Jordache Enterprises v. NAT. UNION FIRE INS.

• Decision Date: 24 November 1998
• Docket Number: No. 24672.,24672.
• Court: West Virginia Supreme Court
• Parties: JORDACHE ENTERPRISES, INC., a Foreign Corporation, et al., Appellants, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Appellee.

513 S.E.2d 692

204 W.Va. 465

JORDACHE ENTERPRISES, INC., a Foreign Corporation, et al., Appellants, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Appellee.

No. 24672.

Supreme Court of Appeals of West Virginia.

Submitted September 16, 1998.

Decided November 24, 1998.

David W. Johnson, Esq., Charleston, West Virginia, Attorney for the Appellants.

Daniel R. Schuda, Esq., Ancil G. Ramey, Esq., Steptoe & Johnson, Charleston, West Virginia, Attorneys for the Appellee. MAYNARD, Justice:

The appellants, Jordache Enterprises, Inc., and Avi, Joseph and Ralph Nakash, Jordache's officers, directors and sole shareholders, appeal the denial by the Circuit Court of Kanawha County of their Rule 60(b) motion to set aside a summary judgment on behalf of the appellee, National Union Fire Insurance Company of Pittsburgh, Pennsylvania, in an insurance coverage and bad faith action. For the following reasons, we affirm in part and reverse in part.

I.

FACTS

The appellants are Jordache Enterprises, Inc. ("Jordache"), a New York corporation which is in the apparel business, and Joseph Nakash, Avi Nakash and Ralph Nakash, officers, directors and sole shareholders of Jordache.¹ The appellants purchased from the appellee, National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National Union"), a directors and officers insurance and company reimbursement policy ("D & O policy") to provide coverage for its directors, the Nakash brothers, and seven officers, three of whom are the Nakashes.² The D & O policy indemnifies the directors and officers for losses resulting from any alleged wrongful act in their respective capacities as directors or officers and the corporation to the extent it has indemnified the directors or officers for a loss arising from the alleged wrongful act.

The chain of events culminating in the underlying actions began with the appellants' financial involvement in 1989 in the Retail Acquisition Corporation ("RAC") which was incorporated for the purpose of acquiring all of the assets of the retail divisions of several different companies.³ The appellants' stated purpose for their involvement in RAC was the acquisition of outlets in which to market Jordache merchandise. The exact nature of the relationship between the appellants and RAC is disputed and formed the crux of the actions below.⁴ It is not necessary to reproduce the controverted facts here because they are not pertinent to the narrow issue before us.

By April 1991, RAC found itself a debtor under Chapter 11 of the Bankruptcy Code.⁵ Counsel for RAC subsequently prepared a draft complaint against the Nakash brothers and their various corporations, essentially alleging that the Nakash brothers exercised control of RAC to enrich themselves to the detriment of RAC and RAC's creditors.

The Nakash brothers began negotiations for settlement of RAC's claims and demanded that the appellee participate in and fund the settlement. The appellee declined to do so based on its belief that the alleged actions of the Nakashes and the alleged losses suffered by RAC were not covered by the D & O policy. The Nakash brothers ultimately reached a settlement with RAC wherein they agreed to pay RAC five million dollars. In return, Jordache was released from all claims. This settlement was approved by the bankruptcy court.

On May 2, 1992, the appellants filed a complaint against the appellee in the Circuit Court of Kanawha County wherein they sought a declaration that the D & O policy covers their settlement of claims and defense costs. Further, the appellants alleged breach of contract; a violation of the West Virginia Unfair Trade Practices Act, specifically W.Va.Code ? 33-11-4(9)(b), (c), (d), (e), and (f)⁶; a violation of the common law duty of good faith and fair dealing; and willful, malicious and intentional misconduct. The appellee sought dismissal of the action on the grounds of forum non conveniens, which was denied. The appellee then filed a complaint against the appellants in New York in which the appellee sought a declaratory judgment that the D & O policy does not cover the claims made against the appellants.⁷

On October 14, 1994, Joseph Nakash filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. Pursuant to 11 U.S.C. ? 362(a)⁸, the filing of a bankruptcy petition operates as an automatic stay of the commencement or continuation of any action against the bankrupt or the enforcement of any judgment against him. Accordingly, there is no dispute that the New York action was stayed as to Joseph.⁹

After a lengthy and contentious discovery period, the trial on the appellants' claims in the Circuit Court of Kanawha County began on October 6, 1995 and proceeded for six days with the parties resting on October 17, 1995. That same day, the Supreme Court of New York granted summary judgment on behalf of the appellee in the New York action. The court reasoned, in part:

By piercing the corporate veil it is clear that Nakash [sic] were acting in their own personal capacities when they committed the alleged wrongful acts. Thus, now it can be determined that Nakash did not act in their capacities as Directors and Officers of Jordache.....[N]o coverage exists under the general policy provisions and pursuant to Exclusion 4(k).¹⁰ (Footnote added). As a result of the New York decision, the Circuit Court of Kanawha County granted the appellee's motion for summary judgment based on the doctrines of res judicata and collateral estoppel and dismissed the action with prejudice.¹¹ By order of November 28, 1995, the circuit court denied the appellants' motion to alter or amend judgment and for new trial and a motion for a stay.¹²

Meanwhile, back in New York, the appellants filed a motion for renewal and reargument in the Supreme Court of New York. By order dated June 26, 1996, the Supreme Court of New York refused to reconsider its original decision but stated:

If the West Virginia court held that the October order was binding on Joseph, or had a collateral estoppel effect on him, the remedy is an application to the West Virginia court. The decision of this court could not bind Joseph, since the action had been stayed as to him.

Although the court's October order did not repeat the statement made in the August order that the action was stayed as to Joseph, this was an oversight. The stay is automatic. Any reference in the October order to the Nakash brothers collectively as including Joseph is withdrawn. The declaration that there was no coverage under the policy affected only the other defendants. The determination that Jordache was the alter ego of Avi and Ralph was not a determination that Jordache is the alter ego of Joseph.¹³

On July 1, 1996, the appellants filed a motion to vacate and for other relief from the Circuit Court of Kanawha County pursuant to Rule 60(b)¹⁴ of the West Virginia Rules of Civil Procedure. The basis of the motion was that since the New York court's decision of June 26, 1996 stated that the October 17, 1995 ruling does not apply with regard to Joseph Nakash and expressly withdrew any reference to the Nakash brothers in the order as including Joseph, it is apparent that the October 30, 1995 order of the Circuit Court of Kanawha County dismissing the action as it relates to Joseph was based on mistake or inadvertence, or alternatively was based upon a portion of the New York court's October 17, 1995 decision which was subsequently withdrawn or vacated and is thus void.

By order of November 5, 1996, the Circuit Court of Kanawha County denied the appellant's Rule 60(b) motion. The appellants now appeal the order of November 5, 1996 to this Court.

II.

STANDARD OF REVIEW

It is well-settled that,

[a] motion to vacate a judgment made pursuant to Rule 60(b), W.Va.R.C.P., is addressed to the sound discretion of the court and the court's ruling on such motion will not be disturbed on appeal unless there is a showing of an abuse of such discretion.

Syllabus Point 5, Toler v. Shelton, 157 W.Va. 778, 204 S.E.2d 85 (1974). See also, Syllabus Point 1, Jackson General Hospital v. Davis, 195 W.Va. 74, 464 S.E.2d 593 (1995); Syllabus Point 1, Nancy Darlene M. v. James Lee M., 195 W.Va. 153, 464 S.E.2d 795 (1995); Powderidge Unit Owners v. Highland Prop., 196 W.Va. 692, 474 S.E.2d 872 (1996); and Syllabus Point 1, Hartwell v. Marquez, 201 W.Va. 433, 498 S.E.2d 1 (1997).

This standard of review reflects the circuit court's institutional position as the forum best equipped for determining the appropriate use of Rule 60(b) to ensure that litigants who have vigorously and diligently complied with the summary judgment mandates of Rule 56 are not penalized by the action of those who choose not to comply.

Powderidge, supra, 196 W.Va. at 705, 474 S.E.2d at 885.

This Court has stated that circuit courts, when considering Rule 60(b) motions should be mindful that Rule 60(b) "is to be liberally construed for the purpose of accomplishing justice and that it was designed to facilitate the desirable legal objective that cases are to be decided on the merits." Syllabus Point 6, in part, Toler, supra.

This is true especially, but not exclusively, in the context of default judgments. See Cruciotti v. McNeel, 183 W.Va. 424, 396 S.E.2d 191 (1990). Nevertheless, "[a] circuit court is not required to grant a Rule 60(b) motion unless a moving party can satisfy one of the criteria enumerated under it." Powderidge, 196 W.Va. at 706,

474 S.E.2d at 886.

One of the purposes of West Virginia Rule of Civil Procedure 60(b) is to provide a mechanism for instituting a collateral attack on a final judgment in a civil action when certain enumerated extraordinary circumstances are present. When such extraordinary circumstances are absent, a collateral attack is an inappropriate means for attempting to defeat a final judgment in a civil action.

Syllabus Point 2, Hustead v. Ashland Oil, Inc., 197 W.Va. 55, 475 S.E.2d...