Hasan v. Aig Prop. Cas. Co.

• Decision Date: 27 August 2019
• Docket Number: No. 18-1309,18-1309
• Citation: 935 F.3d 1092
• Parties: Malik M. HASAN, M.D.; Seeme G. Hasan, Plaintiffs - Appellants, v. AIG PROPERTY CASUALTY COMPANY, a Pennsylvania corporation, Defendant - Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

935 F.3d 1092

Malik M. HASAN, M.D.; Seeme G. Hasan, Plaintiffs - Appellants,

v.AIG PROPERTY CASUALTY COMPANY, a Pennsylvania corporation, Defendant - Appellee.

No. 18-1309

United States Court of Appeals, Tenth Circuit.

FILED August 27, 2019

Glenn W. Merrick (Joseph Bernstein, with him on the briefs), G.W. Merrick & Associates, LLC, Centennial, Colorado, for Plaintiffs-Appellants.

Laurence M. McHeffey (Kristi L. Blumhardt, with him on the brief), McElroy, Deutsch, Mulvaney & Carpenter, Greenwood Village, Colorado, for Defendant-Appellee.

Before HARTZ, HOLMES, and CARSON, Circuit Judges.

HARTZ, Circuit Judge.

Plaintiffs Malik M. Hasan, M.D. and Seeme G. Hasan appeal from the entry of summary judgment against them and the denial of their motion for leave to amend their complaint by the United States District Court for the District of Colorado. Plaintiffs sought to recover under an insurance policy with Defendant AIG Property Casualty Co. for the alleged loss of wine bottles that were not delivered to them by a retailer whom they had paid for the wine. The retailer had declared bankruptcy and its principal had pleaded guilty to conducting a Ponzi scheme. The district court held that Plaintiffs were not entitled to recover because they had not shown any physical loss or damage to the wine they had ordered. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm the entry of summary judgment, although on a different ground. Plaintiffs’ loss was not insured because they failed to present adequate evidence that they were the owners of any wine bottles not delivered to them. We also affirm the denial of Plaintiffs’ motion for leave to amend their complaint.

I. BACKGROUND

Plaintiffs are fine-wine purchasers who, from 2000 to 2015, ordered wine from Fox Ortega Enterprises, Inc., d/b/a Premier Cru (Premier Cru), a wine merchant in Berkeley, California. They placed their orders through Premier Cru’s president John Fox. Premier Cru sold two types of wine: (1) wine physically located at its Berkeley warehouse and retail store; and (2) wine that Premier Cru did not have in its possession but that it promised to deliver to its customers at some later date (referred to as "pre-arrival wine" or "wine futures").

Premier Cru, however, was not actually ordering or delivering much of the pre-arrival wine that it promised.¹ Although Fox represented to customers that Premier Cru had already contracted with suppliers for the wine, he knew that Premier Cru had not and would not actually obtain much of what it sold. In August 2016, Fox pleaded guilty in federal court to wire fraud arising from this Ponzi scheme.

Fox described the scheme in his plea agreement. According to Fox, he accomplished the scheme in two ways. First, he contracted with suppliers and promised to pay them within 30 days for the wine he purchased while knowing that Premier Cru would not be able to make the payments on time or ever. Second, he falsified purchase orders for the wine—he would create entirely false purchase orders reflecting that he had contracted to buy wine from a supplier when he had not, or he would alter legitimate purchase orders to show a number of bottles beyond what was contracted for. Fox then entered these unordered bottles into Premier Cru’s inventory records, making them available for sale on Premier Cru’s website and through its salespersons. Fox priced the wine at a below-market value, knowing that Premier Cru would not need to pay for what had not actually been ordered. He admitted to selling $20 million worth of this phantom wine from 2010 to 2015.

Premier Cru’s shortage of funds was in large part the result of Fox’s embezzlement of funds for personal use. He tried to conceal his fraud from customers who complained about not receiving the wine they had purchased by lying "to these customers, offering various falsified excuses and promises for wine that [he] knew was not going to be delivered." Aplt. App., Vol. II at 304. And to silence persistent complainers he would refund their money or buy replacement wines for them. As the government summarized in its sentencing memorandum, "[Fox] effectively ran a Ponzi scheme through his wine business ...." Aplt. App., Vol. I at 203.

Fox admitted that as a result of this scheme, "thousands of customers purchased pre-arrival wine from Premier Cru based on [his] fraudulent misrepresentations or omissions, and ... [as of January 2016], approximately 4,500 customers had not received the pre-arrival wine for which they had paid." Aplt. App., Vol. II at 305. Fox agreed that he owed over $55 million in restitution, including $689,176.92 to Plaintiffs.

On January 18, 2016 (the Petition Date), Premier Cru filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Northern District of California. Plaintiffs claim that at that time they had purchased from Premier Cru but not yet received 2,448 bottles of wine. Dr. Hasan submitted an unsecured claim in the bankruptcy case to recover $689,176.92, the asserted cost of those bottles.

In April 2016, customers of Premier Cru filed in the bankruptcy case a putative class-action complaint against the bankruptcy trustee. Dr. Hasan initially opted out of the class action and filed an objection to the class because class counsel had allegedly informed him that only 97 bottles of wine at the Premier Cru warehouse belonged to him, whereas he believed that he had at least 303 bottles there. As Dr. Hasan acknowledged, however, some of these bottles might have been associated with more than one customer. Dr. Hasan later withdrew his objection and became a member of the settlement class.

The bankruptcy court approved a stipulation of settlement (the Stipulation) between the bankruptcy trustee and the class of plaintiffs. The Stipulation said that as of the Petition Date, some bottles of wine in the warehouse had been "Allocated" by Premier Cru, meaning that "as of that date, there was a code entry in [Premier Cru’s] computer inventory system associating a wine by variety and vintage that was in the Warehouse, with a particular purchaser or particular purchasers." Aplt. App., Vol. I at 155. The Stipulation divided the warehouse wine into six categories: (1) "New Bottles," or those received by Premier Cru within 90 days before the Petition Date; (2) "Purchased Bottles," or those in Premier Cru’s warehouse allocated to a specific customer with no competing purchasers; (3) "Oversubscribed Bottles," or bottles allocated to more than one customer; (4) "Segregated Bottles," or bottles that "although not Allocated, had been designated for shipping to a particular customer without any competing purchasers, that were pulled off the shelves and segregated for delivery or pickup as of the Petition Date"; (5) "Segregated Oversubscribed Bottles," or Oversubscribed Bottles pulled off the shelf and segregated for delivery or pickup as of the Petition Date; and (6) "Unassigned Bottles," or warehouse bottles that did not fall into any of the above categories. Aplt. App., Vol. I at 155–56. A notice filed before final approval of the Stipulation stated that an inventory of the Premier Cru warehouse had determined that Premier Cru held 78,792 bottles of wine as of the Petition Date, categorized as follows: (1) 5,919 New Bottles; (2) 45,505 Purchased Bottles; (3) 13,388 Oversubscribed Bottles; (4) 2,674 Segregated Bottles; (5) 1,125 Segregated-Oversubscribed Bottles; and (6) 10,181 Unassigned Bottles.

The Stipulation provided for the sale of these bottles with two exceptions. First, class members holding interests in a "Segregated Bottle," could redeem that bottle upon paying expenses and meeting certain other conditions. Second, any Purchased Bottles, Oversubscribed Bottles, or New Bottles allocated to a customer opting out of the class were to be excluded from the sale. Net proceeds from the sale of the nonexcluded wine bottles were to be deposited into accounts corresponding with the category of wine sold. The funds, with the exception of those from the Unassigned Bottles, were then to be split in proportions designated by the Stipulation between Premier Cru’s bankruptcy estate and the customers who had purchased that category of wine from Premier Cru. All proceeds from the sale of Unassigned Bottles were to go to the estate.

The Stipulation further provided that upon its final approval by the court all class members would surrender to the trustee their rights in the wine:

Subject to entry of the Final Approval Order, the Class, on behalf of all its members, hereby assigns to the Trustee, without representation or warranty, all claims of ownership, beneficial interest and/or other rights to any bottles of wine in the Warehouse, other than as expressly preserved or created by this Stipulation. Without limiting the foregoing, the Class, on behalf of all its members, acknowledges and agrees that Trustee may sell all such bottles (other than Opt-out Bottles) and distribute the proceeds thereof in accordance with the terms of this Stipulation.

Aplt. App., Vol. I at 164. The bankruptcy court gave its final approval to the Stipulation on July 27, 2016.

After approval of the Stipulation the bankruptcy trustee moved for an order authorizing the sale of the wine in Premier Cru’s warehouse (with the exceptions outlined in the Stipulation) to a prospective buyer. In support of the motion, the trustee filed an inventory of the 78,792 bottles of wine. The inventory listed the producer, vintage, and quantity of the bottles. It did not, however, indicate whether each bottle was allocated to any customers and, if so, whether it was allocated to more than one customer. The trustee also filed lists of the opt-out bottles and the redeemed bottles that were to be excluded from the sale. Plaintiffs say they ultimately received a mere $4,658 from the trustee.

Plaintiffs seek recovery of their losses under a Private Collections insurance policy obtained from AIG to cover their wine collection and other valuables ...