Submitted: August 23, 2018
Plaintiffs Keith Goggin and Michael Goodwin's Motion for
Judgment on the Pleadings, DENIED.
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
A. Niederman, Esquire, FOX ROTHSCHILD, LLP, Wilmington,
Delaware, Joseph Collins, Esquire (pro hac vice), FOX
ROTHSCHILD, LLP, Chicago, Illinois, Attorneys for Defendant.
MEMORANDUM OPINION AND ORDER
R. Wallace, Judge.
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
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
before the Court is Goggin and Godwin's motion for
judgment on the pleadings. For the reasons stated below, the
motion is DENIED.
FACTUAL AND PROCEDURAL BACKGROUND
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.
Plaintiffs' Involvement with U.S. Coal and the D&O
Goggin and Goodwin began their involvement with U.S. Coal,
initially as investors, in 2007 and 2008
respectively. They became U.S. Coal directors on October
1, 2009,  and served in that capacity until their
resignations. Goodwin resigned on October 19, 2012; Goggin on
February 3, 2014.
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. 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." The parties do not dispute that
Plaintiffs are "Individual Insureds" covered under
the D&O Policy.
Plaintiffs Formed Investment Vehicles During Their
Directorship of U.S. Coal.
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. The first, East Coast Miner,
LLC ("ECM"), was formed in late 2009. Goggin was an
ECM investor and manager; Goodwin just an
investor. 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.
Bankruptcy of U.S. Coal and Trustee's Claims Against
Goggin and Goodwin.
2014, U.S. Coal entered into bankruptcy when its creditors
filed a petition for a Chapter 7 proceeding, and a trustee
was appointed. 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"). Counsel for Goggin and Goodwin tendered
a defense request to National Union on April 17,
2015. National Union acknowledged, with
reservation, to assume defense for certain
claims. 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]
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.
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.
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.
Union initially filed a motion to dismiss,  which
Plaintiffs answered,  and National Union followed with a
reply brief. The parties later stipulated and agreed,
among other things, that National Union would withdraw its
dismissal motion and answer the Complaint. National
Union filed its Answer. And Goggin and Goodwin now move for
judgment on the pleadings.
STANDARD OF REVIEW
may move for judgment on the pleadings pursuant to Civil Rule
12(c). The standard for a motion for judgment
on the pleadings is "almost identical" to the
standard for a motion to dismiss. In determining a Rule
12(c) motion, the Court assumes the truthfulness of all
well-pleaded allegations of fact in the complaint,
takes those well-pleaded facts as admitted,  and then
views those facts and draws inferences therefrom in the light
most favorable to the non-moving party. 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). 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.
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
Trustee Claims Can Be Reasonably Seen to "Arise Out
Of" Some Capacity of Plaintiffs Other Than That as U.S.
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.
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 ...