Carlyle Inv. Mgmt., LLC v. ACE Am. Ins. Co., 14–CV–659.

• Decision Date: 11 February 2016
• Docket Number: No. 14–CV–659.,14–CV–659.
• Citation: 131 A.3d 886
• Parties: CARLYLE INVESTMENT MANAGEMENT, LLC, et al., Appellants, v. ACE AMERICAN INSURANCE COMPANY, et al., Appellees.
• Court: D.C. Court of Appeals

131 A.3d 886

CARLYLE INVESTMENT MANAGEMENT, LLC, et al., Appellants,

v.ACE AMERICAN INSURANCE COMPANY, et al., Appellees.

No. 14–CV–659.

District of Columbia Court of Appeals.

Argued May 12, 2015.

Decided Feb. 11, 2016.

Stephen A. Weisbrod, with whom Martin Bienstock, Andrew W. Lamb, and Sean J. Williams, Washington, DC, were on the brief, for appellants.

Louis H. Kozloff, Philadelphia, PA, with whom Lawrence H. Mirel, Washington, DC, Luke D. Lynch, Jr., and David Kuffler, New York, NY, were on the brief, for appellees.

Before THOMPSON and EASTERLY, Associate Judges, and REID, Senior Judge.

REID

, Senior Judge:

This case involves efforts by appellants, Carlyle Investment Management ("CIM"), TC Group, L.L.C. ("TCG"), and TCG Holdings, L.L.C. ("TCGH") (collectively, "appellants"), to obtain declaratory relief indicating that they are entitled to insurance coverage for defense costs incurred or to be incurred in underlying lawsuits. The trial court granted the Super. Ct. Civ. R. 12(b)(6)

motion of appellees, Ace American Insurance Company and fifteen other insurance companies, including Chartis Property Casualty Company and Chartis Specialty Insurance Company ("the insurance companies"), and dismissed appellants' complaint. The trial court concluded that, as a matter of law, all of the claims in the underlying lawsuits arise from "professional services" provided to the Carlyle Capital Corporation ("CCC"), and hence, the claims fall under the insurance policies' "Carlyle Capital Corp Exclusion" ("the professional services exclusion" or "the CCC exclusion"). For the reasons stated below, we vacate the trial court's order of dismissal and remand the case to the trial court for discovery, and for dispositive motions or trial.

FACTUAL SUMMARY

According to appellants' complaint, The Carlyle Group formed CCC as an independent company under the laws of the Island of Guernsey, Channel Islands, in 2006.¹ CCC is governed by a small Board of Directors, and is managed by CIM and its affiliates—TCG and TCGH.²

"CCC invested primarily in AAA-rated residential mortgage-backed securities issued by Fannie Mae and Freddie Mac." Initially Class A shares in CCC were issued to beneficial voting shareholders. In September 2006, CCC prepared a private placement memorandum governing the private placement of non-voting shares. In late 2006 and in part of 2007, CCC offered its Class B shares to qualified investors and raised $945 million. Among the investors in CCC were Michael Huffington, and the National Industries Holding Group ("NIG") of Kuwait. After CCC collapsed in 2008, due to "the confluence of the mortgage and liquidity crises," several legal actions were filed against The Carlyle Group, CCC, CCC Directors, CIM, TCG, TCGH, and David Rubenstein (co-founder of The Carlyle Group); plaintiffs in these actions included Mr. Huffington (2011 complaint), NIG (2009 complaint), the CCC liquidators (2012 complaint), and various shareholders (2011 complaint). As the legal actions unfolded in various courts, CIM, TCG and TCGH gave the insurers notice of the lawsuits and made claims against the insurance companies for the advancement and reimbursement of defense costs. The insurers have denied the claims.

After the formation of CCC, The Carlyle Group had arranged for expanded insurance coverage through a $15 million policy issued to TCG by American International Specialty Lines Insurance in 2006/2007, and a $10 million policy issued to TCG by the same company in 2007/2008 and 2008/2009. In 2009/2010, Chartis Specialty Insurance Company (the new name for the former insurance company) issued a $10 million private equity management and professional liability policy to TCG; this policy was known as the TCG Program. Other insurers issued excess policies to TCG, beginning with $50 million excess coverage for the year 2006/2007, $75 million in 2007/2008, $100 million in 2008/2009, and $145 million in 2009/2010. In addition, The Carlyle Group and CCC purchased another policy for CCC through Chartis Europe Limited; this policy was known as the CCC Program and covered CCC Directors and CIM only for professional liability claims.

In 2007 (and continuing through the 2009/2010 insurance coverage period), American International Specialty Lines, Chartis Specialty Insurance, and the excess insurers added Endorsement # 2, the "Carlyle Capital Corp Exclusion," to the TCG policy. This professional services exclusion specified that, "In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any Professional Services Claim arising from Professional Services provided to Carlyle Capital Corp."³

Appellants' complaint for declaratory relief and damages, filed in the Superior Court of the District of Columbia on May 7, 2013, alleged two causes of action. Count one sought a declaratory judgment concerning its policies, and, as relief, appellants requested, in part, "a judgment declaring that Carlyle has satisfied the terms and conditions of the policies," as well as:

a judgment declaring Carlyle's rights to coverage under the policies in the TCG Program for CCC-related claims, including Carlyle's rights to advancement of defense costs, Carlyle's rights to reimbursement of indemnification payments made to or on behalf of the CCC Directors and Mr. Rubenstein, and Carlyle's rights with respect to payments of judgments or settlements.

Count two alleged breach of contract and requested damages.

In response to the complaint, appellees filed a joint motion to dismiss on July 19,2013, pursuant to Super. Ct. Civ. R. 12(b)(6)

. Appellants lodged an opposition to the motion on September 20, 2013; appellees filed a reply and appellants a surreply. The parties also filed exhibits in support of the motion and opposition. In addition, on March 19, 2014, appellees moved to stay discovery pending a decision on their motion to dismiss. Appellants opposed the motion on April 17, 2014, and the parties filed additional pleadings pertaining to the motion to stay discovery. On April 29, 2014, the trial court granted the motion to stay discovery, asserting that despite the passage of time since the filing of the motion to dismiss, "it would be inefficient, and potentially unfair to [Appellees], to launch the parties into expensive discovery while the court considers whether [Appellants] have a basis to go forward with their complaint."

Subsequently, on May 15, 2014, the trial court signed an order granting appellees' motion to dismiss. In essence, the trial court concluded that key terms are so broadly defined in the insurance contract that everything alleged in the various underlying complaints (Huffington, NIG, etc.), for which appellants sought defense costs, is excluded from coverage. Specifically, the court declared that the terms "Professional Services" and "Professional Services Claim" "are specifically defined in the contract, the definitions are broad and unambiguous and, as used in the Exclusion, they operate to exclude coverage for all of the losses (and defense costs) at issue in this case." The court asserted:

Although plead in a plethora of different legal theories and multiple counts, the gravamen of all of the underlying complaints is that [appellants] enticed the investors into unsafe investments by falsely promising high returns with minimal risk, misled or failed to warn investors about increasing risk, and mismanaged the investments by failing to guard against their inherent risk, even after deteriorating market conditions should have dictated a variety of conservative strategies designed to decrease leverage and prevent the insolvency of the company and investor losses that occurred in 2008.

The court acknowledged that appellants correctly contended:

that the court is required to consider each claim in each complaint in deciding the coverage issue presented, but the ‘eight corners rule’ neither requires nor permits the court to scrutinize each count in each complaint with a dictionary in one hand and The Chicago Manual of Style in the other to see if there is an allegation that could be contorted so as to bear an interpretation that would take it out of the Exclusion[;] [t]he exclusion is not ambiguous.^{[4 ]}

The trial court rejected appellants' argument that " ‘management-liability claims'—those related to acts, errors, and omissions in corporate governance or ‘D & O’ claims—are not excluded." As the court put it:

Whatever might be true in the insurance industry generally, in [the] insurance contract [at issue], "Loss in connection with any Professional Services Claim arising from Professional Services provided to Carlyle Capital Corp." was expressly excluded from coverage[;] [t]hose terms were defined in the contract broadly enough to include virtually all of the conduct alleged against [appellants] (and those they are indemnifying) in the underlying lawsuits, whether or not such conduct would be characterized as professional services or corporate management in the industry generally or in some other insurance contract.

THE PARTIES' ARGUMENTS

Appellants contend that the trial court erred by granting appellees' motion to dismiss, pursuant to Super. Ct. Civ. R. 12(b)(6)

. They essentially argue that the trial court erred by construing the professional services exclusion "broadly" and "expansively" rather than "narrowly." They assert that the court further erred by failing to recognize that the professional services exclusion of the insurance contract is " ‘reasonably or fairly susceptible to different constructions or interpretations,’ at least one of which allows some coverage," and that the professional services exclusion "is reasonably construed not to apply to the many [u]nderlying [c]laims concerning CCC's corporate governance; conduct occurring after CCC was publicly traded; or statements allegedly made to induce investors to hold onto interests in CCC, which plainly are not ‘solicitation[s...