National Union Fire Ins. Co. of Pittsburgh, Pa. v. Emhart Corp.

• Decision Date: 13 December 1993
• Docket Number: No. 92-1109,92-1109
• Citation: 11 F.3d 1524
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, a Pennsylvania corporation, Plaintiff--Counter-Defendant--Appellee, v. EMHART CORPORATION, a Virginia Corporation, Defendant Counterclaimant, Third Party Plaintiff--Appellant, v. Richard F. VITKUS, Third-Party-Defendant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1524

11 F.3d 1524

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, a Pennsylvania corporation, Plaintiff--Counter-Defendant--Appellee, v. EMHART CORPORATION, a Virginia Corporation, Defendant Counterclaimant, Third Party Plaintiff--Appellant, v. Richard F. VITKUS, Third-Party-Defendant.

No. 92-1109.

United States Court of Appeals Tenth Circuit.

Dec. 13, 1993.

Peter L. Edwards of Rothgerber, Appel, Powers & Johnson, Denver, CO (Kenneth A. Sagat and Howard Wildman of D'Amato & Lynch, New York City and James M. Lyons and Patrick M. Flaherty of Rothgerber, Appel, Powers & Johnson, Denver, CO with him on the brief) for plaintiff/counter-defendant/appellee.

Brent N. Rushforth of Jenner & Block, Washington, DC (Michael T. McConnell and Robert M. Baldwin of Long & Jaudon, Denver, CO and Ann M. Kappler and David W. DeBruin of Jenner & Block, Washington, DC, with him on the brief) for defendant counterclaimant/third party plaintiff/appellant.

Before BALDOCK, Circuit Judge, WOOD, Senior Circuit Judge, ^* and EBEL, Circuit Judge.

EBEL, Circuit Judge.

This case is before us on appeal of the district court's grant of summary judgment to the plaintiff-appellee, National Union Fire Insurance Company of Pittsburgh, PA ("National Union"). The district court found that the defendant-appellant, Emhart Corporation ("Emhart"), had made material misrepresentations to National Union when applying for liability insurance for one of its officers, Richard F. Vitkus ("Vitkus"). The court concluded that, based on these misrepresentations, Emhart was estopped to deny its obligation to indemnify Vitkus against claims charging Vitkus with illegal actions taken in his capacity as a corporate director of Silverado Savings & Loan before Vitkus was hired by Emhart. We reverse the order of the district court and grant summary judgment in favor of Emhart.

Facts

This case grows out of the failure of Silverado Banking, Savings and Loan Association ("Silverado"). After Silverado was seized in December of 1988, the Federal Deposit Insurance Corporation ("FDIC") instituted a civil suit against the officers and directors of Silverado (including Vitkus, who served as an outside director) and against Silverado's primary outside counsel, Sherman & Howard. Following prolonged negotiations, a global settlement was reached under which the defendants agreed to pay a total of 26.5 million dollars to the FDIC. National Union, which had issued liability insurance for Sherman & Howard, Vitkus and another individual defendant, agreed to pay the total settlement and then proceeded to negotiate separate agreements with each of the defendants concerning their respective portions of the liability. The instant action concerns who should pay for the 10 million dollar portion of the settlement apportioned to Vitkus.

From 1978 through most of 1986, Vitkus was an Executive Officer and General Counsel of Beatrice, Inc. ("Beatrice"). In 1983, as part of his responsibilities at Beatrice, Vitkus was asked to serve on the Board of Directors of Silverado. Vitkus became an outside director of Silverado and served in that capacity until Silverado was seized in 1988.

In early 1986, Beatrice was acquired by a third party through a merger. In late 1986, Vitkus resigned from his position as an officer of Beatrice, but continued on as a Silverado director at the request of Silverado's chairman, Michael R. Wise. On January 5, 1987, Vitkus executed a general release of all claims that he might have against Beatrice, and he received a severance package worth in excess of one million dollars.

In May of 1988, Vitkus was hired as the general counsel of Emhart. Although Emhart had no business relationship with, or interest in, Silverado, Emhart agreed to allow Vitkus to continue serving as a director of Silverado. Shortly thereafter, at Vitkus' request, Emhart obtained an endorsement from its insurance carrier, National Union, covering Vitkus' activities as a director of Silverado. Endorsement 26 provided for excess coverage on a "triple indemnity basis" under which National Union would provide coverage only after any Silverado insurance, any indemnity provided by Silverado, and any indemnity provided by Emhart.

On August 10, 1988, Vitkus informed National Union of financial difficulties at Silverado. Shortly thereafter, the FDIC seized Silverado. On September 21, 1990, the FDIC, acting in its capacity as receiver for Silverado, sued the senior managers and outside directors of Silverado and Sherman & Howard, who was Silverado's counsel. The suit charged, inter alia, that the outside directors acted with gross negligence in the performance of their duties and breached their fiduciary duty. The FDIC also sought the recovery of funds that had been diverted to senior managers as well as the recovery of excess compensation that had been paid to many of the defendants. Additionally, the suit charged Sherman & Howard and one of its partners, Ronald Jacobs, with breach of fiduciary duty, professional negligence, and aiding and abetting the senior management's breach of a fiduciary duty.

In September of 1990, Vitkus informed National Union that he had been sued. At National Union's request, Vitkus also sought indemnification from Emhart, but Emhart claimed, among other defenses, that it had no obligation to indemnify Vitkus for actions taken before Vitkus was employed by Emhart. All the improprieties and illegalities alleged in the FDIC suit occurred between December 1985 and March 1987, which was long before Vitkus was employed by Emhart.

The defendants in the FDIC action participated in intense settlement negotiations with the FDIC. National Union participated in the negotiations as the insurer of Sherman & Howard, Jacobs and Vitkus. ¹ However, Emhart was not a party to the FDIC litigation and did not participate in the settlement talks, despite being encouraged to do so by the court. The negotiations culminated in a global settlement agreement that was approved by the court. FDIC v. Wise, NO. 90-F-1699, slip op. (D.Colo. June 18, 1991). Under the settlement agreement, National Union agreed to pay a total of 26.5 million dollars to the FDIC in settlement of claims against all the defendants. National Union then proceeded to negotiate separate, confidential agreements with each of the defendants regarding the defendants' respective portion of the liability. These agreements were not approved by the court. The amount apportioned to each defendant varied widely and with little apparent regard to culpability. Michael Wise, chairman of the bank and prime defendant, agreed to pay $75,000. Neil Bush and Marjorie Page, directors of the bank, agreed to pay $50,000 and $2,500, respectively. The bulk of the liability was allocated to Vitkus, whose only role was as an outside director alleged to have been deficient in his oversight, and Sherman & Howard, who agreed to pay 10 million dollars and 16 million dollars, respectively.

National Union brought the instant suit on April 26, 1991, in the midst of the settlement negotiations, seeking a declaratory judgment that Emhart was obligated to indemnify and reimburse it for whatever liability was ultimately allocated to Vitkus. At the time this suit was brought, neither the amount of the global settlement nor the amount to be apportioned to Vitkus was known.

Emhart filed a third-party complaint against Vitkus alleging breach of fiduciary duty and reimbursement for any amounts that it was determined to owe to National Union. Emhart also filed a counterclaim against National Union alleging breach of contract and bad faith.

On February 26, 1992, Chief Judge Finesilver, of the United States District Court for the District of Colorado, issued an order disposing of nine summary judgment and other pending motions in this and a related case. ² In that portion of the order relevant to this appeal, the court ruled that Emhart had made material misrepresentations to National Union when it applied for liability insurance for Vitkus as a director of Silverado. Based on these misrepresentations, the court ruled that Emhart was estopped to deny its obligation to indemnify Vitkus for that portion of the FDIC settlement apportioned to him. Accordingly, Emhart was ordered to pay National Union 10 million dollars in damages representing the 10 million dollars that National Union allocated to Vitkus and then paid on behalf of Vitkus in the global settlement. The court also dismissed Emhart's counterclaims against National Union. However, it declined to grant summary judgment on Emhart's third-party claims against Vitkus.

Emhart filed a motion to alter or amend judgment pursuant to Fed.R.Civ.P. 59(e). In its motion, Emhart charged that the court made several errors of law and improperly awarded monetary relief without considering the reasonableness of the underlying allocation to Vitkus. The district court denied Emhart's motion, and this appeal followed.

Standard of Review ³

We review summary judgment orders de novo, using the same standards applied by the district court. Osgood v. State Farm Mut. Auto. Ins. Co., 848 F.2d 141, 143 (10th Cir.1988). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986); Russillo v. Scarborough, 935 F.2d 1167, 1170 (10th Cir.1991). The moving party bears the initial burden of showing an absence of any issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986); Hicks v. City of Watonga, 942 F.2d 737, 743 (10th Cir.1991). If the moving party meets this burden, the non-moving party then has the burden to come...