Bird v. Centennial Ins. Co.

• Decision Date: 08 September 1993
• Docket Number: No. 93-1363,93-1363
• Citation: 11 F.3d 228
• Parties: Allan S. BIRD, etc., Plaintiff, Appellant, v. CENTENNIAL INSURANCE COMPANY, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 228

11 F.3d 228

Allan S. BIRD, etc., Plaintiff, Appellant, v. CENTENNIAL INSURANCE COMPANY, Defendant, Appellee.

No. 93-1363.

United States Court of Appeals, First Circuit.

Heard Sept. 8, 1993.

Decided Dec. 1, 1993.

Robert B. Carpenter, with whom Louis J. Scerra, Jr., Donnalyn B.L. Kahn, and Goldstein & Manello, P.C., Boston, MA, were on brief, for plaintiff, appellant.

George C. Rockas, with whom Paul R. Devin and Peabody & Arnold, Boston, MA, were on brief, for defendant, appellee.

Before TORRUELLA and STAHL, Circuit Judges, and DiCLERICO, ^* U.S. District Judge.

STAHL, Circuit Judge.

In this appeal, plaintiff-appellant Allan S. Bird challenges the district court's entry of summary judgment against him and in favor of defendant-appellee Centennial Insurance Company on his claim that defendant breached two fidelity insurance policies ("the Policies"). After careful consideration of plaintiff's arguments, we affirm.

I. BACKGROUND

Plaintiff is the general partner of fifteen limited partnerships that own and operate residential multi-family housing projects throughout the United States. The projects are subsidized to varying degrees by the United States Department of Housing and Urban Development ("HUD"). To assist in the operation of the projects, the partnerships had entered into certain management agreements with Capital Site Management Company ("Capital") and/or Asset Management Corporation ("Asset"). Capital managed all of the projects until September 1987, at which time it became inactive. The agreements were then taken over by Asset, which can fairly be described as the corporate reincarnation of Capital.

John Panagako was the president and treasurer of Capital and owned 50% of the company's stock. Panagako's wife, Janice Panagako, owned the other 50%. John and Janice Panagako were also the only directors of Capital; however, Janice Panagako's duties were clerical and secretarial in nature. No formal directors' meetings were ever Each of the management agreements contained a provision requiring the managing agent, i.e., Capital or Asset, to procure fidelity insurance to protect against loss due to fraudulent or dishonest acts committed by its employees. In relevant part, the provision states:

held. Asset's structure was identical to Capital's except for the fact that John Panagako was Asset's sole shareholder. It is clear from the record that John Panagako had complete control over both of these corporations.

19. Fidelity Bond. The Agent will furnish, at his [sic] own expense, a fidality [sic] bond in the principal sum of at least an amount equal to the [project's] gross potential income for two months and is [sic] conditioned to protect the Owner and [the Secretary of HUD and the mortgagee ] against misapplication of project funds by the Agent and its employees. ¹

(Emphasis supplied). Apparently in response to this provision, Capital and Asset secured from defendant the Policies at issue in this litigation. In relevant part, the Policies provided coverage for the "[l]oss of money, securities and other property which the insured shall sustain ... through any fraudulent or dishonest act or acts committed by any of the employees acting alone or in collusion with others." (Emphasis supplied). The term "employee" was then, in relevant part, defined as follows:

[A]ny natural person (except a director or trustee of the insured, if a corporation, who is not also an officer or employee thereof in some other capacity) while in the regular service of the insured in the ordinary course of the insured's business during the Effective Period of this insuring form and whom the insured ... has the right to govern and direct in the performance of such service, but does not mean any broker, factor, commission merchant, consignee, contractor or agent or other representative of the same general character.

(Emphasis supplied). Importantly, however, despite the directives of paragraph 19 of the management agreements, (1) only Capital and Asset were named as insureds under the Policies, and (2) the terms of the Policies excluded from coverage misapplications by the managing agents, i.e., the insureds, themselves. ²

By February 1989, plaintiff had become concerned that John Panagako was making improper payments from project funds. Accordingly, plaintiff terminated the management agreements. Subsequently, plaintiff filed a state court action against John Panagako, Capital, and Asset for breach of fiduciary duty, breach of contract, conversion, misrepresentation, fraud, money had and received, breach of the covenant of good faith and fair dealing, and violation of the Massachusetts Unfair Trade Practices statute. See Bird v. Capital Site Management Co., Civil No. 89-1713-C (Mass.Super.Ct.1989). A jury verdict was returned in plaintiff's favor on all counts, and damages were ultimately assessed at nearly $1.2 million.

In July 1990, plaintiff initiated the instant action in Massachusetts Superior Court, asserting that he was entitled to collect as a third-party beneficiary under the Policies. Defendant removed the case to the district In January 1992, defendant filed a second motion for summary judgment, arguing primarily that plaintiff could not collect under the Policies because the fraudulent and dishonest acts giving rise to the claim were not committed by an "employee" of the insureds, but instead were committed by the insureds' "alter ego." ³ Plaintiff opposed the motion, arguing inter alia, that defendant should be estopped from denying coverage under the policies. He also filed a conditional motion, pursuant to Fed.R.Civ.P. 56(f), ⁴ for further discovery relevant to his newly-raised estoppel argument. In February 1993, the district court issued a memorandum and order granting defendant's second motion for summary judgment. In so doing, the court held that John Panagako was not an employee of the insureds, and that the Policies therefore did not cover his fraudulent and/or dishonest acts. See supra note 3. It also rejected plaintiff's estoppel argument, reasoning that the doctrine of "unclean hands" barred any recovery by plaintiff. Finally, the court denied plaintiff's Rule 56(f) motion. It is from these decisions that plaintiff appeals.

court and subsequently moved for summary judgment, arguing that no coverage existed because plaintiff was not an insured under the Policies. Thereafter, plaintiff obtained an assignment of all the right, title, and interest of Capital and Asset in the Policies, and moved for leave to file an amended complaint so as to jettison his third-party beneficiary theory and assert in its place an entitlement to coverage as a direct beneficiary under the Policies. The motion for leave to file the amended complaint was allowed.

II. SUMMARY JUDGMENT STANDARD

Summary judgment permits a court to " 'pierce the boilerplate of the pleadings and assay the parties' proof in order to determine whether trial is actually required.' " Santiago v. Sherwin Williams Co., 3 F.3d 546, 548 (1st Cir.1993) (quoting Wynne v. Tufts Univ. Sch. of Medicine, 976 F.2d 791, 794 (1st Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1845, 123 L.Ed.2d 470 (1993)). It must be granted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Our review of the allowance of a summary judgment motion is plenary. Levy v. FDIC, 7 F.3d 1054, 1056 (1st Cir.1993).

It is against this backdrop that we evaluate plaintiff's contentions.

III. DISCUSSION ⁵

Plaintiff essentially makes three arguments on appeal: (1) that the district court erred in concluding, as a matter of law, that the fraudulent and dishonest acts giving rise to plaintiff's claim were not committed by an employee of the insureds, but instead were committed by the insureds' alter ego; (2) that the court erred in rejecting his claim that defendant should, as a matter of law, be

estopped from denying coverage under the Policies; and (3) that the court erred in denying his alternative Rule 56(f) motion for additional discovery on the issue of estoppel. We discuss each argument in turn.

A. Was John Panagako an Employee of Capital and Allied or was he their Alter Ego?

The bulk of plaintiff's brief is directed at attacking the district court's ruling that Panagako was an alter ego, and not an employee, of the corporate insureds. The attack primarily is carried out on two fronts. First, accepting the district court's conclusion that the definition of the term "employee" is unambiguous, plaintiff argues that the court erred in concluding that John Panagako fell outside the definition's boundaries. Second, and alternatively, plaintiff argues that the definition of the term employee is ambiguous, and that this ambiguity must be resolved in his favor under Massachusetts law. E.g., Massachusetts Bay Transp. Auth. v. Allianz Ins. Co., Inc., 413 Mass. 473, 597 N.E.2d 439, 441 (1992). ⁶ We disagree with both of plaintiff's positions.

1. Plaintiff's First Argument

In addressing plaintiff's first argument, that the Policies unambiguously provide coverage for the fraudulent and/or dishonest acts committed by John Panagako, we begin with some general ground rules for interpreting insurance contracts. The construction of language in an insurance contract is a legal determination, see J.I. Corp. v. Federal Ins. Co., 920 F.2d 118, 119 (1st Cir.1990) (collecting Massachusetts cases), which we review de novo, see Falmouth Nat'l Bank v. Ticor Title Ins. Co., 920 F.2d 1058, 1061 (1st Cir.1990). Where there is no ambiguity in the language at issue, we will interpret it "according to the ordinary meaning of the words contained in its provisions." J.I. Corp., 920 F.2d at 119. The language of a contract is considered ambiguous only if its terms "are fairly...