Jerome Group, Inc. v. Cincinnati Ins. Co., 4:01CV0479 TCM.

• Decision Date: 03 March 2003
• Docket Number: No. 4:01CV0479 TCM.,No. 4:01CV1577 TCM.,4:01CV0479 TCM.,4:01CV1577 TCM.
• Citation: 257 F.Supp.2d 1217
• Parties: JEROME GROUP, INC., Plaintiff, Counter-Defendant, v. CINCINNATI INSURANCE CO., Defendant, Counter-Claimant. Jerome Group, Inc., Plaintiff, v. United States Fidelity & Guaranty Co., Defendant.
• Court: U.S. District Court — Eastern District of Missouri

Page 1217

257 F.Supp.2d 1217

JEROME GROUP, INC., Plaintiff, Counter-Defendant, v. CINCINNATI INSURANCE CO., Defendant, Counter-Claimant.

Jerome Group, Inc., Plaintiff, v. United States Fidelity & Guaranty Co., Defendant.

No. 4:01CV0479 TCM.

No. 4:01CV1577 TCM.

United States District Court, E.D. Missouri, Eastern Division.

March 3, 2003.

Mark C. Kodner, Albert S. Watkins, Kodner and Watkins, Clayton, MO, L. Steven Goldblatt, St. Louis, MO, for Jerome Group, Inc.

Russell F. Watters, Managing Principle, Ryan J. Gavin, Brown and James, P.C., St. Louis, MO, for Cincinnati Ins. Co.

MEMORANDUM AND ORDER

MUMMERT, United States Magistrate Judge.

This consolidated¹ diversity action is before the Court² on four motions for summary judgment: the motion of Jerome Group, Inc. ("Plaintiff) for summary judgment against defendant Cincinnati Insurance Company ("Cincinnati") and its motion for summary judgment against defendant United States Fidelity and Guaranty Company ("USF & G"); the motion of Cincinnati for summary judgment against Plaintiff; and the motion of USF & G for summary judgment against Plaintiff. [Docs. 50, 51, 57, 58]

Background

Plaintiff, a Missouri corporation, is in the business of graphic communications and printing, and provided such services to Group Health Plan ("GHP"). (Stip. ¶¶ 1, 2.)³ In November 1997, GHP requested that Plaintiffs can and index medical records for storage on CD-ROMs in a retrievable format. (Id. ¶ 3.) Plaintiff could not perform this type of work in-house, and so advised GHP. (Id. 114.) Plaintiff and GHP then agreed that Plaintiff would provide the requested service through a subcontractor. (Id. H 5.) Subsequently, Plaintiff contacted John Knabenshue, one of the owners of The Paper Solution Group, Inc. ("PSG"). (Id. ¶ 6.) PSG helped Plaintiff prepare a quote and proposal for GHP for the requested service. (Id. ¶¶ 7-8.) The proposal was submitted on PSG letterhead and read that it was prepared for GHP by Plaintiff. (Id. IT 8; Cinn. Ex. B.) Under this proposal, Plaintiff would charge GHP 55 cents per page for back-file conversion and 65 cents per page for ongoing imaging services. (Id.) Plaintiff, in turn, was being charged by PSG 49.5 cents per page on the back-file conversion and 58.5 cents per page on the ongoing imaging services. (Kohn Dep. at 33; Cinn. Ex. 6.) Indexing was an additional charge. (Kohn Dep. at 33.)

Plaintiff and GHP agreed on the proposal in November 1997. (Kohn Dep. at 40; Stip. H 10.)

In order to perform the agreed-upon services, PSG rented space from Plaintiff. (Id. ¶ 11.) PSG would then have boxes of the material to be scanned brought by courier from GHP and would scan the material, repackage it, and have it taken back to GHP. (Id.)

Beginning the next month, in December 1997, Plaintiff would receive an invoice from PSG, add its mark-up, and then invoice GHP for the revised amount. (Id. 1112; Kohn Dep. at 42.) For example, PSG billed Plaintiff on November 21 for 154,371 pages of back-file conversion at 49.5 cents per page and 38,593 pages for the ongoing scanning services at 58.5 cents per page. (Cinn.Ex. 8.) On December 5, Plaintiff billed GHP for the same services and the same number of pages but at a rate of 55 cents per page for the back-file conversion and 65 cents per page for the ongoing scanning services. (Id.) The last invoice Plaintiff received from PSG was dated August 31, 1998. (Id.) Plaintiff billed GHP on September 10 for the last PSG services. (Id.)

In July or August 1998, GHP stopped paying Plaintiffs invoices. (Stip. ¶ 14; Kohn Dep. at 46.) When contacted by Plaintiff about why GHP was not paying the invoices, GHP advised Plaintiff that there were discrepancies between the number of pages listed on the invoices as being converted or scanned and the number actually converted or scanned. (Id.) GHP further informed Plaintiff that it would be conducting an internal audit to determine what had happened. (Id.) In turn, Plaintiff contacted PSG and stopped paying its invoices.⁴ (Stip. ¶ 15; Kohn Dep. at 47-48.) PSG denied billing Plaintiff for more pages than were converted or scanned for GHP but agreed to audit its records. (Id. at 48.)

John Knabenshue informed Plaintiff of the results of PSG's audit by letter dated December 1, 1998. (Cinn.Ex. G.) That audit concluded that the total scanning and converting charges based on the number of pages would be $176,104.22 and additional charges for items such as reassembling the documents after scanning, having to scan some documents again, charges for storage, etc., were $119,259.44. (Cinn.Ex. G.) These charges were the amounts that PSG should have billed Plaintiff regardless of any markup by Plaintiff before billing GHP. (Id.) PSG attributed the total amount of overbilling—$295,000—to discussions and agreements between PSG and GHP in which Plaintiff had not participated and of which Plaintiff was not aware. (Stip.1T 17.) PSG, however, did not have the funds to refund to Plaintiff the amount overtoiled. (John Knabenshue Dep. at 53.)

Plaintiff, in turn, informed PSG of the results of its audit on December 9. (USF &amp G Dep. Ex. 3.) Plaintiff concluded that PSG had billed it for 6,466,383 back-file scans but had actually scanned only 1,996,232 pages and had billed it for 1,829,501 daily scans but had actually scanned only 806,124 pages. (Id.) Plaintiff concluded that it had been overcharged a total of $281,198.52. (Id.)

By letter of October 18, 1999, GHP advised Plaintiff of the results of its audit. (Cinn.Ex. F.) That audit concluded that GHP had been overbilled in the amount of $322,755.25, before the subtraction of any unpaid invoices. (Id.) The amount owed in unpaid invoices was $104,345.04, leaving a balance due GHP of $218,410.20. (Id.) GHP denied having the discussions and agreements with PSG cited by PSG as the basis for the overbilling. (Stip. ¶ 17.)

Ten days later, Plaintiff notified its insurance broker, Fonda Hereford with Anderson, Hall, Marsh, and Company, that it was submitting GHP's claim for the $322,755.25 "overbill[ed]" to Cincinnati. (Id. 118; Cinn. Ex. H.) It was Plaintiffs position that the claim was covered under its errors and omissions printers Policy, its comprehensive general liability policy, and/or its umbrella policy. (Id.) Cincinnati declined coverage. (Cinn.Ex. N.)

After John Knabenshue advised Plaintiff of the results of PSG's audit but before GHP reported its audit results in October 1999, Plaintiff filed a four-count suit against PSG, John Knabenshue, and Jeff Knabenshue, also an officer of PSG, in the Circuit Court of St. Louis County for the State of Missouri. (USF & G Ex. 4.) In that suit, Plaintiff alleged that PSG knowingly invoiced Plaintiff for more images than were actually scanned, that an accounting conducted by Plaintiff and GHP concluded that Plaintiff had paid PSG $281,198.52 more than was owed, and that PSG had acknowledged the inaccuracies and had promised to refund to GHP the excess payment remitted by GHP. (Id. n 9, 13-14.) Jeff Knabenshue testified in his deposition that he did not know at the time he was billing Plaintiff that the invoices were for more pages than were actually scanned. (Jeff Knabenshue Dep. at 155, 204-05.)

After being sued by Plaintiff, John Knabenshue, his son Jeff Knabenshue, and PSG filed separate bankruptcy petitions. (John Knabenshue Dep. at 66; Jeff Knabenshue Dep. at 68, 161-62; USF & G Stip. H 24.) In July 1999, Plaintiff filed an adversary proceeding in the two Knabenshues' bankruptcy cases contesting the discharge of the overbilling debt. (John Knabenshue Dep. at 67; Jeff Knabenshue Dep. at 163-64; USF & G Ex. 10.) Plaintiff alleged in the adversary proceedings that "PSG knowingly, or with reckless disregard for the accuracy of PSG's Invoices, invoiced [Plaintiff] for images purportedly generated for GHP in connection with the Project, in an amount grossly in excess of the actual number of images generated[.]" (USF & G Stip. ¶ 17.) As a result of PSG's misrepresentations, Plaintiff "overpaid] PSG in the amount of $281,198.52" and was damaged in the amount of $281,198.52. (Id. ¶¶ 42-43, 52.)

The following month, Plaintiff dismissed without prejudice its St. Louis County action. (USF & G Ex. 12.)

Two months later, in October 1999, Plaintiff amended its complaint in the adversary proceedings. (USF & G Ex. 13.) The amended complaint alleged that PSG's and the Knabenshues' debt to Plaintiff arising out of the GHP agreement was not dischargeable because the underlying misrepresentations were (a) fraudulently made or were made with reckless disregard for the truth and (b) resulted in a willful and malicious injury. (Id.) Plaintiff further alleged that as a result of PSG's misrepresentations Plaintiff overpaid PSG in the amount of $271,881.09 and was, consequently damaged in the amount of $271,881.09. (Id ¶¶ 47, 48.) The adversary proceedings were settled with an agreement that John and Jeff Knabenshue each pay Plaintiff $20,000.00. (John Knabenshue Dep. at 68-69; Jeff Knabenshue Dep. at 70, 175-76; USF & G Stip. 1134.) The $40,000.00 was to be refunded if Plaintiff recovered any money from USF & G. (Jeff Knabenshue Dep. Ex. E. ¶ 7.)

Plaintiff then initiated a second suit in July 2000 against PSG in the Circuit Court of St. Louis County. (Jeff Knabenshue Dep. at 170; Cinn. Ex. I.) John and Jeff Knabenshue were not named as defendants in this suit. The suit was titled "Plaintiffs Petition for Damages for Negligence." (Id) Plaintiff alleged in this suit that "PSG was negligent and careless in invoicing Plaintiff under The Plan for images generated for and on behalf of GHP in furtherance of The Project in excess of the actual number of images generated." (Id. ¶ 9.) A year later, in August 2001, Plaintiff and PSG agreed to a consent judgment, which was approved by the court. (Cinn.Ex. 5.) The judgment provided, in part, that "the pleading of the claim as one in negligence or that other matters pleaded, shall not be...