First Sealord Surety v. Durkin & Devries Ins. Agency

• Decision Date: 17 January 2013
• Docket Number: Civil Action No. 10–832.
• Citation: 918 F.Supp.2d 362
• Parties: FIRST SEALORD SURETY v. DURKIN & DEVRIES INSURANCE AGENCY v. Heller & Smith Corporation.
• Court: U.S. District Court — Eastern District of Pennsylvania

918 F.Supp.2d 362

FIRST SEALORD SURETY

v.DURKIN & DEVRIES INSURANCE AGENCY

v.Heller & Smith Corporation.

Civil Action No. 10–832.

United States District Court,

E.D. Pennsylvania.

Jan. 17, 2013.

Brian N. Krulick, Heather Leigh Stangle, Kevin J. McKeon, Robert G. Barbour, Watt Tieder Hoffar & Fitzgerald LLP, McLean, VA, for First Sealord Surety.

Jonathan H. Katz, Christopher E. Torkelson, Gina M. Zippilli, Marshall D. Bilder, Sterns & Weinroth, Trenton, NJ, for Durkin & Devries Insurance Agency.

MEMORANDUM

O'NEILL, District Judge.

Presently before me are three fully briefed motions. For the purposes of clarity, I will list the motions and their accompanying memoranda and briefly summarize the arguments contained in each. First, there is defendant Durkin & Devries Insurance Agency's motion to dismiss plaintiff First Sealord Surety's negligent misrepresentation claim (ECF No. 40), First Sealord's response thereto (ECF No. 46), Durkin's reply to the response (ECF No. 48), First Sealord's supplemental declaration in opposition to Durkin's motion to dismiss (ECF No. 52) and Durkin's letter brief in further support of its motion to dismiss (ECF No. 54). Durkin argues that it made no misrepresentations to First Sealord, that even if it did make misrepresentations, that the misrepresentations were not the proximate cause of any of the losses in this case, and alternatively, that the negligent misrepresentation claim is barred by Pennsylvania's economic loss doctrine and the statute of limitations.

Second, there is Durkin's motion to quash a third-party subpoena (ECF No. 49) and First Sealord's reply thereto (ECF No. 50). Durkin argues that the subpoena is untimely and thus prejudicial to Durkin and moreover that the subpoena requires the disclosure of documents subject to a confidential settlement agreement in a prior litigation involving Durkin. First Sealord counters that the subpoena's timing is due to factual assertions made in filings Durkin submitted after the close of discovery and the confidentiality agreement does not bar compliance with the subpoena.

Finally, there is Durkin's motion for summary judgment as to First Sealord's breach of contract and breach of fiduciary duty claims (ECF No. 38), First Sealord's response thereto (ECF No. 44), Durkin's reply to the response (ECF No. 47), First Sealord's supplemental declaration in opposition to Durkin's motion for summary judgment (ECF No. 53), Durkin's letter brief in further support of its motion for summary judgment (ECF No. 54), First Sealord's memorandum regarding its breach of fiduciary duty claim (ECF No. 56), Durkin's letter memorandum in further support of its motion for summary judgment as to the breach of fiduciary duty claim (ECF No. 59), and First Sealord's letter memorandum in reply to Durkin's letter memorandum (ECF No. 60). In its motion for summary judgment, Durkin argues that First Sealord cannot demonstrate any material breaches of the contract between the parties and that the decisions which led to First Sealord's alleged damages were made entirely by First Sealord and were unrelated to any communications Durkin made to First Sealord. Moreover, Durkin asserts that it had no fiduciary duties beyond those imposed by the contract and that the fiduciary duty claim is thus duplicative of the breach of contract claim and must fail for that reason. First Sealord argues that Durkin was in breach of provisions of the contract which required that Durkin convey any adverse information about current or prospective clients to First Sealord, maintain accurate and complete records about clients and comply with the standard of care expected of Durkin as dictated by industry custom. First Sealord also argues that the claims are not duplicative because Durkin owed fiduciary duties to First Sealord beyond those imposed by the contract between the parties.

I held oral argument on the three pending motions on October 18, 2012.

I. Background Facts and Procedural HistoryA. The Agency Agreement

First Sealord is a Pennsylvania corporation that was engaged in the business of providing surety bonds. An Order liquidating First Sealord was entered on February 8, 2012 in the Commonwealth Court of Pennsylvania and First Sealord is no longer in operation. Durkin is a licensed insurance producer with a principal place of business in Massachusetts. On August 1, 2005, Durkin entered into an Agency Agreement with First Sealord. Under the Agreement, Durkin was to “solicit business for the surety bond products offered by [First Sealord] and to collect and give receipts for premiums or fees due.” Agency Agreement ¶ 1. Durkin further was to “act as agent according to the terms and conditions of this agreement.” Id. at ¶ 2. However, Durkin had

no authority to bind or commit [First Sealord] to any undertaking to or for the benefit of any client of [Durkin]. Durkin only ha[d] authority to issue bonds after receipt of written approval from the company [... and all bonds] must be within the specific limits of authority granted under an approved power-of-attorney ... [Durkin had] no authority to adjust claims or make any representations to third parties related to claims on bonds issued by [Durkin]. [Durkin] must report all claims and any adverse information [to First Sealord] as set forth below.

Id. at ¶ 3. Moreover, in the Agreement Durkin agreed not to “[r]elease a Bond to a client when anyone within the Agent's organization is aware of a pending or prior claim or loss to any surety, including [First Sealord], who may have previously issued a bond to such client, unless such information is provided in writing to and acknowledged by [First Sealord] in advance of delivery of the bond.” Id. at ¶ 11. In the Agency Agreement Durkin also

acknowledge[d] and agree[d] that [Durkin's] loss management and control obligations to [First Sealord] are a material obligation under this Agreement. [Durkin] agrees to promptly report any Adverse Information (as the term is hereafter defined) which comes to the attention of any person in [Durkin's] organization about any client of [Durkin]who is either applying for or who has received a bond from the [First Sealord]. Adverse Information includes any information concerning a client's character, financial condition, mental or technical competence in meeting its contractual obligations, including but not limited to: any information about a pending or past claim on or against a bond issued by any surety, including [First Sealord]; or any information which may give rise to a potential claim against a bond issued by any surety, including [First Sealord]; or a threat by an obligee on a surety bond issued on behalf of a client to place any surety, including [First Sealord], on notice of a claim; or a threat by anyone to assert a claim against a payment bond issued by any surety, including [First Sealord], on behalf of a client; or the filing of or threat of filing of a mechanic's lien against the property of an obligee on a surety bond issued by any surety, including [First Sealord], on behalf of a client. [Durkin] is only authorized to report claims and Adverse Information to [First Sealord]. [Durkin] is not authorized to adjust, settle, negotiate, or deal in any fashion with claims on bonds issued by the Agent.

Id. at ¶ 13. Further, the Agreement set forth Durkin's obligation to maintain complete and accurate records:

In addition to [Durkin's] compliance with the record keeping requirements imposed by the applicable federal and state laws and regulations, [Durkin] shall keep accurate and complete records of all client accounts who apply for or obtain a bond from the [First Sealord], and shall produce copies thereof and any other information with respect to the account, at [Durkin's] own cost, as requested by [First Sealord] from time to time.

Id. at ¶ 12. The Agency Agreement also contained a clause by which Durkin agreed to indemnify First Sealord for any losses relating to Durkin's performance under the Agreement, including but not limited to

(1) the Agent having executed or having procured the execution of any bond or bonds contrary to [Durkin's] obligations under this agreement or contrary to the standard of care expected of [Durkin] as dictated by industry custom; (2) [Durkin] failing to perform or comply with any of the covenants or conditions of this Agreement; (3) any payment, compromise, judgment, fine, penalty, or similar charge paid by [First Sealord]; or (4) [First Sealord] enforcing any of the covenants and conditions of this Agreement....

Id. at ¶ 20. It is the provision requiring behavior consistent with the standard of care as dictated by industry custom that First Sealord in part points to as the source of the independent fiduciary duty that Durkin owed First Sealord. Pl.'s Opp. Br. p. 3, 5.

First Sealord filed its original complaint on March 1, 2010. In its complaint First Sealord asserted a breach of contract claim against Durkin for failing to comply with the Agency Agreement. Specifically, First Sealord alleged that Durkin failed to convey adverse information regarding one of Durkin's clients, Heller & Smith (“H & S”), as required by the Agency Agreement. First Sealord argues that Durkin's failure to convey adverse information, including cash flow problems, was a material breach of the Agreement and caused First Sealord to issue bonds to H & S that First Sealord otherwise would not have approved. First Sealord also asserted a claim for breach of fiduciary duty against Durkin contending that Durkin did not conduct itself consistent with the standard of care owed a principal by its agent.

B. The Agency Questionnaire and the Amended Complaint

Prior to the execution of the Agency Agreement in August 2005, Durkin completed and submitted an Agency Questionnaire which provided general information about the Durkin agency, its owners and employees as well as the scope of Durkin's operations. First Sealord amended its complaint on June...