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U.S. Bank, NA v. Recovery Services Northwest, Inc.

United States District Court, D. Nevada

March 4, 2015

U.S. BANK, NA, Plaintiff,
v.
RECOVERY SERVICES NORTHWEST, INC., d/b/a CUSTOM RECOVERY, et al., Defendants.

ORDER ON MOTION TO DISMISS (Dkt. #24)

ANDREW P. GORDON, District Judge.

Defendant Recovery Services Northwest, Inc. ("Custom") repossesses property for plaintiff U.S. Bank pursuant to contracts between the two entities. One of the provisions in these contracts required Custom to indemnify U.S. Bank for any attorneys' fees or losses arising from Custom's (and its subcontractors') repossession efforts.

U.S. Bank was sued after one of Custom's subcontractors allegedly injured someone during a repossession. U.S. Bank notified Custom of the lawsuit. U.S. Bank alleges that Custom failed to fully indemnify U.S. Bank during the ensuing litigation. U.S. Bank alleges it had to hire its own counsel for a period of time before Custom took over the defense; later in the litigation U.S. Bank paid for its own counsel because Custom's defense was inadequate. U.S. Bank brought this lawsuit against Custom asserting claims of breach of contract and fraud.

Custom moves to dismiss U.S. Bank's complaint, arguing that U.S. Bank has failed to state a claim for breach of contract because Custom provided for U.S. Bank's defense. Custom also argues U.S. Bank has not pleaded sufficient supporting facts for its fraud claim.

U.S. Bank has alleged that Custom breached the parties' contracts by failing to pay for all of U.S. Bank's legal fees in the underlying litigation. Based on these allegations, U.S. Bank has stated a claim for its contractual causes of action. However, U.S. Bank has failed to allege sufficient facts in support of its fraud claim. I therefore dismiss U.S. Bank's fraud claim without prejudice.

I. BACKGROUND[1]

Custom and U.S. Bank entered into three contracts: one in July, 2008; one in December, 2011; and one in June, 2012.[2] In all three contracts Custom agreed to indemnify U.S. Bank for losses arising out of Custom's repossession services.[3]

The December, 2011 and June, 2012 contracts expressly state that U.S. Bank may require Custom to provide counsel "satisfactory" to U.S. Bank. These two contracts also allow U.S. Bank to hire its own counsel and defend itself at Custom's expense.[4] The December, 2011 and June, 2012 contracts state that they supersede and replace the July, 2008 contract.[5]

U.S. Bank was sued in June of 2011 for claims arising from Custom's repossession services. U.S. Bank notified Custom of the lawsuit, but Custom did not immediately take up U.S. Bank's defense. Instead, U.S. Bank hired its own counsel while waiting for Custom to decide whether it would provide a defense. U.S. Bank's counsel successfully litigated a portion of the lawsuit.[6] Custom subsequently decided it would defend U.S. Bank, and it took over the defense. Custom-through a subcontractor's insurer-hired Eugene Wait as U.S. Bank's counsel.[7]

Over the following ten months, U.S. Bank became increasingly dissatisfied with Wait's representation. U.S. Bank alleges a number of deficiencies in Wait's work, including his failure to timely respond, his lack of communication, and his use of improper discovery techniques.[8] U.S. Bank complained to Custom, but Custom failed to remedy the alleged problems.[9]

U.S. Bank ultimately took back control of its defense and hired new counsel.[10] Shortly after, its new counsel successfully resolved the litigation in U.S. Bank's favor.[11] Wait continued to represent U.S. Bank's other co-defendants. The court sanctioned the other defendants and imposed liability because of Wait's discovery violations.[12]

II. DISCUSSION

A. Legal Standard-Motion to Dismiss

A complaint must provide "[a] short and plain statement of the claim showing that the pleader is entitled to relief."[13] While Rule 8 does not require detailed factual allegations, it demands "more than labels and conclusions" or a "formulaic recitation of the elements of a cause of action."[14] "Factual allegations must be enough to rise above the speculative level."[15] Thus, to survive a motion to dismiss, a ...


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