WH Holdings LLC v. Ace American Insurance Company

Filing 225

ORDER denying 204 Motion for Summary Judgment. Signed by Judge Jay C. Zainey. (jrc, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
WH HOLDINGS, LLC, ET AL.

CIVIL ACTION

VERSUS

NO: 07-7110

ACE AMERICAN INSURANCE CO.

SECTION: "A" (5)

ORDER AND REASONS
Before the Court is a Motion for Summary Judgment (Rec. Doc.
204) filed by defendant ACE American Insurance Co.

Plaintiffs WH

Holdings, LLC, AXIS US Insurance Co., XL(Bermuda) Ltd., Lloyds of
London, and Swiss Re International SE (collectively “Plaintiffs”)
oppose the motion.

The motion, noticed for submission on

February 13, 2013, is before the Court on the briefs without oral
argument.1
I.

For the reasons that follow, the motion is DENIED.

BACKGROUND
This suit was originally filed in state court by WH

Holdings, LLC against ACE American Insurance Co. to recover for
damage sustained at the Ritz-Carlton New Orleans as a result of
Hurricane Katrina.

ACE had issued a builder’s risk policy to

1

The parties have other dispositive motions scheduled for
submission on the same date: Cross motions as to coverage (Rec.
Docs. 190, 200), and Plaintiffs’ motion for summary judgment on
damages (Rec. Doc. 201). But the instant motion for summary
judgment presents the threshold issue of whether Plaintiffs have
a right of action or standing to pursue claims against Defendant.
Therefore, the Court takes up this motion first.
1

Gootee Construction Co., which had been doing renovation work at
the Ritz when Katrina hit.
October 19, 2007.

ACE removed the suit to this Court on

ACE has always maintained that WH Holdings was

not an insured under its policy.

In the summer of 2010, the

parties filed cross motions on the insured status issue, and on
September 24, 2010, the Court granted ACE’s motion for summary
judgment, concluding that WH Holdings was not an insured.
Doc. 149).

(Rec.

Plaintiffs appealed, and the Fifth Circuit vacated

the ruling and remanded the case with instructions to the Court
to consider certain extrinsic evidence.

WH Holdings, LLC v. ACE

American Ins. Co., 481 Fed. Appx. 894 (5th Cir. 2012).

Discovery

is now complete and the case is scheduled for trial on May 23,
2013.

(Rec. Doc. 187).

The re-urged cross motions for summary

judgment on coverage will not be addressed, however, as part of
this Order and Reasons.

See note 1, supra.

Prior to this Court’s dismissal of Plaintiffs’ complaint on
September 24, 2010, WH Holdings, which had been the sole
plaintiff in the case, amended its complaint to bring the Excess
Insurers in as plaintiffs. (Rec. Doc. 98).

The Excess Insurers2

allege that they have obtained all of WH Holdings’ rights in this

2

The Excess Insurers are plaintiffs AXIS US Insurance Co.,
XL(Bermuda) Ltd., Lloyds of London, and Swiss Re International
SE.
2

lawsuit via a Sale of Litigation Agreement (“the Agreement”).
(Rec. Doc. 98; Amended Comp. ¶ 19 & Exh. A).

Via the Agreement,

it is the Excess Insurers who now ostensibly have standing to
assert whatever rights WH Holdings might have had as an insured
against ACE for damage to the Ritz-Carlton.
ACE has filed the instant motion for summary judgment
challenging the Excess Insurers’ standing to prosecute this case
against ACE.

ACE contends that the Agreement did not effect the

sale of a litigious right under Louisiana law, and therefore WH
Holdings did not convey a right of action to the Excess Insurers.
ACE argues that the Excess Insurers’ payments to WH Holdings were
nothing more than payments by first-party property insurers for
covered damages to insured property.

ACE maintains that absent a

valid sale of a litigious right, the Excess Insurers have no
legal basis to pursue ACE for damages to the Ritz-Carlton.
Plaintiffs, on the other hand, maintain that the Agreement
effected a valid assignment of WH Holdings’ claim against ACE in
this lawsuit to the Excess Insurers, and that the Excess Insurers
paid $2,775,091.00 for that assignment.

The Excess Insurers deny

that the $2,775,091.00 payment was made in satisfaction of their
own coverage obligation because, according to the Excess
Insurers, it was ACE’s policy that provided primary coverage.

3

II.

DISCUSSION
Under Louisiana law “[a]ll rights may be assigned, with the

exception of those pertaining to obligations that are strictly
personal,” or otherwise prohibited by law.
2642 & cmt. (c).

La. Civ. Code art.

Litigious rights in a pending law suit are real

rights that are not strictly personal, and are therefore
heritable and freely assignable.

Woodfield v. Bowman, 193 F.3d

354, 359 (5th Cir. 1999) (citing La. Civ. Code art. 2652).

In

Louisiana, the sale of a litigious right is specifically
acknowledged in Civil Code article 2652.3

But litigious rights

3

When a litigious right is assigned, the debtor may
extinguish his obligation by paying to the assignee the
price the assignee paid for the assignment, with interest
from the time of the assignment.
A right is litigious, for that purpose, when it is
contested in a suit already filed.
Nevertheless, the debtor may not thus extinguish his
obligation when the assignment has been made to a coowner of the assigned right, or to a possessor of the
thing subject to the litigious right.
La. Civ. Code art. 2652. Civil Code article 2652 addresses the
debtor’s ability to extinguish his obligation for the price that
the assignee paid for the debt. The article’s object in allowing
the debtor to redeem the debt in this manner is to prevent
unnecessary litigation and to deter speculators in lawsuits. Smith
v. Cook, 180 So. 469, 470 (La. 1937) (quoting Leftwich v. Brown, 4
La. Ann. 104 La. 1849)). When the debtor continues to contest the
matter, and therefore protracts the litigation following the
assignment, he cannot avail himself of article 2652 redemption
because he defeats the very object of the article, which again is
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cannot be donated on a purely gratuitous basis.

Indep. Ice &

Distilled-Water Mfg. Co. v. Anderson, 30 So. 272, 273 (La. 1901).
The assignment must be supported by some consideration.

Id.

The Court has carefully considered ACE’s arguments in
support of summary judgment but none of them persuade the Court
that ACE is entitled to the relief requested.

ACE contends inter

alia that the transfer could not have been a valid “sale” because
the Excess Insurers were merely satisfying their own coverage
obligations to WH Holdings and therefore paid no consideration
for the transfer.
This argument has no merit for two reasons.

First, even

though it is undisputed that the Excess Insurers provided
coverage for the damage to the Ritz, there has never been a
judicial determination that the Excess Insurers provided primary

to put an end to the litigation. Id.; Lerner Shops of La., Inc. v.
Reeves, 73 So. 2d 490, 498 (La. App. 1st Cir. 1954). The right of
redemption must be exercised promptly because a person entitled to
invoke litigious redemption may not fight the case on its merits
until it is apparent that the case is lost and then exercise
redemption at the last moment.
Conrad v. Swiss Chalet Picnic
Grounds & Catering Serv., 686 So. 2d 1055, 1059 (La. App. 5th Cir.
1996) (quoting Martin Energy Co. v. Bourne, 598 So. 2d 1160 (La.
App. 1st Cir. 1992)). Because the foregoing is undisputedly the law
in Louisiana, the Court is rather perplexed by
ACE’s suggestion, found at page 16 of its memorandum in support
(Rec. Doc. 199-1), that the Excess Insurers’ recovery in this
lawsuit would be limited to what they paid WH Holdings for the
litigious right. But that issue is not before the Court as part
of this motion for summary judgment.
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coverage for the damage to the Ritz.

The question of whether the

Excess Insurers’ policy or ACE’s policy was primary is disputed
in this litigation and it was disputed when the Agreement was
executed.

ACE’s argument that the Excess Insurers were merely

satisfying their own coverage obligations is based on ACE’s
assumption that it will prevail on the ranking issue.
Second, the Agreement cannot fairly be characterized as a
gratuitous donation.

The Excess Insures paid WH Holdings

$2,775,091.00 in consideration for two things–-a release of all
liability and a transfer of litigious rights.

Again, even though

coverage existed liability of the Excess Insurers was not a given
because of the ranking issue.

Louisiana law does not require

that the consideration paid to the assignor be solely for the
litigious right,4 and the Court can find no support for ACE’s
contention that the transfer cannot be part of a compromise
agreement.

To the contrary, the Fifth Circuit’s decision in

Woodfield v. Bowman, 193 F.3d 354, 359-60 (5th Cir. 1999),
provides express recognition for the validity of an assignment of
rights as part of a compromise agreement.

4

Morever, Woodfield

The question of whether the consideration paid was solely
for the litigious right at issue may be relevant under article
2452 redemption when the debtor attempts to immediately terminate
the litigation for what the assignee paid for the right. But
redemption is not at issue in this case. See note 3, supra.
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involved an insurer that obtained its insured’s rights against
another insurer as part of a settlement.

That is the very

situation that has occurred in this case.
Woodfield also dispels ACE’s contention that WH Holdings’
claim was extinguished when it compromised its claim with the
Excess Insurers, thereby leaving WH Holdings with no litigious
rights to transfer.

ACE’s position as to extinguishment

basically seeks to write the ability to transfer litigious rights
as part of a compromise out of the Civil Code.

But again, the

Court can find no support for the contention that litigious
rights cannot be transferred as part of a compromise.
ACE argues that Woodfield is not applicable to this case
because Woodfield involved conventional subrogation and the
parties’ contract in this case expressly precluded subrogation.
To the contrary, Woodfield specifically involved a sale of
litigious rights as part of a settlement agreement.

The panel

did also characterize what occurred as conventional subrogation
because in reality every assignment of rights is a type of
conventional subrogation.

See La. Civ. Code art. 2642 (“The

assignee is subrogated to the rights of the assignor against the
debtor.”).
ACE suggests that Plaintiffs are contractually precluded
from subrogation and for this proposition ACE cites to § 11.4.7
7

of the General Conditions of the construction contract between WH
Holdings and Gootee Construction Co.5
at 4 n.9).

(Rec. Doc. 224, ACE reply

The waiver of subrogation language found in § 11.4.7

of the General Conditions is not a paragon of clarity.

But while

it clearly evinces the parties’ intent to waive legal subrogation
vis à vis each other and the architect, it does nothing to
preclude WH Holdings from contractually assigning its own
contractual rights, if any, against an insurer like ACE.
ACE emphasizes repeatedly throughout its memorandum that the
Agreement is nothing more than the Excess Insurers’ attempt to
foist their own coverage obligations upon ACE.

This line of

argument is not persuasive because Plaintiffs can only prevail in
this litigation if they prove that they satisfied what would have
been ACE’s coverage obligations to WH Holdings, not their own.
ACE will not be called upon to pay anything if in fact the Excess
Insurers’ coverage was primary, or if WH Holdings was not an
insured under ACE’s policy.

But until those determinations are

made in ACE’s favor in this case, the Excess Insurers are
entitled to prosecute their case.

5

In the underlined heading on page 17 of its memorandum in
support ACE alludes to a waiver of subrogation in the Excess
Insurers’ policy. But ACE did not address that contention in its
memorandum in support or reply memorandum and no specific
sections of the Excess Insurers’ policy are mentioned.
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In sum, the Court is persuaded that the Agreement effected a
valid sale of litigious rights between WH Holdings and the Excess
Insurers.

In Louisiana, the sale of litigious rights is not

verboten and those rights are freely assignable with certain
exceptions not applicable here.

See La. Civ. Code art. 2447;

Indep. Ice & Distilled-Water, 30 So. at 273.

ACE’s motion for

summary judgment is therefore DENIED.
Accordingly, and for the foregoing reasons;
IT IS ORDERED that the Motion for Summary Judgment (Rec.
Doc. 204) filed by defendant ACE American Insurance Co. is
DENIED.
March 11, 2013
JAY C. ZAINEY
UNITED STATES DISTRICT JUDGE

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