Opinion
No. 05 Civ. 2394 (GEL).
March 16, 2005
Celia Goldwag Barenholtz, Stephen A. Wider, Shannon McKinnon, Kronish Lieb Weiner Hellman LLP, New York, NY, for Petitioners Gulf Insurance Company, Select Insurance Company, Gulf Underwriters Insurance Company, Gulf Group Lloyds, Farmington Casualty Company, and the St. Paul Travelers Companies, Inc.
Thomas W. Hyland, Wilson, Elser, Moskowitz, Edelman Dicker LLP, New York, NY, for Respondent Rockwood Programs, Inc.
OPINION AND ORDER
The parties in the above-captioned matter are presently engaged in arbitration proceedings, commenced by the petitioner insurance companies on February 24, 2005, which stem from respondent's alleged breach of a Program Manager's Agreement (the "Agreement"), which governed respondent's management of petitioners' insurance policies. Petitioners have applied to this Court for an order compelling respondents to turn over certain books and records relating to the insurance policies, which petitioners claim are their property under the terms of the Agreement, and which they require in order to conduct their business pending the outcome of arbitration.
Respondent contends that not all of the named petitioners are properly parties to this case because they are not in privity of contract with respondent. That is issue is largely moot, however. It is unquestionable that petitioner Gulf Insurance Company is the counterparty to the written contract at issue, and it appears clear to the Court that respondent also treated petitioner Farmington Casualty Company as a party to the same Agreement. It is thus essentially irrelevant whether the other named petitioners are or are not treated as parties to the case. If the relief sought is awarded to Gulf and/or Farmington, those parties will be entitled to share the records that are delivered to them with whatever other affiliated entities they want.
Oral argument was held in this matter on March 16, 2005. No party disputes that this Court has the power to order the relief requested under Fed.R.Civ.P. 65, provided that petitioners meet the standard for mandatory preliminary relief: Petitioners must demonstrate a clear and substantial likelihood of success on the merits, and the likelihood of irreparable injury in the absence of the requested relief. See, e.g., Sunward Electronics, Inc. v. McDonald, 362 F.3d 17, 24-25 (2d Cir. 2004). Petitioners have clearly met both prongs of this test.
First, setting to one side petitioner's likely success on the merits of the entirety of the underlying arbitration, it is transparently clear, and respondent makes little objection, that the express contractual terms of the Agreement make certain files the property of petitioners, and that these files must be returned to them. Paragraph III(T) of the Agreement requires respondent:
To keep and maintain separate, identifiable, orderly, accurate, complete and timely records and accounts of all business and transactions pertaining to Policies bound or written under the Agreement, including complete underwriting and rate files. Such records and files may be copied by [respondent] at the [respondent's] expense, but shall at all time remain the property of [petitioner] Gulf.
The contractual language is unambiguous on its face, and no resort may be made to extrinsic evidence for its interpretation.See, e.g., Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d 884, 889 (2d Cir. 1990). Although at oral argument respondent repeatedly referred to the records in question as "underwriting files," and attempted to distinguish these from other files, the language is broader than respondent contends; it clearly establishes that all documents of "business and transactions" related to the insurance policies, and not just the underwriting files, are the petitioners' property, since the language includes "underwriting . . . files" as merely one example of the "records . . . of all business and transactions pertaining to Policies" that are made petitioner Gulf's property by the contract.
Against the unambiguous language of the Agreement, respondent has raised the sole argument that the cited terms of the contract were not intended to apply to the identification of sub-agents contained within the files, which it characterizes as its proprietary information. But the terms are unambiguous, and leave no room for a judicial construction that would permit redaction of the files in any way. As respondent conceded at oral argument, correspondence from or otherwise identifying sub-agents, such as letters soliciting a policy asserting a claim, would be included in the files and records that are property of petitioners under the terms of the Agreement. As respondent has not pressed any other argument, it is clear that the files which petitioners request are their rightful property under the Agreement, and that therefore, there is a clear and substantial likelihood that these files would be awarded to them at the conclusion of arbitration.
Second, petitioners contend that the requested files are essential to service the insurance policies, including making decisions regarding renewal of these policies, and that consequently, they will suffer irreparable harm if deprived of access to the requested files during the pendency of arbitration. In support of this contention, petitioners offer a declaration from Paul N. Brodeur, detailing that their files are necessary in the ordinary course of an insurer's business, to enable the insurer to service accounts, and to decide whether to renew or terminate expiring policies. As an example, petitioners claim that a request to increase policy limits cannot be properly evaluated in the absence of information contained in the policy records indicating the insured's risk characteristics, such as the nature of the insured's business, how long it has been in operation, and its claims history, as well as contact information for the insurance agent. (Brodeur Am. Decl. ¶ 35.) Similarly, petitioners claim that without the records they are unable to provide formal notices of termination, leaving them exposed to the risk that they will remain liable to policyholders who otherwise should have been terminated. (Brodeur Am. Decl. ¶ 37.) This evidence accords with common sense. Now that the relationship between petitioners and respondent is severed, petitioners must continue to service existing policies, and deal appropriately with expiring policies. To do this, petitioners must have access to the files that contain the history of the policies at issue.
The case law supports the view that such disruptions of ordinary business can constitute irreparable injury. Petereit v. S.B. Thomas, Inc., 63 F.3d 1169, 1186 (2d Cir. 1995) ("Major disruptions of a business can be as harmful as its termination and thereby constitute irreparable injury."); Jacobson Co., Inc. v. Armstrong Co., 548 F.2d 438, 444-45 (2d Cir. 1977) ("threatened loss of good will and customers" due to defendant's potential termination of distribution agreement with plaintiff constituted harm which could not be rectified by monetary damages). Here, as in those cases, petitioners are not concerned merely with the possible loss of customers to respondent or its new principal, which could be remedied by an award of damages if the arbitrators find that such loss results from a breach of contract. Rather, petitioners are concerned that their inability to service customers, or the possibility that policies will fail to be terminated or renewed in a knowledgeable manner, will subject them to losses of goodwill and to largely unquantifiable and unforeseeable economic harm. Such consequences cannot be remedied by a monetary award from the arbitrators and constitute a recognized form of irreparable injury.
Respondent offers no substantial opposition to petitioners' position on this point, other than to suggest that petitioners could continue to conduct their business if redacted files were provided, and/or that petitioners could manage to work around the problems if only portions of the files were provided. The Court need not reach all questions about what possible interim positions the parties could have negotiated. Petitioners are entitled to their property, and it is essentially conceded that without these files, they will be unable to conduct their business. Accordingly, petitioners are entitled to the return of the complete files, and not some Swiss cheese version thereof, purged of the identities of the insureds and/or their agents.
Respondent has further argued that the balance of equities in this matter weighs against compelling production of these files, because to do so would put it at a competitive disadvantage and even (in what appears to be hyperbole) would put it out of business altogether. There is clearly no real danger of the latter: Petitioners do not seek, and the Court does not order, production of any client lists or business information of respondent that does not constitute a "record [or] account of . . . business and transactions pertaining to [insurance] [p]olicies" issued under the Agreement. Moreover, respondent is permitted under the Agreement to make copies of all files it is now being ordered to produce to petitioners. Nothing in this Order prohibits respondent from making use of the files, in whatever way it believes it has a right to do under the terms of the Agreement, subject, of course, to the ultimate decision of the arbitrators, or otherwise from competing or continuing in business.
It is not the role of the Court to assess who is getting a competitive advantage. Rather, it is the Court's role to decide whether petitioners have met the standard for awarding the relief requested. Both sides are perhaps jockeying for business advantage, and at the end of the day, the success or failure of each will be determined in the marketplace. But being subjected to competition is not an injury cognizable before this Court. What the Court can and must remedy is respondent's wrongful withholding of petitioners' property, which petitioners have amply demonstrated they require in order to meet their obligations to their insureds and to conduct their ordinary business. Under these circumstances, petitioner is entitled to an order compelling respondent to turn over the requested documents.
Accordingly, it is hereby ORDERED that respondent forthwith turn over to petitioners all records and accounts of all business and transactions pertaining to policies bound or written under the Agreement, including complete underwriting and rate files, at the offices of counsel for petitioners, Kronish Lieb Weiner Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036.
It is FURTHER ORDERED that this Order is hereby conditioned upon petitioners' filing with the Clerk of this Court by no later that 5:00 p.m. on March 18, 2005, an undertaking in the form of a bond, certified, cashier's or attorney's check or cash, in the amount of $50,000, to secure the payment of such losses and damages as may be suffered or sustained by any party who is found to be wrongfully enjoined hereby.
SO ORDERED.