St. Paul Fire and Marine v. Compaq Computer

• Decision Date: 13 July 2005
• Docket Number: No. Civ.03-6485(DSD/SRN).,Civ.03-6485(DSD/SRN).
• Citation: 377 F.Supp.2d 719
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff, v. COMPAQ COMPUTER CORPORATION, Defendant.
• Court: U.S. District Court — District of Minnesota

377 F.Supp.2d 719

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff, v. COMPAQ COMPUTER CORPORATION, Defendant.

No. Civ.03-6485(DSD/SRN).

United States District Court, D. Minnesota.

July 13, 2005.

Charles E. Spevacek, Jenneane L. Jansen, Michael P. McNamee, and Meagher & Geer, Minneapolis, MN, for plaintiff.

Christopher L. Lynch, Paul A. Banker, Thomas C. Mielenhausen, and Lindquist & Vennum, Minneapolis, MN and Gilbert L. Henry, Lara Mackey, Martin D. Katz, and Sheppard, Mullin, Richter & Hampton, Los Angeles, CA, for defendant.

ORDER

DOTY, Senior District Judge.

This matter is before the court upon plaintiff's motion for summary judgment. Based upon a review of the file, record and proceedings herein, and for the reasons stated, the court grants plaintiff's motion.

BACKGROUND

St. Paul Fire and Marine Insurance Company ("St. Paul") brings this action to recoup money it spent to defend Compaq Computer Corporation ("Compaq") against a lawsuit. On October 31, 1999, Charles Thurmond and others brought a putative class action against Compaq in the United States District Court for the Eastern District of Texas alleging, among other things, violations of the Computer Fraud and Abuse Act of 1986 ("CFAA"), 18 U.S.C. § 1030. See Thurmond v. Compaq Computer Corp., 171 F.Supp.2d 667 (E.D.Tex.2001). The Thurmond plaintiffs alleged that Compaq had distributed computers with defective floppy disk controllers.

At all times relevant to the Thurmond action, Compaq was covered under a "Multicover Package Policy" issued by St. Paul. The package policy contained three discrete insuring agreements entitled "Technology Errors and Omissions Liability Protection" ("Tech E&O"), "Technology Commercial General Liability Protection" and "Technology Umbrella Excess Liability Protection." Soon after the Thurmond action commenced, Compaq tendered its defense to St. Paul. In a letter dated November 24, 1999, St. Paul accepted Compaq's tender and acknowledged its apparent duty to defend pursuant to the Tech E&O policy. However, the letter also included the following language:

Please note that no action taken by St. Paul with respect to [Compaq's] claim shall be construed as a waiver of St. Paul's rights, if appropriate, to deny liability under any policy issued by St. Paul. Neither this letter nor the performance by St. Paul under its terms shall operate as a waiver or a modification of any of the terms, conditions, limitations, exclusions, monetary limits, deductibles, retention, or other provisions of the policy issued to Compaq with respect to the [Thurmond] lawsuit.

(Mackey Aff. Ex. 18 at 1.) St. Paul issued a second reservation of rights letter on January 31, 2000. That letter included the following language, which is not present in the November 24 letter:

St. Paul reserves the right to withdraw from Compaq's defense upon written notice to you and seek recovery of all fees and expenses incurred in defense of this matter, if it is later determined there is no coverage or duty to defend Compaq in this matter.

(Mackey Aff. Ex. 21 at 7.) After issuing the second letter, St. Paul paid a total of $668,739.95 to reimburse Compaq for its costs of defense. Compaq cashed each check St. Paul issued for that purpose. (Zacharski Aff.)

St. Paul ultimately withdrew from Compaq's defense. After Thurmond was resolved in Compaq's favor on summary judgment, Compaq commenced an action against St. Paul in Ramsey County, Minnesota, District Court seeking damages and a declaration of St. Paul's duty to defend. After evaluating the merits of Compaq's claims, the Minnesota court granted St. Paul's motion for summary judgment. Compaq took an appeal, and the Court of Appeals of Minnesota affirmed. Compaq Computer Corp. v. St. Paul Fire & Marine Ins. Co., 2003 WL 22039551 (Minn.Ct.App. Sept.2, 2003). Compaq's petition for review in the Supreme Court of Minnesota was denied. Compaq Computer Corp. v. St. Paul Fire & Marine Ins. Co., 2003 Minn. LEXIS 759 (Minn. Nov. 18, 2003).

On November 25, 2003, St. Paul commenced this action in the Ramsey County District Court to recoup all the expenses it incurred in mounting Compaq's Thurmond defense. Compaq filed a timely notice of removal, invoking this court's diversity jurisdiction. Compaq also filed a counterclaim alleging breaches of contract based on St. Paul's withdrawal from defense of the Thurmond action and seeking damages and declaratory relief. This court granted St. Paul's motion to dismiss the counterclaim, treating it as one for summary judgment, based on the res judicata effect of the prior Minnesota state court judgment. (Order of Oct. 12, 2004.) St. Paul now moves for summary judgment on its claim for reimbursement.

DISCUSSION

I. Summary Judgment Standard

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." In order for the moving party to prevail, it must demonstrate to the court that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P. 56(c)). A fact is material only when its resolution affects the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either party. See id. at 252, 106 S.Ct. 2505.

On a motion for summary judgment, all evidence and inferences are to be viewed in a light most favorable to the non-moving party. See id. at 255, 106 S.Ct. 2505. The non-moving party, however, may not rest upon mere denials or allegations in the pleadings, but must set forth specific facts sufficient to raise a genuine issue for trial. See Celotex, 477 U.S. at 324, 106 S.Ct. 2548. Moreover, if a plaintiff cannot support each essential element of its claim, summary judgment must be granted because a complete failure of proof regarding an essential element necessarily renders all other facts immaterial. Id. at 322-23, 106 S.Ct. 2548.

II. Reimbursement of Defense Costs

The question presented is as follows: whether, in Texas, a liability insurer which has purported to reserve a right to reimbursement of defense costs may recover those costs, though the policy is silent on the matter, following a determination that the insurer had no duty to defend the underlying action. No Texas appellate court has ever answered that question in the affirmative. The Court of Appeals of Texas has, however, suggested the possibility of reimbursement in an appropriate case. See Matagorda County v. Tex. Ass'n of Counties County Gov't Risk Mgmt. Pool, 975 S.W.2d 782, 784-85 (Tex.App.1998).

In Matagorda County, three prisoners of the Matagorda County jail sued the County for damages arising from assaults which they suffered in the jail. See id. at 783. The County tendered its defense to the "risk management pool" of the Texas Association of Counties ("TAC") which, for all intents and purposes, was the County's liability insurer. See id. at 783. TAC brought a declaratory judgment action to dispute coverage, but provided a defense to the County. Id. at 783. TAC later settled the underlying action and amended its complaint in the declaratory judgment action to seek reimbursement of defense and settlement costs. Id. at 783.

Examining the defense cost reimbursement question, the court of appeals "found no Texas cases that would recognize such a right to reimbursement." Matagorda County, 975 S.W.2d at 784. Nevertheless, the court observed that other states had held the right to exist where the insurer specifically reserved the right and the insured did not object. See id. at 784 (discussing Buss v. Superior Court, 16 Cal.4th 35, 65 Cal.Rptr.2d 366, 939 P.2d 766, 776-78 & 784 n. 27 (1997) & Knapp v. Commonwealth Land Title Ins. Co., 932 F.Supp. 1169, 1172 (D.Minn.1996)). The court suggested that those decisions were consistent with the doctrine of quantum meruit. See id. at 785. In Texas and elsewhere, quantum meruit "is an equitable theory of recovery which is based on an implied agreement to pay for benefits received." Id. at 785 (citing Vortt Exploration Co. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944 (Tex.1990)). Applying the elements of that equitable doctrine, the court held that TAC could not seek reimbursement because it had failed to notify the County that it would later attempt to recover defense costs. See id. at 785. TAC did not appeal the defense costs issue, but did prosecute and lose an appeal of the issue whether it was entitled to reimbursement of settlement costs. See Tex. Ass'n of Counties County Gov't Risk Mgmt. Pool v. Matagorda County, 52 S.W.3d 128 (Tex.2000) [hereinafter Matagorda County II].

Based on Matagorda County, the court believes that the Supreme Court of Texas would apply the doctrine of quantum meruit to this dispute. See Marvin Lumber & Cedar Co. v. PPG Indus., Inc., 401 F.3d 901, 917-18 (8th Cir.2005) (in absence of precedent from state's highest court, court must predict what that court would do); Doe v. Baxter Healthcare Corp., 380 F.3d 399, 407 (8th Cir.2004) (rulings of inferior appellate courts provide indication of what state's highest court would do). A party is entitled to recovery under quantum meruit when (1) valuable services or materials were furnished, (2) to the party sought to be charged, (3) which were accepted by the party sought to be charged, (4) under such circumstances as reasonably notified the recipient that the plaintiff, in performing, expected to be paid by the recipient. Matagorda County, 975 S.W.2d at 785. Here, there is no...