Swiss Reinsurance Am. Corp.. v. Supervalu Inc. a Del. Corp..

• Court: U.S. District Court — District of Minnesota
• Writing for the Court: OPINION AND ORDER
• Citation: Swiss Reinsurance Am. Corp.. v. Supervalu Inc. a Del. Corp.., 743 F.Supp.2d 1050 (D. Minn. 2010)
• Decision Date: 14 October 2010
• Docket Number: Civ. No. 09–3083 (JJK).
• Parties: SWISS REINSURANCE AMERICA CORPORATION, a New York corporation, Plaintiff,v.SUPERVALU, INC. a Delaware corporation, Defendant.

743 F.Supp.2d 1050

SWISS REINSURANCE AMERICA CORPORATION, a New York corporation, Plaintiff,

v.SUPERVALU, INC. a Delaware corporation, Defendant.

Civ. No. 09–3083 (JJK).

United States District Court, D. Minnesota.

Oct. 14, 2010.

Joel T. Weigert, Esq., Meagher & Geer, P.L.L.P; and Marilyn Klinger, Esq., and Stephen A. Leys, Esq., Sedgwick, Detert, Moran & Arnold LLP, for Plaintiff.Kim Ruckdaschel–Haley, Esq., Lindquist & Vennum P.L.L.P, for Defendant.

OPINION AND ORDER

JEFFREY J. KEYES, United States Magistrate Judge.

INTRODUCTION

In this insurance dispute, Swiss Reinsurance America Corporation (“Swiss Re”) seeks to recover $106,617.53, plus $53,180.07 in attorneys' fees and expenses from SuperValu, Inc. (“SuperValu”) for payments that Swiss Re made to resolve an underlying litigation against an affiliate of SuperValu. Swiss Re invokes an Indemnity Agreement that SuperValu entered into with the now-defunct Amwest Surety Insurance Company (“Amwest”). Swiss Re argues that it alternatively is subrogated to or was assigned Amwest's rights under the Indemnity Agreement. SuperValu counters that its indemnity obligations were never triggered, and, regardless, Swiss Re would not be entitled to recover under the Indemnity Agreement in Amwest's stead. Both parties cross-moved for summary judgment. (Doc. Nos. 26 and 32.) The Court concludes that SuperValu is in breach of the Indemnity Agreement and that Swiss Re may recover damages, but that Swiss Re is not entitled to attorneys' fees.

I. FACTUAL BACKGROUNDA. The Appeal Bond

On April 13, 1999, Connie Hemmings and Patty Lamphiear (“Plaintiff–Obligees”) obtained a multi-million dollar jury verdict against Tidyman's Management Services (“Tidyman's”) in the United States District Court, Eastern District of Washington (Case No. CS097–0068–WFN). (Doc. No. 36, Decl. of Michael Gillies (“Gillies Decl.”), ¶ 19, Ex. E.) On November 5, 1999, Amwest issued an appeal Bond in the amount of $5,160,000 (the “Bond”) in favor of Plaintiffs, as Plaintiff–Obligees, and on behalf of Tidyman's, as Principal, thus allowing Tidyman's to obtain a stay on execution of the judgment and to proceed on appeal. (Gillies Decl. ¶ 7.)

B. The Reinsurance Agreement and the General Indemnity Agreement

On November 8, 1999, Swiss Re entered into a Reinsurance Agreement (the “Reinsurance Agreement”) in favor of the Plaintiff–Obligees, in the amount of $3,160,000, to secure and guaranty Amwest's performance of its appeal bond obligations. (Gillies Decl. ¶ 12.) Also on November 8, 1999, Tidyman, as Principal, entered into the Commercial Surety General Indemnity Agreement with Amwest, as Surety (“Tidyman's General Indemnity Agreement”). (Gillies Decl., Ex. F; Doc. No. 38, Decl. of Stephen A. Leys (“Leys Decl.”), Ex. A). There, Tidyman's “agreed to indemnify Amwest and its reinsurers from all ‘losses, costs, damages, attorneys' fees and expenses of whatever kind or nature’ which arise by reason of, or as a consequence of, Amwest's execution of any bond.” ( Id.)

C. The Indemnity Agreement

Thus, upon execution of the Bond, the Reinsurance Agreement, and the Tidyman's General Indemnity Agreement, the line-up was as follows: (1) Amwest was the direct writing company on the $5.16 million Bond; (2) Swiss Re was participating as the reinsurer taking on the obligation to pay up to $3.16 million if Amwest failed to pay any default by Tidyman's under the Bond, and agreeing that the Plaintiff–Obligees may sue Swiss Re for the amount of the reinsurance in case of default; and (3) Tidyman's, the appellant, was Amwest's and Swiss Re's indemnitor for any losses arising out of any default relating to the Bond.

On November 29, 1999, SuperValu entered the picture. SuperValu was a co-member with Tidyman's of the organization called Tidyman's LLC and, as such, had a material interest in Tidyman's avoiding the multi-million verdict by successfully appealing the case. ( See Gillies Decl. ¶¶ 8, 9, and 10.) As part of the inducement to Amwest's execution of the $5.16 million Bond, SuperValu executed a Commercial Surety Indemnity Agreement (the “SuperValu Indemnity Agreement”), pursuant to which it agreed that: “if a claim is made against [Amwest] relative to the Bond and [Tidyman's] fails to discharge the claim in full upon demand of [Amwest], then SuperValu shall pay [Amwest], the unpaid portion of such claim.” (Gillies Decl., Ex. B at 1.)

The SuperValu Indemnity Agreement imposed a condition of indemnity: SuperValu was not obligated to make payments until Amwest had drawn the entire amount of a Letter of Credit in the amount of $2,460,000 dated November 26, 1999 by U.S. Bank in favor of Amwest. ( Id.) It further provided that “the right afforded [Amwest] under this Agreement shall be in addition to, and not in lieu of, the right afforded [Amwest] under Principal's Indemnity [Tidyman's General Indemnity Agreement].” ( Id. at 2.) The SuperValu Indemnity Agreement also stated that “[Amwest] shall have the right, in its reasonable judgment to determine whether any claim or suit upon the Bond on the basis of liability, expediency, or otherwise shall be paid, compromised, defended, or appealed.” ( Id.)

C. Amwest's Liquidation Proceedings and Settlement of Claims

While the appeal was pending, Amwest became insolvent. On June 7, 2001, the District Court of Lancaster County Nebraska, entered an Order of Liquidation, and Injunction, authorizing Amwest's Liquidation under Neb. Rev. Stat. § 44–4818. (Gillies Decl., Ex. D.) On February 20, 2003, the appeal process ended and Plaintiff's judgment became final; the amended judgment after appeal was in the amount of $5,902,586.82. (Gillies Decl., Ex. F.) On February 28, 2003, Plaintiffs filed their Proof of Claim in the Amwest Liquidation proceeding. (Gillies Decl. ¶ 15, Ex. F.) Also on February 28, 2003, Plaintiffs moved, under Rule 65.1 of the Federal Rules of Civil Procedure, to enforce the Bond against Amwest and Swiss Re. (Gillies Decl. ¶ 16, Ex. F.) That same day, Plaintiffs also moved for sanctions against Tidyman's and SuperValu. (Gillies Decl., Ex. F.)

While these motions were pending, Tidyman's, SuperValu, Amwest, and Plaintiffs decided to resolve their disputes by entering into a Settlement Agreement and Release (the “Settlement Agreement”). (Gillies Decl., ¶ 19, Ex. E.) Pursuant to the Settlement Agreement, a total of $6,100,000 was to be paid to Plaintiffs by April 17, 2003, and Plaintiffs agreed to withdraw and release all claims against the parties to the Settlement Agreement, including Tidyman's, Amwest, and Swiss Re. ( Id.) Tidyman's, SuperValu, Amwest and Swiss Re separately entered into a side agreement (the “Reimbursement Agreement”). (Gillies Decl., ¶ 20, Ex. F.) Under the Reimbursement Agreement: (1) Swiss Re agreed to pay $1,656,294 to Plaintiff–Obligees; (2) Amwest agreed to draw upon the $2.46 million U.S. Bank Letter of Credit; (3) Tidyman's reaffirmed its indemnity obligations under the General Indemnity Agreement with Amwest; (4) Amwest assigned all of its rights under the SuperValu Indemnity Agreement to Swiss Re; (5) SuperValu acknowledged that Swiss Re reserved all of its rights in connection with the SuperValu Indemnity Agreement or otherwise; and (6) SuperValu reserved defenses relating to its obligations under the SuperValu Indemnity Agreement. (Gillies Decl., Ex. F.)

D. Payment to Plaintiff–Obligees and Tidyman's Reimbursement of Swiss Re

Pursuant to the Settlement Agreement and the Reimbursement Agreement, Amwest drew on the Letter of Credit, and paid $2,460,000 to the Plaintiff–Obligees, and Swiss Re paid $1,656,294 to the Plaintiff–Obligees. (Gillies Decl., ¶¶ 21, 22.) Tidyman's then made the following payments to reimburse Swiss Re for its payment to the Plaintiff–Obligees: (1) $1,100,000 on May 4, 2004; (2) $308,806.37 on May 10, 2004; and (3) $140,870.10 on March 1, 2007. ( Id. ¶ 25.) As a result of Tidyman's reimbursements, Swiss Re's $1,656,294 loss was offset by $1,549,676.47 in recoveries, leaving a net loss of $106,657.53. ( Id.) In addition to this net loss, Swiss Re claims it incurred legal fees and expenses in investigating, evaluating, and handling the Obligee's claim and their motions, in the amount of $53,180.07. (Doc. No. 35, Decl. of Stephen A. Leys (“Leys Decl. II.”) ¶ 5.)

E. Swiss Re's Demand on SuperValu and the Current Lawsuit

On October 10, 2008, Swiss Re made demand on SuperValu to satisfy its indemnity obligations and remit payment to Swiss Re under the SuperValu Indemnity Agreement. ( Id.) SuperValu refused and continues to deny that it is liable to Swiss Re. ( Id. ¶ 7.) On November 4, 2009, Swiss filed the present action against SuperValu for (1) Breach of the SuperValu Indemnity Agreement; (2) Specific Performance of the SuperValu Indemnity Agreement; (3) and Declaratory Relief. (Doc. No. 1.) Swiss Re and SuperValu cross-moved for summary judgment on all claims.

II. STANDARD OF REVIEW

Summary judgment is proper if there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The Court must view the evidence and the inferences that may be reasonably drawn from the evidence in the light most favorable to the nonmoving party. Enter. Bank v. Magna Bank of Mo., 92 F.3d 743, 747 (8th Cir.1996). As the Supreme Court has stated, “[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed ‘to secure the just, speedy, and inexpensive determination of every action.’ ” Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P. 1).

Both parties have cross-moved for summary judgment and therefore agree that there are no disputed issues of material fact. Each party, however, offers competing interpretations of the rights granted and the obligations imposed by the various contracts at issue. Summary judgment is...