United States District Court, S.D. Ohio, Eastern Division
OPINION & ORDER
ALGENON L. MARBLEY UNITED STATES DISTRICT JUDGE
matter is before the Court on three Cross-Motions for Summary
Judgment: Motion for Partial Summary Judgment by Plaintiffs
ShipCom, LLC (“ShipCom”), U.S. HF Cellular
Communications, LLC (“USHFCC”), and Virsenet, LLC
(“Virsenet”) (collectively, the “US HF
Plaintiffs”) (ECF No. 38); Motion for Partial Summary
Judgment by Plaintiff Global Wideband HF Net LLC
(“Global Wideband”) (ECF No. 39); and Motion for
Summary Judgment by Defendant Scottsdale Insurance Company
(“Scottsdale”) (ECF No. 40). For the reasons set
forth below, the Court GRANTS Scottsdale's Motion for
Summary Judgment (ECF No. 40), DENIES the U.S. HF
Plaintiffs' Motion for Partial Summary Judgment (ECF No.
38), and DENIES Global Wideband's Motion for Partial
Summary Judgment (ECF No. 39). Further, Plaintiffs'
Motion for Leave to File Post-Submission Brief (ECF No. 66)
a case about the obligation of an insurance
company-Scottsdale-to defend Plaintiffs in an ongoing lawsuit
in Alabama, captioned Robert Stiegler, III, et al., v.
ShipCom, LLC, et al., No. 2-CV-2015-901469 (the
“Alabama Lawsuit”). Plaintiffs can be grouped
into two categories: (1) the U.S. HF Plaintiffs (ShipCom,
USHFCC, and Virsenet); and (2) Global Wideband. Both sets of
plaintiffs had insurance contracts with Scottsdale, and the
issue is whether, under those policies, Scottsdale has a duty
to defend Plaintiffs in the Alabama Lawsuit.
The Alabama Lawsuit
plaintiffs in the underlying Alabama Lawsuit (“Alabama
Plaintiffs”) are minority shareholders of ShipCom. (ECF
No. 35-6 at ¶¶ 1-2). ShipCom is a limited liability
company that operates a maritime communications network that
facilitates ship-to-ship and ship-to-shore communications
using a spectrum of high frequency (“HF”) radio
waves. (Id. at ¶¶ 3, 7). The Federal
Communications Commission (“FCC”) requires
ShipCom to own licenses for the HF spectrum ShipCom uses.
(Id. at ¶ 10). ShipCom's FCC licenses
initially restricted ShipCom's use of the HF radio
spectrum to maritime communications and prohibited it from
using its frequencies for land-based communication.
(Id. at ¶ 11).
Hurricane Katrina, however, the FCC granted ShipCom a waiver
to allow it to use its HF radio frequencies for
“emergency backup communications for first responders
in the event of a catastrophic event that disrupts normal
local wired and wireless communications.” (Id.
at ¶¶ 14, 17, 18). After ShipCom was granted the
waiver, in addition to maintaining its usual ship-to-ship and
ship-to-shore business, it began assembling equipment used in
hospitals, nursing homes, and other similar entities that
could be activated as a means of back-up communication when a
catastrophe disabled other forms of communication-an
“emergency button” of sorts. (Id. at
¶¶ 22, 23). ShipCom entered into contracts with
customers for its “emergency button” service and
charged the customers a monthly fee. (Id.).
October 2011, USHFCC was formed to acquire an 80% interest in
ShipCom. (Id. at ¶ 26). USHFCC is wholly owned
and managed by Virsenet. (Id. at ¶¶ 4, 5).
Virsenet's managing member is Mr. Edward Bayuk.
(Id. at ¶ 5). In 2012, USHFCC and ShipCom
entered into a Membership Interest Purchase Agreement and a
First Amended Membership Interest Purchase Agreement
(collectively, the “Purchase Agreements”), under
which USHFCC acquired an 80% interest in ShipCom. (ECF No.
45-1). The Alabama Plaintiffs, who had previously owned 100%
of ShipCom, retained a 20% interest in the company.
(Id.). After the companies entered into the Purchase
Agreements, Mr. Bayuk purported to be the manager of ShipCom.
(ECF No. 35-6 at ¶ 29).
December of 2012, USHFCC, Virsenet, and ShipCom, through Mr.
Bayuk, entered into a Network Management Agreement with
Intrado, Inc. (“Intrado”), under which Intrado
became the “Manager of the Maritime Services and the
Emergency Land-Based HF Services” in exchange for a
Management Fee. (ECF No. 45-1 at Ex. 3). According to the
Alabama Plaintiffs, USHFCC, Virsenet, and Mr. Bayuk, through
Intrado, then cancelled all of ShipCom's “emergency
button” contracts and fired all of ShipCom's
employees, though they later attempted to rehire them. (ECF
No. 35-6 at ¶¶ 33, 34).
Alabama Plaintiffs subsequently filed the Alabama Lawsuit in
the Circuit Court of Mobile County, Alabama on May 29, 2015,
against various defendants including ShipCom, Virsenet,
USHFCC, Mr. Bayuk, and Intrado. (ECF No. 35 at ¶¶
7-12). In their initial Complaint, the Alabama Plaintiffs
allege that Virsenet, USHFCC, and Mr. Bayuk never intended
ShipCom to benefit from the Intrado contract, despite the
fact that ShipCom's FCC HF radio spectrum licenses and
related waiver “are the cornerstone of USHFCC's . .
. [and] Intrado's . . . service.” (Id. at
¶ 39). They further allege that USHFCC wrongfully
claimed to own the ShipCom FCC licenses and waiver itself.
(Id. at ¶ 40). They thus brought various claims
individually and on behalf of ShipCom, including: breach of
fiduciary duties, self-dealing/usurpation of corporate
opportunity, unjust enrichment, squeeze out, conversion,
negligence, fraud, state law trademark infringement, and
state law deceptive trade practices. (ECF No. 35-6).
August 19, 2015, the Alabama Plaintiffs filed a First Amended
Complaint, which was followed by a Second Amended Complaint
on November 25, 2015. (ECF No. 35 at ¶¶ 13, 21, Ex.
8, 15). The Second Amended Complaint added Mr. John Richmond
as an individual defendant. (ECF No. 35-15). Mr. Richmond is
the Chief Operating Officer of Global Wideband. (ECF No.
39-1at ¶ 1). The Second Amended Complaint alleges that
Mr. Richmond purported to be the Chief Executive Officer of
ShipCom following the execution of the Purchase Agreements.
(ECF No. 35-15 at ¶ 30). In addition to the factual
allegations alleged in the Complaint, the Second Amended
Complaint also alleges the following:
. USHFCC, Virsenet, Mr. Bayuk, and Mr.
Richmond entered into an agreement with Globe Wireless Radio
Services Inc. (“Globe”)-a direct competitor of
ShipCom-for purchase of Globe's business and assets
(including licenses) to be combined with ShipCom, but the
transaction did not close, resulting in USHFCC paying a $500,
000 penalty to Globe;
. USHFCC, Virsenet, Mr. Bayuk, Mr. Richmond,
and others associated with them, formed Global Wideband,
“a sham entity formed for the improper purpose of
usurping ShipCom's corporate opportunity” and
Global Wideband then purchased Globe;
. The USHFCC entities ceased paying one of
the Alabama Plaintiffs his salary for work at ShipCom; and
. Mr. Bayuk allowed valuable ShipCom FCC
licenses to expire.
(Id. at ¶¶ 46-50). The Second Amended
Complaint brought the same causes of action as the Complaint.
April 4, 2016, the Alabama Plaintiffs filed a Third Amended
Complaint, adding Global Wideband as a defendant. (ECF No. 35
at ¶¶ 25-26). In addition to the allegations in the
Second Amended Complaint, the Third Amended Complaint
. On June 23, 2015 (before Global Wideband
purchased Globe's assets), the USHFCC Board of Directors
voted to file suit against the Alabama Plaintiffs, put
financial pressure on one of them by no longer paying him his
salary and forcing him to pay certain expenses;
. Global Wideband entered into a Network
Management Agreement with USHFCC/ShipCom giving Global
Wideband access to the ShipCom frequencies and effectively
transferring 325 HF channels to Global Wideband; and
. In August of 2015 USHFCC filed suit in
Delaware against the Alabama Plaintiffs, stopped paying one
of them his salary, and demanded he pay certain expenses.
(ECF No. 35-16 at ¶¶ 48, 50, 51). The
Third Amended Complaint contains the same causes of action as
the previous complaints (not all are alleged against Global
Wideband) and one additional cause of action seeking an
equitable or constructive trust on Globe's assets because
of alleged insufficient transfers that violated fiduciary
duties. A Fourth Amended Complaint was filed on November 23,
2016. (ECF No. 35 at ¶ 28, Ex. 17).
USHF Plaintiffs were insured under three consecutive
insurance policies from Scottsdale: (1) Business Management
and Indemnity Insurance Policy EKS31107211, covering the
policy period of July 31, 2013 to July 31, 2014 (the
“First USHF Policy”); (2) Business Management and
Indemnity Insurance Policy EKS3135588, covering the July 31,
2014 to July 31, 2015 policy period (the “Second USHF
Policy”); and (3) Business Management and Indemnity
Insurance EKS3165937 for the July 31, 2015 to July 31, 2016
policy period (the Third USHF Policy.”). (ECF No. 35,
Ex. 3, 5, 13). The Continuity Date of the U.S. HF
Plaintiffs' Policies is July 31, 2014. (Id. at
Declarations, Item 3). Global Wideband had insurance with
Scottsdale through the Business and Management and Indemnity
Policy No. EKS3169277 for the September 24, 2015 to September
24, 2016 policy period (the “Global Policy”).
(Id. at Ex. 14). The Global Policy also covers Jon
Richmond, as the Chief Operating Officer of Global, and
Edward Bayuk, as the Director of Global. The Continuity Date
of the Global Policy is July 31, 2015. (Id. at
Declarations, Item 3).
the four relevant policies contains an identical
duty-to-defend provision which provides: “[i]t shall be
the duty of the Insurer and not the duty of the Insureds to
defend any Claim. Such Duty shall exist even if any of the
allegations are groundless, false, or fraudulent.” (ECF
No. 35, Ex. 3, 5, 13, 14). Each policy also states that it
“cover[s] only claims first made against the insured
during the policy period or, if elected, the extended period
and reported to the insurer pursuant to the terms of the
relevant coverage section.” (Id. at
Declarations). The relevant coverage section is the Directors
and Officers (“D&O”) Coverage Section which,
subject to certain exclusions, provides coverage to the
Insureds for “Loss” that the companies or their
respective D&Os have become legally obligated to pay
because of a “Claim” made during the policy
period and properly reported. (Id. at D&O
Coverage Section ¶ A). “Claim” is defined in
relevant part as:
a. a written demand against any Insured for monetary damages
or non-monetary or injunctive relief; . . .
c. a civil proceeding against any Insured seeking monetary
damages or non-monetary or injunctive relief, commenced by
the service of a complaint or similar pleading.
(Id. at D&O Coverage Section ¶ B(1).). The
policies require the Insureds to give Scottsdale written
notice of any Claim as soon as practicable, but in no event
later than sixty (60) days after the end of the respective
Policy Period. (Id. at D&O Coverage Section
¶ E(1).). A Claim is “deemed to have been first
made against the Insured on the date an Insured who is an
executive officer, director or general counsel becomes aware
of such Claim.” (Id.).
D(3) of the D&O Coverage Section further provides that:
claims arising out of the same Wrongful Act and Interrelated
Wrongful Acts shall be deemed to constitute a single Claim
and shall be deemed to have been made at the earliest of the
following times, regardless of whether such date is before or
during the policy period:
a. the time at which the earliest Claim involving the same
Wrongful Act or Interrelated Wrongful Act is first made; or
b. the time at which the Claim involving the same Wrongful
Act or Interrelated Wrongful Acts shall be deemed to have
been made pursuant to Section E.2 below.
(Id. at D&O Coverage Section ¶ D(3).
“Wrongful Act” means:
actual or alleged error, omission, misleading statement,
misstatement, neglect, breach of duty or act ...