Gleason, et al v. Markel American Insurance Company
Filing
42
MEMORANDUM OPINION AND ORDER. It is therefore ORDERED that Defendant's Motion for Final Summary Judgment (Dkt. 20 ) is hereby GRANTED Plaintiffs' Motion for Partial Summary Judgment (Dkt. 22 ) is hereby DENIED. Signed by District Judge Amos L. Mazzant, III on 1/24/2018. (baf, )
United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
TOM GLEASON and JULIE GLEASON
v.
MARKEL AMERICAN INSURANCE
COMPANY
§
§
§
§
§
§
Civil Action No. 4:17-CV-00163
Judge Mazzant
MEMORANDUM OPINION AND ORDER
Pending before the Court are Defendant’s Motion for Final Summary Judgment (Dkt. #20)
and Plaintiffs’ Motion for Partial Summary Judgment (Dkt. #22). After considering the motions,
and the relevant pleadings, the Court finds that Defendant’s motion should be granted and
Plaintiffs’ motion should be denied.
BACKGROUND
Plaintiffs Tom Gleason and Julie Gleason (“the Gleasons”) owned interests in a few closely
held companies. Through these companies the Gleasons indirectly owned Oregon Ice Cream, LLC
(“the Company”) and entered an agreement to sell their interest to OIC Holdings, LLC (“OIC”) on
October 1, 2014. OIC alleged that the Gleasons made false representations during the negotiations
and in the Equity Interest Purchase Agreement (the “Purchase Agreement”). Based on this
transaction, OIC brought suit against the Gleasons in the 336th Judicial District Court of Collin
County, Texas (“OIC Suit”). OIC filed its First Amended Petition and Request for Disclosure on
June 8, 2016 (“the underlying Petition” or “the Petition”).
Defendant Markel American Insurance Company issued a For Profit Management Liability
Policy No. ML-815039 (the “Policy”) to the Company. 1 The Policy was effective for claims made
1
Tom and Julie Gleason were officers of the Company.
between August 31, 2014, and October 2, 2020, for “Wrongful Acts” that occurred before October
2, 2014. The Policy included Directors and Officers and Company Liability coverage. The
relevant portions of the Policy, including the Directors and Officers and Company Liability
provision and Exclusion K, are as follows:
Section III – DEFINITIONS
A. Claim means:
...
2. a civil proceeding against any Insured commenced by the service of a complaint
or similar pleading upon such Insured;
...
for a Wrongful Act, including any appeal therefrom.
...
C. Insured Person, whether in the singular or plural, means:
1. any natural person who was, now is or shall during the Policy Period become a
duly elected or appointed director, trustee, governor, Manager, officer, advisory
director, or member of a duly constituted committee or board of the Company or
their functional equivalent;
...
H. Outside Position means the position of director, officer, manager, trustee, governor or
other equivalent executive position in an Outside Entity held by an Insured Person,
if service in such position is with the knowledge and consent of, at the direction or
request of, or part of the duties regularly assigned to the Insured Person by the
Company.
...
K. Wrongful Act means:
1. any actual or alleged error, misstatement, misleading statement, act, omission,
neglect, or breach of duty by any Insured Person in their capacity as such or in an
Outside Position, or with respect to Insuring Agreement C, by the Company; or
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2. any matter claimed against any Insured Person solely by reason of their serving in
such capacity or in an Outside Position.
Section IV – EXCLUSIONS
The Insurer shall not be liable under this Coverage Part to pay any Loss on account of,
and shall not be obligated to defend, any Claim made against any Insured:
...
K. based upon, arising out of or in any way involving (i) the actual, alleged or attempted
purchase or sale, or offer or solicitation of an offer to purchase or sell, any debt or equity
securities, or (ii) the actual or alleged violation of any federal, state, local or common or
foreign law relating to debt or equity securities; provided this exclusion shall not apply to
any Claim:
1. based upon, arising out of or in any way involving the purchase or sale, or offer or
solicitation of an offer to purchase or sell, any debt or equity securities in a
private[ ]placement transaction exempt from registration under the Securities Act
of 1933, as amended.
(Dkt. #20, Exhibit A at pp. 26–29).
On January 22, 2016, the Gleasons submitted their claim under the Policy to Defendant.
On March 15, 2016, Defendant acknowledged the Gleasons as Insured Persons under the Policy,
but denied coverage asserting that there was no “Wrongful Act” because the Gleasons did not act
as officers or directors (“insured capacity”) in the allegations contained in the OIC Suit and that
even if there were a “Wrongful Act,” Exclusion K precluded coverage.
On February 3, 2017, the Gleasons filed the present suit in the 366th Judicial District Court
of Collin County, Texas, alleging a breach of contract and extra-contractual claims based on
Defendant’s denial of coverage. On March 6, 2017, Defendant filed its Notice of Removal
(Dkt. #1). Since the Gleasons initiated the current suit, the OIC Suit concluded. The Gleasons
prevailed on all claims and the district court awarded the Gleasons reasonable and necessary
attorney’s fees and costs. On September 15, 2017, Defendant filed its motion for summary
judgment (Dkt. #20). The Gleasons filed their response on October 13, 2017 (Dkt. #26) and
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Defendant filed its reply on October 20, 2017 (Dkt. #30). On October 20, 2017, the Gleasons filed
objections to the summary judgment evidence Defendant submitted (Dkt. #32) and Defendant
responded to the Gleasons’ objections on October 27, 2017 (Dkt. #36). Further, on September 18,
2017, the Gleasons filed their motion for partial summary judgment (Dkt. #22). On October 13,
2017, Defendant filed its response (Dkt. #27). The Gleasons filed their reply on October 20, 2017
(Dkt. #31) and Defendant filed its sur-reply on October 27, 2017 (Dkt. #35).
LEGAL STANDARD
The purpose of summary judgment is to isolate and dispose of factually unsupported claims
or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986). Summary judgment is proper
under Rule 56(a) of the Federal Rules of Civil Procedure “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(a). A dispute about a material fact is genuine when “the evidence is such that
a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby Inc.,
477 U.S. 242, 248 (1986). Substantive law identifies which facts are material. Id. The trial court
“must resolve all reasonable doubts in favor of the party opposing the motion for summary
judgment.” Casey Enters., Inc. v. Am. Hardware Mut. Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981).
The party seeking summary judgment bears the initial burden of informing the court of its
motion and identifying “depositions, documents, electronically stored information, affidavits or
declarations, stipulations (including those made for purposes of the motion only), admissions,
interrogatory answers, or other materials” that demonstrate the absence of a genuine issue of
material fact. FED. R. CIV. P. 56(c)(1)(A); Celotex, 477 U.S. at 323. If the movant bears the burden
of proof on a claim or defense for which it is moving for summary judgment, it must come forward
with evidence that establishes “beyond peradventure all of the essential elements of the claim or
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defense.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). Where the nonmovant
bears the burden of proof, the movant may discharge the burden by showing that there is an absence
of evidence to support the nonmovant’s case. Celotex, 477 U.S. at 325; Byers v. Dall. Morning
News, Inc., 209 F.3d 419, 424 (5th Cir. 2000). Once the movant has carried its burden, the
nonmovant must “respond to the motion for summary judgment by setting forth particular facts
indicating there is a genuine issue for trial.” Byers, 209 F.3d at 424 (citing Anderson, 477 U.S. at
248–49). A nonmovant must present affirmative evidence to defeat a properly supported motion
for summary judgment. Anderson, 477 U.S. at 257. Mere denials of material facts, unsworn
allegations, or arguments and assertions in briefs or legal memoranda will not suffice to carry this
burden. Rather, the Court requires “significant probative evidence” from the nonmovant to dismiss
a request for summary judgment. In re Mun. Bond Reporting Antitrust Litig., 672 F.2d 436, 440
(5th Cir. 1982) (quoting Ferguson v. Nat’l Broad. Co., 584 F.2d 111, 114 (5th Cir. 1978)). The
Court must consider all of the evidence but “refrain from making any credibility determinations or
weighing the evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir.
2007).
ANALYSIS
Defendant moves for summary judgment because it maintains that (1) it did not owe a duty
to defend the OIC Suit and (2) the Gleasons are barred by the one satisfaction rule. The Gleasons
move for partial summary judgment contending that Defendant breached the duty to defend. The
Court will address Defendant’s duty to defend the Gleasons in the OIC Suit, and because it finds
there was no duty to defend, will not address the one satisfaction rule.
“Under Texas law, an insurer may have two responsibilities relating to coverage—the duty
to defend and the duty to indemnify.” Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d 589, 594
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(5th Cir. 2011) (citing D.R. Horton – Tex., Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 743 (Tex.
2009)). The duties to defend and indemnify are distinct, and one may exist without the other. Id.;
see also Colony Ins. Co. v. Peachtree Const., Ltd., 647 F.3d 248, 253–54 (5th Cir. 2011). An
insurer’s duty to defend is determined by the application of the “eight-corners rule.” GuideOne
Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006). “The rule takes its
name from the fact that only two documents are ordinarily relevant to the determination of the
duty to defend: the policy and the pleadings of the third-party claimant.” Id. (citing King v. Dall.
Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002)). “[T]he duty to defend does not rely on the truth
or falsity of the underlying allegations; an insurer is obligated to defend the insured if the facts
alleged in the petition, taken as true, potentially assert a claim for coverage under the insurance
policy.” Colony, 647 F.3d at 253 (citing GuideOne, 197 S.W.3d at 308). All doubts regarding the
duty to defend are resolved in favor of the duty, and the pleadings are construed liberally. Zurich
Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex. 2008). If a complaint potentially includes
a covered claim, the insurer must defend the entire suit. Id. (citation omitted).
Further, the Court must “apply Texas law as interpreted by Texas state courts.” Gilbane
Bldg. Co., 664 F.3d at 593 (quoting Mid-Continent Cas. Co. v. Swift Energy Co., 206 F.3d 487,
491 (5th Cir. 2000)). Under Texas law, “insurance policies are construed according to common
principles governing the construction of contracts, and the interpretation of an insurance policy is
a question of law for a court to determine.” Am. Int’l Specialty Lines Ins. Co. v. Rentech Steel
LLC, 620 F.3d 558, 562 (5th Cir. 2010). The Court must interpret the policy to discern the
intention of the parties as it is expressed in the policy. Id. “Whether a contract is ambiguous is
[also] a question of law.” Id. (citing Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d
462, 464 (Tex. 1998)). An ambiguity is not present simply because the parties advance conflicting
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interpretations, but exists “only if the contractual language is susceptible to two or more reasonable
interpretations.” Id. (quoting Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex.
2003)). “Effectuating the parties’ expressed intent is [the Court’s] primary concern.” Don’s Bldg.
Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 23 (Tex. 2008). “No one phrase, sentence, or
section [of the policy] should be isolated from its setting and considered apart from the other
provisions.” Id. (quoting Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex. 1994)). A
policy’s terms should be given their plain meaning, without inserting additional provisions in the
contract. Id.
In determining whether an insurer has a duty to defend, the policyholder “bears the initial
burden of showing that the claim [in the underlying action] is potentially within the insurance
policy’s scope of coverage.” Harken Expl. Co. v. Sphere Drake Ins. PLC, 261 F.3d 466, 471 (5th
Cir. 2001) (citation omitted). “However, it is the insurer that carries the burden of establishing
that ‘the plain language of a policy exclusion or limitation allows the insurer to avoid coverage of
all claims, also within the confines of the eight corners rule.” Regency Title Co. v. Westchester
Fire Ins., No. 4:11-cv-390, 2013 WL 6054820, at *4 (E.D. Tex. Nov. 15, 2013) (citing Northfield
Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 528 (5th Cir. 2004)). In addition, “[e]xclusions
[in the insurance policy] are narrowly construed, and all reasonable inferences must be drawn in
the insured’s favor.” Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 370
(5th Cir. 2008). An exclusion is ambiguous only if it is clearly susceptible to multiple reasonable
interpretations. Regency Title Co., 2013 WL 6054820, at *4 (citing Carolina Cas. Ins. Co. v.
Sowell, 603 F. Supp. 2d 914, 923 (N.D. Tex. 2009)). “[The] rules favoring the insured . . . are
applicable only when there is an ambiguity in the policy; if the exclusions in question are
susceptible to only one reasonable interpretation, then [the rules favoring the insured] do not
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apply.” Id. (quoting Am. States Ins. Co. v. Bailey, 133 F.3d 363, 369 (5th Cir. 1998)). “Courts
should not strain to find an ambiguity, if, in doing so, they defeat the probable intentions of the
parties, even though the insured may suffer an apparent harsh result as a consequence.” Ohio Cas.
Grp. of Ins. Cos. v. Chavez, 942 S.W.2d 654, 658 (Tex. App.—Houston [14th Dist.] 1997, writ
denied). “Furthermore, if a policy provision is susceptible to only one reasonable interpretation,
the [C]ourt is obligated to give the words their ‘plain meaning’ even if this means coverage is
denied.” Regency Title Co., 2013 WL 6054820, at *4 (citing Evanston Ins. Co. v. Legacy of Life,
Inc., 645 F.3d 739, 744–45 (5th Cir. 2011)).
Defendant argues that it did not owe the Gleasons a duty to defend in the OIC Suit because
the actions surrounding the transaction were not “Wrongful Acts,” as contemplated by the Policy.
Further, even if there is a “Wrongful Act,” Defendant maintains that the transaction falls into
Exception K, and the Policy provides no coverage. The Gleasons assert that the OIC Suit involved
alleged “Wrongful Acts” under the Policy. Further, the Gleasons argue that Exception K does not
apply because of the private placement exemption. As such, the Gleasons assert the policy covers
the OIC Suit. The Court will first look to whether the actions surrounding the OIC Suit are
“Wrongful Acts” and then will address whether the claim fits into Exemption K.
I. “Wrongful Act”
The Policy covers an insured person acting in their insured capacity, as an officer and
director. 2 Defendant avers that the Gleasons were not acting in their insured capacity during the
factual allegations that make up the OIC Suit. Defendant alleges that the Gleasons acted as the
sellers of their equity interest in the holding companies that owned the Company in the OIC suit,
not as officers and directors. The Gleasons maintain that the underlying Petition does not limit the
2
The Court notes that there are more conditions to be covered under the Policy; however, Defendant only challenges
the “Wrongful Act” requirement.
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capacity in which it seeks damages from the Gleasons, and in fact the Petition specifically
references Tom Gleason both in his capacity as an officer and director and as a seller. According
to the Gleasons, the underlying Petition also contains several allegations that do not refer to the
Gleasons in either capacity.
Defendant supports its contention with a few distinguishable cases, including Beck. In
Beck, the policy only covered losses incurred by the directors or officers . . . solely in that capacity.”
Beck v. Am. Cas. Co. of Reading, Penn., No. MO–88–CA–303, 1990 WL 598573, at *14 (W.D.
Tex. Apr. 12, 1990) (emphasis added). Further, in that case, “[t]he petition ma[de] a clear
distinction between the roles of ‘Inside Shareholder’ and ‘Former Director.’” Id. Based on this
set of facts, the court found that there was no duty to defend because it was “clear that the claims
asserted against the [p]laintiffs are not for actions taken by them solely in their capacities as officers
and directors. . . .” Id. at *15 (emphasis in original).
Here, the policy does not explicitly state that a “Wrongful Act” occurs when the Gleasons
act solely in their official capacity. 3 Further, the underlying Petition references the Gleasons in
both their capacity as sellers and as officers and directors. Indeed, several times, the underlying
Petition does not specify any capacity. The specific allegations in the underlying Petition’s cause
of action section also does not state that OIC sued the Gleasons in their capacity as sellers. As
such, the Petition does not conclusively establish the capacity in which the Gleasons were sued. It
is not unreasonable to read the Petition as potentially alleging that the Gleasons committed at least
one “error, misstatement, misleading statement, act, omission, neglect, or breach of duty” in their
insured capacity. It is accordingly appropriate to find that the Policy provided coverage, before
3
Subsection 2 of the “Wrongful Act” definition does indicate that the act must be made solely in the insured capacity;
however, because the OIC Suit arises out of an “actual or alleged error, misstatement, misleading statement, act,
omission, neglect or breach of duty,” the Gleasons do not need to use Subsection 2 for coverage. Subsection 1 does
not make the same limitation.
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looking to the exclusions, for the underlying Petition. 4 See, Zurich Am. Ins. Co., 268 S.W.3d at
491; Nat’l Union Fire Ins., 939 S.W.2d at 141.
II. Exclusion K
Defendant contends that even if the Gleasons’ actions are “Wrongful Acts,” the underlying
Petition triggers Exclusion K of the Policy and the claim is not covered under the Policy. Exclusion
K provides that the insurer is not liable for any claim “based upon, arising out of or in any way
involving (i) the actual, alleged or attempted purchase or sale, or offer or solicitation of an offer to
purchase or sell, any debt or equity securities.” (Dkt. #20, Exhibit A at p. 29). The Gleasons argue
that not all of the allegations arise out of the sale of the Gleasons’ interests in the Company.
Accordingly, the Gleasons maintain that Defendant must defend the suit, even if there is only one
claim that is not precluded under Exclusion K.
“The words ‘arising out of’ are words of much broader significance than the words ‘caused
by,’ and are ordinarily understood to mean ‘originating from,’ ‘having its origin in,’ ‘growing out
of,’ ‘flowing from,’ ‘incident to,’ or having connection with.” State Farm Lloyds v. Chandler, No.
4:04-cv-186, 2005 WL 2467071, at *3 (E.D. Tex. Oct. 6, 2005) (quoting Red Ball Motor Freight,
Inc. v. Emp’rs Mut. Liab. Ins. Co. of Wis., 189 F.2d 374, 278 (5th Cir. 1951)). “‘[W]hen an
exclusion precludes coverage for injuries arising out of described conduct, the exclusion is given
a broad, general, and comprehensive interpretation. A claim need only bear an incidental
4
Any doubts regarding coverage are to be resolved in the insured’s favor:
Where the complaint does not state facts sufficient to clearly bring the case within or without the
coverage, the general rule is that the insurer is obligated to defend if there is, potentially, a case
under the complaint within the coverage of the policy. Stated differently, in case of doubt as to
whether or not the allegations of a complaint against the insured state a cause of action within the
coverage of a liability policy sufficient to compel the insurer to defend the action, such doubt will
be resolved in insured’s favor.
Nat’l Union Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997) (quoting Heyden
Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965)); see also King v. Dall. Fire Ins. Co.,
85 S.W.3d 185, 187 (Tex. 2002) (“[W]e resolve all doubts regarding the duty to defend in favor of the duty.”).
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relationship to the described conduct for the exclusion to apply.’” Id. (quoting Scottsdale Ins. Co.
v. Tex. Sec. Concepts & Investigation, 173 F.3d 941, 943 (5th Cir. 1999)). Even if the Gleasons
are correct that some of the allegations are not caused by the sale of the Gleasons’ interest in the
Company, all of the allegations bear, at the very least, an incidental relationship to the sale of their
interest in OIC. See id. (quoting Scottsdale Ins. Co., 173 F.3d at 943). Using the example the
Gleasons provided, the allegations pertaining to Tom Gleason’s withholding financial information
from the auditors demonstrate his knowledge of the pertinent facts during the negotiations for the
sale of the Gleasons’ interest in the Company (Dkt. #26, Exhibit B at ¶ 103–105). Therefore, the
OIC Suit fits into Exclusion K.
However, Exclusion K contains an exemption, which states that the exclusion shall not
apply to claims that are “based upon, arising out of or in any way involving the purchase or sale,
or offer or solicitation of an offer to purchase or sell, any debt or equity securities in a
private[ ]placement transaction exempt from registration under the Securities Act of 1933, as
amended.” (Dkt. #20, Exhibit A at p. 29). Defendant argues that the Gleasons are not exempt
from registration under the Securities Act of 1933 because a private placement transaction requires
the issuance of securities from an issuer, and the Gleasons are not issuers. The Gleasons respond
that a private placement transaction is not defined in the Policy. As such, the Gleasons maintain
that the Court is not limited to using the definition provided by Defendant, and in fact should use
the definition that is most favorable to the insured. The Gleasons aver that there are several
definitions of private placement transaction that do not include the term issuer, and using these
definitions, the Gleasons maintain the sale of the membership is a private placement transaction
contemplated by the Policy.
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This argument is belied by the Gleasons’ own contentions. The Gleasons contend that the
transaction is a private placement transaction exempted from registration under Section 4(a)(2) of
the Securities Act of 1933 and the safe harbor provided by Rule 506 of Regulation D to the
Securities Act of 1933. Section 4(a)(2) states that, “transactions by an issuer not involving any
public offering” are exempted from registration. 15 U.S.C. 77d(a)(2) (emphasis added). Rule 506
of Regulation D provides, in relevant part, that the “[o]ffers and sales of securities by an issuer
that satisfy the conditions in paragraph (b) or (c) of this section shall be deemed to be transactions
not involving any public offering within the meaning of section 4(a)(2) of the Act.”
17 C.F.R. § 230.506 (emphasis added). Accordingly, it does not matter what definition Defendant
used to define private placement transaction, because the sections the Gleasons rely on require the
Gleasons to be issuers. As such, the Gleasons must be issuers for the transaction to be considered
a private placement transaction under the Policy.
Defendant argues that the Gleasons are not issuers because no security was issued in this
transaction. Defendant maintains that the Gleasons merely resold securities that had previously
been issued. Defendant asserts that the underlying Petition 5 and the Purchase Agreement 6 support
this contention. The Gleasons did not provide an argument suggesting that they were issuers
pursuant to the Securities Act of 1933. The Securities Act of 1933 defines an issuer as “every
person who issues or proposes to issue any security.” 15 U.S.C. 77b(a)(4). Looking to the
5
Defendant points the Court to the following excerpts, among others, from the pleadings, to demonstrate that the
pleadings emulate a personal sale of interest rather than an issuance of securities: “The Purchase Agreement obligated
the [Gleasons] to sell to OIC their interest in the holding companies that owned Oregon Ice Cream” (Dkt. #20, Exhibit
D at ¶ 10); “The Gleasons received $17,695,811.50 of those proceeds. Tom Gleason’s parents received $841,698.84.
Another $1,650,000 was placed in an escrow account;” (Dkt. #20, Exhibit D at ¶ 12); “As is customary in agreements
for the acquisition of a business, the Purchase Agreement contains a mechanism designed to ensure that the business
had a sufficient amount of working capital when acquired by OIC.” (Dkt. #20, Exhibit D at ¶ 34).
6
Defendant points the Court to the following excerpt from the Purchase Agreement to demonstrate that this transaction
did not involve an issuance because the equity interest had already been issued: “[Julie] Gleason is the beneficial
holder, as joint-tenant with Tom Gleason, of 100% of the issued and outstanding shares of common stock of
Cornerstone. . . .” (Dkt. #20, Exhibit B at p. 90) (emphasis added).
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underlying Petition and Purchase Agreement, the transaction involved the resale of securities that
had previously been issued, not the issuance of securities by the Company. 7 Accordingly, the
Gleasons are not issuers as defined by the Securities Act of 1933. Because the Gleasons are not
issuers, the transaction is not a private placement transaction as defined in Section 4(a)(2) or Rule
506 of Regulation D to the Securities Act of 1933. Since the transaction is not a private placement
transaction as defined in the Securities Act of 1933, the claim is not “based upon, arising out of or
in any way involving the purchase or sale, or offer or solicitation of an offer to purchase or sell,
any debt or equities securities in a private[ ]placement transaction exempt from registration under
the Securities Act of 1933.” (Dkt. #20, Exhibit A at p. 29). Therefore, the claim does not fit into
the private placement exemption, and is excluded pursuant to Exclusion K.
Accordingly,
Defendant did not have the duty to defend the OIC Suit because the claim was excluded from
coverage.
PLAINTIFFS’ OBJECTIONS TO DEFENDANT’S SUMMARY JUDGMENT
EVIDENCE
The Gleasons object to Defendant’s evidence as being outside the “eight corners,”
specifically pointing to Docket Number Twenty Exhibit B (the Purchase Agreement), Exhibit E
(the docket sheet for the OIC Suit), Exhibit F (the docket sheet for the OIC Suit), Exhibit G (letter
from Joseph L. Franco requesting coverage under the Policy), Exhibit H (letter from Michael R.
Delhagen denying coverage under the Policy), and Exhibit I (the Gleasons’ Motion for
Determination of Prevailing Party and Hearing for Entry of Fees and Costs Award in the OIC
Suit). 8 In its analysis, the Court did not reference or even look to Exhibit E, Exhibit F, Exhibit G,
7
The Court does not hold that an individual cannot be an issuer, merely with this set of facts, the Gleasons are not
issuers.
8
The Gleasons make the same objection to Docket Number 27 Exhibits C, F, G, H, and I. These exhibit are the same
documents provided as exhibits by Defendant in Docket Number 20.
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Exhibit H, or Exhibit I. As such, the Court will sustain the objection, as the evidence did not affect
the Court’s analysis.
Defendant responds that Exhibit B, the Purchase Agreement, is proper evidence because
the underlying Petition repeatedly references the Purchase Agreement. Defendant maintains that
the Court is permitted to use a document that is specifically referred to or incorporated by either
the underlying Petition or the Policy. Further, Defendant argues that the Purchase Agreement fits
into the exception to the “eight corners” rule because it was initially impossible to discern whether
coverage was implicated and that it went to the fundamental issue of coverage.
The Court overrules the objection to Exhibit B to Docket Number 20, the Purchase
Agreement, because the underlying Petition referenced the Purchase Agreement several times,
which incorporates the terms of the Purchase Agreement into the underlying Petition. See In re
Deepwater Horizon, 470 S.W.3d 452, 464 (Tex. 2015); Ins. Co. of the State of Penn. v. Roberts,
506 S.W.3d 498, 505–06 (Tex. App.—Houston [1st Dist.] 2017, pet. filed). This requires the
Purchase Agreement to be consulted in order to properly engage in the “eight corners” analysis.
See In re Deepwater Horizon, 470 S.W.3d at 464; Ins. Co. of the State of Penn., 506 S.W.3d at
505–06. See also Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th
Cir. 2010) (allowing courts to use documents referenced in and central to a complaint when
analyzing a motion to dismiss).
CONCLUSION
It is therefore ORDERED that Defendant’s Motion for Final Summary Judgment (Dkt.
#20) is hereby GRANTED Plaintiffs’ Motion for Partial Summary Judgment (Dkt. #22) is hereby
DENIED. Accordingly, Defendant did not owe a duty to defend as a matter of law. All of
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.
Plaintiffs’ claims are based on the duty to defend, and as such, all of Plaintiffs’ claims fail as a
matter of law. Therefore, Plaintiffs’ claims are DISMISSED WITH PREJUDICE.
SIGNED this 24th day of January, 2018.
___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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