American Emp. Ins. Co. v. King Resources Co.

• Decision Date: 25 May 1977
• Docket Number: No. 76-1132,76-1132
• Citation: 556 F.2d 471
• Parties: AMERICAN EMPLOYERS' INSURANCE COMPANY, Plaintiff-Appellee, v. KING RESOURCES COMPANY et al., Defendants-Appellees, John M. King, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 471

556 F.2d 471

AMERICAN EMPLOYERS' INSURANCE COMPANY, Plaintiff-Appellee, v. KING RESOURCES COMPANY et al., Defendants-Appellees John M. King, Defendant-Appellant.

No. 76-1132.

United States Court of Appeals Tenth Circuit.

Submitted March 14, 1977.

Decided May 25, 1977.

John M. King filed a pro se brief.

John S. Pfeiffer and Robert J. Kapelke, Denver, Colo., for Charles A. Baer, Trustee, King Resources Co., appellee.

William A. Cotter, Jr., Boston, Mass., John F. Shafroth, Denver, Colo., Mary Morrissey Sullivan, Boston, Mass., for American Emp. Ins. Co., appellee; Parker, Coulter, Daley & White, Boston, Mass., and Shafroth & Toll, Denver, Colo., of counsel.

Winston J. Churchill, Philadelphia, Pa., George W. Hopper, Alan W. Peryam, Denver, Colo., John C. S. Kepner, Philadelphia, Pa., for The Dietrich Corporation, et al., Class Representatives, appellees; Saul, Ewing, Remick & Saul, Philadelphia, Pa., and Hopper & Kanouff, Denver, Colo., of counsel.

Donald M. Haskell, Robert F. Klimek, Daniel J. Pope, for Timothy G. Lowry; Haskell & Perrin, Chicago, Ill., of counsel.

John J. McLario, McLario & Bernoski, Menomonee Falls, Wis., for Ella G. Barge.

Katherine Tamblyn of Fedder & Morris, Denver, Colo., for William V. Coffey, appellee.

John E. Hoffman, Jr., of Shearman & Sterling, New York City, Thomas J. Kerwin of Hindry & Meyer, Denver, Colo., for Citibank, N.A., indenture trustee.

Glen H. Kanwit of Hopkins, Sutter, Mulroy, Davis & Cromartie, Chicago, Ill., for Robert E. Booker.

William B. Murray, Portland, Or., for Leonard M. Gross and Helen Gross and for Joseph N. Morell and Angela Morell, appellees.

Robert L. Shanstrom, Thomas S. Nichols of Davis, Graham & Stubbs, Denver, Colo., for United Bank of Denver, indenture trustee.

Before SETH, BARRETT, Circuit Judges, and KERR, Senior District Judge. ^*

BARRETT, Circuit Judge.

John M. King (King) appeals pro se from an Order entered by the District Court arising from an action commenced April 6, 1972, by American Employers' Insurance Co. (American) rescinding a policy of liability insurance issued to King Resources Company covering certain acts of commission and/or omission of the insured's directors and officers on the ground that the policy was void ab initio. This adjudication was made in conjunction with the court's approval and confirmation of a Settlement Agreement reached on December 19, 1975. A background recital of the various proceedings involving King and King Resources Company is required.

This suit is but one of the many lawsuits resulting from the demise of the far flung and elaborate business empire spawned by King. Following the collapse of the empire, King Resources and Imperial-American Resources were placed in reorganization proceedings, while King and The Colorado Corporation were placed in "straight" liquidation proceedings, all under the Bankruptcy Act. The litigation which has since ensued and the great number of concerned parties who have been involved, directly or indirectly, evidence the massive and immensely complex problems which have besieged the courts, particularly the United States District Court for the District of Colorado.

American's complaint named as defendants King Resources Company, the Trustees of King Resources Company in Chapter X bankruptcy proceedings, and several individuals, including King, who are sued in their individual capacities and as representatives of a class of all directors and officers of King related business entities defined as insureds under the policy and who may claim protective coverage thereunder. The American complaint also named as defendants a class of security holders and creditors of King Resources Company who were asserting claims and/ or who may assert future claims against directors and officers of King Resources Company creating liability under the policy.

The basic predicate for the rescission relief sought is that the officers/directors of King Resources Company knowingly misrepresented certain material facts in the June, 1968, application for insurance coverage, and that these misrepresentations were repeated when subsequent applications for increased coverage were tendered. The misrepresentations claimed were that while the applications stated otherwise, the officers/directors were well aware of certain untruths concerning self-dealings had, primarily by John King, with the Company's assets, and a number of known conflicts of interest. In American Employers Insurance Company et al. v. King Resources Co. et al., 545 F.2d 1265 (10th Cir. 1976), we observed:

The cases all arose, directly or indirectly, as a result of King's elaborate, aggressive, and broad-ranging investment activities throughout the world and the subsequent demise of same. Their interrelationship is predicated upon King's involvement within each on a personal or corporate official basis.

545 F.2d, at 1267.

We set forth a detailed factual background of King's phenomenal rise and fall in the oil business during the period commencing 1955 to 1970, and an "overview" of his personal impact on the various companies prior to their demise in King v. United States, 545 F.2d 700 (10th Cir. 1976). We there stated:

While each of the aforementioned companies had separate officers and directors, King was at all times active in their management affairs. He was particularly involved in the area of financing. The operations of the complex were elaborate, aggressive and broad-ranging throughout the world. The operation was on a streamlined, computerized program. The various corporations employed many persons. The complex was, in large measure, reflective of the aggressive, outgoing and fast-moving style and manner of King. . . .

Largely because of the tempo set by King, it was the usual for accounting and legal documentations of the corporate activities to "tag behind" the day-to-day occurrences. . . .

545 F.2d, at 702.

The case before us here was, by motion, one of nine (9) actions which King previously sought to consolidate "for purposes of settlement only" in the Federal District Court for the District of Colorado. The denial of that motion was the subject of his appeal in American Employers' Insurance Company et al. v. King Resources Co. et al., supra. We there noted that the various actions had progressed to stages of tentative agreements and settlements but none had been finalized. One of King's chief contentions on that appeal was that "the extremely complicated nature of these cases, as well as their interdependency, together with the conflicts of interest and other inherent problems regarding the approved settlements, mandate the need for a separate forum to afford all of the parties involved a fair, equitable, reasonable, and adequate determination of their rights, for purposes of settlement and enforcement of such overall settlement." 545 F.2d, at 1268. In response we stated that ". . . 'it would be nice,' if possible, for one judge to administer (i.e., order, adjudicate, and enforce) a final overall settlement disposition of all assets on a theoretically impartial, fair, and equitable basis for the debtors and creditors. However, the facts of this case and the law do not comport with the implementation of the requested consolidation settlement. The purpose of bankruptcy from the point of view of one deeply in debt is relief, while the purpose from the point of view of the creditor is that of salvaging some recovery. The public interest is sympathetic with both interests." 545 F.2d, at 1268. We did not have before us in that case a settlement agreement arrived at by all of the interested and concerned parties, independent of the court, such as the settlement which King alone challenges in the instant case.

The instant rescission action by American sought a judgment declaring its policy issued to King Resources Co. void ab initio, based upon alleged misrepresentations and/or omissions in its procurement. In the course of pre-trial sparring, the Court ordered that the cause proceed as a Rule 23 class action. Certain unnamed members of the defendant class were permitted to intervene as parties defendant, including Arthur Anderson and Co., the State of Ohio, and the plaintiff classes in the so-called "securities fraud" class actions which we refer to as the Dietrich plaintiffs. (See King Resources Co. et al. v. Baer et al., Nos. 76-1133, -1134, -1135, -1136 (10th Cir., filed April 12, 1977)). By June of 1973, various parties to the American rescission action, as well as parties to many related and complex lawsuits, i.e., the securities fraud class action suits and actions involving the Chapter X Reorganization proceedings, commenced private settlement negotiations. The untold time, expense and efforts of the great numbers of parties proved fruitful, evidenced by a settlement agreement arrived at on June 18, 1975. All of the interested, affected and concerned parties had signed this agreement as of July 10, 1975, except American, King and Arthur Anderson & Co. King had been advised by two of his attorneys not to sign the agreement. Thereafter, Arthur Anderson & Co. executed a modified settlement agreement and American tendered a settlement offer, as part of the overall agreement, subject to the Court's approval which is before us in the case at bar. At about that time, American had received notice of some thirty lawsuits involving many more claimants it would be required to defend if the policy were valid. In compromise of its potential exposure, American offered to contribute $3,375,000.00 to the settlement, conditioned on the approval and entry of the ab initio order relieving it from any and all liability under the policy.

On July 27, 1975, the Court determined that there was probable cause to believe that the modified agreement was fair, adequate and reasonable. It directed that all parties be notified of a hearing which was to commence on November 12, 1975, to determine whether a final...