Intelligent Digital Sys., LLC v. Beazley Ins. Co.
| Decision Date | 23 June 2015 |
| Docket Number | 12-cv-1209 (ADS)(GRB) |
| Parties | INTELLIGENT DIGITAL SYSTEMS, LLC and RUSS & RUSS PC DEFINED BENEFIT PENSION PLAN, and JAY EDMOND RUSS, all individually and as assignees of Jack Jacobs, Robert Moe, Michael Ryan and Martin McFeely, and Jason Gonzalez, Plaintiffs, v. BEAZLEY INSURANCE COMPANY, INC. Defendant. |
| Court | U.S. District Court — Eastern District of New York |
APPEARANCES:
Daniel P. Rosenthal, Esq.
Attorney for the Plaintiffs
Massapequa, NY 11758
Ira Levine, Esq.
320 Northern Blvd, Suite 14
Great Neck, NY 11021
1251 Avenue of The Americas
New York, NY 10020
By: Christopher M. Strongosky, Esq., Of Counsel
This case arises from a dispute about whether the Defendant Beazley Insurance Company, Inc. (the "Defendant") is required under a Directors, Officers and Company Liability Insurance Policy (the "D&O Policy") to indemnify the Plaintiffs Intelligent Systems, LLC ("IDS"); Russ & Russ PC Defined Benefit Pension Plan (the "Plan"); and Jay Edmond Russ ("Russ"), all individually and as assignees of Jack Jacobs, Robert Moe, Michael Ryan andMartin McFeely (collectively the "Plaintiffs") for expenses incurred in participating in an action entitled Intelligent Digital Systems, LLC, et al. v. Visual Management Systems, Inc. et al., E.D.N.Y. Case No. 09-CV-974 (the "Underlying Action").
On November 27, 2012, the Court issued an order (the "November 27, 2012 Order") converting the Defendant's motion to dismiss pursuant to Federal Rule of Civil Procedure ("Fed. R. Civ. P.") 12(b)(6) to one for summary judgment pursuant to Fed. R. Civ. P. 56, which motion the Court denied.
Following the Court's November 27, 2012 Order, the Plaintiffs filed an amended complaint seeking (i) a declaratory judgment stating that the Defendant must indemnify the Plaintiffs under the D&O Policy for expenses incurred in the Underlying Action; (ii) a declaratory judgment stating that the Plaintiffs have the right to satisfy judgments in the Underlying Action by accessing the D&O Policy; and (iii) an award of compensatory damages for the alleged breach by the Defendant of its obligations to the Plaintiffs under the D&O Policy.
Presently before the Court is (i) a renewed motion by the Defendant for summary judgment to dismiss the amended complaint and (ii) a cross-motion by the Plaintiffs for summary judgment as to their claims. For the reasons set forth below, the parties' motions are denied.
Unless stated otherwise, the following facts are drawn from the parties' Rule 56.1 statements. Triable issues of fact are noted.
The Defendant is an insurance company domiciled in Connecticut with its principal place of business located in Connecticut. (Am. Comp. at ¶ 9; Answer at ¶ 9.) On an unspecified datein 2007, the Defendant issued the D&O Policy to Visual Management Systems, Inc. ("VMS"). (See Kronley Decl., Ex. 3.)
Prior to its dissolution, non-party VMS was a Nevada corporation, which "maintained an office for the transaction of business in the State of New Jersey." (Am. Compl. at ¶ 12; Answer at ¶ 12.) It was a provider of closed circuit video surveillance technology. (Kronley Decl., Ex. 25.)
The Plaintiff IDS is a Delaware limited liability company with its principal place of business located in Nassau County. (Am. Compl. at ¶ 5; Answer at ¶ 5.) Prior to its merger with the VMS, IDS was "the owner of certain source code and proprietary technology in the area of digital recording for the security industry, and the manufacturer and seller of a proprietary digital video recorder[.]" (Am. Compl. at ¶ 6; Answer at ¶ 6.)
The Plaintiff Russ is an attorney admitted to practice in the State of New York. (Am. Compl. ¶¶ 6-7; Answer at ¶¶ 6-7.) He is the founder and managing member of IDS and the President of Russ & Russ, P.C. ("Russ & Russ"), a New York professional legal corporation with its principal place of business in Massapequa, New York. (Am. Compl. ¶¶ 6-7; Answer at ¶¶ 6-7.) Russ & Russ maintains the Plan. (Id.)
As described in more detail below, on November 10, 2011, VMS assigned its rights and claims under the D&O Policy to the Plaintiffs. (Am. Compl. at ¶ 48; Answer at ¶ 48.)
Wildon Productions, Inc. ("Wildon") is the predecessor to VMS, which was created after the merger transaction described below. The interpretation of Wildon's by-laws is central to resolving the principal question at issue in this case — namely, whether Russ was duly appointedto the VMS Board of Directors. Thus, it is necessary for the Court to provide background on the requirements for electing individuals to the Board of Directors as set forth in Wildon's by-laws.
On March 12, 2004, Wildon was incorporated under Nevada law. On March 31, 2004, Wildon adopted by-laws (the "2004 By-Laws").
Section 2.1 of the 2004 By-Laws states, The parties do not attach a copy of Wildon's Articles of Incorporation. Therefore, it is not clear how many individuals were initially placed on Wildon's Board of Directors.
Section 2.2 of the 2004 By-Laws further provides:
Each director shall hold office until a successor has been elected and qualified or until his or her earlier resignation or removal . . . . Unless otherwise provided in the Articles of Incorporation or in these bylaws, vacancies and newly-created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by the sole remaining director.
Section 7.6 of the 2004 By-Laws states that "[t]hese bylaws [sic] may be amended or repealed, and new bylaws [sic] adopted, by the Board of Directors."
On May 9, 2006, Wildon filed a registration statement with the Securities and Exchange Commission ("SEC") in connection with an offering of 5.95 million shares of Wildon's common stock on the OTC Bulletin Board Market. (Kronley Decl., Ex. 13.). OTC refers to "over-the-counter" equity securities that are not listed on a national stock exchange.
With respect to appointing new directors, Section (1)(b) of the 2006 By-Laws states, "[a] casual vacancy occurring in the Board may be filled by the remaining Directors."
In addition, Section 1(c) of the 2006 By-Laws provides that:
[b]etween successive annual meetings, the Directors have the power to appoint one or more additional Directors but not more than ½ of the number of Directors fixed at the last shareholder meeting at which Directors were elected. A Director so appointed holds office only until the next following annual meeting of the Corporation, but is eligible for election at that meeting. So long as he or she is an additional Director, the number of Directors will be increased accordingly.
On October 5, 2006, the Wildon Board of Directors held a meeting. The minutes of the meeting state:
Be it resolved that the form of Bylaws of the Company as presented to the directors of the Company be adopted and that the Secretary be and is hereby instructed to cause the same to be inserted in the Company's Minute Book immediately following the Articles of Incorporation and the Certificate of Incorporation.
(Kronley Decl., Ex. 23.) However, the by-laws referenced in the minutes were not attached. (The Def. 56.1 Statement at ¶ 27.) Accordingly, it is not clear from the record if the Wildon Board of Directors retroactively adopted the 2006 By-Laws attached to the May 9, 2006 SEC filing or adopted an entirely new set of by-laws.
On June 15, 2007, Wildon, VMS Acquisition Corporation, and Visual Management Systems Holdings, Inc. ("VMS Holdings") entered into a merger agreement (the "Merger Agreement") pursuant to which VMS Acquisition Corp. merged into VMS Holdings (the "Reverse Merger"). (Kronley Decl., Ex. 15, at § 1.1.) Following the Reverse Merger, Wildonbecame the owner of all of the assets of VMS Holdings and VMS Acquisition Corp. (Id. at § 1.9.)
Further, as a condition of the Merger Agreement, Wildon accepted the resignations of its current board of directors and was required to "cause" four new individuals "to be elected to the Board of Directors." (Id. at § 5.4.) The individuals listed in the Merger Agreement were Jason Gonzalez ("Gonzalez"); Michael Ryan ("Ryan"); Colonel Jack Jacobs ("Jacobs"); and Robert Moe ("Moe"). (Id. at Ex. D.) Although Moe is listed in the Merger Agreement as a "Director," it appears from the minutes of a July 30, 2007 meeting of the Board of Directors described below, that Howard Herman ("Herman"), and not Moe, was appointed to the Board immediately following the Reverse Merger. (See Levine Decl., Ex. T.)
On July 17, 2007, Vladimir Barinov, the Secretary of Wildon, signed a certificate in connection with the Merger Agreement (the "Secretary's Certificate"), in which he attached a copies of (i) an Amended and Restated Certification of Incorporation (the "Amended Certification of Incorporation"); (ii) the "Company's By-Laws"; (iii) a resolution adopted by the Board of Directors; and (iv) a resolution adopted by the shareholders. (Kronley Decl., Ex. 16, at 5; Kronley Decl., Ex. 17, Ex. D at 1.)
Under the terms of the Amended Certificate of Incorporation, Wildon...
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