Graybar Elec. Co., Inc. v. Federal Ins. Co., 4:06 CV 1275 DDN.

• Citation: 567 F.Supp.2d 1116
• Decision Date: 09 July 2008
• Docket Number: No. 4:06 CV 1275 DDN.,4:06 CV 1275 DDN.
• Parties: GRAYBAR ELECTRIC COMPANY, INC., Plaintiff, v. FEDERAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

567 F.Supp.2d 1116

GRAYBAR ELECTRIC COMPANY, INC., Plaintiff, v. FEDERAL INSURANCE COMPANY, Defendant.

No. 4:06 CV 1275 DDN.

United States District Court, E.D. Missouri, Eastern Division.

July 9, 2008.

COPYRIGHT MATERIAL OMITTED

Timothy W. Burns, Heller Ehrman, LLP, Madison, WI, Tonya G. Newman, Neal and Gerber, LLP, Chicago, IL, John M. Reynolds, Tueth and Keeney, St. Louis, MO, for Plaintiff.

C. David Hailey, Mozley and Finlayson, Atlanta, GA, Scott C. Hecht, Christopher J. Leopold, Stinson and Morrison, Kansas City, MO, Tonya G. Newman, Neal and Gerber, LLP, Chicago, IL, for Defendant.

MEMORANDUM

DAVID D. NOCE, United States Magistrate Judge.

This matter is before the court on the motions for summary judgment of defendant Federal Insurance Company for summary judgment (Doc. 71) and of plaintiff Graybar Electric Company, Inc. (Doc. 73). The parties have, consented to the exercise of plenary authority by the undersigned United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). (Doc. 19.) A hearing was held on June 5, 2008.

I. BACKGROUND

Plaintiff Graybar Electric Company, Inc., (Graybar) brought this action against defendant Federal Insurance Company (Federal). In its complaint, Graybar alleges that Federal breached an insurance contract, Policy No. 8147-74-19, by refusing to pay the entirety of Graybar's losses from the settlement of an underlying lawsuit. (Doc. 1 at ¶ 1.) Count I seeks a declaratory judgment of coverage under the Crime Coverage section of the policy. (Doc. 1 at 8.) Count II seeks damages for breach of contract. (Doc. 1 at 9.) In its answer, Federal denies the allegations. (Doc. 12.)

On May 9, 2007, this court denied the earlier motion of Federal for summary judgment, and granted, in part, the earlier motion of Graybar for summary judgment. (Doc. 40 at 10); Graybar Elec. Co. v. Fed. Ins. Co., No. 4:06 CV 1275 DDN, 2007 WL 1365327, at *7 (E.D.Mo. May 9, 2007). In that order, the court concluded that the proximate cause standard applied to the facts of the case and that this standard would be used to determine whether the loss was a "direct loss" under the Crime Coverage section of the policy. (Doc. 40 at 9-10); Graybar Elec. Co., 2007 WL 1365327, at *6-7.

II. UNDISPUTED FACTS

A complete review of the record, including the joint stipulation of facts filed by the parties, reveals the following undisputed facts.¹

Federal Insurance Company issued to Graybar Electric Company, a New York Corporation with its principal place of business in Missouri, an Executive Protection Policy, Policy No. 8147-74-19, effective October 1, 1997, through October 1, 1999, extended by endorsement until October 1, 2003.

Office Innovations is a distributor of office supplies and similar products, and it does some of its business on the Internet. Graybar is a wholesale distributor of electrical and telecommunication products. In May 1999, John Gadd, a representative of Office Innovations, visited the Norcross, Georgia office of Graybar unannounced, and asked to speak with someone about selling Graybar's telephone equipment. He was introduced to Tim Horner, an employee of Graybar. Horner expressed interest, and, after giving Gadd some catalogs, told Gadd that he would have Tim Daniels contact Office Innovations. (Doc. 26 at 1-2.)

Thereafter, Tim Daniels contacted Office Innovations, and, after a meeting at Office Innovations' office, Daniels made Office Innovations a Graybar customer. Office Innovations executed a "National Account Agreement" and a credit application. Office Innovations was approved as a national account for Graybar, and was given a Graybar account number. Office Innovations sold Graybar's products on its Internet site and had the products shipped directly to Office Innovations' customers. (Doc. 26 at 2.)

In August 1999, Tim Daniels of Graybar and John and Kathy Gadd of Office Innovations began to discuss the possibility of Graybar selling Office Innovations' products to Graybar customers through a joint mailing catalog. Thereafter, Tim Daniels met with Duane Thompson of United Stationers, Office Innovations' largest supplier, to determine if United Stationers could ship directly to Graybar customers under the Graybar name. (Doc. 26 at 2-3.)

On September 17, 1999, the Gadds, Tim Daniels, Kathy Mazzarella of Graybar, and a technical expert from Graybar met at United Stationers' office in St. Louis, Missouri. The idea of Graybar selling Office Innovations' products on the Internet was discussed. (Doc. 26 at 3.)

In January 2000, Daniels issued to Office Innovations a letter of intent to formally enter into the venture with Office Innovations. (Doc. 26 at 3, Ex. A.)

On January 5, 2000, Office Innovations signed an engagement letter with GMA Partners, a venture capital firm. GMA was to provide Office Innovations with advice and capital raising services for the contract with Graybar. GMA required a signed Graybar contract before it could proceed in its engagement. (Doc. 26 at 3.)

A Business Partner Agreement was prepared by Office Innovations, and a draft was forwarded to Tim Daniels. Daniels told Office Innovations that the contract would have to be approved by Graybar's legal department. Daniels sent the proposed contract to Alice Lenhoff in the Graybar legal department for review. (Doc. 26 at 4.)

On March 23, 2000, Daniels visited the office of Office Innovations and brought multiple original copies of the Business Partner Agreement with him. The agreement bore what appeared to be the signature of Richard Offenbacher, the District Vice President of Graybar, but the name "Offenbacher" was misspelled as "Offendacher." Tim Daniels and Kathy Gadd both signed the agreement in front of one another at this meeting. (Doc. 26 at 4, Ex. B.)

Richard Offenbacher later claimed he never signed the document, and that the signature was a forgery. (Doc. 26 at 4-5.) Federal has stipulated that Tim Daniels forged Richard Offenbacher's signature on the Business Partner Agreement. (Doc. 70 at ¶ 20.)

In September 2000, Fred Florjancic became Chief Executive Officer of Office Innovations. Office Innovations began upgrading its infrastructure and workforce, began printing catalogs, and continued its campaign to raise capital for the Graybar partnership. GMA gathered several private investors for Office Innovations, and formed GMA Partners-Oil, LLC to receive the private placement funding. On September 29, 2000, Office Innovations sent a package of product catalogs and a rollout presentation to Graybar's newly promoted CEO, Robert Reynolds. (Doc. 26 at 5-6.)

On October 31, 2000, Dennis DeSousa, Senior Vice President of Graybar, under the instruction of Reynolds, phoned Florjancic and told him he was unaware of any agreement between Graybar and Office Innovations. Florjancic then faxed a copy of the Business Partner Agreement to DeSousa. DeSousa faxed a copy to Offenbacher requesting an explanation. Offenbacher denied signing the document. Graybar denied it entered into, and refused to perform under, the Business Partner Agreement.² (Doc. 26 at 6.)

Office Innovations filed suit against Graybar and Daniels in 2001, in Fulton County, Georgia, Civil Action No. 2001 CV 46978. Office Innovations asserted claims for 1) breach of contract; 2) fraud; 3) negligent misrepresentation; 4) promissory estoppel; 5) punitive damages; 6) expenses of litigation; 7) joint adventure; and 8) corporate negligence. GMA Partners-Oil, LLC also filed suit against Graybar and Daniels in 2002, in Fulton County, Georgia, Civil Action No. 2002 CV 57785. GMA Partners asserted claims for 1) fraud in the inducement; 2) negligent misrepresentation; 3) expenses of litigation; and 4) punitive damages. (Doc. 26 at 6-7.)

Both of the underlying litigations settled, with Graybar agreeing to pay Office Innovations $1,775,000, and GMA Partners $400,000. Graybar submitted separate claims related to the underlying litigation under its Crime Coverage and its Directors & Officers Liability (D & O) Coverage issued by Federal. Graybar claimed $400,000 for the GMA Partners settlement, plus $19,376.47 in defense costs, and $1,775,000 for the settlement with Office Innovations, plus $429,448.77 in defense costs.³ (Doc. 26 at 7.)

Federal acknowledged coverage under the D & O Coverage section for all of the GMA Partners claims, which totaled $419,376.47. Federal acknowledged coverage for some, but not all, of the Office Innovations claims under the D & O Coverage section. Federal contended that the D & O Coverage was subject to a $1,000,000 deductible and thus there was no payment. (Doc. 26 at 7.) Another coverage section of the policy, the Crime Coverage section, was subject to a $250,000 deductible. (Doc. 70 at 8.) On July 13, 2005, Graybar initiated arbitration on the issues relating to coverage under the D & O section. (Id. at 7.)

On July 14, 2005, Graybar filed suit against Federal Insurance in this court. (Graybar Elec. Co. v. Fed. Ins. Co., No. 4:05 CV 1097 DDN, E.D. Mo. July 14, 2005). In its complaint, Graybar alleged coverage under both the D & O Coverage section of the insurance policy (Count I), and the Crime Coverage section of the insurance policy (Count II). (Doc. 1 at ¶ 11.) In Count I, Graybar sought a declaratory judgment that it was entitled to full coverage under the D & O section, and that the deductible did not apply. (Id. at ¶ 21.) In Count II, Graybar sought a declaratory judgment that it was entitled to full coverage under the Crime section. (Id. at ¶ 25.) In particular, Graybar sought recovery of $2,380,000 under the Crime Coverage section (the total loss of $2,630,000, minus the $250,000 deductible). (Id.)

On November 15, 2005, the parties filed a joint stipulation of dismissal without prejudice. (Doc. 22.) This was done in order to arbitrate the issues related to coverage under the D & O section. (Doc. 26 at 8.)

Along with the dismissal, the parties entered a dismissal and tolling agreement. (Doc. 70, Ex. G.) Under the...