07-1296-cv
Fred Spagnola v. The Chubb Corporation, et al.
1 UNITED STATES COURT OF APPEALS
2
3 FOR THE SECOND CIRCUIT
4
5 August Term, 2008
6
7 (Argued: September 17, 2008 Decided: July 28, 2009)
8
9 Docket No. 07-1296-cv
10 -----------------------------------------------------------x
11
12
13 FRED SPAGNOLA, individually, and on behalf of all those
14 similarly situated,
15
16 Plaintiff-Appellant,
17
18 v.
19
20 THE CHUBB CORPORATION, FEDERAL INSURANCE COMPANY, GREAT
21 NORTHERN INSURANCE COMPANY, JOHN D. FINNEGAN AND THOMAS
22 F. MOTAMED,
23
24 Defendants-Appellees.
25
26
27 -----------------------------------------------------------x
28
29 Before: WALKER, KATZMANN, and JOHN R. GIBSON,* Circuit Judges.
30
31 Appeal from an order of the United States District Court for
32 the Southern District of New York (Harold Baer Jr., District
33 Judge) entered on March 27, 2007, granting Defendants-Appellees
34 Chubb Corporation’s and related entities’ motion to dismiss for
35 failure to state a claim upon which relief can be granted.
36 Plaintiff-Appellant Fred Spagnola brought a putative class action
37 claiming that the Chubb Corporation unlawfully increased his
*
The Honorable John R. Gibson, Circuit Judge, United States
Court of Appeals for the Eighth Circuit, sitting by designation.
1 homeowner’s insurance premiums in violation of their insurance
2 contract and New York Law. The district court granted Chubb’s
3 motion to dismiss all claims. We conclude, however, that
4 Spagnola pled sufficient facts to state a claim for breach of
5 contract and we therefore reverse the district court’s dismissal
6 of that claim. We affirm the court’s dismissal of all other
7 claims.
8
9 ROGER W. KIRBY (David Kovel, on the
10 brief), Kirby McInerney & Squire, LLP,
11 Kenneth Elan, Harold Edgar, New York, NY
12 of counsel, for Plaintiff-Appellant.
13
14
15
16 KEARA M. GORDON, (Joseph G. Finnerty
17 III, Sara Z. Moghadam, on the brief),
18 DLA Piper US LLP, New York, NY and
19 Washington, DC, for Defendants-
20 Appellees.
21
22
23
24
25 JOHN R. GIBSON, Circuit Judge.
26 On July 13, 2001, Fred Spagnola and his wife purchased a
27 Chubb Masterpiece homeowner’s policy.1 The policy provided
28 dwelling coverage of $600,000, contents coverage of $300,000, and
29 liability coverage of $500,000.
1
Spagnola also named as defendants various affiliated
entities and persons related to Chubb. For the purpose of this
appeal we will refer to the named defendants-appellees
collectively as “Chubb.”
2
1 The Masterpiece policy allows the insured to select one of
2 three types of coverage: extended replacement cost, verified
3 replacement cost, or conditional replacement cost. Spagnola
4 purchased the extended replacement coverage, which, in the event
5 of an insurable loss, pays the cost of reconstruction even if
6 that cost exceeds the stated coverage of the policy.2 The policy
7 defines “reconstruction cost” as the “amount required at the time
8 of loss to repair or rebuild the house whichever is less, at the
9 same location, with the same quality of materials and workmanship
10 which existed before the loss.”
11 The amount of coverage was listed in the policy’s Coverage
12 Summary and during each annual policy period, Chubb indicated
13 that the coverage amount:
14 will be increased daily to reflect the current effect
15 of inflation. At the time of a covered loss, your
16 amount of house coverage will include any increase in
17 the United States Consumer Price Index from the
18 beginning of the policy period.
19
20 The coverage amount could be changed:
21
22 With your consent, we may change [the amount of
23 coverage reflected in the coverage summary] when
24 appraisals are conducted and when the policy is
25 renewed, to reflect current costs and values.
26
27 The term “costs and values” is not further defined in the
2
In contrast, a verified replacement cost policy covers the
reconstruction cost up to a specified amount of coverage, and a
conditional replacement cost policy covers a portion of the
reconstruction cost up to a stated amount.
3
1 policy. Spagnola’s policy originally had a one year policy
2 period. Chubb, however, was obligated to renew the policy for
3 three years and could decline to renew the policy “only on
4 grounds for which [Chubb] could cancel it.”3 The policy also
5 contained a conditional renewal provision. Under this provision,
6 if Chubb had grounds to cancel or refuse to renew the policy, it
7 could instead make continued coverage conditional on a change in
8 policy limits or on eliminating any coverage not required by law.
9 As far as renewing coverage, the policy stated that at the
10 time of renewal, Chubb “may offer to renew [the policy], at the
11 premiums and under the policy provisions in effect at the date of
12 renewal . . . by mailing [the insured] a bill for the premium
13 . . . along with any changes in the policy provisions or amounts
14 of coverage.” If Spagnola did not pay the new premium, the
15 policy would automatically terminate at the end of the current
16 policy period. “Failure to pay the required renewal premium when
17 due shall mean that you have not accepted our offer.”
18 Over the next five years, Chubb annually increased
19 Spagnola’s coverage and likewise his premiums. The coverage
20 amount for house and contents was increased each year by
21 approximately ten percent, well in excess of the Consumer Price
3
Grounds for cancellation include such events as nonpayment
of premium, conviction of a crime, or misrepresentation
increasing the hazard assumed.
4
1 Index (“CPI”). Chubb sent the annual premium summary renewals
2 with the bill for the next year’s coverage describing it as an
3 “annual premium savings.” In 2006, Spagnola discovered that the
4 increases in his premiums had risen faster than the CPI and he
5 filed suit on behalf of a putative class, in state court, later
6 removed to federal court, claiming that Chubb breached the terms
7 of the policy and violated New York Insurance Law by improperly
8 increasing coverage and premiums without his consent and in
9 excess of the CPI. In addition, Spagnola brought an unjust
10 enrichment claim as well as a deceptive business practices claim
11 under New York General Business Law § 349. Chubb responded by
12 filing a motion to dismiss under Federal Rule of Civil Procedure
13 12(b)(6).
14 The district court granted Chubb’s motion to dismiss all
15 claims. First, the court held that the complaint failed to state
16 a claim under New York Insurance Law § 3425 because the coverage
17 adjustments at issue were properly made pursuant to a mechanism
18 established in the policy. The court concluded that the policy
19 established that the premium increases were tied to “current
20 costs and values.” The court concluded that the original policy
21 notified Spagnola that Chubb had the right to increase coverage
22 and premiums annually and that Spagnola’s payment of the annual
23 premium bill reflected Spagnola’s consent to each such increase.
24 The court also dismissed the breach of contract claim, both
5
1 because the contract terms upon which Spagnola relied “[did] not
2 exist,” and because the breach of contract claim was “barred by
3 the voluntary payment doctrine.” Finally, the court dismissed
4 the deceptive business practices claim under New York law,
5 holding that there were not sufficient facts to support a finding
6 that the policy was “misleading in a material respect” or that
7 Spagnola or any other member of the putative class was injured as
8 a result. Spagnola now appeals.4
9 We review a Rule 12(b)(6) order of dismissal de novo. Amron
10 v. Morgan Stanley Inv. Advisors Inc., 464 F.3d 338, 343 (2d Cir.
11 2006). In reviewing such an order, we take all well-pled factual
12 allegations as true and draw all reasonable inferences in the
13 plaintiff’s favor to decide whether the plaintiff has pled a
14 plausible claim for relief. See Ashcroft v. Iqbal, 129 S.Ct.
15 1937, 1949 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S.
16 544, 555 (2007)).
17 I.
18 Spagnola first argues that the district court erred in
19 dismissing his claim under New York Insurance Law § 3425.5
4
Spagnola does not appeal the district court’s dismissal of
his unjust enrichment claim.
5
At oral argument we questioned whether this issue should be
certified to the New York Court of Appeals. After reviewing New
York case law and the opinions of the New York Insurance
Department, we conclude that certification is unnecessary. But
see Great N. Ins. Co. v. Mt. Vernon Fire Ins. Co., 143 F.3d 659,
662 (2d Cir. 1998) (certification appropriate where no state
6
1 Section 3425 restricts when and how an insurer may condition
2 renewal or changes of limits or elimination of coverage. With
3 respect to a “personal lines” insurance policy, such as this one,
4 § 3425(e) provides: “[N]o notice of nonrenewal or conditional
5 renewal of a covered policy shall be issued to become effective
6 during the required policy period unless it is based upon a
7 ground for which the policy could have been cancelled.” N.Y.
8 Ins. Law § 3425(e). The statute defines “required policy period”
9 in this instance as “a period of three years from the date as of
10 which a covered policy is first issued or is voluntarily
11 renewed.” Id. at § 3425(a)(7). Spagnola contends that, if Chubb
12 wanted to change the limits of the policy, it was obligated under
13 § 3425(d)(1) to issue a conditional notice that provided the
14 “specific reason or reasons” for the changes. Id. at §
15 3425(d)(1). Since Chubb did not follow the notice requirement of
16 § 3425(d)(1), Spagnola contends that any unilateral increases by
17 Chubb violated the statute.
18 Spagnola’s § 3425 argument is essentially twofold. First he
19 argues that under the protections of § 3425 he was entitled to
20 three years of continuous coverage unless he failed to pay the
21 premiums due under the policy. See N.Y. Ins. Law § 3425(a)(7).
22 He goes on to assert that Chubb could only increase his premiums
23 and coverage during the three-year period by providing the
court decisions interpret relevant provision).
7
1 required notice and statement of reasons required by §
2 3425(d)(1). Spagnola concedes that under § 3425 an insurer may
3 increase coverage limits (and premiums) during the three-year
4 required policy period if the policy itself provides for an
5 “automatic increase” or a “mechanism” to determine the increase,
6 such as a predetermined figure or the CPI. Spagnola argues,
7 however, that § 3425 bars the increases Chubb imposed because the
8 policy did not provide for an automatic increase or specify a
9 mechanism by which the increase could be measured. Spagnola
10 alleges that the policy’s provision permitting a change in the
11 amount of coverage “when the policy’s renewed to reflect current
12 costs and values” is not a “mechanism” by which the increase
13 could be measured because the insured cannot look to the policy
14 itself to determine the amount of an increase which could be
15 subject to the “whim” of the insurer.
16 Chubb and Spagnola agree that § 3425 permits an insurer to
17 increase coverage limits (and therefore premiums) when the policy
18 itself provides for such periodic increases. The two disagree on
19 whether there is such a provision in this policy. Chubb
20 characterizes the policy as an “inflation guard” policy which
21 permits periodic coverage increases upon renewal to reflect
22 current costs and values. In his complaint, Spagnola similarly
23 characterizes the policy: “Annual premiums for replacement cost
24 policies theoretically are based on the home’s estimated
8
1 replacement cost, not its market value. These premiums are
2 subject to limited annual cost increases, sometimes referred to
3 in the industry as ‘inflation guard coverage.’”
4 It is well established that we defer to an agency’s
5 construction of a statute when “the interpretation of a statute
6 or its application involves knowledge and understanding of
7 underlying operational practices.” N.Y. State Ass’n of Life
8 Underwriters, Inc. v. N.Y. State Banking Dep’t, 632 N.E.2d 876,
9 879 (N.Y. 1994) (quoting Kurcsics v. Merchants Mut. Ins. Co., 403
10 N.E.2d 159 (N.Y. 1980)). Several opinions from the New York
11 Department of Insurance are instructive.
12 In a July 23, 2003 opinion, the Department unequivocally
13 concluded that the three-year policy period requirement of §
14 3425 “[does] not have any effect upon the ability of the insurer
15 to renew policies with a premium change, provided that the
16 premium change conforms to its rate filing . . . .” Rate Changes
17 and N.Y. Ins. Law § 3425, Office of Gen. Counsel, N.Y. Ins.
18 Dep’t, No. 03-07-38 (Jul. 23, 2003) (informal opinion). Chubb
19 renewed the policy each year and the coverage increase at the
20 time of renewal does not facially violate the three-year required
21 policy period of § 3425(a)(7), nor does it run counter to the
22 purpose behind § 3425. See Rosner v. Metro. Prop. & Liab. Ins.
23 Co., 236 F.3d 96, 100 (2d Cir. 2000) (purpose behind § 3425 is
24 “to provide a three-year period of renewability” and “to
9
1 establish guaranteed continuity of coverage”) (internal quotation
2 marks omitted).
3 As to the notice requirement, the Department considered a
4 policy provision similar to the one here and concluded that no
5 conditional renewal notice was required when a premium increase
6 was due to the application of an inflation guard mechanism
7 provided for in the policy. Conditional Renewal Notices, Office
8 of Gen. Counsel, N.Y. Ins. Dep’t, No. 02-04-10 (April 8, 2002)
9 (informal opinion). The Department reasoned that no notice was
10 required because the premium increase was attributable to the
11 operation of the inflation guard “required by and set forth in
12 the policy itself.” Spagnola argues that this opinion actually
13 supports his interpretation of § 3425 on two grounds. First, he
14 states this is not an inflation guard policy so the Department
15 opinion does not control. Spagnola distances himself from his
16 initial characterization of the policy, stating in his reply
17 brief that the clauses at issue are not “inflation guards as
18 conventionally defined” because they do not “automatically
19 adjust[] the coverage limit on the dwelling each time the policy
20 is renewed to reflect current construction costs.” Second, he
21 contends that the Chubb policy is different in any event because
22 its “costs and values” provision is not fixed or tied to a
23 recognized index within the policy. Spagnola points to the
24 Department’s clarification in that opinion: “Had the increase in
10
1 coverage/premium not been solely attributable to a policy
2 provision or a request by the insured, a conditional renewal
3 notice would be required under the statute . . . .” Although
4 this language is consistent with the conclusion that a
5 conditional notice is not required when the policy provides for
6 an annual increase, it does not affirmatively answer the question
7 of whether the costs and values provision is a sufficient
8 mechanism for increasing annual premiums upon renewal so as to
9 negate the conditional notice requirements.
10 Two other Department opinions help to resolve this issue.
11 In the first, the Department decided that a conditional renewal
12 notice was not required under New York Insurance Law § 3426 (the
13 commercial insurance counterpart to § 3425) because the increase
14 was tied to a provision in the policy which required the insured
15 to maintain coverage equal to the appraised value of the
16 property. Conditional Renewal of Commercial Lines Insurance
17 Policies, Office of Gen. Counsel, N.Y. Ins. Dep’t, No. 9-9-96(#1)
18 (Sept. 9, 1996) (informal opinion). The Department concluded
19 that “appraised value,” a term we believe is substantially
20 similar to the “costs and values” term of Spagnola’s policy, is a
21 sufficient mechanism to provide the insured notice that the
22 coverage amount will change on a periodic basis. While this
23 opinion considers the provision of a commercial lines insurance
24 policy and not a personal lines policy, the Department’s
11
1 interpretation of a similar policy provision to the one in this
2 case supports our conclusion that the conditional notice
3 requirements do not apply to the renewals at issue here.
4 In contrast, another Department opinion decided that an
5 increase in the amount of deductible expenses for windstorm
6 coverage did require conditional notice under § 3425(d)(1).
7 Conditional Renewal under § 3425(d)(1), Office of Gen. Counsel,
8 N.Y. Ins. Dept., No. 06-08-17 (Aug. 24, 2006) (informal opinion).
9 The Department based its conclusion on the fact that the
10 “deductible in the original policy was fixed and was not subject
11 to any provision that would provide for an automatic increase of
12 any kind.” Id. These opinions suggest that the determinative
13 factor for the Department in deciding whether conditional notice
14 requirements are necessary is whether the policy contemplates a
15 periodic change in the policy’s coverage or terms.
16 Here, the policy provided that Chubb could condition
17 annual renewal on the payment of increased premiums based on
18 current “costs and values,” and thus, the conditional notice
19 requirements of § 3425 are not triggered. That the increase
20 cannot be specifically measured from the policy itself is not
21 determinative. As the district court wrote: “An extended
22 replacement cost policy is designed to keep pace with inflation
23 and prevent underinsurance, and therefore, does not and for the
24 insured’s protection, cannot specify” the amount of the future
12
1 coverage increases in the original policy. Spagnola v. Chubb
2 Corp., No. 06 CIV 9960, 2007 WL 927198, at *4 (S.D.N.Y. Mar. 27,
3 2007) (emphasis omitted).
4 We therefore affirm the district court’s dismissal of
5 Spagnola’s § 3425 claim.
6 II.
7 Spagnola next argues that the district court erred in
8 dismissing his breach of contract claim. He claims that Chubb
9 violated the insurance contract by: (1) not obtaining his
10 consent to increase the amount of his coverage, and (2)
11 increasing his coverage by an amount that does not reflect
12 current costs and values.6
13
14 A.
15 Spagnola contends that Chubb breached the insurance policy
16 by failing to obtain his consent to the annual policy renewals.
17 Spagnola states that his payment of the increased premiums did
18 not amount to consent because the payment was not “knowing and
19 voluntary.” He complains that: (1) Chubb never told him that it
20 was increasing his coverage; (2) Chubb never asked for his
6
The complaint also asserted a third breach of contract
claim, based on Chubb’s alleged violation of § 3425, which
Spagnola claims was incorporated by reference into the policy.
However, because we conclude that Chubb did not violate § 3425,
this claim also fails.
13
1 consent; (3) Chubb did not provide an explanation for the
2 increased coverage; and (4) Chubb never told him the amount of
3 the annual change in premiums and coverage.
4 We easily resolve this argument. First, the amount of
5 coverage was shown in the coverage summary that Spagnola received
6 with each reissue of the policy. This summary notified Spagnola
7 that “[w]ith your consent, we may change this amount . . . when
8 the policy is renewed, to reflect current costs and values.” The
9 policy provided that renewal each year would be at the premiums
10 and under the policy provisions in effect on the date of renewal.
11 It would be effectuated when Chubb mailed a bill for the premium
12 “along with any changes in the policy provisions or amounts of
13 coverage.” The policy provided: “Failure to pay the required
14 renewal premium when due shall mean that you have not accepted
15 our offer.” Thus, the offer was contained in each new policy
16 reissue and coverage summary, and acceptance occurred if and when
17 Spagnola paid the renewal premium. Each of these occasions
18 resulted in a new contract between the parties, and Spagnola’s
19 payment was his consent.
20 Spagnola directs us to a New Jersey Supreme Court case from
21 1961 which held that “[a]bsent notification that there have been
22 changes in the restrictions, conditions or limitations of [an
23 insurance policy], the insured is justly entitled to assume that
24 they remain the same and that his coverage has not in anywise
14
1 been lessened.” Bauman v. Royal Indem. Co., 174 A.2d 585, 592
2 (N.J. 1961). We need not address the precedential value of
3 Bauman, as there is nothing here to suggest that Spagnola was
4 “entitled to assume” that the coverage amounts remained the same
5 year to year. As the Bauman Court pointed out, an insured is
6 “expected to [have] read” the restrictions, conditions and
7 limitations in his original policy. Id. at 591-92. Spagnola
8 does not dispute that the original policy included language
9 permitting Chubb to adjust coverage amounts. In addition, Bauman
10 involved an exclusion of insurance coverage that was added for
11 the first time in a renewal policy with nothing to draw the
12 insured’s attention to such a change. See id. at 586. That is a
13 different situation than a dispute centered around premium
14 amounts that are always contained in a renewal notice.
15 We reject Spagnola’s argument that the district court erred
16 insofar as it dismissed the breach of contract claim based on
17 lack of consent.
18
19 B.
20 Spagnola also claims that Chubb breached the insurance
21 contract by increasing his coverage amounts and premiums in a way
22 that did not reflect current costs and values. The policy does
23 not define the term “current costs and values.” According to
15
1 Spagnola, the policy could reasonably be interpreted to base
2 costs and values on either actual reconstruction costs or the
3 CPI. He alleges that Chubb breached this term by increasing the
4 coverage amount without using either as a basis. Spagnola points
5 out that his contents coverage increased at the same percentage
6 rate as his dwelling coverage each year, and this automatic
7 coupling alone supports an inference that Chubb increased
8 coverage in a manner that did not accurately reflect current
9 costs and values.
10 Chubb concedes that the premiums were not increased in an
11 amount determined by the CPI. Chubb argues that this fact is
12 irrelevant, and that it is to be expected that the increases
13 would have exceeded the CPI because the CPI only applies to
14 interim period adjustments, and not the annual increases at issue
15 here. Chubb states: “No fact is pled to permit the inference
16 that the increased coverage amounts were inconsistent with the
17 reconstruction costs of the plaintiff’s home in any of the last
18 five years.” Chubb characterizes Spagnola’s home and contents
19 comparison analysis as a “red herring” built on ‘multiple layers
20 of unreasonable assumptions.” Chubb asserts that under
21 Spagnola’s interpretation of “costs and values,” one assumes that
22 contents and dwelling coverage must increase at different rates
23 based on the additional assumption that the amount of contents
24 coverage equals the sum of the value of each personal possession,
16
1 and that such an interpretation is inconsistent with industry
2 practice and at odds with the policy terms.
3 Spagnola directs us to Beller v. William Penn Life Insurance
4 Co. of N.Y., 778 N.Y.S.2d 82 (App. Div. 2004). The plaintiff in
5 Beller purchased a life insurance policy that set out a number of
6 factors the insurer would evaluate in setting premiums to
7 maintain the policy’s coverage. Id. at 84. After paying the
8 premiums for several years, the insured realized that the insurer
9 was determining premiums on a basis different than the one
10 required by the policy’s language. Id. The court suggested in
11 dicta that the insured’s allegations, if true, constituted a
12 breach of contract as well as a deceptive business practices
13 claim. Id. at 85-86. The reasoning of Beller convinces us that
14 Spagnola’s breach of contract claim should survive a motion to
15 dismiss. Chubb’s explanation that the fixed proportion of home
16 and contents coverage is standard industry practice does not
17 address Spagnola’s allegation that the annual increases were not
18 based on current costs and values as required by the express
19 terms of the policy. Cf. id. at 85 (insurer’s customary filed
20 rates do not insulate insurer from contract claim). Chubb does
21 not tell us the basis for its costs and values determination, but
22 only tells us what the calculation is not based on. Chubb’s
23 explanation neither resolves the ambiguity of the term “current
24 costs and values” nor adequately refutes Spagnola’s claim that
17
1 the increases were not based on current costs and values.
2 Spagnola has therefore met the standard necessary to resist
3 Chubb’s motion to dismiss. See Iqbal, 129 S.Ct. at 1949 (“A
4 claim has facial plausibility when the plaintiff pleads factual
5 content that allows the court to draw the reasonable inference
6 that the defendant is liable for the misconduct alleged.”).
7 III.
8 The district court dismissed Spagnola’s breach of contract
9 claim on the alternative ground that the claim was barred by the
10 voluntary payment doctrine. According to the doctrine, a breach
11 of contract claim is barred if a party continues to pay amounts
12 charged under the contract without objection. The district court
13 found that Spagnola had full knowledge of the facts regarding
14 coverage and premiums at the time of his first renewal in 2002
15 and continued (without objection) to pay the increased premium
16 amounts on each of the five succeeding anniversary dates. The
17 district court reasoned: “It is a little late now, after
18 [Spagnola] has enjoyed the benefits and protections of [Chubb’s]
19 coverage for more than five years,” to challenge the “propriety
20 of [his] coverage.” Spagnola, 2007 WL 927198, at *3.
21 The voluntary payment doctrine precludes a plaintiff from
22 recovering payments “made with full knowledge of the facts” and
23 with a “lack of diligence” in determining his contractual rights
24 and obligations. See Dillon v. U-A Columbia Cablevision of
25 Westchester, Inc., 740 N.Y.S.2d 396, 397 (App. Div. 2002); see
18
1 also Westfall v. Chase Lincoln First Bank, N.A., 685 N.Y.S.2d
2 181, 182 (App. Div. 1999); Gimbel Bros., Inc. v. Brook Shopping
3 Ctrs., Inc., 499 N.Y.S.2d 435, 438 (App. Div. 1986). The
4 doctrine does not apply, however, when a plaintiff made payments
5 under a mistake of fact or law regarding the plaintiff’s
6 contractual duty to pay. See Dillon, 740 N.Y.S.2d at 397;
7 Gimbel, 499 N.Y.S.2d at 438.
8 Spagnola claims that the voluntary payment doctrine does not
9 apply because he did not have full knowledge of the facts
10 relevant to his claim until he filed suit in 2006, and that his
11 lack of full knowledge was not due to a lack of diligence, but
12 instead due to being misled by Chubb as to the basis upon which
13 his coverage was increased. He points to, among other things,
14 renewal notices which stated that he was receiving an “annual
15 premium savings.”
16 Chubb points out that Spagnola renewed his policy five
17 times, and that “simple math” should have alerted Spagnola to the
18 notion that the increases were not based on the CPI as Spagnola
19 thought. In Dillon, a cable customer brought a putative class
20 action seeking to recover five-dollar late fees paid to her cable
21 company over the course of seven years. 740 N.Y.S.2d at 397.
22 The cable company represented that the fee was an administrative
23 fee reflecting costs it incurred from the “customers’ late
24 payments or non-payments.” Id. (internal quotation marks
25 omitted). The plaintiff alleged that the fee substantially
19
1 exceeded the cable company’s true cost for a late or non-payment
2 and instead constituted an improper penalty. Id. The trial court
3 granted the cable company’s motion to dismiss based on the
4 voluntary payment doctrine, concluding that the customer should
5 have known that the five-dollar charge might be excessive simply
6 because it constituted 19% of her total bill. Id. at 398. The
7 Appellate Division affirmed. Id.
8 Although the voluntary payment doctrine may ultimately bar
9 Spagnola’s breach of contract claim, we decide that it is too
10 early in this case to conclusively answer that question. In some
11 years, Chubb sent Spagnola a renewal letter enclosing the policy
12 and stating that Spagnola was receiving an “annual premium
13 savings,” even while it increased his premiums. See Samuel v.
14 Time Warner, Inc., 809 N.Y.S.2d 408, 418 (Sup. Ct. 2005)
15 (voluntary payment doctrine not applicable when claim predicated
16 on lack of full disclosure). Chubb does not argue that the
17 increases were such that Spagnola should have been on notice that
18 they were not based on current costs and values. Cf. Dillon, 740
19 N.Y.S.2d at 397 (customer should have known based on degree of
20 increase). The pleadings before the district court do not
21 establish whether Spagnola knew or should have known that the
22 increased amounts were not based on current costs and values, and
23 Spagnola was not required to preemptively plead facts refuting
24 the voluntary payment doctrine. See Abbas v. Dixon, 480 F.3d
25 636, 640 (2d Cir. 2007) (not required to include facts in
20
1 complaint in anticipation of affirmative defense). Thus, drawing
2 all reasonable inferences in Spagnola’s favor, we conclude that
3 the voluntary payment doctrine cannot stand at this time as an
4 alternate basis for dismissal of Spagnola’s claim.
5 The cases cited by Chubb do not change our view that the
6 complaint cannot be dismisssed based on the voluntary payment
7 doctrine. In Gimbel, the appellate court held that the plaintiff
8 could not receive restitution for certain payments made pursuant
9 to a mistake of fact when the record showed that “no mistake of
10 fact had been made.” 499 N.Y.S.2d at 438. In that case, the
11 plaintiff sought to recover certain extra rent payments it had
12 made to its landlord for a year and a half. The court determined
13 that although the lease did not require the extra rent payments,
14 the plaintiff’s recovery was barred by the voluntary payment
15 doctrine. Because the plaintiff made the improper rent payments
16 for a year and a half before questioning them, it “displayed a
17 marked lack of diligence in determining what its contractual
18 rights were, and is therefore not entitled to the equitable
19 relief of restitution.” Id. at 439. In Gimbel, however, the
20 judgment was entered denying plaintiff’s claim after discovery
21 and a bench trial, not on the basis of plaintiff’s complaint.
22 Id. at 436-37; see also Lavin v. Town of E. Greenbush, 843
23 N.Y.S.2d 484, 491-92 (Sup. Ct. 2007) (applying voluntary payment
24 doctrine on summary judgment motion).
25
21
1 IV.
2 Finally, Spagnola appeals the district court’s dismissal of
3 his deceptive business practices claim under § 349 of the New
4 York General Business Law.
5 To state a claim under § 349, a plaintiff must allege: (1)
6 the act or practice was consumer-oriented; (2) the act or
7 practice was misleading in a material respect; and (3) the
8 plaintiff was injured as a result. Maurizio v. Goldsmith, 230
9 F.3d 518, 521 (2d Cir. 2000) (per curiam). “Deceptive practices”
10 are “acts which are dishonest or misleading in a material
11 respect.” Kramer v. Pollock-Krasner Found., 890 F. Supp. 250,
12 258 (S.D.N.Y. 1995). “‘Deceptive acts’ are defined objectively[]
13 as acts likely to mislead a reasonable consumer acting reasonably
14 under the circumstances.” Boule v. Hutton, 328 F.3d 84, 94 (2d
15 Cir. 2003) (internal quotation marks omitted).
16 The district court dismissed Spagnola’s claim because it
17 failed to plead either a deceptive act or requisite injury.
18 Although a monetary loss is a sufficient injury to satisfy the
19 requirement under § 349, that loss must be independent of the
20 loss caused by the alleged breach of contract. For example, in
21 Sokoloff v. Town Sports Int’l, Inc., 778 N.Y.S.2d 9, 10 (App.
22 Div. 2004), the Appellate Division dismissed a health club
23 member’s deceptive practice claim made against her health club.
24 The member sought the return of her initiation fee. Id. The
25 court held that the member did not claim a sufficient injury
22
1 because she alleged no other loss besides the payment of her
2 membership fee. Id. She did not claim that the health club
3 failed to deliver services called for under the contract and “she
4 never sought to cancel the contract.” Id.; see also Small v.
5 Lorillard Tobacco Co., 720 N.E.2d 892, 897-98 (N.Y. 1999) (injury
6 must be separate and distinct from the deceptive act).
7 Here, as in Sokoloff, Spagnola does not claim that he did
8 not receive adequate insurance coverage or that he did not
9 contract for the coverage he received. Cf. Samuel, 809 N.Y.S.2d
10 at 418 (requisite injury established when plaintiffs received
11 services never contracted for). Spagnola has therefore failed to
12 plead a sufficient injury under New York General Business Law §
13 349.
14 For the foregoing reasons, we reverse the district court’s
15 dismissal of Spagnola’s breach of contract claim and affirm the
16 district court’s dismissal of all other claims.7 We remand the
17 case to the district court for further proceedings consistent
18 with this opinion.
7
We also deny as without merit Spagnola’s calim that the
district court’s failure to consider certain authority
“warrant[s] reassignment” of his case to a different judge.
23