Valassis Communications, Inc. v. Aetna Cas. & Sur. Co.

• Decision Date: 09 October 1996
• Docket Number: No. 95-1635,95-1635
• Citation: 97 F.3d 870
• Parties: VALASSIS COMMUNICATIONS, INC., and David Brandon, Plaintiffs-Appellants, v. AETNA CASUALTY & SURETY COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 870

97 F.3d 870

VALASSIS COMMUNICATIONS, INC., and David Brandon Plaintiffs-Appellants, v. AETNA CASUALTY & SURETY COMPANY, Defendant-Appellee.

No. 95-1635.

United States Court of Appeals Sixth Circuit.

Argued May 24, 1996.

Decided Oct. 9, 1996.

Andrew T. Baran, William H. Horton (argued and briefed), Cox, Hodgman & Giarmarco, Troy, MI, for Plaintiffs-Appellants.

Francis R. Ortiz, Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, MI, Thomas H. Howlett (briefed), Cathy A. Simon (argued), Ross, Dixon & Masback, Washington, DC, for Defendant-Appellee.

Before: KRUPANSKY, DAUGHTREY, and MOORE, Circuit Judges.

KRUPANSKY, Circuit Judge.

The plaintiffs-appellants, Valassis Communications and David Brandon, appealed the lower court's order granting Aetna's motion to dismiss the complaint for failure to state a claim. Specifically, the plaintiffs argued that the lower court erred (1) in reconsidering its original order denying the motion to dismiss, and (2) in concluding that the express language of Valassis' policy with Aetna barred the action.

Valassis Communications purchased an officers' and directors' insurance policy from Aetna, covering the period March 10, 1994 to March 10, 1995. Exclusion (A)(4) of Section IV of the policy, entitled "Conditions and Limitations," excluded any claim "based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving, any actual or alleged libel or slander or oral or written publication of defamatory or disparaging material." (Emphasis added). However, Endorsement 8 to the policy amended this Section to read:

In consideration of the premium charged, Section IV Conditions and Limitations (A) Exclusion (4) is amended by the deletion of the words "or oral or written publication of defamatory or disparaging material" and of the words "malicious use or abuse of process."

All other terms, conditions and limitations of this Policy shall remain unchanged, including but not limited to the maximum aggregate Limit of Liability set forth in Item 3 of the Declarations.

Valassis engages in the business of creating and distributing free-standing inserts ("FSIs"). FSIs are promotional booklets featuring discount coupons, refunds, sweepstakes, promotions, and advertisements that are inserted into newspapers for distribution to consumers. Valassis distributes its FSIs through more than 350 newspapers accessing more than 50 million households throughout the United States each week.

In 1993, Sullivan Marketing, Inc. ("Sullivan") and its parent, Sullivan Graphics ("Graphics"), newcomers to the FSI business, filed a complaint against Valassis in the United States District Court for the Southern District of New York, Sullivan Marketing, Inc. v. Valassis Communications, Inc., et al., Case No. 93-Civ. 6350, 1994 WL 177795, which it subsequently amended to include David Brandon ("Brandon"), the President and Chief Executive Officer of Valassis, alleging in Count XV of the complaint a cause of action against Valassis/Brandon for defamation, and in Count XVI, a claim for tortious interference with "prospective business relationships and reasonable business relations." Both causes of action were anchored in Brandon's defamatory statements, which allegedly forced Sullivan/Graphics to withdraw a $185 million private bond offering, thereby forestalling their entry into the FSI business.

Valassis/Brandon have conceded that the Sullivan complaint alleged that Valassis/Brandon embarked upon an unprecedented campaign to deny Sullivan/Graphics the capital it needed to compete by discrediting and undermining the private debt ceiling of Sullivan/Graphics, with the intent and effect of depriving Sullivan/Graphics access to the capital necessary to enter the FSI business. Valassis/Brandon further have conceded that the Sullivan complaint properly pleaded a series of overt predatory acts, all of which arose from a seminal telephonic conference call initiated by Brandon to numerous investors, investment bankers, and financial institutions, including representatives from Salomon Brothers, Inc., Dillon Read, Kidder Peabody, Barrington Research, Smith Barney, Mabon Securities, Montecito Research, TransAmerica, and Omega Advisors. Brandon's lengthy prepared commentary was calculated to disparage and defame Sullivan, Graphics, and their Offering Memorandum, and was intended to undermine Sullivan/Graphics' efforts to raise capital, and to interfere with their prospective business advantage.

Valassis/Brandon further have admitted that the Sullivan plaintiffs asserted, in their complaint, that Brandon disparagingly misrepresented to the investment community that "Sullivan's Offering Memorandum [ (1) ] is misleading and inaccurate," (2) endeavors to "mislead the investment community of the real situation that exists in today's FSI industry," (3) "forgo[es] accuracy and completeness in [ ] favor of expediency," (4) contains "false claims and misleading statements and errors of omission and inaccurate facts," and (5) "does not disclose the real trends and realistic scenarios" in the FSI business, among other things. Valassis/Brandon also have conceded that the plaintiffs' complaint properly pleaded that, as a result of Brandon's conference call with members of the financial community, Sullivan's Offering received significant negative publicity, and that thereafter Valassis/Brandon collected copies of the negative publicity and distributed it, along with selected pages of the Offering Memorandum, to potential purchasers of the Offering. The Sullivan complaint asserted that this condemning review was circulated in an effort to further discourage potential investors from participating in Sullivan's Offering, with the intent to harm Sullivan/Graphics by depriving them of access to capital.

On June 30, 1994, the parties settled the Sullivan law suit. Valassis agreed to pay $14 million to resolve all claims against it and Brandon. Subsequently, Valassis demanded that Aetna reimburse it for its losses, including reasonable and necessary legal fees and expenses incurred in defense of the Sullivan litigation that Aetna was required to pay under the terms and conditions of its officers' and directors' insurance policy. After Aetna refused, Valassis/Brandon filed the instant action, charging that Aetna's denial of coverage was a breach of its insurance contract. The lower court initially denied Aetna's motion to dismiss the lawsuit. However, it subsequently granted Aetna's motion for reconsideration and dismissed the plaintiffs' complaint. It ruled that Exclusion (A)(4) of the Aetna insurance policy, as amended by Endorsement 8, barred the claim.

Plaintiffs-Appellants have argued that because Aetna's first motion to dismiss and its motion to reconsider joined the same issues, reconsideration should have been denied pursuant to a local rule of the district court, which states:

The movant shall not only demonstrate a palpable defect by which the Court and the parties have been misled but also show that a different disposition of the case must result from a correction thereof.

E.D. Mich. L.R. 7.1(h). This Circuit will "not ordinarily enforce local rules of practice when the district court, as here, does not enforce them." United States v. Kingston, 922 F.2d 1234 (6th Cir.1990), cert. denied, 500 U.S. 933, 111 S.Ct. 2054, 114 L.Ed.2d 460 (1991); see also Sinito v. United States, 750 F.2d 512, 515 (6th Cir.1984) ("[L]ocal rules ... are designed as internal housekeeping rules to promote the efficient operation of the district courts; they are not meant to confer rights on litigants."). Thus, the local rule of the Michigan district court conferred no rights upon the appellants. Moreover, Aetna's motion for reconsideration presented novel arguments which the trial court had apparently not considered before its denial of Aetna's first motion to dismiss the plaintiffs' action. When Aetna directed the trial court's attention to its oversight and error in failing to consider the impact of Endorsement No. 8, it reconsidered its initial ruling and granted the defendant's motion to dismiss.

Obvious from the trial court's reversal of its initial refusal to grant Aetna's motion to dismiss the complaint for failure to state a cause of action, it implicitly concluded, upon reconsideration, that its original ruling was palpably defective. In any event, the district court is the final arbiter of its own local rules. See Kingston, 922 F.2d at 1240; Kerans v. Porter Paint Co., 49 Fair Empl. Prac. Cas. (BNA) 656, 1989 WL 5770 (6th Cir. Jan.24, 1989); Sinito, 750 F.2d at 515. Consequently, the district court did not err in recognizing Aetna's motion to dismiss.

Dismissals of complaints for failure to state a claim upon which relief can be granted are subject to de novo review. Mann v. Conlin, 22 F.3d 100, 103 (6th Cir.), cert. denied, 513 U.S. 870, 115 S.Ct. 193, 130 L.Ed.2d 126 (1994); Mayer v. Mylod, 988 F.2d 635, 637-38 (6th Cir.1993). Initially, basic Michigan insurance law provides that the instant Michigan insurance contract must be construed in accordance with Michigan law. Michigan Millers Mutual Ins. Co. v. Bronson Plating Co., 445 Mich. 558, 519 N.W.2d 864, 868 (1994). It further directs that courts are mandated to enforce the terms of an insurance contract as written, and may not read into an insurance policy a nonexistent ambiguity; when the terms of a policy are plain and unambiguous, their plain meaning should be given effect. Upjohn Co. v. New Hampshire Ins. Co., 438 Mich. 197, 476 N.W.2d 392, 397 (1991); Pinckney Community Schools v. Continental Casualty Co., 213 Mich.App. 521, 540 N.W.2d 748 (1995). Insurance contract law also dictates that when an endorsement deletes language from a policy, a court must not consider the deleted language in its interpretation of the remaining agreement. 43 Am.Jur.2d Insurance § 275 (1982); Ryan v. Mountain States Helicopter, Inc., 107 Idaho...