Itron, Inc. v. Johnston et al

Filing 94

Memorandum Opinion and Order denying 46 MOTION for Summary Judgment , denying as moot 55 MOTION to Strike. Signed by District Judge Tom S. Lee on 1/26/17 (LWE)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION
ITRON, INC.

PLAINTIFF

VS.

CIVIL ACTION NO. 3:15CV330TSL-RHW

STEPHEN D. JOHNSTON, AJIT HABBU
AND GARY KESSLER

DEFENDANT

MEMORANDUM OPINION AND ORDER
This cause is before the court on the motion of defendants
Stephen D. Johnston, Ajit Habbu and Gary Kessler for summary
judgment pursuant to Rule 56 of the Federal Rules of Civil
Procedure.
the motion.

Plaintiff Itron, Inc. has responded in opposition to
The court, having considered the memoranda of

authorities, together with attachments, submitted by the parties,
concludes the motion should be denied.1
Background
Plaintiff Itron is engaged in the development and manufacture
of electric, natural gas and water meters, including standard
meters and next-generation advanced and smart metering products,
metering systems and related software and services.

Around 2010,

Itron began doing business with SmartSync, a Jackson-based company

1

Itron filed a motion to strike certain of defendants’
summary judgment evidence. Defendants responded that they would
withdraw the challenged evidence. In light of their response, the
motion to strike is moot and will be denied as such.

that was in the business of providing “smart grids” for wireless
connections between devices, and in particular, “smart”
electricity meters.

Toward the end of 2011, Itron began

negotiating for a potential acquisition of SmartSync and on March
30, 2012 entered an agreement to acquire SmartSync pursuant to an
Amended and Restated Plan of Merger (Merger Agreement).

The

merger closed on May 1, 2012, at which time Itron acquired
SmartSync for approximately $100 million.

At the time of the

negotiations and merger, defendant Johnston was CEO of SmartSync;
defendant Habbu was CFO; and defendant Gary Kessler was
SmartSync’s Vice President of Product Marketing.
Itron alleges that on April 25, 2012, just six days before
closing of the merger, SmartSync executed a contract with one
Consert, Inc. which, at least facially, obligated SmartSync to
purchase $60 million in intellectual property licenses from
Consert over a five-year period (the Consert Agreement).

As a

result of the merger, Itron inherited SmartSync’s obligations to
Consert under the Consert Agreement, notwithstanding that when the
merger closed, Itron was not aware of the Consert Agreement.

In

fact, Itron did not become aware of the Consert Agreement until
some two months after the merger, when it received an invoice from
Consert for $3 million, at which time Itron began an investigation
and discovered the Consert Agreement.

Itron promptly filed a

declaratory judgment action against Consert in the Chancery Court
2

of Delaware, seeking to void, or in the alternative reform the
Consert Agreement.

See Itron, Inc., as successor-in-interest to

SmartSync, Inc. v. Consert Inc., Case No. 7720-VCL (Del. Chan
Ct.).

On February 2, 2015, the day before the case was scheduled

to be tried, Itron and Consert reached a settlement of the
litigation by which Itron paid a substantial sum, though
substantially less than $60 million, in settlement of the claim.
Itron then brought the present action seeking to recover from
defendants Habbu, Johnston and Kessler the amount it paid in
settlement of the Consert litigation, together with attorney’s
fees and expenses it incurred in connection with that litigaiton.
In this action, Itron alleges that prior to the merger, each of
these defendants knew that SmartSync had entered this undeniably
“material contract” (as defined in the Merger Agreement) and also
knew that SmartSync had not disclosed this contract to Itron and
in fact had represented to Itron that no “material contracts” had
been entered; yet defendants failed to disclose the contract to
Itron.

Itron alleges that had it known of the Consert Agreement

before the merger closed, it would not have consummated the merger
under the terms stated in the Merger Agreement.

However, because

the Consert Agreement was not disclosed, Itron lost the
opportunity to seek an adjustment of the merger consideration or
to seek cancellation of (or otherwise address) the Consert
Agreement prior to closing and instead, became subject to the
3

liabilities created by the Consert Agreement, causing Itron losses
and damages in connection with the Consert Agreement and
associated litigation.
Defendants’ Motion for Summary Judgment
Defendants requested and were granted leave to file an early
summary judgment motion to present three specific grounds for
summary judgment, namely, that Itron’s claims against them are
(1) time-barred, (2) barred by judicial estoppel, and/or
(3) barred by the voluntary payment doctrine.

The court, having

considered the parties’ arguments and evidence relating to these
specific issues, concludes that defendants have not demonstrated
that summary judgment is proper on any of these bases.2
Argument 1: Itron’s Claims are Time-Barred
Defendants’ contention that Itron’s claims are time-barred is
based on Section 10.1 of the Merger Agreement, which states that
the representations and warranties of SmartSync set forth in the

2

In their reply brief, defendants raised a number of
additional arguments, including that Itron cannot succeed on its
claim against them because (1) it cannot prove defendants had any
duty to disclose; (2) the claim is barred by the economic loss
rule; and (3) the claim is barred by the merger clause in the
merger agreement. By order entered October 14, 2016, the court
granted a motion by Itron to strike, ruling that it would not
consider these additional arguments as they were not properly
before the court and that the arguments could be raised, if at
all, in a separate summary judgment motion. Thereafter,
defendants requested leave to file a second “early” summary
judgment motion raising these arguments; the magistrate judge
denied that motion by order entered December 12, 2016.
4

agreement, including representations in an officer’s certificate
executed by Johnston on behalf of SmartSync in connection with the
merger, survive only for twenty-four months following the closing
of the merger, and which further provides that “the Company
{SmartSync] shall [not] have any liability whatsoever with respect
to any such representations and warranties unless a claim is made
hereunder prior to the expiration of the survival period for such
representations and warranties....”

Defendants assert that in

accordance with this provision, this action is time-barred since
it was not commenced until April 15, 2015, well more than two
years after the merger closed on May 1, 2012.

However, as Itron

aptly argues in its response, the Merger Agreement does not
shorten the limitations period for its claims in this cause both
because defendants are not parties to that agreement and the terms
of the Merger Agreement do not shorten the statute of limitations
for tort claims.

Itron’s claims in this case are for negligent

misrepresentation, not breach of contract, and these claims were
filed within the three-year limitations period applicable to such
claims.3

3

The Merger Agreement provides for application of
Delaware law to “all disputes or controversies arising out of or
relating to this Agreement or the transactions contemplated
hereby....” Unlike Mississippi law, which prohibits contractual
shortening of limitations periods, see Miss. Code Ann. § 15-1-5,
Delaware law “does not have any bias against contractual clauses
that shorten statutes of limitations...,” GRT, Inc. v. Marathon
GTF Tech., Ltd., No. CIV. A. 5571-CS, 2011 WL 2682898, at *3 (Del.
5

Argument 2: Judicial Estoppel Bars Itron’s Claims
Defendants next argue that Itron’s claims in this cause are
predicated entirely on the enforceability of the Consert Agreement
and yet Itron, having consistently taken the position in the
Delaware Consert litigation that the Consert Agreement should be
declared void and unenforceable and/or should be rescinded, that
the invoices issued pursuant to the Consert Agreement were null
and void, and having advanced affirmative defenses to Consert’s
breach of contract claims, should be found judicially estopped
from claiming in this case that the Consert Agreement was
enforceable.
“Judicial estoppel prevents a party from asserting a position
in a legal proceeding that is contrary to a position previously
taken in the same or some earlier proceeding.”

Hall v. GE Plastic

Pac. PTE, Ltd., 327 F.3d 391, 396 (5th Cir. 2003) (internal
quotation marks and citation omitted).

“The purpose of the

doctrine is to prevent litigants from ‘playing fast and loose’
with the courts....”

Id. (internal quotation marks and citation

Ch. July 11, 2011). Itron denies that Delaware law applies, both
because its claims arise in tort, not from the contract, and
because defendants are not parties to the agreement. It submits,
though, that there is no conflict between the laws of Delaware and
Mississippi in any way that is relevant to the issues raised by
the present motion since both Mississippi and Delaware law have a
three-year statute of limitation on claims for negligent
misrepresentation. See 10 Del. C. § 8106; Miss. Code Ann.
§ 15-1-49.
6

omitted).

“Judicial estoppel is an equitable doctrine invoked by

a court at its discretion.”

Claimant ID 100197593 v. BP Expl. &

Prod., Inc., No. 16-30283, 2016 WL 7029142, at *3 (5th Cir. Nov.
16, 2016) (quoting New Hampshire v. Maine, 532 U.S. 742, 750
(2001)); see also In re Coastal Plains, Inc., 179 F.3d 197, 205
(5th Cir. 1999) (stating judicial estoppel is an equitable
doctrine, and the decision whether to invoke it is within the
court's discretion).

The Fifth Circuit has held that “[f]or a

party to be judicially estopped from arguing a position, the
position must be clearly inconsistent with the party's previous
one, and the party must have clearly convinced the court to accept
that previous position.”

Id.4

Itron submits that summary judgment is not in order as
defendants have not shown that Itron has taken any inconsistent
position in this lawsuit.

It agrees that in the Consert

litigation, it did contest its liability under the Consert
Agreement and asserted various defenses to enforcement of the
Agreement.

It argues, though, that it has not taken a position in

this case that the Consert Agreement was necessarily enforceable
or that any of the defenses it asserted in the Consert litigation
were untrue.

Rather, it asserts that its claims in this case are

4

“[G]enerally [the Fifth] Circuit considers judicial
estoppel ‘a matter of federal procedure’ and therefore applies
federal law.” Hall v. GE Plastic Pac. PTE Ltd., 327 F.3d 391, 395
(5th Cir. 2003).
7

grounded on its position that in the Consert litigation, it faced
a reasonable risk of being found liable for $60 million or more in
damages for breach of contract and that its decision to settle
with Consert was thus a reasonable and prudent decision.
In response, defendants point out that the complaint contains
no allegation by Itron merely that it faced a “reasonable risk” of
being found liable for $60 million under the Consert Agreement.
Rather, according to defendants, implicit on Itron’s allegation in
the complaint herein that the Consert Agreement satisfied the
Merger Agreement’s definition of “material contract” is that the
Consert Agreement was an enforceable “material contract.”
court finds no merit in this contention.

The

Whether or not it was

ultimately enforceable, the Consert Agreement appeared on its face
to qualify as a “material contract” within the contemplation of
the Merger Agreement.

That is what Itron has alleged: that the

Consert Agreement “facially” was a “material contract” which Itron
did not authorize and which was not disclosed to Itron.

Itron

alleges that as a result of SmartSync’s execution of the Consert
Agreement and defendants’ non-disclosure of the agreement, Itron
suffered material harm in that it “lost the opportunity to seek an
adjustment of the Merger Consideration, or to seek a cancellation
of (or otherwise address) the Consert Agreement prior to the
Merger Closing” and instead, “closed the merger and unwittingly
assumed liability for the Consert Agreement” which resulted in
8

substantial losses to Itron, due to the Consert Litigation and
resulting settlement.

There may be no specific allegation in the

complaint that Itron’s settlement was reasonable and prudent
because it faced a “reasonable risk” of being found liable for $60
million or more in damages for breach of contract.

However, the

court does not read the complaint herein to allege, explicitly or
implicitly, that the Consert Agreement was valid and enforceable.
In the court’s opinion, even if Itron’s position in this case
were inconsistent with its position in the Consert litigation,
judicial estoppel would still be inapplicable because the Delaware
court did not “clearly accept” any position of Itron.

“The

purpose of the prior success or ‘judicial acceptance’ requirement
is to ‘minimize[] the danger of a party contradicting a court's
determination based on the party's prior position and, thus,
mitigate[] the corresponding threat to judicial integrity.’”
Hall, 327 F.3d at 398 (5th Cir. 2003) (quoting Coastal Plains, 179
F.3d at 206); see also 18B C. Wright, A. Miller, & E. Cooper, Fed.
Practice and Procedure § 4477 (2d ed.) (“[A]bsent any good
explanation, a party should not be allowed to gain an advantage by
litigation on one theory, and then seek an inconsistent advantage
by pursuing an incompatible theory.”).

The court recognizes that

“[t]he ‘judicial acceptance’ requirement does not mean that the
party against whom the judicial estoppel doctrine is to be invoked
must have prevailed on the merits,” Coastal Plains, 179 F.3d at
9

206, and that the doctrine may properly be applied if the previous
court accepted the party’s argument “either as a preliminary
matter or as part of a final disposition,” id.

So long as the

previous court “‘necessarily accepted, and relied on’ a party's
position in making a determination, then the prior success
(judicial acceptance) requirement is satisfied.”

Hall, 327 F.3d

at 399 (quoting Ahrens v. Perot Sys. Corp., 205 F.3d 831, 836 (5th
Cir. 2000)).
Here, defendants note that in the Consert litigation, Itron
filed a summary judgment motion, arguing that certain conditions
precedent to Consert’s right to be paid under the contract had not
been met.

Not only was Itron’s position on that motion not

inconsistent with any position it has asserted in this case, but
the court clearly did not accept Itron’s position, as it denied
Itron’s motion for summary judgment.

Defendants further point out

that in the Consert litigation, Consert submitted a letter
requesting leave to file a summary judgment motion; Itron
responded by letter opposing the request and asking to file its
own summary judgment motion.

The Delaware court denied both

parties’ requests, explaining that, in the exercise of its
discretion, it found it “desirable to inquire into or develop more
thoroughly the facts at [a bench] trial in order to clarify the
law or its application.”

See Itron, Inc. v. Consert Inc., Case

No. 7720-VCL (Del. Chan Ct. Aug. 22, 2014).
10

In this court’s

opinion, by electing to proceed with a bench trial for the purpose
of developing a fuller factual record rather than allowing the
parties to present their positions via summary judgment, the
Delaware court did not necessarily and clearly accept Itron’s
position.

Accordingly, judicial estoppel does not apply.

Argument 3: Voluntary Payment Doctrine Bars Itron’s Claims
Defendants’ final argument on this summary judgment motion is
that Itron’s claims are barred by the voluntary payment doctrine.
In the court’s opinion, defendants have not shown that summary
judgment is proper on this basis.

The voluntary payment doctrine,

or volunteer doctrine, holds that:
“[A] voluntary payment can not be recovered back, and a
voluntary payment within the meaning of this rule is a
payment made without compulsion, fraud, mistake of fact,
or agreement to repay a demand which the payor does not
owe, and which is not enforceable against him, instead
of invoking the remedy or defense which the law affords
against such demand.”
Genesis Ins. Co. v. Wausau Ins. Cos., 343 F.3d 733, 736 (5th Cir.
2003) (quoting McDaniel Bros. Constr. Co., Inc. v. Burk-Hallman
Co., 253 Miss. 417, 175 So. 2d 603, 605 (1965)).

“An involuntary

payment is one ‘not proceeding from choice.’” Id. at 738 (quoting
66 Am. Jur. § 112 (2001)).

“Payments that are made by virtue of

legal obligation or by accident or mistake are inherently
involuntary,” as are “[p]ayments made under compulsion.”

Id.

See

also Guidant Mut. Ins. Co. v. Indem. Ins. Co. of N. Am., 13 So. 3d
1270, 1279 (Miss. 2009) (describing a “volunteer” as “[a] stranger
11

or intermeddler who has no interest to protect and is under no
legal or moral obligation to pay.”) (quoting State Farm Mut. Auto.
Ins. Co. v. Allstate Ins. Co., 255 So. 2d 667, 668 (Miss. 1971)).
Defendants contend that Itron’s settlement payment to Consert in
connection with the Delaware litigation is a voluntary payment
that Itron had no legal obligation to make, as clearly established
by Itron’s pleadings and other papers filed with the Delaware
chancery court, and that Itron is thus barred from seeking to
recover this voluntary payment from defendants.
Itron argues in response that there are only two contexts in
which the voluntary payment doctrine applies, and this is not one
of them.

These two contexts are: (1) when a party is attempting

to recover back a payment from the party to which the payment was
made, and (2) when the two parties have joint responsibility for a
single loss or indebtedness to a third party, and one co-obligor
seeks to recover from the other.

Itron contends that the doctrine

has no application where a party seeks to recover a payment not
from the recipient or a co-obligor, but instead from a responsible
third-party tortfeasor.

It submits that in that context, the

doctrine simply does not apply.

The court, having considered

Itron’s arguments, is not persuaded that the voluntary payment
doctrine is so limited.
A number of cases have rejected a voluntary payment defense
where one party’s alleged tortious conduct has created another’s
12

contractual liability to a third party, not because the doctrine,
as a legally-recognized doctrine, could not apply in that context,
but rather because a requirement for application of the doctrine,
e.g., a voluntary payment, was missing.

For example, in RSUI

Group, Inc. v. Willis of Alabama, Inc., No. 07-0142-WS-B, 2007 WL
2469571 (S.D. Ala. Aug. 29, 2007), the court found that the
voluntary payment rule did not apply because an insurance agent
caused the insurer to be legally obligated to pay under an
insurance policy by failing to include a particular exclusion in
the insurance binder as he had been instructed.

Id. at *1.

The

court reasoned that it would make little sense to hold that a
party with an “inescapable obligation, wrongfully created by
another, to pay an innocent third party forfeits all right to be
made whole by the wrongdoer if he honors that obligation.”

Id.

(emphasis added).
In Auto-Owners Insurance Co. v. Tomberlin, Young & Folmar
Insurance, 874 F. Supp. 2d 1310 (M.D. Ala. 2012), the defendant
solicited a surety bond from Auto-Owners for one S&S on some $9
million in subcontracts S&S had with Dick Corporation.
1313.

Id. at

Auto-Owners issued a performance and payment bond to S&S

based on the defendant’s representation that S&S had an untouched
$2,000,000 line of credit.

Id.

Dick Corporation subsequently

declared S&S in default and sued Auto-Owners on the bond.

Id.

Auto-Owners eventually settled with Dick Corporation and then sued
13

the defendant to recover the amount it paid in settlement on the
theory that the defendant’s failure to perform its duties as
soliciting agent for the bond caused Auto-Owners to be legally
obligated to pay for S&S’s default through a bond Auto-Owners
would not have issued but for the defendant’s actions.
1316.

Id. at

The court found that the defendant, which admitted that

Auto-Owners had a legal obligation under the bond, failed to
demonstrate its entitlement to summary judgment based on the
voluntary payment defense.

Id.

Similarly, in Minnesota Pipe and Equipment Co. v. Ameron
Int’l Corp., 938 F. Supp. 2d 862 (D. Minn. 2013), where a pipe
distributor was clearly legally liable under the terms of its
contract with its customer to pay the difference between the pipe
required to be used in a project and the pipe on which the
customer had based its bid for the project, the voluntary payment
doctrine did not bar the distributor’s claim against its pipe
supplier for negligently misrepresenting that the type of pipe
included in the bid was approved for use in the project.
875.

Id. at

The voluntary payment doctrine was inapplicable because the

distributor’s payment was not voluntary as the distributor was
bound by contract to reimburse its customer once the pipe was
rejected.

Id.5

5

The court notes that in Bank of Commerce v. SouthGroup
Insurance & Finance Services, LLC, 73 So. 3d 1106 (Miss. 2011),
after settling twenty-three lawsuits brought against it by
14

In Frank W. Schafefer, Inc. v. C. Garfield Mitchell Agency,
Inc., 612 N.E.2d 442, 82 Ohio App. 3d 322 (Ohio Ct. App. 1992),
involving a somewhat analogous situation, an insured, after
settling a workers’ compensation claim against it, filed suit to
recover the amount of the settlement from its insurance agent, who
was alleged to have negligently failed to recommend stop-gap
coverage which would have provided coverage for the claim.
Following a jury verdict for the insured, the agent appealed,
arguing, inter alia, that the proximate cause of the insured’s
claimed loss was its voluntary decision to settle, and not any
negligence on the agent’s part.

612 N.E.2d at 452.

More

particularly, the agent argued that the insured should have
anticipated that the law would change in its favor, making it more
difficult for the claimant employee to prevail at trial, and the
insured therefore should have refused to settle.

Id. at 453.

customers for alleged RICO violations, the Bank of Commerce filed
suit against its insurance agent to recover the amount of its
settlement, alleging that it would have had coverage for the
claims but for the agents’ negligent failure to recommend that the
Bank purchase entity coverage. Id. at 1108. The trial court
found that the “volunteer doctrine” precluded the Bank’s claims
because there was no indication that the settlement was made by
compulsion, fraud, or mistake of fact. The Supreme Court did not
address the lower court’s holding in this regard, finding instead
that the claim was barred by the statute of limitations. Id. at
1111. However, in his dissenting opinion, Justice Kitchens opined
that summary judgment was not proper based on the voluntary
payment doctrine as there was a genuine issue of material fact as
to whether the settlement was reasonable and made under compulsion
where the settlement was for $600,000 for all twenty-three cases
and the estimated cost to try just one case was over $1,000,000.
Id. at 1112 (Kitchens, J., dissenting).
15

The court found that the insured was not required to pass on an
advantageous settlement purely on the possibility that the law
might change and that the settlement “was not an unreasonable and
voluntary payment, nor negated [the insured’s] proximate cause
evidence.” Id.6
The court is not persuaded that the voluntary payment
doctrine could not apply in the circumstances of this case, if the
requirements for applying the doctrine were met.

Nevertheless,

the court is unable to conclude that summary judgment is proper on
the basis of the voluntary payment doctrine.

The Fifth Circuit

has emphasized that “whether a payment was compelled or made
voluntarily is a highly factual determination.” Genesis, 343 F.3d
at 739 (citing Glantz Contracting Co. v. General Electric Co., 379
So. 2d 912, 917-18 (Miss. 1980)); see also Southern Ins. Co. v.
Affiliated FM Ins. Co., 830 F.3d 337, 347-48 (5th Cir. 2016)
(stating that “[f]or obvious reasons,” the determination whether a
6

In support of its position that the voluntary payment
doctrine does not apply where a party seeks to recover a payment,
not from a co-obligor but from a tortfeasor, Itron cites Read v.
Benedict, 200 Ga. App. 4, 406 S.E.2d 488 (1991), and Avianca, Inc.
v. Corriea, Civ. A. No. 85–3277(RCL), 1992 WL 93128 (D.D.C. Apr.
13, 1992). Neither case persuades the court that the voluntary
payment doctrine would not apply in the circumstances of this
case, if the requirements of the doctrine’s application were
otherwise established. The plaintiff in Avianca sought recovery
on a theory of intentional/fraudulent conduct; the court found the
equities swayed against application of the doctrine. 1992 WL
93128, at 7. There are no allegations of fraud or intentional
misconduct in this case. Read, as defendants note, involved
application of Georgia’s statute on voluntary payments, OCGA § 131-13, and turned on the statutory text and legislative intent.
16

payment was compelled or voluntary is “highly factual”) (quoting
Genesis).

At the same time, the court noted the dearth of

Mississippi case law to explain what is meant by “compulsion,” id.
at 738, which prompted the court to look to other jurisdictions
and the legal literature in an attempt to determine how the
Mississippi Supreme Court would apply the voluntary payment
doctrine to the specific facts presented, id.

The court observed

that “[n]ot all pressure for payment amounts to compulsion,”
Genesis, 343 F.3d at 739 (citations omitted), and stated the
following general rule for whether a payment was made voluntarily:
where a person pays an illegal demand, with full
knowledge of all the facts which render the demand
illegal, without an immediate and urgent necessity to
pay, unless it is to release his or her person or
property from detention or to prevent an immediate
seizure of his or her person or property, the payment is
voluntary. It is only when, in an emergency for which a
person is not responsible, the person is compelled to
meet an illegal exaction to protect his or her business
interest that he or she may recover the payment, but if,
with knowledge of the facts, that person voluntarily
takes the risk of encountering the emergency, the
payment is voluntary and may not be recovered.
Id. at 739 (quoting 66 Am. Jur. 2d § 109).
In Genesis, President Casino and its CGL carrier, Genesis
Insurance Company, contributed $200,000 toward the settlement of a
tort claim brought by a patron who was hit in the President
parking lot by a casino bus.

They then sought to recover that

amount from Wausau Insurance Companies, which provided President’s
automobile liability coverage.

Referencing the above-quoted
17

standard, the court in Genesis opined that the settlement by
President and Genesis “lack[ed] the sense of immediacy often
accompanied by compelled payments” where the litigation involved
(including a declaratory judgment action brought by Genesis
against Wausau) could “take years to resolve.”

Id. at 739.

The

court found, moreover, that the stakes, in the event President and
Genesis refused to participate in the settlement “were of an
insufficiently dire magnitude to justify finding that their
settlement contributions were compelled.”

Id. at 739-40.

The

court explained that “[a] payment is considered coerced only where
it is made to avoid the loss of a necessity, or to prevent an
injury to a person, business or property which is different and
disproportionately greater than the unlawful demand.”
(internal quotation marks and citation omitted).

Id. at 74

The court

concluded the potential loss to President and Genesis did not meet
this standard, reasoning that
the prospect of paying a maximum, as estimated by
President and Genesis, of $1,000,000 between them after
the jury returned its verdict, and all appeals (of both
the state case and this action) had been exhausted, did
not threaten to have such “a disastrous effect to
business” that President and Genesis, two national
corporations, one of whose business was to insure
against precisely these kinds of judgments, felt
compelled to contribute to the Baker settlement.
Randazzo v. Harris Bank Palatine, N.A., 262 F.3d 663,
669 n. 1 (7th Cir. 2001). This is particularly true
when we take appellants' contention (which is well
supported) that the Genesis policy did not cover the
Baker accident (meaning that they would ultimately not
be required to pay any portion of a jury verdict) at
18

face value. Compare Halstead Terrace Nursing Cntr.,
Inc. v. Scottsdale Ins. Co., 1997 WL 124263 (finding
that where insured nursing home was faced with “
‘enormous potential liability’ in excess of the policy
limits,” treble damages, and disruption to personnel by
continued litigation of a wrongful death suit against
it, $175,000 payment in order to enable settlement was
compelled).
Genesis, 343 F.3d at 740.
More recently, in Liberty Mutual Insurance Co. v. Holloway,
556 F. App’x 299, 305 (5th Cir. 2014), the Fifth Circuit disagreed
with the district court’s classification of a payment of $1.9
million via settlement as a voluntary payment which could not be
recovered.

In that case, after a bankruptcy trustee filed a

preference action to recover $3.25 million that certain insurers
had received in settlement payments from the debtor, Friede
Goldman, the insurers agreed to settle the litigation by returning
$1.9 million and retaining the balance of $1.35 million.

The

Fifth Circuit noted that the insurers who made this payment
agreed to the settlement because they faced the
likelihood of a judgment requiring them to return the
entire $3.25 million in settlement payments from Friede
Goldman back to the bankrupt estate in the preference
litigation. In order to avoid returning the full
amount, the insurers agreed to a compromise: they would
return $1.9 million in exchange for dismissal of the
preference suit. The volunteer rule does not apply to
this payment because the insurers' payment was in
settlement of a hotly contested litigation. The payment
was compelled by the desire to limit their liability,
and no one argues that the amount paid was unreasonable.
See Certain Underwriters at Lloyd's of London v.
Knostman, 783 So. 2d 694, 698 (Miss.2001) (citation
omitted); see also Canal Ins. Co. v. First General Ins.
Co., 889 F.2d 604 (5th Cir. 1989).
19

Holloway, 556 Fed. App’x at 305 n.15.
There are facts in this case that could tend to support a
finding of compulsion.7

Unlike Genesis, where litigation might

have been expected to last years, Itron settled the Consert
litigation on the eve of trial.

And, while Itron denied the

validity and/or enforceability of the Consert Agreement, it is not
apparent that its position was likely to be accepted, as was the
case in Genesis.

The Delaware litigation, rather, was “hotly

contested,” as in Holloway.

Moreover, Itron’s potential exposure

was to a judgment of $60 million.

At this time, the court cannot

conclude that a jury could not reasonably find that Itron’s
payment “was compelled by the desire to limit their liability,” or
that the “amount paid was unreasonable.”

Holloway, 556 Fed. App’x

at 305 n.15.
Conclusion
Based on the foregoing, it is ordered that defendants’ motion
for summary judgment is denied.
SO ORDERED this 26th day of January, 2017.

/s/ Tom S. Lee
UNITED STATES DISTRICT JUDGE

7

The court does not accept Itron’s suggestion that the
mere fact that the chancery judge may have encouraged the parties
to consider settlement could be found to constitute compulsion.
20