182 F.3d 201 (3rd Cir. 1999), 98-1153, United States Fire Ins. Co. v. Asbestospray Inc.

Docket Nº:STICH, ANGELL, KRIEDLER, BROWNSON & BALLOU, P.A., APPELLANT IN NO. 98-1153
Citation:182 F.3d 201
Party Name:UNITED STATES FIRE INSURANCE COMPANY AND THE NORTH RIVER INSURANCE COMPANY, APPELLANTS IN NO. 98-1854, v. ASBESTOSPRAY, INC.; SPRAYCRAFT, INC.; ASBESTOS PRODUCTS MANUFACTURING CORPORATION; H&A CONSTRUCTION CO., INC.; GROVER C. ADAMS; JOSEPH H. ALBERT; GEORGE AMENT; HARVEY J. BEECOFT; HERBERT OBERRY BEST; EUGENE BOROFSKY; MAYOR AND CITY COUNCIL OF B
Case Date:June 29, 1999
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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182 F.3d 201 (3rd Cir. 1999)

UNITED STATES FIRE INSURANCE COMPANY AND THE NORTH RIVER INSURANCE COMPANY, APPELLANTS IN NO. 98-1854,

v.

ASBESTOSPRAY, INC.; SPRAYCRAFT, INC.; ASBESTOS PRODUCTS MANUFACTURING CORPORATION; H&A CONSTRUCTION CO., INC.; GROVER C. ADAMS; JOSEPH H. ALBERT; GEORGE AMENT; HARVEY J. BEECOFT; HERBERT OBERRY BEST; EUGENE BOROFSKY; MAYOR AND CITY COUNCIL OF BALTIMORE; AMCHEM PRODUCTS, INC.; AMERICAN HOME PRODUCTS CORPORATION; ANCHOR PACKING CO.; A.P. GREEN INDUSTRIES, INC.; ARMSTRONG WORLD INDUSTRIES; CONTAINTEED CORP.; DANA CORPORATION; FIBREBOARD CORPORATION; KEENE CORP.; NATIONAL GYPSUM COMPANY; STICH, ANGELL, KREIDLER, BROWNSON & BALLOU, P.A.; WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER; WILENTZ, GOLDMAN & SPITZER,

v.

ENVISION CLAIMS MANAGEMENT CORPORATION; JOHN DOE 1-10, INDIVIDUALLY; JANE DOE 1-10, INDIVIDUALLY; XYZ CORP., 1-10, BODIES CORPORATE, THIRD-PARTY DEFENDANTS

STICH, ANGELL, KRIEDLER, BROWNSON & BALLOU, P.A., APPELLANT IN NO. 98-1153

THE ESTATE OF FREDERICK WHITAKER AND WEITZ AND LUXENBERG, P.C., APPELLANTS IN NO. 98-1154

Nos. 98-1153, 98-1154 and 98-1854

United States Court of Appeals, Third Circuit

June 29, 1999

Argued: April 7, 1999

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (Civ. No. 97-4020) District Judge: The Honorable Charles R. Weiner

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Dugan, Brinkmann, Maginnis And PACE Eugene J. Maginnis, Jr., (argued) 1880 John F. Kennedy Boulevard Suite 1400 Philadelphia, PA 19103 Counsel for Appellant, Stich, Angell, Kreidler, Brownson & Ballou, P.A. in No. 98-1153

Weitz & Luxenberg, P.C. John J. Preefer 180 Maiden Lane New York, NY 10038 Counsel for Appellants, Frederick W. Whitaker and Weitz & Luxenberg, P.C. in No. 98-1154

Klett Lieber Rooney & Schorling James Lewis Griffith Two Logan Square, Twelfth Floor Philadelphia, PA 19103 Wolf, Block, Schorr & Solis-cohen Llp William G. Frey (argued) VIRGINIA Lynn Hogben 12th Floor Packard Building 111 South 15th Street Philadelphia, PA 19102 Attorneys for United States Fire Insurance Company and The North River Insurance Company, Appellees in Nos. 98-1153 and 98-1154, and Appellants in No. 98-1854

Cooper & Tuerk, Llp Carl E. Tuerk, Jr. (argued) 201 North Charles Street, Suite 2300 Baltimore, MD 21201 Levy Phillips & Konigsberg, Llp Stanley J. Levy 520 Madison Avenue, 4th Floor New York, NY 10022 Attorneys for Mayor & City Council of Baltimore, Appellees Greitzer And Locks Gene Locks Martin

Greitzer Jonathan W. Miller (argued) 1500 Walnut Street, 20th Floor Philadelphia, PA 19102 Attorneys for Eugene Borofsky, Appellee

Before: Sloviter and Alito, Circuit Judges, and Alarcon, Senior Circuit Judge[*]

OPINION OF THE COURT

Alito, Circuit Judge

Before us are two consolidated appeals. In the first, Stich, Angell, Kreidler, Brownson and Ballou, P.A. ("Stich, Angell"), Frederick Whitaker ("Whitaker")

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and Weitz & Luxenberg, P.C. ("Weitz & Luxenberg") appeal the District Court's January 21, 1998 order, which declared a distribution of funds held by the Stich, Angellfirm in escrow for the United States Fire Insurance Company ("U.S. Fire") and The North River Insurance Company ("North River") (collectively, the "Insurers") to be in violation of an earlier injunction. We dismiss this appeal for lack of jurisdiction.

In the second appeal, the Insurers challenge the District Court's August 28, 1998 Order dismissing their statutory interpleader action for laches and for lack of jurisdiction. The Insurers also contest the District Court's ruling that the Insurers waived certain attorney-based privileges. We hold that the District Court possessed jurisdiction over the interpleader action, and therefore reverse the District Court's dismissal for lack of jurisdiction. With respect to the laches defense, we hold that the District Court erred in calculating the length of the Insurers' delay in filing the interpleader action and that the Court improperly failed to provide the Insurers with an opportunity to present evidence regarding the reasons for the delay. We therefore vacate the District Court's dismissal based on laches and remand for further proceedings. Finally, we conclude that the Insurers did not waive their attorney-based privileges and we therefore reverse the District Court's contrary ruling.

I.

A.

U.S. Fire and North River are excess insurers of Asbestospray Corporation and related entities (collectively, "Asbestospray"), all of which now are bankrupt. Asbestospray is a defendant in over 27,000 personal injury suits pending in courts throughout the country. In addition to the contingent liabilities posed by these 27,000 suits, the Mayor and City Council of Baltimore ("Baltimore") have obtained an $8.33 million judgment against Asbestospray for reimbursement of costs incurred in removing asbestos from public buildings in the City of Baltimore. Asbestospray's sole remaining asset is the proceeds of the insurance policies at issue here.

These insurance policies provided excess coverage of $5 million per year from 1971 to 1976 for a total of $25 million in coverage. Because the policies are excess policies, the coverage under them is triggered only if and when the primary layer of coverage is exhausted. The primary layer of coverage was exhausted in May 1995, at which point the Insurers became obligated to defend Asbestospray in asbestos-related lawsuits. The policies expressly provide that defense litigation costs, including counsel fees, apply against the policy limits.

Between May 1995 and June 13, 1997, the Insurers disbursed over $21 million of the $25 million of the aggregate coverage. The sum of $6.5 million was paid to settle personal injury claims, while the sum of $9.2 million was paid in legal defense costs. Settlements in principle, agreed to but not paid as of June 13, 1997, totaled $5.39 million. The Insurers deposited this $5.39 million sum in an escrow account administered by Asbestospray's national coordinating defense counsel, Robert Brownson, Esq. ("Brownson"), and his law firm, Stich, Angell. Deducting from the aggregate coverage of $25 million the sums expended for settlements in fact and in principle, as well as accumulated defense costs, $3.88 million in unexhausted coverage remained as of June 13, 1997 to satisfy both the pending personal injury claims and Baltimore's judgment against Asbestospray.

B.

In 1984, Baltimore filed suit in Maryland state court against Asbestospray (and more than 40 other asbestos manufacturers), seeking to recover costs incurred in removing asbestos from City-owned buildings. In 1992, a jury returned a verdict in Baltimore's favor, and ultimately the Maryland Court entered judgment against

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Asbestospray for $8.33 million in compensatory damages. This award was upheld on direct appeal, and in 1993, Baltimore served writs of garnishment against the Insurers seeking recovery against the policies at issue here. The writs directed the Insurers as garnishees to "hold the property of .. . [Asbestospray] subject to further proceedings in this Court." The Insurers answered the writs and, among other things, denied coverage for asbestos remediation claims of the type upon which Baltimore's judgment was based.

In 1994, the Insurers moved the Maryland Court for summary judgment on the ground that the policies do not provide coverage for asbestos remediation claims. Instead of ruling on the coverage issue, the Maryland Court entered a default judgment against the Insurers as a sanction for alleged discovery violations. The Insurers appealed, and in August 1996, the Maryland Court of Appeals vacated the default judgment and remanded the case to the trial court. North River Ins. Co. v. Mayor & City Council of Baltimore, 343 Md. 34, 680 A.2d 480 (Md. 1996). The Maryland Court subsequently denied the Insurers' motion for summary judgment with respect to coverage.

From August 1996 to June 1997, the date this interpleader action was filed, the Maryland garnishment action was not actively litigated. In September 1998, Baltimore moved the Maryland Court to enjoin plaintiffs from paying their settlements in principle from the escrow account. Pursuant to this motion, the Maryland Court has ordered the Insurers not to pay any further proceeds from the escrow fund to any Asbestospray claimant pending resolution of Baltimore's claim in the Maryland Court.

C.

The Insurers commenced this statutory interpleader on June 13, 1997, and in accordance with 28 U.S.C. § 1335(a)(2) (1994), they filed an interpleader bond of $3.88 million, an amount which represented the proceeds of the policies that either had not been paid out or that had not been committed by way of settlements in principle. On June 13, 1997, the District Court entered an order (hereafter, the "June 13 Order") pursuant to 28 U.S.C. § 2361 (1994):

"restraining for a period of 20 days from the date hereof (or until further order of this Court) all claimants from instituting an action or further prosecuting any existing action in any state court or in any Court of the United States or in any other tribunal against the United States Fire Insurance Company and North River Insurance Company (the "Plaintiffs") seeking recovery under policies issued by Plaintiffs to [Asbestospray]."

By order dated August 1, 1997, the District Court continued the injunction indefinitely.

On July 25, 1997, Baltimore filed an answer and opposition to the interpleader on the grounds that: (1) the amount of the interpleader bond was insufficient to confer jurisdiction; (2) the action was equitably barred by laches; (3) the action was barred by the doctrine of unclean hands; and (4) the interpleader was brought to avoid litigation of the garnishment action in the Maryland Court. The District Court scheduled a hearing for July 30, 1997, at which the District Court heard argument...

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