Employers Ins. of Wausau v. News Corp.
| Decision Date | 27 July 2006 |
| Docket Number | No. 06 CIV. 1602(MBM).,06 CIV. 1602(MBM). |
| Citation | 439 F.Supp.2d 328 |
| Parties | EMPLOYERS INSURANCE OF WAUSAU and National Casualty Company, Plaintiffs, v. NEWS CORPORATION, Fox Entertainment Group, Inc., Twentieth Century Fox Film Corporation, Twentieth Century Fox International Television, Inc., New World Television Productions, Inc., and New World Entertainment, Ltd., Defendants. |
| Court | U.S. District Court — Southern District of New York |
David B. Smallman, Maura J. Wogan, Elizabeth H. Miller, Frankfurt Kurnit Klein & Selz, P.C., New York, NY, for plaintiffs.
Randy Paar, Andrew N. Bourne, Dickstein Shapiro Morin & Oshinsky LLP, New York, NY, for defendants.
Plaintiffs1 in this action are insurers who seek a judgment declaring that they have no obligations under a series of "Media Special Perils" policies to provide coverage to defendants2 in connection with a copyright-infringement lawsuit in the Central District of California ("the Underlying Action") and related claims. Defendants move to dismiss or stay plaintiffs' declaratory judgment action in favor of a related pending action in the Central District of California ("the California Action"). Alternatively, defendants move to transfer plaintiffs' action to the Central District of California. Because, as explained below, it appears that the action was filed so as to win a race to the courthouse door that defendants did not even know had begun, in order, inter alia, to secure the protection of New York law, defendants' motion is granted and this case is dismissed without prejudice.
Plaintiffs list five consecutive Media Special Perils policies at issue in this litigation. (Am.Compl.¶ 1) The policies provide coverage for, among other things, damages and expenses that an insured "becomes legally obligated to pay because of liability imposed by law or assumed under contract as a result of one or more claims arising out of . . . infringement of copyright." (Caron Decl.3 Ex. E)
Wausau, described by plaintiffs as "a Mutual Holding Company with its home office and principal place of business" in Wisconsin (Am.Compl.¶ 12),4 issued the first two of those policies—LSW 001210 and LSW 003741—which covered the period October 29, 1992, through February 28, 1995 (Kender Decl.5 Exs. A-B.). Named insureds under LSW 003741 included SCI Television, Inc., Andrews Group, Inc. ("Andrews"), and all of their subsidiaries, divisions, and affiliated companies "in a line of corporate progression now existing or hereafter created of acquired." (Endorsement 1 Revised to Caron Decl. Ex. B) Mafco Holdings, Inc. ("Mafco"), as well as "its predecessors and any and all of its subsidiaries, divisions, associated and/or affiliated companies," was listed as an additional named insured. (Id.)
National Casualty, a Wisconsin corporation with its principal place of business in Arizona (Am.Compl.¶ 11), issued three further policies—LS 002108, LS 004947, and LS 005451—which covered the period February 25, 1995, through July 1, 1997, although plaintiffs claim that the final policy was cancelled effective May 2, 1997. (Kender Decl. Exs. C-E; Caron Decl. ¶ 8) Named insureds under LS 002108, LS 004947, and LS 005451 included Andrews and Mafco, as well as their predecessors, successors, subsidiaries, divisions, and affiliated companies. (Endorsement 1 to Caron Decl. Ex. C; Endorsement 2 to Caron Decl. Ex. E; Endorsement 2 to Caron Decl. Ex. G)
New World TV, a California corporation, and New World Entertainment, a Delaware corporation, each with its principal place of business in California (collectively, "the New World Entities"), were listed as additional named insureds in LSW 003741. (Endorsement 7 to Caron Decl. Ex. B) Additionally, plaintiffs explain that, "at the time the policies were issued, Mafco Holdings was the ultimate parent of the New World Entities"; Mafco was the corporate parent of another company called MacAndrews, "which in turn was the corporate parent of Andrews Group, which was the parent of New World Communications Group, Inc., which then held the New World Entities as subsidiaries." (Pl. Opp'n Mem. 8) Therefore, according to the defendants, the New World Entities are entitled to coverage under the policies because the New World Entities were subsidiaries of named insureds Mafco and Andrews when the policies were issued. (Kender Decl. ¶ 8)
Under a merger agreement and stock purchase agreement effective on or about January 22, 1997, Fox Acquisition Co., Inc, merged with New World Communications Group, Inc., purchasing from NWCG (Parent) Holdings, Inc., 100 % of New World Communications Group's stock, which included all stock in its wholly-owned subsidiaries the New World Entities. Fox Entertainment, a Delaware Corporation with its principal executive offices in New York, listed the New World Entities, Fox Film, and Fox International TV as principal subsidiaries in its Form 10-K filed with the Securities and Exchange Commission for the fiscal year ending June 30, 2004. (Smallman Decl. Ex. G) Fox Film is a Delaware corporation; Fox International TV is a New York corporation. Both have their principal places of business in California and offices in New York. (Am.Compl.¶¶ 15-16) News Corp. is "understood by [p]laintiffs to be the current ultimate parent" of all other defendants. (Pl. Opp'n Mem. 8 n. 5) Plaintiffs allege that News Corp., Fox Entertainment, Fox Film, and Fox International TV are seeking recovery under the policies as corporate affiliates of the New World Entities. (Id. at 4)
In a letter dated November 12, 2003, an attorney for a composer named Aeone Watson notified counsel for Fox Film, Fox International TV, and New World TV of claims for copyright infringement arising out of the unlicensed use of Watson's musical compositions in the television program Santa Barbara. (Caron Decl. Ex. K) On July 6, 2004, a class action against Fox Film, Fox International TV, and the New World Entities was filed in the United States District Court for the Central District of California ("the Underlying Action"). (Id.) The Underlying Action, captioned East et al. v. Twentieth Century Fox Film Corporation et al., was brought on behalf of all owners of copyrighted musical compositions and sound recordings embodied in one or more episodes of Santa Barbara without the owners' permission. (Id.) On September 20, 2004, the defendants in the Underlying Action filed an answer (Caron Decl. Ex. I); and, on December 8, 2004, the Court approved a schedule for class discovery and the briefing of a class certification motion (Caron Decl. ¶ 15). On March 9, 2005, counsel for Capitol Records, Inc. d/b/a EMI Music North America, EMI Music Publishing, SONY BMG Music Entertainment, Sony/ATV Music Publishing LLC, Universal Music Group, and Warner Music Group, and all of their global affiliated record labels and music publishing companies ("the Music Companies"), informed Randall Kender, of Fox Legal Group, that conflicts prevented class counsel in the Underlying Action from representing the Music Companies. The letter alleged that they were entitled to over $75 million in damages for willful copyright infringement. (Caron Decl. Ex. K)7
On or about May 25, 2005, Suzanne Hill, claims manager for Fox Entertainment, faxed copies of three letters to Media/Professional Insurance, claims manager for Wausau and National Casualty, located in Kansas City, Kansas. (Caron Decl. Ex. J) The letters were dated May 17, 2005, and were printed on Fox Entertainment letterhead with a return address in Beverly Hills, California. (Id.) One letter informed Media/Professional about the Underlying Action; one about the Watson letter; and one about the Music Companies letter. On or about May 31, 2005, Media/Professional received those same letters by mail; attached to the letters were copies of the complaint in the Underlying Action, the Watson letter, and the Music Companies letter. (Caron Decl. Ex. K)
In late 2005, Emily Caron, claims counsel for Media/Professional, asked Randall Kender to explain further Fox Entertainment's relationship with the New World Entities. (Caron Decl. Ex. L) In a letter dated February 10, 2006, Kender sent Caron a copy of, among other things, the agreement and plan of merger pursuant to which Fox Acquisition Co. merged with New World Communications Group. (Caron Decl. Ex. M)
On February 28, 2006, Wausau and National Casualty filed a complaint in this court against Fox Entertainment, Fox Film, and Fox International TV. The New World Entities were not named as defendants. Plaintiffs alleged that they were not obligated to provide coverage in connection with the Underlying Action and related claims because defendants had breached provisions of the policies requiring prompt notice and cooperation with respect to any covered suit or claim. (Compl.¶¶ 47-59) Plaintiffs alleged also that defendants had failed to meet other conditions of the policies, including approval by the insurer before an insured could assign its rights under a policy to a third party (id. ¶¶ 60-62); that certain exclusions in the policies were applicable to the damages and expenses arising from the Underlying Action and related claims (id. ¶¶ 63-66); and that the policies were subject to rescission because of misrepresentations made during the application process (id. ¶¶ 69-73).
On March 2, 2006, plaintiffs responded to a request for a coverage determination made by defendants the previous day. (Kender Decl. Ex. H 2) Plaintiffs denied coverage, citing the same reasons enumerated in their complaint (id. at 3-7), and informed defendants of the action they filed here (id. at 8).
On March 24, 2006, Fox Film, Fox International TV, and the New World Entities filed a complaint...
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Employers Ins. Wausau v. Fox Entertainment Group
...First, on July 27, the district court in the New York action granted Defendants' motion to dismiss. See Employers Ins. of Wausau v. News Corp., 439 F.Supp.2d 328 (S.D.N.Y. 2006). The court noted that "[w]here `essentially the same lawsuit involving the same parties and the same issues' is p......