Centrix Fin. Liquidating Trust v. Nat'l Union Fire Ins. Co. of Pittsburgh (In re Centrix Fin., LLC), Civil Action No. 09-cv-01542-PAB-CBS

• Court: United States District Courts. 10th Circuit. United States District Court of Colorado
• Writing for the Court: Judge Philip A. Brimmer
• Parties: In re: CENTRIX FINANCIAL, LLC, et al., CENTRIX FINANCIAL LIQUIDATING TRUST, and JEFFREY A. WEINMAN in his capacity as Trustee for the Centrix Financial Liquidating Trust, Plaintiffs, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, and AIG DOMESTIC CLAIMS, INC., Defendants.
• Docket Number: Civil Action No. 09-cv-01542-PAB-CBS
• Decision Date: 01 June 2015

In re: CENTRIX FINANCIAL, LLC, et al.,

CENTRIX FINANCIAL LIQUIDATING TRUST, and JEFFREY A. WEINMAN
in his capacity as Trustee for the Centrix Financial Liquidating Trust, Plaintiffs,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,
and AIG DOMESTIC CLAIMS, INC., Defendants.

Civil Action No. 09-cv-01542-PAB-CBS

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

June 1, 2015

Judge Philip A. Brimmer

ORDER

This matter is before the Court on the Consolidated Motions in Limine [Docket No. 106] filed by defendants National Union Fire Insurance Company of Pittsburgh, PA ("National Union") and AIG Domestic Claims, Inc. (collectively, "defendants").¹

I. BACKGROUND²

On March 13, 2009, plaintiffs Centrix Financial Liquidating Trust and Jeffrey A. Weinman (collectively, "Centrix") filed an adversary complaint against defendants in the Bankruptcy Court for the District of Colorado, alleging that defendants breached their

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obligation under a Fidelity Bond (the "fidelity bond" or "the bond") issued by National Union to insure Centrix against fraudulent actions by Centrix officers and employees. Docket No. 1 at 41-44, ¶¶ 89-105; see generally Bankruptcy Case No. 09-01150-EEB. Centrix alleges that it suffered losses that are covered under the fidelity bond. Specifically, Centrix alleges that, from approximately 2002 to 2006, five former officers of Centrix Financial, LLC, Robert Sutton, John Schreven, Roland Anderson, Gerald Fitzgerald, and Howard Klemmer, fraudulently diverted "at least $83,000,000" from Centrix, Docket No. 1 at 22, ¶ 2, that the losses were covered by the fidelity bond, id. at 42, ¶ 93, and that defendants have refused to satisfy their obligations under the bond. Id. at 41, ¶ 87. Centrix brings claims for breach of contract, declaratory judgment, and specific performance. See generally id. As relevant to this Order, National Union asserts the following defenses: that plaintiffs' suit was filed later than the contractual limitation period of two years from the discovery of the loss, that plaintiffs claim losses not covered by the fidelity bond, and that plaintiffs fail to show that the alleged acts that caused the losses were dishonest or fraudulent. See Docket No. 95 at 10-11.

II. ANALYSIS

Evidence is relevant if "it has any tendency to make a fact more or less probable than it would be without the evidence; and . . . the fact is of consequence in determining the action." Fed. R. Evid. 401. Federal Rule of Evidence 403 permits courts to exclude relevant evidence "if its probative value is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury,

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undue delay, wasting time, or needlessly presenting cumulative evidence." Fed. R. Evid. 403.

A. Evidence Concerning Whether National Union was Prejudiced by Centrix Filing the Lawsuit After the Contractual Limitation Period

Defendants' second motion in limine seeks to exclude all evidence and argument regarding whether defendants suffered prejudice due to Centrix's purported failure to bring suit within the contractual limitations period. Docket No. 106 at 5-6. The fidelity bond states that "[l]egal proceedings for the recovery of any loss hereunder shall not be brought . . . after the expiration of 24 months from the discovery of such loss." Docket No. 106-1 at 15, § 5(d). Centrix does not specifically respond to this motion.³

The Court finds that the issue of prejudice due to Centrix's purported late filing of this action is irrelevant. A statute of limitations defense is "legal rather than equitable, so it may give defendants repose and is not premised on a showing of prejudice." Zuill v. Shanahan, 80 F.3d 1366, 1370 (9th Cir. 1996). Under Colorado law, agreements to bring suit within a shorter period than prescribed by the applicable statute of limitations are enforceable. See Grant Family Farms, Inc. v. Colo. Farm Bureau Mut. Ins. Co., 155 P.3d 537, 539 (Colo. App. 2006) ("parties to a contract may require that actions founded on the contract be commenced within a shorter period of time than that prescribed by the applicable statute of limitations"); see also Kesling v. Am. Family Mut. Ins. Co., 861 F. Supp. 2d 1274, 1281 (D. Colo. 2012) (1-year limitations period provided

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in homeowner's policy was enforceable under Colorado law); Capitol Fixture & Supply Co. v. Nat'l Fire Ins. Co., 279 P.2d 435, 437 (Colo. 1955) (one-year limitation period in an insurance policy was not unreasonable). The Court finds that, since the contractual limitations period is intended to supplant the applicable statute of limitations, no showing of prejudice is required for defendants to assert this defense. As a result, evidence on the issue of whether defendants suffered prejudice due to Centrix's purported failure to bring suit within the two-year contractual limitations period is irrelevant.

B. Centrix' Employees' Purported Ignorance of the Fidelity Bond

Defendants' third motion in limine seeks to exclude all evidence or argument that any particular Centrix employee or executive was ignorant of the existence or terms of the fidelity bond. Docket No. 106 at 7. Centrix responds that coverage under the bond is triggered "when the insured first becomes aware of facts which would cause a reasonable person to assume that a loss of a type covered by this bond has been or will be incurred." Docket No. 112 at 8 (emphasis in original). Centrix argues that this language assumes that its employees had to know about the bond in order to connect discovery of the underlying actions with discovery of a "loss of a type covered by this bond." Id.

The Court rejects Centrix's argument as contrary to Colorado law. In Colorado, an entity "in possession of [an insurance] policy . . . [is] charged with knowledge of the restrictions in the policy." Pete's Satire, Inc. v. Commercial Union Ins. Co., 698 P.2d 1388, 1391 (Colo. App. 1985). Centrix's argument, which cites to South Carolina law, is

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unpersuasive. First, Centrix offers no argument premised on Colorado law. Second, the South Carolina case that Centrix cites concerned a case where the insured's former president "through connivance and fraud, concealed the existence of th[e] bond." Farley v. Am. Sur. Co. of N.Y., 188 S.E. 776, 781 (S.C. 1936), overruled on other grounds by Crystal Ice Co. of Columbia, Inc. v. The First Colonial Corp., 257 S.E. 2d 496 (S.C. 1979). Centrix offers no evidence of active concealment of the existence of the fidelity bond here and instead argues that it should be able to introduce evidence from "multiple witnesses who were former Centrix employees" who "either did not know of the existence of the bond, did not know of the contents or coverages provided by the bond, or knew of the bond but did not believe that any of the prior lawsuits, claims, or identified events merited filing a claim under the Fidelity Bond." Docket No. 112 at 8. The Court finds that any purported ignorance of the bond or its terms on the part of former Centrix employees is irrelevant. Moreover, even if relevant, the evidence would still be inadmissible under Rule 403 since its probative value is substantially outweighed by undue prejudice to defendants-namely, the risk that the evidence may confuse the jury into believing that Centrix employees' ignorance of the bond presents a legal defense to failure to give notice.

C. Evidence of National Union's Processing of Centrix's Claim

Defendants' fifth motion in limine seeks to exclude evidence and argument concerning the manner in which National Union processed Centrix's claim. Docket No. 106 at 10-11. National Union's argument is based on a "Tolling Agreement" that the parties entered into in order to resolve a conflict of interest involving Centrix's counsel,

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who has represented National Union and its affiliates in other cases. Id. Under the tolling agreement, in relevant part, National Union agreed not to seek disqualification of Centrix's counsel in exchange for Centrix's agreement not to assert any bad faith claim against National Union. Id. at 11.

Based on the tolling agreement, National Union seeks to exclude any evidence of alleged "stalling," "delay," or "bad faith." Id. Centrix responds that defendants' file for its claim includes myriad "written admissions that support coverage for the claim and negate AIG's defenses to the claims in this case." Docket No. 112 at 11.

Centrix appears to misconstrue defendants' motion. As defendants state in their reply, they do not seek to exclude "all evidence of [National Union's] processing of the claim," only evidence that appears probative of a bad faith claim, which Centrix has disclaimed. See Docket No. 115 at 7.

It is unclear whether Centrix opposes defendants' fifth motion in limine. Regardless, the Court finds that any evidence or argument concerning delay, stalling, or bad faith processing of Centrix's claim is not relevant to any of the claims or defenses in this matter.

D. Evidence of Acts that Constitute Fraud Based on Insolvency

Defendants' sixth motion in limine seeks to prohibit Centrix from introducing evidence or argument that particular acts were fraudulent because they post-dated Centrix's insolvency and thus constitute "constructive fraud" or "fraudulent transfer" under the Bankruptcy Code. Docket No. 106 at 11-12. The Bankruptcy Code states regarding fraudulent transfers and obligations that a bankruptcy trustee

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"may avoid any transfer . . . of an interest of the debtor in property, or any obligation . . . incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily . . .

(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and

(ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or

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