Twin River Worldwide Holdings, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA.
Filing
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MEMORANDUM AND ORDER denying 24 Motion for Summary Judgment; granting 22 Motion for Partial Summary Judgment- So Ordered by District Judge John J. McConnell, Jr. on 8/1/2018 (Barletta, Barbara)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
TWIN RIVER WORLDWIDE
HOLDINGS, INC. ,
Plaintiff,
V.
NATIONAL UNION FIRE
INSURANCE COMPANY OF
PITTSBURGH, PA.,
Defendant.
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C.A. No. 17-008-JJM-PAS
MEMORANDUM AND ORDER
JOHN J. MCCONNELL, JR., United States District Judge.
Thi di pute arose from Twin River's tender offer to Contingent Value Rights
Holders (CVRs) on their post-bankruptcy shares. Twin River believed that it owed
the CVR a duty to pay them fair value before their shares expired and the common
tock Stockholders, believed that Twin River had no duty to the CVRs, and a superior
fiduciary duty to them NOT to pay the CVRs. In the end, Twin River paid the CVRs
and settled the dispute with the Stockholders for $5.6 million after notifying National
Union Fire Insurance Company of a potential claim under its insurance policy. Twin
River made a claim for reimbursement under the policy and National Union denied
coverage becau e it determined that Twin River did not make the payment to settle
a covered claim.
Both Twin River and National Union have moved for summary judgment, 1
agreeing that there are no disputed issues of material fact on the breach of contract
claim. They disagree on the outcome; Twin River advocates for coverage and National
Union says there is none . The question posed in this case is whether the insured's
payment to Stockholders and others to
ettle a di pute that arose from its
bankruptcy, constitutes a covered claim under its insurance policy, requiring
reimbursement of the payment.
The Court agrees that
ummary judgment is
appropriate here and answers that question in Twin River's favor. The $5.6 million
settlement is a covered claim for a wrongful act under the policy and Twin River gave
appropriate notice.
Twin River'
motion (ECF No. 22) is GRANTED; National
Union' motion (ECF No. 24) is DENIED.
FACTS
Twin River is a casino and live entertainment venue in Lincoln, Rhode Island.
It filed for bankruptcy on June 23, 2009. The Plan of Reorganization coming out of
bankruptcy created two classes of stockholders-the first lien lenders received 100%
of Twin River's common stock and $300 million in new fir t lien debt (Stockholders)
and the econd lien lender received Contingent Value Rights. 2 The CVR would
receive a portion of the consideration that Twin River would otherwise pay to the
Twin River captioned it motion as a partial motion becau e it believe
a jury hould decide the amount of damages.
2
' A Contingent Value Right (CVR) is a type of option that can be i sued
by the buyer of a company to the sellers. It specifies an event, which, if triggered,
lets
the
sellers
acquire
more
shares
in
the
target
company."
https://en.wikipedia .org/wiki/Contingent_value_rights
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2
Stockholders if Twin River engaged in a fundamental transaction uch a a ale, by
November 5 2017, otherwi e t he CVR would receive nothing.
By all accounts, Twin River did well coming out of bankruptcy and had orne
opportunities for growth. In June 2014, Twin River announced a potential buy back
of the CVRs. Stockholders Salus Alternative As et Management, LP (Salus) and
Wing pan Asset Management, LP (Wingspan) sent a letter to Twin River on June 27,
2014 (the First Salvo) , asserting that Twin River had a duty to them to delay making
a fundamental transaction until after the expiration of the CVRs' rights to any
payment, insi ting that Twin River owed no fiduciary duty to the CVRs and
threatening legal action. By letter dated October 22, 2014, Twin River notified its
insurer National Union, that Solu and Wing pan alleged that it was potentially in
breach of its fiduciary duty to them both because Twin River wa considering paying
the CVR on their shares, and because it was overvaluing the CVR hare price. There
is no dispute that the parties considered this letter as a notice of circum tance,
notifying National Union that Twin River faced a ituation with it Stockholders that
had the potential to turn into a claim.
Taking the threat of suit from the Stockholders eriously, Twin River went
back to Bankruptcy Court to clarify its obligations to the CVR in light of the
Stockholder's objections.
The Bankruptcy Court required Twin River to file a
declaratory judgment action, referred to as the Adversary Proceeding, against Sol us,
Wingspan, and another complaining Stockholder, Apollo Twin River Management,
L.P. (Apollo). Because Twin River believed that it had an obligation to the CVRs, it
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advocated that position in the Adversary Proceeding against the interests of the
Stockholders. The Bankruptcy Court agi'eed with Twin RiveT and the CVR that
Twin River did have obligations to the CVRs.3
The Stockholders appealed the Bankruptcy Court's decision on November 13,
2015 ; the same day, Solus' counsel ent a letter (the Second Salvo) to Twin River
warning that Twin River would be in further breach of its fiduciary duties to the
Stockholder if it went forward with a tender offer to the CVRs, citing the initial
breach as Twin River's decision to file the Adversary Proceeding4 in the fir t place.
Upon receiving the Bankruptcy Court's ble ing, Twin River announced a
tender offer to the CVRs. That same month, Apollo filed suit in Delaware again t
Twin River's Board of Directors and its Chief Financial Officer, alleging that Twin
River's tender offer to the CVRs violated its fiduciary duties to the Stockholder (the
Derivative Action). It ought rescissory damages due to a decrease in common stock
pnces.
Facing suit in Rhode Island and Delaware, Twin River, with National Union's
consent, met with representatives of the CVRs and Stockholder to try tore olve the
CVR value i sue. The draft Memorandum of Understanding ("MOU") stated that the
Stockholders would drop their pending appeal in the Adversary Proceeding and that
3
The Stockholders appealed that decision to the United State Di trict
Court for the District of Rhode Island, arguing that Twin River hould not have sided
with the CVRs in that Adversary Proceeding. BLB Worldwide HoldingsJ Inc. et al v.
Twin RiveT Worldwide HoldingsJ Inc. et al., 1:15-cv-487-WES. The partie dismissed
the appeal after the settlement. See ECF No. 36 in 15-cv-487.
4
The Bankruptcy Court ruled that the dispute had to be resolved through
an adver ary proceeding as oppo ed to a more informal one.
4
Twin River would pay them $5.6 million to reimburse their legal expen e and in
exchange for releases relating not only to the appeal, but al o to the Derivative Action
and any other direct claim . Through a series of proposals attempting to ettle the
case, Twin River received a letter on January 21, 2016 ("Settlement Demand Letter")
where the Stockholders repeated the allegation that Twin River breached its
fiduciary duty and demanded reimbursement of $5.6 million they pent in fees and
expense and that Twin River limit its per share price to $425 per CVR. Twin River
provided both the MOU and letter to National Union who responded that it had
doubt about coverage for the proposed settlement, but agreed not to rai e lack of
advance consent as a coverage defense. National Union did not participate at all in
the negotiations, ask for information about the claims, or request allocation of any
potential settlement proceeds.
Twin River settled the dispute with the Stockholders and CVR in February
2016 for $5.6 million with relea es, and stip ulations of dismi sal of all claims and
potential claims. 5 The Delaware Court approved the ettlement. National Union
thereafter denied the claim.
Twin River filed this suit, seeking coverage for the $5.6 settlement payment
under the policy. National Union counters that Twin River failed to a ert a claim.
STANDARD OF REVIEW
Rule 56(a) of the Federal Rules of Civil Procedure directs courts to ' grant
5
The $5.6 million was divided as follows: Apollo received $2.8 million and
Bolus and Wingspan split the remaining $2.8 million.
5
summary judgment if the movant show that there is no genuine di pute as to any
material fact and the movant is entitled to judgment as a matter oflaw." Fed. R. Civ.
P. 56 (a). When evaluating "'cross-motions for summary judgment, the standard doe
not change; [courts] view each motion eparately and draw all reasonable inferences
in favor of the respective non-moving party."' Bonneau v. Plun1bers & Pipefitters
Local Union 51 Pension Trust Fund, 736 F.3d 33, 36 (1st Cir. 2013) (quoting Roman
Catholic Bishop ofSpringfield v. Springfield, 724 F. 3d 78, 89 (1st Cir. 2013)).
ANALYSISG
This is a standard contract claim where Rhode Island law applies and as such,
the Court will interpret the insurance contract through the lens of Rhode Island
contract law. Rhode Island courts interpret insurance policies by "applying the rule
for construction of written instruments."? Allstate Ins. Co. v. Russo, 641 A.2d 1304,
1306 (R.I. 1994); see also Derderian v. Essex Ins. Co., 44 A. 3d 122, 127 (R.I.
2012) (insurance policy terms interpreted in accordance with rules of con truction
governing contracts).
' Contract interpretation presents, in the first in tance , a
que tion oflaw , and is therefore the court's re pon ibility." Fashion House, h1c. v. J(
The parties spent much of the briefing on the e motions responding to
and rebutting arguments based on facts that parties in turn ay are irrelevant.
National Union argues that Twin River continually changed its theory of what it
claim was. And while the operative fact in this case starting with Twin River's
emerge nce from bankruptcy have evolved over time, they ultimately are undisputed
and can be considered in light of the insurance policy language.
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Rhode I land substantive law applies to this dispute because National
Union is ued the policy in Rhode Island to Twin River, a Rhode Island corporation,
and becau e this case is before thi Court under diversity juri diction. Rosciti v. Ins.
Co. ofPenn. 659 F.3d 92, 96 (1st Cir. 2011).
G
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mart Corp., 892 F.2d 1076, 1083 (1st Cir. 1989). "When a contract is unambiguou ,
[courts] review its terms in a de novo manner." Papudesu v. Med. Malpractice Joint
UnderwritingAss'n of R.l, 18 A.3d 495, 498 (R.I. 2011). In determining "whether a
contract is clear and unambiguous, the document must be viewed in its entirety and
its language be given its plain, ordinary and usual meaning." Rubery v. Downing
Corp., 760 A.2d 945, 947 (R.I. 2000). When no ambiguity exists in the terms of an
agreement, "judicial con truction is at an end for the terms will be applied a
written." Rivera v. Gagnon, 847 A.2d 280, 284 (R.I. 2004). Therefore, the Court will
begin by examining the language of the relevant insurance contract provisions in
order to determine whether the policy cover the $5.6 million ettlement.
A.
The Policy
Twin River's National Union policy, specifically Endorsement 21 relating to
Dir ectors and Officers Coverage, governs her e. Coverage B(i) provides Twin River
coverage for its own actions and liabilities. It state
"[t]his policy shall pay the Loss
of any Company arising from a Claim made against such Company for any Wrongful
Act of uch Company." The operative terms are "Loss," "Company," "Claim," and
"Wrongful Act." It is undisputed that the Company i Twin River. The policy defines
Loss as "damages, judgments, settlements, pre·judgment and po t·judgment
interest ... ." It defines a Claim as "a written demand for monetary or non·monetary
relief."
A Wrongful Act is ' any breach of duty, neglect, error, misstatement,
misleading statement omission or act by a Company."
The policy also requires that the insured notify National Union of a claim or
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potential claim and ets those parameters. Clau e 6(c) state :
If during the Policy Period or during the Discovery Period (if applicable)
the Insureds shall become aware of any circum tances which may
reasonably be expected to give rise to a Claim being made again t the
Insureds and shall give written notice to the Insurer of the
circum tance s, the Wrongful Act allegations anticipated and the rea on
for anticipating such a Claim, with full particulars a s to dates, per ons
and entities involved, then any Claim, which is subsequently made
again t the Insureds and reported to the Insurer alleging, arising out of,
based upon or attributable to such circumstance or alleging any
Wrongful Act which is the same a or is a Related Wrongful Act to that
alleged or contained in such circumstances, shall be considered made at
the time such notice of such circumstance wa given.
In ot her words, the policy states that when an insured become aware that a claim
may ari e, it should give written notice to the Insurer of the Wrongful Act. And any
claim ub sequently ma de that relate to or comes from the arne nucleu of facts a
the original reported potential claim is considered to be made at the time the original
notice was given.
The Court needs to find that Twin River notified National Union of "a written
demand for monetary or non-monetary relief' made again t Twin River for "any
breach of duty neglect, error, mis tatement, misleading statement, omission or act
by a Company."
In the October 22, 2014, notice to National Union, Twin River
identified the Stockholders' objections to its decision to pay out on the CVR shares in
light of th e expiration date and, in th e event Twin River did pay th e CVRs, t he
Stockholders objected to t h e price per sh are it determined was fair . It said, "Insured
h ad issued notice in dicating they are exploring transactions t hat may affect
Contingent value rights (CVR's). Insure d th em received response from Solus' counsel
expressin g concern t h at insured m ay not be properly valuing the CVR's with a ny
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pote ntial tr ansaction." E CF No. 25-4 at 3. That notice attached the First Salvo, a
letter from the Stockholder's attorney. That letter made clear t hat they believed that
Twin River's 'officers and directors owe fiduciary duties to the Stockholders and are
requii·ed to act in their best interest in any transaction involving the CVRs ." Jd. at
7. It also expressed concerns t h at Twin River was overvaluing t he CVRs and that the
inflated price was at odds with the terms of the Bankruptcy Reorganization Plan. I d.
There i no dispute that National Union received the notice of circumstance and First
Salvo and that it was a notice of a potential claim.
But, did that notice of
circum tance referencing a wrongful act ultimately evolve into the claim for a related
wrongful act that Twin River alleges merits coverage?
B.
The Claim for a Wrongful Act
Twin River asserts that the claim reached its potential in the form of the
Set tlement Demand Letter; the Wrongful Act, as articulate d in that letter , is Twin
River's breach of its fiduciary duty to the Stockholders by favoring the CVR's po ition
and the demand for monetary r elief is that Twin River pay no more than $425 per
CVR share and pay $5.6 million to cover their fee and expen es generated during
the litigation of whether Twin River had a duty to the CVR or the Stockholders.
The crux of National Union's argument that there was no claim for a wrongful
act is that the $5.6 million was to settle a dispute not between Twin River and the
Stockholder , but to settle a dispute between the CVRs and Stockholder . National
Union ar gues that th e Stockholder dispute created "busine s problems" for Twin
River, but Twin River did not have to get involved or pay the settlement because it
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had no stake in the outcome. It also argues that the breach of fiduciary duty language
in the Second Salvo does not bolster the Settlement Demand Letter's vague references
to the grounds for a claim because National Union did not know about that letter
until June 2016, after Twin River already settled the case.
Because it is Twin River's burden to define its own case, the Court will start
with its identification of the Settlement Demand Letter as its claim. ECF No. 26-10
at 2. This letter is from an attorney for two of the Stockholders, Sol us and Wingspan.
It recounts the weeklong negotiations between all the Stockholders (Apollo included)
a nd Twin River to resolve all pending litigation, it sets a tender price for the CVRs at
$400 per CVR, and it memorializes Twin River's agreement to pay the Stockholders
$5.6 million they demanded to pay for their legal fees and expenses. Id. The writer
expres es the Stockholders' disappointment upon learning that Twin River intended
to increase the CVR price and pay the CVR's fee s, leading to a decrease in its payment
to the Stockholders. Id. Significantly, the attorney noted that Twin River "sued the
Stockholders to whom it owes fiduciary duties." I d. The Stockholders highlighted
that fiduciary duty by expressing' their grave concerns about the use of company cash
to pay an out -of-the money contingent value right that will expire in 20 months." Id.
Exa mples of conduct that the Stockholders alleged breached the duty are that Twin
River brought the Adversary Proceeding where it supported th e CVR's po ition on
the tender offer, siding with t he CVR
and wasted millions in corporate a et
litigating this issue . I d. The letter concluded with a demand that "the Stockholders
are prepared to resolve their pending disp utes provided (a) the CVR price does not
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exceed $425 per CVR; and (b) Twin River agrees to provide $5.6 million to reimburse
the Stockholder' fees and expenses." Id
The Court finds that this letter is the final iteration of the claim that Twin
River flagged in the notice of circumstance; i.e., the Stockholders demanded
reimbursement of expenses paid fighting Twin River's support for and interest in
paying the CVRs, which the Stockholders deemed to be a breach of Twin River's
fiduciary duty to them and demanded that Twin River limit its valuation ofthe CVRs.
Twin River was very much involved and had a stake in the dispute over the CVR
payment . It is clear to the Court that the Stockholder's concern all along the way
was that Twin River had a superior duty to them over the CVRs by virtue of the
language in the Bankruptcy Plan of Reorganization and that any plan to not only
compensate the CVRs before their interest evaporated, but also to pay an inflated
price per share, was a breach of that duty. The Stockholders did not abandon their
po ition that Twin River should not be using company monies to pay CVRs that would
expire in twenty months, but made a demand for monetary relief to settle the CVR
issue.
Therefore, the Court finds that the Settlement Demand is a claim for a
wrongful act under the applicable policy. 8
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Even though National Union did not have the Second Salvo until after
Twin River settled the case, that letter from the Stockholders draws on the same
fiduciary duties as referenced in the notice of circumstance that attached the First
Salvo. The situation had become must more intense as at that point in November
2015, Twin River had been advised by the Bankruptcy Court that it should make the
tender offer for the CVRs. The Stockholders made clear that they believed that Twin
River was violating its fiduciary duty by making the tender offer to the CVRs. While
the Second Salvo was certainly more explicit in its language than the First Salvo and
Settlement Demand Letter as to the Wrongful Act, its message and tone is duplicative
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C.
Allocation
National Union further argues that Twin River had the burden to allocate the
settlement amount between potentially covered and uncovered claims and failed to
do so. An insured has the burden to allocate, but that burden "arise only after it has
been demonstrated that a portion of the verdict or settlement is covered by the policy
or policies and a portion is not." Cont'l Cas. Co. v. Canadian Universal Ins. Co., 924
F.2d 370, 376 (1st Cir. 1991). Because the Court has found that there is one claim in
this case, the breach of fiduciary duty initially set forth in the notice of circumstance
and First Salvo and culminating in the Stockholder's Settlement Demand Letter,
allocation is not an issue in this case.9
CONCLUSION
The Court has determined from the undisputed material facts in the record
that Twin River has made a covered claim under the National Union policy. As such,
National Union' motion for summary judgment (ECF No. 24) is DENIED. Twin
of those documents National Union received prior to the settlement.
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The policy in t his case does not speak t o t he allocation of loss between
covered and uncovered claim . But, to the extent th at National Union believed at
some point between t he notice of circumstance, t he Settlement Dem and Letter, and
t he claim that there m ay be bot h in ure d a nd uninsured claims, it, a the insurer,
h ad a duty to inform Twin River that it was advisable to allocate any potential
settlement. Duke v. Hoch, 468 F.2d 973, 979·80 (5th Cir. 1972). It is undisputed that
National Union wa informed of the ongoing ne gotiations between Twin River and
the Stockholders and the potential terms of the settlement ultimately reached. It
could have informed Twin River that it was going to require allocation before the
settlement was finalized but chose not to do so.
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River's motion for partial summary judgmentlO (ECF No. 22) is GRANTED.
J ohn J. McConnell, Jr.
United State Di trict Judge
Au gust 1, 2018
1o
Twin River did not move for summary judgment on the reasonableness
of the amount of the settlement. As that is all that remains of its case, the Court will
reach out to the parties to determine how the case will proceed.
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