Stout Risius Ross, LLC v. Aspen Specialty Ins. Co., 21 Civ. 4412 (ER)

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Writing for the CourtEdgardo Ramos, U.S.D.J.
Decision Date18 March 2022
Docket Number21 Civ. 4412 (ER)



No. 21 Civ. 4412 (ER)

United States District Court, S.D. New York

March 18, 2022


Edgardo Ramos, U.S.D.J.

Stout Risius Ross, LLC (“Stout”) brings this action alleging breach of contract and seeking a declaratory judgment that Aspen Specialty Insurance Company (“Aspen”), is obligated to defend and indemnify it in a separate action brought by Stout's former client, the Wilmington Trust Retirement and Institutional Services Company (“Wilmington”). Doc. 1. Pending before the Court are Aspen's motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure and Stout's cross-motion for partial summary judgment pursuant to Rule 56 of the Federal Rules. Docs. 24, 27. For the reasons set forth below, Aspen's motion to dismiss is GRANTED and Stout's cross-motion for partial summary judgment is DENIED.


The following facts are based on the allegations in Stout's complaint, which the Court accepts as true for purposes of Aspen's motion to dismiss. See, e.g., Koch v. Christie 's Int'l PLC, 699 F.3d 141, 145 (2d Cir. 2012). In addition, citations to Stout's 56.1 Statement, Doc. 31, and Aspen's 56.1 Response Statement, Doc. 35, are included where the facts are undisputed for purposes of Stout's motion for partial summary judgment.

A. The Brundle Action

In October 2013, Wilmington, as trustee of an Employee Stock Ownership Plan (“ESOP”) for Constellis Group, Inc. (“Constellis”), engaged Stout to provide valuation


and financial advisory services related to an ESOP transaction. Docs. 1 ¶ 17; 31 ¶ 18. Tim P. Brundle, acting on behalf of the Constellis ESOP, then sued Wilmington in 2015 in the Eastern District of Virginia, alleging violations of the Employee Retirement Income Security Act of 1974 (“ERISA”) in connection with the transaction, Brundle on behalf of Constellis Emp. Stock Ownership Plan v. Wilmington Tr. N.A., Case No. 15 Civ. 1494 (the “Brundle Action”). Docs. 1 ¶¶ 18, 24; 31 ¶ 21. Stout was not a party to the Brundle Action. Docs. 1 ¶¶ 19-21; 31 ¶ 23.

In the Brundle Action, the plaintiff alleged that the $4, 235.00 per share price paid by the ESOP for Constellis stock was not the fair market value and resulted in the ESOP overpaying for stock. After a bench trial, the district court held on March 13, 2017, that Wilmington had engaged in a prohibited transaction in violation of its fiduciary duties to the ESOP and entered an award of approximately $29.8 million in damages against Wilmington. Docs. 1 ¶ 25; 31 ¶ 29. Aziz El-Tahch, one of the Stout analysts who completed the Constellis valuation, testified at trial. Doc. 26-1 at 5, 13-14, 20; see also Brundle on behalf of Constellis Emp. Stock Ownership Plan v. Wilmington Tr. N.A., 241 F.Supp.3d 610, 631, 635 (E.D. Va. 2017), affd, 919 F.3d 763 (4th Cir. 2019), as amended (Mar. 22, 2019), and affd, 919 F.3d 763 (4th Cir. 2019), as amended (Mar. 22, 2019) (“Brundle I ”). The district court's opinion specifically found that “Wilmington rushed its evaluation of the Constellis ESOP . . . and failed to adequately vet [Stout's] conclusions, ” and that “Wilmington has not demonstrated that its reliance on [Stout's] report was ‘reasonably justified' . . . because it has not shown that it thoroughly probed the gaps and internal inconsistencies in the report.” Doc. 26-1 at 7, 16; Brundle I, 241 F.Supp.3d at 621, 634.

The Fourth Circuit Court of Appeals affirmed the district court's judgment against Wilmington in March 2019, including its findings that “Wilmington's reliance on the [Stout] report” was “inadequate in four major respects.” Docs. 1 ¶ 26; 31 ¶ 29; 26-2 at 6-9; see also Brundle on behalf of Constellis Emp. Stock Ownership Plan v. Wilmington Tr, N.A.,


919 F.3d 763, 774-78 (4th Cir. 2019), as amended (Mar. 22, 2019) (“Brundle II). Specifically, the Fourth Circuit found that Wilmington (1) failed to investigate Stout's omission from its report of an earlier valuation report, which had estimated a much lower per share value of Constellis stock; (2) failed to “adequately probe the reliability of financial projections prepared by Constellis management and used by [Stout]”; (3) failed to investigate the appropriateness of Stout's conclusion that a control premium applied to the stock; and (4) “fail[ed] to probe why [Stout] consistently rounded the valuation of Constellis stock upwards, ” increasing the price the ESOP would pay for the stock. Doc. 26-2 at 6-9, Brundle II, 919 F.3d at 774-78; see also Doc. 26-1 at 16-20, Brundle I, 241 F.Supp.3d at 634-40 (describing the “four major failures” in Wilmington's reliance on the Stout valuation report).

During the Brundle Action and after the judgment against Wilmington had been affirmed, Wilmington continued to engage Stout for other valuation services. Docs. 1 ¶¶ 55-56; 31 ¶ 30. By August 23, 2019, Wilmington had fully satisfied the judgment entered against it. Doc. 31 ¶ 42.

B. The Policy

On September 25, 2019-years after the Brundle Action was filed and approximately six months after the Fourth Circuit affirmed the district court's judgment against Wilmington-Stout and Aspen executed Aspen Miscellaneous Professional Liability Insurance Policy No. LR00DPQ19 (the “Policy”). Doc. 1-1.[1] The Policy covered the period from September 1, 2019, to September 30, 2020. Id. at 3-4; Doc. 31 ¶¶ 3-5. The Policy provides liability coverage related to Stout's professional services, among them valuation services, including for ESOPs; litigation consulting and services; real estate and property appraisals; expert witness services; and contains a five million dollar per claim limit of liability. Doc. 1-1 at 3-4.


The Policy provides that coverage is subject to a prior knowledge condition: “Prior to any Knowledge Date identified in the Declarations of this Policy, no Insured knew or could have reasonably foreseen that such Wrongful Act or Interrelated Wrongful Acts might give rise to a Claim.Id. at 6. The Policy also includes definitions of certain words and phrases. Id. at 8-10. The Knowledge Date is September 1, 2019. Id. at 4. “Insured” means Stout and certain other covered entities not relevant to the instant motions. Id. at 9. “Wrongful Act” is defined as “any actual or alleged negligent act, error or omission . . . while performing Professional Services.” Id. at 10. “Claim” means “a written demand for Damages or injunctive relief received by an Insured alleging a Wrongful Act, including a complaint, arbitration proceeding, or civil lawsuit.” Id. at 8.

C. Wilmington Sues Stout

On approximately October 31, 2019, Wilmington sent Stout a draft tolling agreement purporting to toll any applicable statutes of limitation governing any cause of action relating to or arising out of the transactions between Wilmington and Stout.[2]Docs. 1 ¶ 37; 31 ¶ 44. Stout provided a copy of the tolling agreement to Aspen on November 8, 2019. Docs. 1 ¶ 38; 31 ¶ 46.

On November 12, 2019, Wilmington filed a summons with notice in the Supreme Court of the State of New York, County of New York against Stout, and sent a draft, unfiled complaint to Stout (the “Wilmington Action”), which Stout in turn gave notice of to Aspen. Docs. 1 ¶¶ 39-40; 31 ¶¶ 47-48.

Stout removed the Wilmington Action to this District on March 23, 2020, and the matter was assigned to Judge Stanton. Doc. 1 ¶ 42; see also Wilmington Trust, N.A. v. Stout Risius Ross, Inc., No. 20 Civ. 2505 (LLS). Wilmington filed its complaint on June 22, 2020, bringing claims for breach of contract, negligence, and contribution against


Stout. Doc. 1 ¶ 43. Wilmington's complaint alleges that Stout failed to adhere to reasonable professional standards and did not provide a proper valuation of the Constellis ESOP and seeks contribution by Stout for the judgment entered against Wilmington. Docs. 1 ¶¶ 44-48; 1-2.[3]

Stout moved to dismiss the Wilmington Action, and on March 23, 2021, Judge Stanton granted the motion in part and denied it in part. See No. 20 Civ. 2505, Doc. 35; see also Wilmington Tr., N.A. v. Stout Risius Ross, Inc., No. 20 Civ. 2505 (LLS), 2021 WL 1110040 (S.D.N.Y. Mar. 23, 2021). Specifically, the court granted Stout's motion to dismiss Wilmington's breach of contract and negligence claims and denied it as to Wilmington's claim for contribution. Wilmington, 2021 WL 1110040, at *1.

Meanwhile, Aspen wrote to Stout on February 4, 2020, denying coverage under the Policy for the Wilmington Action and citing the Knowledge Date as the basis for denial. Docs. 1 ¶ 41; 31 ¶ 49. That denial gave rise to the instant suit.

D. Procedural History

Stout brought this action on May 17, 2021, seeking a ruling that Aspen must defend and indemnify it in the Wilmington Action. Docs. 1, 1-2. Aspen moved to dismiss the complaint on August 18, 2021. Doc. 24. Stout cross-moved for partial summary judgment on September 8, 2021. Doc. 27.


A. Dismissal Under Rule 12(b)(6)

Under Rule 12(b)(6), a complaint may be dismissed for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). When ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiffs favor. Christie's Int'l, PLC, 699 F.3d at 145. However, the Court is not required to credit “mere


conclusory statements” or “threadbare recitals of the elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

“To survive a motion to dismiss, a complaint must contain sufficient factual matter . . . to ‘state a claim to relief that is plausible on its face.'” Id. (quoting Twombly, 550 U.S. at 570). A claim is facially plausible “when the plaintiff pleads factual content that allows...

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