Opinion
02 Civ. 4258 (PKL), 02 Civ. 4261 (PKL).
August 3, 2007
WILLKIE FARR GALLAGHER, New York, New York, Francis J. Menton, Jr., Esq., Attorneys for Plaintiffs.
CLIFFORD CHANCE US LLP, New York, New York, Steven C. Schwartz, Esq., Maryana A. Kodner, Esq., Thomas Teige Carroll, Esq.,Attorneys for Defendant.
OPINION AND ORDER
In 1999 defendant Hannover Ruckversicherungs-Akteiengesellschaft ("defendant" or "Hannover"), a German reinsurance company, purchased defendant Lion Holding Inc. ("Lion"). Lion was an insurance holding company whose principal asset was Clarendon Insurance Group Inc. ("CIGI"). The purchase was executed pursuant to a Stock Purchase Agreement ("SPA") dated February 16, 1999. The individual plaintiffs are both former senior officers at CIGI and were the majority shareholders of Lion prior to the sale; they continued to work for CIGI post-acquisition pursuant to certain employment agreements, which were later modified by a letter agreement dated March 5, 1999 ("Letter Agreement").
In order to avoid confusion hereinafter, references in the form "defendant" are to Hannover only, and references in the form "Lion" are to defendant Lion.
This action arose out of plaintiffs' claim that Hannover breached certain terms of plaintiffs' post-acquisition employment agreements that required defendant Hannover to pay plaintiffs certain deferred compensation. Hannover moved for partial summary judgment, arguing that plaintiffs failed to meet the requirements of their employment agreements that would have made them eligible for the deferred compensation sought, and that, consequently, their claims were foreclosed as a matter of law. On March 1, 2007, this Court issued an Opinion and Order ("the March Order") granting in part and denying in part defendant's motion for summary judgment. See Ferguson v. Hannover Ruckversicherungs-Akteiengesellschaft, 478 F. Supp. 2d 455, 480 (S.D.N.Y. 2007) (Leisure, J.).
Plaintiffs now move the Court, pursuant to Rule 6.3 of the Local Rules of the United States District Courts for the Southern and Eastern Districts of New York ("Local Rule 6.3") to reconsider and/or clarify the March Order in regard to (1) plaintiffs' rights under Section 5(c) of the March 5, 1999 Letter Agreement; (2) plaintiffs' claims relating to the "Stop Loss" agreement; and (3) plaintiffs' claims in connection with defendant's reallocation of expenses from Hannover Finance Incorporated ("HFI") to CIGI. For the reasons set forth below, plaintiffs' motion is GRANTED in part and DENIED in part.
BACKGROUND
The factual and procedural history of this case is presented in the Court's March Order, with which the Court assumes familiarity. Consequently, the Court will only review those facts necessary for the consideration of the instant Motion for Reconsideration and/or Clarification.
Section 2.3 of the SPA governing defendant's acquisition of Lion and CIGI included a provision detailing certain terms of plaintiffs' post-acquisition employment. Specifically, Section 2.3 provided that Hannover had an obligation to pay the plaintiffs certain deferred compensation (the "Earnout") should CIGI's combined ratio remain below certain percentages. Concern over the conflicting interests and obligations of the plaintiffs to both protect their interest in meeting the requirements of the Earnout and still carry out the decisions of the Hannover board led the parties to enter into the March 5, 1999 Letter Agreement. Section 5 of the Letter Agreement stipulated certain Special Operating Rules. (Letter Agreement at 2.)
As the Court noted in the March Order, the Special Operating Rules are broken into two key provisions, sections 5(b) and 5.(c). Section 5 (b) provides the general rule that "Management [i.e., plaintiffs] shall be obligated to comply with the decisions of [CIGI's] board of directors. However, if management disagrees with any decision of the board of directors regarding retentions, new programs or inter-company expense allocations, then the effect of such decision shall be eliminated only for purposes of calculating [the Earnout]." (Letter Agreement 2-3.) Section 5(c) then sets forth more specific rules governing the level of reserves carried by Hannover or its subsidiaries, including CIGI, to cover future liabilities:
(i) If management disagrees with the level of reserves carried by the Insurance Subsidiaries for any of the accounting periods ending December 31, 1999, 2000, or 2001, then they may give notice to Hannover Re that they demand a neutral determination of the appropriate level of carried reserves for the relevant period. . . .
(ii) If management objects with the level of reserves als [sic] provided above, then the level of reserves shall be established by a neutral expert. . . .
(Letter Agreement 3.)
Defendant's request for partial summary judgment argued that plaintiffs failed to meet the requirements of the Special Operating Rules of the Letter Agreement by neglecting to object to the board decisions in a formal and timely manner. Plaintiffs opposed the motion, claiming the requirements of the Special Operating Rules were ambiguous and that determination of their meaning was a question of fact, making summary judgment inappropriate. They further argued that defendant breached the covenant of good faith and fair dealing, entitling plaintiffs to challenge certain Hannover board decisions outside the scope of the Special Operating Rules.
In the March Order, the Court (1) granted partial summary judgment as to claims made by plaintiff in their complaint or in their expert's testimony except where plaintiffs showed defendant precluded them from making timely objections; (2) granted partial summary judgment as to claims brought under Section 5(c) of the Letter Agreement; (3) granted partial summary judgment as to claims that do not fall within the specific categories set forth in the Letter Agreement; (4) denied summary judgment as to claims regarding retentions where plaintiffs can show that defendant precluded them from making timely objections; (5) denied summary judgment as to the "Acceptance Transaction" adjustment; and (6) denied summary judgment as to claims regarding inter-company expense allocations where plaintiffs can show defendant precluded them from making timely objections. See Ferguson, 478 F. Supp. 2d at 480.
Plaintiffs now move the Court to reconsider and/or clarify its ruling in regard to (1) plaintiffs' rights under Section 5(c) of the March 5, 1999 Letter Agreement; (2) plaintiffs' claims relating to the "Stop Loss" agreement; and (3) plaintiffs' claims in connection with defendant's reallocation of expenses from HFI to CIGI. The Court will address these claims in turn.
DISCUSSION
I. Legal Standards for Motion for Reconsideration and Motion for Clarification
To be entitled to reconsideration under Local Rule 6.3, a "movant must demonstrate that the Court overlooked controlling decisions or factual matters that were put before it on the underlying motion." Dietrich v. Bauer, 198 F.R.D. 397, 399 (S.D.N.Y. 2001). Further, the movant must demonstrate that the controlling decisions or data that the court overlooked "might be reasonably expected to alter the conclusion reached by the court." Energy Transport, LTD v. M.V. San Sabastian, No. 03 Civ. 4193 (PKL), 2005 WL 549542 at *2 (S.D.N.Y. Mar. 9, 2005) (Leisure, J.) (quoting Shrader v. CSX Trasp., Inc., 70 F.3d 255, 257 (2d Cir. 1995); see Weissman v. Fuchtman, 124 F.R.D. 559, 560 (S.D.N.Y. 1989) (Leisure, J.). A party may not use a motion for reconsideration as a "substitute for appealing from a final judgment." Dietrich, 198 F.R.D. at 398; see Weissman, 124 F.R.D. at 560 ("[M]otions for reargument and reconsideration are not a substitute for an appeal from judgment."). Consequently, the "motion to reconsider cannot assert new facts, issues or arguments not previously presented to the court." Energy Transport, 2005 WL 549542 at *2 (internal quotation omitted); see Nat'l Union Fire Ins. Co. v. Stroh Cos., 265 F.3d 97, 115 (2d Cir. 2001). Whether to grant or deny a motion to reconsider is "within the sound discretion of the district court." Dietrich, 198 F.R.D. at 399.
Federal Rule of Civil Procedure 60(a) provides that "[c]lerical mistakes in judgments, orders or other parts of the record and errors therein arising from oversight or omission may be corrected by the court at any time of its own initiative or on the motion of any party." Fed R Civ. P. 60(a). The "general purpose of Rule 60(a) is to afford courts a means of modifying their judgments in order to ensure that the record reflects the actual intentions of the court." Slupinski v. First Unum Life Ins. Co., 2006 U.S. Dist. LEXIS 55545 at *5 (S.D.N.Y. 2006) (internal quotation omitted). Thus, Rule 60(a) "permits the correction not only of clerical mistakes, but also of inadvertent errors arising from oversight or omission." In re Marc Rich Co. A.G. v. U.S., 739 F.2d 834, 836 (2d Cir. 1984) (internal quotation omitted).
In their current motion, plaintiffs disregard the legal standard for Rule 60(a) by grouping their requests for reconsideration and clarification under Local Rule 6.3. As the standard for clarification depends on the Court's subjective assessment as to whether or not its own intention was reflected accurately in the record, the Court will only apply Rule 60(a) where it deems necessary. Thus, unless the standard for clarification is discussed, it can be assumed that the record accurately reflects the Court's intent. The Court now turns to analysis of plaintiffs' claims in turn.
II. Plaintiffs' Rights Under Section 5(c) of the March 5, 1999 Letter Agreement
Section 5(c) of the Special Operating Rules of the Letter Agreement reads: "If management disagrees with the level of reserves . . . then they may give notice to Hannover Re that they demand a neutral determination of the appropriate level of carried reserves for the relevant period." (Letter Agreement at 3.) The Letter Agreement stipulates that this neutral determination shall be conducted by a "neutral expert." (Letter Agreement at 3.) In the March Order, the Court found that plaintiffs did not "adequately meet the specific requirements of the [Special Operating Rules] [as they] never demanded a neutral determination of the `appropriate level of carried reserves for the relevant period.'" Ferguson, 478 F. Supp. 2d at 477-78. Finding no evidence in the record that this failure was due to frustration or prevention by the defendant, summary judgment was granted "as to claims regarding carried reserves pursuant to Section 5(c) of the Special Operating Rules." Id. at 478.
Plaintiffs now assert that the Court should reconsider its conclusion regarding claims falling under Section 5(c) of the Letter Agreement on two grounds. First, plaintiffs urge the Court to reconsider its conclusion that "the parties did not intend to arbitrate claims under Section 5(c)." Ferguson, 478 F. Supp. 2d at 477 n. 15. Plaintiffs argue that the Court overlookedMcDonnell Douglas Finance Corp. v. Pennsylvania Power Light Co., 858 F.2d 825 (2d Cir. 1988), which would have directed the Court to understand the Letter Agreement's use of the phrase "neutral determination" to mean "arbitration." (Pl.'s Mem. Supp. Recon. at 3.) Plaintiffs argue that if the term "neutral determination" is taken to mean "arbitration" then the case law relating to arbitration should apply. The result, according to plaintiffs, would be that "the bringing of an arbitrable claim in court should mean only that the defendant has a right to have the case stayed, not that the defendant has won on the merits." (Pl.'s Mem. Supp. Recon. at 3.)
To be entitled to reconsideration under Local Rule 6.3, a "movant must demonstrate that the Court overlooked controlling decisions or factual matters that were put before it on the underlying motion." Dietrich, 198 F.R.D. at 399. Thus, Plaintiffs may not "assert new facts, issues or arguments not previously presented to the court." Energy Transport, 2005 WL 549542 at *2 (internal quotation omitted). The court "confin[es] reconsideration to matters . . . `overlooked' to `ensure the finality of the decisions and to prevent the practice of a losing party examining the decision and then plugging in the gaps of a lost motion with additional matters.'" Polsby v. St. Martin's Press, Inc., No. 97 Civ. 690 (MBM) at *1 (S.D.N.Y. Jan. 18, 2000) (quoting Lewis v. New York Telephone, No. 83 Civ. 7129, Slip Op. at 2 (S.D.N.Y. 1986)).
Here, the McDonnell Douglas case and accompanying argument that the plaintiffs presently advance was not overlooked, as it was never presented to the Court. In their memo to the Court opposing defendant's motion for summary judgment, after conceding that they did not follow the requirements of Section 5(c) of the Special Operative Rules, plaintiffs treated Section 5(c)'s language about a "neutral determination of the appropriate level of . . . reserves" (Letter Agreement at 3) as an arbitration clause. In that argument, plaintiffs further claimed that defendant has waived its right to arbitrate, seemingly claiming — though never explicitly saying — that the failure to attain a neutral determination of the correct level of reserves was defendant's responsibility. Plaintiffs failed, however, in that argument to mention McDonnell Douglas or otherwise explain why the Court should treat the clause as an arbitration clause when the word "arbitration" was never used. Furthermore, plaintiffs now fail to explain why they did not raise that argument or McDonnell Douglas, a 1998 case, in their original papers. The Court cannot permit the plaintiffs to now "plug in the gaps" of their earlier argument on a motion to reconsider. Thus, plaintiffs' motion on this point fails.
Perhaps plaintiffs previously neglected to include theMcDonnell Douglas case because, while McDonnell Douglas supports their contention that 5(c) should be read as an arbitration clause, it undermines the claim in their papers opposing defendant's request for summary judgment that defendant has waived a right to arbitrate these claims.
In their earlier papers to the Court, plaintiffs argued that "at this stage of the litigation where parties have completed discovery involving production of nearly a million documents and numerous depositions, [defendant has] waived any right that it might once have had to arbitrate a claim under Section 5(c)." (Pl.'s Mem. Opp'n Summ. J. at 22) (citing Mason v. Geissler, 321 F. Supp. 2d 588, 594-95 (S.D.N.Y. 2004). Undermining this claim, the McDonnell Douglas Court has held that those defendants' responses to plaintiffs' complaints, participation in discovery, and pursuit of summary judgment were "insufficient to constitute a waiver." McDonnell Douglas, 858 F.2d at 833. In their most recent papers to the court, plaintiffs have dropped their argument on waiver — an omission likely attributable to this conflict with the McDonnell Douglas case law which they now invoke for other reasons.
Moreover, even if the Court were to accept the plaintiffs' submission of McDonnell Douglas at this late date and hold that the parties did intend the question of reserves to be handled through arbitration, a holding the Court does not believe to be appropriate, their Motion to Reconsider still fails. To succeed on a motion for reconsideration, the movant must show that the matters which the court overlooked "might reasonably be expected to alter the conclusion reached by the court." Energy Transport, 2005 WL 549542 at *2 (internal quotation omitted). Here, a careful analysis of McDonnell Douglas leads the Court to the same result that it reached in the March Order.
As plaintiffs suggest, McDonnell Douglas did indeed find a contract clause calling for the appointment of an independent tax counsel to constitute an arbitration clause despite the fact that the term "arbitration" was never used. McDonnell Douglas, 858 F.2d at 830. In determining the scope of the arbitration clause, however, the McDonnell Douglas Court was "careful to carry out the specific and limited intent of the parties." Id. at 832. The Court discerned the parties' intent by considering the "plain language of the arbitral clause[;] its import within the context of [the paragraph in which it was placed]" id.; "the fact that the parties agreed to refer their disputes to a tax counsel rather than to an arbitrator of more general expertise"id.; and "the affidavits filed by the non-movant" id. at 833. Based on these considerations, the McDonnell Douglas Court ruled that the arbitration clause was narrow in scope and "was not intended to reach disputes [such as the question of good faith before the court]." Id. at 832. Thus, the defendant's motion for a stay of the proceedings pending arbitration was denied and the Court addressed the substantive issue before it.
If this Court had applied the reasoning of the McDonnell Douglas Court to the case at bar, and found that the clause in the Special Operating Rules requiring "a neutral determination of the appropriate level of reserves" by a "neutral expert" constituted an arbitration clause, it would still have found that the plain language of the arbitration clause suggests that it should be limited to questions of the appropriate "level of reserves." (Letter Agreement at 3.) The central question on the motion for summary judgment, whether the plaintiffs followed the procedures of the Special Operating Rules, would not have fallen within the limited scope of this arbitration clause. Thus, a stay of the proceedings would still have been inappropriate, and the question of summary judgment would have nonetheless come before this Court.
Plaintiffs' entire arbitration argument thus bears no impact on the Court's determination that plaintiffs failed to comply with the requirements of Section 5(c) and demand a neutral determination of the appropriate level of reserves. See Ferguson, 478 F. Supp. 2d at 477 n. 15. As plaintiffs fail to demonstrate here that a consideration of McDonnell Douglas "might reasonably be expected to alter the conclusion reached by the court," (Energy Transport, 2005 WL 549542 at *2 (internal quotation omitted)) their Motion for Reconsideration on this point fails.
Plaintiffs next argue that although they did not explicitly request "a neutral determination" of the appropriate level of reserves, as Section 5(c) of the Special Operating Rules demands, they did reference Section 5.19 of the SPA which "provides for the procedure of the neutral determination." (Pl.'s Mem. Supp. Recon. at 4.) This reference to Section 5.19 was made in a September 19, 2001 letter to Herbert Hass that expressed plaintiffs' objection to the "level of carried reserves for the year ending December 31, 2000." (Caroll Aff. Ex. 14.) Equating their reference to Section 5.19 with a request for a neutral determination, the plaintiffs imply that they did in fact abide by the requirements of Section 5(c) and consequently, the Court should reconsider its finding that they failed to do so.
In their earlier papers to the Court, plaintiffs briefly mentioned the September 19, 2001 letter when discussing what evidence the Court should and should not consider in interpreting Section 5(b). Plaintiffs did not, however, mention the September 19, 2001 letter when discussing Section 5(c). To the contrary, in their argument regarding Section 5(c), plaintiffs explicitly conceded their failure to comply with its procedures: the section was entitled "Plaintiffs failure to follow the procedure set out in Section 5(c) does not preclude them from challenging, under that section, Hannover's decision as to reserves." (Pl's Mem. Opp'n Summ. J. at 22.) As noted above, a "motion to reconsider cannot assert new facts, issues or arguments not previously presented to the court." Energy Transport, 2005 WL 549542 at *2 (internal quotation omitted). As plaintiffs neither previously argued that they complied with the procedures of Section 5(c), nor presented the September 19, 2001 letter as evidence of such, their argument in favor of reconsideration on this point fails.
III. Plaintiffs' Claims Relating to the "Stop Loss" Agreement
In their earlier papers to the Court, plaintiffs claimed that Hannover's actions in connection with the "Stop Loss" reinsurance agreement violated the covenant of good faith and fair dealing, as it did not fall within those areas specifically enumerated in the Special Operating Rules. (Pl.'s Mem. Opp'n Summ. J. at 25.) The covenant of good faith and fair dealing may not be used to enlarge or create new substantive rights. Don King Productions, Inc. v. Douglas, 742 F. Supp. 741, 767 (S.D.N.Y. 1990) (Sweet, J.) (citation omitted). As plaintiffs did not reserve a right under the Special Operating Rules of the Letter Agreement to object to the manner in which this "Stop Loss" reinsurance treaty was booked, the Court rejected plaintiffs' good faith and fair dealing claim. In fact, the Court found that all claims that do not fall within the specific categories set forth in the Special Operating Rules of the Letter Agreement were foreclosed as a matter of law. See Ferguson, 478 F. Supp. 2d at 480.
Here, plaintiffs ask the Court to reconsider its conclusion regarding the "Stop Loss" agreement. As stated above, to be entitled to reconsideration under Local Rule 6.3, a "movant must demonstrate that the Court overlooked controlling decisions or factual matters that were put before it on the underlying motion." Dietrich, 198 F.R.D. at 399. In their memo, plaintiffs do not present any matters that might have been overlooked by the Court. Rather plaintiffs implore the Court to reconsider its decision out of sympathy for the "extremely harsh result" effected by the Court's decision. (Pl.'s Mem. Supp. Recon. at 6-7.) Local Rule 6.3 does not permit the Court to reconsider its determination out of sympathy for the losing party and thus the Motion to Reconsider on this point is denied.
Plaintiffs present Melinitzky v. Rose's slightly different articulation of the standard under Local Rule 6.3 which permits reconsideration in order to prevent "manifest injustice." 305 F. Supp. 2d 349 (S.D.N.Y. 2004). Even under this slightly expanded standard, however, the plaintiffs' argument fails. Justice does not require that the Court protect the plaintiffs from their own careless design of the contract to which they agreed. Rather, as stated in the March Order, justice requires that the Court prohibit the plaintiffs from manipulating the covenant of good faith to expand and create contractual rights inconsistent with the signed agreement. See Don King, 742 F. Supp. at 767. This conclusion is, in fact, similar to that reached by the Melinitzky court which concluded that reconsideration should only be used in extraordinary circumstances. Melinitzky 305 F. Supp. 2d at 350.
IV. Plaintiffs' claims as to Defendant's Reallocation of Certain Expenses from HFI to CIGI
Previously, this Court held that plaintiffs' claims relating to defendant's reallocation of expenses from HFI to CIGI were not covered by the Special Operating Rules and thus were foreclosed as a matter of law. See Ferguson, 478 F. Supp. 2d at 481. Plaintiffs now request clarification on this point.
Federal Rule of Civil Procedure 60(a) provides, in pertinent part, that "clerical mistakes in judgment . . . arising from oversight or omission may be corrected by the court at any time." Fed.R.Civ.P. 60(a). "The general purpose of Rule 60(a) is to afford courts a means of modifying their judgments in order to ensure that the record reflects the actual intentions of the court." Slupinski, 2006 LEXIS 55545 at *5 (internal quotation omitted). Here, the Court erred in categorizing claims related to defendant's reallocation of expenses from HFI to CIGI as "Adjustments Not Covered by the Special Operating Rules." Ferguson, 478 F. Supp. 2d at 478. As both parties have acknowledged, reallocation of expenses from HFI to CIGI should instead be grouped in the category of inter-company expenses, (Pl.'s Mem. Supp. Recon. at 5; Def.'s Mem. Opp'n Recon. at 6), which are specifically included in Section 5(b) of the Special Operating Rules. Thus, in accordance with the Court's ruling on claims relating to inter-company expenses, summary judgment as to plaintiffs' claims regarding reallocation of expenses from HFI to CIGI is denied where plaintiffs can show defendant precluded them from making timely objections.
CONCLUSION
For the foregoing reasons, plaintiffs' motion for reconsideration and/or clarification is HEREBY DENIED as to plaintiffs' rights under Section 5(c) of the Letter Agreement; DENIED as to plaintiffs' claims relating to the "Stop Loss" reinsurance agreement; and GRANTED as to plaintiffs' claims regarding reallocation of certain expenses from HFI to CIGI. The Order and Opinion of March 1, 2007 is clarified so as to deny summary judgment as to plaintiffs' claims regarding reallocation of expenses from HFI to CIGI where plaintiffs can show defendant precluded them from making timely objections.Nothing in this Opinion and Order should be understood to modify the Court's Opinion and Order dated March 1, 2007, except to the extent indicated above.