Roger L. Efremsky, U.S. Bankruptcy Judge.
Before the Court is the motion of Barry A. Chatz, the trustee of the CFB/WFB Liquidating Trust (the "Trustee" and the "Trust") for an award of fees, costs, interest, and penalty to be assessed against Continental Casualty Company ("Continental") under Illinois Insurance Code 215 ILCS 5/155 for vexatious and unreasonable conduct (the "§ 155 Motion" and the "§ 155 Issues").
The § 155 Motion has been fully briefed and argued. These are the Court's findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052. For the reasons explained below, the Court grants the § 155 Motion.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334(b). This is a core proceeding within the meaning of 28 U.S.C. §§ 157(b)(2)(A), (B), (L), and (O).
The Court also retained jurisdiction to resolve this matter in the Joint Plan of CFB Liquidating Corporation, f/k/a Chicago Fire Brick Company, and WFB Liquidating Corporation, f/k/a Wellsville Fire Brick Company, as modified (the "Plan") and the Order Confirming the Plan (the "Confirmation Order"). Main Case Docket nos. 421, 460.
As explained in greater detail in the Court's Summary Judgment Decision issued in November 2016, the Plan was designed to provide a comprehensive mechanism to resolve Asbestos Claims — as defined in the Plan — in an efficient, centralized, and equitable manner. AP Docket no. 44. (The Summary Judgment Decision is incorporated herein by reference.
The Debtors' settlements with their solvent insurers other than Continental were incorporated into the Plan and these insurers' policy proceeds funded the Trust with approximately $16 million to be used to pay Allowed Asbestos Claims. Main Case Docket no. 421.
Continental did not enter into the same sort of settlement as the other insurers but agreed to Plan provisions that created a mechanism for Continental to provide its insurance coverage to pay the Asbestos Claims that triggered its Policies (the "Tendered Claims"). Plan, § 8.3 ("Handling of Claims for which Continental May Have Financial Responsibility").
In short, after the Asbestos Claims were allowed pursuant to the requirements of the Trust Distribution Procedures (the "TDP"), the Plan provided that the Trustee would submit Proposals to Continental stating the liquidated value of each Asbestos Claim for which it contended Continental's Policies provided coverage, including supporting evidence using a Court-approved proof of claim form. The Plan also provided that the Trustee could submit only 660 Claims per quarter and 2,500 per calendar year and Continental had 90 days to respond to a Proposal. During the 90-day period after receipt of a Proposal, Continental could seek additional information from the Trustee or the Claimant, and had to inform the Trustee in writing whether it accepted or rejected the terms of the Proposal. Plan, § 8.3. If Continental accepted a Proposal, it agreed to pay its allocated percentage of the liquidated value of the Tendered Claims, or any different amount agreed upon with the Trustee. Plan, § 8.3(a). To the extent Continental had coverage defenses, the Plan provided it with a way to assert them. Plan, § 8.3(b).
Between May 2015 and September 2015, the Trustee submitted four Proposals to Continental covering 249 Claims with a liquidated value sufficient to exhaust Continental's $2.5 million in Policy limits. In each Proposal, the Trustee contended that Continental's allocated percentage was 100% of the liquidated value of the Tendered Claims. The cover letter for each of the Trustee's Proposals stated that:
AP Docket no. 15, Ex. D (Trustee's May 7, 2015 letter to Continental tendering claims); AP Docket no. 52, Dec. Frank, ¶ 7-12.
Continental's response to these Proposals, and those sent after this litigation commenced, was that they did not constitute Proposals within the meaning of § 8.3 of the Plan because 100% was not a permitted allocation unless the evidence showed that the Claimant was exposed to asbestos exclusively during Continental's Policy periods:
AP Docket no. 52, Dec. Frank, Ex. 1 (Continental's August 4, 2015 letter to Trustee) (emphasis added).
The pre-litigation correspondence between Continental and the Trustee shows that the Trustee relied on the holding of
While it may seem like an unnecessary detour to review the
In asserting the 100% allocation, the Trustee also relied on the liquidated value of the Allowed Claims ($46 million) and the limited fund from which to pay them (roughly $14 million at that time). Main Case Docket nos. 533, 543.
When Continental had not responded after the 90 days had run from the Trustee's September 2015 Proposal, the Trustee sued Continental for declaratory relief and $2.5 million in damages for breach of the Plan and breach of Continental's Policies, plus extra-contractual damages under § 155. AP Docket no. 15 (First Amended Complaint).
Continental's Answer denied the allegations of the First Amended Complaint and stated eighteen affirmative defenses, many of which raised insurance coverage issues. AP Docket no. 19. Continental also stated a Counterclaim for declaratory relief on the grounds that § 8.3 of the Plan precluded a contention that Continental's allocated percentage was 100% of the liquidated value of any Tendered Claim. AP Docket no. 19.
At the first Adversary Proceeding status conference on May 3, 2016, referring to the disputed allocation issue, Continental's counsel stated:
AP Docket no. 121, Ex. A, Hr'g Tr. (May 3, 2016) at 22:19-23 (emphasis added).
The Trustee's counsel asked the Court to set a trial date, but Continental's counsel urged the Court to instead set a briefing schedule for a summary judgment motion that he argued would resolve the entire case. Continental prevailed and the Court set a briefing schedule for summary judgment. AP Docket no. 26.
Continental then filed its Motion for Summary Judgment directed at paragraphs 18(a)-(d) of its Counterclaim. AP Docket nos. 27, 34. The Trustee filed Opposition. AP Docket nos. 32-33, 35. The Court issued its Summary Judgment Decision in November 2016, ruling against Continental on its interpretation of the Plan. AP Docket no. 44.
On December 6, 2016, the Court held a status conference to address the remaining § 155 Issues: whether Continental had engaged in vexatious and unreasonable conduct, and the appropriate remedy if the Court found that it had. The Trustee's counsel requested a trial date for the § 155 Issues. AP Docket no. 121, Ex. B, Hr'g Tr. (Dec. 6, 2016) at 4:2-8.
Counsel for Continental disagreed, stating there was nothing left to try. Referring to the threshold legal issue and the Summary Judgment Decision, Continental's counsel said:
AP Docket no. 121, Ex. B, Hr'g Tr. (Dec. 6, 2016) at 4:10-20 (emphasis added).
Referring to the Trustee's request for extra-contractual damages under § 155, Continental's counsel stated:
AP Docket no. 121, Ex. B, Hr'g Tr. (Dec. 6, 2016) at 8:10-19 (emphasis added).
Continental's counsel also suggested the parties ought to "get together and resolve it" but they had not yet had a chance to do that. AP Docket no. 121, Ex. B, Hr'g Tr. (Dec. 6, 2016) at 8:21-9:2. The Court continued the status conference to December 12, 2016 to allow the parties to discuss their next steps.
At the December 12, 2016 status conference, counsel for both parties explained they had agreed to brief whether the Trustee could make the requisite showing for recovery of extra-contractual damages under § 155 and the Court did not need to set a trial date. The Trustee's counsel explained that they had agreed that one judgment was appropriate:
AP Docket no. 121, Ex. C, Hr'g Tr. (Dec. 12, 2016) at 7:9-18. At the conclusion of the December 12 status conference, with the parties' agreement, the Court set a briefing schedule for the § 155 Issues. AP Docket no. 48.
The resolution of the § 155 Issues has proceeded in two distinct phases. Briefing on the first phase of the § 155 Motion was complete as of February 15, 2017, and the initial hearing was set for March 7, 2017.
The main thrust of Continental's initial argument was that an award under § 155 was inappropriate because it had taken a legitimate position on the interpretation of the Plan, and had not caused any unreasonable delay in the litigation, or in paying Tendered Claims. To the extent there was any delay, Continental claimed it was entirely
In support of the argument that it had not caused any delay, referring to the Summary Judgment Decision and the parties' discussions surrounding the December status conferences, counsel's Declaration stated:
AP Docket no. 59, Dec. Tittman, ¶ 18-19 (emphasis added). Counsel also stated:
AP Docket no. 59, Dec. Tittman, ¶ 19.
In discussing its offer to have judgment entered and its astonishment at the Trustee's response that this would create piecemeal litigation, Continental also argued:
AP Docket no. 66, n. 4.
The Trustee's initial § 155 argument was that an award of fees and costs was appropriate because Continental vexatiously and unreasonably delayed paying the Tendered Claims and there was no bona fide dispute regarding the Plan that justified this. AP Docket no. 52 ("Trustee's Initial Brief" and Dec. Frank), nos. 63-64 ("Trustee's Reply Brief" and Dec. Frank). The Trustee also argued that he repeatedly tried to elicit a response from Continental on the allocation issue in order to determine how many additional Claims he had to submit to Continental before Continental would concede that the Tendered Claims exhausted all coverage under its Policies and end its unreasonable delay. AP Docket no. 52, Dec. Frank, ¶ 20-21.
When this first phase of briefing was completed in February 2017, Continental had not identified any Tendered Claims that (1) did not meet the TDP's medical requirements; (2) did not meet the TDP's asbestos exposure requirements; or (3) were not covered by its Policies. AP Docket no. 52, Dec. Frank, ¶ 16.
On February 27, 2017, the Court moved the initial hearing on the § 155 Motion from March 7 to March 27, 2017. Shortly before the March 27 hearing, Continental acquired new counsel and took the following steps that led to the second phase of briefing on the § 155 Issues:
On March 20, 2017, Continental filed an Ex Parte Application for Court Approval to File the Declaration of Raymond J. Tittman. AP Docket no. 69 (the "Ex Parte Application"). The proposed Tittman Declaration attached excerpts of three Tendered Claims. By the Ex Parte Application, Continental sought to raise — for the first time — an argument that there were
The Trustee filed Opposition arguing that, prior to this, Continental had never raised an evidentiary challenge to the sufficiency of the evidence supporting any Tendered Claims and the Ex Parte Application and the proposed Declaration belatedly sought to "conjure up a bona fide dispute that might forestall damages under § 155." AP Docket no. 71. The Trustee also asserted that the sample Claims attached to the Tittman Declaration had been submitted to Continental in May 2015. AP Docket no. 71.
On March 27, 2017, the Court entered an Order continuing the hearing on the § 155 Motion to May 31, 2017. AP Docket no. 70. On March 29, 2017, the Court entered an Order denying the Ex Parte Application. AP Docket no. 73.
On May 10, 2017, Duane Morris LLP, new counsel for Continental ("New Counsel") submitted a letter to the Court. AP Docket no. 83 (the "Letter").
The Letter went on in this vein, concluding "in light of these new important and significant developments and our recent involvement in this case," the Court should set a status conference "so we can more fully advise the Court of these new developments." AP Docket no. 83.
On May 10, 2017, New Counsel filed a Motion to Stay or Abate the Hearing and Further Proceedings on the § 155 Motion. AP Docket no. 84 (the "Motion to Stay"). The Motion to Stay was supported by a Declaration of Raymond J. Tittman. AP Docket no. 90.
The Motion to Stay argued that the § 155 Issues were not ripe because Continental's coverage obligations had not been decided, and this Court did not have jurisdiction to decide them. Continental also argued that its alleged "newly discovered evidence" showed that Debtors did not sell asbestos products after December 31, 1972 which meant that none of the Tendered Claims showed exposure during Continental's Policy periods and none of the Tendered Claims alleged that a Claimant suffered a sickness or disease resulting from exposure to Debtors' asbestos products during its Policy periods so none of the
The Trustee filed an Objection to the Motion to Stay and to the request for a hearing on shortened time. AP Docket no. 93. The Trustee argued that (1) the so-called "newly discovered evidence" had, in substantially the same form, been given to Continental's counsel in October 2009;
Finally, the Trustee argued that Continental should be judicially or equitably estopped from claiming the coverage issues were not ripe when Continental had clearly stated on many occasions that "there was nothing left to try" and judgment should be entered against it on the coverage aspect of the Trustee's case.
The Court denied Continental's request for a hearing on shortened time. AP Docket no. 94. Continental later filed and then withdrew a notice of hearing on the Motion to Stay. AP Docket no. 113.
On May 10, 2017, Continental also filed a Motion to Abstain and Remand from Insurance Coverage Issues, with a notice of hearing for June 15, 2017. AP Docket nos. 86-87 (the "Motion to Abstain"). In the Motion to Abstain, Continental described the same "newly discovered evidence" and argued that the test for permissive abstention under 28 U.S.C. § 1334(c)(1) was met. In addressing the permissive abstention factors identified in
The Court later instructed Continental to withdraw the Motion to Abstain and on May 30, 2017, Continental withdrew only its notice of hearing. AP Docket no. 103.
On May 25, 2017, the Court moved the hearing on the § 155 Motion to June 15, 2017. At the June 15 hearing, the Court ordered supplemental briefing on the § 155 Motion to allow Continental to address the Trustee's estoppel arguments. AP Docket nos. 112, 117.
In stark contrast to its first position on the § 155 Issues, but as the above series of events foretells, Continental's supplemental briefing argues that the § 155 Issues are not ripe because the coverage issues must first be resolved in state court and its "newly discovered evidence" shows there is no coverage for any Tendered Claims, and this prevents application of any estoppel theories. AP Docket no. 125 ("First Supplemental Brief"). The First Supplemental Brief is supported by Declarations of two of its attorneys (Raymond Tittman and David Christian), a purported expert, two former employees of Chicago Fire Brick, and an account manager from Resolute Management, Inc., Continental's claims agent. AP Docket nos. 125-2, 125-5, 125-11, 125-12, 125-13, 125-14. Ignoring its previous request that judgment be entered against it, these Declarations are intended to show there are unresolved factual issues regarding insurance coverage for the Tendered Claims.
In his supplemental briefing, the Trustee argues that judicial estoppel and equitable estoppel preclude Continental from changing its position on the coverage issue and judgment should be entered as previously discussed with Continental. The Trustee also argues that Continental's flurry of activity since March 2017 is responsible for additional expense and an additional unreasonable delay, confirming Continental's vexatious and unreasonable conduct under the Plan and its Policies. AP Docket nos. 121-123 ("Trustee's Supplemental Brief" and Decs. Frank and Kleinman), nos. 128-129 ("Trustee's Sur-Reply" and Dec. Chatz).
Section 155 provides an extra-contractual remedy for an insured whose insurer's refusal to recognize liability and pay a claim under a policy is vexatious and unreasonable.
Section 155 provides in relevant part:
Section 155 is intended to prevent an insurer from using its superior financial position to profit at its insured's expense.
In deciding whether an insurer is liable under § 155, the Court is to consider the totality of the circumstances, including the insurer's attitude, whether the insured
An award under § 155 is not appropriate where (1) there is a bona fide dispute regarding coverage; (2) the insurer asserts a legitimate policy defense; (3) the claim presents a genuine legal or factual issue regarding coverage; or (4) the insurer takes a reasonable legal position on an unsettled issue of law.
A bona fide dispute is one that is "real, actual, genuine, and not feigned."
Vexatious delay is defined as delay without reasonable or probable cause or excuse; neither time alone, nor any other single factor is controlling in determining whether an insurer is guilty of vexatious delay in refusing to settle a claim.
In its Initial Brief in opposition to the § 155 Motion, Continental misstates the applicable standard. Continental cites
There is a stark difference between a "contrivance which approximates fraud" and "knowingly advancing an unreasonable coverage position." However, the standard for liability under § 155 is neither of these; it is "objectively unreasonable conduct that injures an insured."
In the first phase of its briefing on the § 155 Issues, Continental argued that it did not delay this litigation at any point and, in fact, worked to accelerate its resolution by suggesting immediate briefing of the threshold legal issue in dispute — the interpretation of § 8.3 of the Plan. Docket nos. 57, 66. Continental also contended that it again tried to resolve the case after the Court's Summary Judgment Decision by offering to have judgment entered against it and then resolve the § 155 Issues without a trial. Continental contended that this was, in effect, an offer to waive the defenses available to it in the Plan. AP Docket no. 66, n. 4. Continental accused the Trustee of creating delay by refusing "to accept victory."
The Trustee responded that, at every juncture, he had agreed to the procedural path preferred by Continental — twice agreeing to drop his request that the Court set a trial date. AP Docket nos. 52, 63. In December 2016, Continental's offer to have judgment entered was discussed, and was not refused. The parties agreed that one judgment would be entered in order to avoid piecemeal appeals. AP Docket no. 64, Dec. Frank, ¶ 41-42; AP Docket no. 63, n. 10.
Assuming for the sake of argument that the Trustee should have had to file this Adversary Proceeding, a brief review of the milestones in this case shows it did proceed efficiently until Continental began to pursue its "newly discovered evidence" gambit. The earlier efficiency was not due to any heroic efforts on Continental's part. In itself, the fact that Continental may not have unreasonably delayed the litigation does not end the inquiry.
A bona fide dispute is one that is real, actual, genuine, and not feigned.
Continental also claimed its position was not an unreasonable one because it cited certain authority in support of its allocated percentage arguments. However, none of its authority actually supported the outcome Continental sought. Tellingly, Continental offered no authority to support its contention that an allocation of 100% was not an allocation under Illinois law. Continental also claimed its position was not unreasonable because there was no clear precedent on the disputed issues. Again, this is not persuasive.
As discussed in the Summary Judgment Decision, the Plan language did not require a nuanced interpretation. In the Proposals, the Trustee was permitted to state his contention regarding Continental's allocated percentage. The Trustee had valid reasons for the allocation he proposed — controlling Illinois law permitted it and the facts regarding the liquidated value of all Allowed Claims and the limited fund to pay them supported it. Adopting a strained and unreasonable reading of the Plan, Continental categorically rejected the Tendered Claims instead of reviewing them and responding to them on the merits within 90 days as it had agreed to do under the Plan.
The Summary Judgment Decision also found that Continental's interpretation of the Plan was a strained and unreasonable one and its equitable contribution argument lacked merit. Because of the posture Continental took, the Trustee continued to send Proposals to Continental after the First Amended Complaint was filed and the liquidated value of the Tendered Claims thus continued to increase. This meant that the strength of any allocation argument Continental may have had declined with every submission of Tendered Claims. Continental also unreasonably failed to discuss the allocation issues with the Trustee which further delayed resolution of this case and imposed unnecessary expense on the Trust.
In addition, the circumstances changed dramatically with Continental's "newly discovered evidence" theory and its newly strained interpretation that would eviscerate § 8.3 and allow it to resolve its coverage obligations in state court. As a party bound by the Plan, as a participant who negotiated the relevant terms of the Plan, and as an insurer whose obligations were incorporated into the Plan, Continental has engaged in objectively unreasonable conduct that has injured its insured.
The Trustee argues that based on the available evidence and the clear language of § 8.3, by the end of December 2015, there could be no bona fide dispute regarding coverage for the Tendered Claims and Continental's obligation to pay them; in short, Continental's continued delay is, by definition, vexatious.
Between May 2015 and September 2015, the Trustee submitted 249 Claims to Continental
In December 2016, Continental acknowledged that it had lost and proposed that judgment should be entered against it for its coverage obligations. At that point, Continental convinced the Court and the Trustee that the § 155 Issues should be decided without a trial. As of then, Continental had not contested any of the more than 1,500 Claimants' exposure to asbestos-containing products for which the Trust has liability, contested the medical evidence substantiating the disease level for any Tendered Claim, or contested the fact that each Tendered Claim involved exposure to asbestos for which its Policies provided coverage. Yet it failed to pay a single Tendered Claim and then, with the arrival of its new counsel, it began to chase its new theories generating additional vexatious delay.
Continental argues that the Trustee is responsible for any delay in paying Tendered Claims because the Trustee (1) refused to pay Allowed Claims to establish that the other primary policies were actually exhausted which meant allocation remained a real issue; (2) failed to give Continental copies of the other primary insurers' policies preventing it from analyzing allocation issues; (3) refused to give Continental information regarding the exposure dates for the Non-Tendered Claims which the Trustee easily could have done, thus preventing it from analyzing allocation and exhaustion of its Policies; and (4) provided insufficient information with its submissions of Tendered Claims. AP Docket nos. 57, 58, 59, 66, 125. Continental also claims it made "consistent efforts to resolve this dispute amicably" but was rebuffed by the Trustee. AP Docket nos. 57, 66.
Continental's first argument is easily dismissed. The Plan requires pro rata payment on Allowed Claims and until this litigation is resolved, the Trust will not be in a position to make another distribution on Allowed Claims. The argument that the Trust caused delay by failing to "actually exhaust" the other insurance proceeds was an unreasonable one considering Continental's involvement in the drafting of the Plan and the sophistication of its bankruptcy counsel.
Continental's second argument also lacks merit. A basic premise for Continental's argument that allocation is required is that there are "other insurance" clauses in
While Continental persists in its claim that the Trustee failed to provide the other insurance policies, the record reflects that they were provided to Continental in March 2016 or in October 2016. AP Docket no. 64, Dec. Frank, Ex. 5 (March 2, 2016 letter to Continental saying "you have previously received all the information necessary to evaluate the insurance obligations of both Continental and all of the other insurance carriers ..." and "if there are additional documents you require related to the Tendered Asbestos Claims or other insurance carriers, please identify them at once."); ¶ 17 (stating Trust's counsel received no response to this letter); ¶ 32-34 (stating copies of the available insurance policies were included in the Trustee's September 30, 2016 document production delivered to Continental's counsel as of October 3, 2016). This evidence outweighs Continental's bare assertions and the vague statements in its counsels' Declarations that the Trustee failed to provide the other insurance policies. AP Docket no. 125-2, Dec. Tittman; AP Docket no. 125-5, Dec. Christian.
Accordingly, assuming this request had a legitimate basis — but suspecting it did not — as of at least October 2016, and perhaps as early as March 2016, Continental no longer had this alleged failure by the Trustee as an excuse for being unable to analyze allocation and engage in a substantive discussion with the Trustee.
A brief review of the Trustee's efforts to pin Continental down on its allocation theory is relevant to the question of delay and the charge that the Trustee rebuffed Continental's efforts to resolve this case amicably. The Trustee began sending claims to Continental in May 2015 and by August 2015, the parties were aware of their basic dispute regarding the tension between Illinois law's "all sums" rule and the Plan's allocated percentage language. At that point, Continental acknowledged that there may in fact be no point of disagreement, depending on the volume of Claims the Trustee would ultimately submit to Continental. AP Docket no. 52, Dec. Frank, Ex. 3 (Continental's August 14, 2015 letter to Trustee); AP Docket no. 66 at 9-10. The Trustee continued sending Proposals to Continental, culminating in the 1,547 Tendered Claims which had a liquidated value $8.3 million as of August 2016. AP Docket no. 64, Dec. Frank, ¶ 7.
In March 2016, the Trustee asked Continental to explain an allocation theory it would accept. AP Docket no. 64, Dec. Frank, ¶ 16-17, Ex. 5 (March 2, 2016 letter to Continental). Continental did not respond.
In its May 2016 Summary Judgment Brief, Continental said its Policies would dictate an allocation, either "equal shares" or "pro rata by limits," depending on the
The Trustee repeated the request that Continental disclose its allocation theories on multiple occasions. Docket no. 64, Dec. Frank, ¶ 18 (describing six proposals made to Continental between March 2016 and August 2016). For the first time, in its February 2017 Initial Brief in opposition to this § 155 Motion, Continental posited a theoretical "time on the risk" allocation. AP Docket no. 57 at 14:15-25.
This history is given to illustrate the nature of Continental's response and its failure to engage with the Trustee to resolve this litigation in an objectively reasonable manner. Continental's initial view that the dispute regarding the Plan's allocation language might not have a "significant economic difference over the long term" seems to have been a reasonable position. AP Docket no. 52, Dec. Frank, Ex. 3 (Continental's August 14, 2015 letter to Trustee). But after saying this, Continental adopted an unreasonable position when it categorically rejected the Proposals because the Trustee used a 100% allocation, and thereafter declined to engage in the process that would have made it unnecessary to start with or led to its prompt resolution. Continental failed to review any of the Tendered Claims — apparently at least until March 2017 when it tried to file the Tittman Declaration attaching three claims that had been tendered in May 2015 — and then began its "newly discovered evidence" campaign with evidence that appears to have been provided to it in 2009. On this record, Continental failed to engage in good faith in any substantive discussion with the Trustee regarding the dispute. Because it had the other insurance policies — or because there is no basis for the assertion that it needed them — Continental could have provided at least a theoretical response to the Trustee on this allocation question in October 2016 (if not far earlier). It could have responded to the Trustee's requests that it articulate some allocation method instead of stonewalling the Trustee's efforts to resolve this case on the merits. Continental inexplicably and unreasonably failed to engage in this sort of discussion and thus engaged in vexatious and unreasonable delay.
Continental also argues the Trustee is responsible for any delay because the Tendered Claims provided "incomplete information" and the Trustee submitted corrupt or unreadable disks. AP Docket no. 58, Dec. Christian, ¶ 11; AP Docket no. 125-2, Dec. Tittman, ¶ 22; AP Docket no. 125-5, Dec. Christian, ¶ 4, ¶ 10, ¶ 13. In support of these vague assertions, Continental relies heavily on an excerpt from its August 4, 2015 letter to the Trustee and a June 2016 letter from the Trustee sending certain claim information that the Trustee admits had been inadvertently omitted.
Continental's argument that an alleged lack of information justifies its failure to pay Tendered Claims is disingenuous at best. Continental's response to the Tendered Claims was that an allocation of 100% to Continental was not permissible under the Plan, not that any particular Claim lacked evidentiary support or any batch of Tendered Claims was incomplete or deficient.
Continental also relies heavily on the argument that the Trustee is at fault for refusing to provide exposure information for the Non-Tendered Claims from the Trustee's "Verus database." This information is irrelevant according to the Trustee and Continental requested it solely for the purpose of generating delay and expense for the Trustee. As explained in the Summary Judgment Decision, there are 12,365 Allowed Claims with a liquidated value of $38.1 million which were not tendered to Continental. Of these, 1,037 Allowed Claims with a liquidated value of $14.9 million involve occupational exposure to asbestos prior to Continental's Policy periods.
According to the Trustee, with few exceptions, the Tendered Claims are supported by evidence showing that the Claimant worked at a jobsite at which Debtors' asbestos was present, continued to work at such a jobsite while one of Continental's Policies was in effect, and had an occupation that would reasonably be expected to expose the Claimant to asbestos dust. AP Docket no. 71, at 4:26-5:4; AP Docket no. 93, at 10:22-11:1. Without question, the Non-Tendered Claims exhaust the fund created by the settlements with the other primary insurers, leaving only Continental's Policies available to pay the $8.3 million in Tendered Claims. Allocation of less than 100% to Continental — or equitable contribution as between Continental and the fund created by the settlements with the other primary insurers — is entirely academic. Information regarding exposure dates for the Non-Tendered Claims is irrelevant.
It is still unclear when Continental actually began to look at the merits of the Tendered Claims — assuming for the sake of argument that it has in good faith done so. It is clear that any such review was outside the 90 days set in the Plan.
Federal law governs the application of judicial estoppel in federal courts because it is the federal court's integrity that is at stake.
The factors that a court should consider when addressing the doctrine are described in
The elements of judicial estoppel described in
Continental's current position that its coverage obligations must be decided in a state court is clearly inconsistent with its first position that it had lost on the coverage issue and it was ready to have a judgment entered against it.
Continental argues first that insurance coverage cannot be created by estoppel.
These arguments simply do not hold up. The Trustee is not seeking to create insurance
The Plan resolved Continental's proof of claim by creating a mechanism for the resolution of its coverage obligations. Pursuant to § 8.3, the Trustee submitted Proposals for Claims that triggered Continental's coverage. After it was sued, Continental raised coverage issues in its affirmative defenses and in its Counterclaim. Following the Summary Judgment Decision, Continental admitted it had lost on the coverage issue.
Continental tries to minimize the importance of its counsel's written and oral statements that Continental "had lost." Continental now claims these statements were simply motivated by a desire to ensure efficient progress in this litigation. AP Docket no. 125-2, Dec. Tittman, ¶ 17 ("In any statements I have made ... my sole motivation was to try to be creative in ways to manage this case more efficiently.")
Taken in context, these statements were not meaningless "off-the-cuff" remarks. Counsel described the offer to the Trust as "judgment in its favor for the full damage amount claimed." AP Docket no. 59, Dec. Tittman, ¶ 2, ¶ 6, ¶ 18-19; AP Docket no. 121, Hr'g Tr. (May 3, 2016) at 22:19-23; AP Docket no. 121, Hr'g Tr. (Dec. 6, 2016) at 4:10-20, 8:10-19. This is a far cry from a statement encouraging efficient handling of litigation. In addition, Continental's motivation is irrelevant, it is the position stated that matters.
Continental's argument that this Court's alleged lack of jurisdiction is the rationale for its current position is revisionist history of an almost laughable sort. Continental's Answer did take the position that this was not a core proceeding but Continental also filed a Counterclaim and agreed to continue litigating in this Court. AP Docket no. 121, Ex. D, Hr'g Tr. (May 3, 2016) at 8. Continental has expressly or impliedly consented to proceeding on the coverage issue in this Court.
Continental succeeded in persuading the Court to adopt its approach to this litigation. Without a doubt, this Court relied on the positions Continental took in May 2016 and in December 2016. At the first status conference, Continental told the Court deciding the legal issue regarding § 8.3 of the Plan would resolve the entire case. Instead of setting a trial date as the Trustee then requested, the Court deferred to
Continental argues that the Court could not have relied on its counsels' statements because Continental never briefed or argued a position on the "trigger of coverage" and the Court never had evidence or ruled on this issue. This argument is not convincing. The Court relied on Continental's assertion that a trial date was not necessary because, as Continental's counsel explained, "we had already lost and judgment should be entered against Continental." AP Docket no. 59, Dec. Tittman, ¶ 18. This was an admission that the Tendered Claims triggered Continental's Policies. Evidence on the "trigger of coverage" was not presented because Continental said it had lost on this point.
If Continental is permitted to litigate coverage in state court, this Court will have been misled by Continental over the last several years and Continental will be given an opportunity to mislead another court at the Trustee's expense.
Continental's shifting positions have harmed the Trust and its beneficiaries — both in terms of time and money. Allowing Continental to restart coverage litigation in state court would also present an unfair and undeserved advantage for Continental — again in terms of time and money.
As explained above, both the Trustee and the Court acted in reliance on Continental's earlier positions. The Trustee fully briefed the § 155 Issues and then was required to respond to the barrage of motions filed by Continental since March 2017, and has had to address Continental's shifting narratives involving "newly discovered evidence" and "newly developed evidence," none of which appear to have any merit.
Permitting Continental to litigate in state court would also allow Continental to eviscerate the agreements embodied in the Plan which Continental negotiated and described as the means by which its proof of claim was resolved. It would also permit Continental to prolong its campaign of stalling to avoid paying Tendered Claims. The Trust (and its beneficiaries) will necessarily suffer an unfair detriment from the expense and delay this proposed state court coverage litigation would impose.
Finally, Continental claims any inconsistency in its prior positions was based on inadvertence or mistake which precludes estoppel.
This aspect of Continental's argument is also deeply flawed. Parties are bound by the conduct of their attorneys absent egregious circumstances which are not present here.
Continental does not argue that this so-called "newly discovered evidence" was unavailable to it before December 2016, only that it was "not aware" of it. In fact, the Trustee asserts that substantially the same information had been provided to Continental's counsel David Christian in October 2009 when Continental first appeared in this chapter 11 case and the Trustee's counsel, then representing the Debtors, approached Continental regarding entering into a "buy-back" settlement like the other solvent primary insurers had done. AP Docket no. 93, Ex. C-D (2009 correspondence between Continental's counsel David Christian and Joseph Frank). Continental has had an opportunity to respond to this assertion and has remained silent.
Continental took the positions it took before March 2017 by design and not by inadvertence. Before March 2017, its § 155 arguments were aimed at defeating an argument that it had unreasonably delayed the litigation and supporting its claim that it had a valid interpretation of the Plan. Upon the arrival of its new counsel, it has tried mightily to escape from its prior position. This is the sort of conduct the estoppel doctrine addresses and, for § 155 purposes, the sort of conduct described as vexatious and unreasonable.
Applying the approach as instructed in
Continental argues that Illinois law applies to equitable estoppel. The Trustee has accepted this proposition.
To establish equitable estoppel, the party claiming estoppel must demonstrate that (1) the other person misrepresented or concealed material facts; (2) the other person knew at the time he or she made the representations that they were untrue; (3) the party claiming estoppel did not know that the representations were untrue when they were made and acted upon; (4) the other person intended or reasonably expected that the party claiming estoppel would act upon the representations; (5) the party claiming estoppel reasonably relied upon the representations in good faith and to his or her detriment; and (6) the party claiming estoppel would be prejudiced by his or her reliance on the representations if the other party were permitted to deny their truth.
As to the first two elements, the representation need not be fraudulent in the strict legal sense or done with intent to mislead or deceive. It is sufficient that a fraudulent or unjust effect results from allowing another person to raise a claim inconsistent with his or her former declarations. Id.
In December 2016 Continental's counsel said in no uncertain terms that the case was decided and judgment for breach of contract should be entered against it. AP Docket no. 121, Ex. B, Hr'g Tr. (Dec. 6, 2016) at 4:10-20, 8:10-19. That is, Continental conceded that the Tendered Claims were covered by its Policies. Then, in his most recent Declaration, Continental's counsel states "Continental had not and has never conceded this [coverage] issue" and he "had no direction or authority to waive or relinquish any rights." AP Docket no. 125-2, Dec. Tittman, ¶ 16, ¶ 19. This reversal fits squarely within the first two elements described in
As to the third element, the Trustee has clearly and unequivocally established that he did not know that Continental disputed coverage. After the December status conferences at which Continental said the coverage issue had been decided and it was ready to enter judgment, the Trustee — and the Court — believed that the parties
Continental also argues the Trustee "had more information about the claims than Continental and must know that most, if not all, of the [T]endered [C]laims do not trigger the Continental 1985-1987 policies." AP Docket no. 125, at 18:5-8. This statement insinuates that the Trustee is trying to defraud Continental into paying Tendered Claims. This sort of underhanded attack on a fiduciary is unwarranted and insulting.
The fourth and fifth elements are also established. The Trustee has shown that Continental intended or expected that its statements would be acted upon and, they were, in fact, acted upon. The Trustee acted by not insisting on a trial date in May 2016, by not pursuing discovery, by agreeing that the § 155 Issues could be resolved on the briefs, and by agreeing, for a second time, that the Court did not need to set a trial date. AP Docket no. 121, Ex. B, Hr'g Tr. (Dec. 6, 2016) at 4:9-20, 5:1-6:25; AP Docket no. 128, Ex. A, Hr'g Tr. (July 26, 2017) at 44:12-45:2.
The prejudice to the Trustee if Continental is permitted to deny the truth of its earlier statements is apparent as explained above in the discussion of judicial estoppel.
For all these reasons, the Court finds that the elements for equitable estoppel have been clearly and unequivocally established. Allowing Continental to back away from its prior position and litigate coverage in state court would be inequitable and damaging to the Trust and its beneficiaries.
Section 155 allows the Court to award reasonable attorneys fees and costs. In deciding on a reasonable fee, the Court is to consider the time and labor required, the novelty or difficulty of the issues, the skill required, the preclusion of other employment, the customary fee in the community, the amount of money involved in the case, the results obtained, and the attorneys' reputation, experience and ability.
A contingency fee may or may not establish the reasonable fee.
Under Illinois law, the Court has broad discretion in matters of attorneys' fees.
The Trustee seeks an award of attorneys' fees and costs for FrankGecker LLP and his local counsel Cooper White & Cooper.
When litigation with Continental looked inevitable, the Trustee requested that FrankGecker agree to a hybrid contingency fee agreement. AP Docket no. 52, Dec. Frank, Ex. 6 (the Retention Agreement). The Retention Agreement reduced the hourly rates of the FrankGecker attorneys from their customary hourly rates ($695 to $825 for partner Joseph Frank; $410 to $450 for associate Jeremy Kleinman) to $375, and provided for a contingency fee for additional compensation only upon a net recovery from Continental, with a credit for payments made along the way. AP Docket no. 52, Dec. Frank, ¶ 31.
The Retention Agreement also provided that FrankGecker would be compensated in accordance with its normal hourly rates for all services rendered to the Trustee other than this litigation, including all work related to presentation of Claims to Continental pursuant to § 8.3 of the Plan. Because Continental's response to the Tendered Claims was that the Trust had to perform an (as yet unspecified) allocation, the Trustee's counsel was required to continue reviewing Allowed Claims before tendering them to Continental. Between January 1, 2016 and August 31, 2016 FrankGecker attorneys spent 135.20 hours reviewing more than 1,500 Allowed Claims solely to identify Claims that triggered Continental's Policies. As an accommodation to the Trustee, FrankGecker agreed to bill at the reduced hourly rate of $375. As of January 2017, the total billed and paid for this aspect of the case was $49,987.50. AP Docket no. 52, Dec. Frank, ¶ 36, Ex. 7 (billing statements).
Based on Policy proceeds of $2,512,444, the Trustee now seeks an award of attorney's fees of not less than $664,106.52 pursuant to the Retention Agreement, plus $49,987.50 for additional claim review. AP Docket no. 52, Dec. Frank, ¶ 32-36. The Trustee also seeks reimbursement for expenses of $9,364.03. AP Docket no. 128, at 29. The Trustee is entitled to recover these amounts as reasonable under § 155.
As of July 13, 2017, FrankGecker had billed the Trustee and been paid for 915.80 hours of services related to this Adversary Proceeding for a total through June 30,2017 of $330,984. AP Docket no. 122, Dec. Chatz, ¶ 18.
The Trustee's local counsel, Cooper White & Cooper, also agreed to bill the Trustee at a reduced hourly rate for this litigation. Peter Califano, the partner responsible for the work, agreed to reduce his customary hourly rate from $525 to
The Court finds that the FrankGecker attorneys and the Cooper White & Cooper attorney are well qualified and their skill and competence are well established.
In addition, to the extent relevant, based on the number of hours spent in this litigation, as of July 2017, FrankGecker's effective hourly rate was $712. AP Docket no. 121, at 18:16-18. This would also be a customary and appropriate rate in this sort of case in the Northern District of California.
Continental also claims the $375 reduced hourly rate is more than Continental allegedly pays at least one of the firms it has been using in this litigation. AP Docket no. 57; AP Docket no. 59, Dec. Tittman, ¶ 22. What Continental pays its attorneys is not a relevant concern.
Section 155 also provides, in relevant part, that the Court may award "an amount not to exceed" 60% of the amount which the court finds the party is entitled to recover against the insurance company, exclusive of all costs, or $60,000.
The Trustee advances a novel argument that the penalty available under § 155 is not limited to the $60,000 in § 155(b). Continental disagrees with the Trustee's position and points out that the language of § 155 is clear: the Court is limited to awarding the lowest of the options. The Court is sympathetic to the Trustee's argument that on the facts of this case a $60,000 penalty is relatively meaningless but the Court is constrained by the language of the statute and the case law interpreting § 155 which establishes that the penalty here is limited to $60,000. Accordingly, the Court will award the Trustee this amount.
The Trustee asks for prejudgment interest under the Illinois Interest Act (815 Ill.Comp. Stat. Ann. 205/2). The statute provides in relevant part:
Prejudgment interest is available for sums due on insurance policies.
According to the Trustee, prejudgment interest on the $2.5 million in Policy limits is $202,371.96 through August 10, 2017 with a daily rate of $344.17 thereafter until entry of judgment. AP Docket no. 129, Dec. Chatz, ¶ 24. The Trustee calculated interest on the face amount of the first four Proposals of Tendered Claims sent between May 2015 and September 2015 which total the amount of the Continental Policy proceeds, starting from the December 31, 2015 filing date of the Adversary Proceeding to August 10, 2017.
Based on the facts of this case, the Court exercises its discretion to award prejudgment interest of $202,371.96 plus $344.17 per day after August 10, 2017 until judgment is entered, as requested by the Trustee.
For the reasons explained above, the Court finds that Continental is liable under § 155 for its vexatious and unreasonable conduct in this case. Within fourteen days of the date of entry of the Order on this Memorandum Decision, Continental must pay to the Trustee its Policy limits plus reasonable attorneys' fees, expenses, and prejudgment interest as explained above, plus a $60,000 penalty. A separate Order will follow.
