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Syntek Capital, AG v. Welch

April 7, 2006

SYNTEK CAPITAL, AG AND SYNTEK CAPITAL BETEILIGUNGS GMBH, PLAINTIFFS,
v.
EDWARD J. WELCH AND KIMBERLY A. FAIRBANKS, AS PERSONAL REPRESENTATIVE OF THE ESTATE OF GREGORY K. FAIRBANKS, DECEASED, DEFENDANTS AND THIRD-PARTY PLAINTIFFS,
v.
AMNON BAR-TUR; C2 MEDIA LLC; GOLDSTEIN GOLUB KESSLER LLP; SAM HUMPHREYS; DAVID MANNING; AND COREY MASSELLA, THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Homer U.S. Magistrate Judge

MEMORANDUM-DECISION AND ORDER

Presently pending is the motion of plaintiffs Syntek Capital, AG and Syntek Capital Beteiligungs GmbH (collectively "Syntek") for sanctions against defendants Edward J. Welch and Kimberly A. Fairbanks, as personal representative of the estate of Gregory K. Fairbanks, deceased (collectively "defendants"). Docket No. 40. Defendants oppose the motion. Docket No. 48, 49. For the reasons which follow, Syntek's motion is denied.

I. Background

Syntek, an investment company based in Germany, alleges in its complaint filed February 10, 2005 that defendants fraudulently induced Syntek to invest $10 million in C2 Media, L.L.C. ("C2"), for which defendants were senior officers. Compl. (Docket No. 1). The complaint alleges that defendants made misrepresentations to Syntek in financial statements, budgets, and meetings. At a conference on June 15, 2005 held pursuant to Fed. R. Civ. P. 16, both Syntek and defendants agreed that an early settlement conference would be useful and such a conference was scheduled for August 16, 2005. Settlement Conf. Order (Docket No. 22) ("Order"). The first two paragraphs of the Order provided in pertinent part as follows:

All parties and their lead counsel are hereby

ORDERED TO APPEAR BEFORE THE UNDERSIGNED . . . . An insured party shall appear by a representative of the insurer who is authorized to discuss and make recommendations relating to settlement. . . .

Settlement conferences are greatly facilitated when the parties have exchanged demands and offers before the conference and made a serious effort to settle the case on their own. Accordingly, before arriving at the settlement conference, the parties are to negotiate and make a good faith effort to settle the case without the involvement of the Court. Specific proposals and counter proposals shall be made. If settlement is not achieved before the settlement conference, the parties shall be prepared to engage in further negotiation at the conference.

Id. at 1 (emphasis and capitalization in original). The conference was later adjourned to September 20, 2005. Docket No. 24.

The February 2005 complaint alleges claims arising from events occurring in 2000 and 2001. Compl. at ¶¶ 11-18. Defendants were insured for claims such as Syntek's filed from August 31, 2001 to August 13, 2002 by a policy issued by Chubb & Son Insurance Co., a division of Federal Insurance Co. ("Federal"). Banko Decl. (Docket No. 40) at ¶¶ 8, 10 & Ex. D. Syntek made a claim under this policy to Federal on August 12, 2002. Id. at ¶ 10 & Ex. F. Defendants obtained insurance from Platte River Insurance Co. ("Platte") for claims filed from August 31, 2004 to August 13, 2005. Lauricella Decl. (Docket No. 48) at Ex. E. In June and August, 2005, Syntek gave notice to defendants in its disclosures pursuant to Fed. R. Civ. P. 26(a) that it had made a timely claim to Federal under the Federal policy. Banko Decl. at ¶¶ 8, 10 & Exs. D, F.

On September 20, 2005, Syntek appeared at the settlement conference through two trial attorneys and two corporate representatives. Defendant Welch was personally present with his trial attorney and William A. Roy, a Senior Claims Analyst for Darwin Professional Underwriters, Inc., the claims manager for Platte. Roy Aff. (Docket No. 49) at ¶ 1. Defendants had notified Platte of Syntek's claim within the Platte policy period after Syntek notified defendants of the impending action and Platte then agreed to provide defendants with a defense while reserving its rights to disclaim coverage. Lauricella Decl. at Ex. E. No representative of Federal was present at the conference and defendants confirmed during the conference that they had not then asserted any claim for coverage under the Federal policy.

At the outset of the conference, Syntek demanded the entire $10 million demanded in the complaint to settle the case and defendants declined to make any counteroffer against this demand. In private conferences with the undersigned, both sides indicated a willingness to modify their respective settlement positions, but the two sides nevertheless remained separated by multiple millions. Discussions then turned to defendants' insurance coverage. Notwithstanding Syntek's prior Rule 26 disclosure of its timely claim under the Federal policy, both defendants' counsel*fn1 and Roy professed ignorance of Federal's potential responsibility. The conference ended without settlement. Thereafter, Platte disclaimed defense and coverage under its policy and Federal agreed to provide a defense to defendants while reserving its rights to disclaim coverage. Lauricella Decl. at ¶¶ 11, 12 & Exs. D, E. This motion followed.

II. Discussion

Syntek seeks sanctions against defendants on the ground that defendants violated the Order by failing to obtain the attendance at the conference of a representative of Federal. As a sanction, Syntek seeks an order compelling defendants and their counsel to compensate Syntek for the attorneys' fees and costs incurred in attending the conference.

Syntek calculates such fees and costs as $13,300.00 for the attorneys' fees of the two attorneys who attended the conference for Syntek plus the travel costs of the four attendees totaling $4,628.67, for a total of $17,928.67. Banko Decl. at ΒΆ 17. Syntek also seeks reimbursement of fees and costs incurred in the making of the instant motion in an amount to be determined. Syntek Mem. of Law (Docket No. 40) at 10. Defendants oppose Syntek's motion on the grounds that they acted in good faith, Syntek violated the ...


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