In re Russell
| Decision Date | 04 January 2001 |
| Docket Number | Bankruptcy No. 97-52161C-7W.,Adversary No. 97-6061. |
| Citation | 285 B.R. 877 |
| Court | U.S. Bankruptcy Court — Middle District of North Carolina |
| Parties | In re Jerri S. RUSSELL, Debtor. Jerri S. Russell (formerly Jerri Russell Brame), t/a T & J Ventures and Darrell Wilson, Plaintiffs, v. Cincinnati Insurance Company, an Ohio Company, Defendant. |
John A. Northen, Chapel Hill, NC, Jeffrey S. Lisson, Winston-Salem, NC, for plaintiffs.
James H. Kelly, Jr., Winston-Salem, NC, for defendant.
This adversary proceeding came before the court on September 28, 2000. Jeffrey S. Lisson appeared on behalf of plaintiff Darrell Wilson and plaintiff Jerri S. Russell appeared pro se. James H. Kelly, Jr. and Susan H. Boyles appeared on behalf of the defendant. The defendant's motion for summary judgment and the trial of this adversary proceeding both were calendared for hearing. The court took the motion for summary judgment under advisement and proceeded with the trial of this adversary proceeding. The parties relied upon the same evidence as their trial evidence as had been offered in support of and in opposition to the motion for summary judgment. Rather than resolve this adversary proceeding by summary judgment, the court will resolve this proceeding as a trial and make findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure. Accordingly, having considered the evidence offered by the parties, the court makes the following findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
This is a declaratory judgment action seeking an interpretation of commercial insurance policies issued by the defendant to Jerri S. Russell (formerly Jerri R. Brame), t/a T & J Ventures. Plaintiff Jerri S. Russell ("the Debtor") is a Chapter 7 debtor in the underlying bankruptcy case and is the named insured in the policies which were issued by the defendant. Plaintiff Darrell Wilson is alleged to be an insured under the policies based upon his being an employee of the Debtor during a portion of the period covered by the insurance policies. In the complaint, the plaintiffs seek a declaration that the plaintiffs are entitled to defense and indemnity from the defendant with respect to some or all of the claims which have been asserted against the plaintiffs in two civil actions filed in the Superior Court of Forsyth County ("the State Court litigation") by Philip Staton, Ingeborg Staton and Mercedes Staton ("the Statons"). The defendant denies that any coverage is provided under the policies and seeks a declaration that the defendant does not have a duty to defend or indemnify either of the plaintiffs in the State Court litigation.
The Statons inherited a significant block of stock in a holding company that had exclusive rights to bottle and distribute Coca-Cola products in Mexico, Colombia and Brazil. The stock was held in a trust until approximately 1987. In 1987, the Statons acquired full ownership and control of the stock. The Statons spent significant periods of time in Colombia, but also had personal holdings in the United States. Because the Statons were in Colombia much of the time, they needed someone in the United States to assist with the management of their assets located in the United States. Also, because of the political and cultural climate of Colombia, the Statons also required security services while living in Columbia, as well as while traveling abroad.
Beginning in approximately 1988, the Debtor entered into various agreements with the Statons to provide personal and security services to them. On or about January 4, 1988, Philip Staton entered into an Agreement for Business Services with the Debtor, trading as T & J Ventures. Under this Agreement, the Debtor was to provide to the Statons services related to the production and protection of income, including security services, legal services, accounting services, investigative services and other consultative and/or management services. Thereafter, on or about November 1, 1991, Philip Staton executed a power of attorney under which the Debtor and her husband at the time, Tom Brame, were appointed agents of Mr. Staton "with the power to act in my name, place and stead in any way which I myself could do if I were personally present with respect to all financial matters and endorsements." Thereafter, Ingeborg Staton also executed a power of attorney in favor of the Debtor giving the Debtor broad powers with respect to property, banking and other business transactions, as well as personal relationships and affairs.
In 1993, the Statons sold their stock in the South American holding company and received more than $119,500,000.00. These funds were deposited into an account at Centura Bank in Winston-Salem known as the PIM Group Clearing Account. Shortly after the funds were deposited in Centura Bank, the Debtor and her former husband assumed control of the funds. The Debtor's husband thereafter became ill, at which time the Debtor assumed sole responsibility for providing services to the Statons and became the primary contact with the Statons and the professional advisors who assisted the Statons in managing their assets. In February of 1994, the Debtor entered into a contract with Darrell Wilson under which Mr. Wilson was employed by the Debtor to provide security services. A similar agreement was entered into in February of 1996. Mr. Wilson was employed by the Debtor from February of 1994 until approximately May of 1996.
On March 11, 1996, Philip Staton filed suit in the Superior Court of Forsyth County against the Debtor, Mr. Wilson and several other defendants. The complaint in the Forsyth County action asserts claims for breach of fiduciary duty, conversion, constructive fraud, fraud, unfair and deceptive trade practices, purported gross negligence and grossly negligent misrepresentation. The suit seeks compensatory and punitive damages, as well as an accounting and a constructive trust on assets allegedly purchased with Staton funds.
In June of 1996, Ingeborg and Mercedes Staton intervened in the Forsyth County action and filed a complaint against the Debtor and certain other defendants. The complaint filed on behalf of Ingeborg and Mercedes Staton alleges that the Debtor did not have authority to act on their behalf in many of the financial transactions involving their funds and that the Debtor concealed various transfers of funds from them. Ingeborg and Mercedes Staton assert claims for conversion, breach of fiduciary duty, misappropriation, conspiracy to misappropriate, constructive fraud, fraud, violations of the state RICO statute, unfair and deceptive trade practices, purported negligence and negligent and/or intentional misrepresentation. Mercedes and Ingeborg Staton also seek compensatory and punitive damages from the Debtor as well as a constructive trust on property allegedly purchased with their assets.
In the complaints filed in State Court the Statons allege that the Debtor was instructed to place the Staton funds in conservative investments such as treasury bills. The Statons allege that contrary to these instructions, funds were withdrawn from the PIM account and "invested" in new businesses that the Debtor and her husband had formed, including Global Sport Management Co., Global Land Management, Inc., S & B Investments, and J.R.B. Investments, Inc. According to the allegations of the Statons, during the two years following the deposit of their funds at Centura, the Debtor and her husband transferred between $30 million and $40 million of the Statons' assets to entities owned or controlled by the Debtor and her husband. The Statons assert that these unauthorized transfers took the form of direct cash transfers, the purchase of real and personal property such as expensive cars, airplanes and a lavish condominium at Myrtle Beach, and use of the funds for personal expenses and accommodations.
The Statons allege that in September of 1995, the Debtor informed Philip Staton that she had discovered "irregularities" in the way her husband had been dealing with the Statons' assets and that she was planning to divorce him. Although the Debtor allegedly assured the Statons that she would trace and recover their assets, the Statons allege that the Debtor and Mr. Wilson also were involved in unauthorized transfers from the Statons' accounts and that the Debtor and Mr. Wilson were concealing the whereabouts of assets from the Statons. As a result, in February of 1996, Mr. Staton revoked the power of attorney that he had granted to the Debtor.
In their claims against Mr. Wilson, the Statons allege that Mr. Wilson used his position with the Debtor to transmit false and misleading information concerning the dissipation of the Staton's assets. The Statons also allege that Mr. Wilson transferred certain security vehicles in Columbia into his own name and that he improperly transferred weapons and ammunition belonging to Mr. Staton to a Columbian corporation.
An insurer's duty to defend ordinarily is measured by the facts as alleged in the pleadings, while its duty to pay is measured by the facts ultimately determined at trial. Waste Mgmt. of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 340 S.E.2d 374, reh'g denied, 316 N.C. 386, 346 S.E.2d 134 (1986). When the complaint alleges facts under which the injury is covered by the policy, then the insurer has a duty to defend, whether or not the insured ultimately is held liable. Id. Conversely, when the complaint alleges facts which reflect that the event in question is not covered, and the insurer has no knowledge that the facts are otherwise, then it is not bound to defend. Id....
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