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IDT Corp. v. U.S. Specialty Insurance Co.

Superior Court of Delaware

January 31, 2019


          Submitted: October 25, 2018

         Upon Plaintiffs IDT Corporation and Howard Jonas' Motion for Partial Summary Judgment, GRANTED in part; DENIED in part.

         Upon Defendant U.S. Specialty Insurance Company's Cross-Motion for Summary Judgment, GRANTED in part; DENIED in part.

         Upon Defendant National Union Fire Insurance Company of Pittsburgh, PA's Motion for Summary Judgment, GRANTED in part; DENIED in part.

         Upon Defendant XL Specialty Insurance Company's Motion for Summary Judgment and Joinder, DENIED.

          Brian M. Rostocki, Esquire, Benjamin P. Chapple, Esquire, Reed Smith LLP, Wilmington, Delaware, Robin L. Cohen, Esquire, Keith McKenna, Esquire (argued), McKool Smith, P.C., New York, New York, Attorneys for Plaintiffs.

          John C. Phillips, Jr., Esquire, David A. Bilson, Esquire, Phillips, Goldman, McLaughlin & Hall, P.A., Wilmington, Delaware, Alexander R. Karam, Esquire (argued), Addison Draper, Esquire (pro hac vice), Clyde & Co U.S. LLP, Washington, DC, Attorneys for Defendant U.S. Specialty Insurance Company.

          Henry duPont Ridgely, Esquire, John L. Reed, Esquire (argued), Ethan H. Townsend, Esquire, DLA Piper LLP, Wilmington, Delaware, Joseph G. Finnerty III, Esquire, Megan Shea Harwick, Esquire, Eric S. Connuck, Esquire, DLA Piper LLP, New York, New York, Attorneys for Defendant National Union Fire Insurance Company of Pittsburgh, PA.

          Timothy Jay Houseal, Esquire, Jennifer M. Kinkus, Esquire, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware, Charles C. Lemley, Esquire (pro hac vice) (argued), Wiley Rein LLP, Washington, DC, Attorneys for Defendant XL Specialty Insurance Company.


          Paul R. Wallace Paul R. Wallace, Judge


         Plaintiffs IDT Corporation and Howard Jonas seek declaratory relief and damages for breach of contract against Defendant Insurers U.S. Specialty Insurance Company, National Union Fire Insurance Company of Pittsburgh, PA, and XL Specialty Insurance Company, allegedly arising from those insurers' obligations to cover costs IDT and Jonas incurred in a Delaware Court of Chancery case-In re Straight Path Communications Inc. Consolidated Stockholder Litigation, No. 2017-0486-SG (Del. Ch.) (the "Straight Path Action").

         Now before the Court are the parties' several requests for summary judgment. On those, the Court rules as follows: IDT's Motion for Partial Summary Judgment on Defense Costs is GRANTED, in part, and DENIED, in part; U.S. Specialty's Cross-Motion for Summary Judgment is GRANTED, in part, and DENIED, in part; National Union's Motion for Summary Judgment is GRANTED with respect to National Union's coverage obligations for IDT, and DENIED with respect to National Union's duty to defend Jonas in the Straight Path Action; and XL Specialty's Motion for Summary Judgment and Joinder is DENIED.


         A. The Parties.

         IDT is a Delaware corporation founded by Jonas in 1990 with its principal place of business in New Jersey.[1] Jonas has served as IDT's Chairman since its incorporation, served as its CEO at various times, and controls a majority of IDT's voting stock.[2] Straight Path Communications Inc. is a Delaware corporation headquartered in Virginia that owns two subsidiaries -- one holds 39 GHz and 28 GHz fixed wireless spectrum licenses (the "Spectrum Assets"); the other holds a majority stake in intellectual property related to internet communications (the "IP Assets").[3] Prior to its spin-off in 2013, Straight Path was a wholly-owned subsidiary of IDT.[4]

         B. The Straight Path Action.

         On July 31, 2013, Straight Path was spun-off from IDT (the "Spin-Off"). One of Jonas's sons, Davidi Jonas, served as Straight Path's CEO and President at the time of the Spin-Off.[5] Under the Spin-Off's terms, Straight Path common stocks were distributed pro rata to IDT stockholders, including Jonas, who maintained voting control of Straight Path through a dual-class structure.[6] In fact, the Spin-Off resulted in Jonas retaining complete voting control over both IDT and Straight Path.[7]But following the Spin-Off, Straight Path was a stand-alone company.[8]

         Jonas also retained certain consent rights with respect to Straight Path after the Spin-Off, including the right to consent to any merger, consolidation, or sale of all of Straight Path's assets.[9] In addition, as part of the Spin-Off, IDT and Straight Path entered into a Separation and Distribution Agreement ("Separation Agreement") under which IDT agreed to indemnify Straight Path for any liabilities arising from or related to conduct pre-dating the Spin-Off.[10]

         In November 2015, Sinclair Upton Research alleged that IDT had defrauded the Federal Communications Commission when it sought renewal of certain of its 39 GHz licenses in 2011 and 2012. Sinclair Upton alleged that Straight Path had failed to comply with the FCC's substantial service requirements because none of the systems that IDT had purportedly constructed under those licenses were operational.[11] In 2016, the FCC commenced an investigation into Sinclair Upton's allegations and concluded that Straight Path had engaged in fraudulent practices when seeking its license renewals.

         In mid-January, 2017, Straight Path and the FCC entered into a consent decree (the "Consent Decree") under which Straight Path:

- agreed to forfeit 20% of its spectrum licenses;
- was required to sell its remaining spectrum licenses to a third-party within one year of the Consent Decree and to pay 20% of the proceeds of the sale to the FCC; and
- agreed to pay a $100 million fine.

         Under the Consent Decree that $100 million fine could be reduced to $15 million if Straight Path completed the required third-party sale within the one-year time frame.[12] But if Straight Path failed to sell its licenses or failed to pay the required fine, its licenses would be forfeited to the FCC.[13] The terms of the Consent Decree left Straight Path with little choice but to sell itself.[14]

          Soon after Straight Path entered into the Consent Decree with the FCC, Straight Path's Board of Directors formed a Special Committee to consider matters relating to the imminent sale of its remaining assets.[15] While the Board's financial advisor reached out to potential bidders, the Special Committee considered its indemnification rights under the Separation Agreement and the feasibility of asserting an indemnification claim against IDT (the "Indemnification Claim") for the financial liability incurred by Straight Path under the Consent Decree.[16] At a meeting held in February 2017, the Special Committee decided to preserve and pursue the Indemnification Claim for the benefit of Straight Path's stockholders.[17]

         Later that month, the Special Committee's counsel advised Straight Path's counsel of the Special Committee's intention to preserve the Indemnification Claim and advised Straight Path's counsel that the Special Committee was exploring its alternatives with respect thereto. Those alternatives included selling only the Spectrum Assets or assigning the Indemnification Claim to a litigation trust, which, in either case, would permit Straight Path to pursue the Indemnification Claim against IDT post-closing.[18] As the sales process moved forward, the Special Committee became increasingly concerned whether any potential bidders for Straight Path would have an interest in pursuing the Indemnification Claim against IDT post-closing or what value, if any, potential bidders might ascribe to the Indemnification Claim in their bids to acquire Straight Path.[19] On March 13, 2017, the Special Committee decided that it was in the best interests of Straight Path's stockholders to exclude the Indemnification Claim from any sale of Straight Path, and informed potential bidders of that determination.[20]

         Around the same time, Davidi Jonas became aware of the Special Committee's interest in pursuing the Indemnification Claim and recognized that pursuing the claim could be harmful to his family's interests in IDT.[21] IDT had a market capitalization of less than $350 million and any successful enforcement of Straight Path's indemnification rights under the Separation Agreement would likely bankrupt IDT.[22] Presumably, Davidi Jones advised his father of the Special Committee's plans with respect to the Indemnification Claim and, on March 14thand 15th, Jonas intervened in the Straight Path sales process.[23]

         Jonas contacted each Special Committee member and threatened to blow up the sales process if they continued to adhere to their plan to preserve the Indemnification Claim against IDT post-closing.[24] His threat was credible given that Jonas was the controlling stockholder of Straight Path and his consent was required to approve any sale.[25] Jonas also threatened the Special Committee members personally in an effort to persuade them to settle the Indemnification Claim for a nominal amount.[26]

         On March 15, 2017, an IDT representative advised Straight Path that Jonas was interested in acquiring the IP Assets as part of any settlement of the Indemnification Claim against IDT.[27] As discussions continued over the next few days, Jonas made clear he would not support a sale of Straight Path as a whole, but would consent to sell only the Spectrum Assets.[28] In addition, Jonas's counsel advised the Special Committee's counsel that Jonas would not support any transaction that would enable the Indemnification Claim to be pursued against IDT post-closing.[29]

         Realizing that it had no other options if it did not want to risk a proposed third-party merger of Straight Path, the Special Committee acquiesced to Jonas's demands.[30] On April 9, 2017, Straight Path and IDT executed a binding term sheet under which Straight Path agreed to sell the IP Assets to IDT for $6 million and to settle the Indemnification Claim against IDT for $10 million plus a right to receive 22% of the net proceeds from any sale of the IP Assets (the "2017 Term Sheet").[31]

         Meanwhile, the bidding continued for the Spectrum Assets and as of April 7, 2017, Verizon had proposed to acquire Straight Path for $1.262 billion. This created substantial liability for IDT under the Separation Agreement.[32] Given the increasing value of Straight Path's Indemnification Claim, the Special Committee attempted to extract additional settlement consideration from IDT. It didn't work.[33]

          After a bidding war between AT&T and Verizon, Verizon ultimately acquired Straight Path for a total enterprise value of $3.1 billion.[34] On February 28, 2018, the Verizon merger closed and, in accord with the Consent Decree's terms, the FCC collected $614 million.

         C. The Straight Path Shareholder Litigation Commences.

         The Straight Path shareholder litigation was initiated in our Court of Chancery in July 2017-three months after the 2017 Term Sheet was executed.[35] Two class actions were filed and later consolidated into the Straight Path Action.[36] A verified complaint was filed on August 29, 2017 (the "Underlying Complaint").[37]

         The Underlying Complaint was brought as a class action directly challenging the Verizon merger and, in the alternative, derivatively on behalf of Straight Path.[38]

         The named defendants in the Underlying Complaint were IDT, Howard Jonas, Davidi Jonas, the Patrick Henry Trust, [39] and Straight Path as a nominal defendant.[40]

         The Straight Path Action has four counts:

- Count I alleges that Howard Jonas, in his capacity as the controlling stockholder of Straight Path, breached his fiduciary duties to the company and its stockholders.[41] Specifically, the Underlying Complaint asserts that Jonas used his position as a controlling stockholder to extract unique benefits from the sales process to the detriment of Straight Path's minority stockholders.[42] Those benefits included the acquisition of the IP Assets and settlement of the Indemnification Claim for well below fair value. [43]
- Count II alleges that Davidi Jonas breached his fiduciary duties to Straight Path and its stockholders by putting his personal interests and those of his family above those of the company and its stockholders.[44]
- Count III alleges that IDT aided and abetted Davidi Jonas and his father in their respective breaches of fiduciary duty.[45]
- Count IV seeks a declaratory judgement and the imposition a constructive trust, but that request became moot upon the closing of the Verizon merger.[46]

         In November 2017 letter opinion holding that the matter was not ripe for decision, the Court of Chancery concluded that the Straight Path shareholders were "in favor of the merger" with Verizon, and the claim against IDT "arise[s] from [Straight Path] assets transferred [in 2017] to another entity controlled by [Howard Jonas], which was a condition of his support for the merger" with Verizon.[47] In a later opinion denying the defendants' motion to dismiss the Straight Path Action, the Court found that the plaintiffs' claims were direct as opposed to derivative and, accordingly, survived the closing of the Verizon merger.[48]

         After the Straight Path Action was filed in July 2017, IDT and Jonas tendered their claims seeking coverage under the insurance policies.[49] U.S. Specialty refused to defend them or pay defense costs.[50] National Union similarly refused coverage for past and future loss, even if they exceeded the U.S. Specialty policy limits ($10 million for each of IDT and Jonas).[51] XL Specialty reserved its right to deny coverage for Jonas to the extent his loss is not indemnified or indemnifiable in connection with the Straight Path Action.[52] Upon denial of coverage by those Insurers, IDT and Jonas commenced this action.

         The issue before this Court is whether the actions taken by Jonas as set forth in the Underlying Complaint in the Straight Path Action and the losses[53] associated therewith are covered by the terms of the subject insurance policies.


         This Court cannot grant any party's motion for summary judgment under Delaware Superior Court Civil Rule 56 unless no genuine issue of material fact exists and that party is entitled to judgment as a matter of law. [54] Summary judgment will not be granted if there is a material fact in dispute[55] or if "it seems desirable to inquire thoroughly into [the facts] to clarify the application of the law to the circumstances."[56] The burden is on the moving party to demonstrate their claim is supported by undisputed facts.[57] If that burden is met, the non-moving party must demonstrate that "there is a genuine issue for trial."[58] And in determining whether there is, the Court must view the facts in the light most favorable to the non-moving party.[59]

         The Court cannot grant a motion for summary judgment "[i]f . . . the record reveals that material facts are in dispute, or if the factual record has not been developed thoroughly enough to allow the Court to apply the law to the factual record . . . ."[60] But "a matter should be disposed of by summary judgment whenever an issue of law is involved and a trial is unnecessary."[61]

         These well-established standards and rules equally apply when, as here, the parties have filed cross-motions for summary judgment.[62] Where cross-motions for summary judgment are filed and neither party argues the existence of a genuine issue of material fact, "the Court shall deem the motions to be the equivalent of a stipulation for decision on the merits based on the record submitted with the motions."[63] But where cross-motions for summary judgment are filed and an issue of material fact exists, summary judgment is not appropriate.[64] To determine whether there is a genuine issue of material fact, the Court evaluates each motion independently.[65] And where it seems prudent to make a more thorough inquiry into the facts, summary judgment is denied and the matter submitted for resolution by trial.[66]

         IV. DISCUSSION A. Choice of Law.

         The insurance policies here contain no choice-of-law provisions. In the absence of the parties' express choice of law, Delaware courts employ the "most significant relationship test" to determine which state's law applies. Under that test the law of the jurisdiction bearing the most significant relationship to the insurance coverage as a whole is applied.[67] IDT and Jonas urge that Delaware law should apply to govern their insurers' coverage obligations.[68] The insurers argue that New Jersey law should apply because the policy was issued to IDT in New Jersey, but concede that "there is no apparent conflict" on the relevant coverage issues between the laws of the two states.[69]

         Delaware courts recognize that, where possible, a court should avoid a choice-of-law analysis altogether if the result would be the same under the law of either of the competing jurisdictions.[70] Here, the Court divines no material or significant differences between the laws of Delaware and New Jersey with respect to this coverage dispute.[71]

         If these parties' concessions and the Court's inability to detect a true conflict weren't enough, there is one more thing. Delaware courts have consistently held that Delaware law should be applied to resolve disputes over insurance coverage of directors' and officers' liability. When they must engage the multifaceted "most significant relationship" test, Delaware courts recognize that for directors' and officers' liability, "the insured risk is the directors' and officers' 'honesty and fidelity' to the corporation[.]"[72] So, "the state of incorporation has the most significant relationship" because the policy is issued pursuant to Delaware law, [73]and "Delaware's law ultimately determines whether a director or officer of a Delaware corporation" breaches his or her fiduciary duties.[74]

         Here, IDT and Straight Path are both Delaware corporations.[75] The insurance policies covered directors' and officers' liabilities, and the Straight Path Action asserts claims against Jonas and IDT for purported breaches of fiduciary duty owed to Straight Path. The merits of those claims are (or have been) determined under Delaware law. Thus, under any choice-of-law analysis, Delaware law bears the "most significant relationship" to the issues of the insurers' coverage liability here. And, the Court, therefore, finds Delaware law is the appropriate governing authority.

         B. Plaintiffs' Motion for Partial Summary Judgment and U.S. Specialty's Cross-Motion for Summary Judgment on the Coverage of Defense Costs in the Straight Path Action.

         Jonas, IDT, and U.S. Specialty submit cross-motions for summary judgment with respect to U.S. Specialty's duty to defend Jonas and IDT in the Straight Path Action.[76] Because both sides make substantially the same arguments in their respective papers, the Court addresses their respective motions together.

         1. Applicable Rules of Contract Interpretation for Insurance Policies.

         Insurance policies are contracts.[77] It is a well-established principle that "[u]nder Delaware law, the interpretation of contractual language, including that of insurance policies, is a question of law."[78] The objective is to give effect to the parties' mutual intent at the time of contracting.[79] In construing the language of a contract, the Court should interpret the language in the same manner as it "would be understood by an objective, reasonable third party."[80] Absent ambiguity, all contract terms-including those in insurance policies-should be accorded their plain, ordinary meaning.[81] A contract term is not ambiguous merely because the parties disagree on its meaning.[82] Rather, ambiguity exists when the disputed term "is fairly or reasonably susceptible to more than one meaning."[83]

         Because an insurance policy is "an adhesion contract and is not generally the result of arms-length negotiation," the rules of construction "differ from those applied to most other contracts."[84] Where there is ambiguity in the policy language, the doctrine of contra proferentem requires that the insurance contract be construed most strongly against the insurer and in favor of the insured because the insurer is the drafter of the policy.[85] In construing an ambiguous policy term, the Court looks to "the reasonable expectations of the insured at the time when he entered into the contract[.]"[86] But this rule is applicable only where the policy language is indeed ambiguous.[87] When an insurance contract's language is "clear and unambiguous a Delaware court will not destroy or twist the words under the guise of construing them."[88] And when that language "is clear and unequivocal, [each] party will be bound by its plain meaning."[89]

         Now, the Court must decide whether the Straight Path Action presents a claim or claims covered under the U.S. Specialty, National Union, or XL Specialty insurance policies.

         2. The Terms of the U.S. Specialty Policy.

         U.S. Specialty's policy covers the period from June 6, 2016, to June 6, 2017, which is when the alleged actions giving rise to the Straight Path Action occurred. Insuring Agreement (B) of the U.S. Specialty's policy states as follows:

(B) The Insurer will pay to or on behalf of the Company Loss arising from:
(1) Claims[90] first made during the Policy Period or the Discovery Period (if applicable) against the Insured Persons for Wrongful Acts, if the Company has paid such Loss to or on behalf of the Insured Persons as indemnification or advancement, and/or
(2) Securities Claims first made during the Policy Period or the Discovery Period (if applicable) against the Company for Wrongful Acts.[91]

         Put more succinctly, U.S. Specialty is liable for the "Losses" (above the applicable self-insured retentions) incurred by IDT for (1) "Claims" against an "Insured Person" for "Wrongful Acts" and (2) "Securities Claims" against the "Company" for "Wrongful Acts." A look at each of the foregoing defined terms in the U.S. Specialty policy is necessary to determine whether U.S. Specialty's duty to pay defense costs has been triggered by the Straight Path Action.

         3. U.S. Specialty Has the Duty to Defend Jonas in the Straight Path Action Because His Actions Constitute "Wrongful Acts."

         The first question is whether Jonas is an "Insured Person" who has engaged in "Wrongful Acts" through the conduct alleged in the Straight Path Action. The U.S. Specialty policy defines an "Insured Person," in relevant part, as "any past, present or future director or officer of the Company."[92] The "Company" is IDT.[93]Under those definitions, Jonas is an "Insured Person" under the U.S. Specialty policy. He was the Chairman of IDT's board of directors during the events that spawned the Straight Path Action.[94]

         As an Insured Person under the U.S. Specialty policy, Jonas must be covered if the actions alleged in the Straight Path Action constitute "Wrongful Acts." The U.S. Specialty policy defines "Wrongful Act" to include any:

(1) actual or alleged act, error, misstatement, misleading statement, neglect, omission or breach of duty: (a) by an Insured Person in his capacity as such, including . . . while acting as a Controlling Person, or (b) with respect only to Securities Claims, by the Company; or
(2) matter claimed against an Insured Person solely by reason of his or her service in such capacity.[95]

         Central to the current dispute is the first defined type of "Wrongful Act." The Court finds the terms of the U.S. Specialty policy unambiguous. Its plain language is not "susceptible to more than one meaning."[96] So, to construe the meaning of "Wrongful Act," the Court gives the policy's words their plain, ordinary meaning.[97] a. The "Covered" Conduct is Not Limited to Breach of Duty.

         The definition of "Wrongful Act" provides a laundry list of conduct that might constitute a Wrongful Act. Despite many wide-ranging examples explicitly expressed therein, U.S. Specialty offers a narrow reading of this definition. U.S. Specialty seeks to essentially limit "Wrongful Acts" to conduct that constitutes "breach of duty."[98]

         But "Wrongful Acts" are not limited only to conduct that constitutes a "breach of duty." Rather, Wrongful Acts encompass a broad array of specifically enumerated conduct. The types of conduct preceding in the list connects to "breach of duty" via a disjunctive "or."[99] And so, each term in the string must be afforded a separate and independent meaning.[100] "Breach of duty" does not absorb, or incorporate, or otherwise make the other exemplified conduct duplicative or meaningless. To the contrary, each term represents a separate, independent act that, if other requirements are satisfied, is capable of triggering coverage obligations under the U.S. Specialty policy. Therefore, in construing the language of the U.S. Specialty Policy, the Court finds that a "Wrongful Act" is not limited to a "breach of duty." Any conduct that is an "act," or an "error," or a "misstatement," or a "misleading statement," or "neglect," or an "omission" could be a "Wrongful Act."

         b. Jonas Acted in His Insured Capacity that Gave Rise to the Straight Path Action.

         To be a "Wrongful Act" under the U.S. Specialty policy, the conduct must be taken "by an Insured Person in [his] capacity as such[.]"[101] Because Jonas' "Insured Person" status is based on his position as IDT's Chairman, his insured capacity must necessarily derive from acts taken in his capacity as IDT's Chairman. On this the parties agree.[102] The parties dispute, however, whether the conduct must be taken in, and solely in, Jonas's capacity as IDT's Chairman, and not in his capacity as Straight Path's controlling stockholder.

         U.S. Specialty takes the position that the Court should only look at "the capacity characterized by the Underlying Complaint."[103] That is, U.S. Specialty relies exclusively on how the Underlying Complaint characterizes Jonas's alleged misconduct.[104] According to U.S. Specialty, because the claim against Jonas is characterized as a "breach of his fiduciary duties" to Straight Path as Straight Path's controlling stockholder, [105] and not to IDT, those acts could not have been committed in Jonas's insured capacity as IDT's Chairman.[106] In truth, this is just a slight variation on the prior argument that the only "Wrongful Acts" covered by the insurance policies are for breach of fiduciary duty. Such a reading of the U.S. Specialty policy is inconsistent with Delaware law interpreting such insurance policies.

         In determining whether the duty to defend and advance defense costs is triggered, the Court must examine whether "the underlying complaint alleges facts that fall within the scope of coverage."[107] Although the Court looks to the allegations of the underlying complaint, the Court is not "limited to the plaintiff's unilateral characterization of the nature of [its] claims."[108] Rather, the Court reviews "the complaint as a whole" and considers "all reasonable inferences that may be drawn from the alleged facts."[109] The key is "whether the allegations of the complaint, when read as a whole, assert 'a risk within the coverage of the policy.'"[110]

         The Court here looks beyond the characterization of the acts alleged by the Straight Path plaintiffs and examines those acts to determine if they were taken by Jonas in his insured capacity as IDT's Chairman.

         The Underlying Complaint provides a detailed account of Jonas's alleged wrongdoing. It alleges Jonas served as IDT's Chairman and CEO during the 2011- 2012 period when IDT's fraudulent conduct occurred that resulted in the Consent Decree.[111] The Underlying Complaint describes and explains that the financial hardship imposed by the Consent Decree[112]-coupled with IDT's indemnification obligation to Straight Path for pre-Spin-Off liabilities incurred under the Separation Agreement[113]-prompted Jonas to interfere with Straight Path's sale process.[114] The Underlying Complaint alleges that Jonas leveraged his voting control in Straight Path in exchange for Straight Path relinquishing the right to pursue its Indemnification Claim against IDT post-closing, and selling its IP Assets to IDT.[115]The Underlying Complaint further avers that Jonas got his way. The 2017 Term Sheet entered into between IDT and Straight Path provided Straight Path stockholders with only nominal consideration for the IP Assets and the Indemnification Claim.[116]

         Read as a whole, the Straight Path Action, paints a picture of Jonas singlehandedly furthering his own and IDT's interests at the expense of Straight Path and its stockholders. In examining the nature of the claims and alleged acts, the Court finds that the Underlying Complaint has sufficiently asserted "a risk within the coverage" of the U.S. Specialty policy. That is, Jonas took the alleged wrongful actions he did for the benefit of IDT and himself in his capacity as the Chairman of IDT. The fact that Jonas may at the same time also be a controlling stockholder of Straight Path and breaching his concomitant fiduciary duties there does not mean that his actions weren't taken in his capacity as an IDT officer.[117] Had U.S. Specialty intended the coverage to be so limited, it should have, and could have, drafted the policy accordingly.

         4. U.S. Specialty Has No Duty to Defend IDT Because the Straight Path Action is Not a "Securities Claim."

         Does U.S. Specialty have a separate duty to defend IDT in the Straight Path Action? With respect to the claims against IDT, U.S. Specialty has the obligation to provide coverage for "Securities Claims [] against the Company for Wrongful Acts."[118] There is no dispute that IDT, being the Named Corporation, is within the meaning of "Company."[119] But is the Straight Path Action a "Securities Claim?"[120]

         Under the U.S. Specialty policy, Securities Claim means a Claim which:

(1) is brought by or on behalf of one or more securities holders of the Company in their capacity as such, or
(2) arises from the purchase or sale of, or offer to purchase or sell, any securities issued by the Company, whether such purchase, sale or offer involves a transaction with the Company or occurs in the open market.[121]

         IDT argues that the Straight Path Action is a Securities Claim under both definitions.[122] U.S. Specialty contends that the Straight Path Action satisfies neither.[123]

         a. The Straight Path Action is Not a Securities Claim Because It Was Brought by Straight Path's Securities Holders, not IDT.

         To fall under the first part of the definition of a "Securities Claim," a claim must be brought by "securities holders of the Company."[124] The U.S. Specialty policy defines "Company" to include "the Named Corporation," here IDT, and any "Subsidiary" thereof. The U.S. Specialty policy defines a "Subsidiary," in relevant part, as:

. . . any entity, including any limited liability company[]:
(1) during any time on or before the inception of the Policy Period in which the Named Corporation owns or owned more than 50% of the issued and outstanding securities representing the right to vote for the election of such entity's directors or managers (or the legal equivalent thereof), either directly or indirectly through one or more other Subsidiaries; . . .
An entity ceases to be a Subsidiary when the Named Corporation ceases to own more than 50% of its issued and outstanding securities representing the right to vote for the election of such entity's directors or managers (or the legal equivalent thereof), either directly or indirectly through one or more other Subsidiaries. The coverage afforded under this Policy with respect to Claims against a Subsidiary or any Insured Person thereof will apply only in respect of Wrongful Acts committed or allegedly committed after the effective time that such entity becomes a Subsidiary and prior to the time that such entity ceases to be a Subsidiary."[125]

         Because the Straight Path Action is brought by securities holders of Straight Path, the Straight Path Action can only be a Securities Claim under the first provision if Straight Path is a Subsidiary of IDT during the relevant time period.[126]

         IDT doesn't deny that it ceased to hold "more than 50% of the voting rights" of Straight Path after the 2013 Spin-Off.[127] Nevertheless, it argues, Straight Path continues to qualify as IDT's Subsidiary under the policy because "Straight Path's role as a Subsidiary" pre-Spin-Off is "central to the Straight Path Action."[128] Put another way, IDT proposes that a former subsidiary of IDT is within the meaning of "Subsidiary" under the U.S. Specialty policy so long as the former subsidiary's role is purportedly pivotal ...

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