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Lumbermens Mutual Casualty Co. v. RGIS Inventory Specialists

May 20, 2010


The opinion of the court was delivered by: Hon. Harold Baer, Jr., United States District Judge


Plaintiff Lumbermens Mutual Casualty Company ("Plaintiff" or "Lumbermens"), an excess liability insurer, filed this action on February 8, 2008, against Defendants RGIS Inventory Specialists, LLC ("RGIS"), Robert Birardi ("Birardi"), and Camrac, Inc., doing business as Enterprise Rent-A-Car ("Camrac") (collectively, the "Defendants" or "Insureds"). Lumbermens sought a declaratory judgment finding that it was not required, under the terms of an excess insurance policy it issued to RGIS, to contribute to a judgment in a personal injury action filed against the defendants by David Shore, the brother of Robert Shore, who was injured when he was struck by a minivan owned by Camrac and driven by Birardi while employed by RGIS.

Defendants won summary judgment, and Lumbermens appealed to the Court of Appeals for the Second Circuit. While the case was on appeal, the underlying personal injury litigation settled, and the Second Circuit remanded with instructions to consider whether the settlement rendered this declaratory judgment action jurisdictionally moot. For the reasons that follow, I conclude that the action is not moot, and that my previous grant of summary judgment to Defendants should be reinstated.


The excess policy issued by Lumbermens required RGIS to provide notice to Lumbermens of an "occurrence," "offense," "claim" or "suit" as soon as practicable "whenever it appears likely" that the excess policy would be implicated. See Excess Policy, Section V, ¶ 3. Defendants did not inform Lumbermens of the collision or the resulting Shore litigation until the eve of trial, approximately five years after the collision and three years after the action was filed. The trial resulted in a jury verdict of over $11 million. After the trial court entered judgment for Shore, Defendants filed a notice of appeal to the Connecticut state appellate court.

Lumbermens commenced this action for a declaratory judgment on February 8, 2008, while the Shore trial was ongoing, and argued that it could not be bound by the terms of the excess policy to contribute to a judgment in the Shore litigation, because it received untimely notice of that litigation. On cross-motions for summary judgment, I concluded that the notice provided to Lumbermens was timely, and in any event, Lumbermens was not prejudiced by the timing of the notice. By order dated January 21, 2009, I granted summary judgment to Defendants and dismissed Lumbermens' complaint seeking a declaratory judgment. See Docket No. 35.

Lumbermens appealed to the Second Circuit. While the appeal to the Second Circuit was pending, the parties to the Shore litigation participated in formal mediation, and Shore accepted an offer to settle the case for $6 million. The mediator informed Lumbermens of the settlement. Thereafter, Lumbermens sent a letter to Defendants to say that it would contribute $4 million to the settlement, but that any payment would be "subject to an express reservation of rights by Lumbermens to recoup the full amount thereof from its insureds on the bases asserted by Lumbermens [in this action]." Pl.'s Ex. 1, Rosenthal Letter of Aug. 20, 2009. In other words, if the federal courts ultimately determined that Defendants were not entitled to coverage because they had failed to give timely notice of the accident, Lumbermens would recoup its contribution to the Shore settlement.

Defendants immediately took issue with Lumbermens' assertion of a right to recoup. Their lawyer wrote, "[M]y clients do not accept that Lumbermens has any such recoupment rights to reserve, and will not consent to any such reservation on Lumbermens' part." Id., Berland Letter of Aug. 21, 2009. Defendants also declared that Lumbermens was bound by an earlier, purportedly unconditional offer to contribute $4 million to a $6 million settlement. Id. In response, Lumbermens asserted that the initial offer to contribute $4 million lapsed because it was never accepted, and stated that the new offer was conditioned on a reservation of rights as to recoupment. Id., Rosenthal Letter of Aug. 24, 2009. These positions were reiterated in further letters that the parties exchanged during the next several days, in which both parties reserved all their rights and waived none of them. See id., Letters of Aug. 25, 26.

On September 3, 2009, counsel for Shore wrote to Lumbermens to confirm that the Shore litigation had settled for $6 million, of which $4 million would be funded by Lumbermens. Id., Weber Letter of Sept. 3, 2009. The letter acknowledged that Lumbermens had asserted a right to recoup, but disclaimed any position as to recoupment on Shore's part. Id. On November 3, 2009, Lumbermens tendered two checks, totaling $4 million, to lawyers for Shore, and stated in the accompanying cover letter, "Lumbermens is funding this settlement subject to a reservation of rights regarding recoupment in the action pending in the SDNY/2d Cir." Id., Rosenthal Letter of Nov. 3, 2009. The same day, Defendants reasserted their position that Lumbermens had no recoupment rights to reserve. Id., Berland Letter of Nov. 3, 2009.

The parties informed the Second Circuit of the Shore settlement, and at the Court's request, submitted supplemental materials that analyzed the effects of the settlement on the pending appeal. In those papers, Lumbermens claimed that its $4 million payment was subject to an express reservation of rights to recoup that amount from the defendants in the event that Lumbermens prevailed on appeal. Defendants argued that Lumbermens' participation in the Shore settlement eliminated any basis it might have had for challenging its obligation to fund the settlement.

The Second Circuit determined that if defendants were correct, the declaratory judgment action filed by Lumbermens might be moot.*fn1 Although the parties urged the Court of Appeals to decide the issues presented on appeal without regard to the issue of mootness, the court declined to do so, because courts are "not empowered to decide moot questions." Lumbermens Mut. Cas. Co. v. RGIS Inventory Specialists, LLC, et al., 356 Fed. App'x 452, 453 (2d Cir. 2009) (internal quotations omitted). The Court of Appeals vacated my order granting summary judgment and remanded for consideration of whether the action is moot. Id. At my request, the parties prepared memoranda to address the question of jurisdictional mootness.


A. Mootness

"Under Article III, section 2 of the Constitution, federal courts lack jurisdiction to decide questions that cannot affect the rights of litigants in the case before them." Davis v. New York, 316 F.3d 93, 99 (2d Cir. 2002). "Mootness, in the constitutional sense, occurs when the parties have no legally cognizable interest or practical personal stake in the dispute, and the court is therefore incapable of granting a judgment that will affect the legal rights as between the parties." ABN Amro Verzekeringen BV v. Geologistics Americas, Inc., 483 F.3d 85, 94 (2d Cir. 2007) (internal quotations omitted). Where the plaintiff has no legally cognizable interest in the outcome of the ...

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