Executive Risk Indem. Inc. v. Sprint Corp.
| Decision Date | 09 September 2003 |
| Docket Number | No. 02-1449-WEB.,02-1449-WEB. |
| Citation | 282 F.Supp.2d 1196 |
| Parties | EXECUTIVE RISK INDEMNITY INC., Plaintiff, v. SPRINT CORPORATION, and William T. Esrey, et al., Defendants. SPRINT CORPORATION, Counter Claimant, v. Executive Risk Indemnity Inc., and Continental Casualty Company, and Rli Insurance Company, Counter Defendants. |
| Court | U.S. District Court — District of Kansas |
Nathan Daniel Leadstrom, Wayne T. Stratton, Goodell, Stratton, Edmonds & Palmer, Topeka, KS, for Plaintiff.
Kasey A. Rogg, Kevin M. Bright, Husch & Eppenberger, LLC-Wichita, Wichita, KS, for Defendant/Counter Claimant.
John J. Rasmussen, Kevin T. Streit, William C. Morison-Knox, Morison-Knox Holden Melendez & Prough LLP, Walnut Creek, CA, Arthur S. Chalmers, Hite, Fanning & Honeyman L.L.P., Wichita, KS, Nathan Daniel Leadstrom, Goodell, Stratton, Edmonds & Palmer, Topeka, KS, for Counter Defendant.
The Court now considers the motion of certain individual defendants to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and (6). (Doc. 46).
Plaintiff Executive Risk Indemnity Inc. (Executive Risk) brought this declaratory judgment action to determine whether its obligations to Defendant Sprint Corporation (Sprint) and to Defendants William T. Esrey, et al.1 are governed by liability insurance policies in force until July 1, 2000, or a policy in force after July 1, 2000.
Executive Risk attached hundreds of pages to its complaint as exhibits, including copies of the three policies in question.2 Two of the polices, captioned "Directors and Officers Liability Insurance Policy Including Company Reimbursement," oblige Executive Risk to pay claims on behalf of Defendants William T. Esrey, et al. "except for Loss which [Sprint] pays to or on behalf of the Insured Persons as indemnification." Amended Complaint, exhibit A. "Insured Persons" are defined as "any past, present or future director or officer of [Sprint]," which includes the Individual Defendants. Id. Claims "made ... against the Insured Persons ... which [Sprint] pays to or on behalf of the Insured Persons as indemnification" are paid by Executive Risk to Sprint. Id.
The policies also contain a "deemer clause" which states, "[t]he certificate of incorporation, charter, articles of association or other organizational documents of [Sprint] ... including by-laws and resolutions, will be deemed to have been adopted or amended to provide indemnification to the Insured Persons to the fullest extent permitted by law." Id., Form C21120, IV(D)(1). A retention applies if indemnification is legally permissible, "whether or not actual indemnification is made ...," unless indemnification was not made solely because of Sprint's financial insolvency. Id., Form C21120, IV(D)(2).3 If indemnification is not legally permissible, or if it is not made solely because of Sprint's financial insolvency, the retention is $0.00.
Where a claim is made against both the Insured Persons and Sprint, they, along with Executive Risk,
agree to use their best efforts to determine a fair and proper allocation, as between [Sprint] and the Insured Persons, of all amounts, including Defense Expenses, that the Insured Persons and/or [Sprint] become obligated to pay in connection with such Claim. In making such determination, the parties shall take into account the relative legal and financial exposures of, and relative benefits obtained in connection with the defense and/or settlement of the Claim by, the Insured Persons and [Sprint]. In the event that an allocation cannot be agreed to, then [Executive Risk] shall be obligated to make an interim payment of the amount of Loss, including Defense Expenses, which parties agree is not in dispute ... until a final amount is agreed upon or determined pursuant to the provisions of this Policy and applicable law.
Id., Endorsement No. 5, D22083; Endorsement No. 16, D24788. Claims include "any civil proceeding in a court of law or equity ...." Amended Complaint, exhibit A.
Executive Risk also attached copies of complaints in numerous lawsuits growing out of the proposed merger between Sprint and World Com, Inc. (World Com). The lawsuits are generally grouped into suits attempting to block the proposed merger, and those which allege that Defendants William T. Esrey, et al. Improperly obtained vesting of their stock options. Executive Risk and the Individual Defendants agree that Executive Risk has paid out over $1,000,000.00 in defense expenses related to these lawsuits.
The first group of lawsuits was dismissed after Sprint and World Com abandoned the proposed merger in June 2000 upon formal opposition by regulatory authorities. Executive Risk, Sprint, and Defendants William T. Esrey, et al. then entered into an "Interim Funding Agreement" (Agreement) on or about August 1, 2001, to deal with defense costs. The Agreement also set out the conditions under which Executive Risk would advance funds to cover the defense of the second group of lawsuits.
On or about April 7, 2003, Sprint and Defendants William T. Esrey, et al. executed a "Memorandum of Understanding" as a tentative settlement of the second group of lawsuits.4 The terms of the tentative settlement provide a release to Sprint and Defendants William T. Esrey, et al. in exchange for $50,000,000.00 and other consideration. The $50,000,000.00 is to be paid by the "Settling Securities Defendants," who are identified as Sprint and Defendants William T. Esrey, et al. See Memorandum of Understanding, at 6.
On or about April 30, 2003, Executive Risk, Sprint, and Defendants William T. Esrey, et al. agreed to an "Amendment to Interim Funding Agreement" (Amendment). The Amendment begins with a number of "Whereas" clauses, the tenth of which states,
WHEREAS, Sprint has agreed to indemnify and is indemnifying [Defendants William T. Esrey, et al.] (a) for all legal fees and expenses incurred by them in the [litigation] for which [Executive Risk] has made or will be making advances under the Agreement or this Amendment and (b) for all settlement amounts incurred by them in the [litigation].
Amended Complaint, exhibit G. After the tenth Whereas clauses, the Amendment states, "NOW, THEREFORE, in consideration of the mutual promises, covenants, agreements and other undertakings herein, and for other good and valuable consideration the Parties mutually agree, each with the other, as follows." Id. In the following text Executive Risk agreed to "contribute .... $12,500,000.00 to the settlement ... on an interim basis without prejudice to any and all rights that are or may be available to it under the Policies and applicable law." Id. Executive Risk also agreed to continue advancing defense expenses. Regarding the advances, the Agreement states:
[Executive Risk agrees] not to recover from [ Defendants William T. Esrey, et al] any amount advanced .... under the Agreement or this Amendment; provided, however, that [Executive Risk's] agreement in this regard is premised on Sprint's indemnification of [Defendants William T. Esrey, et al] for the amount at issue. To the extent it is determined that any amount should not have been advanced, [Executive Risk] will look exclusively to Sprint for reimbursement of such amount so long as Sprint has provided indemnification to [Defendants William T. Esrey, et al.] in accordance with the tenth Whereas clause of this Amendment.
Executive Risk then amended its complaint to include allegations that Sprint "was determined to settle for its own business purpose, and for an amount apparently having nothing to do with Sprint's own analysis of the substance or lack of merit in [the] claims, as previously and consistently communicated to Executive Risk." Amended Complaint For Declaratory Judgment, at ¶ 84. In addition to its previous prayer for declaratory judgment on policy coverage, Executive Risk seeks a "judicial determination that the settlement amount ... was not reasonable for purposes of coverage under the Policies and limiting Executive Risk's liability accordingly ...." Id., at 24.
The Individual Defendants, claiming that they have no case or controversy with Executive Risk, move to dismiss.
The existence of subject matter jurisdiction is a threshold issue. See Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210, 227 (1998); Laughlin v. Kmart Corp., 50 F.3d 871, 874 (10th Cir.1995).
Generally, Rule 12(b)(1) motions to dismiss for lack of subject matter jurisdiction take two forms. First, a facial attack on the complaint's allegations as to subject matter jurisdiction questions the sufficiency of the complaint. In reviewing a facial attack on the complaint, a district court must accept the allegations in the complaint as true.
Second, a party may go beyond allegations contained in the complaint and challenge the facts upon which subject matter jurisdiction depends. When reviewing a factual attack on subject matter jurisdiction, a district court may not presume the truthfulness of the complaint's factual allegations. A court has wide discretion to allow affidavits, other documents, and a limited evidentiary hearing to resolve disputed jurisdictional facts under Rule 12(b)(1). In such instances, a court's references to evidence outside the pleadings does not convert the motion to a Rule 56 motion.
However, a court is required to convert a Rule 12(b)(1) motion to dismiss into a Rule 12(b)(6) motion or a Rule 56 summary judgment motion when resolution of the jurisdictional question is intertwined with the merits of the case. The jurisdictional question is intertwined with the merits of the case if subject matter jurisdiction is dependent on the same statute which provides the substantive claim in the case.
Holt v. United States, 46 F.3d 1000, 1002-03 (10th Cir.1995) (citations omitted). In the case of a facial attack,...
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