United States District Court, S.D. New York
May 6, 2005.
SOCIETE GENERALE ENERGIE CORP., Plaintiff,
NEW YORK MARINE AND GENERAL INSURANCE COMPANY, Defendant.
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
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
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).
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
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