OneBeacon Am. Ins. Co. v. City of Zion

Citation119 F.Supp.3d 821
Decision Date29 July 2015
Docket Number12 C 4437
CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
Parties OneBeacon America Insurance Company, Plaintiff, v. City of Zion, Illinois, Lane Harrison, Delaine Rogers, Grand Slam Sports & Entertainment LLC, and Green Bay Crossing, LLC, Defendants.

David Edward Morgans, Myers Carden & Sax, LLC, Mary Spring Luce, Myers, Miller & Krauskopf, Chicago, IL, for Plaintiff.

Thomas George Dicianni, Christy Lynn Michaelson, David Lincoln Ader, Ancel, Glink, Diamond, Bush, Dicianni & Krafthefer, P.C., Stephen Falk Boulton, Boulton & Associates, Paul W. Carroll, Gould & Ratner, Chicago, IL, for Defendants.

MEMORANDUM OPINION

CHARLES P. KOCORAS, District Judge:

This matter comes before the Court on the motion for summary judgment of Plaintiff OneBeacon America Insurance Company ("OneBeacon") on Counts I and III of its second amended complaint pursuant to Fed. R. Civ. P. 56 (" Rule 56") against Defendants Lane Harrison ("Harrison") and Delaine Rogers ("Rogers") (collectively the "Individual Defendants") and the City of Zion (the "City" or the "City of Zion") (all Defendants are referred to collectively as "the Zion Defendants"). For the following reasons, OneBeacon's motion for summary judgment is granted on Count I as to the City of Zion, granted on Count III in its entirety, and otherwise denied. Count II remains. The Court declares that OneBeacon has a duty to defend the Individual Defendants in the underlying state court lawsuit, but does not have a duty to defend the City of Zion in that matter.

BACKGROUND

I. Facts

The following facts are taken from the parties' respective statements, responses and exhibits filed pursuant to Local Rule 56.1 ("Rule 56.1"). We review each Rule 56.1 statement and disregard any argument, conclusion or assertion unsupported by the evidence in the record. The Court is mindful of its duty to weigh the credibility of the evidence presented by all parties and only relies on relevant, admissible evidence when ruling on the motion for summary judgment.

On November 22, 2011, GSSE brought suit against the Zion Defendants, GBC and others in the Circuit Court of Lake County. On December 6, 2013, GSSE amended its complaint (the "Underlying Complaint"), seeking recovery, for, inter alia : (i) fraud against Harrison and Rogers (Count III); (ii) breach of contract against the City of Zion (Count V); and (iii) civil conspiracy against Harrison and Rogers (Count XI). After the state court proceedings commenced, the Zion Defendants attempted to tender the defense of their case to their insured, OneBeacon. OneBeacon refused to defend the case and subsequently filed this declaratory judgment action on April 24, 2014. In OneBeacon's three-count second amended complaint for declaratory judgment (the "Federal Court Complaint") against the Zion Defendants, Grand Slam Sports and Entertainment LLC ("GSSE") and Green Bay Crossing, LLC ("GBC"), OneBeacon seeks a declaration that it did not owe a duty to defend, or indemnify, the Zion Defendants with respect to the Underlying Complaint and GBC's counterclaim.

OneBeacon alleges in the Federal Court Complaint that it is a corporation with its principal place of business in Minnesota. It was recently re-domiciled in Pennsylvania. Venue is proper pursuant to 28 U.S.C. § 1391(b)(1) because all defendants reside in the Northern District of Illinois. The City of Zion is a municipality in Illinois. Harrison and Rogers are citizens of Illinois and both City of Zion officials. Harrison was the mayor of the City of Zion and Rogers acted as the Economic Development Director. GSSE is an Illinois limited liability company whose sole member is a citizen of Illinois. GBC is a Wisconsin limited liability company in the business of real estate acquisition and development whose members are citizens of Illinois and Wisconsin.

The parties generally do not disagree as to the facts, which primarily consist of the terms of the Policy and the pleadings in the underlying state court lawsuit. The only significant factual disagreement regards whether certain allegations support a conclusion that all statements made by the Zion Defendants were intentionally false material representations. However, it is important to thoroughly reference the Underlying Complaint and the insurance policy (the "Policy") OneBeacon issued to the City of Zion for insurance coverage purposes.

A. Allegations in the Underlying Complaint

The Court must decide whether OneBeacon had a duty to defend based on the allegations of the Underlying Complaint as they are currently pled, not based on the possibility of future discovery and/or amendments to the complaint. Conn. Indem. Co. v. DER Travel Serv., Inc., 328 F.3d 347, 350–51 (7th Cir.2003) ("[I]t is the actual complaint, not some hypothetical version, that must be considered."

According to the allegations in the Underlying Complaint, GSSE operated a minor league baseball team known as the Lake County Fielders (the "Fielders"). In 2006, Rogers, as the Director of Economic Development for the City of Zion, approached GSSE's manager to ask if he would be interested in providing a start-up minor league baseball team in the City of Zion because the City was interested in developing a stadium project (the "Stadium"). At the time, no professional baseball team was operating, or expected to operate in the City of Zion. During negotiations, GSSE's manager allegedly insisted that the Stadium, with its concessions, naming rights, advertising and other financial advantages was a necessity for the team. GSSE alleges that City officials, including, but not limited to Harrison and Rogers, repeatedly agreed to construction of the Stadium in consideration of the Fielders playing in Zion. As a result, GSSE's manager agreed to have the Fielders play in return for the City of Zion's promise to build the Stadium for the team to use. After a long and arduous period of temporary facilities, funding issues, and talks of relocation, on March 21, 2011, the City of Zion Council approved the sale of bonds to finance the Stadium project. On March 29, 2011, the City entered into a construction contract with Olson General Contractor (the "Olson Contract") to construct the Stadium in 2011 for $5.6 million dollars, which was agreed upon by GSSE.

GSSE alleges that sometime in the first five months of 2011, Harrison, Rogers and Richard DeLisle, a real estate developer, determined that the exposure of the financial flaws in the new proposed site for the Stadium made it too risky to allow execution of the bond issue for construction of the Stadium. According to GSSE, Harrison, Rogers and DeLisle then privately determined that the bond issuance for the construction of the Stadium would not be pursued, and no Stadium would be built in 2011.

GSSE further alleges that during these first five months of 2011, Harrison and Rogers, along with DeLisle, were on notice that absent the building of the Stadium, GSSE would not field a team for the 2011 season. GSSE contends that Harrison and Rogers knew that operating the Fielders in the 2011 season without a completed Stadium would result in an immediate collapse of the entire project, creating extensive negative publicity for Harrison, Rogers and DeLisle, in addition to potentially destroying a possibility of substantial land appreciation for GBC. Accordingly, GSSE alleges that Harrison, Rogers and DeLisle sought alternative plans to relieve GBC of its debt obligations on the Stadium's purported site and agreed to engage in affirmative and knowing false representations and material omissions to GSSE to conceal from it that the Stadium would not be built for the 2011 season. GSSE alleges that Harrison, Rogers and DeLisle knew that operating the Fielders during the 2011 season without a completed Stadium would result in substantial economic losses for GSSE, as had occurred in the 2010 season, and could possibly leave GSSE without financial capital to maintain the team after 2011. They allegedly agreed amongst themselves to seek to establish a new or relocated baseball team with fresh financial capital to replace GSSE's baseball team after the 2011 season. However, Rogers also allegedly made repeated statements and representations to GSSE and the general public, by way of the radio, that construction of the Stadium was ready to begin, as also shown in a written letter from March 10, 2011. In the March 10, 2011 letter, Rogers represented to GSSE that: (i) the sale of bonds for construction of the Stadium would occur the following week; (ii) the temporary Stadium facilities would be completed by the first week of April 2011 for use by GSSE's team; (iii) the Olson Contract was signed; (iv) the primary Stadium cement and steel components were then currently being fabricated off site; and (v) the Stadium would be completed by early June 2011, all of which GSSE argues were completely false. Additionally, a construction buffer zone fence was built around the Stadium. On two separate occasions in April 2011, the City's finance director sent written confirmation to Harrison, Rogers, the City Council and GSSE's manager that the $7.5 million bond sale was in a position to commence the following week and that the funds from the sale of those bonds would be wired to the City within a few days. On two separate occasions in June 2011, the City's finance director allegedly sent written memos to Harrison, the City Council and GSSE's manager stating the imperative need to commence sale of approved bonds in order to commence construction of the Stadium. According to GSSE, at no time during the months of March through June 2011 did Harrison or the City indicate to GSSE that the bond sale would not move forward or that construction of the Stadium was not moving forward. No bonds were ever issued or sold pursuant to the City Council approval and direction and Stadium construction never occurred. Two weeks after the start of the 2011 season, the City started to...

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