Pacific Ins. Co. v. General Development Corp., 92-4454
| Decision Date | 12 August 1994 |
| Docket Number | No. 92-4454,92-4454 |
| Parties | PACIFIC INSURANCE COMPANY, Plaintiff-Counter-Defendant-Appellant, v. GENERAL DEVELOPMENT CORP., Defendant-Appellee, David F. Brown, Robert F. Ehrling, Defendants-Counter-Claimants-Appellees, Gerald P. Mozian, Joseph P. Zdon, Jr., George T. Scharffenberger, Marshall Manley, Edwin I. Hatch, Eben W. Pyne, Charles J. Simons, Reuben O.D. Askew, Peter R. Brinckeroff, Howard L. Clark, Jr., Defendants, Tore T. De Bella, Richard A. Reizen, Defendants-Counter-Claimants-Appellees, Gerald A. Stilwell, Otis O. Wragg, III, William H. McQuillan, Charles M. Andolsek, David G. Ormsby, Arlene A. Polifroni, Louis Ferkin, Defendants. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Bruce G. Hermelee, Miami, FL, Joel Scott Townsend, David M. Gische, Joseph R. Gomez, Diane M. Parker, Washington, DC, for appellants.
Joel Hirschhorn, Coral Gables, FL, for Robert F. Ehrling.
Ricahrd A. Sharpstein, Coconut Grove, FL, for Richard Reizen.
Clark D. Mervis, Miami, FL, for Tore T. De Bella.
Melvin S. Black, Miami, FL, for Polifroni.
James D. Wing, Miami, FL, for Morizan and Wagg.
Robert P. Wright, Jr., Miami, FL, for Scharffenber, Manley, Hatch, Pyne, Askew, Brinckeroff and Clark.
R. Thomas Farrar, Miami, FL, for General Development.
Steven M. Edwards, New York City, Benedict P. Keuhne, Miami, FL, for David F. Brown.
Appeal from the United States District Court for the Southern District of Florida.
Before KRAVITCH and COX, Circuit Judges, and HOBBS *, Senior District Judge.
Pacific Insurance Co. appeals from an interlocutory order directing the company to pay the defense costs of four directors and officers of General Development Corp. (GDC). We dismiss the appeal as moot.
GDC develops and markets residential communities. David F. Brown was chairman of its board of directors from 1985 to 1990. Robert Ehrling was president from 1980 to 1990, and was a member of the board of directors at all relevant times. Tore T. De Bella was the senior vice-president for marketing at all relevant times. Richard Reizen was vice-president of marketing from 1982 to 1989. 1
In September 1985, GDC purchased primary and excess director and officer (D & O) liability insurance from National Union Fire Insurance Co. In September 1987, GDC purchased further excess D & O coverage from Pacific. This policy, which incorporated the terms and conditions of the underlying primary policy with National Union, provided $10 million in coverage on claims in excess of $10 million. GDC renewed the policy in 1988 and 1989.
A number of civil lawsuits were filed against GDC in 1988 alleging fraud in connection with the marketing and sale of its houses. Two years later, GDC, Brown, and Ehrling were indicted by a federal grand jury on fraud charges; the indictment was subsequently superseded by a new indictment naming, in addition to Brown and Ehrling, De Bella and Reizen. GDC pleaded guilty to one count of conspiracy. Shortly thereafter, a number of securities class actions were filed against the Insureds and other GDC directors and officers, alleging fraud for failure to disclose the information contained in the criminal indictment.
GDC petitioned for reorganization under Chapter 11 of the Bankruptcy Code in April 1990. This filing prevented GDC from funding the Insureds' defense in the pending litigation. As a result, the Insureds and other GDC directors and officers sought coverage under the company's D & O policy with National Union for defense costs in the pending civil and criminal actions. National Union and counsel for the directors and officers eventually entered into a series of interim agreements pursuant to which National Union agreed to pay legal fees and defense costs as incurred in the civil and criminal suits.
At about the time National Union and the Insureds were agreeing to this interim funding arrangement, Pacific notified GDC that it was rescinding the three excess policies because the applications for each contained material misrepresentations and/or omissions. 2 After GDC notified Pacific that it disputed Pacific's right to rescind, Pacific filed this action as an adversary proceeding in the bankruptcy court. In its complaint, Pacific asserted that under the Florida Claims Administration Statute, 37 Fla.Stat. Sec. 627.409(1) (1982), GDC's misrepresentations and omissions rendered the policy void ab initio. The district court subsequently determined that the action was a non-core proceeding, removed the case, and assumed jurisdiction over it.
As the Insureds were reaching the $10 million limit under the primary policy, they sought coverage under Pacific's excess policy. Pacific denied the claims, still asserting that the policies were null and void due to fraud. In response, the Insureds filed a counterclaim to Pacific's complaint seeking a declaration of the validity of Pacific's policies and specific performance. The Insureds' then moved for partial summary judgment on this counterclaim. In response, Pacific asserted that a genuine issue of material fact existed as to the validity of the policy under which the Insureds sought coverage, thus making summary judgment inappropriate.
The district court granted the Insureds' motion and issued an order (the April 1992 order) directing Pacific to "pay the Insured Defendants' defense costs as they are incurred until fraud, dishonesty or criminal acts are established by a judgment or other final adjudication or there is a final adjudication voiding or rescinding the policy." 3 Pursuant to the district court's order, Pacific began to advance funds to the Insureds for costs incurred through the course of the criminal trial. This appeal ensued.
On August 5, 1992, while the instant appeal was pending, each of the Insureds was found guilty of fraud or conspiracy to commit fraud in connection with GDC's housing sales and marketing practices from 1982 to 1989. Pacific immediately moved for relief from the district court's April 1992 order, asserting that, by its own terms, the order was no longer effective because the Insureds had been adjudged guilty of fraud. 4 Accordingly, on January 21, 1993, the district court granted Pacific's motion to modify the April 1992 order as to the Insureds (the January 1993 order).
A threshold question is whether the interlocutory grant of partial summary judgment in favor of the Insureds is an appealable order. We generally may review only final judgments. See 28 U.S.C. Sec. 1291. In this case, the district court did not direct the entry of final judgment on the Insureds' claim for specific performance. See Fed.R.Civ.P. 54(b). As such, the partial summary judgment order is not appealable under Sec. 1291.
Federal statute provides that "the courts of appeals shall have jurisdiction of appeals from ... interlocutory orders of the district courts ... granting ... injunctions, except where a direct review may be had in the Supreme Court." 28 U.S.C. Sec. 1292(a)(1) (1988). In National Union Fire Ins. Co. v. Sahlen, 999 F.2d 1532 (11th Cir.1993), this court held that an interlocutory order granting a request by directors and officers that their insurer pay their defense costs pending resolution of the insurer's claim for rescission of their D & O liability policy was an injunction for purposes of Sec. 1292(a)(1). Id. at 1535. Hence, the April 1992 order in this case was an injunction, the issuance of which is appealable interlocutorily. Consequently, we have jurisdiction to hear Pacific's appeal.
The next question is whether the Insureds' convictions render the instant appeal moot. We hold that they do.
A case is moot when it no longer presents a live controversy with respect to which the court can give meaningful relief. E.g., Ethredge v. Hail, 996 F.2d 1173, 1175 (11th Cir.1993). It is incumbent upon this court to consider issues of mootness sua sponte and, absent an applicable exception to the mootness doctrine, to dismiss any appeal that no longer presents a viable case or controversy. See, e.g., Hogan v. Mississippi Univ. for Women, 646 F.2d 1116, 1117 n. 1 (5th Cir. Unit A June 1981), aff'd, 458 U.S. 718, 102 S.Ct. 3331, 73 L.Ed.2d 1090 (1982). 5
The appeal in this case focuses solely on whether the district court erred in requiring Pacific to pay the Insured's interim defense costs prior to the court's disposition of the company's action for rescission. The April 1992 order required Pacific to "pay the Insured Defendants' defense costs as they are incurred until fraud, dishonesty or criminal acts are established by a judgment." 6 Thus, by the terms of that order, Pacific was relieved of its obligation to pay defense costs on August 5, 1992, the date on which the Insureds were convicted of fraud and conspiracy. Because Pacific is no longer required to advance the Insureds' defense costs, and has ceased to do so, no meaningful relief remains for us to provide. In short, the injunction we are asked to review has expired by its own terms. Any opinion we would render on the merits would be purely advisory. 7
The only interest Pacific arguably retains in the wake of the Insureds' convictions is an interest in obtaining restitution of the funds the company previously advanced for the Insureds' defenses. This interest cannot save the appeal from dismissal on mootness grounds, however, because a decision on the merits of the appeal is neither necessary nor sufficient for Pacific to recover restitution. Whether Pacific will be able to obtain restitution ultimately depends on the resolution of its rescission action; if the district court finds that the policy was fraudulently induced, it shall void the insurance policy ab initio pursuant to Florida law, enabling Pacific to obtain reimbursement of the funds advanced. See Hyman v. Cohen, 73 So.2d 393, 397 (Fla.1954); see also Sahlen, 999 F.2d at 1537 (...
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