PNY TECHNOLOGIES, INC. et al v. TWIN CITY FIRE INSURANCE COMPANY

Filing 76

OPINION. Signed by Judge Stanley R. Chesler on 7/16/14. (gmd, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
PNY TECHNOLOGIES, INC. et al.,

:
:
Plaintiffs, :
:
v.
:
:
TWIN CITY FIRE INSURANCE CO.,
:
:
Defendant. :
:
:

Civil Action No. 11-4647 (SRC)

OPINION

CHESLER, District Judge
This matter comes before this Court on two motions: 1) the motion for summary
judgment, pursuant to Federal Rule of Civil Procedure 56, by Defendant Twin City Fire
Insurance Company; and 2) the motion to strike an exhibit by Plaintiffs PNY Technologies, Inc.
and PNY Technologies Europe (collectively, “PNY”). For the reasons stated below,
Defendant’s motion for summary judgment will be granted, and the motion to strike will be
denied.
APPLICABLE LEGAL STANDARDS
I.

Motion for summary judgment
Summary judgment is appropriate under FED . R. CIV . P. 56(c) when the moving party

demonstrates that there is no genuine issue of material fact and the evidence establishes the
moving party’s entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S.
317, 322-23 (1986). A factual dispute is genuine if a reasonable jury could return a verdict for
the non-movant, and it is material if, under the substantive law, it would affect the outcome of

the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “In considering a motion
for summary judgment, a district court may not make credibility determinations or engage in any
weighing of the evidence; instead, the non-moving party's evidence ‘is to be believed and all
justifiable inferences are to be drawn in his favor.’” Marino v. Indus. Crating Co., 358 F.3d 241,
247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255).
“When the moving party has the burden of proof at trial, that party must show
affirmatively the absence of a genuine issue of material fact: it must show that, on all the
essential elements of its case on which it bears the burden of proof at trial, no reasonable jury
could find for the non-moving party.” In re Bressman, 327 F.3d 229, 238 (3d Cir. 2003) (quoting
United States v. Four Parcels of Real Property, 941 F.2d 1428, 1438 (11th Cir. 1991)). “[W]ith
respect to an issue on which the nonmoving party bears the burden of proof . . . the burden on the
moving party may be discharged by ‘showing’ – that is, pointing out to the district court – that
there is an absence of evidence to support the nonmoving party’s case.” Celotex, 477 U.S. at
325.
Once the moving party has satisfied its initial burden, the party opposing the motion must
establish that a genuine issue as to a material fact exists. Jersey Cent. Power & Light Co. v.
Lacey Township, 772 F.2d 1103, 1109 (3d Cir. 1985). The party opposing the motion for
summary judgment cannot rest on mere allegations and instead must present actual evidence that
creates a genuine issue as to a material fact for trial. Anderson, 477 U.S. at 248; Siegel Transfer,
Inc. v. Carrier Express, Inc., 54 F.3d 1125, 1130-31 (3d Cir. 1995). “[U]nsupported allegations .
. . and pleadings are insufficient to repel summary judgment.” Schoch v. First Fid.
Bancorporation, 912 F.2d 654, 657 (3d Cir. 1990); see also FED . R. CIV . P. 56(e) (requiring
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nonmoving party to “set out specific facts showing a genuine issue for trial”). “A nonmoving
party has created a genuine issue of material fact if it has provided sufficient evidence to allow a
jury to find in its favor at trial.” Gleason v. Norwest Mortg., Inc., 243 F.3d 130, 138 (3d Cir.
2001).
If the nonmoving party has failed “to make a showing sufficient to establish the existence
of an element essential to that party’s case, and on which that party will bear the burden of proof
at trial, . . . there can be ‘no genuine issue of material fact,’ since a complete failure of proof
concerning an essential element of the nonmoving party’s case necessarily renders all other facts
immaterial.” Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir. 1992) (quoting Celotex,
477 U.S. at 322-23).
DISCUSSION
I.

Defendant’s motion for summary judgment
This is a dispute over insurance coverage between Plaintiffs, the insured parties, and

Defendant, their insurer, under two policies for directors’ and officers’ liability insurance
coverage (the “Policies”). Plaintiffs filed a Complaint which asserts three claims, two for
declaratory judgment regarding coverage under the Policies, and one for breach of contract.
Defendant has moved for summary judgment on all claims.
While Defendant moves for summary judgment on six grounds, this Court finds that
Defendant has succeeded on two of those grounds and that the rest need not be reached: 1) the
claims submitted by Plaintiffs to Defendant do not qualify for coverage under the language of the
Policies; and 2) the claims submitted by Plaintiffs are excluded by the “Contractual Liability
Exclusion” in the Policies.
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There are no disputes about the basic facts in the case: Plaintiff PNY Europe’s former
Chief Financial Officer (the “CFO”) entered into several foreign exchange transaction
agreements with four banks. The banks have demanded payments from Plaintiffs pursuant to
those agreements. Plaintiffs have submitted claims for coverage under the Policies, and
Defendant has denied coverage. PNY has subsequently settled the demands with three of the
four banks; the dispute between PNY and the fourth bank is ongoing. In the two declaratory
judgment claims in the Complaint, Plaintiffs seek a declaration that Defendant is obligated to
defend and indemnify Plaintiffs in their disputes with the banks over the foreign exchange
transaction agreements.
The parties agree that Plaintiffs have sought coverage under the Policies based on this
Policy language: the insurer “shall pay Loss on behalf of an Insured Entity resulting from an
Entity Claim . . . for a Wrongful Act by an Insured Entity.” (56.1 Stmt. ¶ 3.) The Policies define
a “Wrongful Act” as “any actual or alleged act, error, omission, neglect, breach of duty,
misstatement or misleading statement by the Company.”1 (56.1 Stmt. ¶ 5.)
The Policies provide a definition of “entity claim” which includes four categories of such
claims. There is no dispute that the part of the definition most relevant to this case is: “‘Entity
Claim’ means (1) any written demand for monetary damages or other civil relief commenced by
the receipt of such demand . . .” (56.1 Stmt. ¶ 4; Insua Dec. Exs. A, B; Casher Dec. Exs. A, B).
There is also no dispute that the CFO executed foreign exchange transaction agreements with
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Although the parties agreed in their Rule 56.1 Statements that this was the Policy
definition of “wrongful acts,” the actual policies contained in the exhibits show a slightly
different wording: “any actual or alleged . . . error, misstatement, misleading statement, act,
omission, neglect, or breach of duty committed . . . by an Insured Entity.” (Insua Dec. Exs. A, B;
Casher Dec. Exs. A, B). These small variations in wording have no material impact on this case.
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four banks, and that these banks have made written demands for payment under these
agreements, seeking roughly 50 million dollars. (56.1 Stmt. ¶ 14; Pls.’ Supp. 56.1 Stmt. ¶¶ 83,
84.)
The New Jersey Supreme Court has summarized the law of interpretation of insurance
policies as follows:
Insurance policies are construed in accordance with principles that govern the
interpretation of contracts; the parties’ agreement will be enforced as written when
its terms are clear in order that the expectations of the parties will be fulfilled.
The terms of insurance contracts are given their plain and ordinary meaning, with
ambiguities resolved in favor of the insured. Nonetheless, courts cannot write for
the insured a better policy of insurance than the one purchased.
Memorial Properties, LLC v. Zurich American Ins. Co., 210 N.J. 512, 525 (2012) (citations
omitted). “While coverage provisions are given a broad interpretation by the courts, a strict
interpretation is required when there is an exclusion clause which is also strictly construed
against the insurer.” Stafford v. T.H.E. Ins. Co., 309 N.J. Super. 97, 103 (N.J. Super. Ct. App.
Div. 1998). Nonetheless, in that same decision, the Appellate Division held:
We recognize that if there is a second fair interpretation of an exclusion available
to an injured plaintiff, the insurance policy will be construed for coverage against
the insurer. This does not mean however that any far-fetched interpretation of a
policy exclusion will be sufficient to create an ambiguity requiring coverage.
Id. at 105 (citations omitted). This motion does not, however, raise any issues of ambiguity in
the Policies. Plaintiffs do not argue that the policy is ambiguous in any way. As such, the
Policies will be enforced as written.
Defendant argues that none of the banks’ demands for payments qualifies as an entity
claim for a wrongful act, and so Plaintiffs’ claims are not covered by the Policies. Rather,
Defendant contends, the banks take the position that the foreign exchange transaction agreements
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are legitimate and not the product of wrongful acts; it is only Plaintiffs that assert that the
transaction agreements are the result of wrongful acts by the CFO. Plaintiffs’ opposition brief
fails to recognize this crucial point and does not counter it. There is no dispute that the “entity
claim” here refers to the banks’ demands for payment under the foreign exchange transaction
agreements. This Court agrees with Defendant that the banks have not made any entity claim for
a wrongful act by an insured entity. Rather, this Court is persuaded that the banks’ position is, as
it must reasonably be, that these agreements are valid, and therefore enforceable against
Plaintiffs. The banks do not seek payment from Plaintiffs because they assert that Plaintiffs or
Plaintiffs’ agent wronged them. The facts are, as Defendant observes, exactly opposite: the
banks seek payment of obligations they contend are valid. The banks’ demands do not qualify as
claims for wrongful acts by an insured entity, and do not trigger a coverage obligation under the
Policies. This provides a sufficient basis to grant Defendant’s motion for summary judgment.
As noted, Plaintiffs do not respond to Defendant’s contention that none of the banks’
demands for payments qualifies as an entity claim for a wrongful act. Instead of addressing the
question of whether the banks’ demands fall within the scope of the policy phrase, “an entity
claim for a wrongful act,” Plaintiffs narrowly focus on the term, “wrongful act,” arguing that the
CFO’s execution of the contracts was a wrongful act. This argument fails because it ignores the
context in which “wrongful act” appears in the key Policy provision. The Policies do not cover
wrongful acts; they only cover entity claims for wrongful acts. Plaintiffs fail to recognize this
distinction, and they fail to persuade this Court that the bank demands are entity claims for
wrongful acts.
Plaintiffs also confuse two distinctly different uses of the word, “claim.” Plaintiffs have
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submitted claims for coverage under the Policies to Defendant. The Policies cover “an entity
claim for a wrongful act.” The insurance claims which Plaintiffs submitted to Defendant are not
the same as the entity claims made by the banks. Plaintiffs confuse the two, as in this heading:
“The Underlying Claims Allege Wrongful Acts of PNYE, thus Triggering Coverage under the
Policies.” (Pls.’ Opp. Br. 26.) It is only the claims submitted by Plaintiffs to the insurer that
allege wrongful acts of PNYE; the entity claims made by the banks do not allege wrongful acts,
and it is the entity claims which must do so to trigger coverage under the Policies.
Plaintiffs rely on the district court’s decision in Sigma Chi Corp. v. Westchester Fire Ins.
Co., 587 F. Supp. 2d 891, 897 (N.D. Ill. 2008), a case with fairly similar facts. This Court does
not find the reasoning of Sigma Chi persuasive. In Sigma Chi, the court denied the insurer’s
Rule 12(c) motion for judgment on the pleadings on a breach of contract claim because it found a
factual dispute over whether the entity’s agent had the proper authority to execute the agreements
at issue. The decision does not quote the relevant policy language, and there is no reason to
believe that the policy language in that case is the same as the policy language in this one.
Plaintiffs argue that, following Sigma Chi, the CFO’s unauthorized execution of
agreements meets the policy definition of “wrongful acts,” but gives no analysis of the policy
language to justify that conclusory assertion. This Court’s conclusion that the bank demands do
not qualify for coverage does not, however, turn on interpretation of the policy definition of
“wrongful act.” Instead, “wrongful act” must be understood in the context of the entire phrase
“an entity claim for a wrongful act by an insured entity.” Plaintiffs have not argued, much less
persuaded, that an “entity claim for a wrongful act” includes entity claims demanding payment of
contractual obligations. Absent that, this Court agrees with Defendant that there is no evidence
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in the present record of “an entity claim for a wrongful act by an insured entity.”
Plaintiffs argue as well that coverage should be extended based on their reasonable
expectations as an insured. It is true that New Jersey does apply a “reasonable expectations”
principle in insurance coverage disputes under limited circumstances:
[W]e have recognized the importance of construing contracts of insurance to
reflect the reasonable expectations of the insured in the face of ambiguous
language and phrasing, and in exceptional circumstances, when the literal
meaning of the policy is plain.
Doto v. Russo, 140 N.J. 544, 556 (1995) (citations omitted). Plaintiffs have not argued that the
Policy is ambiguous in any relevant or material way, nor have they argued that this case presents
an exceptional circumstance. As such, this Court need not consider the objectively reasonable
expectations of the insured.2
Defendant next argues that the Policies contain a Contractual Liability Exclusion (“CLE”)

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Furthermore, even if this Court were to consider the objectively reasonable expectations
of the insured, Plaintiffs have made no showing that their present expectations are objectively
reasonable. It is interesting to note the insightful comments on this subject made by Judge
Posner in Krueger Int’l, Inc. v. Royal Indem. Co., 481 F.3d 993, 996 (7th Cir. 2007), the case
relied on by the Sigma Chi court:
[I]nsurance policies are presumed not to insure against liability for breach of
contract. The reason is the severe “moral hazard” problem to which such
insurance would often give rise. The term refers to the incentive that insurance
can create to commit the act insured against, since the cost is shifted to the
insurance company. An example is the incentive to burn down one’s house if the
house is insured for more than its value to the owner. Or suppose, having
somehow persuaded an insurance company to insure you against liability for
breach of contract, you hire a contractor to build an extension on your house and
after he has completed his work you refuse to pay him, and, when he sues, you
turn his claim over to the insurance company.
Plaintiffs seem to contend that they expected their insurance policy to offer coverage that would
give rise to such moral hazards. They have not shown this to be objectively reasonable.
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which bars coverage for the bank demands. This provision excludes coverage for any claim:
based upon, arising from, or in any way related to any actual or alleged . . .
liability under any contract or agreement, provided that this exclusion shall not
apply to the extent that liability would have been incurred in the absence of such
contract or agreement . . .
(Insua Dec. Exs. A, B; Casher Dec. Exs. A, B). Defendant argues that the bank demands arise
from liability under an agreement and any claims based on them are excluded by this provision.
Plaintiffs argue that the liabilities do not arise from a contract or agreement. Plaintiffs also argue
that the liabilities would have been incurred in the absence of the agreements. Both arguments
appear to contradict the plainly evident facts that the claims arose from liability under the foreign
exchange transaction agreements, and that there would be no claims or liabilities absent those
agreements.
Plaintiff attempts to obscure the evident facts with this argument: “PNYE’s claims arise
from [the CFO’s] wrongful acts and not the putative agreements.” (Pls.’ Opp. Br. 29.) This is
unpersuasive. The first problem is that, while PNYE’s claims for coverage might arise from
allegedly wrongful acts, the underlying entity claims do not. The entity claims arise from the
agreements and not from the CFO’s allegedly wrongful acts, and Plaintiffs’ insurance claims are
related to alleged liability under the foreign exchange transaction agreements. They are barred
by the CLE.
Plaintiffs next delve into the law of agency to argue that a contract should not be enforced
absent a finding that the principal vested the agent with authority to enter into the contract. The
validity or enforceability of the transaction agreements is not presently before this Court. As
Defendant contends, this is a defense that Plaintiffs might raise in an action against them by the

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banks to enforce the contracts, but it does not change the nature of the banks’ demands for
payment. The CLE excludes claims related to any alleged contractual liability. It is undisputed
that the bank demands allege contractual liability. Plaintiffs’ defenses to contractual liability are
irrelevant to the operation of this exclusion provision.
Plaintiffs next cite the New Jersey Supreme Court’s construction of “arising out of” in
Flomerfelt v. Cardiello, 202 N.J. 432, 454 (2010), but their point is not at all clear. As Plaintiffs
contend, the New Jersey Supreme Court did hold that, in the context of construing an insurance
policy exclusion provision, “arising out of” requires a “substantial nexus” with the excluded
conduct for the exclusion to apply. Id. Plaintiffs have not offered any evidence which raises a
factual dispute as to whether the bank demands for performance under the transaction agreements
have a substantial nexus with the transaction agreements. Plaintiffs try to confuse the issue by
arguing that the CFO made “pre-contractual misrepresentations” which cannot be said to arise
from the contracts. (Pls.’ Br. 33.) This is way off track.
Summary judgment is appropriate in this case. There are no material factual disputes.
There are no disputes about the meaning of the language of the Policies, although the Court
interprets insurance policy language as a matter of law. National Union Fire Ins. Co. of
Pittsburgh PA v. Transportation Ins. Co., 336 N.J. Super. 437, 443 (N.J. Super. Ct. App. Div.
2001). The terms of the Policies are clear and are given their ordinary meaning. Plaintiffs have
failed to raise any material factual dispute sufficient to defeat Defendant’s motion for summary
judgment. This Court finds that Plaintiffs have not sought coverage of any entity claim for a
wrongful act, and Plaintiffs’ claims for coverage are also excluded by the “Contractual Liability
Exclusion” in the Policies. Defendant has shown that, as to the insurance claims at issue, it is
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entitled to judgment as a matter of law: Defendant is not obligated under the Policies to defend or
indemnify Plaintiffs in their disputes with the banks over the foreign exchange transaction
agreements. This resolves the two declaratory judgment claims in the Complaint. As for the
third claim, for breach of contract, Plaintiffs have failed to raise any factual dispute about
whether Defendant breached any contractual obligations under the Policies. Defendant’s motion
for summary judgment will be granted in its entirety.
Plaintiffs have moved to strike Exhibit Y to the Casher Declaration, submitted by
Defendant in support of the motion for summary judgment. This Court has decided the motion
for summary judgment without reference to Exhibit Y. The motion to strike will be denied as
moot.
CONCLUSION
For the reasons stated above, Defendant’s motion for summary judgment is granted, and
judgment in Defendant’s favor will be entered for all claims in the Complaint. Plaintiff’s motion
to strike is denied as moot.
s/Stanley R. Chesler
STANLEY R. CHESLER, U.S.D.J.
Dated: July 16, 2014

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