Standard Gen. L.P. v. Travelers Indem. Co. of Conn.

• Decision Date: 18 August 2017
• Docket Number: 17cv0548
• Citation: 261 F.Supp.3d 502
• Parties: STANDARD GENERAL L.P., Plaintiff, v. The TRAVELERS INDEMNITY COMPANY OF CONNECTICUT, Defendant.
• Court: U.S. District Court — Southern District of New York

261 F.Supp.3d 502

STANDARD GENERAL L.P., Plaintiff,

v.The TRAVELERS INDEMNITY COMPANY OF CONNECTICUT, Defendant.

17cv0548

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

Signed August 18, 2017

Adam Seth Ziffer, Robin L. Cohen, McKool Smith, New York, NY, for Plaintiff.

James Mitchell Strauss, Thomas Alan Martin, Putney Twombly Hall & Hirson LLP, New York, NY, for Defendant.

OPINION & ORDER

WILLIAM H. PAULEY III, District Judge:

Standard General L.P. ("Standard General") brings this breach of contract and declaratory judgment action against The Travelers Indemnity Company of Connecticut ("Travelers"). Standard General seeks damages for Travelers' alleged breach of its obligations under a primary commercial insurance policy and an excess commercial liability insurance policy. Standard General also seeks a declaratory judgment that Travelers is obligated to defend Standard General in a lawsuit brought by Dov Charney, the erstwhile CEO and Chairman of the Board of Directors of American Apparel, Inc. (the "Charney Action"). Both parties move for summary judgment. For the following reasons, Standard General's motion for summary judgment is granted, and Travelers' motion for summary judgment is denied.

BACKGROUND

This dispute arises out of two insurance policies issued by Travelers in July 2014 to Standard General as the named insured. Standard General is a New York-based investment firm "specializing in event-driven management funds and distressed company investments." (Travelers' Response to Plaintiff's Statement of Undisputed Facts Pursuant to Local Civil Rule 56.1, ECF No. 27 ("Travelers' Rule 56.1 Response") ¶ 1.) The first policy is a commercial insurance policy that provides coverage for commercial general liability and includes a limit of $1 million for losses from personal and advertising injury (the "Primary Policy"). The other is an excess commercial liability insurance policy that provides up to $5 million in coverage for losses from personal and advertising injury that exceed the applicable coverage limits of the underlying insurance, which expressly includes the Primary Policy (the "Excess Policy," and together with the Primary Policy, the "Policies").

I. Operation of the Policies

The Primary Policy provides liability coverage to Standard General during the policy period of September 1, 2014 to September 1, 2015. (Travelers' Rule 56.1 Response ¶ 11.) Specifically, it provides that Travelers "will pay those sums that the insured becomes legally obligated to pay as damages because of ‘personal injury’ or ‘advertising injury’ to which this insurance applies." (See Affidavit of Gail Steiner, ECF No. 33 ("Steiner Aff."), Ex. 2, at 92.) Under the Primary Policy, Travelers also has "the right and duty to defend the insured against any ‘suit’ seeking those damages even if the allegations of the ‘suit’ are groundless, false or fraudulent." (Steiner Aff., Ex. 2, at 92.) This duty to defend does not apply to any " ‘suit’ seeking damages for ‘personal injury’ or ‘advertising injury’ to which this insurance does not apply." (Steiner Aff., Ex. 2, at 92.)

Like the Primary Policy, the Excess Policy insures Standard General during the same policy period. (Declaration of Thomas A. Martin, ECF No. 26 ("Martin Decl."), Ex. C, at 4.) Travelers also has "the right and duty to defend any ‘suit’ for damages" payable under the Excess Policy's personal injury and advertising injury liability coverage that exceed the limits of the underlying insurance, "even if any of the allegations of the ‘suit’ are groundless, false or fraudulent." (Martin Decl., Ex. C, at 38.) Under both Policies, a "suit" is defined as "a civil proceeding in which damages because of ... [‘personal injury’ or ‘advertising injury’] to which this insurance applies [is] alleged." (Travelers' Rule 56.1 Response ¶ 13; Martin Decl., Ex. C, at 18.)

II. The Charney Action

On May 7, 2015, Charney brought an action against Standard General and several of its affiliates in the Superior Court of the State of California. In that lawsuit, Charney asserts claims for, inter alia, defamation, false light, and "unfair business acts" and "false advertising" in violation of California's Business & Professions Code. (See Martin Decl., Ex. E.) The gravamen of the complaint is that Standard General made certain comments in a December 2014 statement (the "December 2014 Statement") to the press falsely claiming that American Apparel's Board of Directors terminated Charney's employment as CEO and Chairman of the Board for cause based on an independent, third-party investigation into his alleged misconduct. (Martin Decl., Ex. E, ¶¶ 1, 43–44.) The complaint further alleges that Standard General had "effectively [taken] over American Apparel by and through its control of company stock and the Board of Directors," and that it essentially used the investigation as a means both to "reinforc[e] Charney's exit from the company and entrench[ ] Standard General's control over the same." (Martin Decl., Ex. E, ¶¶ 19, 22.)

The December 2014 Statement, by a Standard General spokesperson, purported to respond to Charney's interview with Bloomberg Television. In relevant part, it states:

Our objective is to help American Apparel grow and succeed. We supported the independent, third-party and very thorough investigation into the allegations against Mr. Charney, and respect the Board of Director[s'] decision to terminate him based on the results of that investigation. We believe that American Apparel will benefit from the leadership of its new CEO, Paula Schneider, and we are focused on supporting her and American Apparel going forward.

(Martin Decl., Ex. E, at Ex. D.) These comments, allegedly part of an "anti-Charney publicity campaign designed to destroy Charney's personal and professional reputation," were subsequently referenced and republished by worldwide news outlets. (Martin Decl., Ex. E, ¶¶ 43–44.)

On October 30, 2015, the California Superior Court issued a Statement of Decision granting Standard General's anti-SLAPP motion to strike the complaint and dismissing the Charney Action with prejudice. (See Martin Decl., Ex. D.) In finding that Charney failed to establish that Standard General's statement was defamatory, the Superior Court reasoned that "[t]he natural and popular construction that the average reader would give to the statement in its full context is that it was a commentary on American Apparel's decision to terminate [Charney], not a statement about [Charney's] own conduct or character." (Martin Decl., Ex. D, at 2.) The California Court of Appeal affirmed on March 28, 2017. (See Steiner Aff., Ex. 5.) Charney sought further review by the Supreme Court of California. That appeal is currently pending.

LEGAL STANDARD

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories on file, together with the affidavits, if any, show there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c) ; see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The moving party has the burden of demonstrating the absence of any genuine disputes of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). In determining whether summary judgment is appropriate, the court must resolve all ambiguities and draw all reasonable inferences against the movant. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). On dueling motions for summary judgment, the court must evaluate each party's motion on its merits and determine whether either is entitled to judgment as a matter of law. Coutard v. Mun. Credit Union, 848 F.3d 102, 114 (2d Cir. 2017). Where the interpretation of a clear and unambiguous insurance policy is the "sole question" presented on a motion for summary judgment, "the issue is one of law that may be decided by the Court upon a motion for summary judgment." Vill. of Piermont v. Am. Alt. Ins. Corp., 151 F.Supp.3d 438, 447 (S.D.N.Y. 2015).

DISCUSSION

As a threshold matter, the Policies do not contain a choice of law provision. Travelers contends that New York law governs this dispute. Standard General agrees that New York law could apply, but suggests that California law could also apply. This Court has subject-matter jurisdiction based on the diversity of citizenship between the parties. A federal district court sitting in diversity must apply the choice of law rules of the state in which the court sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941) ; Int'l Bus. Mach. Corp. v. Liberty Mut. Ins. Co., 363 F.3d 137, 143 (2d Cir. 2004). In determining what law applies to a contract dispute, New York uses the "center of gravity" or "grouping of contacts" approach to determine which forum has the most significant contacts with the matter in dispute. Md. Cas. Co. v. Cont'l Cas. Co., 332 F.3d 145, 151 (2d Cir. 2003). For insurance contracts, the applicable law is typically that of the principal location of the insured risk. Liberty Mut. Ins. Co. v. Fairbanks Co., 170 F.Supp.3d 634, 642 (S.D.N.Y. 2016). If the policy covers risks in multiple states, however, then the state of the insured's domicile (i.e., the insured's principal place of business) is "a proxy for the principal location of the insured risk" and is the "controlling factor" in determining the applicable law. Certain Underwriters at Lloyd's, London v. Foster Wheeler Corp., 36 A.D.3d 17, 822 N.Y.S.2d 30, 35–37 (2006), aff'd 9 N.Y.3d 928, 844 N.Y.S.2d 773, 876 N.E.2d 500 (2007). Here, Standard General maintains its principal place of business in New York and operates as a New York based investment firm. (Travelers' Rule 56.1 Response ¶ 1.) In addition, the Policies were both...