Shahi et al v. Standard Fire Insurance Company, The
Filing
72
OPINION AND ORDER granting 54 Defendant's Motion for Partial Summary Judgment on Counts I and II and denying 53 Plaintiffs' Motion for Partial Summary Judgment. Signed by Chief Judge Christina Reiss on 8/30/2011. (pam)
. U:S.mSTIHCT COURT
DISTRICI OF VTRl"'jONT
FILECl
UNITED STATES DISTRICT COURT
FOR THE
2011 AUG 30 AM 9: 37
DISTRICT OF VERMONT
CLERK
~t1
OEYUIY CLERK
KAVEH S. SHAHI, and
LESLIE S. SHAHI,
Plaintiffs,
v.
THE STANDARD FIRE
INSURANCE COMPANY,
Defendant.
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Case No. 5:1O-cv-15
OPINION AND ORDER
GRANTING DEFENDANT'S MOTION FOR PARTIAL SUMMARY
JUDGMENT AND DENYING PLAINTIFFS' MOTION
FOR PARTIAL SUMMARY JUDGMENT
(Docs. 53, 54)
This matter came before the court on June 30, 2011 for oral argument on the
parties' cross-motions for partial summary judgment. Plaintiffs, Kaveh S. Shahi and
Leslie S. Shahi, seek summary judgment on Counts I and II of their three-count
Complaint. They ask the court to declare that Defendant, Standard Fire Insurance
Company ("SFIC"), is obligated, pursuant to a homeowners insurance policy issued to
Deirdre Donnelly (the "Policy"), to pay a state court judgment Plaintiffs obtained against
Daniel Madden who is or was Ms. Donnelly's husband.
SFIC, in tum, seeks partial summary judgment, asserting that Plaintiffs' claims in
Counts I and II of the Complaint are barred by the statute of limitations set forth in 8
V.S.A. § 4203(2). In the alternative, SFIC seeks a determination that it is not liable for
the state court judgment against Mr. Madden because of certain Policy provisions.
Defendant is represented by Pietro J. Lynn, Esq. PlaintiffKaveh S. Shahi, Esq. is
self-represented. Plaintiff Leslie S. Shahi is represented by David L. Cleary, Esq.
I.
Undisputed Facts.
This case arises out of a long-standing dispute between Plaintiffs and their
neighbors, Ms. Donnelly and Mr. Madden, involving various events that occurred on and
about their properties in Woodstock, Vermont. Defendant, through its alleged agent,
Travelers Insurance Company ("Travelers"), insured Ms. Donnelly under the Policy. As
a spouse of Ms. Donnelly, living in the same residence, Mr. Madden is an insured under
the Policy.
A. Shah; v. Madden.
In November 2004, Plaintiffs filed a case in Windsor Superior Court, styled Shahi
v. Madden, Docket No. 591-11-04 Wrcv ("Shahi v. Madden"), alleging that Mr. Madden
committed various acts which injured Plaintiffs. Plaintiffs sought monetary damages on
a number of theories and an injunction pursuant to Vermont's hate crimes statute, 13
V.S.A. §§ 1458-1466. Plaintiffs and the court determined that the request for injunctive
relief under the hate crimes statute would be decided by the court after trial.
Mr. Madden did not notify SFIC or Travelers regarding the Shahi v. Madden
lawsuit and did not request either a defense or coverage under the Policy.
In July 2006, Plaintiffs obtained a jury verdict in the amount of$1.8 million
against Mr. Madden, which included $1 million in punitive damages. Mr. Madden
appealed the judgment to the Vermont Supreme Court, which affirmed the judgment in
March 2008. See Shahi v. Madden, 2008 VT 25, 183 Vt. 320, 949 A.2d 1022.
In April 2008, Plaintiffs filed a renewed request in Shahi v. Madden, seeking a
hate crimes injunction, and interest on the judgment which had accrued during the appeal.
In June 2008, the trial court issued an amended judgment in Shahi v. Madden in
the amount of$2,205,493.30, which included post-judgment interest (the "Amended
Judgment"). Plaintiffs seek to collect the amounts due under the Amended Judgment
from SFIC.
In January 2009, Stephen D. Ellis, Esq. successfully moved to intervene in the
hate crimes injunction proceeding on behalf of Ms. Donnelly. As the Vermont Supreme
Court noted, "Donnelly was granted intervenor status to join in the objection only so far
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as it related to her property interests." See Shahi v. Madden, 2010 VT 56, ,-r8, 5 A.3d 869,
872. During a July 2008 evidentiary hearing on the injunction, Mr. Madden claimed to
be insolvent.' The state court granted the injunction in May 2009.
Attorney Ellis filed an appeal of the hate crimes injunction in Shahi v. Madden.
SFIC contends that Attorney Ellis only represented Intervenor Donnelly in the appeal.
Plaintiffs contend that Attorney Ellis effectively also represented Mr. Madden and
continued the litigation without his consent. The court need not resolve this dispute
because it is undisputed that on June 8, 2009, Mr. Madden filed a pro se notice of appeal
and thus continued the litigation on his own behalf.
In June 2010, the Vermont Supreme Court reversed the grant of injunctive relief,
and remanded Plaintiffs' request for the same to the Windsor Superior Court for
redetermination. See Shahi v. Madden, 2010 VT 56, 5 A.3d 869. In so ruling, the court
noted that "[r]egardless of how the issues [Donnelly] raises on appeal mayor may not be
limited based on the scope of her intervention, the fact that Madden has formally adopted
Ms. Donnelly's arguments as his own-and had raised them himself in the proceedings
below-puts them squarely before this Court." Shahi v. Madden, 2010 VT at ,-r12, 5 A.3d
at 874. Against this backdrop, Plaintiffs' repeated claim that Shahi v. Madden was
appealed and continued without Mr. Madden's consent is bereft of factual support and
contrary to the record of those proceedings.
The injunctive relief portion of Shahi v. Madden remains pending although the
Windsor Superior Court has sua sponte moved to dismiss the case.'
The court's August 31, 2010 Order misidentifies the date Mr. Madden claimed to be insolvent
as April 2008. See Doc. 39 at 2. This error is not material because Plaintiffs did not file this
lawsuit within a year of either the April or July 2008 dates.
1
Pursuant to Fed. R. Evid. 20 I, the court takes judicial notice of proceedings in Shahi v. Madden
and provides each party fourteen (14) days to request an opportunity to be heard on the propriety
of taking judicial notice.
2
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B. Shahi v. SF/Co
In Count I of their Complaint, Plaintiffs request a declaration under the
Declaratory Judgment Act ("DJA"), 28 U.S.C. § 2201, that SFIC is obligated to extend
coverage to Mr. Madden, an insured under the Policy, for the Shahi v. Madden Amended
Judgment. Plaintiffs ask the court to further declare that SFIC has waived any limitation
of liability in the Policy under 8 V.S.A. § 4203(1),3 by pursuing appeals in Shahi v.
Madden without Mr. Madden's consent.
In Count II of their Complaint, Plaintiffs allege that, in light of Mr. Madden's
alleged insolvency, and SFIC's alleged assumption of Mr. Madden's defense," Plaintiffs
may proceed directly against SFIC pursuant to 8 V.S.A. § 4203(3).5 Plaintiffs seek a
declaration under the DJA as to the amount of the policy limits and an order that SFIC
3
8 V.S.A. § 4203(1) provides:
The company shall pay and satisfy any judgment that may be recovered against
the insured upon any claim covered by this policy to the extent and within the
limits of liability assumed thereby, and shall protect the insured against the levy
of any execution issued upon any such judicial judgment or claim against the
insured. No limitation of liability in this policy shall be valid if, after a judgment
has been rendered against the insured in respect to his legal liability for damages
in a particular instance, the company continues the litigation by an appeal or
otherwise, unless the insured shall stipulate with the company, agreeing to
continue such litigation.
Plaintiffs claim that because Attorney Ellis filed a notice of appeal in Shahi v. Madden (related
to the hate crimes injunction), SFIC "in effect provided and continues to provide a defense to
Madden in the post-judgment phase of Shahi v. Madden." (Doc. 1, ~ 36.) Plaintiffs assert that
because Attorney Ellis was "regularly retained by Travelers," his conduct, even as Ms.
Donnelly's attorney, "was either in the scope of his agency for SFIC/Traveler[s] and/or was
ratified by SFIC/Trave1ers." (Doc. 1, ~ 5.)
4
58 V.S.A. § 4203(3) provides:
The insolvency or bankruptcy of the insured shall not release the company from
the payment of damages for injury sustained or loss occasioned during the life of
the policy, and in case of such insolvency or bankruptcy an action may be
maintained by the injured person or claimant against the company under the tenus
of the policy, for the amount of any judgment obtained against the insured not
exceeding the limits of the policy.
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pay the same. In Count III, which is not at issue here, Plaintiffs assert a claim for
malicious prosecution.
II.
Conclusions of Law and Analysis.
In this case, federal jurisdiction is based on diversity of citizenship. Accordingly,
the court applies the substantive law of Vermont, the forum state. See Erie R.R. Co. v.
Tompkins, 304 U.S. 64, 78 (1938); Omega Eng'g, Inc. v. Omega, S.A., 432 F.3d 437,443
(2d Cir. 2005).
A.
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Standard of Review.
On a motion for summary judgment, the court examines "the evidence in the light
most favorable to, and draw [s] all inferences in favor of, the non-movant." Sheppard v.
Beerman, 317 F.3d 351,354 (2d Cir. 2003) (citation omitted). Summary judgment is
appropriate where the "movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter oflaw." Fed. R. Civ. P. 56(a).
The moving party bears the burden of showing that it is entitled to summary judgment.
Huminski v. Corsones, 386 F.3d 116, 132 (2d Cir. 2004). Where there are "cross-motions
for summary judgment, 'each party's motion must be examined on its own merits, and in
each case all reasonable inferences must be drawn against the party whose motion is
under consideration. '" Lumbermens Mut. Cas. Co. v. RGIS Inventory Specialists, LLC,
628 F.3d 46,51 (2d Cir. 2010) (quoting Morales v. Quintel Entm 't, Inc., 249 F.3d 115,
121 (2d Cir. 2001».
A federal court can take judicial notice of proceedings in other courts, both within
and outside of the federal system, if the proceedings have a direct relation to matters at
issue. World Wrestling Entm 't, Inc. v. Jakks Pac., Inc., 425 F. Supp. 2d 484,508 n.l6
(S.D.N.Y. 2006) (citing Green v. Warden,
us. Penitentiary, 699 F.2d 364,369 (7th Cir.
1983».
B.
Whether Counts I and II are Barred by the Statute of Limitations.
Through its enactment of 8 V.S.A. § 4203, the Vermont Legislature created for
"an injured person" "an applicable statutory right in § 4203(3)," Korda v. Chicago Ins.
Co., 2006 VT 81, ~ 25, 180 Vt. 173,908 A.2d 1018, in the form ofa third party direct
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action against a defendant's insurance company. In the absence of this statutory right, a
cause of action against a defendant's insurance company would not exist because "direct
actions against the insurer by persons other than the insured are prohibited because of the
absence of privity of contract." Id. (citations omitted). The triggers to the direct action
are twofold. First, there must be the "insolvency or bankruptcy of the insured[,]" 8
V.S.A. § 4203(3), and second the "injured party or claimant" must have obtained a
monetary judgment against the insured. Id.
Pursuant to the Vermont Legislature's statutory scheme, the insurance company's
policy with its insured governs the terms and limits of its liability, 8 V.S.A. § 4203(3),
unless "after a judgment has been rendered against the insured in respect to his legal
liability for damages" the insurance company "continues the litigation by an appeal or
otherwise" without the insured's agreement. 8 V.S.A. § 4203(1).
Under 8 V.S.A. § 4203(2), the third party direct action must be brought "within
one year after the amount of such loss is made certain by judgment against the insured
after final determination of the litigation or by agreement between the parties with the
written consent of the company."
In T. Copeland & Sons, Inc. v. Kansa Gen 'l Ins. Co., 171 Vt. 189, 762 A.2d 471
(2000), the Vermont Supreme Court explained that "subsection (2) [of Section 4203]
established a one-year limitations period for actions against insurers seeking to recover
under an insurance policy, and subsection (3) created an avenue through which injured
parties could directly sue insurance carriers if the insured is insolvent or bankrupt." Id. at
192, 762 A.2d at 472. In concluding that the one-year limitations period in subsection (2)
governed direct actions brought under subsection (3), id. at 193, 762 A.2d at 473, the
Copeland court explained Section 4203 was "part of an overall statutory scheme and [the
subsections] should be read and construed together," not as separate and independent
sections. Id., 762 A.2d at 473-74.
The Copeland court cautioned that the direct action created by subsection (3)
granted a third party "a derivative right to sue the insurer that is no greater than that of the
insured's," and that under such a theory, a third party "levying a direct action stands in
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the same shoes as the insured and with rights equal to, but not greater than, the insured."
Id. at 195, 762 A.2d at 475. Therefore, "since subsection (2) mandates that an insured
has only one year in which to bring an action against the insurer, a third party is bound by
the same condition." Id. at 196, 762 A.2d at 475. 6
SFIC points to the jury verdict and judgment entered in Shahi v. Madden in July
2006; the Vermont Supreme Court's affirmance of that judgment in March 2008; the
Amended Judgment that included post-judgment interest in June 2008; and Mr. Madden's
statement, in July 2008, that he was insolvent. Because Plaintiffs filed the instant action
on January 21,2010, more than a year after learning of Mr. Madden's insolvency in July
2008 and more than a year after obtaining a final Amended Judgment against him in June
2008, SFIC argues that Plaintiffs' direct claims against it for payment of the Amended
Judgment are time-barred.
Plaintiffs seek to avoid the statute of limitations by contending that, for a number
of reasons, SFIC has waived not only the statute of limitations, but any limitation on
liability and coverage defenses contained in the Policy. The court addresses the statute of
limitations first as it is dispositive of whether Counts I and II survive summary judgment.
Plaintiffs argue that because they stand in the shoes of the insured, SFIC had an
obligation to include the applicable statute of limitations in the Policy and its alleged
failure to do so waives SFIC's right to raise it as a bar to this litigation." What Plaintiffs
pointedly ignore is that their direct cause of action against SFIC is a creature of statute
not of contract, and is governed by a one-year statute of limitations, regardless of whether
that statute of limitations is contained in the Policy. Had the Vermont Legislature
determined that the language of the underlying policy would govern the applicable statute
The court declined to answer the question of when the one-year limitation period began to run,
accepting the lower court's conclusion that the suit was untimely because the plaintiff had filed
more than a year after both the date on which it had received a judgment against the insured and
the date the insured filed for bankruptcy.
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Plaintiffs make no argument that such a provision would have provided them with notice of the
statute of limitations.
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of limitations, it could have drafted Section 4203 accordingly. It did not do so. Instead,
it created a limited one-year window in which an "injured party" could sue an insolvent
or bankrupt defendant's insurance company for a judgment for money damages that was
both "final" and "certain.t"
In the alternative, Plaintiffs argue that as of the date of Mr. Madden's insolvency,
there was no "final determination" of Shahi v. Madden and thus their cause of action for a
direct claim against SFIC had not yet accrued. This argument ignores the realities of the
litigation. There is no reasonable argument that, in the circumstances of this case, the
Amended Judgment could have been altered by Plaintiffs' quest for injunctive relief. To
the contrary, as of June 2008, the Amended Judgment was both "final" and "certain" in
terms of monetary "loss" covered by the Policy. Plaintiffs have not and cannot argue that
their requested injunctive relief is covered by the Policy, or that it may give rise to a
separate direct action against SFIC. Indeed, anything Plaintiffs seek from the
continuance of Shahi v. Madden will have no impact on their rights vis-a-vis SFIC.
Moreover, even if Plaintiffs were correct in interpreting Section 4302(2) to require a
"final determination of the litigation" as a condition precedent to bringing suit, Plaintiffs
would gain nothing because it would render their claims premature and not ripe for
adjudication as Shahi v. Madden remains pending. The only reasonable application of
Section 4203(2) to this case is that Plaintiffs' cause of action against SFIC accrued no
later than July 2008 because as of that date Mr. Madden was "insolvent" and the "loss"
for which a direct action could be pursued was both "final" and "certain."
Plaintiffs filed their lawsuit in January 2010, well outside the one-year limitations
period. Counts I and II must therefore be dismissed. Because the court has decided the
cross-motions on statute of limitations grounds, it does not address the parties' further
arguments for or against dismissal of Counts I and II on the basis of provisions contained
in the Policy.
s The Copeland court held that "[w]hile 'loss' traditionally has been defined as the amount of an
insured's financial detriment that the insurer becomes liable to pay, ... the Legislature
broadened 'loss' to include the financial detriment suffered by a third party." Id. at 194, 762
A.2d 474.
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CONCLUSION
For the reasons stated above, the court GRANTS Defendant's motion for partial
summary judgment on Counts I and II, and DENIES Plaintiffs' motion for partial
summary judgment.
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SO ORDERED.
Dated at Rutland, in the District of Vermont, this
SO day of August, 2011.
Christina Reiss, Chief Judge
United States District Court
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