Scotts Co., LLC v Ace Indem. Ins. Co.

[*1] Scotts Co., LLC v Ace Indem. Ins. Co. 2008 NY Slip Op 50369(U) [18 Misc 3d 1139(A)] Decided on February 26, 2008 Supreme Court, New York County Fried, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through March 4, 2008; it will not be published in the printed Official Reports.

Decided on February 26, 2008
Supreme Court, New York County

The Scotts Company, LLC, Plaintiff,

against

Ace Indemnity Insurance Company, Formerly Known as Cigna Indemnity Insurance Company, Formerly Known as North State Insurance Company, et al., Defendants, Pacific Employers Insurance Company, Third-Party Plaintiff, Employers Insurance of Wausau, a Mutual Company, Liberty Mutual Insurance Company, and The Scotts Company, LLC, and XYZ Companies 1-10, Third-Party Defendants.



602712/05



APPEARANCES

For Plaintiff/Third-Party Defendant (The Scotts Company):

HOWREY LLP

Citigroup Center

153 East 53rd Street, 54th Floor

New York, NY 10022

James G. McCarney

550 South Hope Street

Suite 1100

Los Angeles, CA 90071

Keith A. Meyer

For Defendant/Third-Party Plaintiff (Pacific Employers Insurance Company):

Siegal, Napierkowski & Park

533 Fellowship Road, Suite 120

Mt. Laurel, NJ 08054

Brian G. Fox, Esq.

Levin & Glasser, P.C.

420 Lexington Avenue, Suite 805

New York, NY 10170

Paul G. Burns, Esq.

For Third-Party Defendant (Employers Insurance of Wausau):

DORSEY & WHITNEY LLP

250 Park Avenue

New York, NY 10177-1500

Patrick J. Feeley

Jordan I. Brackett

50 South Sixth Street, Suite 1500

Minneapolis, MN 55402-1498

Robert E. Cattanach

38 Technology Drive

Irvine, CA 92618-5310

Steven D. Allison



Bernard J. Fried, J.

This action arises in connection with a release (entered into on December 18, 2000, by plaintiff/third-party defendant, The Scotts Company, LLP [Scotts], and defendant/third-party plaintiff Pacific Employers Insurance Company [PEIC] in resolution of litigation [the Release]) and a pending action in California (Cannon Elec. v Affiliated FM Ins. Co., Case No. BC 290354, Complaint Filed February 13, 2003, Superior Court of the State of California, County of Los Angeles, Hon. Peter D. Lichtman) (the California Action).

This action, brought by Scotts, sought: ( i) to rescind the Release on the basis of unilateral mistake, mutual mistake, or unconscionability; or (ii) a declaration that the Release is otherwise null, void, and of no force or effect. Upon a prior summary judgment motion brought by PEIC, I dismissed the complaint, finding the Release valid and enforceable. See Decision and Order, The Scotts Co. v Ace Indemnity Ins. Co., Index No. 602712/05, filed March 1, 2007 (herein, the Prior Order).

Now, due to the California Action, third-party defendant Employers Insurance of Wausau (Wausau) moves, pursuant to CPLR 327 and 3211(a) to dismiss, or, in the alternative, stay: ( i) the counterclaims of PEIC, as asserted against Scotts in the first-party action; and (ii) the third-party complaint, as asserted against Wausau and Scotts, in its entirety. Scotts cross-moves, pursuant to CPLR 2201, for an order staying these proceedings pending its appeal of the Prior [*2]Order. In addition, PEIC cross-moves, pursuant to CPLR 3025, to amend its third-party complaint.[FN1]

In 2000, Scotts brought this action to rescind the Release (in which Scotts claims to have mistakenly released $80 million of primary layer general liability insurance, and $80 million of excess general liability insurance, for $325,000). PEIC answered Scotts' complaint and filed counterclaims against Scotts, as well as a third-party complaint against Scotts, Wausau, and non-movant Liberty Mutual Insurance Company (Liberty).

In November of 2005, Wausau filed a forum non conveniens motion requesting that Scotts' complaint and PEIC's third-party complaint be dismissed, or at least stayed, in favor of the California Action. On January 30, 2006, I stayed PEIC's third-party complaint in favor of the California action and denied the forum non conveniens motion without prejudice.

In July of 2006, PEIC moved this court for summary judgment against Scotts, contending that the Release should be enforced as written. On March 1, 2007, the Prior Order was filed, in which I granted PEIC's motion for summary judgment and adjudged and declared that the Release is valid and enforceable. On April 5, 2007, Scotts noticed an appeal of the Prior Order to the First Department.

In the California Action, Wausau's cross complaint asserted that PEIC must equitably contribute to the costs of defending asbestos claims against Scotts. On December 22, 2006, Judge Lichtman granted Wausau summary judgment, finding that PEIC had such a duty, and that PEIC must reimburse Wausau for 87.4% of past defense costs for the asbestos claims. The Court of Appeals in California denied review of the order on February 15, 2007.

In the proposed amended third-party complaint (PEIC Complaint), the first cause of action seeks injunctive relief prohibiting Scotts from recovering from Wausau, PEIC, or other insurers in the California Action in an amount greater than its damages minus the greater of PEIC's equitable share of those damages or the amount PEIC paid to Scotts under the Release, in purported violation of New York General Obligations Law (GOL) §15-108. The second cause of action seeks a declaratory judgment as to the rights and obligations of Scotts, Wausau, PEIC, and Liberty under GOL §15-108. The third cause of action maintains that Scotts breached the Release by "seeking to recover from Wausau and other co-insurers with PEIC monies" improper payments, in violation of GOL §15-108 and the Release.

The fourth and fifth causes of action seek declaratory relief and equitable allocation based on the possibility that this court may grant rescission of the Release. However, as the Prior Order dismissed Scotts' application for rescission, the fourth and fifth causes of action of the PEIC Complaint are moot.

Wausau claims that the PEIC Complaint improperly attempts to frustrate and collaterally attack the judgment in the California Action by employing GOL §15-108(c) as the core of its proposed amended complaint. That section provides, inter alia, that "[a] tortfeasor who has obtained his own release from liability shall not be entitled to contribution from any other person."

PEIC maintains that they have an unqualified right to litigate their counterclaims, and [*3]having succeeded upon summary judgment, may proceed to seek judgment on such claims. Scotts argues that as it has appealed the summary judgment, I should, at the very least, stay this action pending perfection and decision on the appeal.

PEIC has a presumptive right to have its counterclaims heard as expeditiously as practicable. In essence, PEIC's counterclaims are to be given no less dignity than an original complaint. See e.g. Pleatmaster v Consolidated Trimming Corp., 156 NYS2d 662 (Sup Ct, NY County 1956); see also DeMille v DeMille, 5 Misc 3d 355, 361 (Sup Ct, Nassau County 2004), affd as modified 32 AD3d 411 (2nd Dept 2006) ("a counterclaim is in essence a complaint and the pleader is a plaintiff' in his or her own right"). Thus, Scotts' argument, that I should stay this action pending Scotts' appeal, is unconvincing. The dismissal of Scotts' complaint is not automatically connected to the right of PEIC to be heard on its counterclaims or its third-party complaint. Compare Stevenson & Co. v Diamond Fuel Co., 198 App Div 345 (1st Dept 1921) (voluntary dismissal of complaint cannot defeat defendant's right to recovery on counterclaim).

Nor do I find it judicially expedient to hold PEIC's counterclaims in abeyance awaiting decision of Scotts' appeal. Moreover, as the appeal would not specifically address the applicability of GOL §15-108 to the Release, a stay is inappropriate. See Somoza v Pechnik, 3 AD3d 394, 394 (1st Dept 2004) ("[a] stay of one action pending the outcome of another is appropriate only where the decision in one will determine all the questions in the other....") (emphasis added); accord Eisner v Goldberger, 28 AD3d 354 (1st Dept 2006). Scotts' cross motion to stay this action is denied.

Wausau does not argue that the proposed amendment is "palpably insufficient as a matter of law," but rather that there are equitable reasons that the claims in the amendment should be dismissed or stayed. Specifically, Wausau argues that the California Action was the first filed, and this court should defer to that Action, and that this forum is not convenient. These arguments do not address the sufficiency of the complaint at law, and are, thus, irrelevant to whether leave to amend should be granted.

Scotts, however, maintains that the PEIC Complaint fails to state a claim, is devoid of factual basis, and is contrary to the law. Scotts notes that it is no longer a party to the California Action, the relief sought by PEIC is in violation of the Release, and GOL §15-108 has no application to this matter.

It is basic that leave to amend a pleading shall be freely granted absent prejudice or surprise resulting from the delay. CPLR 3025(b); Thomas Crimmins Contr. Co. v City of New York, 74 NY2d 166 (1989). However, if a proposed claim patently lacks merit, amendment of a pleading to assert that claim would serve no purpose but needlessly to complicate discovery and trial. Id. at 170. Thus, in order to conserve judicial resources, I am obligated to examine the remaining three causes of action, and deny that remainder of the proposed pleading only if it is palpably insufficient as a matter of law. Ancrum v St. Barnabas Hosp., 301 AD2d 474, 475 (1st Dept 2003) (citations omitted).

GOL §15-108(c) provides that a tortfeasor who has been released from liability may not seek contribution from any other person. See e.g. LNC Inv. v First Fid. Bank, Nat. Assn, 935 F Supp 1333 (SD NY, 1996). Scotts and Wausau go to great lengths to discern whether GOL §15-108(c) applies equally to insurers as well as joint tortfeasers. These arguments are somewhat wide of the mark, as it is well established that "[p]arties to a settlement agreement may [*4]contractually waive the protections of [GOL] §15-108." Id. at 1349; accord Mitchell v New York Hosp., 61 NY2d 208, 216 (1984); National Enters. Corp. v Dechert Price & Rhoads, 181 AD2d 443, 444 (1st Dept 1992).

Here, the Release, in paragraph 15, entitled "Waiver of Rights Against Other Settling Insurers," provides that PEIC waives its right to "seek contribution ... from any of Scotts' other insurers that has a written agreement with Scotts that waives such rights against the ACE Companies." However, that section goes on to provide that [a]s against any other company, the ACE Companies will not initiate any action to seek contribution against any such company. In the event any such other company initiates an action against the ACE Companies for contribution or indemnity, the ACE Companies preserve their rights to assert counterclaims for contribution or indemnity from any such company.

Emphasis added. The Release then, as correctly noted by Scotts, specifically contemplates contribution from other insurers.

This interpretation was corroborated by Judge Lichtman in the California Action. In that Action, PEIC asserted the affirmative defense that "[t]here is no coverage for the Underlying claims to the extent that coverage for such claims has been extinguished by any settlement agreement between [PEIC] and Scotts." This affirmative defense presumably referred to the Release. While there is no explicit note in the decision text that the Release was presented in opposition to Wausau's motion for summary judgment in the California Action, Judge Lichtman denied PEIC's evidentiary objections to summary judgment in their entirety, implicitly rejecting the Release as a defense to contribution claims.

In any event, Judge Lichtman did consider the Release at oral argument, and found the plain language of the Release allowed for contribution claims. At a hearing on November 20, 2006, Judge Lichtman observed [n]ow, here is what I know. PEIC settled with Scotts for $325,000, which is less than three percent of Scotts['] past defense costs. None of Scotts['] future defense co[s]ts. And when you look at the proportionate share, it is so far skewed it is not even worth mentioning. Not to mention that the settlement explicitly acknowledged Wausau's right of contribution from PEIC.

See Fox Affirmation, Exhibit B, Transcript of November 20, 2006 hearing in the California Action, 14:6-14:14 (emphasis added).

Later in that same hearing, Judge Lichtman went on to say that The insured and insurer cut their deal. But how are they supposed to bind Wausau or other carriers, especially when it is built right into the settlement agreement that they take their lumps, whatever happens, if somebody seeks contribution.

Id. at 18:23-18-28 (emphasis added). Thus, a finding that Wausau is entitled to contribution from PEIC is not mutually exclusive with the Release, or GOL §15-108.

The intent of GOL §15-108 was specifically to promote settlement of multi-party tort cases and "to encourage settlements by altering or eliminating certain rules of prior law which [*5]had an inhibiting effect on the settlement process." Rock v Reed-Prentice Div. of Package Mach. Co., 39 NY2d 34, 40-41 (1976). An interpretation of GOL §15-108 as unconditionally barring parties from agreeing to allow for contribution would only serve to ill-advisedly "discourage settlement, strain judicial resources and increase the time and expense of litigation." LeFevre v State of New York, 176 Misc 2d 666 (Ct Cl 1998).

Rather, it has been repeatedly, and long held, that unless public policy is thwarted, parties to a civil dispute are generally free to chart their own litigation course, choose the law to be applied (or, indeed, not applied), and may stipulate away statutory, and even constitutional rights. See e.g. Mitchell v New York Hosp., 61 NY2d at 214 (1984); T. W. Oil v Consolidated Edison Co. of NY, 57 NY2d 574, 579-580 (1982); Rector, Church Wardens & Vestrymen of St. Bartholomew's Church v Committee to Preserve St. Bartholomew's Church, 56 NY2d 71, 76 (1982); Martin v City of Cohoes, 37 NY2d 162, 165 (1975); Matter of New York, Lackawanna & Western R. R. Co., 98 NY 447, 453 (1885). It is also worthy of note that GOL §15-108(c) has specifically been deemed waivable by the Court of Appeals. Mitchell v New York Hosp., 61 NY2d at 214.

The right of insurers to seek contribution is contractually preserved in the Release, and GOL §15-108 is not implicated or frustrated by the assertion of that right. As the PEIC Complaint is insufficient as a matter of law, the motion for leave to amend is denied, and the third-party complaint, as against Wausau is dismissed.

Wausau has moved to dismiss or stay the remaining counterclaims of PEIC on the basis of forum non conveniens. As a third-party defendant, Wausau has the rights of any party adverse to the other parties in an action. CPLR 1008; Muniz v Church of Our Lady of Mt. Carmel, 238 AD2d 101, 102 (1st Dept 1997). However, as the GOL §15-108 claims have been dismissed, there is little value left in Wausau's arguments on the matter: there is no particular conflict between the findings of the California Action and this action. Therefore, there is no basis for dismissal or a stay.

Wausau has also moved to dismiss the third-party complaint as against Scotts. However, as Scotts has made no such motion, the third-party complaint may not be dismissed against them. In any event, PEIC's counterclaims and the third-party complaint attempt to establish that Scotts is obligated to defend and indemnify PEIC in the California Action, pursuant to the Release. As the Release appears to entail potential indemnification obligations, dismissal would be improper. The motion to dismiss the third-party complaint, as against Scotts, is denied.

Accordingly, it is hereby

ORDERED that the motion of third-party defendant Employers Insurance of Wausau, pursuant to CPLR 327 and 3211(a), to stay or dismiss the first-party counterclaims of defendant/third-party plaintiff Pacific Employers Insurance Company is denied; and it is further

ORDERED that the motion of third-party defendant Employers Insurance of Wausau, pursuant to CPLR 3211(a), to dismiss the third-party complaint, as against Employers Insurance of Wausau and as against plaintiff/third-party defendant, The Scotts Company, LLP, is partially granted to the extent that the third-party complaint as against Employers Insurance of Wausau is dismissed with costs disbursements to that defendant as taxed by the Clerk of the Court, with the Clerk to enter judgment accordingly, and it is otherwise denied; and it is further

ORDERED that the cross motion of plaintiff/third-party defendant, The Scotts Company, [*6]LLP, pursuant to CPLR 2201, for an order staying these proceedings pending its appeal of a prior order in this matter (see Decision and Order, The Scotts Co. v Ace Indemnity Ins. Co., Index No. 602712/05, filed March 1, 2007) is denied; and it is further

ORDERED that the cross motion of defendant/third-party plaintiff Pacific Employers Insurance Company, pursuant to CPLR 3025, to amend its third-party complaint is denied.

DATED: February 26, 2008

____________________________

J.S.C. Footnotes

Footnote 1:Following oral argument, PEIC submitted a letter brief, dated October 15, 2007. This unauthorized brief has not been considered.