Free Speech Foundation, Inc. v. Philadelphia Indemnity Insurance Company
2:23-cv-01407
D. Nev.Jun 26, 2024Background
- The case involves a dispute over insurance coverage provided by Philadelphia Indemnity Insurance Company (PIIC) to Free Speech Foundation, Inc., d/b/a America’s Frontline Doctors, Inc. (AFLDS), an Arizona nonprofit embroiled in a board control battle since 2022.
- Conflicting board factions have resulted in ongoing Arizona state litigation about AFLDS's rightful leadership, with each side accusing the other of improprieties.
- PIIC, as AFLDS’s directors and officers (D&O) insurer, was drawn into the internal dispute by providing defense coverage to certain board members, whom the Gold faction argues were not legitimate directors.
- Plaintiffs (Dr. Simone Gold and AFLDS’s Gold-aligned board) allege PIIC improperly sided with the wrong faction, denied coverage to Gold and her supporters, and abetted fraudulent schemes damaging the organization.
- PIIC moved to dismiss all nine claims in the federal suit, challenging standing, sufficiency of the pleadings, and the legal basis for various claims.
- The District Court ruled on PIIC’s motion to dismiss, allowing breach of contract and declaratory relief claims to proceed but dismissing or requiring amendment of the other claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to Sue on Behalf of AFLDS | Gold has standing based on board membership and factual allegations; resolution of state dispute should not preclude federal action | Standing is lacking because board control is unresolved in Arizona action; Gold cannot sue for AFLDS as she sued against it in Arizona | Standing is sufficiently alleged at this stage, motion to dismiss on this ground denied |
| Aiding and Abetting a Tort | PIIC assisted Jenkins' fraud, supporting liability even if Jenkins isn’t a named defendant | No facts pled to support underlying tort(s); Jenkins not a party | Dismissed with leave to amend; must plead each underlying tort clearly |
| Contractual/Tortious Breach of Implied Covenant of Good Faith & Fair Dealing | PIIC violated the spirit of the insurance agreement beyond just the express policy terms | Claims are duplicative of breach of contract and insufficiently plead separate elements | Dismissed with leave to amend to clarify and distinguish the claims |
| Breach of Contract | PIIC failed to honor policy duties by not providing coverage or independent counsel in light of conflict, and by taking sides in the leadership dispute | No contract breach because defendant defended "AFLDS", conflict is unresolved | Denied; claim may proceed as well-pleaded |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard requiring more than conclusory allegations)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for federal pleading)
- Dow Chem. Co. v. Mahlum, 970 P.2d 98 (standard for aiding and abetting tortious conduct under Nevada law)
- Hilton Hotels Corp. v. Butch Lewis Prod., Inc., 808 P.2d 919 (concept of express and implied contractual breach and tortious breach of good faith)
- State Farm Mut. Auto. Ins. Co. v. Hansen, 357 P.3d 338 (Nevada’s rule on insurer’s duty to fund independent counsel in conflict scenarios)
- Great Am. Ins. Co. v. Gen. Builders, Inc., 934 P.2d 257 (rare availability of tortious breach of covenant of good faith in insurance context)