Creation Supply, Inc. v. Hahn

• Decision Date: 19 August 2020
• Docket Number: Case No. 19 C 6063
• Parties: CREATION SUPPLY, INC., Plaintiff, v. DAVID G. HAHN and DREW L. BLOCK, Defendants.
• Court: U.S. District Court — Northern District of Illinois

CREATION SUPPLY, INC., Plaintiff, v. DAVID G. HAHN and DREW L. BLOCK, Defendants.

Case No. 19 C 6063

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

August 19, 2020

Judge Rebecca R. Pallmeyer

MEMORANDUM OPINION AND ORDER

Plaintiff Creation Supply, Inc. ("CSI") is an Illinois corporation that obtained liability insurance from Selective Insurance Company of the Southeast ("Selective"). This lawsuit arises from Selective's refusal to provide coverage when Plaintiff was sued for trade dress infringement in Oregon federal court. Plaintiff alleges that Selective's agents—Defendants David G. Hahn, a former claims attorney for Selective, and Drew L. Block, outside counsel for Selective—intentionally interfered with the insurance policy. Plaintiff also asserts a claim against Defendants for civil conspiracy, and a claim against Defendant Block for aiding and abetting the intentional interference. Plaintiff filed this lawsuit on September 2, 2019, in the Circuit Court of Cook County, Illinois. (See Compl. [1-1].) Defendants Hahn and Block, who are domiciled in New Jersey and Michigan, respectively, removed the case to federal court on September 10, 2019. (See id.) Defendants now move to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6). As discussed here, Defendants' motions to dismiss are granted, but Block's request for sanctions under 28 U.S.C. § 1927 is denied.

BACKGROUND

In 2012, Plaintiff CSI was sued for trade dress infringement and related claims in the United States District Court for the District of Oregon (the "Oregon Action"). (Compl. ¶ 10.)¹ At the time, Plaintiff held an insurance policy from Selective. (Id. ¶ 9.) Invoking the policy, Plaintiff asked Selective to provide a defense for the Oregon Action, but Selective refused. (Id. ¶¶ 11-12.) As discussed below, the ensuing coverage dispute generated numerous lawsuits in state and federal courts, including the instant case.

A. The Oregon Action and the Declaratory Judgment Action

Plaintiff alleges that Defendant Hahn, then a claims attorney and employee of Selective, initially handled its request for a defense in the Oregon Action. (See id. ¶ 13.) On June 22, 2012, Hahn notified Plaintiff by letter that Selective was refusing the request and set forth Selective's reasoning. (Id.) Plaintiff alleges that on July 2, 2012, "in consultation with Hahn," Defendant Block filed a lawsuit in an Illinois state court, seeking a declaratory judgment that Selective had no duty to defend Plaintiff in the Oregon Action. (Compl. ¶ 15.)² At the time, Defendant Block was working as outside counsel for Selective.³ On July 5, 2012, Plaintiff asked Selective to reconsider its decision denying the request for coverage. (Id. ¶ 16.) According to Plaintiff, Block denied the request for reconsideration on July 10, 2012, citing "virtually the same reasons" expressed in the June 22, 2012 letter. (Id. ¶ 17.) Plaintiff alleges that the reasons were "baseless." (Id. ¶ 19.) Plaintiff further alleges that it "could not afford to continue the Oregon Action" without Selective's assistance and was "forced" in July 2013 "to settle prematurely with a less than favorable outcome": an agreement that it would no longer sell or distribute the accusedproducts. (Id. ¶¶ 20-21.) According to the Complaint, Plaintiff was not required to pay anything under the settlement. (See id. ¶ 56.)

On December 19, 2013, the Illinois state court ruled in Plaintiff's favor, concluding that Selective "owed [Plaintiff] a defense for the Oregon Action." (Id. ¶ 25.) Selective appealed that decision twice, but Plaintiff prevailed on both appeals. (See id. ¶¶ 32-33, 37, 79.) Plaintiff alleges that Selective brought the appeals "at Hahn's and Block's direction" and that Defendants "controlled and directed" the litigation. (Id. ¶¶ 32, 35.) According to Plaintiff, Hahn's and Block's involvement in the lawsuit violated Selective's own Claims Manual, which directs that "coverage litigation should not be handled by the adjuster responsible for the underlying claim." (Id. ¶ 36.) Plaintiff alleges that the provision is intended to "avoid conflicts of interest," and that "Hahn and Block ignored [it] for their personal benefit." (Id.)

B. Selective's Delays in Payment

Following the state court ruling confirming Selective's duty to defend in December 2013, Plaintiff sent invoices to Block, documenting the fees and costs it had incurred in the Oregon Action and requesting payment. (See id. ¶¶ 38-39.) Defendants allegedly ignored those communications. (See id. ¶¶ 38-40.) In March 2014, Plaintiff alleges, Defendants twice tendered a settlement offer that Plaintiff rejected as unacceptably low. (Id. ¶¶ 41-44.) Plaintiff alleges that in August 2014, Defendants announced that Selective would not pay the invoiced fees and costs for the Oregon Action while Selective's appeal from the declaratory judgment was pending. (Id. ¶ 47.) According to Plaintiff, Defendants maintained this position despite filing objections in the Illinois state court to only a portion of the invoiced amounts. (See id. ¶¶ 48-51; see also id. ¶ 49 (alleging that, accounting for Selective's objections, "$164,291.39 in fees and expenses . . . was not in dispute"); id. ¶ 53 (alleging that in contemporaneous litigation notes, Hahn stated that he "hoped to negotiate" the "approximately $163,000 . . . down further").) In December 2014, having yet to be paid, Plaintiff filed a motion in the Illinois state court for enforcement of the December 2013 judgment. (Id. ¶¶ 58-59.) The court granted the motion, directed Plaintiff to serveSelective with "a calculation of the amount due," and ordered Selective to pay within 14 days. (Id. ¶¶ 62-64.) According to Plaintiff, "[n]othing was paid . . . pursuant to [that] order." (Id. ¶ 65.)

In November 2015, Plaintiff took the deposition of David Richmond, Hahn's former supervisor at Selective. (Id. ¶ 67.) Six days after that deposition, Plaintiff alleges, Selective made its first payment on the invoices for the Oregon Action. (See id. ¶ 71.) Plaintiff alleges "on information and belief" that Selective made the payment "at the insistence of Richmond when he learned during his deposition that Hahn and Block were wrongfully withholding payments from [Plaintiff]." (Id. ¶ 73; see also id. ¶ 70 (alleging that Richmond "testified that Selective's policy is to typically pay invoices received from an insured's defense counsel as quickly as possible").) Plaintiff alleges that at some point before Selective made the payment, Block "requested a release from [Plaintiff]." (Id. ¶ 74).⁴ Plaintiff further alleges that Block requested the release because he "knew that he and Hahn were liable for their acts of wrongfully withholding payments rightfully owed to [Plaintiff]." (Id. ¶ 75.)

According to Plaintiff, Selective's initial payment was not the full amount owed. (See, e.g., id. ¶ 76.) Plaintiff alleges that Defendants "continued to intentionally withhold payment," and that Selective made the outstanding payments only after additional motion practice. (Id. ¶¶ 84-89.) Overall, Defendants allegedly took nearly two years to "pay the full amount" Selective owed for the defense of the Oregon Action. (Id. ¶ 89.)

C. The 2014 Federal Case

On November 5, 2014 Plaintiff filed a lawsuit against Selective this district. (Id. ¶ 26.)⁵ Plaintiff alleged that, by refusing to defend it in the Oregon Action, Selective violated IllinoisInsurance Code Section 155. (See CSI First Am. Compl., Case No. 14 C 8856, Dkt. No. 16 ¶ 1.)⁶ Section 155 "provides an extracontractual remedy to policyholders whose insurer's refusal to recognize liability and pay a claim under a policy is vexatious and unreasonable. . . . Pursuant to the statute, a plaintiff may . . . recover reasonable attorney fees and other costs, as well as an additional sum that constitutes a penalty." Cramer v. Ins. Exch. Agency, 174 Ill. 2d 513, 519, 675 N.E.2d 897, 900-01, 221 Ill. Dec. 473, 476-77 (1996); see 215 ILCS 5/155. Plaintiff also alleged that Selective breached the insurance contract and violated the Illinois Consumer Fraud Act. (CSI First Am. Compl. ¶ 1.) For purposes of each claim, Plaintiff alleged that Selective's "willful, vexatious and unreasonable conduct required [it] to incur unnecessary legal fees and expenses in defending itself and seeking indemnification in the Underlying Oregon Action, and in pursuing payment from Selective." (Id. ¶¶ 82, 91, 102.)

Plaintiff's case against Selective is pending before Judge Charles P. Kocoras. In August 2015, Judge Kocoras denied Selective's motion to dismiss the Section 155 and breach of contract claims but granted its motion to dismiss the Illinois Consumer Fraud Act claim. (See Order, Case No. 14 C 8856, Dkt. No. 44.) After a bench trial on the issue of liability, Judge Kocoras found in Plaintiff's favor in December 2018. (See Dec. 2018 Findings of Fact and Conclusions of Law, Ex. K to Compl. ("Dec. 2018 Selective Order") [22] at 14-15.) Judge Kocoras determined that Selective had breached the insurance policy, and that its "failure to honor the insurance policy" was, beyond a reasonable doubt, "vexatious and unreasonable" in violation of Section 155. (Id. at 14; see Compl. ¶ 28.) He also concluded that Plaintiff was entitled to damages. (See Dec. 2018 Selective Order at 15.) As discussed below, Judge Kocoras awarded damages under Section 155 on November 12, 2019, while the motions to dismiss in this case were pending. (See Opinion, Case No. 14 C 8856, Dkt. No. 320 ("Nov. 2019 Damages Award").) On July 17, 2020,Judge Kocoras directed the entry of final judgment under Federal Rule of Civil Procedure 54(b) in Plaintiff's favor on the Section 155 claim. (See Order, Case No. 14 C 8856, Dkt. No. 386.) On a date to be determined, there will be a trial "for consequential damages and fees, if any, sustained by [Plaintiff] due to Selective's breach of [the] insurance contract." (Id. at 1.)

Plaintiff's Complaint in the present...