SING For Service, LLC v. United Service Contract Group, LLC

Background

Mepco funded vehicle service contracts administered by United Service Contract Group, LLC and United Service Contract Group of Florida, Inc., which the opinion collectively calls USCG. When customers canceled contracts, USCG allegedly owed Mepco refunds under an administrator agreement and under payment-plan agreements through which customers assigned their refund rights to Mepco.

Virginia Surety insured and underwrote USCG’s service contracts through a Contractual Liability Insurance Policy. Mepco first asked Virginia Surety to guarantee USCG’s entire refund obligation. Virginia Surety declined and instead agreed to pay customer refunds to Mepco under the policy when a customer had an outstanding loan with Mepco, was entitled to a refund, and USCG could not pay it. Mepco alleged that Virginia Surety failed to make the required payments.

Claims and Rule 12(b)(6) Standard

Virginia Surety moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. The court treated the complaint’s factual allegations as true and considered documents attached to or incorporated into the complaint, including the administrator agreement, the insurance policy, and the Virginia Surety agreement.

Mepco alleged breach of guaranty and breach of contract. Under the standard applied by the court, a guaranty claim required Mepco to plausibly allege that a third party owed it a debt, Virginia Surety guaranteed payment of that debt, and neither the third party nor Virginia Surety had paid it.

Court’s Analysis

The court held that the complaint did not state a breach-of-guaranty claim. Virginia Surety had not guaranteed payment of USCG’s debt. Instead, it had agreed to recognize Mepco as the assignee of insured customers and to pay customer refunds to Mepco under the insurance policy. The court characterized that arrangement as an insurance agreement, not a guaranty.

The court also rejected Mepco’s breach-of-contract claim. The agreement entitled Mepco to recover only under the terms of the insurance policy. The policy required notice of each claim within 90 days after the claim arose. The complaint did not allege that USCG, a customer, or Mepco had made any claim to Virginia Surety. Because Mepco did not allege that it had complied with the policy’s requirements, the court found that it had not adequately performed under the agreement.

The court said the policy’s provision concerning prejudice from late notice did not change the result. That provision could prevent Virginia Surety from rejecting an untimely claim without showing prejudice, but the complaint alleged no claim at all, timely or otherwise.

Disposition

Mepco requested permission to amend if the complaint was inadequate. The court denied leave to amend because Mepco did not identify how amendment could cure what the court viewed as substantive defects rather than technical ones.

Judge Jed S. Rakoff granted Virginia Surety’s motion to dismiss for failure to state a claim with prejudice and directed the Clerk of Court to close the motion’s docket entry. The opinion does not state a disposition for the claims or defenses involving the other defendants.