Nationwide Mut. Fire Ins. Co. v. Royall
| Decision Date | 28 October 2008 |
| Docket Number | No. 6:06-cv-1695-Orl-31KRS.,6:06-cv-1695-Orl-31KRS. |
| Parties | NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Nationwide Mutual Insurance Company, Plaintiffs, v. Hardin J. ROYALL, Jr., et al, Defendants. |
| Court | U.S. District Court — Middle District of Florida |
John D. Russell, Robin Petronella Keener, Williams, Schifino, Mangione & Steady, PA, Tampa, FL, for Plaintiffs.
Kenneth Dane Morse, Kenneth D. Morse, PA, Robert Patrick Major, Winderweedle, Haines, Ward & Woodman, PA, Orlando, FL, for Defendants.
This cause came before the Court upon consideration of the following cross-motions for summary judgment: Plaintiffs' Motion for Summary Judgment (Doc. 55) filed by Nationwide Mutual Fire Insurance Company and Nationwide Mutual Insurance Company (collectively "Plaintiffs" or "Nationwide"), Defendants' response in opposition thereto (Doc. 66) filed by Riverfront Equities Realty, Inc., Riverfront Equities, Inc., Hardin J. Royall, III, Hardin J. Royall, Jr., Royall Construction of Central Florida, Inc., and Royall Construction of Florida I, Inc. (collectively "Defendants"), certain Defendants' Motions for Partial Summary Judgment (Docs. 53 and 54) filed by Hardin J. Royall, Jr., Royall Construction of Central Florida, Inc., and Royall Construction of Florida I, Inc., and Nationwide's response in opposition thereto (Docs. 68 and 70). Oral argument on the preceding motions was held on September 18, 2008.
Nationwide, the Defendants' general commercial liability insurer, brought this action for declaratory relief to determine whether it has a duty to defend and a duty to indemnify its insureds in an underlying action filed in State court. Nationwide's insureds include Riverfront Equities Realty, Inc. and Riverfront Equities, Inc. (collectively "Riverfront" or the "Riverfront Entities"), as well as Royall Construction of Central Florida, Inc. and Royall Construction of Florida I, Inc. (collectively "Royall Construction" or the "Royall Construction Entities") (Doc. 42, Ex. A-1 through D).
Prior to bringing the instant action, Nationwide agreed to defend Riverfront and Royall Construction in the underlying action pursuant to a reservation of rights.1 While Riverfront reached a settlement with the underlying plaintiffs and has been dismissed from the underlying action, Royall Construction still remains a defendant which Nationwide continues to defend.
In addition to seeking a judgment that it has no duty to defend or indemnify its insureds, Nationwide's Motion for Summary Judgment also seeks reimbursement for attorneys' fees and costs which have been expended in the underlying action since March 28, 2006.2
Defendants' Motions for Partial Summary Judgment (Docs. 53 and 54) seek a judgment that Nationwide has a duty to defend the underlying action and that, even assuming Nationwide does not have a duty to defend, the Defendants are under no obligation to reimburse Nationwide for the attorneys' fees and costs spent in defense of the underlying action on their behalf (See Doc. 54).
After reviewing the allegations set out in the underlying complaint and the relevant provisions of the policies of insurance, the Court addresses Nationwide's duty to defend and its right to be reimbursed for fees and costs, infra. The Court has jurisdiction pursuant to 28 U.S.C. § 1332 and the parties agree that Florida substantive law is controlling.
A. The Underlying Action
On October 11, 2005, Emerald Beach Resort, LLC, Buffalo Investments, LLC, Bythebridge LLC, and James C. Lee, III (the "Underlying Plaintiffs") brought suit in State court and asserted the following claims against Nationwide's insureds:3
· Accounting
· Breach of Fiduciary Duty
· Unjust Enrichment
· Money Had and Received
· Constructive Trust
· Negligence/Wantonness
· Conspiracy
· Declaratory and Injunctive Relief
According to the Second Amended Complaint, the foregoing claims arose out of a nebulous series of improper transactions and self-dealing on the part of Jay Royall and certain entities which either he or his son, Joe Royall, controlled (See Doc. 42, Ex. F at 5-18). In short, Jay and Joe Royall allegedly used these entities to bilk James Lee ("Lee") out of hundreds of thousands—if not millions—of dollars in connection with the development of certain condominium and town home projects in Panama City Beach and a related development planned for the Orlando area. Id.
The underlying parties' relationship began in 2002 when Jay Royall first approached Lee about investing in a Panama City Beach development, Emerald Beach Resort. Id. at 6. Representing that he would oversee and manage the construction, financing, and marketing of the Emerald Beach Resort, Jay Royall secured Lee's financial backing for the project. Id. Jay Royall and Lee then formed Emerald Beach Resort, LLC ("EBR") to, inter alia, acquire the property upon which the resort was to be developed. Id. Through Buffalo Investments, LLC, Lee took a 50% ownership interest and 51% voting interest in EBR, with Jay Royall, through Interlude Investments, LLC, taking a 50% ownership interest and 49% voting interest.Id.
After the formation of EBR, Jay Royall then entered into a joint venture to construct the first condominium tower for the development. Id. at 9. This joint venture was comprised of Royall Construction of Florida I, Inc. (an entity owned and controlled by Jay Royall and a Nationwide insured) and DooleyMack Constructors, Inc. (a legitimate third-party involved in the general contractor business) Id. Jay Royall, on behalf of EBR, then executed a construction agreement between EBR and the Royall Construction-DooleyMack joint venture. Id. Notwithstanding his majority voting interest in EBR, Lee was not privy to the details of the joint venture or the fact that EBR had entered into a construction agreement with the joint venture. Id. Lee appears to have believed that DooleyMack—and not the joint venture—would be responsible for the construction of the first tower. Id. Unbeknownst to Lee, Jay Royall was using the joint venture as an artifice to divert funds from EBR, which were supposed to be used on construction, to Jay Royalls' own entities. Id.
Apparently building on the success of his initial scheme, Jay Royall created another joint venture to construct the third tower.4 Id. at 10. Rather than retain DooleyMack Construction, Inc., however, the joint venture on the third tower was between Royall Construction of Florida I, Inc. and Gunther-Nash (another legitimate third-party involved in the general contractor business). Id. at 11. Lee, again, was kept in the dark about the nature of this second joint venture, and EBR continued to make payments to Jay Royall's entities which were unrelated to the construction on either the first or third tower.5 Id.
By the summer of 2005, Lee and Jay Royall's relationship began to deteriorate and Lee finally became suspicious of Jay Royall's activities. Id. at 12-13. In June, Lee finally requested that Jay Royall furnish him and EBR with complete financial information concerning the project. Id. at 13. In August 2005, Lee sent representatives to Orlando to make copies of the books. Id. However, the weekend before the representatives arrived, "Jay Royall and his son were filmed removing documents from the offices6 which, to date, have not been accounted for." Id.
In addition to providing for the actual construction of the Emerald Beach Resort, Jay Royall also assured Lee that he would be responsible for the sale and marketing of the project's condominiums. To market the condominiums, Jay Royall entered into a listing agreement, putatively on behalf of EBR, with Riverfront Equities (a company owned and controlled by Jay Royall and his son which is also a Nationwide insured). Id. As with the construction agreements, the material terms of the listing agreement were not disclosed to Lee. Id. at 14. However, Riverfront Equities was to receive a commission from EBR, ranging from five to eight percent, for the sale of each condominium. Id. After EBR had entered into the listing agreement, Riverfront Equities began marketing the condominiums out of a Longwood, Florida office which was leased to EBR. Id. at 15. Riverfront also marketed the condominiums from an office located on-site in Panama City Beach. Id.
In early 2004, Riverfront began selling EBR's condominiums to its own principals and employees. Id. Riverfront sold four or five condominiums directly to Jay Royall's son and one of Riverfront's salespersons for as little as ten dollars ($10.00) down, despite the fact that each sale required a down payment of at least twenty percent (20%). Id. Jay Royall allegedly signed the sale agreements for these transactions on behalf of EBR. Id.
Lee's concerns regarding the improper construction transactions also extended to Riverfront's marketing efforts, and by the summer of 2005 things began to unravel on that front as well. At approximately the same time in June or August 2005, when Lee began to request an accounting of the construction transactions, Joe Royall instructed Riverfront Equities' staff to remove or destroy all documents from the Panama City Beach office and to erase all hard drives. More specifically:
The sales staff in Panama City Beach were seen throwing documents and other property into the dumpster, and placing computers and other documents in their cars. Additionally, Jay and Joe Royall and other personnel where seen removing documents and other property from the sales office in Orlando. Upon information and belief, the documents and other property which Royall instructed his staff to take or destroy had been paid for by, and were the property of, [EBR].
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