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Gonsalves-Pastore Realty, LLC v. Twin City Fire Insurance Co.

United States District Court, D. Rhode Island

November 6, 2018

GONSALVES-PASTORE REALTY, LLC d/b/a CENTURY 21, Plaintiff,
v.
TWIN CITY FIRE INSURANCE CO. d/b/a THE HARTFORD, Defendant.

          ORDER

          JOHN J. MCCONNELL, JR., UNITED STATES DISTRICT JUDGE.

         Defendant Twin City Fire Insurance Company seeks to dismiss Plaintiff Gonsalves-Pastore Realty, LLC's Complaint. ECF No. 10. For reasons set forth below, the Court DENIES Twin City's Motion.

         I. BACKGROUND

         Plaintiff Gonsalves-Pastore Realty, LLC ("Gonsalves-Pastore") seeks coverage under its insurance policy with Twin City Fire Insurance Company ("Twin City") for an action brought against it alleging negligent supervision of an associated real estate salesperson's actions in connection with her house-flipping business. Linda Glynn, a licensed real estate salesperson associated with Gonsalves-Pastore, founded Sunflower Real Estate, LLC ("Sunflower") as a vehicle to purchase, renovate, and sell or rent residential real estate at a profit. In the underlying case, Mauro Poletti filed an action in Rhode Island Superior Court against Ms. Glynn, Sunflower, and Gonsalves-Pastore. ECF No. 1-4. Mr. Poletti asserts claims for breach of contract, breach of fiduciary duty and fraudulent conveyance against Ms. Glynn and claims for breach of the duty of good faith and fair dealing, conversion, negligence, and fraud against Ms. Glynn and Sunflower. The only count against Gonsalves-Pastore alleges that Gonsalves-Pastore "failed to properly oversee and supervise the acts of Glynn," causing Mr. Poletti's damages. ECF No. 1-4 at 9. At all relevant times, Gonsalves-Pastore held a Real Estate Errors and Omissions Liability Policy from Twin City. ECF No. 1-5.

         II. STANDARD OF REVIEW

         To survive a motion to dismiss for failure to state a claim, a complaint must contain "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.5" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The Court accepts a plaintiffs allegations as true and construe them in the light most favorable to him. Gargano v. Liberty Int" Underwriters, Inc., 572 F.3d 45, 48 (1st Cir. 2009). In reviewing a motion to dismiss, the "court may consider not only the complaint, but also the 'facts extractable from documentation annexed to or incorporated by reference in the complaint and matters susceptible to judicial notice, "' Narragansett Elec, Co. v. Constellation Energy Commodities Grp., Inc., 526 F.Supp.2d 260, 268 (D.R.I. 2007) (quoting Jorge v. Rumsfeld, 404 F.3d 556, 559 (1st Cir. 2005)). Indeed, "when a 'complaint's factual allegations are expressly linked to-and admittedly dependent upon-a document (the authenticity of which is not challenged), that document effectively merges into the pleadings."' Id. (quoting Beddall v. State St, Bank & Trust Co., 137 F.3d 12, 17 (1st Cir. 1998)).

         III. DISCUSSION

         Twin City argues that the Misappropriation and Owned Property exclusions in the insurance policy issued to Gonsalves"Pastore exclude coverage for claims asserted in the underlying case. The Court finds that the exclusions do not apply.

         A. Twin City Fails to Establish the Applicability of the Misappropriation Exclusion Twin City does not meet its burden to prove that the Misappropriation Exclusion applies to bar coverage as it is not clear that the claims brought by Mr. Poletti exclusively arise out of alleged misappropriation.

         The Misappropriation Exclusion set forth in the Policy precludes coverage for claims:

Arising out of the inability or failure to pay, collect, or safeguard funds held or to be held for others or any conversion, misappropriation, commingling or defalcation of funds or other property.

ECF No. 1-5 at 10.

         However, it is not clear that the injury alleged in the underlying Complaint seeking relief for Ms. Glynn's actions arise solely from "misappropriation." Mr. Poletti alleges several theories, including negligence and a breach of contract claim, and the complaint in the underlying case appears to allege that he is in fact suing over managerial decisions on the part of Ms. Glynn that reduced his profits. ECF No. 1-4 at 6-8. To the extent that Mr. Poletti alleges that mismanagement of Sunflower reduced his expected profits, injuries arise from something other than misappropriation, The question of whether the losses suffered by Mr. Poletti were caused by misappropriation, some other failure to pay sums owed, mismanagement, contract damages, or a violation of a fiduciary duty remains open. It is thus undetermined ...


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