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BROWN v. AXA RE

May 3, 2004.

THOMAS W. BROWN, MARGUERITE SWITZGABLE, FORESIGHT FILMS, INC., and THOMAS W. BROWN d/b/a BOUQUET ONE LIMITED PARTNERSHIP (formerly known as PASSING THRU LINDEN LIMITED PARTNERSHIP), Plaintiffs, -v- AXA RE, Defendant


The opinion of the court was delivered by: LAURA TAYLOR SWAIN, District Judge

OPINION AND ORDER

In their Second Amended Complaint in this diversity case, Plaintiffs allege that Defendant AXA Re ("AXA") reneged on its commitment to reinsure a direct insurance policy which, in turn, had backed up the financing necessary for Plaintiffs to produce a film called "Passing Thru Linden." According to the Second Amended Complaint, the project's financing structure collapsed completely as a result of AXA's decision to renege on its commitment. Plaintiffs allege that, as a result of AXA's actions, they were denied the opportunity to produce the film, which, in turn, caused them to suffer damage to their individual reputations and business relationships as well as lose years of sweat equity they had invested in the project. The Second Amended Complaint asserts the following causes of action: (1) breach of contract damaging intended third-party beneficiaries; (2) bad faith and breach of the covenant of good faith and fair dealing; (3) tortious interference with contract and tortious interference with prospective contractual/business relations; and (4) prima facie tort. AXA moves to dismiss the Second Amended Complaint pursuant to Rules 9(a), 12(b)(6) and 17(b) of the Federal Rules of Civil Procedure, contending that the Second Amended Complaint fails to state a claim upon which relief may be granted and that Plaintiffs lack capacity and/or standing to sue. The Court has jurisdiction of this action pursuant to 28 U.S.C. § 1332.

  For the reasons stated below, Defendant's motion to dismiss is granted in part and denied in part. BACKGROUND*fn1

  In the mid-1990's, Plaintiffs Thomas W. Brown ("Brown"), a film industry veteran, and Marguerite S. Switzgable ("Switzgable"), an Academy and Emmy Award nominated producer/writer/director dedicated to the making of environmentally and socially important films, began working together to create a self-sustaining economic structure for the development and production of films of "substance." (Second Amended Complaint ("Complaint") at ¶¶ 3-4.) Brown and Switzgable decided to focus their efforts on the production of a feature film entitled "Passing Thru Linden" ("Linden"), which would portray the lives of people exposed to environmental disaster in Linden, New Jersey. (Id. at 4.)

  The script for the film was written by Switzgable and owned by Plaintiff Foresight Films, Inc. ("Foresight"), a not-for-profit tax-exempt Internal Revenue Code Section (501)(1)(3) corporation. Foresight received project development grants from major foundations to fund the Linden project. (Id. at ¶¶ 4, 15.) Brown and Switzgable lacked the personal resources to finance the making of the film and, therefore, spent years assembling a coalition of persons and companies that would provide the financial backing and aid in the preparation for the film's production. (Id. at ¶ 4.)

  In 1996, Brown and Switzgable learned of Jean Michel Guillot ("Guillot"), who was then the head of Special Risks Underwriting at AXA. Guillot's unit specialized in political and entertainment risks, such as insuring the weather at Wimbledon or the appearance of a rock star at a concert. (Id. at ¶ 5.) Beginning in mid-1996, AXA engaged in an aggressive strategy to become a market leader in motion picture finance contingency insurance. Consistent with this strategy, AXA issued reinsurance commitments to numerous film production companies, financial institutions and other insurers. (Id. at ¶¶ 6, 22-24.) As part of this effort, Guillot signed and stamped a reinsurance slip for the Linden project in November or December 1996. (Id. at ¶¶ 5, 26.) Subsequent to the signing of that initial agreement, Guillot spoke via telephone and met in person with Brown and Switzgable, touring Foresight's movie planning facility on two different occasions. (Id. at ¶¶ 5-6, 26.) Plaintiffs agreed that AXA and other reinsurers would be net profit participants in the Linden project. (Id. at ¶ 6.)

  The initial agreement signed by Guillot was the key financial commitment that laid the foundation for others to add their own commitments to the project. (Id. at ¶ 7.) As time went on, the identity and precise roles of the participants in the transaction changed. (Id. at ¶ 30.) When Guillot made his original commitment to the project in 1996, Passing Thru Linden Limited Partnership, a partnership to be formed by Brown and Switzgable,*fn2 was designated as the insured. Later in 1996 and early 1997, Chase Manhattan Bank ("Chase") became the lead lender and, at its insistence, assumed the role of the insured. Subsequent to that, Dresdner Bank AG of Barbados took Chase's place as the lead lender and was designated as the insured. (Id. at ¶ 31.)

  AXA had to participate in the Linden project as a reinsurer rather than a direct insurer because it was not qualified to write direct insurance in the United States. As a result, Underwriters Reinsurance Company and its affiliates ("URC") were brought in to issue an insurance policy to the bank, and AXA and the other reinsurers reinsured URC's policy. (Id. at ¶ 32.)

  After the signing of the initial agreement with AXA, Brown and Switzgable devoted virtually all of their time over the next three years to assembling the coalition they needed to finance and produce the project. Through their efforts, Brown and Switzgable were able to put together a deal structure that was accepted by a production lender, lead receivables lender, an insurer, a lead reinsurer (AXA), several other reinsurers, a leading insurance broker and several equity investors. AXA's commitment as lead reinsurer was made prior to the commitment made by the insurer. (Id.)

  By the summer of 1999, Brown and Switzgable had secured a firm loan commitment from an affiliate of Dresdner Bank AG, the stamped reinsurance slips of AXA and other reinsurers to backstop the bank financing, a signed commitment from an affiliate of URC to front an insurance policy that would be reinsured by AXA and the other reinsurers, sufficient commitments and interest from equity investors in BouQuet One*fn3 to produce the film, and sufficient interest from creative and technical people willing to defer part of their compensation. As a result of these arrangements, securing the financing necessary to produce the film was a virtual certainty. (Id. at 8.)

  Then, in early February 1999, Guillot was terminated suddenly and replaced by Erick Derotte. (Id. at 9.) When Derotte took over, claims were being asserted by other film industry insureds/reinsureds of AXA. Derotte announced to the press in the spring of 1999 that AXA was "evaluating its portfolio." Around that time, AXA turned over its portfolio to lawyers so that AXA could receive advice regarding which of the commitments entered into by Guillot could be avoided. (Id.)

  In October 1999, Derotte, acting on advice of counsel, inquired of insurance brokers representing Brown and Switzgable as to whether AXA could renege on its commitments to the Linden project. The brokers told Derotte that the commitments were binding and had been relied upon by numerous people. (Id. at ¶ 10.)

  In December 1999, "consistent with its global declination to honor its commitments to the motion picture industry," AXA terminated its outstanding commitments to Plaintiffs relating to the Linden project. Brown and Switzgable's insurance brokers, reacting to earlier questioning by Derotte regarding the lack of a temporal limit on its commitments to Plaintiffs, recommended that Brown and Switzgable offer that a time limit be imposed on AXA's commitments. Such an offer was made and AXA refused, using the offer as a further excuse for its withdrawal. (Id. at ¶ 11.)

  As a result of AXA's termination of its commitments, the entire financial structure buttressing the Linden project fell apart. Plaintiffs lost the opportunity to make the film. Foresight lost over $1 million worth of funding donated by foundations and individuals, as well as more than $500,000 in equipment donations made by corporate sponsors. Plaintiffs also forewent millions of dollars in equity and ...


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