NEEDREPLACE, Civil No. 3:13cv195(AWT).

CourtNew York District Court
Writing for the CourtALVIN W. THOMPSON
Citation7 F.Supp.3d 206
PartiesOHIO CASUALTY INSURANCE CO., Plaintiff, v. Peter FRATARCANGELO, Mary Fratarcangelo, and PFRMF Investment Holdings, Inc., Defendants.
Decision Date25 March 2014
Docket NumberCivil No. 3:13cv195(AWT).

7 F.Supp.3d 206

OHIO CASUALTY INSURANCE CO., Plaintiff,
v.
Peter FRATARCANGELO, Mary Fratarcangelo, and PFRMF Investment Holdings, Inc., Defendants.

Civil No. 3:13cv195(AWT).

United States District Court, D. Connecticut.

Signed March 25, 2014


Motion granted.

[7 F.Supp.3d 208]

Matthew M. Horowitz, Wolf Horowitz & Etlinger LLC, Hartford, CT, for Plaintiff.

John P. Thygerson, Law Offices of John P. Thygerson, LLC, Norwalk, CT, Steven Altman, Altman & Company P.C., New York, NY, for Defendants.


RULING ON MOTION FOR PARTIAL SUMMARY JUDGMENT

ALVIN W. THOMPSON, District Judge.

This case arises out of a bond written by the plaintiff, Ohio Casualty Insurance Co. (“Ohio Casualty”), at the request of the defendants in order for the defendants to obtain a replacement stock certificate when their original was purportedly lost. Ohio Casualty asserts that it has received notice of a claim on this bond and that it has been unable to procure from the defendants its discharge from liability. Ohio Casualty filed a six count complaint seeking contractual indemnification (Count One), common law reimbursement (Count Two), contractual security (Count Three), common law exoneration (Count Four), quia timet (Count Five), and disclosure of financial information (Count Six). Ohio Casualty has moved for partial summary judgment on Counts Three and Six of the complaint, requesting that the court order specific performance of the contractual terms requiring the defendants to post collateral security and produce requested financial records. For the reasons set forth below, the motion is being granted.

I. Factual Background

On April 4, 2009, Ohio Casualty issued Bond # 5052967 (the “Bond”) at the request of defendant PFRMF Investment Holdings LLC (“PFRMF”). PFRMF requested the Bond so it could obtain a replacement for Stock Certificate Number 0000276357 (the “Certificate”), which represented 173,113 shares of stock in The Interpublic Group of Companies (“IPG”). PFRMF represented to Ohio Casualty that it lawfully owned the Certificate and that the Certificate had been lost. The Bond includes a provision reading:

THE CONDITIONS OF THIS OBLIGATION ARE SUCH, that if [PFRMF], the heirs, legal representatives, successors or assigns of [PFRMF], or any of them shall in case the mislaid, lost, stolen or destroyed original or originals be found or come into the hands or power of any of them or into the hands, custody or power of any person, deliver or cause the same to be immediately

[7 F.Supp.3d 209]

delivered unto [IPG and the Bank of New York Mellon (“BNY”) ] in order to be cancelled, and shall at all times indemnify and save harmless [IPG and BNY] from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character by reason of the said mislaid, lost, stolen or destroyed original or originals and/or the issuance of a new instrument or instruments in lieu thereof or the making of the payment, transfer, delivery or exchange called for by the original or originals without the surrender thereof, and whether or not based upon or arising out of the honoring or refusing to honor the original or originals when presented by any one or based upon or arising from inadvertence, accident, oversight or neglect on the part of [IPG and BNY] or their respective officers, agents, clerks and employees and/or omission or failure to enquire into, contest or litigate the right of any applicant to receive any payment, credit, transfer, registration, exchange or delivery in respect of the original or the originals and/or the new instrument or instruments issued in lieu thereof, and/or based upon or arising out of any determination which [IPG and BNY] may in fact make as to the merits of any such claim, right or title, and/or based upon or arising out of any other matter or thing whatsoever, then this obligation shall be void; otherwise shall remain in full force and effect.

(Ex. D of Aff. of Peter Fratarcangelo (Doc. No. 32–4) (“Bond Language”), at 1–2.)

Along with the Bond, Ohio Casualty and PFRFM executed a General Agreement of Indemnity (the “GAI”). The individual defendants, Peter Fratarcangelo and Mary Fratarcangelo (together with PFRMF, the “Defendants”), were also signatories on the GAI in their individual capacities. The GAI provides, inter alia, that: (i) “[the Defendants] agree to pay to [Ohio Casualty] upon demand ... [a]n amount sufficient to discharge any claim made against [Ohio Casualty] on any Bond. This sum may be used by [Ohio Casualty] to pay such claim or be held by [Ohio Casualty] as collateral security against loss on any Bond”; (ii) Ohio Casualty “shall have the exclusive right for itself and the [defendants] to determine in good faith whether any claim or suit upon the Bond shall ... be paid, compromised, defended or appealed”; (iii) Ohio Casualty “may incur such expenses, including reasonable attorneys' fees, as deemed necessary or advisable in the investigation, defense and payment of such claims”; (iv) “[t]he [Defendants] will, on request of [Ohio Casualty], procure the discharge of [Ohio Casualty] from any Bond and all liability by reason thereof”; (v) “[i]f such discharge is unattainable, the [defendants] will, if requested by [Ohio Casualty] either deposit collateral with [Ohio Casualty], acceptable to [Ohio Casualty], sufficient to cover all exposure under such bond or bonds, or make provisions acceptable to [Ohio Casualty] of the funding of the bonded obligation(s)”; and (vi) “[u]ntil [Ohio Casualty] shall have been furnished with competent evidence of its discharge, without loss from any Bonds, [Ohio Casualty] shall have the right to free access at reasonable times to the books, records and accounts of each of the [defendants] for the purpose of examining them.” (Aff. Of Robert O'Brien (Doc. No. 16) (“GAI Language”), Ex. 1.)

Having been issued the Bond, the Defendants were able to obtain the replacement for the Certificate (the “Replacement Certificate”), and subsequently entered into a “forward sale” agreement, dated April 15, 2011 (the “Agreement”). The

[7 F.Supp.3d 210]

purpose of the Agreement was to sell the shares represented by the Replacement Certificate to the Bank of New York Mellon (“BNY”). On August 4, 2011, IPG sent a letter to the Defendants and BNY stating that the Replacement Certificate was wrongly issued and that none of the Defendants owned the shares represented by the Replacement Certificate. As a result of the letter, BNY advised the Defendants that they were in default under the Agreement and that it was reserving its right seek damages caused by the default. In response, the Defendants filed a suit against IPG (the “Suit”) in the Southern District of New York to determine their rights with respect to the shares represented by the Replacement Certificate. On July 10, 2012, the court ruled that the Defendants had no right to the shares represented by the Replacement Certificate. See PFRMF Investment Holdings v. Interpublic Group of Companies, Inc., No. 11 Civ. 6008(CM), 2012 WL 2849771 (S.D.N.Y. July 10, 2012).

The Defendants appealed the decision, but the case was subsequently settled and the appeal was withdrawn. The settlement agreement, entered into by IPG, the Defendants, and Ohio Casualty, includes a release from liability for costs IPG incurred in litigating the Suit. However, it also provides that “[Ohio Casualty] agrees to indemnify and hold harmless IPG in connection with any claims asserted by BNY or other actions within the scope of the Bond coverage taken by BNY adverse to IPG's interests arising out of or related to the [IPG shares] and/or Replacement Certificate” and that “the Bond remains fully operative for any losses incurred by IPG subsequent to the date of this [a]greement that are owing” because of such claims or actions by BNY. (Ex. 4 of Aff. of Robert O'Brien (Doc. No. 41), at ¶¶ 4, 10.) Additionally, the settlement agreement includes recitals stating that BNY “has made demand on IPG in connection with the [IPG shares] and the Replacement Certificate”, “BNY has made demand on [Ohio Casualty] under the Bond in connection with the [IPG shares] and the Replacement Certificate”, and “IPG has made demand against [Ohio Casualty] under the Bond to hold it harmless and indemnify it for any losses incurred as a result of the issuance of the Replacement Certificate.” Id. at pg. 2.

BNY has notified both IPG and Ohio Casualty that it will seek either the issuance of new IPG shares or recovery for all losses incurred as a result of the Defendants' default under the Agreement and IPG's failure to issue the shares. As of September 20, 2012, BNY informed Ohio Casualty and IPG that it estimated the amount of its losses to be $2,001,562.24.1 In response to BNY's notification, IPG made a demand on Ohio Casualty under the Bond for all losses it will sustain as a result of BNY's actions. In particular, IPG made a specific partial demand of $97,500, which represented a portion of its fees and costs incurred in litigating the Suit, and advised Ohio Casualty that it anticipated the remainder of such fees and costs to exceed $300,000.

Ohio Casualty contacted the Defendants via letter on October 25, 2011, requesting that they produce certain documents and information relating to the BNY and IPG claims, and via letter on December 22, 2011, requesting that the Defendants procure Ohio Casualty's discharge from liability under the Bond. The Defendants did not respond to either letter. Ohio Casualty once again contacted the Defendants via letter dated October 12, 2012, and demanded

[7 F.Supp.3d 211]

that the Defendants: (i) indemnify Ohio Casualty for its costs and fees incurred to that date related to the Bond; (ii) post cash collateral security in the amount of $2,459,062.24 in order to secure it with respect to its expected exposure under the Bond;...

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