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New York State Urban Development Corp. v. VSL Corp.

June 20, 1984

NEW YORK STATE URBAN DEVELOPMENT CORPORATION, PLAINTIFF,
v.
VSL CORPORATION, DEFENDANT AND THIRD-PARTY PLAINTIFF-APPELLANT, V. AMMANN & WHITNEY, LIFT CONSULTANTS, VOLLMER ASSOCIATES, INC., VON ROLLTRAMWAYS, INC., HARVEY HUBBELL INC., AND NORTHBROOK EXCESS AND SURPLUS INSURANCE COMPANY, THIRD-PARTY DEFENDANTS, NORTHBROOK EXCESS AND SURPLUS INSURANCE COMPANY, THIRD-PARTY DEFENDANT-APPELLEE; NORTHBROOK EXCESS AND SURPLUS INSURANCE COMPANY, THIRD-PARTY DEFENDANT AND FOURTH-PARTY PLAINTIFF-APPELLEE, V. ZURICH INSURANCE COMPANY, FOURTH-PARTY DEFENDANT



Appeal by Third-party Plaintiff from Orders of the United States District Court for the Southern District of New York, Sand, J., Denying Third-party Plaintiff's Contempt Motion, Granting Third-party Defendant's Cross-motion for Substitution of Counsel and Requiring Third-party Defendant to Share Equally in Costs of Defense with other Insurer Pending Ultimate Determination of Liability. The Denial of Contempt Motion and Granting of Cross Motion for Substitution of Counsel are Affirmed. The Appeal of Temporary Allocation of Defense Costs is Dismissed.

Friendly, Timbers and Meskill, Circuit Judges.

Author: Meskill

MESKILL, Circuit Judge:

This is a consolidated appeal from an order of the United States District Court for the Southern District of New York, Sand, J., denying appellant VSL Corporation's (VSL) motion to hold appellee Northbrook Excess and Surplus Insurance Company (Northbrook) in civil contempt and granting Northbrook's cross-motion for substitution of counsel. VSL also appeals from an order requiring Northbrook and the Zurich Insurance Company (Zurich) to share equally in the costs of VSL's defense pending the ultimate determination of coverage. We affirm the denial of the motion for contempt and the granting of the cross-motion substituting counsel; we dismiss the appeal from the decision on the allocation of defense costs.

BACKGROUND

VSL operated and maintained the Roosevelt Island tramway for the New York State Urban Development Corporation (UDC). The UDC brought an action against VSL on May 15, 1981 in the Supreme Court of the State of New York, County of New York, for damages allegedly sustained in connection with certain work performed by VSL on the tramway. VSL retained the law firm of Gold, Farrell & Marks (Gold, Farrell) to defend it and subsequently removed the action to the United States District Court for the Southern District of New York. Jurisdiction was asserted on the basis of diversity of citizenship.

VSL maintained several insurance policies that covered its work on the tramway project including an architects and engineers professional liability policy in the amount of $2 million issued by Northbrook and comprehensive general liability policies in the total amount of $10 million issued by Zurich. Both insurance carriers were required by the terms of their policies to defend VSL.

Zurich acknowledged its duty to defend VSL; Northbrook, however, refused to do so, asserting that the UDC claims were outside the coverage of the policy. In August 1981, Gold, Farrell brought a third-party action on behalf of VSL against Northbrook seeking declaratory and injunctive relief. It also claimed damages for Northbrook's refusal to defend, indemnification to the extent of any judgment rendered against VSL in the UDC action, plus fees and costs and punitive damages for bad faith.*fn1

A trial was held on May 24, 1982 before Judge Sand on the issue of Northbrook's obligation to defend VSL. In an opinion delivered from the bench, Judge Sand found that Northbrook was required to provide a defense for VSL. He ordered Northbrook and Zurich to decide between themselves how they would discharge their respective duties to defend. Specifically, he stated that Northbrook and Zurich should "determine such matters as the designation of counsel and the interim arrangements; to determine what percentage of the interim legal costs each will bear until such time as there shall be a resolution on the merits of the underlying action." Judgement was entered on May 28, 1982 and certified as final under Fed. R. Civ. P. 54(b).

On June 16, 1982, Northbrook advised VSL by letter that it would designate independent counsel if agreeable to VSL or, in the alternative, VSL could provide a list of firms to Northbrook from which a firm acceptable to Northbrook and Zurich would be selected. VSL rejected the offer and insisted that Gold, Farrell continue to provide representation in the UDC action. Northbrook subsequently designated the firm of Buckley, Treacy, Schaffel, Mackey & Abbate (Buckley, Treacy), a firm experienced in construction litigation, but with whom Northbrook had no previous dealings, as independent counsel to defend VSL. Northbrook instructed Buckley, Treacy to avoid any involvement in the dispute between itself and VSL.

Northbrook was unable to reach an understanding with Zurich on the allocation of defense costs. Northbrook offered to share the costs equally with Zurich, pending the ultimate determination of liability and coverage, but Zurich insisted that Northbrook pay a larger share.

In October 1982 VSL moved to hold Northbrook in contempt for failure to comply with the May 28 judgment requiring Northbrook to provide a defense. Northbrook cross-moved to substitute Buckley, Treacy as VSL's independent counsel. Northbrook also requested the court to order Zurich to share equally in the costs of VSL's defense. On May 3, 1983 Judge Sand denied VSL's contempt motion and granted Northbrook's cross-motion. He also adopted Northbrook's offer concerning the equal distribution of interim defense expenses. New York State Urban Development Corp. v. VSL Corp., 563 F. Supp. 187 (S.D.N.Y. 1983). This appeal by VSL followed.

Discussion

Initially, we must decide whether we have jurisdiction to hear this appeal. In general, the denial of a motion for civil contempt may only be appealed "after the conclusion of the principal action rather than in its course." Stringfellow v. Haines, 309 F.2d 910, 911 (2d Cir. 1962). Cf. Fox v. Capital Co., 299 U.S. 105, 107, 81 L. Ed. 67, 57 S. Ct. 57 (1936) ("except in connection with an appeal from a final judgment or decree, a party to a suit may not review upon appeal an order fining or imprisoning him for the commission of a civil contempt"). This policy is necessary to avoid piecemeal interlocutory appeals. See Sanders v. Monsanto Co., 574 F.2d 198, 199 (5th Cir. 1978); Peabody Coal Co. v. Local Union Nos. 1734, 1508 and 1548, United Mine Workers, 484 F.2d 78, 82 (6th Cir. 1973). VSL cannot appeal the denial of its contempt motion at this time if this rule is applied without exception, because it has several claims pending against Northbrook which have yet to be determined. However, in International Business Machines Corp. v. United States, 493 F.2d 112 (2d Cir. 1973), cert. denied, 416 U.S. 995, 40 L. Ed. 2d 774, 94 S. Ct. 2409 (1974), we recognized an exception to this rule where "the interlocutory nature of the order is no longer present" and "the appeal does not interfere with the orderly progress of the main case." Id. at 115 n.1. The appeal of the denial of the contempt motion here is not interlocutory in nature even though there has been no final judgment with respect to all of VSL's claims. VSL's contempt motion was based on the May 28 judgment ordering Northbrook to provide a defense for VSL. That judgment was certified as final by the district court under Fed. R. Civ. P. 54(b) and could have been appealed pursuant to 28 U.S.C. ยง 1291 (1982). See Sears, Roebuck & Co. v. Mackey, 351 U.S. 427, 100 L. Ed. 1297, 76 S. Ct. 895 (1956); cf. Cromaglass Corp. v. Ferm, 500 F.2d 601, 604-05 (3d Cir. 1974) (en banc) (district court's order imposing sanctions on plaintiff for its failure to comply with defendants' discovery requests may be subject of appeal if certified under Rule 54(b)). It would defy logic to hold that while the May 28 judgment was final for the purposes of section 1291, a contempt motion based on Northbrook's alleged non-compliance with the judgment is not appealable. See Sanders v. ...


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