Burger King Corp. v. Lumbermens Mut. Cas. Co.

• Decision Date: 30 June 2005
• Docket Number: No. 04-20540-CIVSEITZ.,04-20540-CIVSEITZ.
• Parties: BURGER KING CORPORATION, Plaintiff, v. LUMBERMENS MUTUAL CASUALTY COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Florida

410 F.Supp.2d 1249

BURGER KING CORPORATION, Plaintiff, v. LUMBERMENS MUTUAL CASUALTY COMPANY, Defendant.

No. 04-20540-CIVSEITZ.

United States District Court, S.D. Florida.

June 30, 2005.

Amanda Jason, Michael D. Joblove, Genovese Joblove & Battista, Miami, FL, for Plaintiff.

Kathleen Johnson Maus, Butler Pappas Weihmuller Katz Craig, Tallahassee, FL, Scott Jeffrey Frank, Butler Pappas Weihmuller et al., Miami, FL, Erin L. Majka, Kathleen A. Sweitzer, Todd S. Schenk, Tressler Soderstrom Maloney Priess, Chicago, IL, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT, DENYING PLAINTIFF'S CROSS-MOTION FOR SUMMARY JUDGMENT, AND DENYING PLAINTIFF'S MOTION TO STRIKE SPECIFIC PARAGRAPHS OF THE AFFIDAVIT OF TODD S. SCHENK

SEITZ, District Judge.

THIS MATTER is before the Court upon the cross Motions for Summary Judgment filed by Defendant Lumbermens Mutual Casualty Company's ("LMC") [DE-96] and Plaintiff Burger King Corporation ("BKC") [DE-116], and BKC's Motion to Strike Specific Paragraphs of the Affidavit of Todd S. Schenk Filed by Defendant LMC in Support of Their Motion for Summary Judgment [DE-115]. BKC commenced this action in March 2004 by filing a Complaint asserting counts for breach of contract (Count I) and declaratory relief (Count II). Specifically, BKC argues that LMC is contractually required to indemnify BKC for amounts that it paid to settle a lawsuit filed by a BKC franchisee in Michigan. LMC moves for summary judgment on the grounds that, inter alia: (1) the LMC insurance policy under which BKC's claims arise does not cover the discrimination claims in the Michigan action; (2) BKC is improperly seeking coverage for amounts that exceeded the actual settlement amount set forth in the parties' Confidential Settlement Agreement; (3) the doctrines of collateral and judicial estoppel prevent BKC from relitigating the amount paid to settle the Michigan action; and (4) BKC has forfeited any right to coverage because it failed to obtain LMC's written consent to the settlement, as required by the policy.

BKC, in turn, contends that LMC's motion must be denied, and summary judgment must be entered in BKC's favor, because (1) LMC is estopped from denying coverage based on its analysts' pre-litigation assurances that coverage existed; (2) the discrimination claims set forth in the Michigan action are covered under LMC's personal injury policy; (3) LMC did not raise the issue of BKC's failure to obtain prior written approval in its answer, and has thus waived that affirmative defense; and (4) contrary to LMC's contentions. BKC is entitled to coverage up to the $5 million policy limit. BKC also asks the Court to strike portions of the affidavit of Todd S. Schenk, one of LMC's attorneys, that LMC submitted in support of its motion for summary judgment, contending that certain paragraphs are not substantiated by the affiant's personal knowledge. Upon careful review of the parties' cross Motions, the responses and replies thereto, and the relevant portions of the record, the Court finds that LMC is entitled to summary judgment as to all issues set forth in BKC's Complaint, and BKC's motions must be denied.

I. FACTUAL BACKGROUND

A. The LMC Insurance Policy

LMC, d/b/a Kemper Insurance Company, issued to "Grand Metropolitan, Inc. c/o The Pillsbury Company" a policy of commercial general liability insurance, policy number 5AA 038 025-00, effective July 1, 1999, through July 1, 2000 ("LMC Policy"). See Aff. of Todd. S. Schenk at ¶ 6, Ex. 4. The LMC Policy was made in New York, New York, through the participation of Grand Metropolitan, Inc.'s insurance broker, J & H Marsh & McLennan, Inc. Id. at Ex. 4. Effective July 1, 1999, the Named Insured on the LMC policy was amended to "Diageo, Inc." Id. The Named Insured on the LMC Policy was also further amended, effective July 1, 2999, to include BKC. Id.

The LMC Policy only provides coverage for "those sums that the insured becomes legally obligated to pay as damages because of `personal injury' ... to which this insurance applies." Id. at Ex. 4, LMC 109. The "personal injury" coverage in the LMC Policy includes "[d]iscrimination or humiliation as long as it results in injury to the feeling or reputation of a natural person, but only if such discrimination or humiliation is not done intentionally by or at the direction of: (a) The insured; or (b) Any executive officer, director, stockholder, partner or member of the insured." Id. at Amendatory Endorsement # 13. Further, the LMC Policy provides that this definition of "personal injury" does not apply in any state where insurance for such injury is contrary to law. Id.

The LMC Policy provides for a maximum of $5,000,000 in coverage for personal injuries, subject to a deductible of $1,000,000. Id. at Amendatory Endorsement # 33. The LMC Policy further provides that the insured "will not voluntarily pay any amounts in excess of the deductible amount without prior written approval from [LMC]." Id.

B. The Hawkins Lawsuit

BKC is a Florida corporation with its principal place of business located in Miami-Dade County, Florida. See Decl. of W. Barry Blum at ¶ 2. BKC operates and franchises Burger King® restaurants throughout the United States. Id. On April 14, 2000, LaVan Hawkins, a Burger King franchise owner, and his companies sued BKC in the United States District Court for the Eastern District of Michigan, Southern Division, in Case No.2000-CV-60230 ("the Hawkins Lawsuit"). Schenk Aff. at ¶ 5, Ex. 3. The Hawkins Lawsuit included causes of action for: (1) violation of the Michigan Franchise Investment Law; (2) fraudulent misrepresentation; (3) silent fraud; (4) innocent misrepresentation; (5) promissory estoppel; (6) racial discrimination in violation of 42 U.S.C. § 1981; (7) breach of contract; (8) breach of implied duty of good faith and fair dealing; and (9) injunctive relief. Id. The Honorable Marianne O. Battani presided over the Hawkins Lawsuit. Id., Ex. 3 at 1.

With respect to the allegations of racial discrimination under § 1981, the Hawkins Lawsuit alleged that "BKC intentionally sabotaged and breached the contract entered into with Hawkins. Hawkins further learned that the destructive actions of BKC against his interests were, in part, racially motivated." Id. at ¶ 42. The Complaint in the Hawkins Lawsuit further alleged that "Hawkins was being denied opportunities that were afforded other BKC franchisees and was otherwise negatively singled-out by BKC, in part, because of his race." Id. at ¶ 43. In order to bolster his lawsuit, Hawkins and his companies also engaged in a publicity campaign against BKC, during which the Reverend Al Sharpton held televised press conferences charging BKC with discrimination and a national boycott by African Americans was threatened. Blum Decl. at ¶ 9, Exs. 2-3.

BKC filed a motion to dismiss the complaint in the Hawkins Lawsuit based, in part, on certain releases that Hawkins had executed prior to filing suit. Id. at ¶ 11. On December 14, 2000, Judge Battani granted BKC's motion and dismissed the Hawkins lawsuit in its entirety. Id. at ¶ 11, Ex. 5. Hawkins filed a Notice of Appeal with the Sixth Circuit Court of Appeals on December 27, 2000. Id. at ¶ 11, Ex. 6.

C. The Settlement of the Hawkins Lawsuit

On December 30, 2000, after the Hawkins Lawsuit had been dismissed and Hawkins had filed his Notice of Appeal, Hawkins and BKC entered into a Confidential Settlement Agreement ("the CSA"). Schenk Aff. at ¶ 11, Ex. 9. BKC states that it settled the case solely because it was concerned about the possible exposure and negative publicity arising out of Hawkins' discrimination claim. Blum Decl. at ¶ 14-15. The CSA provided that BKC would pay a total of $21,000,000 to purchase Hawkins' Burger King restaurants, as well as $2,000,000 "in full compromise and settlement" of the Hawkins Lawsuit. Schenk Aff., Ex. 9 at 3-4, 10-11. The CSA further provided that the CSA, along with the other documents being executed and delivered pursuant thereto, constituted the full and entire agreement and understanding between the parties. Id. More specifically, the CSA provided that "[the CSA], together with the Purchase Agreement, the Additional Agreement, the Escrow Agreement and the Holdback Agreement, incorporates all prior discussions and negotiations among the parties hereto and constitutes the entire agreement among the parties hereto ...." Id. The CSA clearly indicated that there were no other agreements of any kind whether oral or in writing between BKC, Hawkins and his companies, with respect to the settlement of the Hawkins' Lawsuit. Id. The CSA does not allocate the $2 million settlement amount among the various causes of action asserted in the Hawkins Lawsuit. Id.

According to BKC, the agreement that it initially reached with Hawkins (before the CSA was executed) was for a settlement amount of $30 million, which included the purchase of Hawkins' Burger King restaurants for $16.75 million, and $13.25 million for the release of Hawkins' discrimination claims against BKC. Blum Decl. at ¶ 17. BKC asserts that the $13.25 million was to be distributed as follows: $2 million paid in cash; $7 million in debt forgiveness; and a premium of $4.25 million built into the purchase price of the Hawkins restaurants. Id. BKC further states that the $13.25 million towards settlement was a reasonable settlement, as it reflected only a small percentage of the more than $1.9 billion sought in the Hawkins Lawsuit. Id. at ¶ 18.

After that initial agreement was reached, and only two days before the CSA was signed, Hawkins' attorneys called BKC and asked that the settlement funds be reallocated. Id. at ¶ 19. BKC agreed, and BKC entered into the CSA which called for BKC to pay Hawkins $2 million in cash and $21 million to purchase Hawkins' restaurants. Id. BKC contends that this "was merely a matter of convenience made after the settlement was agreed to." Id. This re-allocation of the...