Goldberg v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA

• Decision Date: 14 May 2015
• Docket Number: CASE NO. 13–21653–CIV–WILLIAMS
• Parties: Michael I. Goldberg, not individually but as Chapter 11 Trustee of the estate of the Debtor, Rothstein Rosenfeldt Adler, P.A., et al., Plaintiffs, v. National Union Fire Insurance Company of Pittsburgh, PA., et al., Defendants.
• Court: U.S. District Court — Southern District of Florida

143 F.Supp.3d 1283

Michael I. Goldberg, not individually but as Chapter 11 Trustee of the estate of the Debtor, Rothstein Rosenfeldt Adler, P.A., et al., Plaintiffs,

v.National Union Fire Insurance Company of Pittsburgh, PA., et al., Defendants.

CASE NO. 13–21653–CIV–WILLIAMS

United States District Court, S.D. Florida.

Signed May 14, 2015

Filed May 18, 2015

Jason Seth Mazer, Cary David Steklof, Danya Pincavage, Matthew Lee Baldwin, Cary David Steklof, Ver Ploeg & Lumpkin, P.A., Miami, FL, for Plaintiffs.

Matthew Lee Lines, Isicoff Ragatz & Koenigsberg, Clifford Lawrence Rostin, James Miller Kaplan, Kimberly Sarah Heifferman, Kaplan Zeena, LLP, William Earl Davis, Laura Ganoza, Foley & Lardner LLP, Miami, FL, Michael J. Hartley, Baute Crochetiere & Gilford LLP, Los Angeles, CA, Lisa Rose Bugni, Alston & Bird LLP, Atlanta, GA, for Defendants.

ORDER

KATHLEEN M. WILLIAMS

, UNITED STATES DISTRICT JUDGE

THIS MATTER is before the Court on motions to dismiss Plaintiffs' first amended complaint (DE 18, hereinafter the "FAC") filed by Defendants National Union Fire Insurance Company of Pittsburgh, PA ("National Union") and Twin City Fire Insurance Company ("Twin City"; with National Union, the "Insurers") (DE 25, 28). Plaintiffs, Michael Goldberg, as Chapter 11 Trustee of the estate of the Debtor, Rothstein Rosenfeldt Adler, P.A., et al. ("RRA Trustee"), and Robert C. Furr, as Chapter 7 Trustee of the estates of Banyon 1030-32, LLC, and Banyon Income Fund, LP, et al. ("Banyon Trustee") (collectively, "Plaintiffs"), responded in opposition to the motions to dismiss, (DE 35, 36), and the Insurers replied (DE 42, 43). Following argument, the Court permitted the parties to file a supplement to the motion and opposition (DE 70). On April 13, 2015, the parties filed their supplemental briefing (DE 74, 75, 78).

I. BACKGROUND

This case is yet another in the ongoing litigation saga concerning the misdeeds of the Rothstein Rosenfeldt Adler firm. No party comes to the litigation as a stranger to the facts: each has litigated disputes spawned by Rothstein in federal district, federal bankruptcy, and state courts. The facts relevant to the instant dispute are recited below.

Gibraltar Private Bank & Trust Company ("Gibraltar") and certain of its officers and directors (the "D & O Defendants") have been sued in numerous lawsuits. The suits pertinent to this action are (1) Edward J. Morse, et al. v. Scott W. Rothstein, et al., Case No. 10–24110 (the "Morse Action"); and (2) Herbert Stettin v. John Harris, Charles Sanders, and Lisa Ellis, Adv. Case No. 11–03021–RBR (the "Underlying D & O Action") (together, with the Morse Action, the "Underlying Litigation").¹

Gibraltar obtained executive and organization liability insurance for its directors and officers under policies issued by National Union and Twin City (FAC ¶ 26). The Insurers each received notice of the Morse Action through a June 29, 2010 letter from Aon, the insurance broker (FAC ¶ 40).²

Subsequently, in a November 22, 2011 letter, the RRA Trustee provided the Insurers with a draft adversary complaint for the Underlying D & O Action, which asserted claims against Gibraltar executives Harris, Sanders, Ellis, and Hayworth (FAC ¶ 42). In that letter, and prior to filing suit, the RRA Trustee communicated a $40 million joint settlement demand on behalf of the RRA Trustee and Morse and gave the Insurers thirty days to consent to the settlement by tendering their respective policy limits (FAC ¶ 43). Attached to the November 22, 2011 letter were several documents, including: (1) documentation detailing the damages that would be sought at trial; (2) a PowerPoint delineating legal and factual support for the policy limits demand; (3) copies of civil remedy notices of insurer violations against the Insurers submitted to Florida's Department of Financial Services; and (4) a proposed model bar order that would be sought on behalf of Gibraltar and its directors and officers as part of the proposed settlement (FAC ¶ 44). The $40 million demand consisted of $5 million from Gibraltar, $10 million in remaining limits from an E & O policy tower,³ and the combined $25 million limits from National Union and Twin City (FAC at 10, n.3). Seven days later, on November 29, 2011, the RRA Trustee filed the Underlying D & O Action against Harris, Sanders, and Ellis, seeking damages "far in excess of all applicable insurance." (FAC ¶ 46.)

On December 16, 2011, National Union denied coverage for the Underlying D & O Action (FAC ¶ 49). Gibraltar and the D & O Defendants renewed their request that National Union tender its limits toward the joint settlement, but on December 21, 2011, National Union reiterated its denial (FAC ¶¶ 50–51). On January 18, 2012, National Union again denied coverage and two days later, Twin City also denied coverage (FAC ¶ 52). Following the Insurers' denials, the RRA Trustee, Morse, Gibraltar, and the D & O Defendants "began to conduct arms-length settlement negotiations" and exchanged documents, reports, and evidence in support of their theories of liability, damages, and defenses (FAC ¶ 53).⁴ Two weeks later, the parties reached a putative global settlement agreement, concluding that a settlement of $50 million—$10 million more than the original demand—was reasonable with respect to the claims asserted in the Underlying Litigation (FAC ¶ 54).

On February 3, 2012, the RRA Trustee, Morse, and the Banyon Trustee, sent letters to the Insurers providing them with an opportunity to consent to the global settlement—which now included all claims that could be brought by the Banyon Trustee—by tendering their policy limits (FAC ¶ 55). The RRA Trustee explained his disagreement with the Insurers' denials of coverage, an estimation of the exposure faced by the D & O Defendants in the suits brought (or threatened to be brought) against them, and the agreement of the E & O insurance carriers to contribute $10 million toward the global settlement (FAC ¶ 55). Counsel for the RRA Trustee also provided the Insurers with a draft settlement and assignment agreement that reflected the parties' intention to permit entry of judgment against Gibraltar and the D & O Defendants in the amount of $50 million if the Insurers refused to tender their limits and consent to the global settlement (FAC 56).

On February 10, 2012, the Insurers rejected the settlement demand outlined in the February 3, 2012 letter (FAC ¶ 59). Six days later, on February 16, 2012, Gibraltar, the D & O Defendants, the RRA Trustee, and the Banyon Trustee entered into a settlement and assignment agreement and filed motions seeking the bankruptcy court's approval of the agreement (FAC ¶ 61). The agreement included a bar order foreclosing the prosecution of any other Rothstein-related claims against Gibraltar or its executives (FAC ¶ 62).⁵

In August, 2012, the Trustees entered into separate written agreements with (1) Gibraltar; (2) the D & O Defendants; (3) Morse; and (4) the Razorback Plaintiffs (FAC ¶ 68). The parties agreed that a reasonable jury could find the D & O Defendants jointly and severally liable in the Underlying D & O Action and that the resulting damages would likely be in excess of $50 million (FAC ¶ 69). Pursuant to the settlement, "Gibraltar agreed to the entry of judgment against it in the Bank Action⁶ and the D & O Defendants, jointly and severally, in the D & O Action in the sum of $50 million, and to allow the Trustees to collect on that judgment from the National Union and Twin City." (FAC 69.) As part of that agreement (hereinafter, the "Coblentz Agreement"), Gibraltar and the D & O Defendants, pursuant to Florida Statute § 624.155

, assigned their rights under the National Union and Twin City policies to the Plaintiffs (FAC ¶ 70).

On August 30, 2012, the Trustees, Morse and the Razorback Plaintiffs, sent the Insurers yet another letter offering to settle their respective claims against Gibraltar and the D & O Defendants if the Insurers would tender their policy limits (FAC ¶ 72). Included with that letter was: (1) the Trustees' amended motion to approve the settlement with Gibraltar and certain of its officers and directors; (2) the proposed entry of bar orders; (3) the settlement and assignment agreement between Morse and the Trustees; and (4) the settlement agreement between the Trustees and the Razorback Plaintiffs (FAC ¶ 72). A hearing on the motion to approve the settlement was set for October 2, 2012; accordingly, the Trustees informed the Insurers that they had until October 1, 2012 to consent to the settlement and tender their limits (FAC ¶ 73). The Trustees warned National Union and Twin City that they intended to pursue all rights and remedies against the Insurers should the Insurers refuse to consent to the settlement (FAC ¶ 73). The Insurers did not agree to tender their policy limits (FAC ¶ 74).

Ultimately, the bankruptcy court approved the settlement and assignment agreements and entered judgment against Gibraltar in the Bank Action and against the D & O Defendants in the Underlying D & O Action in the amount of $50 million (FAC ¶ 75). Following the bankruptcy court's approval, the RRA Trustee dismissed the Underlying D & O Action (FAC ¶ 76). Plaintiffs then filed the instant action, asserting breach of contract and bad faith claims against National Union and Twin City.⁷

II. THE INSURANCE POLICIES

Gibraltar obtained executive and organization liability insurance policies from National Union and Twin City. The National Union Policy (No. 01–232–51–05) is the primary policy and the Twin City Policy (No. 00 DA 0259335–09) is an excess policy that follows form to the National Union Policy (FAC ¶¶ 26, 37) (collectively, the "Policies"). The Policies were issued to Gibraltar in Florida for the policy period September 17, 2009 to September 17, 2015 (FAC 26–36).⁸ Gibraltar's directors and officers are Insureds under the Policies (FAC ¶ 35, DE 18–1 at 1, 4), which provide coverage for "Claims first made against an Insured...