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Federal Insurance Co. v. Cintas Corp.

May 25, 2006


The opinion of the court was delivered by: S. Arthur Spiegel United States Senior District Judge


This matter is before the Court on Plaintiff Federal Insurance Company's (hereinafter "Federal") Motion for Summary Judgment (doc. 47), the Defendant/Counterclaim Plaintiff Cintas Corporation's (hereinafter "Cintas") Motion for Summary Judgment (doc. 48), their respective Memoranda in Opposition (docs. 52, 50), and their respective Replies in Support (docs. 54, 53).


The Court has recited the facts in an earlier Order (See doc. 34) and this fact section is largely a carbon copy of that Order's fact section. However, where additional facts are discussed the Court so notes by indicating a document number other than "34." Currently Cintas is being sued by various current and former Cintas employees in federal court in California (hereinafter the "Veliz Action"). Federal, pursuant to an insurance policy, assumed the defense of Cintas in the Veliz Action. In a letter dated September 12, 2003, Federal indicated that coverage was available under the Policy based upon Count 1 and Count 2 (see infra) subject to a reservation of rights (doc. 48). Federal stated in this letter, "[Federal Insurance] acknowledges the availability of coverage for the Claims asserted by the plaintiffs in the Amended Complaint for violations of ERISA.") (Id.).

The Policy at issue in this matter was sold by Federal to Cintas, effective July 1, 2002 through July 1, 2003. The Policy was an Executive Protection Policy and included Fiduciary coverage. The Veliz Action, as noted above, involves an action filed by various current and former Cintas employees against Cintas, Cintas as the Plan Administrator for the Cintas' Partners Plan (hereinafter the "Plan"), and "Does 1-25" in the United States District Court for the Northern District of California, Case Number C-03-1180-SBA. The Plaintiffs in the Veliz Action claim that Cintas (as employer and as Plan Administrator) as well as other defendants violated ERISA, as well as various federal and state wage and hour laws. The Veliz Action contained thirteen claims, two of which were ERISA claims and the remaining eleven were the various wage and hour claims under both federal and state law (doc. 26).

The first ERISA claim ("Count 1") alleged that Cintas violated Section 209(a)(1) of ERISA, 29 U.S.C. § 1059(a)(a) by misclassifying the plaintiff-employees as "non hourly" and thereby failing to maintain employment records sufficient to determine the benefits that were due or might have become due to the plaintiff-employees. The second ERISA claim ("Count 2") alleged that Cintas as employer and Cintas as Plan Administrator both breached fiduciary duties owed to the plaintiff-employees under Section 404(a)(1) of ERISA by misclassifying the plaintiff-employees and failing to properly credit hours of service performed by them (Id.).

The Veliz court granted in part and denied in part Cintas' Motion to Dismiss - dismissing the second claim for relief, but denying Cintas' motion to dismiss the first claim for relief. Federal subsequently filed the matter before this Court seeking a declaration that would permit it to withdraw its defense in the Veliz Action, seeking a declaration that it is not obligated to indemnify Cintas for any judgment rendered in the Veliz Action, and seeking to recover from Cintas the majority of defense costs that Federal has paid thus far in defense of the Veliz Action. Federal maintains that the only claim arguably covered under the Policy -i.e., the claim for an alleged breach of fiduciary duty under ERISA set forth in the Count 2 - was dismissed in the Veliz Action. As such, it contends that the declarations it seeks are appropriate. The effect of the order dismissing Count 2 in the Veliz Action is of paramount importance in this matter.

Prior to Federal's filing the instant action, it communicated with Cintas via letter (doc. 48). In that letter, dated June 29, 2004, Federal informed Cintas that it no longer considered Count 1 to be covered by the policy (Id.). This letter was forwarded to Cintas approximately eight months after the Veliz court's order and approximately four months before Federal filed its declaratory action in this Court (Id.). According to Federal, the June 2004 letter was accompanied by a check in the amount of $708,049.78 for reimbursement of legal costs incurred from March 19, 2003 through February 26, 2004 (doc. 47). Federal reiterated its reservation of rights, stating "Federal reserves the right to decline coverage and to seek reimbursement of any amounts paid by Federal for the defense of non-covered claims" (Id.). Federal submits that Cintas cashed this check and did not object to Federal's repeated reservation of the right to seek reimbursement for any overpayment of defense costs (Id.). Cintas contends that this check was not accompanied by a reservation of rights letter and, as such, Cintas had nothing to which it could have objected (doc. 52).

Cintas filed a counterclaim which mirrors the action brought by Federal. In other words, Cintas seeks a declaration from this Court that Federal is obligated to defend and to indemnify Cintas for any judgment (Id.). Furthermore, Cintas makes a claim for breach of contract regarding payment of defense costs. But Cintas notes that it is not moving for summary judgment on its contract counterclaims as facts supporting this cause of action continue to evolve (doc. 48).

Shortly after the filing of the instant matter, Cintas moved for a stay (doc. 20). The Court denied that Motion (doc. 34). Cintas then filed a Motion for Reconsideration or to Dismiss, In Part, for Lack of Jurisdiction (doc. 40). The Court denied that Motion and ordered the Parties to file any dispositive motions by February 7, 2006 (doc. 44). As noted, both Parties did so (docs. 47, 48). Just recently Cintas filed for Leave to Amend Its Counterclaim (doc. 55). The Court will address this motion in a forthcoming Order.


The narrow question that this Court must decide on a motion for summary judgment is whether there exists a "genuine issue as to any material fact and [whether] the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The Supreme Court elaborated upon the appropriate standard in deciding a motion for summary judgment as follows:

[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.

Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

The moving party bears the initial burden of showing the absence of a genuine issue of material fact as to an essential element of the non-movant's case. Id. at 321; Guarino v. Brookfield Township Trustees, 980 F.2d 399, 405 (6th Cir. 1992); Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir. 1989). If the moving party meets this burden, then the non-moving party "must set forth specific facts showing there is a genuine issue for trial." Fed. R. Civ. P. 56(e); see Guarino, 980 F.2d at 405.

As the Supreme Court stated in Celotex, the non-moving party must "designate" specific facts showing there is a genuine issue for trial. Celotex, 477 U.S. at 324; Guarino, 980 F.2d at 405. Although the burden might not require the non-moving party to "designate" facts by citing page numbers, "'the designated portions of the record must be presented with enough specificity that the district court can readily identify the facts upon which the non-moving party relies.'" Guarino, 980 ...

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