Sealey v. Beazley Ins. Co.

Decision Date16 August 2016
Docket NumberCIVIL ACTION NO. 3:15cv768-DPJ-FKB
PartiesVINCENT SEALEY PLAINTIFF v. BEAZLEY INSURANCE COMPANY, INC. and AXIS INSURANCE COMPANY DEFENDANTS
CourtU.S. District Court — Southern District of Mississippi
ORDER

This case is before the Court on Defendant Beazley Insurance Company, Inc.'s ("Beazley") Motion to Dismiss [20]. Because the Court concludes that the assigned claims Sealey asserts were released by the assignors, the motion is granted.

I. Facts and Procedural History

The factual underpinning of this case began in 2002, when Bruister & Associates, Inc. ("BAI"), following the legal advice of attorney David R. Johanson, established an Employee Stock Ownership Plan ("ESOP"). Between 2002 and 2005, BAI's owner, Herbert C. Bruister, sold 100% of BAI's shares to its employees through a series of transactions with the ESOP. Those transactions ultimately led to the Secretary of Labor and two plan participants filing separate lawsuits alleging that the transactions violated various ERISA provisions (the "ERISA Actions"). Following a 19-day bench trial on the consolidated cases, the Court entered judgment in favor of Plaintiffs and against Defendants Bruister, Amy O. Smith, Jonda C. Henry, and the Bruister Family Limited Liability Company ("BFLLC") for in excess of $6 million. Following the entry of judgment, the Court awarded the private Plaintiffs an additional $3.1 million in attorneys' fees and expenses.

At the time the ERISA Actions were filed, the plan fiduciaries (Bruister, Smith, and Henry), BAI, and the ESOP maintained fiduciary-liability-insurance coverage through Beazley and AXIS Insurance Company. Bruister and BAI (acting through Johanson) tendered the ERISA Actions to Beazley for coverage and defense, and Beazley responded by reserving its rights and setting forth its coverage position. Beazley also stated that it had retained counsel for its insureds and would not consent to Johanson serving as defense counsel in the ERISA Actions.

This coverage dispute ultimately led to Bruister, Smith, Henry, and others—all represented by Johanson—filing Civil Action No. 4:10cv136 against Beazley and AXIS in this Court in August 2010 (the "Coverage Action"). In general terms, the Coverage Action plaintiffs demanded defense and indemnity without reservation along with the right to select their own independent counsel to represent them in the ERISA Actions. Beazley filed a counterclaim in which it asserted that no coverage existed under the Policy.

The parties eventually signed the now disputed Confidential Settlement Agreement and Release (the "Agreement") effective December 1, 2011, that resolved the Coverage Action. Under the Agreement, Beazley and AXIS agreed to: (1) withdraw their reservations of rights; (2) pay defense and indemnity but at reduced policy limits; and (3) allow the Coverage Action plaintiffs to retain independent counsel to represent them in the ERISA Actions. The insureds chose Johanson as their independent counsel, and he and others represented the insureds throughout the ERISA Actions, ultimately exhausting policy limits before the Court entered its judgments.

At some point following entry of judgment in the ERISA Actions, Vincent Sealey, the successful plan-participant plaintiff, obtained assignments from Smith and Henry of any claims they may have had against Beazley and AXIS. Sealey, in turn, instituted this case against Beazley and AXIS on October 23, 2015, asserting that the insurers breached their fiduciaryduties, engaged in bad faith, breached the terms of their insurance policies, and breached the duty of good faith and fair dealing.

AXIS is no longer a party, but Beazley filed the present Motion to Dismiss on February 29, 2016. In it, Beazley asserts that the December 1, 2011 Agreement barred the assignment of these claims to Sealey or alternatively released them. The matters raised have been fully briefed, and the Court has personal and subject-matter jurisdiction and is prepared to rule.

II. Standard

In considering a motion under Rule 12(b)(6), the "court accepts 'all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'" Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004) (quoting Jones v. Greninger, 188 F.3d 322, 324 (5th Cir. 1999) (per curiam)). But "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To overcome a Rule 12(b)(6) motion, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570. "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 555 (citations and footnote omitted).

Beazley has moved for dismissal on the basis of an affirmative defense—release. See Fed. R. Civ. P. 8(c)(1). "[W]hen a successful affirmative defense appears on the face of the pleadings, dismissal under Rule 12(b)(6) may be appropriate." Kansa Reinsurance Co., Ltd. v.Congressional Mortg. Corp. of Tex., 20 F.3d 1362, 1366 (5th Cir. 1994) (quoted in Wentzell v. JPMorgan Chase Bank, Nat'l Ass'n, 627 F. App'x 314, 317 (5th Cir. 2015)).

Finally, when considering a motion under Rule 12(b)(6), the Court's review is ordinarily limited "to the facts stated in the complaint and the documents either attached to or incorporated in the complaint. However, courts may also consider matters of which they may take judicial notice." Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1017-18 (5th Cir. 1996); see also Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010) (explaining that court may consider documents "central to the [plaintiff's claim] and referenced by the complaint"). Here, the Agreement is referenced in the Complaint, is central to Sealey's claims, and was filed under seal in another case before the Court. Compl. [1] ¶ 51; see Sealey v. Johanson, No. 3:15cv137-DPJ-FKB, Agreement [66]. So the terms of the Agreement are properly before the Court in reviewing Beazley's motion.

III. Analysis

Sealey stepped into Smith's and Henry's shoes when he took an assignment of their claims. See Combo Mar., Inc. v. U.S. United Bulk Terminal, LLC, 615 F.3d 599, 603-04 (5th Cir. 2010). As such, Sealey is barred from pursuing any claims that Smith and Henry released when they signed the Agreement. But the parties dispute whether the Agreement actually released Smith's and Henry's claims; whether the Agreement constitutes an unenforceable anticipatory release; and whether the Agreement is unconscionable. Each argument will be addressed in turn.

A. Whether the Claims Fall within the Scope of the Agreement

At the outset, the parties dispute whether Smith and Henry released the claims Sealeynow asserts. "Settlement agreements are contracts made by the parties, upon consideration acceptable to each of them, and the law will enforce them." Chantey Music Pub., Inc. v. Malaco, Inc., 915 So. 2d 1052, 1056 (Miss. 2005). The Court "appl[ies] contract law analysis to settlement agreements." Id. "'The primary purpose of all contract construction principles and methods is to determine and record the intent of the contracting parties.'" Facilities, Inc. v. Rogers-Usry Chevrolet, Inc., 908 So. 2d 107, 110 (Miss. 2005) (quoting Royer Homes of Miss., Inc. v. Chandeleur Homes, Inc., 857 So. 2d 748, 752 (Miss. 2003)). "In order to determine and record the intent of the contracting parties, [the Court] focus[es] upon the objective language of the contract." One S., Inc. v. Hollowell, 963 So. 2d 1156, 1162 (Miss. 2007).

Looking first at the Complaint, Sealey claims that Beazley breached its duties to Smith and Henry in the following respects:

1. Failing to provide defense and indemnity without a reservation of rights;
2. Failing to provide competent, independent, and conflict-free counsel to represent Smith and Henry in the ERISA Actions;
3. Approving and paying conflicted counsel, i.e., Johanson;
4. Failing to monitor Johanson during the ERISA Actions;
5. Failing to ensure that Smith and Henry were able to and did accept settlement offers within available policy limits;
6. Entering into a self-serving, unlawful agreement with conflicted parties that reduced policy limits; and
7. Failing to prevent conflicted counsel from draining available policy limits.

See Compl. [1] ¶ 2. In other words, Sealey complains about how Beazley handled its defense and indemnity obligations to Smith and Henry in the ERISA Actions.

Whether the Agreement released these claims turns on the terms of the Agreement, which provides in pertinent part as follows:1

1. . . . Bruister, Smith, Henry, [and others] are collectively referred to herein as the "Bruister Parties" and each, individually, as a "Bruister Party." The Bruister Parties, . . . Beazley, [and others] are collectively referred to herein as the "Settling Parties" and each, individually, as a "Settling Party."
. . . .
5. The Beazley Policy and the AXIS Policy are referred to herein as the Policies.
. . . .
10. There is a dispute between Beazley and the Bruister Parties as to, inter alia, whether the defense provided by Beazley for the Rader Lawsuit complies with Beazley's obligations under Mississippi law (the "Moeller Issue").
. . . .
12. Certain of the Bruister Parties filed a civil action against Beazley . . . Civil Action No. 4:10-CV-00136-HTW-LRA . . . (the "Coverage Lawsuit").
. . . .
14. The 2008 Agreement to Toll, the 2009 Agreement to Extend, the [ERISA Actions], the Form 5500 Audit, and the Moeller Issue are collectively referred to as the "Liability Matters[.]"
15. The Coverage Lawsuit and
...

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