Alexander Manufacturing, Inc. Employee Stock Ownership Plan and Trust v. Illinois Union Insurance Co.

Filing 141

OPINION & ORDER: Granting in Part and Denying in Part Plaintiff's Motion for Attorney Fees and Costs 129 . The Trust's bill of costs is denied with leave to file an amended bill of costs within one week of the date of this order. The Trust's motion for attorney fees is granted in part in the amount of $275,976.50. Signed on 2/22/10 by Magistrate Judge Paul Papak. (gm)

IN T H E UNITED STATES DISTRICT COURT F O R THE DISTRICT OF OREGON

A L E X A N D E R MANUFACTURING, INC. E M P L O Y E E S T O C K O W N E R S H I P AND T R U S T Plaintiff,

CV.06-735-PK OPINION & O R D E R

v.

ILLINOIS UNION INSURANCE CO., Defendant.

PAPAK, Magistrate Judge: Plaintiff Alexander Manufacturing Inc. Employee Stock Ownership Plan and Trust (Trust) filed tins suit against defendant Illinois Union Insurance Company for breach o f contract a n d b r e a c h o f g o o d f a i t h a n d f a i r dealing. T h e T r u s t i s t h e a s s i g n e e o f t h r e e f o r m e r A l e x a n d e r Manufacturing otlicers, who were insured under a policy issued by Illinois Union. Following this court's ruling on the parties' cross motions for summary judgment, Illinois Union made an offer o f judgment, which the Trust accepted. The Trust's motion for attorney fees and costs

Page 1 - O P I N I O N & O R D E R

(#129) is now before the court. The Trust's motion is granted in part and denied i n part, for the reasons set fOlih below. FACTUAL BACKGROUND Illinois Union insured Alexander Manufacturing, Inc. under a policy that included both directors and officers liability coverage and fiduciary liability coverage, each with a limit o f $1,000,000. (Opinion & Order, #121, at 2.) In early 2003, Alexander Manufacturing's c h i e f executive officer, William Klutho, provided false financial information to the company's accountants, with the knowledge o f two other company officers. ld. at 6. Based on the false i n f o r m a t i o n , A l e x a n d e r M a n u f a c t u r i n g ' s a c c o u n t a n t s p r e p a r e d a 2 0 0 2 financial s t a t e m e n t indicating that the company made a small profit that year when i n fact the company had i n c u n e d substantial losses. Id. at 6-7.

T.

The Underlying Coverage Dispute The Trust, which is an employee pension plan and the sole shareholder o f Alexander

Manufacturing, Inc., filed an action against Klutho and the two other officers in late 2004. ld. at 8. In December 2004, Klutho's counsel sent a letter and a copy o f the complaint to Illinois Union. (Bernstein Dec!. Ex. A.) The letter indicated that Klutho believed the claims fell under Illinois Union's coverage and asked whether Illinois Union would defend. ld. Illinois Union retained counsel for the officers and Alexander Manufacturing. (Opinion & Order at 9.) The attorney conducted discovery and, by July 2005, was able to estimate the damages that the Trust would assert at tria!' (Bernstein Dec!. Ex. B.) The parties entered mediation in October 2005, after Illinois Union rejected the Trust's offer to settle for what it asserted as the applicable policy limit: $1 million under the fiduciary coverage and $1 million under the directors and officers coverage. (Opinion & Order at 9-10.) P a g e 2 - OPINION & O R D E R

Illinois Union's coverage counsel threatened to rescind the contract, despite having no real basis to do so. l d a t 11. Illinois Union's counsel, however, also offered to "use his resources" to settle the claim for approximately $300,000, the limit remaining under the directors and officers coverage. ld. at 10. Illinois Union was unwilling to arbitrate the reasonableness o f t h e fees and costs it had deducted from the available coverage limit, although the Trust expressed an interest in doing so. (Maurer Supp. Aff., #139 at 3.) The $300,000 figure quoted by Illinois Union as the approximate policy limit was i n enol', however. (Opinion & Order at 10.) Illinois Union o v e r e s t i m a t e d d e f e n s e c o s t s a n d a c t u a l l y h a d a p p r o x i m a t e l y $ 3 7 7 , 0 0 0 to $ 4 5 8 , 9 0 0 a v a i l a b l e under the directors and officers coverage. l d The Trust then olfered to settle for the amount remaining under the fiduciary policy limits minus defense costs, an amount it estimated to be $620,000. (Maurer Supp. Aff., #139 at 3; Opinion & Order at 11.) Illinois Union rejected that offer but later that same day made a written offer to settle for the amount remaining under the directors and