Sobh v. American Family Insurance Co.
755 F. Supp. 2d 852
N.D. Ohio2010Background
- Sobh is the sole member of ten LLCs that owned the properties insured under policies issued by American Family.
- Policies were issued to the LLCs, not to Sobh personally; Sobh did not appear as the insured under any policy in his own name.
- Sobh alleges Guadarrama, an American Family agent, stole premium payments, causing policy cancellations for non-payment in 2008-2009.
- American Family contends the policies were valid and canceled for non-payment after inspection showed costs below the deductible and preexisting damage.
- Sobh submitted 2008 claims for water/storm damage; American Family denied payments, citing lack of coverage due to cancellation or deductible issues.
- Default judgments were entered against Guadarrama for fraud/conversion; the remaining claim against American Family centers on breach of contract for failure to execute/process and pay claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Sobh can sue for breach of contract in his individual capacity | Sobh argues sole LLC membership creates privity with American Family. | American Family contends contracts were with LLCs, not Sobh personally; no privity. | Sobh cannot; no privity; summary judgment for American Family. |
| Whether the LLCs are the proper plaintiffs for breach of contract | LLC ownership should permit recovery in Sobh's name as sole member. | In Ohio, a corporation/LLC injury must be pursued by the entity itself or via derivative action. | LLCs are the proper plaintiffs; Sobh cannot sue individually. |
| Whether Sobh may 'look through' the LLCs to bind American Family to a contract with him | Sobh relies on sole ownership to imply a contractual relationship. | Ohio law treats sole-shareholder scenarios as requiring privity with the entity, not the individual. | Not permitted; no direct contract between Sobh and American Family. |
| Whether Guadarrama's alleged fraudulent acts can impute liability to American Family for breach of contract | Guadarrama's theft of premiums caused cancellations and breach. | Agency-related acts must be within the scope of authority; no evidence of ratification by American Family. | No basis to hold American Family liable; Guadarrama's acts not shown within scope or ratified. |
| Whether summary judgment on breach of contract is appropriate | Facts show insured properties, cancellations, and denial of claims. | Lack of privity and proper party negates breach claim; fraud claim independently unsupported. | Granted; American Family entitled to summary judgment on breach of contract and related claims. |
Key Cases Cited
- Canderm Pharmacal v. Elder Pharmaceuticals, 862 F.2d 597 (6th Cir. 1988) (stockholder cannot sue for corporate injuries in own name)
- Damon's Missouri, Inc. v. Davis, 63 Ohio St.3d 605 (Ohio 1992) (agency law binds principal where agent acts within scope)
- Elkins v. American Int'l Special Lines Ins. Co., 611 F. Supp. 2d 752 (S.D. Ohio 2009) (consider whether alleged acts fall within agent's scope)
- Garofalo v. Chicago Title Ins. Co., 104 Ohio App.3d 95 (Ohio Ct. App. 1995) (elements of breach of contract include privity)
- Gerber v. Gariepy, 28 F.3d 1213 (6th Cir. 1994) (injuries to a corporate entity must be pursued by the entity or in derivative form)
- Mahalsky v. Salem Tool Co., 461 F.2d 581 (6th Cir. 1972) (privity required for contract actions)