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Clarendon National Insurance Company and Clarendon America Insurance v. James C. Culley and James K. Culley

April 25, 2012

CLARENDON NATIONAL INSURANCE COMPANY AND CLARENDON AMERICA INSURANCE COMPANY, PLAINTIFFS,
v.
JAMES C. CULLEY AND JAMES K. CULLEY, DEFENDANTS.



Before the Court is a motion for summary judgment brought by Defendants James K. Culley ("Jim Culley") and James C. Culley ("Chris Culley," and together with Jim Culley, "Defendants"). In their complaint, Plaintiffs Clarendon National Insurance Company and Clarendon America Insurance Company (collectively, "Plaintiffs" or "Clarendon") allege claims against Jim Culley and Chris Culley for premiums allegedly guaranteed by Defendants, which were misappropriated by third-parties. For the reasons set forth below, Defendants' motion for summary judgment is GRANTED.

OPINION AND ORDER

I. BACKGROUND*fn1

Clarendon is an insurance company that stopped issuing policies in 2006. Defs.' 56.1 ¶ 1; Pls.' 56.1 ¶ 1. In 1993, Clarendon contracted with Marion Insurance Agency, Inc. ("Marion") to act as Clarendon's general agent for the issuance of insurance policies, primarily for physical damage to trucks. Defs.' 56.1 ¶ 11; Pls.' 56.1 ¶ 11. Marion was founded by Jim Culley. Defs.' 56.1 ¶ 12; Pls.' 56.1 ¶ 12. In May 1993, Marion and Clarendon entered into a general agency agreement ("Marion GAA"). Defs.' 56.1 ¶ 13; Pls.' 56.1 ¶ 13. Chris Culley, Jim's son, began working at Marion in 1998, Defs.' 56.1 ¶ 16; Pls.' 56.1 ¶ 16, and in 2001, became President of Insurer's Unlimited, Inc. ("IUI"), Marion's successor, which began operating in 2000 or 2001.

Defs.' 56.1 ¶¶ 17-19; Pls.' 56.1 ¶¶ 17-19.*fn2 Marion's transition to IUI occurred because Jim Culley thought that IUI was a better name than Marion and IUI's corporate structure made it easier for employees to become shareholders. Defs.' 56.1 ¶¶ 20, 21; Pls.' 56.1 ¶¶ 20, 21.

The parties dispute whether the terms of the Marion GAA governed the IUI relationship with Clarendon until 2005, Defs.' 56.1 ¶ 19, or whether Clarendon and IUI entered into a new general agency agreement in the fall of 2003, which was effective October 1, 2003. Pls.' 56.1 ¶ 19. In September 2003, Jim Culley signed what Defendants characterize as a draft guaranty ("2003 GAA"); however, neither IUI nor Clarendon signed this document. Defs.' 56.1 ¶¶ 26, 29; Pls.' 56.1 ¶¶ 28-29. One provision of the 2003 GAA required IUI to remit to Clarendon all premiums due to Clarendon whether or not such premiums were collected by IUI. 2003 GAA ¶ 4.2(a). The parties dispute whether the subsequent general agency agreement entered into in 2005 ("2005 GAA") was merely an "amended and restated version" of the 2003 GAA, Pls.' 56.1 ¶ 33, or was the sole fully executed general agency agreement that replaced the original Marion GAA, which was signed back in 1993. Defs.' 56.1 ¶ 33. Chris Culley guaranteed the 2005 GAA. 2005 GAA 43. Both the 2003 GAA and the 2005 GAA contained guarantees stating that the "Guarantor hereby unconditionally guarantees . . . full and prompt payment of Trust Funds as and when they are due and payable pursuant to the Agency Agreement." 2003 GAA 41; 2005 GAA 42. Each of the general agency agreements states that it will be governed by the laws of New York. Marion GAA 17; 2003 GAA ¶ 9.6; 2005 GAA ¶ 9.6.

IUI was the victim of two separate frauds by third parties, one in Georgia and one in Texas. Between 1999 and 2002, the owners of Insurance Interchange, one of IUI's Georgia wholesalers, stole between $1.6 and $1.9 million. Defs.' 56.1 ¶ 40; Pls.' 56.1 ¶ 40. By January 2002, the owners of Insurance Interchange had misappropriated all of the premiums due and payable to Clarendon in the Georgia fraud. Defs.' 56.1 ¶ 40; Pls.' 56.1 ¶ 40. In a separate fraud, between 2000 and 2004, the owners of a Texas wholesaler misappropriated approximately $600,000 from IUI. Defs.' 56.1 ¶ 42; Pls.' 56.1 ¶ 42. This money was stolen on or before December 31, 2004. Defs.' 56.1 ¶ 48; Pls.' 56.1 ¶ 48. It is undisputed that all the breaches stemming from these two frauds occurred on or before December 31, 2004. Defs.' 56.1 ¶ 50; Pls.' 56.1 ¶ 50.*fn3

II. DISCUSSION

A. Legal Standard

Summary judgment shall be granted in favor of a movant where "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A court must resolve all ambiguities and draw all inferences against the moving party. LaSalle Bank Nat'l Ass'n v. Nomura Asset Capital Corp., 424 F.3d 195, 205 (2d Cir. 2005). The movant bears the burden of establishing the absence of any genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). A material fact "might affect the outcome of the suit under the governing law," and an issue of fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Holtz v. Rockefeller & Co., 258 F.3d 62, 69 (2d Cir. 2001) (citation and quotation omitted). "The party against whom summary judgment is sought . . . 'must do more than simply show that there is some metaphysical doubt as to the material facts . . . . [T]he nonmoving party must come forward with specific facts showing that there is a genuine issue for trial.' " Caldarola v. Calabrese, 298 F.3d 156, 160 (2d Cir. 2002) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986)).

Federal courts sitting in diversity apply the substantive law of the forum state on dispositive issues. Erie R. Co. v. Tomkins, 304 U.S. 64, 78-80 (1938); Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114, 119 (2d Cir. 1994). Procedural matters are governed by federal law. See Gasperini v. Ctr. For Humanities, Inc., 518 U.S. 415, 427 (1996).

B. There is No Genuine Issue of Material Fact with Respect to whether Clarendon's Claims are Barred by the Statute of Limitations

I need not determine whether the 2003 GAA actually formed a valid contract, because even assuming that it did, Clarendon's claims against both Jim Culley and Chris Culley are barred by the applicable statute of limitations.*fn4

1. Clarendon's Claims are Time-Barred

The statute of limitations applicable to guarantees is "the six-year period applicable to contracts generally under CPLR 213." Am. Trading Co. v. Fish, 42 N.Y.2d 20, 26 (1977), cited by Kantor v. Mesibov, 824 N.Y.S.2d 755 (Sup. Ct. 2006). As noted above, it is undisputed that all the breaches from the Georgia and Texas schemes ...


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