Combs v. International Ins. Co.

• Decision Date: 10 September 2001
• Docket Number: Civil Action No. 00-217.
• Citation: 163 F.Supp.2d 686
• Parties: Brownell COMBS, II Administrator C.T.A. of the Estate of Leslie Combs, II, Deceased, Plaintiff, v. INTERNATIONAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Kentucky

163 F.Supp.2d 686

Brownell COMBS, II Administrator C.T.A. of the Estate of Leslie Combs, II, Deceased, Plaintiff, v. INTERNATIONAL INSURANCE COMPANY, Defendant.

Civil Action No. 00-217.

United States District Court, E.D. Kentucky.

September 10, 2001.

COPYRIGHT MATERIAL OMITTED

Laurence J. Zielke, Lawrence L. Pedley, John H. Dwyer, Jr., Pedley, Zielke, Gordinier, Olt & Pence, Louisville, KY, for plaintiff.

David R. Monohan, Woodward, Hobson & Fulton, Louisville, KY, Louis G. Corsi, Landman, Corsi, Ballaine & Ford, P.C., New York City, for defendant.

OPINION AND ORDER

FORESTER, Chief Judge.

This matter is before the Court pursuant to the Defendant's motion for summary judgment. Having been fully briefed, this matter is ripe for review.

I. Factual Background

Leslie Combs, II ("Mr.Combs") founded Spendthrift Farm in 1937 and by the early 1980's the farm included over 1,800 acres and approximately forty three stallions, including the last two Triple Crown Winners. By 1981, Mr. Combs, Spendthrift's President, was over eighty years old and interested in estate planning to ensure that the farm would continue after his death. Mr. Combs and his son Brownell Combs, II ("Plaintiff" or "B. Combs") developed a plan for private placement of Spendthrift stock through which blocks of stock would be sold to certain sophisticated investors already involved in the thoroughbred industry, thus creating a pool of shareholders from which a board of directors could be elected to lead Spend-thrift into the future.

The above private placement plan led to Mr. Combs and others being sued, in their individual capacities and as agents of Spendthrift Farm, Inc. by Fred L. Fredricks. The Fredricks case was consolidated in the Northern District of California with several other cases making substantially similar claims. These cases are collectively referred to as the "California litigation." These complaints asserted a variety of state and federal securities law claims as well as state common law claims against Mr. Combs and others. The claims against Mr. Combs focused primarily on representations made in the private placement memorandum (PPM) regarding the financial condition of the farm and the value of the assets in the farm. The California litigation ultimately resulted in a $2 million court-approved settlement paid by Mr. Combs in 1989.

Mr. Combs was insured by a Director and Officer's liability policy, International Insurance Company ("International") policy number 524-029517-1. The policy provided coverage as follows:

"If during the policy period any claim or claims are made against the insureds (as hereinafter defined) or any of them for a Wrongful Act (as hereinafter defined) while acting in their individual or collective capacities as Directors or Officers, the Insurer will pay on behalf of the Insureds or any of them, their Executor, Administrator, Assigns 95% of all losses (as hereinafter defined), which the Insureds or any of them shall become legally obligated to pay...." See Complaint, Exhibit A, Policy Part I, Insuring Clause ¶ 1. (emphasis added)

It is undisputed by the parties that the events giving rise to the California litigation occurred during a period of coverage under the policy. As required by the terms of the policy, Mr. Combs tendered all of the complaints to International, via a November 14, 1986, letter. International denied coverage by a December 19, 1986, letter mailed from its authorized New York representative, on the grounds that the actions of Mr. Combs precipitating the California litigation did not fall within the policy definition of a "wrongful act." The policy defined "wrongful act" as an act or omission claimed against an insured "solely by reason of their being directors or officers of the company." See Complaint, Exhibit A, Policy Definitions 4(b) (emphasis added). International justified the denial of coverage by asserting that the wrongful conduct alleged against Mr. Combs in the California litigation did not involve acts solely in his capacity as a director or officer of Spendthrift, but rather as an individual who was selling his shares in Spendthrift for his own personal gain.

The present lawsuit was commenced in June, 2000 by the Plaintiff Brownell Combs on behalf of his late father Mr. Combs' estate. The Plaintiff asserts that International, by the December 19, 1986, letter, wrongfully denied Mr. Combs insurance coverage under the Directors and Officer's liability policy. The Plaintiff asserts claims for breach of contract, breach of good faith and fair dealing, and for bad faith. The suit seeks $2.77 million in compensatory damages, consisting of the $2,000,000 Mr. Combs paid in the 1989 court approved settlement and more than $770,000 in defense fees incurred from 1986 through approximately 1992, as well as an unspecified amount of punitive damages. International defends by again arguing that the alleged wrongful conduct of Mr. Combs resulting in his settlement of the California litigation did not involve acts solely in his capacity as a director or officer of Spendthrift.¹

II. DISCUSSION

Defendant International moves for summary judgment on the following grounds: that there is no genuine issue of material fact for trial; it is entitled to judgment as a matter of law; for an award of its costs in bringing this summary judgment motion; and for such other relief as the Court deems just and proper. The Defendant presents three separate arguments for summary judgment: (1) that Plaintiff's claims are barred by the statute of limitations; (2) that Plaintiff's complaint is barred by the doctrine of judicial estoppel; and (3) that International properly denied coverage based on the language of the policy. For the following reasons, this Court grants Defendant's motion for summary judgment, finding that the Plaintiff's claims are barred by the applicable statute of limitations, and the parties will bear their respective costs.

A. Summary Judgment Standard

Summary judgment is appropriate if the moving party establishes that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In reviewing a motion for summary judgment, "this Court must determine whether `the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Patton v. Bearden, 8 F.3d 343, 346 (6th Cir.1993) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). The evidence, all facts, and any inferences that may permissibly be drawn from the facts must be viewed in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

Once the moving party shows that there is an absence of evidence to support the nonmoving party's case, the nonmoving party must present "significant probative evidence" to demonstrate that "there is [more than] some metaphysical doubt as to the material facts." Moore v. Philip Morris Companies, Inc., 8 F.3d 335, 340 (6th Cir.1993). Conclusory allegations are not enough to allow a nonmoving party to withstand a motion for summary judgment. Id. at 343. "The mere existence of a scintilla of evidence in support of the [nonmoving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [nonmoving party]." Anderson v. Liberty Lobby, Inc., 477 U.S. at 252, 106 S.Ct. 2505. "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50, 106 S.Ct. 2505 (citations omitted). Particularly critical for purposes of this summary judgment motion, a factual dispute is material only if it might affect the outcome of the suit under the governing law. Id. at 248, 106 S.Ct. 2505.

B. Plaintiff's Breach of Contract Claim

The Defendant bases its summary judgment motion on the assertion that, pursuant to Kentucky's borrowing statute, the cause of action accrued in either New York or Illinois, in which case the suit would be barred by either a six or ten year statute of limitations. The Plaintiff argues that the cause of action accrued in Kentucky and that Kentucky's fifteen year statute of limitations applies. Plaintiff does not dispute that if the cause of action accrued in New York or Illinois that the breach of contract claim is barred. Likewise, Defendant does not dispute that if the cause of action accrued in Kentucky, the breach of contract claim is timely. Thus, the question of law of where the cause of action accrued determines the applicable statute of limitations period, and ultimately resolves the summary judgment motion.

Federal courts sitting in diversity must apply the procedural law of the forum, here Kentucky, including its statutes of limitations. See Electric Power Bd. of Chattanooga v. Monsanto Co., 879 F.2d 1368, 1375 (6th Cir.1989). Kentucky has a fifteen year statute of limitations for breach of written contract causes of action. KY.REV.STAT.ANN. ("K.R.S.") § 413.090(2) (Banks-Baldwin 2000). However, in deciding what law applies to a particular case, one must first look to the forum state's choice of law statute. See Electric Power at 1375 (citing Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)); Day & Zimmermann, Inc. v. Challoner, 423 U.S. 3, 96 S.Ct. 167, 46 L.Ed.2d 3 (1975). Kentucky has a "borrowing statute" that, when applicable, "borrows" the limitations period of another state where a cause of action accrues, when that period is shorter than Kentucky's limitations period. See K.R.S. § 413.320. The borrowing statute is triggered only when the cause of action accrued in another jurisdiction. The borrowing statute provides:

When a cause of action has arisen in...