UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

BROOKS KUSHMAN P.C.,

Plaintiff, Case No. 15-12351

vs. Hon. Gerald E. Rosen

CONTINENTAL CASUALTY

COMPANY,

Defendant.

 /

OPINION AND ORDER GRANTING

DEFENDANT’S MOTION TO DISMISS OR TRANSFER VENUE

At a session of said Court, held in

the U.S. Courthouse, Detroit, Michigan

on September 30, 2016 

PRESENT: Honorable Gerald E. Rosen

United States District Judge

I. INTRODUCTION

In the present suit brought under this Court’s diversity jurisdiction, the

Plaintiff law firm, Brooks Kushman P.C., seeks to collect attorney fees it incurred

while representing non-party Alternative Technology Solutions, Inc. (“Alternative”)

in a lawsuit brought against Alternative in the U.S. District Court for the Central

District of California. In accordance with the terms of a general commercial

liability policy issued to Alternative, the Defendant insurer, Continental Casualty

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Company, agreed to provide a defense to Alternative in the California litigation,

subject to a reservation of Defendant’s right to withdraw this defense in the event

that it determined that no such duty was owed under the policy. According to

Plaintiff’s complaint, when the Defendant insurer allegedly agreed to allow the

Plaintiff law firm to appear as counsel for Alternative in the California suit,

Defendant thereby assumed liability under various state-law theories for the fees

incurred by Plaintiff in representing Alternative, but Defendant allegedly has failed

to pay at least a portion of these fees.

Through the present motion filed on July 22, 2015, Defendant seeks the

dismissal of Plaintiff’s complaint in its entirety under Fed. R. Civ. P. 12(b)(6),

arguing that Plaintiff has failed in various respects to identify and plead a viable

theory of recovery under which Defendant could be held liable to the Plaintiff law

firm for fees it incurred while representing Defendant’s insured, Alternative. Next,

in the event that the Court were to determine that Plaintiff’s complaint is not subject

to dismissal, Defendant requests that this suit be transferred to the Central District

of California under 28 U.S.C. § 1404(a) as a more convenient forum, or that the

Court consider staying this action until a California state court resolves an insurance

coverage suit brought by Defendant against Alternative.

Defendant’s motion has been fully briefed by the parties. Having reviewed

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the parties’ briefs in support of and in opposition to Defendant’s motion, as well as

the remainder of the record, the Court finds that the pertinent facts, allegations, and

legal issues are adequately presented in these written submissions, and that oral

argument would not assist in the resolution of this motion. Accordingly, the Court

will decide Defendant’s motion “on the briefs.” See Local Rule 7.1(f)(2), U.S.

District Court, Eastern District of Michigan. For the reasons set forth below, the

Court holds that the allegations of Plaintiff’s complaint fail to support any viable

legal theory under which the Defendant insurer may be held liable for fees incurred

by the Plaintiff firm in representing an insured party.1

II. FACTUAL AND PROCEDURAL BACKGROUND

In March of 2013, Epicor Software Corporation (“Epicor”) brought suit

against Alternative Technology Solutions, Inc. (“Alternative”) and a number of

other defendants in the U.S. District Court for the Central District of California (the

“California Litigation”). Under the terms of a general commercial liability policy

issued to Alternative (the “Policy”), Defendant Continental Casualty Company

agreed to provide a defense to Alternative in the California Litigation, subject to a

reservation of Defendant’s right to withdraw from its defense of Alternative in the

1

In light of this ruling, the Court need not address Defendant’s request for a

transfer of venue.

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event that Defendant determined that the claims asserted by Epicor were not

covered under the Policy. (See Defendant’s Motion, Ex. 1, 7/30/2013 Coverage

Letter.)

As recognized in Defendant’s letter to Alternative explaining the nature,

extent, and limits of the coverage owed to Alternative under the Policy, once

Defendant agreed to provide a defense subject to a reservation of rights, Alternative

was authorized under California law to retain independent counsel, and Defendant,

in turn, was obligated to pay the reasonable fees and costs incurred by this counsel

in representing Alternative. (See id. at 6.) Alternative initially selected Clark Hill

PLLC of Chicago, Illinois as this independent counsel, but on March 6, 2014,

Alternative’s coverage counsel, Eric R. Little, informed Defendant that Alternative

had retained the Plaintiff law firm, Brooks Kushman P.C., to replace Clark Hill as

Alternative’s independent counsel in the California Litigation. (See Complaint, Ex.

A, 3/6/2014 Letter.) Later that month, two attorneys from the Plaintiff firm entered

their appearances on behalf of Alternative in the California Litigation, and on April

1, 2014, a representative of the Defendant insurer sent an e-mail to one of these

attorneys, Mark A. Cantor, advising him of Defendant’s billing rates, forwarding a

copy of Defendant’s billing and litigation guidelines, and asking Mr. Cantor to

provide a case analysis and proposed budget for the California Litigation. (See

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Complaint, Ex. B, 4/1/2014 E-mail.)2

Following a decision of the California Supreme Court in an unrelated case,

Defendant determined that it had no obligation under the Policy to provide a

defense to Alternative in the California Litigation.3

 By letter dated July 29, 2014,

Defendant notified Alternative’s coverage counsel, Mr. Little, of this decision,

reminding Mr. Little that Defendant had agreed to provide a defense to Alternative

under a reservation of its right to withdraw this defense, and stating that it was now

exercising this right in light of its determination that none of the claims asserted by

Epicor against Alternative triggered Defendant’s duty to defend under the Policy. 

(See Defendant’s Motion, Ex. 2, 7/29/2014 Letter.)4

Although Defendant initially processed and paid Plaintiff’s invoices

following the firm’s March 2014 appearance as Alternative’s counsel in the

California Litigation, it ceased doing so upon advising Alternative in late July of

2

Mr. Cantor provided the requested case analysis and itemized budget on April 29,

2014. (See Complaint, Ex. E, 4/29/2014 E-mail.)

3

Several months before the California Supreme Court issued this decision in June

of 2014, Defendant commenced a declaratory judgment action against Alternative in a

California state court, seeking a judicial determination that it had no duty to defend

Alternative in the California Litigation. The state court stayed this action, and this stay

apparently remains in effect.

4

Defendant further advised Mr. Little that it “reserv[ed] the right to seek

reimbursement of the defense fees and costs paid to date.” (Id. at 6.)

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2014 that it was withdrawing its defense, and Plaintiff alleges that Defendant “has

since refused to pay numerous of [Plaintiff’s] invoices for services and

disbursements in the [California] suit.” (Complaint at ¶ 24.) Plaintiff therefore

brought this suit in June of 2015, seeking to recover its unpaid fees from Defendant

under the state-law theories of breach of implied contract, promissory estoppel, and

breach of an obligation owed by Defendant to Plaintiff as an alleged third-party

beneficiary of the insurance policy issued by Defendant to Plaintiff’s client,

Alternative.

III. ANALYSIS

A. The Standards Governing Defendant’s Motion

Through the present motion, Defendant seeks the dismissal under Fed. R.

Civ. P. 12(b)(6) of each of the three claims asserted in Plaintiff’s complaint. When

determining whether Plaintiff’s claims are subject to dismissal under Rule 12(b)(6)

for failure to state a claim, the Court must construe the complaint in a light most

favorable to Plaintiff and accept all well-pleaded factual allegations as true. League

of United Latin American Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007). 

However, “the tenet that a court must accept as true all of the allegations contained

in a complaint is inapplicable to legal conclusions.” Ashcroft v. Iqbal, 556 U.S.

662, 678, 129 S. Ct. 1937, 1949 (2009).

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In addition, “[w]hile a complaint attacked by a Rule 12(b)(6) motion to

dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide

the grounds of his entitlement to relief requires more than labels and conclusions,

and a formulaic recitation of the elements of a cause of action will not do.” Bell

Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 1964-65 (2007)

(internal quotation marks, alteration, and citations omitted). Rather, to withstand a

motion to dismiss, the complaint’s factual allegations, accepted as true, “must be

enough to raise a right to relief above the speculative level,” and to “state a claim to

relief that is plausible on its face.” Twombly, 550 U.S. at 555, 570, 127 S. Ct. at

1965, 1974. “A claim has facial plausibility when the plaintiff pleads factual

content that allows the court to draw the reasonable inference that the defendant is

liable for the misconduct alleged.” Iqbal, 556 U.S. at 678, 129 S. Ct. at 1949.5

B. The Complaint Fails to Set Forth a Plausible Theory and Supporting

Factual Allegations That Would Permit the Plaintiff Law Firm to

Recover Its Fees from the Defendant Insurer.

In seeking the dismissal of Plaintiff’s claims, Defendant begins with the

fairly terse assertion that Plaintiff “has no standing” to assert state-law claims

against Defendant as a vehicle for recovering its unpaid fees, where there is “no

5

In light of the Court’s conclusion, as set forth below, that Plaintiff’s claims are

subject to dismissal under Rule 12(b)(6), the Court need not address the standards

governing Defendant’s request for a transfer of venue.

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attorney-client relationship” between the Plaintiff law firm and Defendant, and

where Plaintiff’s duties instead “run solely to” its client, Alternative. (Defendant’s

Motion, Br. in Support at 12.) While the parties largely eschew any further

discussion of this question of “standing” in their briefs — and, indeed, Plaintiff

does not even address this issue in its response to Defendant’s motion — and while

the Court does not necessarily concur in Defendant’s characterization of this

argument as a challenge to Plaintiff’s “standing,” the Court nonetheless concludes

that Plaintiff’s complaint fails to identify a viable basis for the Plaintiff law firm to

recover its unpaid fees from the Defendant insurer, at least under the facts alleged in

the complaint.

As Defendant states without contradiction, whether under California or

Michigan law,6

 there is no attorney-client relationship between an insurer and a law

6

Because this case lies within the Court’s diversity jurisdiction, the choice-of-law

rules of the forum state of Michigan govern the determination of the law that applies to

Plaintiff’s state-law claims. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496,

61 S. Ct. 1020, 1021 (1941); Wallace Hardware Co. v. Abrams, 223 F.3d 382, 391 (6th

Cir. 2000). Upon extensively analyzing Michigan’s choice-of-law rules in its motion,

Defendant maintains that California law should govern here. (See Defendant’s Motion,

Br. in Support at 5-12.) Plaintiff, in contrast, conducts no such analysis in its response to

Defendant’s motion, but instead supports its arguments with citations to both Michigan

and California law, in order “to remove any conflict of laws issue from [Defendant’s]

motion.” (Plaintiff’s Response Br. at 6.)

The Court is persuaded by Defendant’s thorough analysis, and thus concludes that

California law governs here. As indicated below, however, neither the California nor the

Michigan courts have spoken directly to the issue that the Court finds largely dispositive

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firm, like Plaintiff here, that has been retained by the insured party as independent

counsel. See Employers Insurance of Wausau v. Albert D. Seeno Construction Co.,

692 F. Supp. 1150, 1156-57 (N.D. Cal. 1988) (applying California law); Kirschner

v. Process Design Associates, Inc., 459 Mich. 587, 592 N.W.2d 707, 711 (1999)

(applying Michigan law). Indeed, as explained in Employers Insurance of Wausau,

692 F. Supp. at 1155-57, the very same body of California law that dictates the

appointment of independent counsel where a conflict arises between an insurer and

its insured — referred to as “Cumis counsel” after the decision in San Diego

Federal Credit Union v. Cumis Insurance Society, Inc., 208 Cal. Rptr. 494 (Cal. Ct.

App. 1984), which recognized an insured’s right to select independent counsel paid

for by the insurer under these circumstances — necessarily contemplates that this

independent counsel represents only the insured party, and not the insurer.7

Because there is no attorney-client relationship between Plaintiff and Defendant,

Plaintiff cannot seek to collect its unpaid fees from Defendant through a

straightforward breach of contract claim brought by a law firm against its client.

In evident recognition of this, Plaintiff proposes three different state-law

here, so the choice between California and Michigan law seemingly makes little or no

difference in the outcome of Defendant’s motion. In any event, the Court generally cites

to the law of both states in its ensuing analysis. 

7

The Plaintiff firm agrees that it is properly characterized as “Cumis counsel”

within the meaning of this California law. (See Plaintiff’s Response Br. at 3.) 

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avenues through which it can recover its fees from the Defendant insurer. For ease

and clarity of analysis, the Court begins with the theory of recovery advanced in the

third and final count of Plaintiff’s complaint, which rests upon the premise that

Plaintiff is an intended third-party beneficiary of the Policy issued by Defendant to

its insured, Alternative. Under either California or Michigan law, a non-party to a

contract may nonetheless enforce a contractual promise as a third-party beneficiary

if this promise was intended to benefit the non-party. See Cal. Civ. Code § 1559;

Mich. Comp. Laws 600.1405. The purported third-party beneficiary need not be

specifically named in the contract, so long as this non-party “can show that he or

she is a member of a class for whose benefit the contract was made.” Cargill, Inc.

v. Souza, 134 Cal. Rptr. 3d 39, 42 (Cal Ct. App. 2011); see also Shay v. Aldrich,

487 Mich. 648, 790 N.W.2d 629, 638 (2010).

Although the parties and the Court alike have failed to uncover any

California or Michigan case law that squarely addresses the circumstances

presented here, Defendant points to a number of cases from other jurisdictions

holding that a law firm representing an insured party pursuant to an insurer’s duty

to defend is not a third-party beneficiary of the contract of insurance. In Old

Republic Insurance Co. v. Sidley & Austin, 702 F. Supp. 207, 208 (N.D. Ill. 1988),

for instance, the plaintiff insurer, Old Republic, issued an excess directors’ and

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officers’ (“D & O”) policy to the non-party trustees of the Bradley Trusts, providing

$3.5 million of liability coverage in excess of $5 million in coverage provided to the

trustees under a policy issued by the Federal Insurance Company (“Federal”). 

When two beneficiaries of the Bradley Trusts brought suit seeking the removal of

the trustees and a division of the trusts, the trustees obtained Federal’s consent to

retain a law firm to serve as defense counsel in this litigation, and this initial law

firm was then replaced by the defendant firm shortly before trial, again with

Federal’s consent. Following the trial and the entry of a judgment awarding $3

million to the beneficiaries and authorizing the appointment of new trustees, Old

Republic and the trustees entered into an agreement calling for the insurer to

“satisfy all remaining obligations of the Trustees in the Bradley Trust Litigation,

including any unpaid portion of the [judgment], and any and all unpaid legal fees

and litigation expenses related to the Bradley Trust Litigation.” Old Republic

Insurance, 702 F. Supp. at 208-09. The defendant law firm, Sidley & Austin

(“Sidley”), billed Old Republic for nearly $1 million in legal fees and expenses, and

Old Republic responded by bringing a suit “to obtain (1) a judicial determination of

its obligation to Sidley for proper attorneys’ fees under [its] agreement [with the

trustees], and (2) a declaration that Sidley’s bill . . was excessive, unreasonable and

duplicative.” 702 F. Supp. at 209.

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The Sidley firm moved to dismiss the suit for lack of standing, contending

that its bill for fees and expenses did not pose a sufficient threat to Old Republic’s

legal rights to warrant the declaratory relief sought by the insurer. In response, Old

Republic argued that both the policy it issued to the trustees and the agreement it

reached with the trustees at the conclusion of the Bradley Trust litigation “create[d]

a direct obligation to pay Sidley as a third party beneficiary of those contracts,” so

that its dispute with the law firm was sufficiently “in controversy” to confer

standing under the federal Declaratory Judgment Act. 702 F. Supp. at 210.

Applying Illinois law, the court held that Sidley was not a third-party

beneficiary under either the Old Republic policy or the insurer’s agreement with the

trustees. Turning first to the insurance policy, the court found that the trustees were

the sole intended beneficiaries of Old Republic’s promise to pay the defense costs

for covered claims asserted against the trustees, and that Sidley was only an

incidental rather than an intended beneficiary of this promise:

The trustees sought D & O insurance to protect themselves from

the possibility that their actions might be questioned in court. Not only

does the potential liability that might be assessed against them

represent a risk but merely going to court, with all the attendant costs

including attorneys’ fees, is a threat sufficiently real that D & O

policies include defense costs within the definition of “loss.”

It is in this context that we conclude that Sidley was not a third

party beneficiary to the Old Republic policy. At the time the policy

was purchased, the prospect of litigation was uncertain and the law

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firm that would profit therefrom was presumably unknown. “No court

has ever held — indeed the proposition seems never before even to

have been advanced — that the lawyer may himself sue upon an

insurance policy or any other agreement which obliges one contracting

party to pay the other’s legal fees.” Continental Casualty Company v.

Marx, 480 So.2d 177, 178-79 (Fla. App. 3d Dist. 1985), review

dismissed, 484 So.2d 9 (1986). We announce, as did the court in

Continental Casualty, that “[w]e shall not be the first.” 480 So.2d at

179.

Old Republic Insurance, 702 F. Supp. at 210-11 (alteration in original).

The court likewise rejected Old Republic’s contention that Sidley was a thirdparty beneficiary of the agreement reached between the insurer and the trustees at

the conclusion of the Bradley Trust litigation:

It is wrong to say that the agreement’s explicit requirement of

the payment of attorneys’ fees is alone sufficient to render Sidley a

third party beneficiary. The requirement that the parties know of a

third party’s benefit is necessary but not sufficient. This is true even

though the third party is identifiable at the time of execution. The

crucial issue which separates “intended” from “incidental”

beneficiaries is, by definition, intent — was the relevant provision

inserted to benefit the law firms[?]

We think the answer is no. The payment of defense costs was

addressed to benefit the trustees whose insurance (both primary and

excess) covered attorneys’ fees as a species of “loss.” The agreement

merely reiterated the policy coverage . . . . The . . . provision [calling

for Old Republic to pay all outstanding legal fees and litigation

expenses owed by the trustees] was included to give the trustees the

benefit of their bargain — assurance that Federal and Old Republic

would pay attorneys’ fees as well as other “losses” under the D & O

policy, in consideration of the insurance premium. That is why the

agreement and the policies themselves expressly refer to attorney fees. 

We think this explanation, gleaned from a consideration of all the

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contract terms and the circumstances surrounding the parties at the

time of the contract’s execution . . . , best describes the intention of the

parties.

702 F. Supp. at 211-12 (footnote, internal quotation marks, and citations omitted).

Apart from this decision, the case law addressing the question of a law firm’s

third-party beneficiary status under an insurance policy is hardly extensive — and,

as noted, seemingly includes no cases decided under either California or Michigan

law — but this case law fully comports with the result reached in Old Republic

Insurance. In the Florida state court decision quoted in Old Republic Insurance for

the proposition that a lawyer’s recovery under an insurance policy intended to cover

his client’s legal fees would be unprecedented, the court reversed a judgment in

favor of an attorney, Richard Marx, who was retained by two individuals named as

defendants in a stockholders’ derivative action. Continental Casualty, 480 So.2d at

178. In the court below, Marx had secured a judgment against Continental

Casualty, which insured the two individuals represented by Marx under a D & O

policy that covered the defense costs and fees incurred in the derivative action. The

Florida appellate court found that Marx could not recover as a third-party

beneficiary under this insurance policy:

It is far from being manifest from the nature or terms of the insurance

contract, as is required to confer the status of a third party beneficiary

upon [Marx], that the formal parties intended to benefit the insureds’

attorney as the direct and primary object of the contract or amongst

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such objects. To the contrary, it is perfectly apparent that Marx

derived only the most attenuated incidental or consequential benefit

from the enforcement of the policy and therefore may not maintain an

action upon it.

Continental Casualty, 480 So.2d at 178 (internal quotation marks, citations, and

alteration omitted);8 see also Silverman v. Hartford Accident & Indemnity Co. (In re

Hronek), 563 F.2d 296, 298-99 (6th Cir. 1977); Yale Galanter, P.A. v. Johnson, No.

06-60742, 2007 WL 2050990, at *2-*3 (S.D. Fla. July 16, 2007); Chartis Specialty

Insurance Co. v. Tri-Valley Corp. (In re Tri-Valley Corp.), No. 12-12291, 2014 WL

6680354, at *3 (Bankr. D. Del. Nov. 25, 2014); In re Fritzsch Custom Builders,

LLC, 474 B.R. 515, 518 (Bankr. S.D. Ohio 2010); In re Baltimore Emergency

Services II, 401 B.R. 209, 217-18 (Bankr. D. Md. 2008).

In accordance with this case law, the Court finds that the Plaintiff law firm

cannot state a viable claim to recover its unpaid legal fees and expenses incurred in

the California Litigation as a third-party beneficiary of the Policy issued by

Defendant to Plaintiff’s client, Alternative. As in Old Republic Insurance and the

other above-cited decisions, nothing in the pleadings or accompanying record in

this case suggests that the Plaintiff law firm was an intended beneficiary of

8

As discussed at greater length below, the court in Continental Casualty also found

“no merit” in Marx’s claim that he was entitled to recover “under an ‘implied contract’

for him to render services on behalf of” his clients’ insurer. 480 So.2d at 179.

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Defendant’s promise in the Policy to pay Alternative’s cost of defending against

covered claims. Rather, the Policy provisions imposing upon Defendant a duty to

defend plainly were “included [in the Policy] to give [Alternative] the benefit of

[its] bargain — assurance that [Defendant] would pay attorneys’ fees as well as

other losses under the . . . [P]olicy, in consideration of the insurance premium.” Old

Republic Insurance, 702 F. Supp. at 211 (internal quotation marks omitted). As the

courts have uniformly concluded under these circumstances, the Plaintiff firm was

only an incidental, and not an intended, beneficiary of the duty to defend conferred

under the Policy. It follows, whether under California or Michigan law, that

Plaintiff cannot enforce this obligation as a third-party beneficiary. See East

Aviation Group, Inc. v. Airborne Express, Inc., 8 Cal. Rptr. 2d 355, 357-58 (Cal. Ct.

App. 1992); Brunsell v. City of Zeeland, 467 Mich. 293, 651 N.W.2d 388, 390-91

(2002).

Turning next to Plaintiff’s claims of breach of an implied contract and

promissory estoppel, certain of the above-cited cases suggest a possible avenue

through which the Plaintiff firm could pursue one or both of these theories of

recovery against the Defendant insurer. Most notably, in Yale Galanter, 2007 WL

2050990, at *2-*3, while the court held that the plaintiff law firm was not a thirdparty beneficiary of D & O insurance policies issued by the four defendant insurers

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to the employer of the firm’s client, Charles E. Johnson, Jr., it nonetheless allowed

the law firm to pursue a breach of contract claim against one of the defendant

insurers, based on a letter issued by this insurer approving of the firm to represent

Johnson under its D & O policy. The court reasoned that this letter “appears to be

an independent agreement to bestow some formal status” on the firm, and thus

found that the plaintiff firm could seek to recover its fees from the insurer that

issued this “specific engagement letter.” Yale Galanter, 2007 WL 2050990, at *3.9

Likewise, in this case, Plaintiff’s effort to recover its fees incurred in the

California Litigation does not rest solely upon allegations that it is a third-party

beneficiary of the insurance policy issued by Defendant to Plaintiff’s client,

Alternative. Rather, Plaintiff further alleges that an implied contract arose from the

dealings of Plaintiff and Defendant, or that, alternatively, Defendant made a

promise to pay the Plaintiff law firm for its services that is enforceable under a

theory of promissory estoppel. In its response to Defendant’s motion, Plaintiff

argues that it has sufficiently pled the elements of these two claims to withstand

Defendant’s Rule 12(b)(6) challenge.

The Court disagrees. Turning first to Plaintiff’s claim of breach of an

9

The court later granted summary judgment in favor of the insurer, however, and

the Eleventh Circuit affirmed this ruling. See Yale L. Galanter, P.A. v. Johnson, No. 08-

10872, 293 F. App’x 750 (11th Cir. Sept. 17, 2008).

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implied contract, Plaintiff alleges in support of this claim (i) that on March 6, 2014,

“Alternative’s coverage counsel, Eric R. Little, Esq., notified [Defendant’s] counsel

. . . by letter that Alternative desired to replace [its existing independent counsel]

with Mark A. Cantor, Esq., of [the Plaintiff firm] as its defense counsel,” (ii) that

“[i]n reliance on [Defendant’s] agreement to permit the substitution of new defense

counsel,” the Plaintiff firm “entered into an engagement agreement with

Alternative,” moved for the substitution of counsel in the California Litigation, and

entered its appearance in that suit, (iii) that on April 1, 2014, a representative of the

Defendant insurer sent an e-mail to Mr. Cantor of the Plaintiff firm “confirming

[Defendant’s] acceptance of [Plaintiff’s] representation of Alternative” and

attaching Defendant’s “billing and litigation guidelines,” and (iv) that Defendant

thereafter “began processing and paying [Plaintiff’s] invoices” for its legal services,

until Defendant “summarily withdrew” its defense of the California Litigation on or

around August 7, 2014. (Complaint at ¶¶ 13-23.) According to Plaintiff, this

alleged course of dealings gave rise to an implied contract that “required [Plaintiff]

to provide legal services in defense of [Defendant’s] insured, Alternative,” in the

California Litigation, and in turn “required [Defendant] to compensate [Plaintiff]

according to the agreed rates” set forth in the April 1, 2014 e-mail from Defendant’s

representative to Mr. Cantor. (Id. at ¶¶ 27-30.)

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These allegations fail on two grounds to state a viable claim of breach of an

implied contract. First, Plaintiff’s allegations cannot be squared with the exhibits

accompanying its complaint. While Plaintiff suggests in its complaint that

Alternative, through its coverage counsel Eric Little, expressed its “desire[] to

replace” its existing counsel with the Plaintiff firm, and that Defendant “agree[d]”

to this substitution, (id. at ¶¶ 13-14), the March 6, 2014 letter from Alternative’s

coverage counsel to Defendant actually states that “Alternative has retained new

defense counsel to replace” its existing counsel, and that “Alternative will now be

represented by” the Plaintiff firm, (see Complaint, Ex. A, 3/6/2014 Letter at 1). 

More generally, Mr. Little stated that Defendant was “permitted to contact [the

Plaintiff firm] with issues relating to” the California Litigation, but he emphasized

that Defendant should “continue to direct all insurance coverage related

correspondence to” his firm. (Id. at 1-2.)

Accordingly, to the extent that Plaintiff alleges that the parties engaged in a

course of “dealings” that reflected “the existence and terms of” an implied contract

calling for Plaintiff to provide legal services to Alternative in the California

Litigation, (id. at ¶¶ 27-28), the record accompanying Plaintiff’s complaint defeats

these allegations. The March 6, 2014 letter from Alternative’s coverage counsel

expressly informed Defendant that Alternative had replaced its existing counsel

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with the Plaintiff firm, and that Alternative was “now . . . represented by” Plaintiff. 

(Complaint, Ex. A, 3/6/2014 Letter at 1.) Nothing in this letter invited Defendant to

agree to this substitution of counsel; rather, it was presented as a fait accompli. And

even if Defendant might have understood this letter as inviting its acceptance,

Plaintiff does not allege that Defendant responded to the letter in accordance with

this understanding, nor do any of the exhibits accompanying the complaint support

this reading of the March 6 letter.

Similarly, while Plaintiff alleges that it took various actions — including

entering into an engagement agreement with Alternative, moving for substitution of

counsel in the California Litigation, and entering an appearance in that suit — “[i]n

reliance on [Defendant’s] agreement” to permit the Plaintiff firm to substitute for

Alternative’s prior counsel, (Complaint at ¶¶ 14-16), each of these events occurred

before Defendant took any action or made any statement that could possibly

evidence such an “agreement.” In particular, although Plaintiff points to an April 1,

2014 e-mail from Defendant’s representative as allegedly “confirming

[Defendant’s] acceptance of [Plaintiff’s] representation of Alternative,” (id. at ¶ 17),

the complaint fails to identify any basis for concluding that Defendant had

previously agreed to this arrangement, such that the April 1 e-mail could be viewed

as “confirming” this understanding. Thus, while the Court recognizes that it must

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accept the factual allegations of Plaintiff’s complaint as true, this rule does not

apply to (i) legal conclusions masquerading as factual allegations, such as

Plaintiff’s assertions that Defendant agreed to Plaintiff’s substitution as

Alternative’s counsel or that Defendant’s April 1, 2014 e-mail “confirm[ed]” this

agreement, see Iqbal, 556 U.S. at 678, 129 S. Ct. at 1949, or (ii) allegations that are

contradicted by exhibits accompanying the complaint, such as Plaintiff’s assertion

that Mr. Little’s March 6, 2014 letter expressed Alternative’s “desire[] to replace”

its existing counsel, see Thompson v. Illinois Department of Professional

Regulation, 300 F.3d 750, 754 (7th Cir. 2002).

Next, Plaintiff’s claim of an implied contract is rendered implausible by the

surrounding context, particularly when viewed in light of the California law

governing an insurer’s obligation to provide independent counsel to represent the

insured’s interests once a conflict arises between the insurer and the insured. As

observed earlier, and as both parties recognize, once Defendant advised Alternative

that it was providing a defense to Alternative in the California Litigation subject to

a reservation of rights, this triggered a conflict of interest between insurer and

insured that, under California law, obligated Defendant to cover the reasonable cost

for Alternative to retain independent counsel. See Employers Insurance of Wausau,

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692 F. Supp. at 1154-55.10 The parties likewise agree that in accordance with this

requirement of California law, Alternative initially retained Clark Hill PLLC to

serve as its independent counsel in the California Litigation, and that the Plaintiff

firm then entered its appearance in place of Clark Hill as independent counsel for

Alternative. Finally, Defendant acknowledged in a July 30, 2013 letter to

Alternative that due to its conflict with Alternative arising from its reservation of its

right to withdraw its defense of Alternative in the California Litigation, Alternative

was authorized under California law to “select independent counsel” that would be

compensated by Defendant in accordance with the rates paid by Defendant “in the

ordinary course of business in the defense of similar actions.” (Defendant’s

Motion, Ex. 1, 7/30/2013 Letter at 6.)

By the very nature of this California law requirement of independent

counsel, Plaintiff cannot state a breach of implied contract that is “plausible on its

face,” Twombly, 550 U.S. at 570, 127 S. Ct. at 1974, such that it can withstand a

challenge under Rule 12(b)(6). As independent counsel, the Plaintiff firm

represented “solely the insured,” Alternative, and not the Defendant insurer. 

Employers Insurance of Wausau, 692 F. Supp. at 1157. It would be antithetical to

10As noted earlier, the California courts refer to this independent attorney as

“Cumis counsel.” 

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this state-law right to independent counsel to grant the Defendant insurer the power

to agree to — and, by corollary, to veto — Alternative’s selection of a law firm to

serve as its independent counsel in the California litigation. And, of course, the

March 6, 2014 letter from Alternative’s coverage counsel to Defendant confirms

this understanding of Alternative’s right to select independent counsel, as Mr. Little

informed Defendant that Alternative “ha[d] retained new defense counsel to

replace” the Clark Hill firm, (Complaint, Ex. A, 3/6/2014 Letter), without in any

way indicating that Alternative sought Defendant’s concurrence in this decision. 

Similarly, as the court explained in Continental Casualty, 480 So.2d at 179, where

counsel retained by the insured represents interests that are antagonistic to those of

the insurer, there can be no implied contract between the insured’s counsel and the

insurer. Accordingly, Plaintiff cannot plausibly allege that an implied contract was

formed by virtue of Defendant’s offer and Plaintiff’s acceptance of the role as

Alternative’s independent counsel.

Plaintiff nonetheless attempts to rescue its implied contract claim from

dismissal by arguing that even if Defendant did not offer the role of independent

counsel to the Plaintiff firm — and even if the exhibits accompanying Plaintiff’s

complaint belie any claim that it did so — Defendant should be viewed as having

“assented to the formation of a contract by remaining silent while [the Plaintiff

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firm] represented Alternative” and by paying Plaintiff for its legal services, at least

initially. (Plaintiff’s Response Br. at 8-9.) Again, however, this theory of contract

formation is not plausible under the circumstances. As explained, Defendant was in

no position to voice an objection to Alternative’s selection of Plaintiff as its

independent counsel. Likewise, while Defendant paid one or more of Plaintiff’s

invoices, (see Complaint at ¶ 22), these payments cannot be viewed as a volitional

act of contract acceptance, where Defendant was obligated under California law to

compensate the independent counsel retained by Alternative. Consequently,

although Plaintiff’s complaint recites the elements of a claim that Defendant

breached an implied contract, Plaintiff has failed to “plead[] factual content” that

would permit “the reasonable inference that [Defendant] is liable” under this theory

of recovery. Iqbal, 556 U.S. at 678, 129 S. Ct. at 1949.

Little more need be said about Plaintiff’s claim of promissory estoppel, as it

suffers from essentially the same defects. As a purely factual matter, Plaintiff

cannot plausibly allege that the actions it took in March of 2014 — including

entering into an engagement agreement with Alternative, moving for substitution of

counsel in the California Litigation, and filing an appearance in that suit — were

done “[i]n reliance on” Defendant’s agreement or assurance that the Plaintiff firm

would be allowed to represent Alternative in the California Litigation, (see

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Complaint at ¶¶ 14-16), where the first correspondence from Defendant reflecting

its purported “acceptance” of Plaintiff’s representation of Alternative was an e-mail

dated April 1, 2014, (see id. at ¶ 17). In addition, while Plaintiff alleges that it acted

in reliance on Defendant’s “promise to pay [the Plaintiff firm] for its services” in

representing Alternative in the California Litigation, (id. at ¶¶ 36-39), the Court

already has explained that it is not plausible to characterize Defendant as having

promised to make payments that were mandated under California law. 

Accordingly, Plaintiff’s claim of promissory estoppel is subject to dismissal.

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IV. CONCLUSION

For the reasons set forth above,

NOW, THEREFORE, IT IS HEREBY ORDERED that Defendant’s July 22,

2015 motion to dismiss for failure to state a claim or, in the alternative, to transfer

venue (docket #10) is GRANTED, to the extent that Defendant seeks the dismissal

of Plaintiff’s complaint, and is otherwise DENIED AS MOOT.

s/Gerald E. Rosen 

United States District Judge

Dated: September 30, 2016

I hereby certify that a copy of the foregoing document was served upon the parties

and/or counsel of record on September 30, 2016, by electronic and/or ordinary mail.

s/Julie Owens 

Case Manager, (313) 234-5135

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