United States District Court, E.D. Pennsylvania
CAR SENSE, INC.
AMERICAN SPECIAL RISK, LLC, et al
Decided October 24, 2014
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
For CAR SENSE, INC., Plaintiff: ALFRED A. GOLLATZ, LEAD ATTORNEY, PATRICK J. GALLO, JR., MACELREE HARVEY LTD, WEST CHESTER, PA.
For AMERICAN SPECIAL RISK, LLC, Defendant: WILLIAM A. RUBERT, LEAD ATTORNEY, DEASEY MAHONEY VALENTINI & NORTH LTD, PHILADELPHIA, PA.
MARY A. McLAUGHLIN, J.
This action arises from the plaintiff, Car Sense, Inc. (" Car Sense" ), entering into an agreement with the defendants Signet Financial Group, Inc. (" Signet Financial" ) and Signet Reinsurance Company, Ltd. (" Signet Re" ) that allowed Signet Financial and Signet Re to offer financial products to Car Sense customers. Car Sense sued Signet Financial and Signet Re for breach of contract; breach of fiduciary duty; fraud; negligent misrepresentation; civil conspiracy; fraud under the Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1, et seq. (" UTPCPL" ); and unjust enrichment. Car Sense also sued defendant American Special Risk, LLC (" ASR" ) for breach of fiduciary duty; fraud; negligent misrepresentation; civil conspiracy; fraud under the UTPCPL; and unjust enrichment.
ASR has moved to dismiss the claims asserted against it pursuant to Fed.R.Civ.P. 12(b)(6). The Court grants ASR's motion and dismisses all claims asserted against ASR.
I. Facts Alleged in the Complaint
Car Sense is a leading used car retailer with operations in Pennsylvania and New Jersey. Its business model is to provide high quality used cars to individual customers and to assure customers that they are being treated honestly. Complaint ¶ ¶ 13-14.
Car Sense also offers programs to go along with their used car sales. One such program was the Vehicle Service Agreement (" VSA" ), under which the buyer of a used car could pay a one-time fee in exchange for the right to have his or her car repaired by Car Sense at no further cost during the term of the VSA. The VSA fee ranged from $1,700 to $2,400. Complaint ¶ ¶ 15-16.
Signet Financial and Signet Re operated as a single entity (" Signet" ) in the development of a Buy Back Guarantee (" BBG" ) program in or around 2003. Signet advertised the BBG program to car dealers such as Car Sense as a way to increase customer participation in VSA programs. Signet represented that it would refund the entire VSA fee to the customer if the customer never used the VSA to repair their vehicle. Signet charged a $98.00 fee or " premium" in exchange for the BBG. Complaint ¶ ¶ 6, 18, 34, 36, Ex. B.
Signet represented to car dealers such as Car Sense that the BBG program was 100% secured via a reinsurance agreement with Hannover Re Services, USA Inc.,
Hannover Reinsurance (Ireland) Limited, and/or E& S Reinsurance (Ireland) Limited (collectively, " Hannover" ). ASR acted as Signet's reinsurance intermediary and agent in negotiating and procuring the reinsurance agreement with Hannover. This reinsurance agreement was critical to Signet's success in selling the BBG, as it reassured dealers and customers that there would be funds available to pay BBG refunds at the end of the VSA contract periods. Complaint ¶ ¶ 11, 22-24, 41.
Relying on the reinsurance policy representations, Car Sense entered into an agreement with Signet on or about January 10, 2004. This agreement allowed Signet to offer the BBG to Car Sense customers in connection with Car Sense's VSA program. Signet entered into the BBG agreements with individual Car Sense customers. Car Sense paid the $98.00 BBG fee on behalf of those customers that entered into BBG agreements with Signet. Complaint ¶ ¶ 36, 45, Ex. C, Ex. D.
Although Signet represented that the BBG was a legitimate insurance product, in reality the BBG was a fraudulent scheme engineered to generate one-time fees. Signet only allocated a tiny fraction, if any, of the BBG fees to its insurance reserves. Signet was also undercapitalized and lacked reserves to pay claims once they came due at the end of VSA contract periods. The BBG program was dependent on continually obtaining more BBG contracts in order to pay claims submitted by existing customers. Complaint ¶ ¶ 39-40, 47-48.
Moreover, the reinsurance agreement did not provide for 100% security of the BBG as Signet represented. The reinsurance agreement was illusory, as Signet did not have sufficient assets to pay claims at the level required before any reinsurance coverage would be triggered. Complaint ¶ ¶ 30, 121.
From 2004 through 2008, the period in which the BBG was offered to Car Sense customers, approximately 6,500 customers opted for the BBG. Because of the nature of the VSA and BBG programs, any refunds payable under the BBG program would only be due at the end of the VSA contract period, which ranged from four to seven years. Signet's liabilities to Car Sense customers under BBG agreements would therefore not become due and payable until sometime between 2008 and 2015. Complaint ¶ ¶ 35, 53-54.
In mid-2008, customers who participated in the BBG program began submitting claims to Signet and were paid. However, in or about December 2010, Signet closed its doors and stopped funding claims submitted by Car Sense customers. Despite demand against Signet, neither Car Sense nor its customers have been able to recover any VSA refunds since December 2010. Signet is now out of business. Complaint ¶ ¶ 51, 56-57.
In or about 2009, Signet and Hannover agreed to commute the reinsurance agreement, effectively removing Hannover from involvement with the BBG program altogether and leaving the BBG program unsecured. ASR participated in the negotiation and procurement of the commutation agreement between Signet and Hannover. None of Signet's clients or customers were notified of the commutation agreement. Complaint ¶ 55.
After Signet went out of business and stopped paying BBG refunds, Car Sense refunded the VSA fee for those customers who complied with the terms of the BBG. Car Sense was not a party to the BBG contracts between Signet and Car Sense's customers, and was not under any legal obligation to refund the VSA fees. Instead, Car Sense refunded the VSA fees " in light of Car Sense's reputation in the
community as a high quality seller of used vehicles." Car Sense has expended over $800,000 refunding its customers' BBG claims. ...