Stargatt v. Avenell
| Decision Date | 12 May 1977 |
| Docket Number | Civ. A. No. 4357. |
| Citation | 434 F. Supp. 234 |
| Parties | Bruce M. STARGATT, as Receiver for McDonnell & Co., Incorporated, a Delaware corporation in Receivership, Plaintiff, v. Richard Keeler AVENELL, citizen of Great Britain, and named representative of underwriters appearing on behalf of individual members of Lloyd's Syndicate Writing Policy No. CU10264, et al., Defendants. |
| Court | U.S. District Court — District of Delaware |
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Bruce M. Stargatt, Jack B. Jacobs and Doris M. Toll, of Young, Conaway, Stargatt & Taylor, Wilmington, Del., for plaintiff.
James M. Tunnell, Jr., David A. Drexler and William H. Sudell, Jr., of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for defendants.
This action is brought by Bruce M. Stargatt, Receiver for McDonnell & Company (hereinafter "McDonnell") to recover on claims under two excess insurance policies issued by defendants to McDonnell. Prior to being placed in receivership, McDonnell was a member firm of the New York Stock Exchange and was engaged in the securities brokerage business, with its principal offices located in New York City. Defendants are members of a number of Lloyd's of London syndicates which wrote the policies at issue. The terms and conditions of the two policies are essentially the same except with respect to policy limits.
This action was originally brought against Fidelity and Casualty Company of New York (hereinafter "Fidelity"), the primary insurer, and the first excess insurers. As a result of a settlement agreement, plaintiff's claims against Fidelity were dismissed by Order of this Court on December 2, 1974. On July 16, 1975 this Court denied the first excess insurer's motion for summary judgment, in support of which they had argued that by settling with Fidelity, the primary insurer, plaintiff had not exhausted the primary policy's coverage, thereby relieving the first excess insurers of any liability.1 On April 29, 1976 the Court permitted plaintiff to amend the complaint to add the excess insurers under the second excess policy. Both sides have now moved for summary judgment and have filed extensive briefs and affidavits in support of those motions.
The excess insurance policies provide for the following coverage:
. . . In consideration of the payment of a charge of $5,000.00 (FIVE THOUSAND DOLLARS), the receipt of which is hereby acknowledged, the Insurers hereby undertake and agree to indemnify MCDONNELL & CO. INCORPORATED, New York, N.Y., and as set forth herein, (herein called the "Assured"), and to hold said Assured harmless within the limits herein stated, from and against all such loss or liability as the Assured may during the policy period of twelve (12) calendar months from 7th day of July, 1968 12.01 a. m. Standard Time incur or sustain or discover that it has incurred or sustained by reason of any claim or claims which may be made against the Assured under any provision or provisions of the Federal Securities Act of 1933, or any past or future amendments thereof (herein referred to as the "Securities Act of 1933") or the Federal Securities Exchange Act of 1934, or any past or future amendments thereof, (herein referred to as the "Securities Exchange Act") or of the common or statutory law of any state or of the United States pertaining to the sale of securities, all as more fully described in the Securities and Exchange Act policy (hereinafter called the "Primary Policy") issued by the Fidelity and Casualty Company of New York.
Each policy also provides that it is "subject to the same terms, conditions, exclusions and stipulations (except as regards the premium and except as otherwise provided herein) as are contained in the primary policy".
Under the primary policy the upper limit of coverage is $250,000, subject to a $50,000 deductible provision for any one issue of securities, whether made up of one or more claims. The first excess policy provides for coverage up to $750,000 in losses after the primary coverage is exhausted. The second excess policy provides for coverage up to $2,000,000 after the primary and first excess coverage are exhausted.
Plaintiff here has sued to collect on twelve different claims alleged to be covered under the excess insurance policies. Defendants have asserted defenses as to each claim. The facts surrounding each claim will be stated briefly below.
This claim arises out of a lawsuit encaptioned Margaret Mary McDonnell Murphy v. McDonnell & Company, Incorporated, et al., (United States District Court for the Southern District of New York, 71 Civ. 461R. 0). In her complaint Murphy alleged that in February 1969 she was fraudulently induced to subordinate her investment account with McDonnell. Later during the summer of 1969 Murphy was requested by officers of McDonnell to enter into a second agreement with the company. By the terms of the agreement, fifty percent of the value of the securities subject to the subordination agreement were to be converted into preferred stock of McDonnell and the remainder, if necessary to comply with the rules of the New York Stock Exchange, would be exchanged for a five year installment note of McDonnell. Murphy entered into the second agreement on September 30, 1969. In October, 1969 fifty percent in value of the securities in Murphy's subordinated account were exchanged for preferred stock of McDonnell. Thereafter, according to Murphy's complaint, the remaining securities in her subordinated account were "wrongfully and unlawfully converted" for a five year subordinated installment obligation of McDonnell.
This action was consolidated for trial with the Anna and James McDonnell action, to be described below. A jury verdict in the amount of $300,000 for Murphy was later reduced by the Court to $282,623, being the value of Murphy's account as of February, 1969, when the original transaction took place.
This claim arises out of a lawsuit encaptioned Anna M. McDonnell, et al. v. McDonnell & Company, Incorporated, et al., (United States District Court for the Southern District of New York, 71 Civ. 1940). Anna and James F. McDonnell, Jr. as trustees of a testamentary trust created by James F. McDonnell, Sr., brought this suit to recover a trust asset consisting of a Series B registered subordinated debenture of McDonnell & Company in the amount of $318,622.97 due on December 31, 1968. According to the complaint the debenture was not paid upon maturity, but instead was "wrongfully and unlawfully converted" into a Series E registered subordinated debenture, due on December 31, 1978. It was alleged that plaintiff-trustees were not made aware of McDonnell's capital problem when the debenture was converted and were not advised of the "roll over" in debentures until sometime in the summer of 1969, when they demanded payment to no avail. Plaintiffs asserted that these acts by McDonnell operated as a fraud and deceit upon them and claimed for the estate $318,622.97 plus interest from the maturity date.
This case was consolidated for trial with the Murphy claim, described above. A jury verdict in plaintiffs' favor was awarded in the amount of $350,000 which was subsequently reduced by the court to $318,622.97. Judgment plus interest was awarded in the amount of $372,596.18.
This claim arises out of a lawsuit filed April 29, 1970 in the United States District Court for the Northern District of Illinois by three employees of McDonnell (Messrs. Beebe, Gay and Terrill) against McDonnell and its officers and directors. The complaint alleged that during December, 1968 and January, 1969, plaintiffs accepted offers from McDonnell to purchase shares of its voting and non-voting common stock. Plaintiffs further alleged that they were induced to purchase the stock by the fraudulent acts of McDonnell and its officers and directors in violation of the Securities Act of 1933, the Securities Act of 1934, the Illinois Securities Act of 1953, and the common law of the State of Illinois. Plaintiffs also alleged that defendants had violated the registration requirements of the Securities Act of 1933 and the Illinois Securities Act of 1953.
After a non-jury trial, the court found that McDonnell and two of its officers (T. Murray McDonnell and Morgan McDonnell) had violated Rule 10b-5 promulgated by the Securities & Exchange Commission under Section 10(b) of the Securities Exchange Act of 1934 and that the defendants had not complied with the applicable federal and state registration and qualification requirements. Judgment was entered against McDonnell and the two officers for the full amount of the stock purchase price, plus interest, attorneys fees and costs.2
This action encaptioned Leonard I. Green v. McDonnell & Company, Incorporated, et al., (United States District Court for the Northern District of Illinois, Civil Action No. 71C-1387) was filed on June 9, 1971 and was ultimately consolidated for trial with the Beebe action. As in Beebe, Green's causes of action arose out of purchase by him of voting and non-voting common stock of McDonnell. He, too, alleged that he was induced to purchase the shares as a result of the fraudulent conduct of McDonnell and its officers and directors in violation of the Securities Act of 1933 and the Securities Exchange Act of 1934. He also alleged that the anti-fraud provisions of the Illinois Securities Law and the registration requirements of those laws were violated. He sought rescission and repayment of the full purchase price of his shares together with attorney's fees and costs. Judgment was entered against McDonnell and two of its officers in the amount of $72,150 plus costs of the action.3
This claim arises out of an action entitled Oscar U. Band v. McDonnell & Company, Incorporated, et al., (United States District...
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