15‐1445‐cv Nick’s Garage, Inc. v. Nationwide Mutual Ins. Co.

1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 SUMMARY ORDER

4 RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A 5 SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY 6 FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1. 7 WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST 8 CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION 9 “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON 10 ANY PARTY NOT REPRESENTED BY COUNSEL.

11 At a stated Term of the United States Court of Appeals for the Second Circuit, 12 held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of 13 New York, on the 8th day of November, two thousand seventeen.

14 PRESENT: PIERRE N. LEVAL, 15 RAYMOND J. LOHIER, JR., 16 Circuit Judges, 17 EDWARD R. KORMAN, 18 District Judge.* 19 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x

20 NICK’S GARAGE, INC., 21 22 Plaintiff‐Appellant,

23 v. No. 15‐1445‐cv 24 25 NATIONWIDE MUTUAL INSURANCE COMPANY, 26 NATIONWIDE AFFINITY INSURANCE COMPANY 27 OF AMERICA, NATIONWIDE GENERAL 28 INSURANCE COMPANY, NATIONWIDE MUTUAL 29 FIRE INSURANCE COMPANY, NATIONWIDE 30 PROPERTY AND CASUALTY INSURANCE 31 COMPANY, NATIONWIDE INSURANCE 32 COMPANY OF AMERICA, 33

Judge Edward R. Korman, of the United States District Court for the Eastern District of *

New York, sitting by designation. 1 Defendants‐Appellees.

2 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x

FOR APPELLANT: CECELIA R.S. CANNON, Bousquet Holstein PLLC, Syracuse, NY.

FOR APPELLEES: ROY A. MURA (Eric T. Boron on the brief), Mura & Storm, PLLC, Buffalo, NY. 3 4 Appeal from the United States District Court for the Northern District of New 5 York (D’Agostino, J.). 6 7 8 ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED, 9 AND DECREED that the judgment of the district court is AFFIRMED IN PART and 10 VACATED IN PART, and the case is REMANDED. 11 12 Plaintiff, Nick’s Garage, Inc. (“Garage” or “Plaintiff”), a Syracuse, New York 13 automobile repair shop, appeals from the judgment of the United States District Court 14 for the Northern District of New York (D’Agostino, J.) granting summary judgment in 15 favor of the defendants, Nationwide Mutual Insurance Company and related entities 16 (collectively, “Defendant” or “Insurer”).1 Garage’s complaint was brought as assignee 17 of its customers’ claims against Insurer. The complaint alleges (i) breach of the Insurer’s 18 contractual obligation to its insureds to pay the amount necessary to repair their 19 damaged vehicles to pre‐accident condition, and (ii) deceptive business practices in 20 claims processing, in violation of the New York General Business Law (“GBL”) § 349. 21 22 We vacate the judgment in substantial part and affirm in part. The court today issued a 23 separate opinion in Nick’s Garage, Inc. v. Progressive Casualty Insurance Company, 24 No. 15‐1426 (“Progressive Casualty”), which presented many substantially similar issues. 25 We rely in part on our reasoning in Progressive Casualty to resolve the instant appeal. 26

1 Defendants are Nationwide Mutual Insurance Company, Nationwide Affinity Insurance Company of America, Nationwide General Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide Property and Casualty Insurance Company, and Nationwide Insurance Company of America.

2

1 From 2007 to 2012, Garage, at the instance of the owners, repaired various cars that had 2 suffered damage for which the owners submitted damage claims to Insurer. The owners 3 made Garage their designated representative to negotiate with Insurer for coverage of 4 repairs, and assigned their insurance claims to Garage. 5 6 Insurer stipulated that it was obligated under the contracts of insurance to provide 7 sufficient payment “to return the specified vehicles . . . to pre‐Accident condition.” J.A. 8 1229. Under New York law, the amount the Insurer was obligated to pay under its 9 contracts was “the lesser of the amounts for which the claimant can reasonably be 10 expected to (1) repair the property to its condition prior to the loss; or (2) replace it with 11 an item substantially identical to the item damaged.” 11 N.Y.C.R.R. § 216.6(b)(1)–(2). 12 13 I. Breach of Contract 14 15 Insurer moved for summary judgment based on the contention that Garage could not 16 prove that the owners suffered any damages, based on evidence that Garage repaired 17 the vehicles to pre‐accident condition and did not intend to charge the owners for the 18 alleged deficiency in the Insurer’s payment. 19 20 The district court properly rejected this argument. Nickʹs Garage, Inc. v. Nationwide Mut. 21 Ins. Co.,

, 194–95 (N.D.N.Y. 2015). As we explained in Progressive 22 Casualty, Slip Op. at 12–13, where the insurer advanced essentially the same argument, 23 the argument is premised on a misconception of Insurer’s contractual obligation. The 24 contract requires Insurer to pay the lesser of the reasonably expected cost of repairing, or 25 replacing, the car to pre‐accident condition, regardless of whether the owner could 26 succeed in getting the repair or replacement at a bargain price, or decided not to have 27 the car repaired. 28 29 The district court nonetheless granted summary judgment to Insurer, based on a theory 30 Insurer had not argued in its motion. The court explained that Garage’s claims as to the 31 market cost of repairing the vehicles were “conclusory” and that Garage had made “no 32 attempt to explain . . . why the alleged deficiencies . . . were necessary to return the 33 vehicles to their pre‐accident condition.” Nick’s Garage, 101 F. Supp. 2d at 195. 34 35 Garage contends that the district court erred in granting summary judgment based on a 36 ground not argued by Insurer in its motion, without giving Garage notice and 37 opportunity to be heard on the question. We agree. Garage had no notice that the court 38 might grant the motion on the basis of a theory that was not raised in Insurer’s motion 39 for summary judgment. Garage therefore had no opportunity to argue against that 40 ground, much less to present evidence in opposition. 3

1 2 It was error to grant summary judgment in those circumstances. The problem is not that 3 the court relied, sua sponte, on a ground the movant had not raised. That is within the 4 court’s power. The problem is that, in doing so, the court failed to give Garage prior 5 notice of the ground on which it intended to rely, coupled with citation to record 6 evidence demonstrating Insurer’s entitlement to judgment on that ground. In the 7 absence of such prior notice, Garage had no opportunity to offer evidence of a dispute 8 as to an issue of material fact. The governing rule of civil procedure expressly allows the 9 court to grant a motion for summary judgment on grounds that were not raised in the 10 motion, but only after giving the opposing party notice and the opportunity to oppose. 11 Fed. R. Civ. P. 56(f)(2) (“After giving notice and a reasonable time to respond, the court 12 may . . . grant the motion on grounds not raised by a party.”); see also Celotex Corp. v. 13 Catrett,

(1986) (“District courts are widely acknowledged to possess the 14 power to enter summary judgments sua sponte, so long as the losing party was on 15 notice that she had to come forward with all of her evidence.”); Willey v. Kirkpatrick, 801

(2d Cir. 2015) (“Because the district court did not provide Willey with notice 17 that it would consider grounds not raised in the defendants’ brief in support of their 18 motion, we must vacate the judgment to the extent that it exceeded the grounds raised 19 in that motion.”). We therefore vacate the grant of summary judgment on the contract 20 claim and remand for further proceedings. 21 22 II. GBL § 349 23 24 The district court also granted summary judgment to Insurer on Garage’s claims under 25 GBL § 349, finding that Garage failed to raise a material question of fact on its claims 26 that Insurer engaged in deceptive practices, and in the alternative, that these claims 27 were precluded under § 2601 of the New York Insurance Law. Nick’s Garage,

Supp. 3d at 198–202. Garage claimed that Insurer engaged in two types of deceptive 29 practices in violation of § 349: (i) systematically offering to pay below‐market labor rates 30 that did not comport with its policy obligations, and (ii) making misrepresentations as 31 to the availability of repair shops willing to accept Insurer’s offered payments. The 32 district court granted summary judgment dismissing both categories of claims. We 33 vacate the grant of summary judgment for the claims based on labor rates, but affirm 34 the judgment for the claims regarding the availability of back‐up shops. 35 36 (a) Labor rates. A movant shows entitlement to summary judgment by demonstrating 37 that “that there is no genuine dispute as to any material fact and [it] is entitled to 38 judgment as a matter of law.”Fed. R. Civ. P. 56(a). 39

4

1 With respect to labor rates, Insurer undertook to show that its settlement offers were 2 sufficient to repair the vehicles to their pre‐accident condition using the “going rate” for 3 labor. It relied on a declaration of Kevin Reynolds, one of its claims managers. J.A. 47 4 (“Reynolds Declaration”). Reynolds averred that, during the period at issue, Insurer 5 allowed $44–46 per hour for hourly labor rates, and that this “was the going rate in the 6 marketplace during the . . . timeframe, and was the hourly . . . labor rate accepted by all 7 collision repair shops in the Syracuse, New York marketplace with the exception of 8 [Garage], and one other Syracuse area auto collision repair shop.” J.A. 53–54. Reynolds 9 further averred that Insurer “had back‐up collision repair shops willing to repair and 10 restore the . . . vehicles at issue to pre‐accident condition” at the price Insurer offered in 11 its estimates to Garage. J.A. 55. 12 13 If Nationwide’s obligation had been to pay amounts for which it, the insurer, could 14 reasonably be expected to repair an insured’s car, the Reynolds Declaration might have 15 been sufficient. The declaration is reasonably understood as meaning that, in dealing 16 with Nationwide, all the repair shops in the area (excepting Garage and one other) 17 accepted Insurer’s $44‐46 rates. If that had been the measure of the Insured’s obligation, 18 Garage would have been required, in order to defeat the motion, to show that, 19 notwithstanding Reynolds’s averment, there was a genuine dispute of fact as to the 20 labor rates Insurer could reasonably be expected to pay. 21 22 However, Insurer’s obligation was to pay “the amounts for which the claimant [i.e., the 23 insured] can reasonably be expected to . . . repair the property.” 11 N.Y.C.R.R. 24 § 216.6(b)(1)(emphasis added). The fact that an insurer such as Nationwide, which has 25 the capacity to bring a substantial volume of business to a repair shop, can prevail upon 26 shops to agree to a particular labor rate does not show that one of the insurer’s 27 claimants can reasonably expect to get her car repaired at that rate. See Progressive 28 Casualty, Slip Op. at 30. (“The fact that repair shops may accept a labor rate paid by a 29 particular insurer that may bring the shop a large volume of business does not 30 demonstrate that the shop, or shops generally, would accept the same rate in dealing 31 with another insurer or a customer who has only one car to be repaired.”); see also id. at 32 39–40. 33 34 The Reynolds Declaration failed to establish Insurer’s entitlement to judgment, and the 35 absence of a material question of fact as to whether Insurer’s offers to pay for labor at 36 $44‐46 hourly rate fairly represented rates a claimant could reasonably be expected to 37 pay. 38 39 Deposition testimony from Insurer’s Material Damage Claims Director and Associate 40 Claims Director for the Northeast further confirmed that Insurer’s labor rate was 5

1 determined by what insurance companies could impose—the rates it could use to reach 2 agreement with repair shops, and its review of subrogation data from other insurers 3 showing the rates used in their claims estimates—and not the rates claimants might 4 reasonably expect to pay in the marketplace. 5 6 Furthermore, even putting aside the disparity between the rates Insurer could obtain 7 and rates that claimants could obtain, Garage has raised a genuine question of material 8 fact as to whether the rates Insurer offered for the vehicles at issue were in fact the 9 reasonably expected rate in the marketplace. Garage presented evidence that Insurer 10 and other insurance companies had a practice of masking the true effective labor rate it 11 paid to repair shops by offering repair shops “labor rate concessions” when it had 12 difficulty reaching agreed prices with repair shops. These concessions— either in the 13 form of lump sum payments or allotting additional labor hours for repairs—had the 14 disguised effect of paying repair shops more money for labor, while maintaining the 15 appearance (in estimates summaries and subrogation data) of paying the lower labor 16 rate it included in its estimates to Garage. By presenting this evidence, Garage raised a 17 genuine issue of material fact as to whether Insurer’s offers to Garage were based on a 18 labor rate at which the claimant could reasonably expect to have a damaged vehicle 19 repaired. 20 21 We conclude that Insurer was not entitled to summary judgment on Garage’s claim that 22 Insurer engaged in materially deceptive practices in violation of § 349 by purporting to 23 offer reasonably expected, market labor rates in accordance with its policy obligations 24 while systematically offering lower‐than‐market rates.2 25 26 (b) Other § 349 claims. As to Garage’s other category of GBL § 349 claims, we agree with 27 the district court that Insurer was entitled to summary judgment concerning its 28 representations of the availability of back up repair shops to perform the repairs. Nick’s 29 Garage, 101 F. Supp. 3d at 200–01. Garage claims that Insurer sent Notice of Rights 30 letters to eight of its insureds after failing to reach an agreed price with Garage, which, 31 in language mandated by regulation, stated that Insurer was “able to provide [the 32 customer] with the identity of the repair shop that will repair your vehicle at our 33 estimate, but under the Insurance Law, we may not recommend a repairer unless you 34 expressly request such information.” Appellant’s Br. 39 (citing 11 N.Y.C.R.R. § 216.12). 35 Garage claims that this was misleading because the letters would lead a customer to 36 believe that Insurer had already contacted a repair shop that had agreed to perform the

2 We do not disturb the district court’s dismissal of six of Garage’s GBL claims on statute of limitations grounds, Nick’s Garage,

n.4, which Garage has not appealed. 6

1 particular repair at the quoted amount, when in fact the evidence showed that Insurer 2 had not contacted the alternative shops. 3 4 We agree with the district court that Insurer showed its entitlement to judgment on this 5 aspect of Garage’s claims, and that there is no material issue of fact. The letters do not 6 constitute materially misleading or deceptive acts. They do not state or imply that 7 another shop had been contacted expressly with regard to the particular job.3 8 9 We further conclude, for the reasons explained in Progressive Casualty, (i) that Garage’s 10 § 349 claims are not precluded by § 2601 of the Insurance Law, Progressive Casualty, Slip 11 Op. at 45–494; and (ii) that Insurer was not entitled to judgment on the grounds that it 12 negotiated in good faith, id. at 40–41; that the labor rates were fully disclosed, id. at 41– 13 42; that Garage has asserted no GBL injury at all, id. at 42–43; and that the GBL injury is 14 not actionable because it is the same injury as alleged in the contract claim, id. at 43. 15 16 Having considered all of the parties’ arguments (whether or not discussed above), we 17 AFFIRM IN PART the judgment of the district court, and VACATE IN PART and 18 REMAND the case for further proceedings. 19 20 21 FOR THE COURT: 22 Catherine O’Hagan Wolfe, Clerk

3 On appeal, Garage also argues that Insurer made other misrepresentations to Therese Colombo. Garage did not present this claim in its opposition to Insurer’s motion before the district court, and we therefore find that it has been forfeited. See Caiola v. Citibank, N.A., N.Y.,

(2d Cir. 2002). 4 For similar reasons, the district court was correct to reject Insurer’s argument that

Garage’s first cause of action is precluded by the Insurance Law. Nick’s Garage,

. Although Garage did not explicitly label its first cause of action in its Amended Complaint, the language of the first cause of action expressly refers to Insurer’s violations of “its obligation under the Policies and New York Insurance law and regulations.” J.A. 1338 (emphasis added). Although there is no private right of action under § 2601 of the Insurance Law, that law does not preclude a claim for breach of contract. See Jeffreyʹs Auto Body, Inc. v. Allstate Ins. Co.,

(4th Dep’t 2015). 7