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Madison Mechanical, Inc. v. Twin City Insurance Co.

United States District Court, D. Maryland

March 30, 2018

MADISON MECHANICAL, INC., et al., Plaintiffs and Counter-Defendants,
v.
TWIN CITY INSURANCE CO., Defendant and Counter-Plaintiff,
v.
ROBERT BUCZKOWSKI, Defendant and Cross-Defendant.

          MEMORANDUM OPINION

          GEORGE L. RUSSELL, III UNITED STATES DISTRICT JUDGE

         THIS MATTER is before the Court on three Motions: Plaintiffs Madison Mechanical, Inc., Madison Mechanical OS Corp., Madison Mechanical Contracting, LLC, Glenn A. Haslam, Gary J. Garofalo, Richard Arnold, Lawrence P. Kraemer, and Richard M. Lombardo's Motion to Dismiss Defendant Twin City Fire Insurance Co.'s (“Twin City”) Counterclaim (ECF No. 22) and Motion for Partial Summary Judgment (ECF No. 30).[2] Also pending before the Court is Twin City's Cross-Motion for Summary Judgment (ECF No. 34).[3] The Motions are fully briefed and ripe for disposition. No hearing is necessary. See Local Rule 105.6 (D. Md. 2016). For the reasons that follow, the Court will deny Plaintiffs' Motion to Dismiss and Motion for Partial Summary Judgment and grant in part and deny as moot in part Twin City's Motion for Summary Judgment.

         I.BACKGROUND[4]

         A. Madison Mechanical Contracting, LLC and Buczkowski's Termination

         This declaratory action is an insurance-coverage dispute arising out of Plaintiffs' formation of Madison Mechanical Contracting, LLC (“MM LLC”) in an alleged effort to take business from Madison Mechanical, Inc. (“MM Inc.”), a wholly owned subsidiary of Madison Mechanical OS Corp. (“MM Corp.”). (Buczkowski's Compl. [“Underlying Compl.”] ¶¶ 73-74, ECF No. 2-2).

         In 2002, Buczkowski began his position as Chief Financial Officer of MM Inc. (Id. ¶¶ 21-22). In December 2007, when the owner of MM Inc. died, Haslam, Garofalo, Buczkowski, Lombardo, and Kraemer formed MM Corp. to purchase MM Inc. and operate it as a wholly owned subsidiary of MM Corp. (Id. ¶¶ 27-28, 30). That same month, MM Corp. purchased all outstanding shares of MM LLC stock, making it the sole shareholder in MM Inc. (Id. ¶ ¶ 31-32). Under the MM Corp. shareholder agreement, the shares of MM Corp. were owned as follows: Haslam: 54%; Garofalo: 13%; Buczkowski: 13%; Lombardo: 10%; and Kraemer: 10%. (Id. ¶ 36).

         From 2013 to 2015, MM Corp. engaged in ongoing discussions with Arnold about buying shares in MM Corp. or forming a new entity with existing MM Corp. shareholders. (Id. ¶ 67). On August 20, 2015, the Member Plaintiffs formed MM LLC, excluding Buczkowski. (Id. ¶¶ 71-72). Buczkowski first learned of MM LLC's existence in November 2015. (Id. ¶ 77).

         On November 11, 2015, Buczkowski, through counsel, sent the Member Plaintiffs a letter regarding the formation of MM LLC. (Id. ¶ 78). In the letter, Buczkowski asserted that the purpose of MM LLC's formation was to “divert the business and client base of Madison Mechanical for the benefit of Madison Mechanical Contracting, LLC and to the detriment of Madison Mechanical.” (Def. Twin City's Cross-Mot. Summ. J. & Opp'n [“Def.'s Cross-Mot.”] Ex. 4 [“Nov. 2015 Letter”] at 2, ECF No. 21-7; Underlying Compl. ¶ 78). The letter characterizes these actions as “legally improper” and notes that it “could lead to a cause of action for breach of fiduciary duty, interference with a contractual relationship, interference with an economic relationship, civil conspiracy, and other potential causes of action.” (Nov. 2015 Letter at 2). The letter further asserts that it is putting the Member Plaintiffs “on notice of the potential litigation liability of such actions both on a corporate and personal level.” (Id.).

         Seven days later, MM Corp. or MM Inc. terminated Buczkowski “for cause, effective immediately.”[5] (Underlying Compl. ¶ 81; Pls.' Reply Ex. 2, ECF No. 40-3). Terminating Buczkowski “for cause” was “an attempt to force a transfer of his stock” in MM Corp. (Underlying Compl. ¶ 85). On December 21, 2015, after Buczkowski's termination, Member Plaintiffs, MM LLC, and MM Corp. dissolved MM Inc. (Id. ¶ 91).

         On January 14, 2016, MM Corp., through counsel, sent Buczkowski a letter demanding that he sell his stock in MM Corp. back to the company for $0 because he was terminated for cause. (Id. ¶¶ 88-89). Buczkowski refused to do so. (Id. ¶ 89).

         On May 10, 2016, almost six months later, Buczkowski sent a demand letter to Haslam and MM Corp. (Id. ¶¶ 170; Pls.' Mot. Partial Summ. J. [“Pls.' Mot.”] Ex. 3, ECF No. 30-4). MM Corp. responded on May 13, 2016, explaining that MM Corp.'s board had rejected Buczkowski's demand as “baseless.” (Underlying Compl. ¶ 171).

         B. Plaintiffs' Insurance Policies

         MM Inc. purchased two insurance policies from Twin City that contain Directors, Officers, and Entity (“DO&E”) liability coverage for the Madison Mechanical entities and their directors, officers, and managers. (Def.'s Cross-Mot. Ex. 3 [“2015 Policy”] at 7, ECF No. 34-4; id. Ex. 6 at 3, 98 [“2016 Policy”], ECF No. 34-7; Pls.' Mot. Ex. 6 at 3- 4, ECF No. 40-7).[6] The first policy covers liability from May 1, 2015 to May 1, 2016 (the “2015 Policy”). (2015 Policy at 3). The second policy covers liability from May 1, 2016 to May 1, 2017 (the “2016 Policy” and, collectively with the 2015 Policy, the “Policies”). (2016 Policy at 3)

         On December 29, 2015, Haslam submitted an application to add MM LLC to the existing 2015 Policy's DO&E liability coverage, effective January 1, 2016 (the “2015 Application”). (Def.'s Cross-Mot. Ex. 5 at 1-2 [“2015 Application”], ECF No. 34-6). Relevant to this case, the 2015 Application contained a “Prior Knowledge” question, which provides:

With respect to each coverage currently purchased, did any Applicant or any natural person for whom insurance is intended have any knowledge or information, as of the “date of coverage first purchased, ” of any error, misstatement, misleading statement, act, omission, neglect, breach of duty or other matter that may give rise or could have given rise to a claim.[7]

(2015 Application at 2). Haslam answered “no” to this question. (Id.).

         Directly underneath the “Prior Knowledge” question, in a shaded box, appears an exclusion (the “Prior Knowledge Exclusion”):

It is agreed that if any such knowledge or information existed, any claim based on, arising from, or in any way relating to such error, misstatement, misleading statement, act, omission, neglect, breach of duty, or other matter of which there was knowledge or information shall be excluded from coverage requested.

(Id.).[8]

         C. The Underlying Action

         On May 27, 2016, Buczkowski filed suit against MM LLC, MM Corp., and the Member Plaintiffs in the Circuit Court for Baltimore County, Maryland. (ECF No. 2-2). In his Complaint, Buczkowski alleges that MM LLC “took over ongoing projects that were previously being performed by [MM Inc.] as well as several contracts that had been negotiated under [MM Inc.]'s name and began performing the projects for the benefit of [MM LLC].” (Underlying Compl. ¶ 104). He further alleges that the purpose of MM LLC was to “take business and corporate opportunities from [MM Inc.] and [MM Corp.] for the benefit of [MM LLC] and its members.” (Id. ¶ 74; see also id. ¶¶ 106-15).

         The Underlying Complaint brings fourteen claims, both direct and derivative, including breach of fiduciary and tortious interference with economic relations. (Underlying Compl. ¶¶ 116-302). Buczkowski seeks, among other relief, a declaration that he remains a 13% shareholder in MM Corp. (Id. ¶ 118).

         Plaintiffs sought defense and indemnification from Twin City under the 2016 Policy. (See Compl. ¶¶ 31-32, ECF No. 2). In April 2017, Twin City denied coverage under the Policies and refused to defend or indemnify Plaintiffs in the Underlying Action. (See Answer & Countercl. ¶¶ 53-54, ECF No. 21).

         D. Relevant Procedural History of this Declaratory Judgment Action

         On April 14, 2017, Plaintiffs filed suit against The Hartford Products, Twin City, and Buczkowski in the Circuit Court for Baltimore County, Maryland seeking a declaratory judgment addressing, among other things, Twin City's duty to defend and duty to indemnify in the Underlying Action (Count I) and alleging Breach of Contract (Count II). (Compl. ¶¶ 44-52). On May 17, 2017, Defendants The Hartford Products and Twin City removed the case to this Court.[9] (ECF No. 1). On June 8, 2017, Twin City filed an Answer and Counterclaim against Plaintiffs and Robert Buczkowski. (ECF No. 21).

         On June 21, 2017, Plaintiffs filed a Motion to Dismiss Twin City's Counterclaim. (ECF No. 22). Twin City filed its Opposition on July 11, 2017. (ECF No. 27). To date, Plaintiffs have not filed a Reply.

         On July 27, 2017, Plaintiffs filed a Motion for Partial Summary Judgment.[10] (ECF No. 30). In response, on August 31, 2017, Twin City filed an Opposition and Cross-Motion for Summary Judgment. (ECF No. 34). Plaintiffs filed a combined Reply and Opposition to Twin City's Motion on October 12, 2017. (ECF No. 40). Twin City filed a Reply in Further Support of its Cross-Motion for Summary Judgment and in Response to Plaintiffs' Opposition to Twin City's Cross-Motion ...


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