Goldsmith v. Marsh USA, Inc. (In re Glasshouse Techs., Inc.)
| Decision Date | 31 May 2019 |
| Docket Number | AP No. 17-04022-CJP,Case No. 14-41352-CJP |
| Citation | 604 B.R. 600 |
| Parties | IN RE: GLASSHOUSE TECHNOLOGIES, INC., Debtor Jonathan R. Goldsmith, Trustee in Bankruptcy for GlassHouse Technologies, Inc., and WF Fund IV Limited Partnership (c/o/b as Wellington Financial LP, Wellington Financial Fund III, and Wellington Financial Fund IV), Plaintiffs v. Marsh USA, Inc., Defendant |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
David F. Olsky, Fortis Law Partners, Denver, CO, for Plaintiffs.
Joshua W. Cohen, Day Pitney LLP, New Haven, CT, Jonathan Handler, Jonathan S. Zelig, Day Pitney LLP, Boston, MA, for Defendants.
Jonathan R. Goldsmith, Goldsmith, Katz & Argenio, P.C., Springfield, MA, pro se.
Christopher J. Panos, United States Bankruptcy Judge Before the Court is the Motion to Dismiss (the "Motion") filed by the defendant Marsh USA, Inc. ("Marsh" or the "Defendant"), the prepetition insurance broker of the debtor GlassHouse Technologies, Inc. (the "Debtor" or "GlassHouse").1 Pursuant to Fed. R. Civ. P. 12(b)(6), as made applicable to this proceeding by Fed. R. Bankr. P. 7012(b), Marsh seeks dismissal of the complaint (the "Complaint") filed by the plaintiffs Jonathan R. Goldsmith, the Chapter 7 trustee appointed in the Debtor's case (the "Trustee"), and WF Fund IV Limited Partnership c/o/b Wellington Financial LP, Wellington Financial Fund III, and Wellington Financial Fund IV (collectively, "Wellington," and together with the Trustee, the "Plaintiffs"). The Complaint contains three counts—breach of contract (Count I), negligence (Count II), and violations of Mass. Gen. Laws ch. 93A, §§ 2 and 11 ("Chapter 93A") and ch. 176D, § 3 ("Chapter 176D") (Count III). The claims arise from Marsh's alleged acts and omissions in procuring extended discovery period coverage (the "Tail") with respect to GlassHouse's directors and officers ("Directors and Officers" or "D&O") liability insurance, which the Plaintiffs contend resulted in an unauthorized reduction of the aggregate liability limit for claims noticed prior to the expiration of the original policy. The Defendant argues that the Complaint sets forth an "implausible theory that [the Plaintiffs] have suffered actionable harm." Def. Br. 1.
For the reasons set forth below, the Court concludes that the Plaintiffs have stated plausible claims for certain of the relief set forth in the Complaint, but not others, and GRANTS in part and DENIES in part the Motion.
In determining this Motion, the Court must assume the truth of all well-pleaded facts set forth in the Complaint. The Court has also considered certain matters of record on the dockets in this adversary proceeding and the main case, documents referenced in the Complaint, and other matters of which the Court may take judicial notice.2 The relevant facts alleged are recited below with any inferences made in favor of the Plaintiffs.
GlassHouse, which provided information technology, infrastructure consulting and managed services, filed for protection under Chapter 7 of the Bankruptcy Code on June 16, 2014 (the "Petition Date"). The Plaintiffs in this adversary proceeding are the Trustee, as the representative of GlassHouse's bankruptcy estate (the "Estate"), and Wellington, a creditor of GlassHouse that was assigned the Estate's claims against Marsh, among others, pursuant to a Settlement and Joint Prosecution Agreement (the "Prosecution Agreement"). Compl. ¶ 21. Under the Prosecution Agreement, which was previously approved by the Court (Hoffman, J.) with certain modifications, the Plaintiffs agreed to pool various causes of action against Marsh and GlassHouse's Directors and Officers and its insurers, American International Group, Inc. and certain of its subsidiaries (collectively, "AIG"), that Wellington would prosecute. The Plaintiffs agreed to divide any recoveries on account of Estate claims and any direct claims possessed by Wellington. Id. at ¶¶ 20–21.
Marsh was GlassHouse's insurance broker and risk management consultant pursuant to an engagement agreement dated April 24, 2013 (the "Engagement Agreement"). Compl. Ex. 1. The Engagement Agreement provided that Marsh would "assist [GlassHouse] in assessing [its] risks and in developing insurance specifications which Marsh will submit to insurers," Engagement Agreement ¶ 1(b), and "[u]se best efforts to place insurance for [GlassHouse], but only after [GlassHouse has] authorized Marsh to bind coverage" for it, id. at ¶ 1(g). Furthermore, the agreement provided that "[i]n performing Services, Marsh and its affiliates are not acting as a fiduciary ..., except to the extent required by applicable law." Id. at ¶ 7.
Prior to the Petition Date, Marsh assisted GlassHouse in procuring PrivateEdge Plus Policy No. 02-420-51-20 from AIG (the "Policy"), which included Directors, Officers and Private Company Liability Insurance (the "D&O Coverage Section") and had a shared liability limit of $15 million. Compl. Ex. 2; see also id. at ¶¶ 30, 33, 36. The Policy had an effective date of June 1, 2013, and provided that the coverage period would end on June 1, 2014 (the "Initial Policy End Date"). Id. at ¶ 35. It also included a non-cancellation endorsement, whereby AIG could not cancel the policy except for non-payment of premiums. Id.
The Policy provided indemnification and defense to "Insureds" for certain types of "Loss" arising from their "Wrongful Acts." Compl. Ex. 2, at D&O Coverage Section ¶¶ 1, 2; see also id. at ¶ 33. The Policy defines an "Insured" as (i) the "Company," which is further defined as the named entity on the declarations page of the Policy, GlassHouse, and its subsidiaries, and (ii) "Individual Insureds," who are defined as "Executives" or "Employees" of the "Company" or "Outside Entity Executives." Compl. Ex. 2, at Declarations, Part 1, General Terms and Conditions ¶ 2(b), D&O Coverage Section ¶ 2(s)–(t). In the event of a bankruptcy filed by GlassHouse, "the term ‘Company’ shall also mean the resulting debtor-in-possession[,]" but excludes a bankruptcy trustee. Id. at General Terms and Conditions ¶ 2(b), D&O Coverage Section ¶ 4(i). Specifically, the Policy insured GlassHouse's Directors and Officers for losses as defined under "Side A" coverage, the Individual Insured coverage, and also insured GlassHouse for losses as defined under "Side B" coverage, private company insurance. Id. at D&O Coverage Section ¶ 1. Side A coverage "pay[s] the Loss of an Individual Insured of the Company arising from a Claim made against such Individual Insured for any Wrongful Act of such Individual Insured[s]." Id. ; see also Compl. ¶ 33. Side B coverage "Loss" arises from a:
Id. at D&O Coverage Section ¶ 1. The definition of "Loss" under the Policy includes "damages, judgments, settlements, pre-judgment and post-judgment interest" against GlassHouse and its Directors and Officers relating to "Wrongful Acts," defined as "any breach of duty, neglect, error, misstatement, misleading statement, omission or act." Id. at ¶ 2(u), (cc).
Wellington had extended credit to GlassHouse since approximately January 2010, and ultimately purchased certain senior secured debt held by Bridge Bank on June 11, 2013. Compl. ¶¶ 37, 40. After the debt purchase, Wellington possessed an all asset lien covering GlassHouse's assets, which Wellington alleges included a lien attaching to GlassHouse's interest in the Policy. Id. at ¶ 40.
Based upon disclosures by GlassHouse's CEO on October 11, 2013, Wellington learned that prior representations and warranties made by the Directors and Officers were false, including that GlassHouse had paid "all other Taxes to the extent that they have become due." Id. at ¶¶ 39, 41–43. Wellington had relied on these representations in making lending decisions and the decision to purchase the senior debt from Bridge Bank. Id. at ¶¶ 38–39.
The disclosures revealed that a subsidiary of GlassHouse that generated half of its revenue, GlassHouse UK, owed withholding taxes starting in 2009 and had defaulted on repayment plans in 2010, 2011, and a later repayment plan. Id. at ¶ 42. Additionally, the United Kingdom's HM Revenue & Customs had initiated a "wind-up proceeding" as of September 2013 with respect to GlassHouse UK due to its latest default. Id. at ¶ 43. In connection with this wind-up process, a petition to the High Court of Justice was filed on February 14, 2014, and public notice of the petition was filed on March 19, 2014. Id. at ¶¶ 42–43, 46, 50–51, Ex. 3. GlassHouse notified Marsh of the wind-up petition on February 27, 2014. Id. at ¶ 51, Ex. 3.
GlassHouse owed Wellington approximately $14 million and had defaulted on its debt. Id. at ¶¶ 40, 44. Wellington initiated secured party sales of GlassHouse's assets, which ultimately only satisfied a portion of the outstanding debt. Id. at ¶¶ 46–47. GlassHouse informed Marsh that Wellington had commenced such asset sales. Id. at ¶ 52, Ex. 4. An e-mail dated April 11, 2014, between Marsh representatives, Shawn Donaher and Bethany Greenwood, noted confirmation by a representative of GlassHouse that Wellington "now owned" a majority of GlassHouse "in phased sell off (not done yet but by division)." Id.
By March 2014, as reflected in the proofs of claim ultimately filed in its bankruptcy case, GlassHouse had incurred over $45 million in liabilities, including Wellington's senior secured claim of over $12 million. Compl. ¶ 49; Pls. Opp. Ex. 2, Decl. of David F. Olsky in Support of Opp. ("Olsky Decl."), Exs. 3, 4; Def. Reply Ex. A, 2nd Decl. of Jonathan I. Handler in Support ("2nd Handler Decl."). By at least March 2014, GlassHouse...
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