Various Markets, Inc. v. Chase Manhattan Bank, NA

• Decision Date: 01 December 1995
• Docket Number: No. 94-CV-74294-DT.,94-CV-74294-DT.
• Citation: 908 F. Supp. 459
• Parties: VARIOUS MARKETS, INC. and Mark W. Dupuis, Plaintiffs/Counter-Defendants, v. The CHASE MANHATTAN BANK, N.A., Defendant/Counter-Plaintiff and Third-Party Plaintiff, v. LA FENIX BOLIVIANA DE SEGUROS Y REASEGUROS, S.A., M & M Management Corp., Ferrell Travis Riley, Frank Riley, Treva Shay, Gaelic Union Reinsurance Co. and Dominique Testu, Third-Party Defendants.
• Court: U.S. District Court — Eastern District of Michigan

908 F. Supp. 459

VARIOUS MARKETS, INC. and Mark W. Dupuis, Plaintiffs/Counter-Defendants, v. The CHASE MANHATTAN BANK, N.A., Defendant/Counter-Plaintiff and Third-Party Plaintiff, v. LA FENIX BOLIVIANA DE SEGUROS Y REASEGUROS, S.A., M & M Management Corp., Ferrell Travis Riley, Frank Riley, Treva Shay, Gaelic Union Reinsurance Co. and Dominique Testu, Third-Party Defendants.

No. 94-CV-74294-DT.

United States District Court, E.D. Michigan, Southern Division.

December 1, 1995.

COPYRIGHT MATERIAL OMITTED

Gregory Thomas, Robert Fortunate, Detroit, Michigan, for plaintiffs.

Lee W. Brooks, Stanley Prokop, Detroit, Michigan, for defendant.

OPINION AND ORDER REGARDING MOTIONS OF DEFENDANT AND THIRD-PARTY DEFENDANTS FOR SUMMARY JUDGMENT

ROSEN, District Judge.

I. INTRODUCTION

This matter is presently before the Court on three motions for summary judgment:

(1) Motion of Defendant Chase Manhattan Bank to Dismiss the Complaint, or in the Alternative, for Summary Judgment;

(2) Motion of Third-Party Defendant La Fenix Boliviana de Seguros y Reaseguros ("LFB") for Summary Judgment on the Third-Party Claim of Chase Manhattan Bank; and

(3) Motion of Third-Party Defendants M & M Management Corporation, Ferrell Travis Riley, Frank Riley and Treva Shay to Dismiss the Third-Party Complaint of Chase Manhattan Bank, or in the Alternative for Summary Judgment.

Having reviewed and considered the parties briefs and supporting documents, and having further heard the oral arguments of counsel at the hearing conducted on November 9, 1995, the Court is now prepared to rule on these Motions. This Opinion and Order sets forth that ruling.

II. FACTUAL BACKGROUND

The claims in this action arise out of a dispute concerning property insurance for a condominium development in the Virgin Islands in which Defendant Chase Manhattan Bank ("Chase") has a mortgagee's interest (the "Chase VI program"). According to the allegations in Plaintiffs' Complaint and Defendant's Counterclaim, Various Markets, Inc. ("VMI"), a Warren, Michigan-based insurance broker allegedly specializing in locating sources for insurance coverage for hard-to-place risks, was contacted by Chase in early 1993, and asked to assist it in locating insurance for the Chase VI program.

In addition to the usual hazards, the Chase VI insurance program had to protect against the risk of hurricanes. The real property that the insurance would cover was allegedly worth more than $90 million. The hurricane season in the Virgin Islands begins in early summer, which gave an added urgency for Chase to have an insurance program in place as that season approached in 1993.

VMI proposed that Chase enter into an insurance policy with LFB, a Bolivian insurance company. LFB, however, lacked sufficient resources to insure the entire risk involved in the Chase VI program. Chase was aware of LFB's limited resources, but agreed to use LFB as the primary insurer if LFB would obtain reinsurance acceptable to Chase.

It is alleged that in July 1993, VMI provided Chase with a list of insurance entities which would participate in LFB's reinsurance for catastrophic coverage in the Chase VI program. The listed participants included Lloyd's of London and another well-regarded London reinsurance firm, the D.P. Mann Syndicate. D.P. Mann was described as the proposed "lead underwriter", and it was represented that D.P. Mann's proportion of participation would be 75% of the maximum exposure.

At the end of July, Mark Dupuis, the president of VMI, informed Chase that as soon as VMI received payment of the premium, all of the insurance and reinsurance would be in place, including the participation of the Mann Syndicate.

On August 9, 1993, Chase had the entire annual premium amount of $1,693,866 wired to VMI.¹ The next day, however, Gaelic Union, the company allegedly acting as LFB's broker in the London market to obtain reinsurance, informed VMI that the Mann Syndicate had withdrawn from the Chase VI program. VMI, however, did not inform Chase that Mann had withdrawn until late August 1993, as the Virgin Islands entered the height of the hurricane season.

When Chase communicated its dissatisfaction and displeasure concerning the Mann Syndicate situation, VMI allegedly represented that it had a substitute for Mann and that the lead reinsurer they proposed to submit to the Virgin Islands insurance examiner for approval would be Provident Capital Indemnity Limited ("PCI"). VMI represented that PCI was a reputable reinsurance company. However, four weeks later, when Chase met with the Virgin Islands officials, the Virgin Islands insurance examiners rejected the proposed Chase VI program, and specifically rejected PCI as a reinsurer. According to Chase, the insurance examiners' rejection of PCI was based on the facts that PCI (1) had been banned from doing business in California; (2) had lost its license in Florida; (3) was not paying claims, did not have any liquid assets, and had misrepresented its assets; (4) was owned by individuals who had been indicted in Florida and were fugitives; and (5) reported assets in a Hong Kong bank which had denied having any PCI account.

Allegedly, in the following weeks, VMI and LFB represented to Chase that they were making strenuous efforts to complete the placement of reinsurance, including replacing PCI as lead insurer. When by December 1993 the reinsurance required for the Chase VI program had still not been placed, Chase gave notice that the LFB policy was cancelled and requested that the unearned premium for the balance of the year for which Chase had prepaid be returned to Chase.

Chase requested return of $751,339.40. However, VMI returned to Chase only $171,559.20.² The failure to return to Chase $579,780.20 is what precipitated this action.

In the spring of 1994, Gregory J. Gerard, a vice-president of Chase, allegedly telephoned Mark Dupuis of VMI to express Chase's dissatisfaction with the partial refund paid to the bank. VMI alleges that in that telephone conversation, Gerard threatened that Chase would spend so much money in suing VMI and attacking its licenses that VMI, Dupuis and his family would be destroyed. Gerard purportedly also threatened that he personally would use "whatever means" and "would see to it" that Chase destroyed VMI and Dupuis.

On September 14, 1994, Judah A. Shechter, Chase's Litigation Counsel, wrote Dupuis a two-page, single-spaced letter threatening litigation if Chase was not immediately refunded the $579,780.20 which it claims it was owed. In that letter, Mr. Shechter stated:

The continued bad faith refusal of VMI and LFB to refund the full unearned premium amount is completely unacceptable. Therefore, please be advised that unless Chase receives a prompt refund of the full unearned premium from VMI, Chase will commence legal proceedings in federal court against VMI, LFB and others to recover all sums owed. The complaint will allege, inter alia, causes of action against VMI and LFB for breach of contract, fraudulent inducement to contract, fraudulent misrepresentation, negligent misrepresentation and aiding and abetting LFB in wrongfully converting Chase's property. In addition to seeking $579,780.20 of unearned premiums (plus interest), the lawsuit will seek to recover 1) actual damages sustained by Chase on account of Chase's being forced to obtain other insurance when VMI's program turned out to be unsatisfactory and was not finally approved by the regulators and 2) punitive damages for VMI's gross misconduct in connection with the program.

Let there be no misunderstanding, Mr. Dupuis: legal proceedings will be commenced against VMI unless the unearned premium is refunded to Chase. Chase simply will no longer tolerate VMI's stalling tactics and spurious accounting methods and intends to hold VMI, not just LFB, fully responsible for all damages sustained. Furthermore, work on the complaint has already begun and Chase will vigorously prosecute such litigation. In addition, if necessary, Chase will apprise regulatory officials (and others) of VMI's bad faith conduct in connection with the program and will pursue all other available methods in order to recover amounts owed.

I hope this letter conveys the gravity with which Chase regards this situation and the serious adverse consequences to VMI that will result should VMI continue to refuse to refund the unearned premium owed Chase.

Chase Motion Ex. B, p. 2 (emphasis in original).

Shechter's letter was copied to five other individuals—Mr. Stephen J. Rhoades, Esq., an attorney for LFB and/or Defendant M & M Management Corp.; Mr. Orlando Nogales, an officer of LFB: Mr. F. Travis Riley, a representative of M & M Management; Mr. Terry L. Wilcox, identified as a representative of Rollins Hudig Hall (Chase's broker); and Mr. Patrick Donnelly, a representative of The Donnelly Corporation, which allegedly served as an agent of Rollins Hudig Hall on behalf of Chase.³

Based upon the spring 1994 threats of Gregory Gerard and Shechter's September 14, 1994 letter, on September 27, 1994, VMI and Dupuis instituted this lawsuit by filing a five-count Complaint against Chase Manhattan Bank in Macomb County Circuit Court. Chase promptly removed the action to federal court alleging diversity of citizenship as the basis for federal subject matter jurisdiction.

In their Complaint, VMI and Dupuis allege that by Gerard's and Shechter's actions, Chase is liable for defamation (Count I); assault (Count II); intentional infliction of emotional distress (Count III); and extortion (Count IV). In Count V, the Plaintiffs allege that Chase's conduct entitles to exemplary damages.

In response, Chase filed a nine-count "Counterclaim and Third-Party Claim" against VMI; Dupuis; LFB; M & M Management Corp. (LFB's representative in the United States); three M & M employees, Ferrell Travis Riley, Frank Riley and Treva Shay; Gaelic Union Reinsurance Co. (an Irish company which owns 40.5% of LFB); and Dominique...