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First Media Insurance Specialists, Inc. v. Onebeacon Insurance Co.

United States District Court, D. Kansas

August 29, 2014

FIRST MEDIA INSURANCE SPECIALISTS, INC. et al., Plaintiffs,
v.
ONEBEACON INSURANCE COMPANY, a Pennsylvania corporation, et al., Defendants.

MEMORANDUM AND ORDER

ERIC F. MELGREN, District Judge.

This case involves a dispute between Plaintiffs and Defendants over the proper calculation of profits under a contract the parties entered into on May 2, 2005. Due to this dispute, Plaintiffs bring four claims against six Defendants. These claims include breach of contract, fraud, negligent misrepresentation, and breach of fiduciary duty. Defendants now seek summary judgment on all claims (Doc. 107). Plaintiffs also seek partial summary judgment on their breach of contract claim (Doc. 104). The Court held a hearing on August 20, 2014. As to the breach of contract claim, the Court concludes that several legal issues can be resolved on the record before the Court, but several factual issues remain. Thus, the Court grants in part and denies in part Defendants' Motion for Summary Judgment and grants in part and denies in part Plaintiffs' Motion for Partial Summary Judgment. As to Plaintiffs' claims of fraud, negligent misrepresentation, and breach of fiduciary duty, the Court finds that these claims are barred by the statute of limitations and grants Defendants' Motion for Summary Judgment on these claims.

I. Factual and Procedural Background[1]

Plaintiffs

Plaintiff First Media Insurance Specialists, Inc. ("First Media") is a corporation organized in the state of Kansas, with a principal place of business in Overland Park, Kansas. In 1998, Plaintiff Tracy Michelle Worrall Tilton ("Tilton") founded First Media as a managing general agent for insurance companies that marketed, underwrote, issued, and administered media liability insurance policies. Plaintiff J. Lawrence Worrall ("Worrall") joined First Media as Chief Executive Officer in or around 2000. At the time of the asset sale at issue, Plaintiff Tilton was the President and minority shareholder of First Media, and Worrall was the Chief Executive Officer and majority shareholder of First Media.

Defendants

Defendant OneBeacon Insurance Company ("OBIC") is a Pennsylvania corporation with its principal place of business in Minnesota. Defendant OneBeacon Professional Insurance, Inc. ("OBPI"), formerly known as OneBeacon Professional Partners, Inc. ("OBPP"), is a Delaware corporation with its principal place of business in Farmington, Connecticut. OBIC is an insurance company that issues policies to insure a variety of risks, including media liability. OBPI underwrites and sells specialty professional liability products for OBIC. Defendants OBIC and OBPI are affiliated companies and are collectively referred to as "OneBeacon." There are four individual Defendants who were formerly employed by OneBeacon: Matthew Dolan, who held the titles of Senior Vice President and President of OBPI from 2002 to 2008; Randall Oates, who was OBPI's Chief Operating Officer; Joshua Stein, who was OBPI's Chief Underwriting Officer; and Tammi Dulberger, who held the titles of Executive Vice President and Chief Actuary at OBPI.

Background

During the summer of 2004, key executives of OBPI (acting on behalf of OBIC) contacted Worrall and Tilton to inquire whether they would be interested in selling the assets and business of First Media to OneBeacon. Defendants Dolan, Oates, Stein, and Dulberger were part of a due diligence team investigating First Media to determine whether OneBeacon was interested in purchasing First Media's assets. Plaintiffs Worrall and Tilton and OneBeacon executives had discussions and several in-person meetings about the proposed transaction.

In negotiating the written Asset Purchase Agreement ("APA"), Plaintiffs were represented by attorney Ricardo Fontg, and OneBeacon was represented by attorney Tim Curry. The APA went through several revisions between February 23, 2005 and May 2, 2005.[2] On May 2, 2005, OneBeacon and First Media entered into the written APA and related Non-Disclosure and Non-Compete Agreements (collectively "Agreements"), which transferred the assets and business of First Media to OneBeacon. Pursuant to the Agreements, the purchase price for First Media's assets includes (a) an "Asset Consideration" payment of $350, 000; (b) a "Cash Advance" of $500, 000; and (c) the "Profit Consideration." In addition, as part of the APA transaction, Tilton became an employee of OBPI, and Worrall became a consultant to OBPI.

Section 2(a)(ii) of the APA defines "Profit."
"Profit" means the excess of (A) total media liability insurance premiums written (whether or not fully earned) by Purchaser-affiliated insurance companies during the forty-two (42) month period from the Closing Date (the "Profit Sharing Period"), over (B) the sum of booked Losses, allocated loss adjustment expense ("ALAE") and general expenses during such forty-two month period, all on a GAAP basis (except as otherwise permitted by this Agreement). General expense includes all the direct costs associated with operating the Fairway, Kansas office (including personnel, occupancy and related costs), all policy acquisition costs, insurer-paid premium taxes, provision for unallocated loss adjustment expense ("ULAE"), and an override for corporate overhead equal to one and one half percent (1.5%) of premiums (the "Corporate Overhead Charge"). The Corporate Overhead Charge is subject to increase if and to the extent that Purchaser increases the overhead for OneBeacon Professional Partners, Inc. ("OBPP") above one percent (1%), but in no event shall the Corporate Overhead Charge exceed two percent (2%).[3]

Section 2(a)(iii) defines "Profit Consideration" as "an amount equal to fifteen percent (15%) of the Profit."[4] Section 2(c) of the APA sets forth the "Payment of the Purchase Price" as follows:

(i) The sum of $850, 000 (representing the Asset Consideration and the Cash Advance) will be paid at Closing (the "Closing Consideration").
(ii) The remaining Profit Consideration shall be payable as follows: (x) within thirty (30) days after expiration of the Profit Sharing Period, Purchaser will pay 60% of the Profit Consideration (basing Profit computations on the most recent data then available), less the $500, 000 Advance; (y) within thirty (30) days after the first anniversary of the expiration of the Profit Sharing Period, Purchaser will pay 100% of the Profit Consideration payments already paid, either at Closing or in the prior year; and (z) within thirty (30) days after each of the subsequent five anniversaries of the expiration of the Profit Sharing Period, Purchaser will pay the Company 100% of Profit Consideration (basing Profit computation on the most recent date then available), less all Profit Consideration payments already paid.[5]

In addition to paying First Media "Profit Consideration" of 15%, Tilton and Worrall entered into non-compete agreements with OBIC under which they were each entitled to an additional 5% each of the "Profit" under the APA. This sum was "to be paid at the same time(s) and in the same manner as Profit Consideration is paid to First Media under Section 2 of the Asset Purchase Agreement."[6]

The Agreements required OneBeacon to make the first Profit Consideration payment by December 2, 2008. Around March 2008, OneBeacon provided Plaintiffs with a preliminary Profit Consideration calculation, which contained an estimate of losses of approximately $18 million, which contained Incurred But Not Reported ("IBNR") loss reserves.[7] IBNR loss reserves are estimates by actuaries of losses that have been incurred but which have not yet been reported. The inclusion of IBNR loss reserves in the March 2008 calculation resulted in a loss ratio of 56.7%. At Plaintiff's request, Fontg contacted OneBeacon's new in-house counsel, Nicholas Maglio, and contested OneBeacon's calculation of the aggregate Profit Consideration due under the Agreements. OneBeacon, through its counsel, contended that "booked Losses" under the APA included IBNR loss reserves. After March 2008, the parties continued to discuss their differences about the meaning of "booked Losses" under the APA.

In mid-November 2008, OneBeacon provided Plaintiffs with OneBeacon's "October 2008 Profit Share Calculation, " which purported to calculate the amount due to Plaintiffs under the first post-closing aggregate Profit Consideration payments required by the Agreements. OneBeacon also issued several checks to First Media and to Worrall on November 21, 2008, based on OneBeacon's calculation of the Profit Consideration.[8] These checks were not cashed as the parties disputed the appropriateness of the amount. Over the next twenty-two months, the parties continued to disagree over the amount due to Plaintiffs.[9]

Plaintiffs filed this lawsuit on September 16, 2010, asserting numerous claims against Defendants. At the current time, there are only four relevant claims pending: (1) breach of contract, (2) fraud, (3) negligent misrepresentation, and (4) breach of fiduciary duty.[10] Defendants now seek summary judgment on all claims (Doc. 107). Plaintiffs also seek partial summary judgment on their breach of contract claim ...


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