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DZ Bank AG Deutsche Zentral-Genossenschaftsbank v. Connect Insurance Agency, Inc.

United States District Court, W.D. Washington, Seattle

June 17, 2015

DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, Plaintiff,
v.
CONNECT INSURANCE AGENCY, INC., Defendant.

ORDER ON MOTION TO DISMISS AND STRIKE

JAMES L. ROBART, District Judge.

I. INTRODUCTION

Before the court is Plaintiff DZ Bank AG Deutsche Zentral-Genossenschaftsbank's ("DZ Bank") motion to dismiss Defendant Connect Insurance Agency, Inc.'s ("Connect") counterclaims pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) and motion to strike Connect's affirmative defenses pursuant to Federal Rule of Civil Procedure 12(f). (Mot. (Dkt. # 15).) The court has considered DZ Bank's motion, all submissions filed in support thereof and opposition thereto, the balance of the record, and the applicable law. Being fully advised, [1] the court GRANTS in part and DENIES in part DZ Bank's motion. The court grants DZ Bank's motion to dismiss under Rule 12(b)(1) and dismisses Connect's counterclaims with prejudice and without leave to amend because it finds that amendment would be futile. The court, however, denies DZ Bank's Rule 12(f) motion to strike Connect's affirmative defenses.

II. BACKGROUND

A. The Present Suit

On November 5, 2014, DZ Bank filed the present action against Connect. (Compl. (Dkt. # 1).) DZ Bank alleges that Connect purchased the assets of various insurance companies, including Advantage Pacific Insurance, Inc. ("Advantage"), after Advantage's former franchisor, Brooke Insurance ("Brooke") failed.[2] ( See id. ¶¶ 45-60.) DZ Bank asserts that Advantage had previously financed its acquisition of the Brooke agency assets through Brooke Credit Corporation ("BCC"). ( Id. ¶¶ 20-30, Exs. 7-11.) DZ Bank alleges that Advantage used notes and security agreements to give BCC a blanket security interest in all of the respective agency assets, accounts, and rights to payment of Advantage. (Id. )

In its complaint, DZ Bank alleges that, prior to Brooke's failure, BCC assigned its rights under the notes and security agreements at issue here to DZ Bank. ( See id. ¶¶ 3-8.) DZ Bank alleges that Connect purchased the assets of Advantage pursuant to agreements that damaged DZ Bank's rights in the pledged collateral. (Id. ¶ 72, Ex. 19 (attaching April 2010 Sale Agreement between Advantage and Connect).) DZ Bank does not allege that Connect, as purchaser of Advantage's assets, is an assignee of the rights of Advantage under the franchise agreements with Brooke or the notes with BCC. ( See generally id. ) DZ Bank alleges that Advantage defaulted on its obligations to DZ Bank in April 2011, after Advantage's owners had transferred the collateral pledged to DZ Bank to Connect. (Id. ¶¶ 72-96.)

DZ Bank asserts that it has an absolute, immediate, and unconditional right to collateral that was pledged to DZ Bank and that has now been transferred through a series of transactions to Connect. (Id. ¶ 104.) As a result, DZ Bank asserts claims for conversion and unjust enrichment against Connect regarding the Advantage collateral that is in Connect's possession. (Id. ¶¶ 103-08, 113-16.)

B. The Prior DZ Bank Action

On October 25, 2011, prior to the present lawsuit, DZ Bank filed a complaint in a related matter against Advantage and a related company, API Vancouver, Inc. ("API"). ( See DZ Bank AG Deutsche Zentral-Genossenschaftsbank Frankfurt AM Main v. Advantage Pacific Insurance, Inc., et al., No. C11-5879BHS, (W.D. Wash.) ("Prior DZ Bank Action"), Compl. (Dkt. # 1).) Both Advantage and API were owned by David Coley. ( See Compl. ¶¶ 1, 72-73.) In this prior action, DZ Bank alleged that Advantage, API, and Mr. Coley defaulted on their obligations to DZ Bank as the assignee of BCC and other Brooke entities. (Prior DZ Bank Action, Compl. ¶¶ 7-35.) Mr. Coley filed a pro se Answer on behalf of Advantage and API ( id., Answer (Dkt. # 9)), but the court struck the Answer as it pertained to the corporations because such business entities may appear in federal court only through a licensed attorney ( id., Order (Dkt. # 13)). On April 17, 2012, Mr. Coley filed for bankruptcy. ( See Case No. 12-42638PBS (W.D. Wash. Bankr.).) On May 24, 2012, the court granted final default judgment pursuant to Federal Rules of Civil Procedure 54(b) and 55 in favor of DZ Bank against Advantage in the amount of $214, 678.38 and against API in the amount of $327, 689.21. (Prior DZ Bank Action, Order Granting Default Judgment (Dkt. # 24).) No defendant filed any counterclaims against DZ Bank in this matter. ( See generally Prior DZ Bank Action, Dkt.)

C. Connect's Counterclaims

In its amended answer to DZ Bank's complaint in the present action, Connect purports to assert counterclaims against DZ Bank ( see Am. Ans. (Dkt. # 10) at 12 (Defendant, as and for its counterclaims against Plaintiff, alleges as follows....")); however, few of Connect's allegations actually reference DZ Bank ( see generally id. ). Most of the factual allegations underlying Connect's counterclaims describe an alleged fraud perpetrated by "the Brooke Companies"[3] and "Brooke"[4] against their Franchisees, which Connect defines as including Advantage and API.[5] ( See id. ¶¶ 66-90.) The only connection to DZ Bank that Connect draws regarding its allegations of fraud by Brooke is Connect's allegation that DZ Bank discovered Brooke's fraud during the first quarter of 2008 and did not inform the Franchisees, but rather began "aggressively contacting" and "inducing" the franchisees to sign ccknowledgments that DZ Bank was the owner of notes issued to finance the purchase of the Brooke insurance franchises. (Id. ¶¶ 91-92.) Connect also alleges that DZ Bank representatives used "threats and intimidation to coerce the Franchisees to sign the Acknowledgements, " which "included waivers of all defense relating to the transactions, " and foreclosed on the notes in October 2008. (Id. ¶¶ 92-93.)

None of these allegations, however, indicate that DZ Bank acted in a fraudulent manner toward Connect. Indeed, the only direct link that Connect draws between itself and Advantage is in one paragraph of Connect's counterclaim allegations. Connect alleges that "Advantage Pacific ultimately failed and was... forced to sell its remaining accounts to Defendant Connect." (Id. ¶ 97.) Beyond acquiring these assets, Connect does not allege that it acquired any other rights or obligations through Advantage. ( See generally id. ) Connect raises no allegation that the franchisees assigned any of their rights under the notes or franchise agreements to Connect. ( See generally id. )

Connect's allegations contained in each of its specific counterclaims are also nearly devoid of facts related to either Connect or DZ Bank. For example, the paragraphs of Connect's counterclaim entitled "Breach of the Implied Duty of Good Faith and Fair Dealing" reference only "the Brooke Companies, " "Brooke principals, " and "Brooke." (Id. ¶¶ 99-102.) DZ Bank is not mentioned in these paragraphs at all. ( See id. ) The same is true of paragraphs entitled "Fraud in the Inducement (Brooke)" ( id ¶¶ 105-08), "Actual Fraud" ( id. ¶¶ 113-17), and "Breach of Contract" ( id. ¶¶ 118-23). These paragraphs only reference "the Brooke Companies, " "Brooke, " or "Brooke representatives." (Id. ¶¶ 99-102, 105-08, 113-17.) DZ Bank is not referenced. ( See id. )

Connect also alleges a counterclaim entitled "Equitable Estoppel." (Id. ¶¶ 103-04.) In this counterclaim, Connect alleges that "[t]he Franchisees reasonably relied to their detriment on the misleading statements, omissions, and actions of Plaintiff and/or Plaintiff's assignor...." (Id. ¶ 103.) Nowhere in this counterclaim does Connect allege that it relied to its detriment on DZ Bank's or anyone else's misleading statements, omissions, or actions. ( See id. ¶¶ 103-04.)

Similarly, Connect alleges a counterclaim entitled "Fraud in the Inducement (DZ Bank)." (Id. ¶¶ 109-12.) In this counterclaim, Connect alleges that "the Franchisees relied to their detriment on the misleading statements, omissions, and actions of DZ Bank...." (Id. ¶ 109.) However, as noted above, the term "Franchisees" does not refer to Connect, but rather to Advantage and API, who are not parties to this lawsuit. ( See id. ¶ 67.) In addition, Connect alleges that "Brooke representatives knew these representations were false, " and that "[t]he Franchisees reasonably relied on the Brooke Companies' false and ...


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