Opinion
Case Nos. 3:02-cv-396-J-32TEM, 3:02-cv-617-J-32TEM.
March 8, 2004
ORDER
I. Background
These consolidated declaratory judgment insurance cases are before the Court on pending motions and briefs filed by the parties at the Court's direction following earlier rulings by the Court on then pending dispositive motions. The Court adopts in full the language and reasoning of that earlier Order, issued on June 4, 2003 (Doc. 56 in Case No. 3:02-cv-396-J-32TEM), including the recitation of background facts regarding these two declaratory judgment actions and the three underlying cases in which plaintiff Pro Net Global Association, Inc. ("Pro Net") is named as a defendant. To briefly summarize, however, in its June 4, 2003 Order the Court found that defendant Zurich American Insurance Company ("Zurich") was due to be dismissed with prejudice; defendant United States Liability Insurance Company ("USLIC") has a duty to defend Pro Net in the three underlying lawsuits; Pro Net's claim against USLIC for indemnification was not ripe; and issues of attorney's fees, costs, defense expenses, and selection of counsel had not been adequately briefed to permit decision at that time. The Court therefore directed the parties to attempt to resolve the outstanding issues and file a statement explaining whether any issues remained for decision by the Court. Shortly thereafter, USLIC filed answers, affirmative defenses, and counterclaims for rescission of the insurance policy based on alleged fraudulent representations made by Harold Gooch, a Pro Net principal, in the policy application. USLIC also filed a motion for clarification of the Court's June 4, 2003 Order which, following a hearing, the Court denied. At the hearing, the parties expressed some optimism that they might be able to resolve the outstanding issues without further Court intervention and the Court therefore extended the deadlines for filing further papers to give the parties a chance to mediate. Unfortunately, efforts at mediation largely failed, and the parties have now filed motions and responses which are all before the Court.
II. The parties' current positions
The Court having granted partial summary judgment in its favor, Pro Net would like the Court to now enter an Order requiring USLIC to pay its past and future attorneys' fees and costs related to Pro Net's defense of the three underlying suits; requiring USLIC to accede to Pro Net's selection of counsel; dismissing with prejudice USLIC's counterclaims as waived; and dismissing without prejudice Pro Net's claim related to USLIC's duty to indemnify as not ripe.USLIC urges the Court to permit it to go forward with the prosecution of its counterclaim for rescission of the policy (which counterclaim USLIC filed after the entry of the Court's earlier Order on dispositive motions); to permit it to amend its counterclaim to assert a new count for declaratory relief based on the Full Prior Acts exclusion; and to permit it to escrow any defense sums owed until the coverage issue is resolved. USLIC further disagrees with the proposed proration of defense costs suggested by Pro Net and requests that the Court order the parties to agree to terms for reporting and monitoring the underlying litigation. USLIC agrees that Pro Net, its officers and directors, may continue to be defended in the underlying suits by the counsel they have selected.
USLIC's position on these two issues was further developed in its reply memorandum (Doc. 89, Exhibit A) which the Court will permit to be filed over Pro Net's objection (Doc. 91).
Zurich, whose motion to dismiss the Court granted as part of the June 4, 2003 Order, would like the Court to enter judgment on its behalf without further delay.
III. The Court's Decision
The Court has now fully considered the parties' positions and has reviewed the applicable law and, finding that further argument would not be useful to the resolution of these matters, now makes the following rulings:
USLIC's request for oral argument (see Doc. 89, Exhibit A at 12) is therefore DENIED.
A. Pro Net's Claims for Indemnification
In its June 4, 2003 Order, the Court noted that Pro Net's claims for indemnification from USLIC would not be ripe until the underlying cases are resolved. See Doc. 56 at n. 18. See also, Northland Casualty Co. v. HBE Corp., 160 F. Supp.2d 1348, 1360 (M.D. Fla. 2001). The Court has discretion to either stay these claims or to dismiss them without prejudice. See Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995). There being no indication of when those cases will be resolved, the Court has determined that, rather than stay the matter, it will dismiss without prejudice Pro Net's claims for indemnification at this time. See Nationwide Ins. v. Zavalis, 52 F.3d 689, 693 (7th Cir. 1995) (holding district court correctly dismissed without prejudice declaratory judgment action for indemnification).
At the August 14, 2003 hearing, counsel for Pro Net advised the Court that the parties in the three underlying cases were all litigating the effect of an arbitration provision. In one of those cases, a ruling directing the parties to arbitrate had recently been appealed. See Doc. 72 at 25-26.
B. USLIC's Counterclaim
Likewise, the Court finds that its discretion is best exercised by dismissing USLIC's counterclaim for rescission. It is true that if USLIC ultimately prevails on this claim the insurance contract between the parties would potentially be void ab initio and USLIC would no longer have a duty to defend. However, as the parties well know, this matter was not presented to the Court as one requiring decision when the Court was entertaining the parties' cross-motions for summary judgment. Moreover, while the legal theories advanced by USLIC's counterclaims are different from those in the claims of the underlying suits, the evidence sought by USLIC in the prosecution of its counterclaims will likely be much of the same evidence as will be sought by the plaintiffs in their underlying suits against Pro Net. Thus, it seems quite possible, as Pro Net contends, that USLIC's prosecution of its counterclaims during the pendency of the underlying suits may compromise Pro Net's defense of those suits, a result that would not be beneficial to either Pro Net or USLIC. Additionally, the Court finds the prejudice to USLIC in having the Court decline to take up matters related to USLIC's duty to indemnify does not outweigh other considerations, such as the prejudice to Pro Net if the duty to indemnify is litigated now and the possible waste of judicial resources if, in the end, Pro Net successfully defends the underlying suits. Having already found that USLIC does owe a duty to defend, the Court finds the balance of the equities favors dismissing further claims that relate to the duty to indemnify, even those which might ultimately also affect the duty to defend. See Nationwide Ins., 52 F.3d at 693. Thus, the Court will also deny USLIC's motion for leave to amend its answer and counterclaim. Given this ruling, the Court need not decide whether USLIC has waived any of its positions or claims which relate to the duty to indemnify and the dismissal of USLIC's counterclaim will therefore be without prejudice.
As USLIC acknowledges, the Court rejected USLIC's claim that the Full Prior Acts provision relieved USLIC of its duty to defend based on a comparison of the language of the complaints, which comparison was the standard USLIC urged the Court to use in determining its duty to defend. It was only after USLIC urged the Court to decide the case on this basis and then lost that USLIC began to assert its rescission and fraud claims.
C. Issues related to defense, fees and costs
1. Selection of Attorneys
The parties agree that Pro Net and its officers and directors may continue to use the firms of McKenna, Long Aldridge, LLP for their defense of the three underlying suits, with the Bratvold Law Firm serving as local counsel in the Netco andNitro suits and Rogers Towers as local counsel in U-Can II.
2. Proration of Fees
Because there are multiple defendants in the three underlying suits who are not parties to the USLIC insurance contract with Pro Net but who are being represented by the same law firms as Pro Net, the parties have had to determine which portion of the defense costs should be borne by USLIC as Pro Net's insurer. USLIC does not dispute that its past and future defense of Pro Net itself amounts to 20% of the defense costs for the Netco suit, 11.1% of the defense costs for the Nitro suit, and 12.5% of the U-Can II suit. However, the parties disagree as to the proration of fees to be assessed against USLIC for the defense of the Pro Net officers and directors named as defendants in the underlying suits. These individuals (Messrs. Gooch, Childers, Woods, Foley and Grabill) are receiving partial coverage (50%) of their defense costs under other liability policies covering their actions as Amway distributors, but not their actions as Pro Net officers or directors.
Pro Net has proposed to USLIC that it pay half of the defense costs incurred by these individuals in the underlying suits. USLIC claims that a review of the underlying complaints reveals that less than half of the allegations are directed toward the conduct of these individuals as officers and directors of Pro Net and that USLIC should therefore pay less than half of the costs of their defense. However, the paragraphs of the complaints that USLIC references do not support their argument. In fact, most of the counts of the complaints are directed at all of the defendants without differentiation among them as individual defendants, let alone the roles those defendants were playing at the time. Having previously found that USLIC has a duty to defend Pro Net and its officers and directors, the Court held that USLIC must defend these parties in full until all potentially covered claims have been resolved or dismissed. Based on the allegations of the three underlying complaints, the Court could now find that USLIC should pay the entire cost to defend Pro Net as well as its officers and directors. See Tampa Electric Co. v. Stone Webster Eng. Corp., 367 F. Supp. 27, 32 (M.D. Fla. 1973) (declining to prorate costs of defense between defendant insurer and non-party insurer because "duty of [defendant insurer] to defend both the covered and non-covered claims gives rise to a correlative duty to pay the costs defending both such claims;" thus issue of whether policy of another insurer may also give rise to a duty to defend was beyond the scope of the suit before the court). It is only because another insurer has agreed to pay half the cost that the Court need not go so far. Here, the allegations against each of the defendants are inextricably intertwined in these complaints and the Court can see no practical method to discern in what role each defendant was engaged at the time of a particular alleged event. Pro Net's suggestion that USLIC pay only half the costs for the defense of each of the officers and directors seems more than reasonable in these circumstances.
USLIC is not claiming that its policy is an excess policy.
USLIC's references to the specific paragraphs of the complaints is found at Doc. 88, page 10. The Court reviewed both the original and amended complaints (USLIC did not specify which pleadings they were referencing) before arriving at this determination.
Thus, pursuant to its duty to defend, USLIC shall pay half the fees and costs of the defense of the officers and directors of Pro Net in each of the three underlying suits, which proration translates to 20% of the costs of the defense of the Netco suit (10% each for Messrs. Gooch and Childers), 31.25% of the costs of the defense of the Nitro suit (6.25% each for Messrs. Gooch, Childers, Woods, Foley and Grabill), and 28.6% of the costs of the defense of the U-Can II suit (7.15% each for Messrs. Gooch, Childers, Woods and Foley). Adding the sums for the defense of Pro Net to the sums for the defense of Pro Net's officers and directors, USLIC is therefore obligated to pay 40% of the past and future expense of the defense of the Netco suit, 42.35% of the past and future expense of the defense of theNitro suit, and 41.1% of the past and future expense of the defense of the U-Can II suit.
Obviously the future prorata amounts are subject to change if any defendants are dismissed or claims are resolved before the cases have fully concluded.
3. Escrow/Timing of Payment
The Court is not persuaded that USLIC should be permitted to escrow the sums due for the defense of the underlying suits and instead finds the past due sums should be tendered to Pro Net no later than close of business on April 8, 2004 and that future payments should be tendered on a reasonable schedule as agreed to by the parties.
4. Interest
While Pro Net sought both pre- and post-judgment interest in an earlier motion, entitlement to post-judgment interest would only be applicable if USLIC fails to comply with the payment deadlines set forth in this Order. USLIC did not respond to Pro Net's claim that pre- and/or post-judgment interest is due. However, because USLIC's duty to defend commenced at the outset of the three underlying suits, it is appropriate to award interest on the past due amounts for that defense. Thus, the Court finds USLIC owes Pro Net pre-judgment interest from commencement of the respective underlying lawsuits to date of payment at the Florida statutory rate for all sums found due for Pro Net's defense of the underlying suits. Although Pro Net also seeks pre-judgment interest on the attorneys' fees and costs expended by Pro Net in pursuing coverage in the suits before this Court, this Order does not address those fees and an award of interest upon any such amounts is not appropriate at this time.
5. Monitoring of Litigation
The Court directs the parties to agree to reasonable terms for reporting and monitoring the underlying litigation.
D. Zurich's motion
Because no further matters remain to be addressed by the Court at this time, Zurich's motion is due to be granted to the extent that Zurich seeks entry of final judgment but is moot to the extent that it seeks entry of a separate judgment pursuant to Fed.R.Civ.P. Rule 54(b).
IV. Conclusion
Accordingly, it is hereby
ORDERED:
1. In Case No. 3:02-cv-396-J-32TEM,
A. Zurich American Insurance Company's Motion for Entry of Judgment (Doc. 73) is GRANTED to the extent stated herein. The Court will direct the Clerk to enter a separate judgment in this case and in Case No. 3:02-cv-617-J-32TEM (the only case in which Zurich is named as a party) as further outlined below.
B. USLIC's Motion in Compliance with Court Order Dated August 14, 2003 (Doc. 80) is DENIED to the extent stated herein.
C. Pro Net's Motion to Enforce the Court's June 4, 2003 Order and to Compel USLIC to Pay the Defense Costs, Attorneys' Fees and Pre and Post Judgment Interest It Owes (Doc. 81) is GRANTED to the extent stated herein and is otherwise DENIED.
D. USLIC's Motion for Leave to File Amended Answer and Counterclaim to Add a Count for Declaratory Judgment (Doc. 85) is DENIED.
E. USLIC's Unopposed [sic] Motion for Leave to File Reply (Doc. 89) is GRANTED. The Clerk is directed to file the reply brief currently attached to the motion (Doc. 89) as "Exhibit A."
F. USLIC's Motion to Amend by Interlineation to Correct Scrivenor's [sic] Error (Doc. 90) is GRANTED. The Clerk is directed to amend by interlineation the title of USLIC's Motion for Leave to File a Reply (Doc. 89) to reflect that the motion was actually "opposed," not "unopposed."
G. USLIC is obligated to pay attorneys' fees and costs to defend Pro Net, its officers and directors, in the underlying "Netco" suit based on the proration outlined in this Order. The sums past due shall be paid to Pro Net, with pre-judgment interest, no later than April 8, 2004.
H. No later than March 31, 2004 Pro Net may file a motion for attorney's fees and costs associated with bringing these actions. Such motion must be fully documented and briefed. If such motion is filed, USLIC shall respond to the motion no later than April 23, 2004. A separate motion for fees related to Case No. 3:02-cv-617-J-32TEM is not required.
1. The Clerk shall enter judgment in this case (3:03-cv-396-J-32TEM) as follows:
Pursuant to the terms of the Court's March 8, 2004 Order (Doc. 92), and in accordance with the Court's decision on dispositive motions as contained in its June 4, 2003 Order (Doc. 56),
As to Count I and Count II of Pro Net's complaint (Doc. 1), the Court finds in favor of Pro Net Global Association, Inc. and against defendant United States Liability Insurance Company to the extent that United States Liability Insurance Company has a duty to defend Pro Net Global Association, Inc., its officers and directors, in Netco, Inc., et al. v. Pro Net Global Association, Inc., et al., Case No. OOCV72142, in the Circuit Court of Buchanan County, Missouri, filed in June 2000 and Pro Net Global Association, Inc. may be represented by counsel of its choosing;
As to Count I and Count II of United States Liability Insurance Company's counterclaim (Doc. 60) these counts are DISMISSED WITHOUT PREJUDICE.
Although Pro Net discussed recovery of its attorney's fees and costs in some of the papers now before the Court, it did not provide any briefing on the matter and its supporting evidentiary materials do not cover the entire period of time now likely to be at issue. USLIC did not address this issue beyond stating that Pro Net would not be entitled to any attorney's fees until after entry of judgment in Pro Net's favor.
2. In Case No. 3:02-cv-617-J-32TEM,
A. Pursuant to the terms of this Order, and in accordance with the Court's decision on dispositive motions as contained in its June 4, 2003 Order (entered in Case No. 3:03-cv-396-J-32TEM as Doc. 56), USLIC is obligated to pay attorneys' fees and costs to defend Pro Net, its officers and directors, in the underlying "Nitro" and "U-Can II" suits based on the proration outlined in this Order. The sums past due shall be paid to Pro Net, with pre-judgment interest, no later than April 8, 2004.
B. Any motion for attorney's fees and/or costs shall be filed in Case No. 3:02-cv-396-J-32TEM.
C. The Clerk shall file a copy of this Order in Case No. 3:02-cv-617-J-32TEM.
D. The Clerk shall enter judgment in this case (3:03-cv-617-J-32TEM) as follows:
Pursuant to the terms of the Court's March 8, 2004 Order (Doc. ___), and in accordance with the Court's decision on dispositive motions as contained in its June 4, 2003 Order (entered in Case No. 3:03-cv-396-J-32TEM as Doc. 56):
As to Count I of Pro Net's complaint (Doc. 1), Pro Net Global Association, Inc.'s claims against Zurich American Insurance Company are DISMISSED WITH PREJUDICE;
As to the Count I claim against United States Liability Company, the Court finds in favor of Pro Net Global Association, Inc. and against United States Liability Insurance Company to the extent that United States Liability Insurance Company has a duty to defend Pro Net Global Association, Inc., its officers and directors, in both Nitro Distributing, Inc., et al. v. Pro Net Global Association, Inc., et al., Circuit Court of Greene County, Missouri, Case No. 101CC4530, filed in January 2002 and U-Can II, Inc. v. Richard Setzer, et al., Case No. 02-02535, Circuit Court, Fourth Judicial Circuit, Duval County, Florida, filed in April 2002 and Pro Net Global Association, Inc. may be represented by counsel of its choosing in these suits; as to the portion of Count I directed toward United States Liability Insurance Company's duty to indemnify, this claim is DISMISSED WITHOUT PREJUDICE;
As to Count II of Pro Net's complaint (Doc. 1), Pro Net Global Association, Inc.'s claims against Zurich American Insurance Company are DISMISSED WITH PREJUDICE;
As to Count III of Pro Net's complaint (Doc. 1), the Court finds in favor of Pro Net Global Association, Inc. and against United States Liability Insurance Company to the extent that United States Liability Insurance Company has a duty to defend Pro Net Global Association, Inc., its officers and directors, in both Nitro Distributing, Inc., et al. v. Pro Net Global Association, Inc., et al., Circuit Court of Greene County, Missouri, Case No. 101CC4530, filed in January 2002 and U-Can II, Inc. v. Richard Setzer, et al., Case No. 02-02535, Circuit Court, Fourth Judicial Circuit, Duval County, Florida, filed in April 2002 and Pro Net Global Association, Inc. may be represented by counsel of its choosing in these suits; as to the portion of the Count directed toward United States Liability Insurance Company's duty to indemnify, this claim is DISMISSED WITHOUT PREJUDICE;
As to Count I and Count II of United States Liability Insurance Company's counterclaim (filed in Case No. 3:02-cv-396-J-32TEM as Doc. 58) these counts are DISMISSED WITHOUT PREJUDICE.