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U.S. Specialty Insurance Company v. Liberty Partners L.P.

November 8, 2011

U.S. SPECIALTY INSURANCE COMPANY, PLAINTIFF,
v.
LIBERTY PARTNERS L.P., LIBERTY PARTNERS HOLDINGS 14, LLC, LIBERTY CAPITAL PARTNERS, INC., DEFENDANTS.



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

OPINION & ORDER

Before this Court are two motions filed by Plaintiff U.S. Specialty Insurance Company ("U.S. Specialty") against Defendants Liberty Partners L.P., Liberty Partners Holdings 14, LLC, and Liberty Capital Partners, Inc. (collectively, the "Liberty Entities"). The first is a Motion to Dismiss, Stay, or Transfer to the Central District of California. The second is a Motion to Strike the Second Cause of Action. For the following reasons the Motion to Dismiss, Stay, or Transfer is denied and the Motion to Strike is granted.

I. BACKGROUND

U.S. Specialty sold to the Liberty Entities a Private Equity Professional and Management Liability Insurance policy no. U709-60208 effective from April 20, 2009, to April 20, 2010 (the "Policy"). The Policy provides $10,000,000 in coverage and obligates U.S. Specialty to pay, on behalf of the Liberty Entities, "Loss arising from Claims for Wrongful Acts in the performance of Private Equity Activities."*fn1

Before the Policy took effect, on March 10, 2009 Mary Ellen Hardin, a California resident, filed an action in Orange County Superior Court in California against Community Dental Services, Inc. ("CDS"), a California based company in which the Liberty Entities own a controlling interest. Hardin v. Cmty. Dental Servs., Inc., et al., No. 30-2009-00119756 (JST) (the "Hardin Action"). In Hardin's Third Amended Cross-Complaint against CDS, the Liberty Entities and other parties not relevant here, Hardin alleged that the Liberty Entities committed certain wrongful acts, and she sought damages in an amount in excess of $60,000,000. The Liberty Entities defended and incurred fees and costs for services by their attorneys in the California offices of Manatt, Phelps & Phillips, LLP. A dispute arose between U.S. Specialty and the Liberty Entities regarding which fees and costs U.S. Specialty was obligated to pay under the Policy. Although U.S. Specialty contends that it has no obligations to pay defense costs, it has made some payments toward satisfying the Liberty Entities' claim.

U.S. Specialty filed an action in this Court on June 1, 2011 seeking a Declaratory Judgment to clarify the rights and obligations of the parties under the Policy (the "New York Action"). Two weeks later on June 17, 2011 the Liberty Entities filed a complaint in the Orange County Superior Court of California seeking a Declaratory Judgment in their favor as well as damages for breach of contract and bad faith (the "California Action").

Trial began in the Hardin Action on July 13, 2011, and during a mediation conference in California the parties settled effective July 25, 2011. Then on August 5, 2011, the Liberty Entities moved to dismiss the New York Action, and on August 19, 2011, U.S. Specialty amended its Complaint to include a second cause of action for unjust enrichment, indemnity, contribution and breach of contract. On September 2, 2011 the Liberty Entities filed the present motions and oral argument was held on October 25, 2011.

II. MOTION TO DISMISS, STAY, OR TRANSFER

The Liberty Entities argue that this case should be transferred to the U.S. District Court for the Central District of California ("Central District") under Rule 12(b)(3) and 28 U.S.C. § 1404(a), or in the alternative, the Court should dismiss or stay the action pending the resolution of the California Action pursuant to Rule 12(b)(1) and (3) and the abstention doctrine. They raise three primary issues which I will address in turn: (A) transfer under 28 U.S.C. § 1404; (B) application of the first-filed rule; and (C) the abstention doctrine.

A. Transfer under 28 U.S.C. § 1404

A district court may exercise its discretion to transfer venue "for the convenience of parties and witnesses, in the interest of justice." 28 U.S.C. § 1404(a). Assuming that the action could have been brought in the alternate forum, i.e., jurisdiction and venue are proper, courts consider a host of factors of convenience and fairness, including: "(1) the plaintiff's choice of forum, (2) the convenience of witnesses, (3) the location of relevant documents and relative ease of access to sources of proof, (4) the convenience of parties, (5) the locus of operative facts, (6) the availability of process to compel the attendance of unwilling witnesses, and (7) the relative means of the parties." New York Marine and Gen. Ins. Co. v. Lafarge North America, Inc., 599 F.3d 102, 112 (2d Cir. 2010) (internal citation and quotation marks omitted). The party moving for a change of venue bears the burden of clearly establishing that transfer is appropriate, and the plaintiff's choice of forum should not be disturbed unless the balance of convenience and justice weigh heavily in favor of defendant's forum. The Bank of New York v. First Millennium, Inc., No. 06 Civ. 13388, 2007 WL 1404433, at *4 (S.D.N.Y. May 09, 2007) (citing Citigroup, Inc. v. City Holding Co., 97 F. Supp. 2d 549, 561 (S.D.N.Y. 2000)); see also New York Marine and General Ins. Co., 599 F.3d at 114 ("It is therefore appropriate that the district courts in our Circuit have consistently applied the clear and convincing evidence standard in determining whether to exercise discretion to grant a transfer motion.").

Although U.S. Specialty does not dispute that the action could have been brought in the Central District, the Liberty Entities cannot meet their burden to clearly establish that a transfer of venue is appropriate. Of the factors courts consider when deciding whether to transfer venue, the "plaintiff's choice of forum is given considerable weight." Posven, C.A. v. Liberty Mut. Ins. Co., 303 F. Supp. 2d 391, 405 (S.D.N.Y. 2004). However, where the plaintiff chooses a forum that is "neither the district of its residence, nor the locus of the operative facts in the case, this choice is considerably less important." Id. (citation omitted).

Here, notwithstanding the Liberty Entities' argument to the contrary, U.S. Specialty's choice of forum is entitled to some deference. The Policy was negotiated and executed in New York and notice of the claim in the Hardin Action came to U.S. Specialty's New York claims representative. Additionally, although the Liberty Entities are either organized or incorporated under the laws of Delaware, they have principal places of business in New York. In sum, it is logical to accord plaintiff's choice of forum some weight.

Perhaps the most compelling argument that the Liberty Entities make in favor of transferring the case concerns the locus of operative facts and the convenience of witnesses. A consideration of these factors first requires identifying the central dispute in this case, which itself is in dispute. The Liberty Entities argue that this case is principally about a factual dispute regarding the amount of defense costs that U.S. Specialty owes to the Liberty Entities under the Policy in connection with the Hardin Action. Under this view, the locus of operative facts would seem to arise out of events involving the work performed by the attorneys in California and the relevant witnesses are presumably located in California. On the other hand, U.S. Specialty argues that this case is principally about whether the Liberty Entities violated the conditions precedent to coverage under the Policy and that the necessary witnesses are in New York where the Policy was negotiated and executed. The Liberty Entities counter that even if these were the ...


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