Reff Props., LLC v. Bauer Grp. Agency, Ltd., Case No. 14 C 50002
| Decision Date | 22 July 2015 |
| Docket Number | Case No. 14 C 50002 |
| Parties | Reff Properties, LLC Plaintiff, v. Bauer Group Agency, Ltd., et al., Defendants. In Re: Pinewood Buffet & Grill, Inc. |
| Court | U.S. District Court — Northern District of Illinois |
ORDER
For the reasons stated below, plaintiff's motion [66] for summary judgment is granted in part and denied in part. Plaintiff's motion is granted as to the sum of $41,431.58 from the proceeds of the "Contents Check". Otherwise, plaintiff's motion is denied. Reff's motion [70] for summary judgment is granted. Fishburn is ordered to deliver the sum of $41,431.58 from the proceeds of the "Contents Check" to plaintiff. Fishburn is directed to deliver the proceeds from the "Building Check" and $550.00 from the proceeds of the "Contents Check" to Reff Properties, LLC. It appears that this order moots Reff's third-party action against the Insurance Defendants and Smith. Reff shall file a motion to dismiss the third-party action or notify the court that it intends to proceed with that action - with an explanation as to why the action is not moot - on or before August 21, 2015.
Plaintiff, Daniel M. Donahue, trustee of the bankruptcy estate of Pinewood Buffet & Grill, Inc. ("Pinewood"), brings this action for declaratory judgment against defendants, Jennifer Smith, Reff Properties, LLC ("Reff"), and Dan G. Fishburn1. Plaintiff seeks a declaration that certain funds held by Fishburn are the property of the bankruptcy estate (Count I) and further asks the court to order Fishburn to turnover these funds to the bankruptcy estate (Count II). The funds at issue are the proceeds of insurance paid as the result of a fire at a restaurant owned and operated by Pinewood in a building it leased from Reff. Smith, who is a lender to Pinewood, agrees with plaintiff that these proceeds belong to the bankruptcy estate. Reff denies plaintiff is entitled to a declaration that the funds belong to the bankruptcy estate. Reff also filed a counterclaim asserting the funds belong to it and, that to the extent the estate has an interest in these funds, that interest is subject to a constructive trust or equitable lien in favor of Reff. Plaintiff [66] and Reff [70] each move for summary judgment denying the other's claims and granting their own.
Also pending, is a third party claim by Reff against Bauer Group Agency, Ltd. ("Bauer"), Michael Woodward, Auto-Owners Insurance ("Auto-Owners") (collectively, "Insurance Defendants"), and Smith. This claim is not at issue in the summary judgment motions. However, Bauer and Woodward have filed a memorandum in support of Reff's summary judgment motion.
Todd and Amy Reid were the sole shareholders of Pinewood. Bauer was a disclosed agent of Auto-Owners authorized to issue insurance binders on Auto-Owners's behalf. Woodward was a licensed insurance producer in Illinois working for Bauer.
In August 2009, Reff purchased a building in Freeport, Illinois along with certain equipment paying $340,000. $225,000 of the purchase price was allocated to the building and $115,000 to the equipment. One year later, in August 2010, Pinewood entered a lease with Reff for the real property and equipment. The lease required Pinewood to provide fire and casualty insurance on the leased premises with Reff as the named insured and liability and dram shop insurance with Reff named as an additional insured. Pinewood worked with Woodward to obtain insurance on the premises from Auto-Owners through its agent, Bauer. At some point, Woodward advised Amy that Reff could not be identified as the "named insured" on the proposed policy because Pinewood would be the entity paying the premiums.
Smith lent Pinewood $100,000 to start its business evidenced by a promissory note. Smith's loan to Pinewood was unsecured. Prior to making the loan to Pinewood, Smith indicated to Pinewood's owners that she wanted to be secured in connection with her anticipated loan and raised the topic of insurance. Amy advised Smith that Amy had spoken with Woodward who had told Amy that Smith could be added to the insurance policy. Smith assumed that if she was identified in the insurance policy, in the event of a casualty, Reff would receive the fair market value of the building and then she would be paid the balance of her loan. Todd testified that approximately a week before the execution of the lease agreement with Reff, Todd had a discussion with Woodward. From this discussion, Todd understood Reff was to be the beneficiary of the building and personal property portion of the contemplated insurance policy.
An insurance binder, dated August 10, 2010, was issued by Bauer with an effective date of August 11, 2010 and expiration date of September 10, 2010 listing Pinewood as the insured. The binder bound coverage for property insurance (with coverage forms for "Building, Business Contents, Sign, Food Spoilage".) It also bound coverage for commercial general liability, excess liability, and workers' compensation and employer's liability coverages. Reff was listed on the binder and its interest was indicated by check marks being placed in 3 separate boxes one each labeled respectively "mortgagee", "loss payee", and "additional insured". An additional binder, dated August 10, 2010, was also issued by Bauer with an effective date of August 11, 2010 and expiration date of September 10, 2010 listing Pinewood as the insured. It was identical to the other binder except that Reff was not listed and, instead, Smith was listed as loss payee. An insurance application was made on behalf of Pinewood in which Pinewood is listed as the named insured, Smith as an additional interest of "loss payee" and Reff as an additional interest of "mortgagee". When the policy itself was issued by Auto-Owners, however, it did not list Reff as the named insured (as called for by the lease) or as mortgagee, loss payee and additional insured as provided in the binder. The policy listed Pinewood as the insured and listed only Smith in the section "secured interested parties and/or additional interested parties." Smith's interest is identified as "loss payable". The policy was for the period August 11, 2010 to August 11, 2011. Todd and Amy received a copy of this policy but did not read it.
A fire occurred on June 2, 2011. On June 3, 2011, Reff's owner (Peter Reff) and Pinewood's owners were told by Peter Salm, the insurance adjuster for Auto- Owners, that Reff was not named on the insurance policy as either the named insured or in any other capacity. Subsequently, on June 14, 2011, a change endorsement to the policy was made. The change is described on a policy declaration page as: "added the following mortgagee: Reff Properties." The declaration page notes "Change Endorsement Effective 08-11-2010." August 11, 2010 was the original effective date of the policy and the binders mentioned above. As set forth above, Reff did not hold a mortgage on the property. Reff owned the property and leased it to Pinewood. At no time after June 2, 2011 but prior to June 14, 2011 did anyone have any discussion with Smith about adding Reff to the insurance policy post-fire.
On November 29, 2011 Auto-Owners issued a check ("Building Check") in the sum of $439,252.33 payable to Pinewood, Reff, and Smith for the "actual cash value of building less deductible and mitigation." On that date, Auto-Owners also issued a check ("Contents Check") in the amount of $41,981.58 payable to Pinewood and Reff for the "actual cash value of contents less mitigation."2
In February 2012, the parties deposited these checks into Fishburn's trust account pursuant to an attorneys trust account agreement ("Trust Agreement") dated "February ___, 2012." The Trust Agreement provides in relevant part that the Building Check is "to be disbursed as directed pursuant to a written agreement executed by Pinewood Buffet & Grill, Inc., Reff Properties, LLC and Jennifer Smith, or in lieu thereof, pursuant to court order." The Trust Agreement further provides that the "parties hereto agree that this Agreement is entered into for the purposes of facilitating receipt of said checks from the Insurance company pending resolution of current issues between the parties and said sum as held in said trust account shall have the same legal character for all purposes as when held by the insurance company subject to the terms of the relevant insurance policy."
No agreement was reached and eventually Pinewood filed a Chapter 7 bankruptcy petition on August 30, 2012. Reff, meanwhile, had sold the building and equipment on June 29, 2012 for $40,000. Plaintiff, as bankruptcy trustee, filed the present case as an adversary proceeding in the bankruptcy case. Reff filed counterclaims and the third-party action against the Insurance Defendants. This court, by order [12] entered April 9, 2014, granted Reff's motion to withdraw the reference of the adversary proceeding from the bankruptcy court.
Plaintiff claims the bankruptcy estate is entitled to the funds held under the Trust Agreement because the funds are proceeds of an insurance policy under which, at the time of the loss, Pinewood, not Reff, was the named insured. Reff claims it is entitled to the insurance proceeds because Pinewood was contractually obligated under the lease to provide insurance on the premises with Reff as the named insured and because, pursuant to the June 14, 2011 change endorsement, Reff was insured under the policy at the time of the loss. Bauer and Woodward support Reff arguing the insurance policy should be reformed to conform to the intent of the parties.
The insurance policy issued by Auto-Owners, for purposes relevant here, included ISO Building and Personal Property Coverage Form CP 00 10 10 91 (Dkt. # 73-6, p. 71). That form provides in paragraph E. 4. c: "We will not pay you more than your financial interest in the Covered Property." (Dkt. # 73-6, p. 77). "You" means the named insured. Paragraph E. 4. d....
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