Lexington Insurance Company v. United States of America

• Court: District Court, W.D. Washington
• Decided: June 4, 2020
• Docket: 3:20-cv-05038
• Status: Unknown

Opinion

1 HONORABLE RONALD B. LEIGHTON 2 3 4

5 6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 7 AT TACOMA 8 LEXINGTON INSURANCE CASE NO. 3:20-cv-05038- RBL 9 COMPANY, PORT OF GRAYS HARBOR, AND ENDURIS, ORDER ON UNITED STATES’ 10 MOTION TO DISMISS Plaintiffs, 11 v. 12 UNITED STATES OF AMERICA, UNITED STATES DEPARTMENT OF 13 THE ARMY, UNITED STATES ARMY CORPS OF ENGINEERS, and 14 MAB 6 UK, inclusive, 15 Defendants. 16

INTRODUCTION 17 THIS MATTER is before the Court on Defendants the United States of America, the 18 United States Department of Army, and the United States Army Corps of Engineers’ 19 (collectively, the “United States”) Motion to Dismiss. Dkt. # 20. Plaintiffs allege that, while 20 conducting military training exercises, the United States damaged property belonging to the Port 21 of Grays Harbor when a helicopter flew too close to a building. These training exercises were 22 carried out pursuant to a Licensing Agreement between the Port and the United States. Plaintiffs 23 claim damage amounting to $405,772, which the Port’s insurers, Lexington Insurance Company 24 1 and Enduris, “paid or will pay” under their policies. Complaint, Dkt. # 1, at 3. The Complaint 2 asserts claims for negligence and breach of contract against the United States. Id. at 4-6. 3 The United States seeks dismissal on several grounds. First, the United States argues that 4 Lexington and Enduris cannot bring a negligence claim under the Federal Tort Claims Act

5 (FTCA) because these parties did not exhaust their administrative remedies. As a result, the 6 Court lacks subject matter jurisdiction over Lexington and Enduris. Second, the United States 7 contends that the Court lacks subject matter jurisdiction over both claims because the Tucker Act 8 vests the Court of Federal Claims with exclusive jurisdiction over contractual claims against the 9 United States for more than $10,000. According to the United States, both of Plaintiffs’ claims 10 sound in contract. Finally, even if the Court holds that Plaintiffs’ FTCA claim does not sound in 11 contract, the United States argues that claim should still be dismissed because Plaintiffs allege a duty 12 arising from a federal regulation, which cannot support an FTCA claim. The Court will consider each 13 of these arguments in turn. 14 DISCUSSION

15 1. Legal Standards 16 “A complaint must be dismissed under Fed. R. Civ. P. 12(b)(1) if the action: (1) does not 17 arise under the Constitution, laws, or treaties of the United States, or does not fall within one of 18 the other enumerated categories of Article III, Section 2, of the Constitution; (2) is not a case or 19 controversy within the meaning of the Constitution; or (3) is not one described by any 20 jurisdictional statute.” United Transp. Union v. Burlington N. Santa Fe R. Co., No. C06-5441 21 RBL, 2007 WL 26761, at *2 (W.D. Wash. Jan. 2, 2007), aff’d, 528 F.3d 674 (9th Cir. 2008). The 22 plaintiff bears the burden of proving the existence of subject matter jurisdiction. Stock West, Inc. 23 v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir.1989). In a “factual attack” on jurisdiction,

24 which is what the United States asserts here, the Court is not restricted to the allegations in the 1 complaint and may consider evidence outside it. Thornhill Pub. Co. v. Gen. Tel. & Elecs. Corp., 2 594 F.2d 730, 733 (9th Cir. 1979). Further, “[n]o presumptive truthfulness attaches to plaintiff’s 3 allegations, and the existence of disputed material facts will not preclude the trial court from 4 evaluating for itself the merits of jurisdictional claims.” Id.

5 Dismissal under Fed. R. Civ. P. 12(b)(6) may be based on either the lack of a cognizable 6 legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri 7 v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A plaintiff’s complaint must allege 8 facts to state a claim for relief that is plausible on its face. See Ashcroft v. Iqbal, 556 U.S. 662, 9 678 (2009). A claim has “facial plausibility” when the party seeking relief “pleads factual 10 content that allows the court to draw the reasonable inference that the defendant is liable for the 11 misconduct alleged.” Id. Although the court must accept as true the Complaint’s well-pled facts, 12 conclusory allegations of law and unwarranted inferences will not defeat an otherwise proper 13 12(b)(6) motion to dismiss. Vazquez v. Los Angeles Cty., 487 F.3d 1246, 1249 (9th Cir. 2007); 14 Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

15 On a 12(b)(6) motion, “a district court should grant leave to amend even if no request to 16 amend the pleading was made, unless it determines that the pleading could not possibly be cured 17 by the allegation of other facts.” Cook, Perkiss & Liehe v. N. Cal. Collection Serv., 911 F.2d 242, 18 247 (9th Cir. 1990). However, where the facts are not in dispute, and the sole issue is whether 19 there is liability as a matter of substantive law, the court may deny leave to amend. Albrecht v. 20 Lund, 845 F.2d 193, 195–96 (9th Cir. 1988). 21 2. Exhaustion of Administrative Remedies under the FTCA 22 The United States argues that Lexington and Enduris have not exhausted their 23 administrative remedies because, while the Port submitted a claim to the Army (which was

24 1 rejected), its insurers did not. The FTCA waives the United States’ sovereign immunity for tort 2 actions and allows plaintiffs to sue in district court if they “first give the appropriate federal 3 agency the opportunity to resolve the claim.” Cadwalder v. United States, 45 F.3d 297, 300 (9th 4 Cir. 1995) (citing 28 U.S.C. § 2675(a)). “This administrative claim prerequisite is jurisdictional.”

5 Id. (citing Jerves v. United States, 966 F.2d 517, 518 (9th Cir.1992)). It also must be interpreted 6 “strictly” and “in favor of the United States.” Vacek v. U.S. Postal Serv., 447 F.3d 1248, 1250 7 (9th Cir. 2006) (quoting Jerves, 966 F.2d at 521). The purpose of the requirement is “to 8 encourage administrative settlement of claims against the United States and thereby to prevent an 9 unnecessary burdening of the courts.” Holloway v. United States, No. 2:12-cv-02120-MCE- 10 CKD, 2014 WL 1747467, at *4 (E.D. Cal. Apr. 29, 2014) (quoting Jerves, 966 F.2d at 520). 11 Although the Ninth Circuit has stated that the FTCA’s exhaustion prerequisite “admits to 12 no exceptions,” Vacek, 447 F.3d at 1250, some courts have nonetheless allowed a subrogee to 13 assert an FTCA claim when only its subrogor had filed an administrative claim. In Executive Jet 14 Aviation v. United States, 507 F.2d 508, 516 (6th Cir. 1974), the Sixth Circuit held that this

15 complied with the FTCA because “the subrogee stands in the shoes of the subrogor.” The court 16 also reasoned that tolling the statute of limitations for the subrogee made sense because the 17 subrogor’s administrative claim gave the United States “sufficient notice to begin assembling 18 witnesses and evidence in preparation for a defense on the merits.” Id. The Ninth Circuit 19 followed Executive Jet’s holding in Cummings v. United States, 704 F.2d 437, 439 (9th Cir. 20 1983). 21 The Ninth Circuit has more recently expressed doubts about Executive Jet’s holding. In 22 Cadwalder v. United States, the court observed in dicta that Executive Jet “may conflict with the 23 Supreme Court’s demand for ‘strict adherence to the [FTCA’s] procedural requirements.’” 45

24 1 F.3d at 302 n.4 (quoting McNeil v. United States, 508 U.S. 106, 112 (1993)). One district court 2 has agreed with Cadwalder’s concerns and declined to apply Executive Jet. Sec. Nat. Ins. Co. v. 3 United States, No. 2:13-CV-01594-MCE, 2014 WL 546551, at *4 (E.D. Cal. Feb. 11, 2014), 4 aff’d, 637 F. App’x 347 (9th Cir. 2016). However, neither Cadwalder nor Security National

5 involved situations truly analogous to Executive Jet; the former addressed an assignment, rather 6 than a subrogation agreement, 45 F.3d at 301-02, and in the latter neither the subrogor nor the 7 subrogee had filed an administrative claim, 2014 WL 546551, at *4. 8 Here, the Court faces a situation that cannot be so easily distinguished from Executive 9 Jet; the parties do not dispute that the Port, the injured subrogor, filed a timely administrative 10 claim, after which it initiated this suit along with Lexington and Enduris, the subrogees.1 11 Although it has expressed doubts, the Ninth Circuit has followed Executive Jet in the past and 12 has not explicitly rejected its reasoning, which this Court agrees with. If one party can stand in 13 the shoes of another through a valid subrogation agreement, their claims are not only related but 14 the same. As such, Plaintiffs complied with the FTCA’s requirement that “[a]n action shall not

15 be instituted upon a claim against the United States . . . unless the claimant shall have first 16 presented the claim to the appropriate Federal agency.” 28 U.S.C. § 2675(a). Because the Port 17 already presented the claim, an action asserting that claim may commence. 18 The United States does not explain how Lexington and Enduris filing their own 19 administrative claims, which would derive entirely from the Port’s, could have affected the 20 likelihood of settlement. Nor does the United States dispute that a subrogation agreement exists 21

22 1 It is worth noting that the Army did not deny the Port’s administrative claim until after this litigation commenced. Dkt. # 21-1. However, the denial also came over a year after the claim 23 was filed. Id. In any case, the United States does not base its argument on the fact that this case was filed before the Army formally responded to the Port’s claim. 24 1 between Plaintiffs.2 Under these facts, dismissing Lexington and Enduris does not serve the 2 purposes of the FTCA and is not required by its language. Consequently, the Court declines to 3 dismiss Lexington and Enduris. 4 3. Subject Matter Jurisdiction under the Tucker Act

5 The United States contends that this Court must dismiss Plaintiffs’ breach of contract 6 claim because the Tucker Act vests the Court of Federal Claims with exclusive jurisdiction over 7 such claims. The Tucker Act creates jurisdiction for federal district courts over contract claims 8 against the United States, but only for claims “not sounding in tort” and “not exceeding $10,000 9 in amount.” 28 U.S.C. § 1346(a)(2). The Court of Federal Claims has exclusive jurisdiction over 10 Tucker Act claims for more than $10,000 “to the extent that Congress has not granted any other 11 court authority to hear the claims that may be decided by the Claims Court.” Bowen v. 12 Massachusetts, 487 U.S. 879, 910 n.4 (1988). 13 “In other words, the Tucker Act and Little Tucker Act create a presumption of exclusive 14 jurisdiction in the Court of Federal Claims, but that presumption can be overcome by an

15 independent statutory grant of jurisdiction to another court.” Tritz v. U.S. Postal Serv., 721 F.3d 16 1133, 1137 (9th Cir. 2013). In Tritz, the Ninth Circuit held that the Postal Reorganization Act 17 created jurisdiction and waived sovereign immunity for contract claims against the Postal 18 Service. Id. at 1138. Similarly, in Ward v. Brown, the Second Circuit concluded that jurisdiction 19 existed under the APA and that the Back Pay Act provided “an explicit waiver of sovereign 20 immunity in cases covered by that act,” including the plaintiffs’ claims for lost wages. 22 F.3d 21 516, 520 (2d Cir. 1994). 22

23 2 United States does repeatedly point out that the Port presented no evidence of such an agreement during the administrative process. 24 1 Here, Plaintiffs identify no such federal statute creating jurisdiction or waiving sovereign 2 immunity for their contract claim. Instead, they insist that the FTCA’s grant of jurisdiction over 3 their tort claim is enough to defeat the presumption of exclusivity for Tucker Act claims. 4 This is incorrect. “It is well understood that any waiver of sovereign immunity must be

5 unequivocally expressed.” Al-Haramain Islamic Found., Inc. v. Obama, 705 F.3d 845, 848 (9th 6 Cir. 2012). The FTCA does not contain such an unequivocal waiver for breach of contract 7 claims, nor does it establish independent subject matter jurisdiction over such claims. See Olson 8 v. United States, No. 1:14-CV-3166-TOR, 2015 WL 1865589, at *7 (E.D. Wash. Apr. 23, 2015); 9 Dunbar-Kari v. United States, No. CV-F-09-389 LJO SMS, 2010 WL 1172986, at *4 (E.D. Cal. 10 Mar. 23, 2010). 28 U.S.C. § 1367, which establishes supplemental jurisdiction, also does not 11 explicitly waive sovereign immunity or override the presumption of exclusive jurisdiction over 12 Tucker Act claims. Tucson Airport Auth. v. Gen. Dynamics Corp., 922 F. Supp. 273, 286 (D. 13 Ariz. 1996), aff’d, 136 F.3d 641 (9th Cir. 1998); United States v. Park Place Assocs., Ltd., 563 14 F.3d 907, 934 (9th Cir. 2009). In short, this Court has no jurisdiction to decide Plaintiffs’ breach

15 of contract claim. 16 But the United States’ argument that the Court also lacks jurisdiction over Plaintiffs’ 17 FTCA claim goes a step too far. “If a plaintiff’s claim is ‘concerned solely with rights created 18 within the contractual relationship and has nothing to do with duties arising independently of the 19 contract . . . [the] claim is ‘founded . . . upon [a] . . . contract with the United States’ and is 20 therefore within the Tucker Act and subject to its restrictions on relief.’” N. Star Alaska v. United 21 States, 14 F.3d 36, 37 (9th Cir. 1994) (quoting North Side Lumber v. Block, 753 F.2d 1482, 1486 22 (9th Cir. 1985)). Although the Licensing Agreement cites the FTCA as one source of potential 23 liability for the United States, Plaintiffs’ tort claim is for garden-variety negligence and does not

24 1 rely on the Agreement for its existence. Just as an automobile driver has a duty not to drive their 2 car into someone’s house, a helicopter pilot has a duty not to fly so low as to damage someone’s 3 roof. See Leyendecker v. Cousins, 53 Wash. App. 769, 776, 770 P.2d 675, 679 (1989). No special 4 contractual or statutory duty is necessary to establish such a basic principle. Plaintiffs’ FTCA

5 claim is therefore not derived solely from their contract with the United States and not subject to 6 the Tucker Act’s restrictions on jurisdiction. 7 Plaintiffs argue that they will be severely prejudiced if the Court dismisses their breach of 8 contract claim because the Court of Federal Claims cannot exercise jurisdiction over their FTCA 9 claim, leaving Plaintiffs with no forum where they can bring both claims together. It is true that 10 “28 U.S.C. § 1367 does not confer any jurisdiction upon the United States Court of Federal 11 Claims because only the United States District Courts are authorized to exercise supplemental 12 jurisdiction.” Hood v. United States, 127 Fed. Cl. 192, 201 n.4 (2016) (quoting Hall v. United 13 States, 69 Fed. Cl. 51, 57 (2005)). But the Tucker Act does confer jurisdiction over claims 14 “founded . . . upon any express or implied contract with the United States.” 28 U.S.C.

15 § 1346(a)(2). Although Plaintiffs’ tort claim can exist independent of a contract, the Licensing 16 Agreement also incorporates the FTCA by reference as a potential source of liability for the 17 United States. Dkt. # 9-3 at 1-3. This may be sufficient for the Court of Federal Claims to 18 adjudicate Plaintiffs’ FTCA claim. Regardless, this Court has no power to exercise subject 19 matter jurisdiction over the breach of contract claim. 20 4. Failure to State a Claim under the FTCA 21 The United States finally argues that Plaintiffs fail to state a claim for relief under the 22 FTCA because the Complaint cites a federal regulation, Army Regulation (AR) 95-1, § 2-10, as 23 the source of the United States’ duty. However, for the same reason that Plaintiffs’ FTCA claim

24 1 is independent of the Licensing Agreement, it is also independent of AR 95-1. Although 2 AR 95-1 explicitly regulates helicopter flight patterns, damage caused by helicopter piloting is 3 also governed by common tort law. Leyendecker, 53 Wash. App. at 776 (“We conclude that the 4 common law duty to exercise ordinary care is applicable to the defendants with regard to the

5 operation of the helicopter.”). 6 This duty is not, as the United States implies, part of the “public duty doctrine,” under 7 which state and local governments have a “general duty to the public” but no “actionable duty to 8 a particular individual.” Hungerford v. State Dep’t of Corrections¸ 135 Wash. App. 240, 257 9 (2006). Rather, a person’s duty to exercise reasonable care in operating a helicopter fits squarely 10 within the scope of the FTCA, which creates tort liability for the United States “in the same 11 manner and to the same extent as a private individual under like circumstances.” Bush v. Eagle- 12 Picher, Indus., Inc., 927 F.2d 445, 447 (9th Cir. 1991) (quoting 28 U.S.C. § 2674)). Plaintiffs 13 have not failed to state a claim under the FTCA. 14 CONCLUSION

15 For the above reasons, the United States’ Motion to Dismiss is GRANTED in part and 16 DENIED in part. Plaintiffs’ breach of contract claim against the United States is DISMISSED 17 without leave to amend. 18 IT IS SO ORDERED. 19 Dated this 4th day of June, 2020. 20 A

21 Ronald B. Leighton 22 United States District Judge 23 24