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

United States District Court, D. Maryland

November 14, 2019

MADISON MECHANICAL, INC, et al., Plaintiffs,
v.
TWIN CITY FIRE INSURANCE CO., et al., Defendants.

          MEMORANDUM OPINION

          Stephanie A. Gallagher United States District Judge

         Plaintiffs Madison Mechanical, Inc. (“MM Inc.”), Madison Mechanical OS Corp. (“MM OS Corp.”), Madison Mechanical Contracting, LLC (“MM LLC”), Glenn A. Haslam, Gary J. Garofalo, Richard Arnold, Lawrence P. Kraemer, and Richard M. Lombardo (collectively “Plaintiffs”) brought this action against Defendant Twin City Fire Insurance Company (“Twin City”), alleging breach of an insurance policy, and seeking a declaratory judgment relating to Twin City's liability under the policy. ECF 1. Twin City filed a Counterclaim, seeking a declaratory judgment in its favor. ECF 21 at 23-43. Discovery is now complete, and Twin City has filed a summary judgment as to its Counterclaim and “any remaining counts of the Complaint.”[1] ECF 87 (and associated memorandum of law at ECF 87-1). I have reviewed that filing, and the associated opposition and reply. ECF 91, 92. Although Plaintiffs have requested a hearing, no hearing is necessary, see Loc. R. 105.6 (D. Md. 2018). For the reasons stated below, Twin City's motion will be granted.

         I. FACTUAL BACKGROUND

         Robert Buczkowski was an officer and shareholder of MM OS Corp., the holding company of MM Inc. See ECF 87-8 at 7:14-19; 8:3-20.; 9:10-15. MM Inc. maintained two relevant insurance policies with Twin City. Policy Number 42 KB 0256935-15 (“the 2015 Policy”), was in effect from May 1, 2015 through May 1, 2016. ECF 87-5. Policy Number 42 KB 0256935-16 (“the 2016 Policy”) was in effect from May 1, 2016 through May 1, 2017. ECF 34-7. The 2015 Policy and 2016 Policy each provided Directors, Officers, and Entity Liability (D&O Liability) coverage, and Employment Practices Liability (“EPL”) coverage, pursuant to the policies' terms. ECF 87-5; ECF 34-7.

         Beginning in around 2012 to 2013, MM OS Corp. experienced some financial difficulties, and the relationship amongst the partners deteriorated, with Buczkowski at odds with the other shareholders. ECF 87-8 at 24:11-21 to 25:3. In 2014 and 2015, the shareholders were asked to make capital contributions to the company. See, e.g., ECF 87-8 at 61. In response, the other shareholders of MM Inc. made significant capital contributions to the company, in proportion to their percentage of ownership. ECF 87-16 at 5. However, Buczkowski contributed a disproportionately small amount of capital. Id. In 2015, the remaining shareholders, including Plaintiffs Haslam, Garofalo, Kraemer, and Lombardo, created a new LLC, MM LLC. See ECF 87-10 at 7:7-17. On November 11, 2015, Buczkowski's attorney sent a letter to MM LLC (“the November 11, 2015 Demand Letter”). ECF 87-6. The letter states that Buczkowski has a 13% interest in MM OS Corp., which continues to have assets and work in progress. ECF 87-6 at 2. The letter notes the creation of MM LLC and states, “it appears to [Buczkowski] that the purpose of [MM LLC] is to divert the business and client base of [MM OS Corp.] for the benefit of [MM LLC] and to the detriment of [MM OS Corp.]” It continued:

If it is your plan to divert the contracts and corporate opportunity of [MM OS Corp.], please consider this letter putting you on notice of the potential litigation liability of such actions both on a corporate and personal level. Please cease and desist any such action to divert any corporate opportunity that [MM OS Corp.] has to either yourselves or [MM LLC] without the consent of my firm's client, Robert Buczkowski.

ECF 87-6. The letter states, specifically, that Buczkowski “would prefer to sit down and try to work out any potential differences while at the same time preserving his thirteen percent (13%) interest in [MM OS Corp.]” ECF 87-6 at 4.

         Upon receiving the November 11, 2015 letter from Buczkowski's attorney, Plaintiff Garofalo forwarded the letter, by email, to MM OS Corp.'s insurance agent, Bill Franey at Franey Parr & Muha, Inc./Alliant Insurance Services, Inc. ECF 87-9 ¶¶ 12, 15. Garofalo also called Franey to ask whether MM OS Corp's officer's liability insurance would provide a defense to Buczkowski's claim. ECF 91-8 ¶ 12.

         One week later, on November 18, 2015, MM Inc. sent a letter to Buczkowski, terminating his employment “for cause, effective immediately.” ECF 87-7. The letter does not reference Buczkowski's status as a shareholder. Id. The parties agree that Buczkowski's termination had been discussed previously, see e.g., ECF 91-4, but Buczkowski contends that he had not been told that he would be terminated “for cause.” ECF 87-8 at 35:7-14 (Buczkowski Dep.)

         On December 29, 2015, Plaintiff Haslam signed an application to Twin City for a new insurance policy to cover MM LLC. ECF 87-18. The application represented that “any Applicant or any natural person for whom insurance is intended” had no prior knowledge of any potential claim. ECF 87-18 at 3. Instead of issuing a new policy, Twin City issued an endorsement effective January 1, 2016, adding MM LLC to the 2016 Policy that was already in effect for the remaining Plaintiffs. ECF 87-5 at 73. MM LLC began operations on January 1, 2016. See id.; ECF 91-20 at 60:5-14.

         On January 14, 2016, counsel for MM OS Corp. wrote to counsel for Buczkowski, stating that Mr. Buczkowski was now “obligated to sell his shares in Madison.” ECF 87-3 at 21. The letter continued, “Please have your client endorse the stock certificate in blank and forward it to [MM OS Corp.'s counsel] to consummate the stock purchase.” Id.

         On May 11, 2016, counsel to MM OS Corp. wrote to Buczkowski, stating, “your employment with the corporation terminated on November 24, 2015. Pursuant to the terms of the Corporation's Stockholders agreement of which you are a party [] upon the termination of your employment you were obligated to sell your stock pursuant to the Agreement. . . . Your failure to cooperate with that request in no way changes the fact that you have ceased to be a stockholder in the Corporation.” ECF 87-33 at 2.

         On May 27, 2016, Buczkowski filed a fourteen-count Complaint against MM OS Corp., MM LLC, and the five individual Defendants, in the Circuit Court for Baltimore County (“the Underlying Litigation”). ECF 87-3. The counts included Declaratory Judgment, Breach of Contract (specifically the stockholders' agreement), Oppression of Minority Shareholder (in a personal capacity and as a derivative action on behalf of MM OS Corp.), Breach of Fiduciary Duty (in a personal capacity and as a derivative action on behalf of MM OS Corp.), Tortious Interference with Economic Relations (in a personal capacity and as a derivative action on behalf of MM OS Corp.), Unjust Enrichment (in a personal capacity and as a derivative action on behalf of MM OS Corp.), Unfair Competition - Misappropriation of Trade Secrets (in a personal capacity and as a derivative action on behalf of MM OS Corp.), and Constructive Trust (in a personal capacity and as a derivative action on behalf of MM OS Corp.). Id. Shortly after the Complaint in the Underlying Litigation was served, Plaintiffs put Twin City on notice of the claims and sent Twin City a copy of the Complaint, but without attaching or referencing the November 11, 2015 letter.

         ECF 87-19. In response, Twin City initially agreed to provide a defense, but “subject to its reservation of rights.” ECF 87-21 at 1. Pertinent here, Twin City specifically reserved its rights with respect to the percentage shareholder exclusion and prior knowledge exclusion in the 2015 and 2016 policies. Id. at 8 (stating “Twin City reserves its rights with respect to the applications, including its rights to disclaim coverage for any prior claims … arising from … error, misstatement, misleading statement…”); ECF 91-22. Ultimately, Twin City took the position that it would deny coverage under the 2016 policy, because the November 11, 2015 ...


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