In re IBI Security Service, Inc., CV 93-1192 (ADS). Bankruptcy No. 91-71235-21. Adv. No. 092-7042-21.
| Decision Date | 09 November 1994 |
| Docket Number | No. CV 93-1192 (ADS). Bankruptcy No. 91-71235-21. Adv. No. 092-7042-21.,CV 93-1192 (ADS). Bankruptcy No. 91-71235-21. Adv. No. 092-7042-21. |
| Citation | 174 BR 664 |
| Parties | In re IBI SECURITY SERVICE, INC. IBI SECURITY SERVICE, INC., Debtor in Possession, Plaintiff, v. NATIONAL WESTMINSTER BANK USA, National Westminster Bank, N.J., First Fidelity Bank, N.A., New Jersey, Revere Armored, Inc., and Nigel James Somerville Bowie, An Underwriter at Lloyd's, London, Other Lloyd's Underwriters Subscribing to Insurance Policy No. 576/G371634, Defendants. |
| Court | U.S. District Court — Eastern District of New York |
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Mangone & Schnapp (Louis A. Mangone, of counsel), New York City, for plaintiff.
Bingham Englar Jones & Houston (Martin J. Flannery and Joseph T. Caulfield, of counsel), New York City, for defendant Nigel James Somerville Bowie.
Winston & Strawn, New York City, for defendants Nat. Westminster Bank, USA and Nat. Westminster Bank, N.J.
Douglas A. Durnin, Massapequa, NY, for defendant Revere Armored, Inc.
Otterbourg, Steindler, Houston & Rosen, P.C. (Stanley L. Lane and Steven B. Soll, of counsel), New York City, for defendant First Fidelity Bank, N.A., New Jersey.
The plaintiff and debtor-in-possession appeals from a decision of the Bankruptcy Court (Judge Cecilia H. Goetz) dated January 28, 1993 that, among other things, (1) denied a motion for partial summary judgment in favor of the plaintiff on its claim for recovery of its litigation expenses from Lloyd's of London ("Lloyd's"), and (2) granted in part a motion for summary judgment by the defendant Nigel James Somerville Bowie ("Bowie") on behalf of Lloyd's dismissing the plaintiff's claims for recovery of litigation expenses.
The plaintiff IBI Security Service, Inc. ("IBI") is an armored car carrier that essentially collects, secures, stores and transports currency and coin for its customers. IBI purchased three "all risk" insurance policies from Lloyd's covering the period August 17, 1990 to August 16, 1991. The policies were issued by the defendant Bowie, who is an underwriter at Lloyd's. The policies insured IBI against physical loss or damage to the property it held. The policies also included a "Sue and Labour Clause" which provided, in relevant part, as follows:
In case of any loss or misfortune or claim made against the Assured it shall be lawful to the Assured . . . to sue, labour and travel for, in and about the defence, safeguard and the recovery of the Property or any part thereof, and/or incur costs and expenses with the consent of Underwriters in the defence of any such claim . . . at the expense of Underwriters.
In April, 1991, the defendant National Westminster Bank, New Jersey ("NatWest") discovered an alleged $2.9 million shortage in its coin inventory stored at the IBI storage facility. As a result of the shortfall, NatWest removed approximately $6.8 million of its currency from IBI's storage facility. IBI alleges that included in this $6.8 million amount removed by NatWest was approximately $1 million in coin and currency which IBI had received from the defendant First Fidelity Bank, N.A. ("First Fidelity") (NatWest and First Fidelity hereinafter will be referred to collectively as "the banks"). IBI also alleges that NatWest off-set IBI's accounts at NatWest to compensate NatWest for the shortage.
IBI contends that it notified Lloyd's in May, 1991 of the losses arising from the alleged shortage, and demanded that Lloyd's (1) acknowledge its duty to indemnify IBI for the full amount of any losses arising from the shortage, less the applicable deductible, under the terms of the insurance policies, and (2) consent to pay the costs and expenses IBI will incur in investigating and defending the claims of the banks, pursuant to the "Sue and Labour" clause. IBI alleges that Lloyd's refused to acknowledge its obligation to indemnify IBI for any losses, and to consent to pay IBI's litigation costs.
On June 4, 1991, IBI filed a Chapter 11 bankruptcy petition. The banks filed claims in the bankruptcy totalling the entire amount of the alleged shortage. IBI commenced the present adversary proceeding on March 16, 1992, and joined as defendants the banks, New Jersey Revere Armored Inc., a customer of IBI, and Bowie. Essentially, the complaint seeks a declaration of IBI's rights against Lloyd's for indemnification for any losses, and payment of IBI's litigation expenses under the "Sue and Labour" clause. The complaint alleges four causes of action.
In the first cause of action, IBI demands that Lloyd's consent to pay for the costs IBI will incur in defending against the banks' claims, pursuant to the "Sue and Labour" clause. In addition, IBI demands that Lloyd's indemnify IBI and the banks for any losses arising from the shortage. The second and third causes of action seek recovery of the NatWest set-offs, on the grounds that they are preferences recoverable under 11 U.S.C. § 553. The fourth cause of action alleges a claim for unfair competition against NatWest and New Jersey Revere Armored, Inc.
In the adversary proceeding, NatWest counterclaimed against IBI for the amount of the shortage. Both banks also cross-claimed against Bowie for direct indemnification of any losses arising from the shortage and for payment of their litigation expenses under the Sue and Labour clause, on the ground that they are third-party beneficiaries to the insurance contracts. Bowie, on behalf of Lloyd's, raised several contractual defenses in answer to the complaint and the banks' cross-claims, including breach of the insurance policy by IBI on the grounds that it stored more than $10 million at its facility, and that IBI failed to provide Lloyd's with timely notice of loss and proof of loss. Bowie also raised as a defense that the banks do not have a right of direct action against Lloyd's. Finally, Bowie counterclaimed against the IBI and the banks on the ground that IBI made material misrepresentations in its application for insurance, thus entitling Lloyd's to rescind the contract.
On June 30, 1992, the plaintiff moved for partial summary judgment on its first claim for relief. IBI sought a judgment that it had a right to recover litigation expenses from Lloyd's that were or will be incurred by IBI in connection with its defense of the claims asserted by the banks. The plaintiff contended that the insurance policy's "Sue and Labour" clause entitled IBI to recover these costs and expenses from Lloyd's. IBI also requested that Bowie's defenses on behalf of Lloyd's alleging breach of the contract by IBI on the grounds of storing more than $10 million at its facility, and failing to provide Lloyd's with timely notice of loss and proof of loss, be dismissed. Finally, in its motion IBI requested that to the extent the trier of fact determines that IBI suffered an actual loss, Bowie be obligated to indemnify IBI.
The banks joined IBI, and cross-moved for summary judgment on their cross-claims against Bowie, and to dismiss his defenses. Bowie cross-moved for summary judgment in his favor on all of his counter-claims against IBI and the banks. Among other things, Bowie sought judgment in his favor that he is not responsible for the litigation costs and expenses under the Sue and Labour clause, nor to indemnify IBI or the banks for any losses suffered by IBI.
The Bankruptcy Court issued a seventy-five page decision on January 28, 1993. In sum, Judge Goetz first denied IBI's motion with respect to the claim against Bowie for litigation expenses, holding that the "Sue and Labour" clause "has no necessary application to litigation expenses and attorney's fees." See January 28, 1993 Decision, at 39. Judge Goetz granted IBI's and the banks' motions with respect to dismissal of Bowie's defense that IBI had breached the insurance contract by maintaining more than $10 million at its facility. However, she denied IBI's and the banks' motion to dismiss the Bowie's fourth defense regarding timely notice of the loss and proof of loss, holding that was an issue to be determined at trial. Judge Goetz also held that under the insurance policy the banks had a right of action for indemnification against Bowie, and granted the banks' motion on this issue. With respect to Bowie's motion to rescind the contract, the bankruptcy court held that summary judgment was precluded because the alleged fraud was a material issue of fact for the trier of fact to determine. Finally, Judge Goetz denied Bowie's motion in so far as it sought to dismiss the complaint and cross-claims for failure to state a claim.
An order pursuant to the terms of the opinion was entered on February 22, 1993.
The plaintiff appeals from the Bankruptcy Court's decision to the extent that Judge Goetz denied IBI's motion for summary judgment on the issue of IBI's recovery of litigation costs under the Sue and Labour clause. Essentially, IBI proceeds with the appeal as if it were of right. However, should the Court determine that the order was interlocutory, the plaintiff seeks leave to appeal pursuant to Fed.R.Bankr.P. 8001(b). The parties have only briefed the issue of whether leave to appeal should be granted. If the Court decides that IBI's appeal is as of right, or is otherwise appealable a this stage, then the parties will be given the opportunity to address the merits of the appeal at a later date.
The Court must first determine whether the debtor can bring the present appeal as of right. If not, then the Court must decide whether leave should be granted for IBI to bring an interlocutory appeal of Judge Goetz's decision.
Pursuant to Fed.R.Bankr.P. 8001(a), an appeal as of right may taken from a "final judgment, order, or decree of a bankruptcy judge." An order is "final" for purposes of federal appellate jurisdiction when a decision has been entered that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Coopers & Lybrand v....
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