Opinion
96 Civ. 4062 (JFK)
September 26, 2000
RIKER, DANZIG, SCHERER, HYLAND PERRETTI LLP Morristown, New Jersey, Of Counsel: Shawn L. Kelly, Esq., Michael R. O'Donnell, Esq., Thomas J. Perry, Esq., Debra D. Tedesco, Esq., For Plaintiff.
LORD, BISSELL BROOK, Chicago, IL, Of Counsel: Michael R. Hassan, Esq., Albert E. Fowerbaugh, Jr., Esq., Cary B. Samowitz, Esq., For Defendant.
OPINION and ORDER
Before the Court is the Plaintiff American Centennial Insurance Company's ("ACIC") motion to compel the Defendant Aseguradora Interacciones, S.A., Grupo Financiero Interacciones, S.A. ("Aseguradora") to post security pursuant to New York Insurance Law § 1213 ("§ 1213"). ACIC also moves to strike Aseguradora's Answer in this case and enter a default judgment against it upon its failure or refusal to post security. Aseguradora opposes these motions. For the reasons that follow, ACIC's motion to compel Aseguradora to post security pursuant to § 1213 is granted. ACIC's motion to strike Aseguradora's Answer and enter a default judgment against it is granted to the extent that Aseguradora is ordered to post security within sixty days in order to avoid default.
BACKGROUND
This case arises out of a complex reinsurance transaction in which Seguros La Republica ("SLR"), a Mexican company that was Aseguradora's predecessor-in-interest, issued a series of reinsurance contracts to ACIC, a Delaware corporation. There were two types of reinsurance contracts issued: (1) facultative reinsurance certificates, which reinsure specific, single insurance policies; and (2) treaty reinsurance, which reinsures a "book" or series of insurance policies.
As a result of the breakdown in the business relationship between these parties, ACIC has brought three lawsuits in this district: (1) American Centennial Ins. Co. v. Seguros La Republica. S.A., No. 90 Civ. 2370 (JFK) (filed April 6, 1990) ("Keenan I") (2) American Centennial Ins. Co. v. Seguros La Republica, S.A., No. 91 Civ. 1235 (MJL) (filed February 20, 1991) ("Lowe"); and (3) the present action, American Centennial Ins. Co. v. Aseguradora Interacciones, S.A., Grupo Financiero Interacciones, S.A., No. 96 Civ. 4062 (JFK) (filed May 30, 1996) ("Keenan II"). The background to these cases is more fully discussed in the Court's Opinion and Order of December 1, 1997 in this case. See Keenan II, 1997 WL 742530 (S.D.N.Y. Dec. 1, 1997). Jurisdiction in the present action is premised on diversity of citizenship pursuant to 28 U.S.C. § 1332.
The Keenan I Action
In Keenan I, ACIC filed suit in this Court to recover amounts due from SLR under twenty-six facultative certificates that SLR issued to ACIC. The Court denied SLR's motion to dismiss pursuant to Fed.R.Civ.P. 12 (b)(2) and 12(b)(6), see Keenan I, 1991 WL 60378 (S.D.N.Y. Apr. 8, 1991), and subsequently ordered SLR to post pre-answer security pursuant to § 1213. 147626 (S.D.N.Y. June 16, 1992).
After SLR informed the Court that it would not post security, this Court granted, on Magistrate Judge Leonard Bernikow's report and recommendation, ACIC's motion to strike SLR's answer and have a default judgment entered against SLR. Keenan I, 1995 WL 731630 (S.D.N.Y. Dec. 11, 1995). The Court entered a default judgment against SLR in an amount determined after a two-day hearing on damages before Magistrate Judge Bernikow. The Second Circuit affirmed the entry of the default judgment but remanded the case to this Court for reconsideration of damages. See British Int'l Ins. Co. v. Seguros La Republica, S.A., 212 F.3d 138 (2d Cir. 2000).
The Lowe Action
In May 1990, ACIC commenced an arbitration proceeding against SLR for amounts due under a reinsurance treaty ("treaty," "treaty claims") between SLR and ACIC. SLR failed to appear, and the arbitration panel entered a default judgment in ACIC's favor. ACIC subsequently filed a petition to confirm the arbitration award before the late Judge Mary Johnson Lowe of this Court.
SLR opposed the Lowe petition on the grounds that the treaty document that ACIC had submitted in good faith to the arbitration panel was not in fact the actual treaty between the parties. Judge Lowe ordered SLR to post pre-answer security, as in Keenan I, pending resolution of the case. Upon SLR's failure to do so, ACIC moved for a default judgment.
Judge Lowe found that the allegations in ACIC's petition were not well-pleaded and thus refused to confirm the arbitration award by entering a default judgment. Judge Lowe noted that the treaty submitted to the arbitration panel as a complete embodiment of the parties' contractual agreement was concededly not a valid agreement between the parties. See Lowe, 1996 WL 304436, at **16-18 (S.D.N.Y. June 5, 1996). Judge Lowe did afford ACIC the opportunity to show that even though the treaty submitted to the arbitration panel was not valid, there was still a binding agreement under which ACIC was entitled to relief. Id. at *18. Instead, ACIC appealed the decision to the Second Circuit, but later agreed to dismiss that appeal voluntarily.
The Present Action
ACIC brought this action against Aseguradora to recover amounts due under thirty-four facultative certificates not at issue in Keenan I. Three months after filing its complaint, ACIC transferred all of its interest in its reinsurance contracts with SLR to British International Insurance Company ("BIIC"), a Bermuda company. Two weeks after the transfer, ACIC filed an amended complaint adding a claim for amounts due under the same treaty that was at issue in Lowe. Aseguradora answered ACIC's First Amended Complaint after this Court denied its motion to dismiss that complaint under Fed.R.Civ.P. 12(b)(2) and (b)(6). See Keenan II, 1997 WL 742530 (S.D.N.Y. Dec. 1, 1997).
On December 30, 1997, ACIC demanded that Aseguradora post a pre-answer bond of $7,179,141.05 pursuant to § 1213. ACIC stated that if Aseguradora failed to do so within ten business days, ACIC would "seek appropriate relief from the Court, including, without limitation, a default judgment." (Hassan Cert. Ex. 3). However, ACIC revised its position orally before Magistrate Judge Bernikow on January 14, 1998 and in writing on January 16, 1998, stating that it "would litigate [this case] on the merits rather than move for a default judgment in light of the most recent failure by [Aseguradora] to post security required by Section 1213 of the New York Insurance Law." (Kelly Cert. Ex. O). ACIC also stated in the letter that despite its decision to proceed on the merits, it did not intend to waive or abandon any of its "rights or remedies arising out of Aseguradora's failure to satisfy its obligation to post security pursuant to Section 1213." Id.
ACIC filed a Second Amended Complaint on May 20, 1998, adding claims to recover premiums paid under the facultative certificates and the treaty. Aseguradora answered without further demand by ACIC at that time for a pre-answer bond. The parties continued to conduct discovery for over one year before ACIC brought the present motion.
DISCUSSION
ACIC requests that this Court compel Aseguradora to post security sufficient to cover the costs of any judgement rendered against it, pursuant to § 1213. ACIC further requests that this Court strike Aseguradora's answer and enter a default judgment against Aseguradora if it fails to post such a bond. Aseguradora opposes these motions. The Court shall discuss the parties' arguments under the following headings: (I) Whether Aseguradora may challenge the applicability of § 1213; (II) Whether ACIC may raise § 1213 on behalf of the British Insurance Company of Cayman ("BICC"), the current owner of the claims; (III) Whether ACIC has waived its right to raise § 1213; and (IV) Whether ACIC may demand security for the treaty claims.
I Whether Aseguradora May Challenge the Applicability of § 1213
ACIC argues that this Court's June 16, 1992 ruling in Keenan I precludes Aseguradora from contesting the issue of the applicability of § 1213 to this case. A previous ruling by a court of competent jurisdiction may preclude a party from relitigating an issue if the following four conditions are met:
(1) the identical issue was raised in a previous proceeding; (2) the issue was actually litigated and decided in the previous proceeding; (3) the party had a full and fair opportunity to litigate the issue; and (4) the resolution of the issue was necessary to support a valid and final judgment on the merits.Interoceanica Corp. v. Sound Pilots, Inc., 107 F.3d 86, 91 (2d Cir. 1997) (internal quotation marks omitted).
On June 16, 1992. this Court granted ACIC's Keenan I motion to compel SLR to post a bond as required under § 1213. Nevertheless, Aseguradora states that with one exception, each of its current arguments against the applicability of § 1213 to this case was not previously litigated in Keenan I and is based upon subsequently arising facts and circumstances. As a result, it argues that it is not precluded from raising these new issues that were not actually litigated and decided inKeenan I.
Aseguradora incorporates by reference its due process challenge to the applicability of § 1213. Aseguradora acknowledges that this issue was actually litigated, decided, and affirmed on appeal in Keenan I, but reasserts it now in order to preserve the issue for appellate review. Accordingly, the Court rules that Keenan I precludes Aseguradora from relitigating this issue.
Aseguradora is correct in stating that an issue cannot be precluded unless it was actually litigated and necessarily decided in a previous proceeding, even if the issue in question could have been raised in the previous proceeding. See Koether v. Generalow, 623 N.Y.S.2d 328, 330 (App.Div. 1995). Aseguradora raises three main challenges to the applicability of § 1213 in this case: (1) ACIC lacks standing to assert § 1213 on behalf of BICC, the current owner of the claims; (2) ACIC knowingly waived its right to assert § 1213; and (3) ACIC cannot demand a pre-answer bond under § 1213 with respect to its treaty claims. Because none of these arguments was both actually litigated and necessarily decided in Keenan I, Aseguradora is not precluded from raising them in opposition to ACIC's current motion. II Whether ACIC May Raise § 1213 on BICC's Behalf
Aseguradora's argument that ACIC lacks standing to assert § 1213 on BICC's behalf is similar to the issue decided in this Court'sKeenan I Opinion and Order of October 21, 1998. In the present motion, however, Aseguradora argues a factual distinction that merits consideration, even though this Court ultimately defers to its Keenan I ruling. See infra part II.
Aseguradora argues that BICC, the current owner of the claims at issue, is not entitled to the protections of § 1213 because it is neither a New York resident nor is it authorized to do business in New York. ACIC lacks standing, therefore, to demand on BICC's behalf that Aseguradora post a pre-answer bond pursuant to § 1213. Because the Court sees no reason to modify its ruling of October 21, 1998 in Keenan I, the Court rejects Aseguradora's argument.
The New York State Legislature enacted § 1213 out of the following concern:
[T]hat many residents of this state hold policies of insurance issued or delivered in this state by insurers while not authorized to do business in this state, thus presenting to such residents the often insuperable obstacle of resorting to distant forums for the purpose of asserting legal rights under such policies.
N.Y. Ins. L. § 1213(a). Pursuant to this concern, the statute imposes certain jurisdictional obligations upon unauthorized foreign or alien insurers doing business in New York. These include the requirement that such insurers either obtain a license to do business in New York or post a bond before filing any pleading in proceedings before New York courts.See id. § 1213(c)(1). Aseguradora raises an argument similar to the one that SLR, its predecessor-in-interest, raised previously: That § 1213 was enacted to protect New York residents and those authorized to do business in New York and thus cannot be used to benefit one who is neither.
In Keenan I, after ACIC filed its complaint and demanded that SLR post a bond pursuant to § 1213, ACIC transferred its interest in those claims to BIIC. After that transfer, SLR moved to vacate the default that this Court had entered against it for its refusal to post a bond. SLR argued that because BIIC was not a New York resident and was not authorized to do business in New York, it could not avail itself of the benefits of § 1213. This Court rejected that argument, ruling that because "the determinative time for a proper invocation of § 1213 is at the beginning of a lawsuit," ACIC's subsequent transfer of its interest to BIIC did not affect SLR's obligation to post a bond pursuant to § 1213. See Keenan I, 1998 WL 748648, at *4.
In this case, Aseguradora draws a factual distinction from Keenan I. InKeenan I, ACIC transferred its interests in the certificates after it served its complaint upon SLR and after it demanded that SLR post a bond under § 1213. In this case, ACIC transferred its interests in the certificates at issue after filing its complaint with the Court butbefore it served its complaint upon Aseguradora or demanded that Aseguradora post a bond under § 1213.
Aseguradora raises a close question, and one upon which there is little guidance in the caselaw. While there is no doubt that § 1213 was enacted in large measure to protect New York residents, it is not apparent from the statute that a subsequent transfer of interest to a non-New York resident or otherwise authorized party eliminates a defendant's obligations under that statute. In Keenan I, this Court looked to the status of the parties at the commencement of the action to determine whether § 1213 was triggered. See 1998 WL 748648, at *4;see also Morgan v. American Risk Management, Inc., No. 89 Civ. 2999, 1990 WL 106837, at *7 (S.D.N.Y. July 20, 1990) ("It is the transaction out of which this action arose that triggers the court's jurisdiction under § 1213(b)(1), not the status of the plaintiff at the time the action was commenced.")
In the present case, the status of the parties was sufficient to trigger § 1213 not only at the time of the transactions at issue but also at the time of the commencement of this action. The Court, therefore, rules that the obligations § 1213 imposed upon Aseguradora were not affected by ACIC's subsequent transfer of interest to BIIC and BICC.
III Whether ACIC Has Waived Its Right To Raise § 1213
Aseguradora argues that even if ACIC has standing to demand that Aseguradora post a pre-answer bond under § 1213, ACIC has waived its right to make such a demand. ACIC responds that it did not waive its right to demand such a bond under § 1213 and further argues that because § 1213 exists to protect the public interest, it can never be waived. Because the Court finds that ACIC has not waived its right to demand that Aseguradora post a pre-answer bond, the Court need not rule upon whether that right can ever be waived.
A waiver is "the voluntary and intentional abandonment of a known right which, but for the waiver, would have been enforceable." In re Caldor, 217 B.R. 121, 133 (Bankr. S.D.N Y 1998). A waiver "may be accomplished by express agreement or by conduct or a failure to act that evidences an intent not to claim a purported advantage." Id. It nevertheless must be "clear, unmistakable and without ambiguity." Id.
A waiver involves a question of intent that must be determined from the totality of the circumstances in a particular case. Id. In In re Caldor, the plaintiff, a commercial tenant, objected to the formula that its landlord used to calculate its rent and sued in bankruptcy to recover its alleged overpayments. Id. at 124. The plaintiff had raised the same objection with its landlord some four years previously, but then continued paying the rent as calculated under the landlord's formula.Id. at 130-31. The defendant, therefore, sought summary judgment on grounds of waiver. Id. at 133.
After looking to the totality of circumstances, the court found no clear waiver by the plaintiff, and therefore declined to grant summary judgment to the defendant on that basis. Id. at 133-34; see also id. at 138 (granting summary judgment to the defendant on other grounds). The court noted that although the plaintiff had continued to pay the rent as calculated by the landlord, it had never expressly consented to the landlord's formula. Id. at 133. Moreover, the court refused to treat as dispositive either the fact that the plaintiff had disclaimed any knowledge of default by the landlord in an estoppel certificate or, on the other hand, the fact that the lease itself contained a non-waiver clause. Id.
The totality of circumstances in the present case does not indicate any intent by ACIC to relieve Aseguradora of its obligations under § 1213. One month after Aseguradora first filed an answer in this case, ACIC demanded that it post a $7.2 million bond pursuant to § 1213 within ten days. Two weeks later, ACIC stated in writing that it "would litigate [this case] on the merits rather than move for a default judgment in light of the most recent failure by [Aseguradora] to post security required by Section 1213 of the New York Insurance Law." (Kelly Cert. Ex. O). In that same letter, ACIC also stated the following:
We want to make crystal clear that by litigating this case on the merits, ACIC and [BIIC] are not waiving or abandoning, in this or any other action, any of their rights or remedies arising out of Aseguradora's failure to satisfy its obligation to post security pursuant to Section 1213.Id. ACIC and Aseguradora continued to conduct discovery for more than a year after this letter until ACIC stated its intent to file the current motion.
Aseguradora argues that ACIC's "complete change of position" in this letter and its continued litigation of this case on its merits constitute a waiver of its right to demand a pre-answer bond. This Court, however, does not agree that ACIC's actions indicated a clear and unambiguous waiver of that right.
The Court finds that ACIC's letter did not manifest a change of position with respect to Aseguradora's obligations under § 1213. The letter merely stated that ACIC intended not to seek a default judgment against Aseguradora for its failure to meet its obligation to post a bond under § 1213. However, ACIC also reminded Aseguradora of its § 1213 bond obligation and made "crystal clear" that ACIC was not waiving any future course of action for Aseguradora's failure to meet that obligation.
Aseguradora argues that ACIC's reservation of its rights was ineffectual in light of its change of position. See Waldman v. Cohen, 512 N.Y.S.2d 205 (App.Div. 1987). In Waldman, a civil plaintiff urged a trial court to continue with a jury of only five members, but later attempted to reserve her rights with respect to the composition of that jury as it arrived with its verdict. Id. (finding that absent the consent of all parties, an unanimous verdict of only five jurors is a nullity).
The Court does not find Waldman instructive for the present case. InWaldman, the plaintiff could not have requested that the trial court continue with a jury of only five members without also waiving her right to a six-member jury. Her subsequent attempt to reserve her rights, therefore, was an ineffectual attempt to "have it both ways."
ACIC, on the other hand, could express a desire to litigate its case on the merits without necessarily waiving its right to demand that Aseguradora post a pre-answer bond to avoid default. Both options were available to it due to Aseguradora's failure to satisfy its § 1213 obligation. Indeed, ACIC affirmatively declared that by litigating its case it did not intend to waive its § 1213 rights, thereby scuttling any contention that it had changed its position with respect to those rights.
The Court also finds that ACIC did not waive its right to demand a pre-answer security by litigating its case for over a year after its letter. Section 1213 sets no time-limit upon a demand for pre-answer security. See Moore v. National Distillers and Chemical Corp., 143 F.R.D. 526, 531-32 (S.D.N.Y. 1992) (ruling that § 1213(c)(1) establishes no time limit for the duty to post a bond, but also noting that under the circumstances of that case the plaintiff could not have raised § 1213 until some two years after the defendant had answered).
Nevertheless, Aseguradora cites Lakehead Pine Line Co. v. American Home Assurance Co. for the proposition that a waiver may at some point be possible. See 981 F. Supp. 1205 (D. Minn. 1997). There, an unauthorized foreign insurer argued that the plaintiff had waived its right to demand a pre-answer bond under an analogous Minnesota statute by waiting one and one-half years before making its demand. Id. at 1212. Although the court noted that it would "not entirely foreclose the possibility that a plaintiff could waive the benefits of [the statute]," it found no waiver under those circumstances. Id. at 1213.
Similarly, this Court finds no waiver under the totality of circumstances in the present case. ACIC never abandoned its position that § 1213 required a pre-answer bond from Aseguradora. Even though ACIC stated that it did not intend to seek a default judgment for Aseguradora's failure to post security, it expressly refused to foreclose that possibility. The Court does not find that Aseguradora was unduly prejudiced by conducting no more than two years of discovery while mindful of that possibility.
IV Whether ACIC May Demand Security for the Treaty Claims
Aseguradora argues that even if this Court finds that ACIC is entitled to pre-answer security under § 1213, Aseguradora need not post a pre-answer bond to cover the treaty claims for the following two reasons: (1) ACIC may not litigate before this Court those treaty claims that were not previously submitted for arbitration; and (2) Lowe precludes ACIC from litigating the remaining treaty claims before this Court.
ACIC argues that it is entitled to pre-answer security on all of the treaty claims for the following three reasons: (1) Aseguradora's arguments are appropriate for a summary judgment motion rather than a response to this motion; (2) Aseguradora refused ACIC's conditional offer to arbitrate the treaty claims that were not previously submitted for arbitration; and (3) this Court has already ruled that Lowe only precludes subsequent attempts to confirm that arbitration award. Because the Court agrees that Aseguradora's arguments are not adequately presented in response to this motion, ACIC's motion is granted as to the treaty claims.
Aseguradora argues that this Court should not compel it to post a pre-answer bond for those treaty claims that ACIC has never submitted for arbitration because those claims should not be before this Court. The treaty at issue requires arbitration as a condition precedent to any right of action under the treaty. Aseguradora notes that ACIC has nevertheless asserted treaty claims in Counts Two, Four, Six, Seven, and Ten of its Second Amended Complaint without ever having submitted them for arbitration. Aseguradora states, therefore, that these claims should not be before this Court. See Martin Marietta Aluminum, Inc. v. General Elec. Co., 586 F.2d 143 (9th Cir. 1978); Cheshire Place Assocs. v. West of England Shipowners Mut. Ins. Ass'n, 815 F. Supp. 593 (E.D.N.Y. 1993).
In addition, Aseguradora argues that it need not post a pre-answer bond for the remaining treaty claims because they, too, should not be before this Court. ACIC has previously submitted the remaining treaty claims for arbitration, and has received an arbitration award for those claims. ACIC moved in Lowe to confirm that award, but was dismissed on the merits because its allegations were not well-pleaded. Aseguradora argues, therefore, that because all of the remaining treaty claims were included in Lowe, ACIC is precluded under the doctrine of res judicata from further litigating them in this case.
Both of Aseguradora's arguments are premised upon arguments to dismiss some of the claims that are currently included in the operative complaint in this case. Aseguradora should present these arguments to the Court more fully in a summary judgment motion for an actual dismissal of those claims; they are not adequately addressed in the current submissions before the Court.
At this time, therefore, the Court grants ACIC's motion to compel pre-answer security with respect to all the claims at issue in this case, including the treaty claims to the extent they remain a part of this case. The Court also conditionally grants ACIC's motion to strike Aseguradora's Answer and enter a default judgment against Aseguradora. If within sixty days Aseguradora has failed to post a bond sufficient to cover any judgment rendered in favor of ACIC, the Court will strike its answer and enter a default judgment against it.
CONCLUSION
The Court grants ACIC's motion to compel a pre-answer bond pursuant to N.Y. Ins. L. § 1213. The Court conditionally grants ACIC's motion to strike Aseguradora's Answer and enter a default judgment against Aseguradora. If Aseguradora has not within sixty days posted a bond sufficient to cover any judgment rendered in favor of ACIC, the Court will strike its answer and enter a default judgment against it.
SO ORDERED.