Nine Grp. II, LLC v. Liberty Int'l Underwriters, Inc.
| Decision Date | 18 June 2020 |
| Docket Number | No. 1-19-0320,1-19-0320 |
| Parties | NINE GROUP II, LLC, SY Vegas Partners, LLC, Lawrence Silver, and Alan Young, Plaintiffs-Appellants, v. LIBERTY INTERNATIONAL UNDERWRITERS, INC., Defendant-Appellee. |
| Court | United States Appellate Court of Illinois |
William J. Quinlan, Lisa H. Quinlan, Sam Royko, and Kamil Z. Merchant, of The Quinlan Law Firm, LLC, for appellants.
Robert Marc Chemers and William W. Elinski of Robert Marc Chemers and William W. Elinski, of Pretzel & Stouffer Chtrd., of Chicago, for appellee.
¶ 1 Plaintiffs Nine Group II, LLC (Nine Group II), SY Vegas Partners, LLC (SY Vegas), Lawrence Silver (Silver), and Alan Young (Young) filed an action in the circuit court of Cook County against defendant-insurer Liberty International Underwriters, Inc. (Liberty) following Liberty's denial of the plaintiffs' claim under a directors and officers (D & O) insurance policy. The circuit court denied the parties' cross-motions for summary judgment on the plaintiffs' breach of contract claim and granted partial summary judgment in favor of Liberty on the plaintiffs' claim that Liberty acted in bad faith under section 155 of the Illinois Insurance Code ( 215 ILCS 5/155 (West 2012) ). On appeal, the plaintiffs contend that the circuit court erred in granting partial summary judgment. For the reasons discussed herein, we affirm.
¶ 4 The verified complaint provides, in part, as follows. Nine Group II was a Delaware limited liability company with its principal place of business in Chicago. Nine Group II's membership was comprised of multiple investors, including SY Vegas; SY Vegas was managed by Silver and Young. SY Vegas became the manager of Nine Group II following the resignation of its prior manager in late 2010. B In It LLC (BII)—owned by David Blumenfeld—also held a membership interest in Nine Group II. SY Vegas held approximately 44% and BII held approximately 2% of the Class B membership interests in Nine Group II.
¶ 5 Nine Group II held 50% of the outstanding equity in N-M Ventures II, LLC (NMV II), a company that owned and operated several entertainment venues located in the Palms Hotel in Las Vegas. F.P. Holdings, L.P. (FPH) owned the other 50% membership interest in NMV II, which was managed by George Maloof.
¶ 6 In early 2012, Nine Group II—through Silver and Young, as managers of SY Vegas—commenced discussions with FPH concerning the potential purchase of Nine Group II's membership interest in NMV II. Blumenfeld expressed dissatisfaction with various proposed terms for the sale, including the purchase price.1 Nine Group II, FPH and other entities entered into an interest purchase agreement (the original agreement) dated August 3, 2012, regarding the sale of Nine Group II's interest in NMV II to FPH and other matters.
¶ 7 On August 24, 2012, before the anticipated closing date of the original agreement, Justin Jones, an attorney representing Blumenfeld and other minority investors, sent an e-mail to Silver regarding the "recent buyout offer and negotiations" relating to Nine Group II. The e-mail set forth six "key terms of any agreement regarding a buyout of their interest in Nine Group II." Jones stated that if a satisfactory agreement was not reached, "we will have no choice but to pursue this matter through litigation." Jones sent a follow-up e-mail clarifying certain points on the same date.
¶ 8 Based on various concerns—including issues involving FPH's lender, Wells Fargo—the original agreement was terminated on or about August 25, 2012. An amendment to the Interest Purchase Agreement (the amended agreement) was entered into as of September 6, 2012, and the transaction closed shortly thereafter. Although the purchase price and other key terms were modified, a "reaffirmation" provision in the amended agreement stated that the original agreement otherwise continued to be in full force and effect and was ratified by the parties. Pursuant to the amended agreement, FPH purchased Nine Group II's interests in NMV II. Nine Group II distributed most of the consideration from the sale to its members, including Blumenfeld.
¶ 10 As part of the transaction, FPH agreed to provide indemnification to Nine Group II against essentially all claims except those relating to the consideration paid to the company for the sale of its membership interests in NMV II. With the assistance of its broker, Mesirow Financial (Mesirow), Nine Group II also applied for a D & O policy with Liberty. The policy issued by Liberty provided, in relevant part, for "Directors & Officers and Company Liability" insurance on a claims-made basis for a policy period of August 27, 2012, to August 27, 2013.
¶ 11 In an e-mail sent on September 18, 2012, with the subject line of "[p]otential demand," the plaintiffs' attorney forwarded the Jones e-mails from August 24 to two Mesirow employees. The e-mail from plaintiffs' counsel stated, in part: "After speaking with your colleague today, we realized the following"—i.e. , the Jones e-mails—"could potentially be construed as a demand from certain members of the [N]ine [G]roup." Mesirow responded that the Jones e-mails could possibly constitute notice of a potential claim and thus opined that it would be "prudent" to inform Liberty.
¶ 12 On or about October 17, 2012, based on Mesirow's recommendation, SY Vegas sent notice to Liberty notifying the insurer of the August 24 e-mails and Blumenfeld's subsequent "assertions and threats." Liberty acknowledged receipt of the letter on October 19, 2012, and indicated it would contact the plaintiffs' attorney but apparently did not do so at that time.
¶ 14 On March 15, 2013, Blumenfeld (through BII) filed a lawsuit in the district court of Clark County, Nevada, captioned B In It, LLC, Individually and Derivatively as Nominal Plaintiff on Behalf of Real Party in Interest, Nine Group II, LLC v. SY Vegas Partners, LLC, Larry Silver, Allan Young, and George Maloof, Case No. A-13-678463-B. Nine Group II was listed as a nominal defendant. The complaint asserted claims for, among other things, breach of fiduciary duty, minority member oppression, breach of the covenant of good faith and fair dealing, and civil conspiracy; Blumenfeld also sought declaratory relief and an accounting. In addition to direct claims, Blumenfeld purportedly brought derivative claims on behalf of Nine Group II. Certain of the claims were based on alleged events prior to SY Vegas's management of Nine Group II. Other claims were based on the operations of the Las Vegas venues, as well as the sale of Nine Group II's membership interests in NMV II.
¶ 15 The plaintiffs herein and BII eventually settled the lawsuit in 2016. The settlement agreement expressly provided it was not intended to affect the claims asserted by the plaintiffs in its Illinois litigation against Liberty (described below).
¶ 17 The plaintiffs herein notified Liberty of the initiation of the Nevada litigation. Nine Group II sent written notice to Liberty on March 28, 2013, and again on April 19, 2013, i.e. , both before and after service of the Nevada complaint. Nine Group II also sent notice to FPH, which later denied any obligation to indemnify based on FPH's interpretation of their agreement.
¶ 18 The record includes e-mails between plaintiffs' counsel and Gia Cavellini Guzman (Guzman), an attorney who worked as a complex claims specialist for Liberty. The e-mails reflect that Guzman and the plaintiffs' counsel participated in a telephone call on April 24. On the following day, the plaintiffs' counsel e-mailed background materials to Guzman, including an organizational chart for NMV II, Nine Group II's operating agreement, the original agreement, and the amended agreement. On May 6, 2013, Guzman requested additional details regarding the transaction with FPH and other matters; such information was promptly provided.
¶ 19 In a letter from Guzman dated June 11, 2013, Liberty advised the plaintiffs' counsel that there was no coverage available under the D & O policy for the Nevada litigation. Liberty indicated that the allegations in the Nevada complaint and the August 24, 2012, e-mails from attorney Jones reflected that the claim arose prior to the policy period, which had commenced on August 27, 2012. Liberty also noted, in part, that (a) the plaintiffs would not have sustained a "loss" for coverage purposes to the extent FPH provided indemnification, (b) a policy exclusion that eliminated coverage for "wrongful acts" potentially applied, and (c) certain of Silver's answers on the insurance application appear to have been not materially true and accurate.
¶ 20 In a letter to Guzman dated June 17, 2013, the plaintiffs' attorney detailed various "misunderstandings" in Liberty's coverage denial letter and "inaccuracies" in the Nevada complaint. The plaintiffs asserted, in part, that the potential litigation referenced in the Jones e-mails related to the disposition of the membership interests of certain investors (including Blumenfeld) in Nine Group II, and not the sale of Nine Group II's assets—which the plaintiffs' attorney characterized as "two entirely different causes of action " (emphasis in original). The plaintiffs also posited that the six-month gap between Jones' e-mails in August 2012 and the Nevada lawsuit in March 2013 suggested the "eventual litigation filed was unrelated to the threats made by investors in the August 24, 2012 e-mail."
¶ 22 On November 6, 2013, the plaintiffs filed a verified complaint in the circuit court of Cook County against Liberty, as well as FPH and two individuals affiliated with FPH—Michael Connolly and Peter Nolan. The counts against FPH, Connolly, and Nolan—counts I, III, and VI—were...
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