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Horsehead Corp. v. Shinski

April 30, 2010


The opinion of the court was delivered by: Andrew T. Baxter, United States Magistrate Judge


Presently before this court is a motion by defendant Michael Shinski to file a third-party complaint against Pacific Employer's Insurance Corporation ("PEIC") pursuant to FED. R. CIV. P. 14. (Dkt. No. 12, 15). Plaintiff Horsehead Corp. has opposed the motion. (Dkt. Nos. 14, 18).


1. Background and Facts

A. Original Complaint

Defendant, Michael Shinski was injured while working in a mine operated by the Zinc Company of America. ("ZCA"). Defendant was employed by a contractor performing work in the mine. (Compl. ¶ 8). In 2000, Shinski brought a personal injury action against ZCA in New York State Supreme Court, St. Lawrence County. (Compl. ¶ 9). A copy of Shinski's Amended Complaint in New York Supreme Court is attached as Exhibit A to defendant's proposed Third Party Complaint.*fn1 (Dkt. No. 12-2). At the time that Shinski brought his action in state court, ZCA was a subsidiary "or division" of Horsehead Industries, Inc. (Compl. ¶ 10).

In 2002, ZCA filed for bankruptcy in the Southern District of New York. (Compl. ¶ 11). The bankruptcy resulted in a stay of defendant Shinski's personal injury action in state court. In April of 2003, defendant Shinski filed a motion in the bankruptcy action, seeking relief from the stay of his personal injury case so that he could pursue his personal injury action in state court. According to the original complaint in this action, defendant Shinski told the bankruptcy court that he intended to collect his judgment solely through the proceeds of any insurance policy issued to ZCA, and that defendant Shinski waived any personal liability of the debtor ZCA. (Compl. ¶¶ 11-13).

In November of 2003, Horsehead Corporation (plaintiff in this action) entered into an Asset Purchase Agreement ("APA") with ZCA, by which ZCA would sell designated assets to Horsehead Corporation. (Compl. ¶ 14). The APA stated that Horsehead Corporation would only assume the liabilities listed in the APA. The listed liabilities did not include any liability of ZCA to Mr. Shinski arising out of the state court litigation. (Compl. ¶¶ 14-15). The sale to Horsehead Corp. was authorized by the bankruptcy court on December 12, 2003. Id.

On February 24, 2005, in accordance with the APA, Horsehead Corp. entered into a stipulation whereby ZCA assigned certain insurance contracts to Horsehead Corp. One of those contracts was a general liability policy issued by PEIC that insured ZCA against defendant Shinski's state court personal injury claim. (Compl. ¶ 16). According to plaintiff's statement of facts, under the PEIC insurance policy, ZCA was "self-insured" for the first $250,000.00 of any amount that was awarded to a tort plaintiff. This is referred to as the "Self-Insured Retention," or "SIR." (Compl. ¶ 17). PEIC was required only to indemnify ZCA under the policy for losses in excess of the SIR, up to the maximum limits available on the policy. Id.

On January 29, 2008, defendant Shinski filed a second motion for relief from the stay in the Southern District bankruptcy court. On February 5, 2008, defendant Shinski and ZCA entered into a stipulation providing that the stay would be lifted so that defendant Shinski could proceed with his state court action, but he agreed that any recovery would be limited to the "proceeds available under the policy." (Compl. ¶¶ 18-21 & Ex. D). Mr. Shinski also agreed that no judgment would be enforced, except to the extent of the insurance policy, against the assets of ZCA and a variety of other present or former entities, including ZCA's "assigns." Id.

On January 5, 2009, Horsehead Corp.'s attorney attempted to clarify the meaning of this agreement with defendant Shinski's attorney. Horsehead Corp.'s interpretation of the agreement is that Mr. Shinski has waived the first $250,000.00 of any award that he might receive in the state court action, based on the proposition that to attempt to collect the amount of the SIR would be to enforce the judgment against ZCA itself. Defendant Shinski has a different interpretation of the agreement, based on his claim that PEIC was required to provide "drop down" coverage for the SIR amount. On April 24, 2009, Horsehead Corp. filed this diversity action for a declaratory judgment seeking a declaration that Mr. Shinski has waived any claim to the payment of the first $250,000.00 of any recovery in the state court action.

B. Third-Party Complaint

Shinski has moved to implead PEIC and has filed a proposed third-party complaint. (Dkt. No. 12-2). In addition to the facts alleged by Horsehead Corp. in its complaint, defendant/third-party plaintiff Shinski alleges that he made a successful motion for summary judgment on the issue of liability in state court. (Third Party Complaint ("TP Compl.") ¶ 9). The proposed third party complaint adds some factual allegations regarding Horsehead Industries, ZCA, and the bankruptcy case. (TP Compl. ¶¶ 10-15). In that discussion, Shinski alleges that, after the sale of assets to Horsehead Corp., Horsehead Industries changed its name to HH Liquidating Corp. for the purpose of administering the proceeds that were received from Horsehead Corp. and then began operating the facilities it had purchased. (TP Compl. ¶ 13).

Shinski claims that a dispute arose between Horsehead Corp., HH Liquidating Corp., and PEIC, but that the dispute was resolved through a January 2005 stipulation providing that Horsehead Corp. would assume all of the obligations of Horsehead Industries and its subsidiaries under the insurance policies, "regardless of when the obligations may have arisen." (TP Compl. ¶ 14). The third-party complaint asks for a declaration that PEIC is required to provide coverage for the full amount of any judgment or portion thereof awarded to Mr. Shinski against ZCA, notwithstanding the SIR or any deductible. (TP Compl. ¶ 18). Mr. Shinski claims that PEIC originally provided "excess coverage" to ZCA and Horsehead Industries for Mr. Shinski's claims. He further contends that, upon the insolvency of ZCA and Horsehead ...

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