Desabato v. Assurance Co. of Am.

213 F.Supp.3d 735

Paul G. DESABATO, Anthony Desimone, Benjamin M. Pusateri, Sr., and Bella Capelli Academy, LLC, Plaintiffs,

v.ASSURANCE COMPANY OF AMERICA, Northern Insurance Company of New York, and Maryland Casualty Company, Defendants.

2:15cv484

United States District Court, W.D. Pennsylvania.

Signed September 30, 2016

Julian E. Neiser, Spilman Thomas & Battle, PLLC, Pittsburgh, PA, for Plaintiffs.

Brigid Q. Alford, Marshall, Dennehey, Warner, Coleman & Goggin, Camp Hill, PA, for Defendants.

OPINION

David Stewart Cercone, United States District Judge

I. INTRODUCTION

Paul DeSabato, Anthony Desimone, Benjamin Pusateri, Sr., and Bella Capelli Academy, LLC ("BCA") (collectively "plaintiffs") commenced this diversity action against Assurance Company of America, Northern Insurance Company of New York, and Maryland Casualty Company ("defendants") on April 10, 2015. Plaintiffs seek monetary damages and declaratory relief, alleging defendants breached their duty to defend plaintiffs in an action filed against them in state court. Defendants counter that their duty to defend never arose. Presently pending are the parties' cross-motions for summary judgment. For the reasons set forth below, defendants' motion will be granted and plaintiffs' will be denied.

II. STANDARD OF REVIEW

Federal Rule of Civil Procedure 56 provides that "[t]he court shall grant summary judgment if the movant shows that 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). Rule 56" ‘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.’ " Marten v. Godwin , 499 F.3d 290, 295 (3d Cir. 2007) (quoting Celotex Corp. v. Catrett , 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). Deciding a summary-judgment motion requires the court to view the facts, draw all reasonable inferences, and resolve all doubts in favor of the nonmoving party. Doe v. Cnty. of Centre, Pa. , 242 F.3d 437, 446 (3d Cir. 2001).

The moving party bears the initial burden of identifying evidence that demonstrates the absence of a genuine issue of material fact. When the movant does not bear the burden of proof on the claim, the movant's initial burden may be met by demonstrating the lack of record evidence to support the opponent's claim. Nat'l State Bank v. Fed. Reserve Bank of New York , 979 F.2d 1579, 1581–82 (3d Cir. 1992). Once that burden has been met, the non-moving party must set forth "specific facts showing that there is a genuine issue for trial ," or the factual record will be taken as presented by the moving party and judgment will be entered as a matter of law. Matsushita Elec. Indus. Corp. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quoting Fed. R. Civ. P. 56(e) ) (emphasis in Matsushita ). An issue is genuine only if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

In meeting its burden of proof, the "opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita , 475 U.S. at 586, 106 S.Ct. 1348. The non-moving party "must present affirmative evidence in order to defeat a properly supported motion"..."and cannot simply reassert factually unsupported allegations." Williams v. Borough of West Chester , 891 F.2d 458, 460 (3d Cir. 1989). Nor can the opponent "merely rely upon conclusory allegations in [its] pleadings or in memoranda and briefs." Harter v. GAF Corp. , 967 F.2d 846, 852 (3d Cir. 1992) ; Sec. & Exch. Comm'n v. Bonastia , 614 F.2d 908, 914 (3d Cir. 1980) ("[L]egal conclusions, unsupported by documentation of specific facts, are insufficient to create issues of material fact that would preclude summary judgment."). Likewise, mere conjecture or speculation by the party resisting summary judgment will not provide a basis upon which to deny the motion. Robertson v. Allied Signal, Inc. , 914 F.2d 360, 382–83 n.12 (3d Cir. 1990). Summary judgment may be granted if the non-moving party's evidence is merely colorable or lacks sufficient probative force. Anderson , 477 U.S. at 249–50, 106 S.Ct. 2505 ; see also Big Apple BMW, Inc. v. BMW of N. Am., Inc. , 974 F.2d 1358, 1363 (3d Cir. 1992), cert. denied , 507 U.S. 912, 113 S.Ct. 1262, 122 L.Ed.2d 659 (1993) (although the court is not permitted to weigh facts or competing inferences, it is no longer required to "turn a blind eye" to the weight of the evidence).

The record as read in the light most favorable to plaintiffs establishes the background set forth below.

III. FACTUAL BACKGROUND

Anthony Vargo ("Vargo"), in 2002, decided to start a school focused on professions in which he had experience: hair styling, cosmetology, and similar services. (Docket No. 28, Ex. A, ¶ 9). To start the school, BCA, Vargo sought and received capital from DeSabato, Desimone, and Pusateri in exchange for equity in BCA.¹ (Docket No. 28, Ex. A., ¶¶ 10–11). Vargo procured the licenses required by the State Board of Cosmetology and ran BCA as its managing member. (Docket No. 28, Ex. A, ¶¶ 15–16). Vargo was an owner and employee of BCA; his designation was "Education Leader." (Docket No. 28, Ex. A, ¶ 16).

On March 9, 2009, Vargo attended a meeting with his fellow BCA members. (Docket No. 28, Ex. A, ¶ 17). There, the other members terminated Vargo's BCA employment and ownership interests without warning. (Docket No. 28, Ex. A, ¶ 17). The purported reason was Vargo's "gross misconduct." (Docket No. 28, Ex. A, ¶ 17). A letter handed to Vargo at the meeting stated that he "entered into at least one agreement on behalf of BCA that [he was] not permitted to enter into under the BCA Operating Agreement." (Docket No. 28, Ex. A, ¶ 17).

Vargo had executed a residential lease for a Monroeville apartment on October 10, 2008; he told the landlord during the application process that he was a BCA part owner. (Docket No. 28, Ex. A, ¶ 18). The landlord mistakenly designated BCA as the lessee, rather than Vargo, but Vargo did not notice the mistake when he signed the lease. (Docket No. 28, Ex. A, ¶ 19). Nevertheless, Vargo personally paid all lease-related expenses without using any BCA funds. (Docket No. 28, Ex. A, ¶ 19).

Running out of cash, Vargo, in his personal capacity, terminated the lease early. (Docket No. 28, Ex. A, ¶ 19). Vargo's landlord sent an invoice to BCA's offices requesting payment for Vargo terminating the lease early. (Docket No. 28, Ex. A, ¶ 20). Upon seeing that Vargo purportedly entered into a residential lease on BCA's behalf with an aggregate value over $5,000, the other BCA members determined that Vargo violated section 5.2(j) of the BCA Operating Agreement. (Docket No. 28, Ex. A, ¶ 21; Docket No. 28, Ex. 1 (attached to Ex. A), Sec. 5.2(j)). Even though Vargo told his fellow BCA members that BCA's designation as the lessee was a mistake and that he paid all lease-related expenses from his personal funds, they terminated Vargo's interests in BCA anyway. (Docket No. 28, Ex. A, ¶ 22). BCA's remaining members continued to operate the company using the licenses issued in Vargo's name. (Docket No. 28, Ex. A, ¶ 23).

Vargo, as an individual and on BCA's behalf, filed an action against BCA and its remaining members on July 29, 2010, in the Court of Common Pleas of Allegheny County (the "Vargo action"). (Docket Nos. 1; 33, p. 6). Vargo pled several counts including: declaratory judgment, breach of fiduciary duty, conversion, breach of contract, breach of the duty of fair dealing, violations of the Consolidated Omnibus Budget Reconciliation Act of 1986 and the Employee Retirement Income Security Act of 1974, and requested an accounting. (Docket No. 33, pp. 6–7). The Vargo action entered arbitration; the arbitrator awarded Vargo $213,973.54. (Docket No. 33, pp. 6–7).

Defendants insured BCA² when the Vargo complaint was filed. (Docket No. 22, p. 1; Docket Nos. 5–6). Defendants refused to defend plaintiffs in the Vargo action. (Docket No. 1, ¶ 24). As a result, plaintiffs incurred legal fees and expenses "of not less than $100,103.70." (Docket No. 1, ¶ 25). Plaintiffs then initiated this action, averring defendants breached their duty to defend. (Docket No. 1).

Through their submissions on summary judgment, the parties narrowed their arguments regarding the duty to defend to the coverage for Personal and Advertising Injury Liability in the applicable Maryland Casualty Company insurance policy (the "Policy"). (Docket No. 27, pp. 1–2). The Policy's relevant sections provide:

COVERAGE B. PERSONAL AND ADVERTISING INJURY LIABILITY

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal and advertising injury" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "personal and advertising injury" to which this insurance does not apply. We may, at our discretion, investigate any offense and settle any claim or "suit" that may result....

2. Exclusions

This insurance does not apply to:

a. "Personal and advertising injury":

(1) Caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict "personal and advertising injury";

(2) Arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity;...

(6) Arising out of a breach of contract, except an implied contract to use another's advertising idea in your "advertisement";...

SECTION II—WHO IS AN INSURED

1. If you are

...