S.E.C. v. Credit Bancorp, Ltd.

• Decision Date: 20 November 2002
• Docket Number: No. 99 Civ. 11395(RWS).,99 Civ. 11395(RWS).
• Citation: 232 F.Supp.2d 260
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. CREDIT BANCORP, LTD., Credit Bancorp, Inc., Richard Jonathan Blech, Thomas Michael Rittweger and Douglas C. Brandon, Defendants. Carl H. Loewenson, Jr., Esq., as Receiver for Credit Bancorp, Ltd., Credit Bancorp, N.V., and their subsidiaries and affiliated entities, Third-Party Plaintiff, v. Certain Underwriters at Lloyds, London, London Market Companies, Gulf Insurance Company, and Federal Insurance Company, Third-Party Defendants.
• Court: U.S. District Court — Southern District of New York

232 F.Supp.2d 260

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. CREDIT BANCORP, LTD., Credit Bancorp, Inc., Richard Jonathan Blech, Thomas Michael Rittweger and Douglas C. Brandon, Defendants.

Carl H. Loewenson, Jr., Esq., as Receiver for Credit Bancorp, Ltd., Credit Bancorp, N.V., and their subsidiaries and affiliated entities, Third-Party Plaintiff, v. Certain Underwriters at Lloyds, London, London Market Companies, Gulf Insurance Company, and Federal Insurance Company, Third-Party Defendants.

No. 99 Civ. 11395(RWS).

United States District Court, S.D. New York.

November 20, 2002.

COPYRIGHT MATERIAL OMITTED

Securities and Exchange Commission, Salt Lake City, UT, By: Thomas M. Melton, for Plaintiff, of counsel.

Securities and Exchange Commission, New York, NY, By: Robert Blackburn, Local Counsel, of counsel.

Pattison & Flannery, New York, NY, By: Thomas R. Pattison, Paul C. Fonseca, for Third-Party Defendants, of counsel.

Morrison & Foerster, New York, NY, By: Carl H. Loewenson, Receiver and Fiscal Agent, for Receiver.

Dickstein Shapiro Morin & Oshinsky, New York, NY, By: Randy Paar, Edward Tessler, Ryan S. Luft, for Receiver, of counsel.

OPINION

SWEET, District Judge.

Plaintiff Carl H. Loewenson, Jr. (the "Receiver"), as Receiver for Credit Bancorp, Ltd. and affiliated entities ("CBL") had moved to enforce a settlement agreement and this Court's order dated March 13, 2002 and is seeking a judgment for $205,237.26 plus interest from March 31, 2002, and attorney's fees against those defendants who subscribed to the All Risk Policy (the "Underwriters"). The Underwriters have cross-moved pursuant to Rule 60(b) of the Federal Rules of Civil Procedure to amend the settlement to replace the $205,237.26 figure with an amount of $88,767.12

For the following reasons, the Receiver's motion is granted, and the Underwriters' cross motion is denied.

Facts

Certain of the prior proceedings are described in previous opinions of this Court, familiarity with which is presumed. See SEC v. Credit Bancorp, Ltd., 147 F.Supp.2d 238 (S.D.N.Y.2001); SEC v. Credit Bancorp Ltd., 93 F.Supp.2d 475 (S.D.N.Y.2000).

On March 1, 2002, the Receiver and the Underwriters entered into a compromise and settlement of this action (the "Settlement Agreement"). The Settlement Agreement was negotiated over a several week period and was hotly debated, and finally approved by, the CBL customers. At issue is Paragraph 3 of the Settlement Agreement, which states:

... Insurers subscribing to Policy 509/ QR029198 shall pay the Receiver two hundred five thousand two hundred thirty-seven dollars and twenty-six cents (US$205,237.26) as a return of the unearned premiums (the "Returned Premiums"). This amount will be paid to the Receiver by check drawn on Pattison & Flannery's trust account no later than thirty (30) days after the date of this Agreement....

Settlement Agreement, ¶ 3. The $205,237.26 figure was based upon information provided to the Receiver's counsel by all attorneys for the Underwriters. As part of the settlement, the Receiver agreed not to seek return of that portion of the premium paid by Underwriters to the broker as commission. In addition, the Receiver agreed not to seek premium refunds on a number of other policies of the Underwriters. John P. Ryan, one of the experts the Receiver intended to call at trial, estimated that CBL should receive a total of $545,587, plus interest.¹

By order dated March 13, 2002 (the "March 13 Order"), the Settlement Agreement was approved and "so ordered" by this Court.

During the six months prior to making this motion, counsel for the Receiver sought to collect the monies owed by the Underwriters pursuant to Paragraph 3 of the Settlement Agreement and the March 13 Order. The Underwriters explained that they were prepared to pay the amount, but Marsh & McClennan, acting as agents for the Underwriters, had not yet collected the funds.

By facsimile dated September 23, 2002, the Underwriters' counsel provided counsel for the Receiver with a new method of calculating the unearned premium. That calculation would result in a return of $88,767.12.

The Receiver states that the Underwriters have refused to pay the amount due and that they have said that they might not make any payment at all unless the Receiver agrees to accept the lower amount of $88,767.12 in satisfaction of the Underwriters' obligations under Paragraph 3.

The Receiver filed this motion on September 30, 2002, and it was considered fully submitted on October 9, 2002.

The All Risk Policy

The All Risk Policy issued to CBL by the Underwriters provided coverage for losses up to $450 million for the period from August 1, 1998 through April 1, 2001. The premium, due in three yearly installments, was $450,000 per year. Accordingly, the premium installments due under the first and second years were $450,000 and a premium of $313,150 was to be paid for the third installment (pro-rated for the period from August 1, 2000 to April 1, 2001). These figures included a 25% brokerage fee.

CBL paid the first installment of $450,000. Effective on April 22, 1999, the All Risk Policy limit was amended downward to $300 million, and the premium was reduced to $225,000 per year for the remainder of the policy period. In accordance with pro-rata calculations, a return of unearned premium for the first year of coverage, in the amount of $62,260 was made to CBL. In addition, the premium installments owed for the second and third years became $225,000 and $156,575, respectively.

CBL paid the second premium installment payment of $225,000, constituting payment for the second year of coverage under the All Risk Policy.

On January 21, 2000, the Receiver was appointed and coverage accordingly terminated 173 days into the second year of coverage. The All Risk Policy stipulates in relevant part that "Underwriters shall, on request, refund to the Insured the unearned premium, computed pro rata, if this Policy be terminated or cancelled [by reason of the taking over of the Insured by a receiver]." Because coverage had been so terminated, the Receiver sought return of the unearned portion of the premium due. The Underwriters agreed that the unearned premium was to be returned.

The Calculation of the $205,237.26 Figure

The Underwriters derived the agreed-upon settlement figure from the following calculations and provided it to the Receiver in a letter dated November 20, 2001. First, CBL paid total premium payments of $612,740 to the Underwriters ($387,740 for the first year plus $225,000 for the second year of coverage). Next, the Underwriters calculated that no coverage was provided for 44.66% of the policy period, i.e., 192 days of the second year of coverage plus the third year of coverage divided by the total number of days of coverage, 1095. 44.66% of $612,740, less a 25% brokerage commission, equals $205,237.26.

The Calculation of the $88,767.12 Figure

The Underwriters claim that several mistakes were committed above. First, they claim that the only payment figure that should have been looked at was the amount paid for the second year of coverage, $225,000. Further, they claim that the calculation of the amount of time of no coverage should be calculated by looking only at the second year. Thus, because no coverage was provided for 192 days, the Underwriters argue that 52.60273% of the $225,000, less the 25% brokerage commission, should be refunded. This calculation yields the $88,767.12 amount.

An Alternative Figure: $160,319

In his reply papers, the Receiver points out that there is a third means of calculating the figure of unearned premiums. Over the two years of coverage, 191 of the 730 days were not covered. Thus, the Receiver argues that the formula could also have been approximately 26.16% of $612,740, or $160,319. Further, because the Receiver's agreement to forego brokerage commissions was part of the settlement in light of the $205,237.26 figure, he argues that the reduction should not apply to any of these new methodologies and thus did not subtract the 25% in brokerage commissions from the figure above.

Discussion

I. The Settlement Is Not Ambiguous

______ "A district court has the power to enforce summarily, on motion, a settlement agreement reached in a case that was pending before it." Meetings & Expositions Inc. v. Tandy Corp., 490 F.2d 714, 717 (2d Cir.1974); see also Transtech Elects. Pte. Ltd. v. NAS Elecs. Inc., 2000 WL 381428, at *2 (S.D.N.Y. April 13, 2000); Cruz v. Korean Air Lines Co., 838 F.Supp. 843, 845-46 (S.D.N.Y. 1993).

The Settlement Agreement provides that it is to be governed by New York law. Settlement Agreement, ¶ 13. In New York, a settlement agreement is construed according to general principles of contract law. Red Ball Interior Demolition Corp. v. Palmadessa, 173 F.3d 481, 484 (2d Cir.1999); Bank of New York v. Amoco Oil Co., 35 F.3d 643, 661 (2d Cir. 1994). Accordingly, the initial interpretation of the agreement is a matter of law for the Court to decide. K. Bell & Assocs., Inc. v. Lloyd's Underwriters, 97 F.3d 632, 637 (2d Cir.1996). The Court must construe the agreement in accordance with the intent of the parties, giving unambiguous words their plain meaning. Bank of New York, 35 F.3d at 661.

The question of ambiguity vel non must be determined from the face of the agreement without reference to extrinsic evidence. Collins v. Harrison-Bode, 303 F.3d 429, 433 (2d Cir.2002) (citing Kass v. Kass, 91 N.Y.2d 554, 566, 673 N.Y.S.2d 350, 696 N.E.2d 174 (1998)). "Contract language is ambiguous if it is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement." Id. at 433.

Paragraph 3 of the Settlement Agreement is unambiguous. The paragraph provides, in pertinent part, that the Underwriters "shall pay the Receiver ... US$205,237.26 as a return of unearned premiums." The Underwriters argue that because...