Opinion
CIVIL ACTION 02-7444
April 7, 2004
MEMORANDUM
Following this Court's Memorandum and judgment of March 17, 2004, the Plaintiffs have moved under Fed.R.Civ.P. 59, to alter or amend the Court's judgment, or alternatively under Fed.R.Civ.P. 62, for a stay of the judgment. Although these motions were originally filed as to all Defendants, the motions have been withdrawn as to Defendant Venetis. The Court held a telephone conference with counsel on April 2, 2004, which was not recorded. For the reasons set forth below, the motions will be denied.
Plaintiffs assert that this Court erred in concluding that it could not make a legal determination that the carriers had effectively unilaterally rescinded the policy, at least as to the Defendants on this motion. Alternatively, Plaintiffs ask this Court to stay the judgment so the Plaintiffs can return to Bankruptcy Judge Gerber to seek clarification from him that his Order did not intend to prevent this Court from making a finding of unilateral rescission as to the Defendants in this case.
The parties appear to agree that the issue of unilateral rescission and the ability of this Court to make a finding on this issue was first considered in any detail at the oral argument on February 13, 2004. At that oral argument, Plaintiffs' counsel asserted that in verbal remarks at a hearing Judge Gerber indicated that he believed that this Court had the power and authority, notwithstanding the stay as to the proceedings, to consider whether the Plaintiffs had effectively unilaterally rescinded the insurance policy, at least as to the Defendants in this case. (Tr. pp. 16-17). In seeking this Court's stay so that Plaintiffs can return to Judge Gerber for clarification, Plaintiffs have not shown why there was anything to prevent them from returning to Judge Gerber for this clarification immediately after this issue was first raised at the oral argument. Not having done so, Plaintiffs now seek to deprive the Defendants of the benefit of this Court's ruling so that they can now return to Judge Gerber for clarification. Considering all of the equitable considerations that go into the granting of a stay under Fed.R.Civ.P. 62, the Court declines to enter a stay for this purpose. This Court continues to conclude that Judge Gerber's stay order precludes this Court from considering the issue of rescission, and Plaintiffs' motion must be denied for this reason.
Plaintiffs' briefs do not specify under which subsection of Fed.R.Civ.P. 62 they request this stay. The cases cited by AEGIS apply to Fed.R.Civ.P. 62(c), but Fed.R.Civ.P. 62(b) seems applicable. Regardless of which subsection Plaintiffs are invoking, to obtain a stay they must show that (1) Plaintiffs will suffer an irreparable injury without the stay, (2) the Defendants will not be substantially harmed by the stay, and (3) Plaintiffs are likely to prevail on the merits.Combustion Sys. Serv., Inc. v. Schuylkill Energy Res., Inc., 153 F.R.D. 73, 74 (E.D. Pa. 1994) (applying Fed.R.Civ.P. 62(b)),Anderson v. Philadelphia, 1987 U.S. Dist. LEXIS 8843 (E.D. Pa. 1987) (applying Fed.R.Civ.P. 62(c)), Republic Industries, Inc. v. Central Pennsylvania Teamsters Pension Fund, 537 F. Supp. 1036 (E.D. Pa. 1982) (applying Fed.R.Civ.P. 62(c)). Plaintiffs have not met this burden.
As to the issue of partial rescission, Plaintiffs correctly assert that they only intended to unilaterally rescind the insurance policy as to the Defendants in this case. The Plaintiffs' letter of September 23, 2002 sent to J. Bradford McIlvain, attorney for the four Rigas Defendants stated "by copy of this letter to counsel for Adelphia and ABIZ AEGIS hereby tenders that portion of the policy's premium allocable to coverage for your Clients. Please advise to whom that premium refund should be paid."
Although plaintiffs assert that the Court was in error by ruling that Pennsylvania law requires an actual return of the premium, and that Pennsylvania law supports unilateral rescission by a mere tender, the Court specifically said it "makes no finding as to the validity of rescission." Associated Electric Gas Services Ltd, et al. v. Rigas, 2004 U.S. Dist. LEXIS 4498, at *14 (E.D. Pa. March 17, 2004). The Court then noted that the premium had not been returned.Id. Plaintiffs are correct that the black letter statement of Pennsylvania law allows a party seeking rescission "to return or tender" the consideration received. Keenheel v. Commonwealth, 579 A.2d 1358 (Pa.Commw. 1990) (holding that "[o]ne who wishes to rescind a contract must restore or tender a return of the property or security which was the subject matter of the contract"). However, the cases cited by the Plaintiffs are not directly applicable to this case.
Most obviously, Plaintiffs present no case dealing with unilateral rescission in the insurance context. The Pennsylvania cases cited by Plaintiffs all address traditional contracts. See,e.g., Fowler v. Meadow Brook Water Co. (addressing validity of contract to construct a tunnel). This is of particular importance because insurance law holds insurers to a high standard. Lee Russ Thomas Segalia, Couch on Insurance § 32:63 (3d ed. 2003) (stating that relinquishment of consideration is essential to rescission by insurer); Couch on Insurance § 32:79 (stating that return of consideration must be a good faith attempt, and is excused only if the insured blocks the return). In addition, although the Pennsylvania cases use the words "restore or tender," a thorough reading reveals that these cases stand for the principle that unilateral rescission requires placing the other party in a position that restores the status quo, to the best of the rescinding party's ability. See Schwartz v. McCloskey, 156 Pa. 258 (1893) (finding that rescinding party in a real estate transaction should have tendered the consideration because that party cannot rescind the contract and still hold both the property and the price paid for it.) Finally, "tender" is a specific term in contract law, which "requires that the subject matter be produced" and the strict definition of tender does not include an offer of performance. E. Allan Farnsworth, Farnsworth on Contracts, § 8.10 (2d ed. 2001).
In view of the Court's conclusion about the effect of Judge Gerber's stay, the Court did not in its Memorandum of March 17, 2004, and does not now, decide whether the quoted language in the above-cited letter is a "tender". For these reasons, Plaintiffs' motions will be denied.
A tender may be effective by sending a check for the amount of the premium allocated to those clients, assuming arguendo such an allocation could be made, and assuming arguendo that partial rescission is feasible or legally possible. Counsel were unable to cite any applicable precedent showing whether unilateral rescission can be made as to only one or several insureds when the DO policy is issued to a corporation. There are many issues in this case as to whether the language of the September 23, 2002 letter effectuates a tender of the premium. There is no way to know how much of the premium will be returned, and there is no designation of the date by which the premium will be returned, but merely a request for advice as to whom the premium refund should be paid. The question seems superfluous, because the premium refund would be paid to the entity which had purchased the policy, which the insurance carrier would know from its own records. The letter also ignores the legal implication of the corporation now being a debtor in bankruptcy. These are some reasons why the Court is skeptical of the bona fides of the purported unilateral rescission in this case.
An appropriate order follows.
ORDER
AND NOW, this 7th day of April, 2004, it is hereby ORDERED as follows:
1. Plaintiffs Federal Insurance Company and Greenwich Insurance Company's Motion to Alter or Amend Judgment (Docket No. 38) is DENIED.
2. Plaintiff Associated Electric Gas Insurance Services, Ltd's Motion to Stay and Alter or Amend Judgment (Docket No. 39) is DENIED.