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American Trucking and Transport Insurance Co. v. Nelson

United States District Court, D. Montana, Missoula Division

April 20, 2018

AMERICAN TRUCKING AND TRANSPORTATION INSURANCE COMPANY, a Risk Retention Group, Plaintiff,
v.
RALPH NELSON, ROBERT GORMAN, SR., BOBBY J. GORMAN, DAN DOOLEY, and WESTCHESTER SURPLUS LINES INSURANCE COMPANY, Defendants.

          ORDER

          Dana L. Christensen, Chief District Judge.

         Before the Court is the Defendant Westchester Surplus Lines Insurance Company's (“Westchester”) Motion to Compel Arbitration and to Stay Plaintiff's Claims against Westchester (Doc. 48), and Defendant Dan Dooley's Motion to File Amended Answer with Cross-Claims (Docs. 54). For the reasons below, the Court denies Westchester's Motion to Compel Arbitration and grants Defendant Dooley's Motion to File Amended Answer.

         BACKGROUND

         Plaintiff American Trucking and Transportation Insurance Company (“ATTIC”) is a risk retention group located in Missoula, Montana. ATTIC offers its member insureds certain benefits which are not generally available to insureds purchasing insurance on the open market. In exchange for these benefits, the member insureds are subject to heightened duties to ATTIC and the other member insured shareholders. Gorman Group is a transportation, shipping, and logistics company, and was the holding company for a number of subsidiaries, including Tango Transport. Tango Transport was the principal operating entity for Gorman Group's trucking operations. In 2010, Gorman Group became a shareholder of ATTIC and both Gorman Group and Tango Transport became ATTIC insureds (hereafter collectively referred to as “the Insureds”). As shareholders, the Insureds nominated Ralph Nelson, Gorman Group's Senior Vice President and General Counsel, to be their representative to the ATTIC Board of Directors, and ATTIC required that at least one board meeting be held in the State of Montana.

         On October 1, 2010, ATTIC issued policy number ATTTAN110 which provided coverage to the Insureds and other affiliated companies. The policy provided the insureds with commercial trucking, property, and personal injury liability coverage with a $5 million per occurrence policy limit subject to a $350, 000 per occurrence deductible. Tango Transport managed all obligations to ATTIC on behalf of itself and Gorman Group. Tango Transport made all premium payments, paid claims, paid defense costs on the claims it handled, and reimbursed ATTIC on the claims it paid.

         ATTIC provided coverage and issued annual policies to the Insureds in 2010, 2011, 2012, 2013, and 2014. From October 1, 2010, through September 30, 2015, Ralph Nelson, acting as the Insureds' claims handling manager, handled the intake, investigation, and resolution of claims in which the Insureds anticipated ultimate exposure would fall below $175, 000. The Complaint alleges that Robert Gorman, Sr., as well as Dan Dooley, as the restructuring agent of Tango Transport, were advised and aware of the status of the claims handling process.

         In 2014, Tango Transport began experiencing financial difficulties. However, Ralph Nelson informed ATTIC that the Insureds were refinancing their debt obligations. By September 2015, the Insureds were unable to meet their financial obligations to ATTIC. At this time, Dan Dooley advised ATTIC that Tango Transport was either going to sell its operating equipment or would cease operations.

         ATTIC immediately took over all open liability claims that were within Tango Transport's deductible under the policies issued by ATTIC, and all other open but unpaid claims. ATTIC alleges that once it took over the claims, it became clear that the Insureds had failed to satisfy their obligations under the ATTIC Shareholders Agreement and Bylaws, had misrepresented their liabilities, and were negligent in the manner in which they had handled the claims.

         On September 20, 2015, ATTIC and the Insureds agreed to extend the policy for 45 days to allow the Insureds time to transfer their operating equipment to another purchasing entity, Celadon, Inc. The Insureds paid a flat rate for coverage, and also transferred funds to ATTIC to pay for unpaid claims. By October 2015, the Insureds had informed ATTIC and their creditors that they planned to liquidate their remaining assets. In April 2016, Tango Transport filed for Chapter 11 Bankruptcy.

         As of December 1, 2016, ATTIC had filed two unsecured claims in the consolidated bankruptcy case pending in the Federal Bankruptcy Court, Eastern District of Texas, Dallas, In re Tango Transport, LCL, et al. On December 21, 2016, the bankruptcy court determined that ATTIC could proceed against the non-debtors for civil damages.

         ATTIC's Complaint alleges ten counts against Dooley: (I) breach of contract; (II) breach of fiduciary duty; (III) negligent misrepresentation; (IV) fraud; (V) constructive fraud; (VI) negligence; (VII) negligence per se; (VII) acts in concert; (IX) civil conspiracy; and (X) piercing the corporate veil. (Doc. 1.)

         In July 2017, the Court granted in part and denied in part Dan Dooley's Motion to Dismiss. (Doc. 33.) The motion was denied with respect to personal jurisdiction, and Counts III, IV, V, VI, VIII, and IX of the Complaint. Counts I, II, VII, and X were dismissed as to Defendant Dooley.

         On July 20, 2017, ATTIC filed its Amended Complaint, which joined Westchester as a Defendant. (Doc. 32.) The claims against Westchester arise out of a Directors and Officers Insurance Policy, policy no. G27131712 (“Westchester Policy”), issued by Westchester to Gorman Group. As a result of Westchester's refusal to defend and indemnify the officers of Gorman Group, including Ralph Nelson, Bobby J. Gorman, and Robert Gorman, Sr. (the “Westchester Insureds”), these same individuals agreed to settle with ATTIC which included a stipulated judgment in favor of ATTIC in the amount of $3, 121, 758.45, in exchange for a complete release of any and all claims. In Count XI of the Amended Complaint, ATTIC seeks a judicial declaration of Westchester's obligations under the Westchester Policy, the settlement agreement just described, and a declaration that Westchester is liable for the $3, 121, 758.45 stipulated judgment.

         Westchester now moves to compel arbitration under the Westchester Policy and Defendant Dooley moves to amend his answer to include cross claims against Westchester.

         LEGAL STANDARD

         I. Arbitration

         The Federal Arbitration Act (“FAA”) “embodies a liberal federal policy favoring arbitration” and facilitates private dispute resolution by making arbitration agreements presumptively “valid, irrevocable, and enforceable.” Mortensen v. Bresnan Communications, LLC, 722 F.3d 1151, 1157 (9th Cir. 2013) (citing Kilgore v. KeyBank, Nat. Ass'n, 718 F.3d 1052, 1057 (9th Cir. 2013)) (quoting 9 U.S.C. § 2). Under the FAA, a party to an arbitration agreement may bring a motion in federal district court to compel arbitration and stay the proceeding pending resolution of the arbitration. 9 U.S.C. §§ 3-4. Any ambiguities as to the scope of the arbitration provision must be interpreted in favor of arbitration. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995); see also AT&T Techs. Inc. v. Commc'n Workers of Am., 475 U.S. 643, 650 (1986). The FAA limits a district court to determining, “(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Kilgo ...


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