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United States District Court, S.D. New York

May 6, 2005.


The opinion of the court was delivered by: DENNY CHIN, District Judge


In July 1993, Societe Generale Energie Corp. ("SGE") discovered that approximately 1.7 million gallons of its petroleum was missing from a storage facility at Star Terminal in Highland, New York. SGE sued a number of defendants, including Hudson Energy Terminal ("Hudson"), in this Court. In 1997, the case was resolved as to all defendants except Hudson. SGE apparently requested a default judgment against Hudson, but the Court did not rule on the application and the case was closed on July 31, 1997. In December 2002, more than five years later, SGE wrote the Court (Brieant, J.) and asked that a default judgment be entered against Hudson. By memorandum endorsement filed December 12, 2002, Judge Brieant denied the request "[i]n light of the passage of time and laches." SGE did not appeal.

  Although the case remained closed, in June 2003, nearly ten years after the loss, SGE and Hudson purported to settle the case. Hudson agreed to pay SGE $1.6 million plus attorneys' fees and costs and Hudson assigned to SGE all its rights under a commercial liability insurance policy it had with New York Marine and General Insurance Company, Inc. ("NY MAGIC"). When it entered into the settlement, SGE knew that Hudson had no assets to pay the settlement amounts and it did not intend even to attempt to collect any monies from Hudson. Instead, five days later, SGE brought the instant action against NY MAGIC, alleging that it was entitled, as assignee of Hudson's rights under the policy, to indemnification from NY MAGIC for the amounts that Hudson had agreed to pay SGE in settlement of the prior lawsuit.

  Before the Court are the cross-motions of SGE and NY MAGIC for summary judgment. As discussed more fully below, I conclude as a matter of law that Hudson's purported settlement with SGE was not reasonable. Hudson's agreement to pay SGE $1.6 million plus fees and costs to settle a lawsuit that had been closed for more than five years made no sense. Accordingly, SGE's motion is denied, NY MAGIC's cross-motion is granted, and the complaint is dismissed. BACKGROUND

  A. The Facts

  The following facts are not in dispute, except where noted:

  SGE is a French corporation that, for at least the period September 1992 to September 1993, was engaged in the wholesale distribution of petroleum products. (Def.'s 56.1 Statement ¶ 1; Pl.'s Counter-Statement ¶ 1). Star Terminal, Inc. ("Star Terminal") was a New York corporation that owned and operated a fuel storage terminal in Highland, New York. (Def.'s 56.1 Statement ¶ 2; Pl.'s Counter-Statement ¶ 2). Hudson was a New York corporation formed by Richard Ferrara in 1992 for the purpose of purchasing Star Terminal. (Def.'s 56.1 Statement ¶¶ 3, 4; Pl.'s Counter-Statement ¶¶ 3, 4). Neither Star Terminal nor Hudson is an active corporation. NY MAGIC is a New York corporation in the commercial insurance business. (Def.'s 56.1 Statement ¶ 6; Pl.'s Counter-Statement ¶ 6).

  SGE entered into a storage agreement with Star Terminal on September 18, 1992 for storage of its petroleum products at the Star Terminal facility in Highland, New York. (Pl.'s Ex. A, Storage Agreement). The agreement provided that SGE's petroleum products could not be sold or removed from Star Terminal without prior payment to, and written approval from, SGE. (Id.). From the period September 1992 through July 1993, SGE regularly delivered petroleum products to Star Terminal for storage; as of July 1993, SGE stored more than 1.7 million gallons of petroleum products at Star Terminal. (Pl.'s 56.1 Statement ¶¶ 3, 4; Def.'s Reply Statement ¶¶ 3, 4).*fn1

  In early 1993, Star Terminal withdrew from operation of its terminal, turning it over to Hudson. (Pl.'s 56.1 Statement ¶ 7).*fn2 Hudson obtained a one-year Comprehensive General Liability insurance policy from NY MAGIC for the period December 30, 1992 through December 30, 1993. (Pl.'s 56.1 Statement ¶ 21; Def.'s Reply Statement ¶ 21). The anticipated sale of Star Terminal to Hudson was never consummated, but, according to plaintiff, Hudson maintained operation of the terminal. (Pl.'s Counter-Statement ¶ 16). NY MAGIC cancelled Hudson's policy effective June 27, 1993, for failure to pay premiums.*fn3 (Def.'s 56.1 Statement ¶ 24).

  In July 1993, SGE became concerned that it was not receiving regular inventory reports as required by the storage agreement; it appointed a surveyor to inventory its products at Star Terminal. (Pl.'s 56.1 Statement ¶ 5; Def.'s Reply Statement ¶ 5). SGE determined that approximately 1.7 million gallons of petroleum products were missing from Star. (Pl.'s 56.1 Statement ¶ 6; Def.'s Reply Statement ¶ 6). SGE placed its insurer — certain Underwriters at Lloyd's — on notice of a claim for the lost products. (Pl.'s 56.1 Statement ¶ 17; Def.'s Reply Statement ¶ 17). SGE's insurer paid SGE $2 million under its policy. (Id.). The consulting firm hired by SGE's insurer concluded that the missing petroleum had been stolen. (Def.'s 56.1 Statement ¶ 20; Pl.'s Counter-Statement ¶ 20).

  B. Prior Suit and Settlement

  On February 24, 1995, SGE filed a diversity action in this Court against, inter alia, Star Terminal and Richard Ferrara for breach of contract, bailment, and conversion. Societe Generale Energie Corp. v. Ferrara, 95 Civ. 1307 (CLB) (S.D.N.Y. 1995). SGE filed an amended complaint on May 8, 1997, adding Hudson as a defendant.*fn4 (Pl. Ex. G). SGE mailed a copy of the amended complaint to NY MAGIC on June 6, 1997. (Pl.'s 56.1 Statement ¶ 22; Def.'s Reply Statement ¶ 22; Pl. Ex. I). In response, NY MAGIC sent a letter dated June 12, 1997 to SGE stating that the claims "would not fall under [Hudson's] policy." (Pl. Ex. J).*fn5

  On June 13, 1997, Judge Brieant entered a default judgment in the amount of $1.6 million against Star Terminal, and on July 31, 1997 entered a stipulation of judgment against Emporium Oil Terminal, that also dismissed the complaint as to Richard Ferrara. (Pl. Ex. L, docket sheet). On July 14, 1997, SGE filed a request for a default judgment against Hudson,*fn6 but Judge Brieant apparently took no action on it. The Clerk of the Court closed the case on July 31, 1997. (Pl. Ex. L, docket sheet).

  Nearly five and a half years later, SGE's counsel wrote a letter to Judge Brieant, explaining that the Court had never ruled on its request for a default judgment against Hudson, and asked that Judge Brieant do so. (Pl. Ex. M, letter dated December 9, 2002). Judge Brieant "memo endorsed" the letter, declining to enter a default judgment and stating: [t]his letter is treated as some sort of motion in a case long since closed. The last docket entry is August 13, 1997, more than five years ago. In light of the passage of time and laches the Court declines to issue a default judgment at this time. So Ordered.

 (Pl. Ex. N). The order was filed on December 12, 2002. On March 25, 2003, SGE submitted a "Motion for Order of Default" against Hudson. In its memorandum accompanying the motion, SGE argued that laches did not apply, and that Hudson would not be prejudiced by the delay in entering default, because SGE did "not intend to attempt to collect any judgment directly from Hudson," as SGE was aware that Hudson had no assets to satisfy a judgment. (Pl. Ex. O, Mem. at 5). Judge Brieant took no action on the motion.*fn7

  On June 12, 2003, nearly six years after its case against Hudson was closed, SGE settled with Hudson as Hudson purportedly agreed to pay the sum of $1.6 million dollars, plus attorneys' fees and interest, to SGE. Hudson assigned to SGE "any and all rights, title, interest, claims and causes of action" that Hudson had against NY MAGIC under its insurance policy. The parties also agreed that the settlement was "fair and reasonable based on the claims asserted by SGE against Hudson in the lawsuit." (Pl. Ex. P, Settlement Agreement). Five days later, SGE filed the instant action against NY MAGIC. D. The Instant Action

  As the assignee of Hudson's claims against NY MAGIC, SGE sues NY MAGIC for indemnification for the settlement amount.*fn8 SGE moves for summary judgment arguing that NY MAGIC improperly denied Hudson coverage under the contract, and that NY MAGIC is liable for the settlement amount. NY MAGIC cross-moves for summary judgment, arguing, inter alia, that Hudson has no viable claim against NY MAGIC and that therefore SGE, as Hudson's assignee, has no valid basis to sue NY MAGIC. Because I conclude that the settlement between SGE and Hudson was unreasonable as a matter of law, defendant's motion for summary judgment is granted.


  A. Summary Judgment Standard

  The standards governing motions for summary judgment are well-settled. A court may grant summary judgment only where there is no genuine issue of material fact and the moving party therefore is entitled to judgment as a matter of law. See Fed R. Civ. P. 56(c); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986). Accordingly, the court's task is not to "weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). There must be sufficient evidence in the record to support a verdict in the nonmoving party's favor to create an issue for trial. See id.

  To defeat a motion for summary judgment, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. As the Supreme Court stated in Anderson, "[i]f the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50 (citations omitted). The nonmoving party may not rest upon mere conclusory allegations or denials, but must set forth "concrete particulars" showing that a trial is needed. Nat'l Union Fire Ins. Co. v. Deloach, 708 F. Supp. 1371, 1379 (S.D.N.Y. 1989) (quoting R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 77 (2d Cir. 1984) (internal quotations omitted)). Accordingly, it is insufficient for a party opposing summary judgment "merely to assert a conclusion without supplying supporting arguments or facts." BellSouth Telecomms., Inc. v. W.R. Grace & Co., 77 F.3d 603, 615 (2d Cir. 1996) (internal quotations omitted).

  B. Reasonableness of the Settlement

  1. Applicable Law

  When an insurer declines coverage, "the insured may settle with third parties without prejudicing its rights against the insurer." Amalgamet, Inc. v. Underwriters at Lloyd's, 724 F. Supp. 1132, 1142 (S.D.N.Y. 1989). The insured need not show "actual liability to the party with whom it has settled so long as a potential liability on the facts known to the [insured is] shown to exist, culminating in a settlement in an amount reasonable in view of the size of possible recovery and degree of probability of claimant's success against the [insured]." Luria Bros. & Co. v. Alliance Assurance Co., 780 F.2d 1082 (2d Cir. 1986) (internal quotation omitted). The settlement must be "made `in good faith.'" Amalgamet, Inc., 724 F. Supp. at 1142, quoting Bunge Corp. v. London & Overseas Ins. Co., 394 F.2d 496, 497 (2d. Cir. 1968).

  2. Application

  NY MAGIC argues that the settlement between SGE and Hudson was not reasonable. SGE opposes, arguing that "there is ample evidence that would have supported SGE's claim against Hudson" for the missing petroleum products, including evidence that Hudson had taken over responsibility of storing SGE's petroleum products and that Hudson representatives had provided false inventories to SGE. (Pl.'s Mem. at 18). Even if SGE could demonstrate Hudson's potential liability, the settlement was unreasonable as a matter of law.

  At the time SGE and Hudson settled, SGE's case against Hudson was closed and its claims against Hudson were surely time-barred. The Court closed SGE's case against Hudson, whether inadvertently or not, on July 31, 1997. SGE did not appeal or take any action in response to that closure until December 9, 2002, some five and a half years later. Judge Brieant refused to enter a default judgment on December 12, 2002. SGE did not file this action until June 17, 2003.

  New York law provides that a plaintiff whose action is terminated in certain circumstances may commence a new action on the same transaction within six months after termination.*fn9 N.Y.C.P.L.R. § 205(a). After the Court's apparently inadvertent closure of SGE's case on July 31, 1997, a circumstance that would fall under the provisions of § 205(a), SGE had until January 31, 1998 to file another action in this Court that would have been considered timely. SGE never attempted to file another action against Hudson.*fn10

  Because SGE failed to file another action within six months of the termination of its case against Hudson, the statutes of limitations on its claims against Hudson continued to run. By the time SGE and Hudson entered into their settlement, all of SGE's claims against Hudson — breach of contract, bailment, and conversion — were time-barred.*fn11 SGE was not likely to succeed in any argument that the statutes of limitations should be equitably tolled; therefore there was little chance that SGE would be able to institute another action on these claims against Hudson ever again. It was unreasonable for Hudson — faced with claims long-since dismissed and long-since expired — to settle at all, let alone for the entire amount of SGE's claims against it: $1.6 million, plus attorney's fees and interest.

  In addition, Hudson could have opposed any new action filed by SGE in another court on the basis of laches and/or res judicata. SGE waited nearly five and a half years after closure of its case to alert the Court to the default judgment it asserts was previously filed and not decided. Judge Brieant previously found that laches precluded SGE's requested default judgment in 2002; another court would likely find another suit barred under the same rationale. Additionally, another court would also likely find that the dismissal, based on laches, barred another action on the same claims under the principles of res judicata. See 18A Charles Alan Wright, Arthur R. Miller, & Edward H. Cooper, Federal Practice and Procedure § 4441 (dismissal based on laches is a final adjudication on the merits for claim preclusion purposes).

  The settlement between SGE and Hudson surely was a sham. Hudson was defunct and SGE never intended to even attempt collection against it. Even assuming the settlement was not a sham, the settlement was unreasonable as a matter of law. Hudson had meritorious defenses to SGE's claims — statutes of limitations, laches, and res judicata — such that settling for 100 cents on the dollar was patently unreasonable. Regardless of whether NY MAGIC's refusal to indemnify Hudson in 1997 was wrongful, NY MAGIC cannot later be held liable for the unreasonable settlement entered into by its insured and SGE.


  NY MAGIC's motion for summary judgment is granted as to all claims. SGE's motion for summary judgment is denied and its complaint is dismissed with prejudice and with costs. The Clerk of the Court shall enter judgment accordingly and close this case.


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