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Goggin v. National Union Fire Insurance Company of Pittsburgh, PA

Superior Court of Delaware

November 30, 2018


          Submitted: August 23, 2018

         Upon Plaintiffs Keith Goggin and Michael Goodwin's Motion for Judgment on the Pleadings, DENIED.

          David J. Baldwin, Esquire, Carla M. Jones, Esquire, POTTER ANDERSON & CORROON, LLP, Wilmington, Delaware, Seth B. Schafler, Esquire (pro hac vice), Seth D. Fiur, Esquire (pro hac vice), PROSKAUER ROSE, LLP, New York, New York, Attorneys for Plaintiffs.

          Seth A. Niederman, Esquire, FOX ROTHSCHILD, LLP, Wilmington, Delaware, Joseph Collins, Esquire (pro hac vice), FOX ROTHSCHILD, LLP, Chicago, Illinois, Attorneys for Defendant.


          Paul R. Wallace, Judge.


         Plaintiffs, Keith Goggin ("Goggin") and Michael Goodwin ("Goodwin"), bring the above-captioned action against Defendant, National Union Fire Insurance Company of Pittsburgh, PA ("National Union"), seeking declaratory relief from the Court to clarify the scope of coverage of the Directors & Officers Insurance Policy ("D&O Policy") issued by National Union to U.S. Coal Corporation ("U.S. Coal"), a company that is currently in Chapter 7 bankruptcy proceedings. The D&O Policy provides that National Union will pay for, among other things, the damages and defense costs for claims made against U.S. Coal's past, current, or future directors and officers.

         After filing for bankruptcy, the trustee of U.S. Coal brought an action against Goggin and Goodwin and their affiliated entities alleging, among other claims, breach of their duties as directors of U.S. Coal for scheming and engaging in self-interested dealings at U.S. Coal's expense. Goggin and Goodwin tendered those claims to National Union, seeking coverage for defense and indemnity under the D&O Policy. National Union denied coverage invoking one of the D&O Policy's exclusionary clauses. Goggin and Goodwin brought this action for a declaration that the exclusionary clause does not apply, and that National Union has the duty to defend.

         Now before the Court is Goggin and Godwin's motion for judgment on the pleadings. For the reasons stated below, the motion is DENIED.


         Goggin and Goodwin's Complaint lays out the material background facts of: (1) their involvement with U.S. Coal as its members, directors and/or investors; (2) the gradual decline and eventual bankruptcy of U.S. Coal; and (3) the claims asserted against them by U.S. Coal's bankruptcy trustee. National Union, in its Answer, mostly admits the factual events that took place; National Union disputes the framing and completeness of Plaintiffs' allegations. So the Court here can with some confidence recount undisputed material facts relevant to this motion.

         A. Plaintiffs' Involvement with U.S. Coal and the D&O Policy.

         Plaintiffs Goggin and Goodwin began their involvement with U.S. Coal, initially as investors, in 2007 and 2008 respectively.[1] They became U.S. Coal directors on October 1, 2009, [2] and served in that capacity until their resignations. Goodwin resigned on October 19, 2012; Goggin on February 3, 2014.[3]

         National Union issued U.S. Coal a D&O Policy for the period from November 10, 2013, through May 10, 2015, that covered U.S. Coal and its officers.[4] The D&O Policy "pay[s] the Loss of an Individual Insured ...for any Wrongful Act ... except when and to the extent that the Company has indemnified such Individual Insured."[5] The parties do not dispute that Plaintiffs are "Individual Insureds" covered under the D&O Policy.[6]

         B. Plaintiffs Formed Investment Vehicles During Their Directorship of U.S. Coal.

         During their terms as U.S. Coal investors and directors, Goggin and Goodwin purportedly attempted to reinvigorate U.S. Coal through debt purchase and other capital restructuring by forming two investment vehicles.[7] The first, East Coast Miner, LLC ("ECM"), was formed in late 2009. Goggin was an ECM investor and manager; Goodwin just an investor.[8] In December 2011, Goggin formed the second vehicle, East Coast Mine II LLC ("ECMII"), and acted as an investor and manager. Again, Goodwin was just an ECM II investor.[9]

         C. Bankruptcy of U.S. Coal and Trustee's Claims Against Goggin and Goodwin.

         In 2014, U.S. Coal entered into bankruptcy when its creditors filed a petition for a Chapter 7 proceeding, and a trustee was appointed.[10] Following the bankruptcy filing, on March 24, 2015, the Official Committee of Unsecured Creditors brought suit against Goggin, Goodwin, ECM, and ECM II, alleging, among other things, that Goggin and Goodwin breached their fiduciary duties and committed other acts in favor of their own personal interests ("Underlying Action").[11] Counsel for Goggin and Goodwin tendered a defense request to National Union on April 17, 2015.[12] National Union acknowledged, with reservation, to assume defense for certain claims.[13] But, National Union's position was that the claims against Goggin and Goodwin were, by and large, not covered under the D&O Policy. Invoking the policy's Exclusion 4(g)-the so-called "capacity" exclusion-National Union denied their coverage on the ground that Plaintiffs' alleged wrongdoing that breached their fiduciary duties was not "solely by reason of their status as [U.S. Coal] Executives."[14]

         Because of the ongoing bankruptcy proceeding, the parties to the Underlying Action filed a First Amended Complaint ("FAC") in January 2017 to substitute the trustee as the plaintiff therein.[15]

         Before the FAC was filed, in the fall of 2016, Goggin, Goodwin, National Union, and other parties related to the bankruptcy proceeding attempted to resolve the Underlying Action and related insurance issues through mediation. That was unsuccessful. Plaintiffs and National Union mediated again, unsuccessfully, in September 2017.

         D. Procedural History.

         After the second unsuccessful mediation, this action was brought. Goggin and Goodwin seek a declaration that Exclusion 4(g) does not apply to the allegations asserted against them in the Underlying Action, and that National Union is obligated to pay all the defense and indemnity costs.

         National Union initially filed a motion to dismiss, [16] which Plaintiffs answered, [17] and National Union followed with a reply brief.[18] The parties later stipulated and agreed, among other things, that National Union would withdraw its dismissal motion and answer the Complaint.[19] National Union filed its Answer. And Goggin and Goodwin now move for judgment on the pleadings.


         A party may move for judgment on the pleadings pursuant to Civil Rule 12(c).[20] The standard for a motion for judgment on the pleadings is "almost identical" to the standard for a motion to dismiss.[21] In determining a Rule 12(c) motion, the Court assumes the truthfulness of all well-pleaded allegations of fact in the complaint, [22] takes those well-pleaded facts as admitted, [23] and then views those facts and draws inferences therefrom in the light most favorable to the non-moving party.[24] The Court accords a party opposing a Rule 12(c) motion the same benefits as a party defending a dismissal motion under Rule 12(b)(6).[25] And a moving party is entitled to judgment on the pleadings only when there are no material issues of fact and the movant is entitled to judgment as a matter of law.[26]


         So, with the record developed in the pleadings thus far, does Exclusion 4(g) of the D&O Policy-the "capacity" exclusion-apply to the claims asserted by U.S. Coal's trustee against Goggin and Goodwin in the FAC ("Trustee Claims")?

         The Trustee Claims Can Be Reasonably Seen to "Arise Out Of" Some Capacity of Plaintiffs Other Than That as U.S. Coal's Directors.

         Goggin and Goodwin contend that National Union erroneously denied the coverage on the ground that their alleged misconduct prompting the Trustee Claims was not in an "insured" capacity due to the conflict of interest. According to Goggin and Goodwin, that the alleged conflict of interest existed due to their capacities and status as both the directors of U.S. Coal and the members/managers of ECM and ECM II (collectively, "ECM Entities") does not eliminate the coverage via the "capacity" exclusion if the alleged wrongful action was performed in their capacities as directors of U.S. Coal.[27]

         National Union proposes a different interpretation of the exclusion's language, asserting that the crux is interpreting the term "arising out of," and discerning the issue of whether the sued-upon conduct "arises out of a ...

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