Assurance Company of America v. Waldman et al

Filing 35

ORDER finding as moot 30 Motion for Judgment on the Pleadings; granting 12 Renewed Motion for Judgment on the Pleadings. Signed by Judge Sandra S Beckwith on 12/18/13. (mb)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
Assurance Company of America,
Plaintiff,
vs.
Lawrence Waldman, et al.,
Defendants.

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ORDER

This matter is before the Court on Plaintiff Assurance Company of America’s
motion for judgment on the pleadings (Doc. No. 12) and renewed motion for judgment
on the pleadings (Doc. No. 30). For the reasons that follow, Plaintiff’s motion for
judgment on the pleadings is MOOT; Plaintiff’s renewed motion for judgment on the
pleadings is well-taken and is GRANTED.
I. Background
The dissolution of the Waldman, Pitcher & Company accounting firm in October
2009 spawned a flurry of lawsuits among its former principals. After Waldman, Pitcher
& Company dissolved, Defendant Lawrence Waldman formed another accounting firm,
Waldman & Company C.P.A.’s, P.S.C. Likewise, Defendants Kenneth Pitcher and
Michael Enders formed their own accounting firm, Pitcher & Enders.
In March 2011, Pitcher and Enders sued Waldman and Waldman & Company in
federal district court alleging that Waldman knowingly issued false Forms 1099 which

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substantially overstated their income in order to gain leverage over them in other
disputes. The parties refer to this lawsuit as “the 1099 Litigation.”
In April 2010, Waldman sued Pitcher, in a case that was removed to federal
district court under ERISA, alleging that Pitcher breached his fiduciary duty as trustee of
the Waldman, Pitcher & Company Profit Sharing Trust in distributing plan assets to the
participants upon dissolution of the company. Waldman was eventually permitted to
voluntarily dismiss his claims in that case without prejudice. Pitcher, however, then
sued Waldman and the Waldman & Company Profit Sharing Trust, in another case that
was removed to federal district court, on behalf of himself and as trustee of the
Waldman, Pitcher & Company Profit Sharing Trust, to recoup the attorney’s fees he
incurred defending Waldman’s breach of fiduciary duty lawsuit. The parties refer to this
recoupment action as “the Trust Litigation.”
Pitcher and Enders filed suit for the judicial dissolution of Waldman, Pitcher &
Company in 2009. That lawsuit ended in October 2009 by way of a settlement
agreement among the parties that included a non-disparagement clause. In May 2010
Waldman sued Pitcher and Enders in yet another state court lawsuit under theories not
disclosed on the current record. In any event, in this lawsuit, the parties entered into a
protective order which prohibited any party from disclosing information designated
“confidential” to third parties. The protective order also stipulated that if a court or
administrative agency subpoened or ordered the production of confidential information
from a party, that party would promptly notify the party who originally produced the
confidential information and give that party an opportunity to quash the order or

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subpoena before producing the confidential information. The parties eventually settled
this lawsuit.
After the parties settled the May 2010 lawsuit, Pitcher and Enders claimed to
have learned for the first time that Waldman voluntarily disclosed information
designated as confidential in that case to the IRS for the purpose of causing them
difficulties with the IRS. Pitcher and Enders also claimed that Waldman disparaged
them in written correspondence with the IRS. Consequently, Pitcher and Enders sued
Waldman in state court alleging that Waldman’s actions and correspondence with the
IRS breached the non-disparagement clause of the dissolution settlement agreement
and the protective order the parties entered into in the May 2010 litigation.1 The parties
refer to this last lawsuit as “the Contract Litigation.”
Plaintiff Assurance Company of America (“ACA”) issued a commercial general
liability and commercial umbrella liability insurance policy to Waldman & Company and
Waldman, Pitcher & Company on August 14, 2010. The policy has been renewed
annually through August 14, 2012. Amended Complaint ¶ 9. Generally speaking,
Coverage A of the policy insures against losses for “bodily injury” or “property damage”
caused by an “occurrence” during the policy period. Coverage B of the policy insures
against losses due to “personal and advertising injury.” In December 2012, Waldman
tendered the 1099 Litigation, the Trust Litigation, and the Contract Litigation to ACA for
defense and indemnification. ACA, however, declined to provide a defense or
indemnity on the grounds that the 1099 Litigation, the Trust Litigation, and the Contract
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This would be the sixth lawsuit between these former partners for those
keeping score.
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Litigation are not covered by the policy because they do not seek recovery for bodily
injury” or “property damage” caused by an “occurrence.” Complaint Ex. 5 (Doc. No. 15).
ACA filed the instant lawsuit seeking a declaratory judgment that it has no duty to
defend or indemnify Waldman or Waldman & Company in the 1099 Litigation, the Trust
Litigation, and the Contract Litigation. Waldman and Waldman & Company
counterclaimed ACA for breach of contract and its alleged bad faith refusal to defend
and indemnify the three lawsuits. The Court has subject matter jurisdiction in this case
pursuant to 28 U.S.C. § 1332 because there is diversity of citizenship between ACA and
the Defendants and the amount in controversy exceeds $75,000.2
ACA now moves for judgment on the pleadings on its amended complaint for a
declaratory judgment pursuant to Rule 12(c) of the Federal Rules of Civil Procedure as
well as on Waldman’s counterclaims.3 In response, Waldman concedes that the 1099
Litigation is not covered by the policy. Waldman, however, contends that the other two
lawsuits fall within the policy’s terms.

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Pursuant to the Court’s order, ACA cured defective jurisdictional
allegations in its amended complaint. Doc. No. 26.
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ACA’s first motion for judgment on the pleadings (Doc. No. 12) is moot
because it is directed at the original complaint. See 6 Wright, et al., FEDERAL PRACTICE
& PROCEDURE § 1476 (3rd ed. 2013) (“Once an amended pleading is interposed, the
original pleading no longer performs any function in the case and any subsequent
motion made by an opposing party should be directed at the amended pleading.”)
(internal footnote omitted).
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II. Rule 12(c) Standard of Review
A motion for judgment on the pleadings pursuant to Federal Rule of Civil
Procedure 12(c) is analyzed under the same standard of review employed for a motion
to dismiss under Rule 12(b)(6). Sensations, Inc. v. City of Grand Rapids, 526 F.3d 291,
295 (6th Cir. 2008). “For purposes of a motion for judgment on the pleadings, all
well-pleaded material allegations of the pleadings of the opposing party must be taken
as true, and the motion may be granted only if the moving party is nevertheless clearly
entitled to judgment.” JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 581 (6th
Cir. 2007) (internal citation and quotation marks omitted). A motion brought pursuant to
Rule 12(c) is appropriately granted “when no material issue of fact exists and the party
making the motion is entitled to judgment as a matter of law.” Id. at 582 (internal
citation and quotation marks omitted).
III. Analysis
The parties agree that Ohio law applies to resolve this insurance coverage
dispute. The Sixth Circuit has succinctly explained the applicable process in Ohio for
interpreting insurance contracts:
Under Ohio law, questions regarding the extent of coverage provided by an
insurance policy “are determined, in the first instance, by an examination of the
relevant insurance documents, utilizing therein the familiar rules of construction
and interpretation applicable to contracts generally.” Gomolka v. State Auto.
Mut. Ins. Co., 70 Ohio St.2d 166, 436 N.E.2d 1347, 1348 (Ohio 1982) (holding
that an ambiguous automobile insurance policy provided underinsured motorist
coverage); see also Hybud Equip. Corp. v. Sphere Drake Ins. Co., 64 Ohio St.3d
657, 597 N.E.2d 1096, 1102 (Ohio 1992) (noting that the Ohio Supreme Court
“has consistently held that insurance contracts must be construed in accordance
with the same rules as other written contracts”). Where the language is clear and
unambiguous, courts “must enforce the contract as written and give the words
their plain and ordinary meaning.” Cincinnati Indem. Co. v. Martin, 85 Ohio St.3d
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604, 710 N.E.2d 677, 679 (Ohio 1999) (upholding a declaratory judgment that a
homeowners’ insurer had no duty to defend the insured in a wrongful death suit).
Language reasonably susceptible to more than one interpretation, however, is
“construed strictly against the insurer and liberally in favor of the insured.” King
v. Nationwide Ins. Co., 35 Ohio St.3d 208, 519 N.E.2d 1380, 1383 (Ohio 1988)
(discussing Ohio’s “well-settled” contra proferentem rule). Ohio courts have
strongly emphasized this rule in the interpretation of exclusions from liability. See
United States Fid. & Guar. Co. v. Lightning Rod Mut. Ins. Co., 80 Ohio St.3d 584,
687 N.E.2d 717, 719 (Ohio 1997) (noting the long-standing rule in Ohio that “an
exclusion from liability must be clear and exact in order to be given effect”)
(quotation marks omitted).
Monticello Ins. Co. v. Hale, 114 Fed. Appx. 198, 201 (6th Cir. 2004).
The parties agree that Coverage B, concerning losses due to “personal and
advertising injury,” is the only section of the policy which may provide coverage of the
two lawsuits at now at issue in this case.
A. The Policy Does Not Cover The “Contract Litigation”
As stated earlier, Pitcher and Enders sued Waldman for allegedly breaching the
non-disparagement clause of the 2009 dissolution agreement and for allegedly violating
the protective order entered in the May 2010 lawsuit. The complaint in that lawsuit
characterizes each of the six causes of action as a breach of contract claim although
Pitcher and Enders’s casting of the alleged violations of the protective order as contract
claims seems dubious as a matter of state law. See State ex rel. Conkle v. Sadler, 792
N.E.2d 1116, 1119-20 (Ohio 2003)(indicating that the remedy for an alleged violation of
a protective order is a motion to show cause why the party should not be held in
contempt filed with the court that issued the protective order). In any event, as
Waldman argues, at first blush the policy appears to covers these claims because, in
relevant part, “personal and advertising injury” is defined as:
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d. Oral or written publication of material that slanders or libels a person or
organization or disparages a person’s or organization’s goods, products or
services;
e. Oral or written publication of material that violates a person’s right of
privacy[.]
Doc. No. 30-3, at 85 (Commercial General Liability Coverage Form, §§ V(14)(d) &(e)).
These sections appear to provide coverage to Waldman because the Contract Litigation
involves Waldman’s alleged disparagement of Pitcher and Enders and his alleged
disclosure of information in which Pitcher and Enders have privacy interests. See, e.g.,
Motorists Mut. Ins. Co. v. Dandy-Jim, Inc., 912 N.E.2d 659, 664 (Ohio Ct. App. 2009)
(interpreting “personal and advertising injury” in commercial general insurance policy
and stating that the “right of privacy” means the individual’s “right to prevent disclosure
of personal information to others”).
The Court finds, however, that another section of the commercial general liability
policy specifically excludes coverage of these claims. Section I(B) excludes coverage of
“personal and advertising injury”:
(1) Caused by or at the direction of the insured with the knowledge that the act
would violate the rights of another and would inflict “personal and advertising
injury”;
...
(6) Arising out of a breach of contract, except an implied contract to use
another’s advertising idea in your “advertisement”[.]
Doc. No. 30-3, at 76 (Commercial General Liability Coverage Form §§ I(B)(2)(a)(1) &
(6). The first clause clearly excludes coverage for the insured’s intentional, knowing,
and illegal conduct, see Westfield Cos. v. O.K.L. Can Line, 804 N.E.2d 45, 52 (Ohio Ct.

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App. 2003), and the second clause clearly excludes coverage of damages caused by
the insured’s breach of contract.
According to Counts 1, 2, and 3 of the Contract Litigation complaint, Waldman
allegedly violated the protective order on three separate occasions by disclosing
information designated as confidential to the IRS. Moreover, the complaint indicates
that Waldman did so knowingly. For instance, the complaint alleges that two
documents that Waldman disclosed to the IRS were stamped “confidential.” Doc. No.
20, at 4, 5. The complaint also alleges that Waldman disclosed depositions to the IRS
containing confidential information. Id. at 6. Additionally, each of the counts alleges
that Waldman disclosed confidential information without providing the notices required
by the protective order and that he provided the information to the IRS in bad faith. Id.
at 5, 6, 7. Collectively then, the complaint indicates that Waldman caused “personal
and advertising injury” “with the knowledge that the act would violate the rights” of
Pitcher and Enders under the protective order. In other words, as ACA argues in its
brief, there is no coverage for these claims because the injuries alleged by Pitcher and
Enders are not the result of Waldman’s fortuitous acts. See Westfield Ins. Co. v.
Custom Agric. Sys., Inc., 979 N.E.2d 269, 274 (Ohio 2012) (stating that “fortuity . . . is
fundamental to insurance coverage”); Chiquita Brands Int’l, Inc. v. National Union Ins.
Co., 988 N.E.2d 897, 900 (Ohio Ct. App. 2013) (“Liability insurance does not exist to
relieve wrongdoers of liability for intentional, antisocial or criminal conduct.”). Therefore,
these alleged acts of Waldman are not covered under the policy.
According to Counts 4, 5, and 6 of the complaint, Waldman allegedly breached
the non-disparagement clause of the 2009 dissolution agreement on three separate
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occasions in correspondence with the IRS. Consequently, the “personal and
advertising injury” Pitcher and Enders allegedly suffered as a result of Waldman’s
actions “aris[e] out of a breach of contract.” Therefore, the injuries related to Counts 4,
5, and 6 are not covered by the policy.
B. The Policy Does Not Cover The Trust Litigation
As described above, Waldman sued Pitcher in his capacity as trustee of the
Waldman, Pitcher & Company Profit Sharing Plan for an alleged breach of fiduciary duty
related to his distribution of plan assets. Waldman ultimately voluntarily dismissed that
case. Pitcher then sued Waldman under ERISA and state law to recover the attorney’s
fees he incurred defending Waldman’s breach of fiduciary duty suit under a provision in
the profit sharing trust requiring Waldman, Pitcher & Company to “indemnify the Trustee
against any liabilities and expenses, including attorney’s fees . . . incurred in connection
with any action taken by the Trustee in good faith in accordance with the terms of this
Agreement, written instructions or directions of the Employer or the Plan Administrator .
. .” Doc. No. 30-2, at 5.
With regard to employee benefits liability, the policy states that ACA agrees:
To pay on your behalf all sums which you shall become legally obligated to pay
on account of any claim made against you by an employee, former employee, or
the beneficiaries or legal representatives thereof and caused by any negligent
act, error, or omission of yours, or any other person for whose acts your are
legally liable in the administration of your Employee Benefits Programs.
Doc. No. 30-3, at 95 (Employee Benefits Liability Insurance § I) (emphasis added).
The policy does not apply to the Trust Litigation for at least two reasons.

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First, Pitcher’s suit to recover the attorney’s fees he incurred is not a claim by an
“employee, former employee, or the beneficiaries or legal representatives thereof.”
Rather, Pitcher’s suit is a lawsuit by a former trustee of the plan.
Second, and more importantly, Waldman’s decision to sue Pitcher for breach of
contract was not a “negligent act, error, or omission of yours . . . in the administration of
your Employee Benefits Programs.” Rather, Waldman clearly intentionally sued Pitcher
for breach of fiduciary duty and thereby caused Pitcher to incur fees and expenses
which he may be entitled to recover under the terms of the trust agreement.
Accordingly, the policy does not apply to the Trust Litigation.
C. ACA Is Entitled To Judgment on Waldman’s Counterclaims
Having found that ACA is not required to defend or indemnify Waldman in any of
the three underlying lawsuits at issue, ACA is entitled to judgment on Waldman’s
counterclaim for bad faith denial of coverage. See, e.g., Hahn’s Elec. Co. v. Cochran,
Nos. 01AP-1391, 01AP-1394, 2002 WL 31111850, at *8 (Ohio Ct. App. Sept. 24, 2002)
(“Because we have upheld Hartford’s coverage decision, it was per se reasonable and
thus not made in bad faith.”). For the same reason, ACA is entitled to judgment on
Waldman’s breach of contract counterclaims.

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Conclusion
In summary, ACA is entitled to judgment on the pleadings on Waldman’s claim
for defense and indemnity in all three cases as well as on Waldman’s counterclaims for
breach of contract and bad faith handling of his claims. Accordingly, ACA’s renewed
motion for judgment on the pleadings is well-taken and is GRANTED.

IT IS SO ORDERED

s/Sandra S. Beckwith
Sandra S. Beckwith
Senior United States District Judge

Date December 18, 2013

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