prospective conduct of
third parties (i.e., other insurers). And, according to the
Complaint, Rigsbee knew that his representation was false at the
time of its making. Therefore, under Boykin, Rigsbee’s assurance
— construed as a promise made with present fraudulent intent —
constitutes a sufficient predicate for Merenstein’s actual fraud
claim.6
6
St. Paul seeks to distinguish the Boykin decision, contending
that the agent’s assurances were attributable to the condominium
developer and, thus, did not regard the future conduct of a “third
party.” This contention, however, finds no support in Boykin, in
which “[t]he plaintiffs nonsuited their claims against” the
developer. 360 S.E.2d at 178 n.*.
9
B.
In dismissing the Complaint, the district court also relied on
Saxby v. Southern Land Co., where the Supreme Court of Virginia
ruled that “[t]he mere expression of an opinion, however strong and
positive the language may be, is no fraud.” 63 S.E. 423, 424 (Va.
1909). Significantly, however, the district court failed to fully
assess the Saxby court’s definition of “opinions” in this context,
i.e., “[s]tatements which are vague and indefinite in their nature
and terms, or are merely loose, conjectural or exaggerated.” Id.The court explained that such opinions cannot serve as predicates
for fraud claims, because “a man is not justified in placing
reliance upon them.” Id.7
In this proceeding, by contrast, the evidence may show that
Rigsbee was aware that Merenstein would be unable to obtain
liability insurance after the malpractice settlement, despite
Rigsbee’s assurance to the contrary. In this context, Rigsbee’s
7
The Saxby plaintiff-buyers had predicated their fraud claims,
arising from the sale of a farm, on the defendant-seller’s
misestimation of the property’s acreage and misstatements of the
value and volume of timber and potatoes that the land would yield.
63 S.E. at 424. The court characterized the acreage estimation as
merely a “manifest” expression of “opinion from appearances,” and
the statements as to the timber and potatoes as “mere trade talk
. . . with respect to matters of an essentially uncertain nature.”
Id. Similarly, in Lambert v. Downtown Garage, Inc., another
decision relied on by the district court, the court observed that
the statement that a wrecked car was now in “excellent” condition,
without more, was “clearly a matter of opinion in the manner of
puffing,” and thus nonactionable as fraud. 553 S.E.2d 714, 717
(Va. 2001).
10
assurance should not be construed as a mere opinion, but rather an
affirmation of a present fact: insured physicians who agree to
settle medical malpractice claims do not encounter difficulty in
thereafter obtaining liability coverage. Cf. Horner v. Ahern, 153
S.E.2d 216, 220 (Va. 1967) (concluding that, even if seller’s
assurance of “no termite damage” was “expression of opinion,” it
could amount to affirmation of fact sufficient to support fraud
claim, where seller knew of facts incongruous with opinion).
Significantly, there is no “bright line test” in Virginia “to
ascertain whether false representations constitute matters of
opinion or statements of fact.” Mortarino v. Consultant Eng’g
Servs., Inc., 467 S.E.2d 778, 781 (Va. 1996). Instead, “each case
must in a large measure be adjudged upon its own facts, taking into
consideration the nature of the representation and the meaning of
the language used as applied to the subject matter and as
interpreted by the surrounding circumstances.” Id. (internal
quotation marks omitted). This principle is particularly
significant in the posture of this appeal, where the underlying
Complaint was dismissed under Rule 12(b)(6), prior to any discovery
being conducted. While Merenstein may face an uphill climb in
proving his case, his Complaint is sufficient to state a claim of
actual fraud.8
8
In rendering this decision, we also reject St. Paul’s
alternative ground for affirming the district court, i.e., that
Rigsbee’s assurance was not one on which Merenstein could have
11
IV.
Pursuant to the foregoing, we reverse the dismissal of
Merenstein’s actual fraud claim and remand for such other and
further proceedings as may be appropriate.
REVERSED AND REMANDED
reasonably relied. St. Paul urges us to accept as true several
“self-evident” facts that are not pleaded in the Complaint, such as
that “a claims adjustor for one company would not have knowledge of
the underwriting standards and application guidelines of other
companies.” Appellee’s Br. at 11. The “reasonable reliance” issue
— like the closely related question of whether Rigsbee’s assurance
constituted an unfulfilled promise, statement as to future events,
opinion, or affirmation of present fact — warrants discovery and
is not properly resolved on a Rule 12(b)(6) motion.
12