Free Reply to Response to Motion - District Court of Colorado - Colorado

Case 1:01-cv-02018-RPM-MJW

Document 600

Filed 06/21/2005

Page 1 of 11

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-M-2018 (MJW) APARTMENT INVESTMENT AND MANAGEMENT COMPANY, a/k/a AIMCO, a Maryland corporation, Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, a Pennsylvania corporation; SECURITY INSURANCE COMPANY OF HARTFORD, a Connecticut corporation; FIRST CAPITAL AGENCY, INC., d/b/a FIRST CAPITAL GROUP, a New York corporation; NATIONAL PROGRAM SERVICES, INC., a New Jersey corporation; VITO B. GRUPPUSO, a New Jersey resident; ROGER METZGER ASSOCIATES, a New York corporation, Defendants -andRELATED CLAIMS.

AIMCO'S REPLY IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT ON NATIONAL UNION'S COUNTERCLAIM

AIMCO's motion for summary judgment rests on facts that National Union itself affirmatively pleads in its counterclaim. These facts are undisputed. They include: · Before January 2001, National Union discovered that the losses and valuations included in the First Capital submission were "false," and then, in January 2001, expressed concern regarding the alleged false information. National Union's Counterclaims, ¶¶ 43, 44. In January 2001, National Union made clear that there would need to be an additional premium charged AIMCO which took into account the true losses and valuations. Id., at ¶ 45.

·

Case 1:01-cv-02018-RPM-MJW

Document 600

Filed 06/21/2005

Page 2 of 11

·

In 2001, shortly after the January meeting, National Union charged and received an additional premium of approximately $5.15 million calculated based on the so-called "new information." Id., at ¶¶ 48, 49. Upon receipt of the additional premium payment, National Union continued performance, including paying AIMCO loss claims into 2003. National Union never claimed a right to rescind its contract with AIMCO until October 2003.

· ·

National Union does not dispute these facts. I. Undisputed evidence shows that National Union had notice of its purported rescission claim in early 2001.

National Union now claims that it could not rescind its contract with AIMCO until it discovered that loss histories and insured values of the other 52 entities covered by the "master policy" were "false." But whether or not those histories and values were wrong has nothing to do with AIMCO. National Union cannot deny that it knew the material facts regarding AIMCO more than two years before it purported to rescind its contract. By National Union's own admission, by late 2000 or no later than January 2001, it had knowledge of the truth regarding AIMCO's losses and valuations to have been entitled to rescind the policy. National Union Counterclaim, ¶¶ 26, 42. If these were misrepresentations, they were material. Any right National Union had to cancel the contract arose then. See, e.g., Hock v. New York Life Ins. Co., 876 P.2d 1242, 1258 (Colo. 1994) (under either Colorado or New York law, a material misrepresentation is grounds for rescission of policy). Yet National Union elected to continue to perform the contract, and to receive additional premiums. No reasonable juror could agree with National Union's assertion that it did not know that AIMCO was not responsible for the other insureds until after discovery in this case. Undisputed evidence includes:

2

Case 1:01-cv-02018-RPM-MJW

Document 600

Filed 06/21/2005

Page 3 of 11

·

Lexington (an AIG company that served as the underwriter responsible for the National Union policy) had insured AIMCO for years preceding the issuance of this policy. (E.g., Exhs. 812; 815; 819). Lexington also continued to provide excess coverage to AIMCO during the policy period at issue here. (Exh. A, NU012300-15). As part of providing coverage, Lexington received quarterly reports listing the AIMCO properties. (Exh. B, NU012628-82). Lexington had also insured at least one of the separate entities that were on the Program in years preceding the issuance of the policy. AIMCO was not a party to that insurance. (Exh. C, GAN00010). In June 2000, National Union received a written list of "owned and managed properties of Apartment & Investment Management Company" prepared by Ray Baldwin. (Exhs. 55, 165, 670). The list did not include the other 50 or so other insureds. Also in June 2000, Lockton, the insurance agency representing AIMCO and some other Program insureds, told National Union that "the other entities represented by Lockton are not part of the AIMCO group." (Exh. D, NU 14255­258, NU014902). In August 2000, a National Union underwriter admitted that it did not appear that AIMCO was related to other insureds, that unrelated entities "must come off the policy," and that he "[could] not emphasize enough how important this is." AIMCO Motion Exh. 54. Reflecting its knowledge that AIMCO was not affiliated with the other Program insureds, in September 2000, National Union issued a policy endorsement to change the definition of the "Named Insured" to identify and include all of the other insureds. (Exhs. 401, 402). Kelly, of RMA, described this endorsement as NU's effort to "mak[e] the program legal." (Exh. 401). Graham admitted that by the time the policy was canceled, he had learned that AIMCO was "unaffiliated" with the 50 or so other insureds. (Exh. F, Graham, 41:9-42:4). In April 2001, when the policy was canceled, Lexington provided separate coverage to various other insureds in the Program. (Exh. E, NU023019.156 (applying premiums for renewal coverage of separate insureds). The coverage was not provided through AIMCO or Baldwin.

·

·

·

·

. ·

·

·

National Union's current claim that it did not know that AIMCO was not responsible for procuring insurance for the other insured entities fails in the face of these undisputed facts.

3

Case 1:01-cv-02018-RPM-MJW

Document 600

Filed 06/21/2005

Page 4 of 11

National Union's claim that it did not have "full knowledge" of the alleged fraud until recently cannot save its counterclaim, either. "Full and complete knowledge of an alleged fraud . . . is not essential to impose upon a would-be rescinder the necessity of acting promptly and diligently if he wishes to assert a rescission. It is enough that he has such notice of the facts as would impel a reasonable man in his position to make inquiry." Rochambeau v. Brent Exploration, Inc., 79 F.R.D. 381, 387 (D. Colo. 1978) (citations omitted). In Colorado as elsewhere, "equity will not relieve" a party seeking rescission "from the consequences of his inattention and negligence in failing to pursue his investigation." Bassford v. Cook, 380 P.2d 907, 910 (Colo. 1963); see also, e.g., Aetna Cas. & Sur. Co. v. North Sterling Irr. Dist., 225 P. 261, 265 (Colo. 1924) (noting the "established rule that where a party to a contract has the right to rescind . . ., he must exercise his right as soon as he has knowledge, or might have acquired knowledge, of the alleged default."). Colorado has long recognized that, once circumstances provide a basis for rescission of a contract, a party may not justify his untimely election by relying on assertions of later-discovered additional facts: The duty of rescinding arises immediately upon acquiring knowledge of the substantial and material facts constituting the fraud. It is not requisite that the defrauded party shall be acquainted with all the evidence constituting the fraud before the duty to act by way of rescission arises. When he has evidence sufficient to reasonably actuate him to rescind the contract and on which he has once acted, no subsequent discovery of cumulative evidence can operate to excuse waiver of the fraud . . . or to revise a once lost right of rescission. Richardson v. Lowe, 149 F. 625, 631 (8th Cir. Colo. 1906) (citations omitted). Thus, for example, the plaintiffs in Gladden v. Guyer, 426 P.2d 953, 955-56 (Colo. 1967), ratified their agreement with the defendants when they failed to act promptly upon discovery of possible fraud and continued accepting benefits under the contract. The Colorado

4

Case 1:01-cv-02018-RPM-MJW

Document 600

Filed 06/21/2005

Page 5 of 11

Supreme Court, citing Richardson, rejected the plaintiffs' argument that they were not fully aware of the defendants' misrepresentations until just before the plaintiffs finally attempted to rescind. The Court made clear that once Gladden was put on notice of a potential rescission claim, any actions he took to affirm the contract would count as ratification. In Gordon-Tiger Mtn. & Reduction Co. v. Brown, 138 P. 51, 55 (Colo. 1914), cited by National Union, the Colorado Supreme Court again cited Richardson v. Lowe, which held knowledge of all of the evidence constituting fraud is not required. Id. at 55. In Banque Arabe Et Internationale D'Investissement v. Maryland Nat'l Bank, 850 F. Supp. 1199 (S.D.N.Y. 1994), another case National Union cites, the court held that "full knowledge" is not required for ratification outside of the principle/agent context. The court held that ratification is an "expression of willingness on the part of a party to a contract to abide by its terms, even after it has enough information upon which to exercise its right to disaffirm the existence of the contract," and that "full knowledge is not necessary before there can be ratification. Ratification can occur even after a party has had notice of facts that would invite reasonable inquiry." Id., at 1212-23 (emphasis added). II. National Union's purported rescission was untimely and void as a matter of law because it was made long after it ratified the contract.

Once on notice of a rescission claim, a party is under a duty to make his demand for rescission within a reasonable period, or the right to rescind is waived. Once on notice, if a party takes any action inconsistent with a claim to rescind, that action will constitute ratification. National Union claims that a reasonable time for rescission must be decided by the jury. National Union Response, p. 2. National Union cannot avoid summary judgment by this argument for two reasons.

5

Case 1:01-cv-02018-RPM-MJW

Document 600

Filed 06/21/2005

Page 6 of 11

First, the timeliness of a purported rescission may be decided by the court where, as here, the material facts are undisputed. See, e.g., Baker v. Penn Mut. Life Ins. Co., 788 F.2d 650, 662 (10th Cir. 1986) (affirming summary judgment that rescission claim was untimely); cf. Eggen v. M. & K. Trailers & Mobile Home Brokers, Inc., 482 P.2d 435, 438-39 (Colo. App. 1971) (holding as a matter of law that rescission was timely). The undisputed facts here show that National Union delayed bringing its rescission claim for more than two years after it had notice of the alleged facts underlying the claim. This court can rule as a matter of law that National Union's claim is not timely. Second, and more fundamental, whether National Union rescinded within a reasonable amount of time is irrelevant because National Union took affirmative steps that ratified the contract. In early 2001, shortly after National Union claims it discovered that the loss and valuation information in the First Capital submission was allegedly false, National Union expressed its concern that the information was false, charged AIMCO an additional premium, accepted payment thereof, and, upon receipt of the additional premium, continued performance. National Union Counterclaims, ¶¶ 43-49. When a court determines that a party "ratified the contract, as a matter of law, by accepting the benefits," any subsequent attempt to rescind is legally void, and the question of whether an attempted rescission came "within a reasonable time . . . is not relevant." Jones v. Dressel, 623 P.2d 370, 374 (Colo. 1981). Summary judgment, therefore, is appropriate. See Bennett v. Coors Brewing Co., 189 F.3d 1221, 1236-37 (10th Cir. 1999) (affirming summary judgment for defendant under Colorado law when plaintiffs had ratified contracts by accepting severance benefits). Contrary to National Union's argument, ratification of a contract "is not merely a matter of intent"; it "may be determined by the actions" of a party "who accepts the benefits of a

6

Case 1:01-cv-02018-RPM-MJW

Document 600

Filed 06/21/2005

Page 7 of 11

contract." Jones, 623 P.2d at 374 (summary judgment based on finding as a matter of law that plaintiff had ratified release). Court after court has held that where a plaintiff's undisputed conduct shows ratification of a contract, summary judgment is appropriate. See e.g., Avemco Insurance Co. v. Northern Colorado Air Charter, Inc., 38 P.3d 555 (Colo. 2002) (en banc) (affirming summary judgment on grounds of mutual rescission where conduct in cashing premium refund manifested mutual rescission, despite insured's proclaimed lack of intent to rescind); Kelley v. Silver State Sav. & Loan Ass'n, 534 P.2d 326, 328 (Colo. App. 1975) (reversing trial court judgment upon finding as a matter of law that party ratified agreement); Nat'l Inspection and Repair, Inc. v. Valley Forge Life Ins. Co., 56 P.3d 807 (Kan. 2002) (affirming grant of summary judgment against insurer on grounds that it ratified agent's unauthorized acceptance of application and premium).

CONCLUSION For the foregoing reasons, AIMCO respectfully requests that the Court grant its motion for summary judgment on National Union's counterclaim.

Dated: June 21, 2005

Respectfully submitted, s/ Karma Giulianelli___________________ Karma Giulianelli Lester C. Houtz BARTLIT BECK HERMAN PALENCHAR & SCOTT LLP 1899 Wynkoop Street, 8th Floor Denver, Colorado 80202 Telephone: (303) 592-3100 Fax: (303) 592-3140 E-mail: [email protected] Attorney for Plaintiff AIMCO

7

Case 1:01-cv-02018-RPM-MJW

Document 600

Filed 06/21/2005

Page 8 of 11

Jeffrey A. Hall Elizabeth A. Thompson BARTLIT BECK HERMAN PALENCHAR & SCOTT LLP 54 West Hubbard Street, Suite 300 Chicago, Illinois 60610 Tel: (312) 494-4400 Fax: (312) 494-4440 Thomas L. Roberts Laura E. Schwartz ROBERTS, LEVINE & PATTERSON 1660 Wynkoop Street, Suite 800 Denver, Colorado 80202 Tel: (303) 575-9390 Fax: (303) 575-9385

8

Case 1:01-cv-02018-RPM-MJW

Document 600

Filed 06/21/2005

Page 9 of 11

CERTIFICATE OF SERVICE I hereby certify that on June 21, 2005, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: Jeffrey A. Chase, Esq. Barry A. Schwartz, Esq. JACOBS CHASE FRICK KLEINKOPF & KELLEY, LLC 1050 ­ 17th Street, Suite 1500 Denver, CO 80265 [email protected]; [email protected] Attorneys for Defendant National Union via U.S. Mail via Hand Delivery via Facsimile via Overnight Mail via CM/ECF e-mail

John D. Martin, Esq. OSTER & MARTIN, LLC 717 ­ 17th St., Suite 1475 Denver, CO 80202 [email protected] Attorneys for Defendant National Union

via U.S. Mail via Hand Delivery via Facsimile via Overnight Mail via CM/ECF e-mail

Jack A. Trigg, Esq. Melissa Collins, Esq. Julie M. Walker, Esq. Steven M. Kelso, Esq. WHEELER TRIGG & KENNEDY, P.C, 1801 California Street, Ste. 3600 Denver, CO 80202 [email protected]; [email protected]; [email protected]; [email protected] Attorneys for Defendant First Capital Group

via U.S. Mail via Hand Delivery via Facsimile via Overnight Mail via CM/ECF e-mail

Todd B. Denenberg, Esq. Rozana S. Widlicka, Esq. Charles R. Tuffley, Esq. GROTEFELD & DENENBERG, L.L.C. 30800 Telegraph Road, Ste. 3858 Bingham Farms, MI 48025 [email protected]; [email protected]; [email protected] Attorneys for Defendant Security of Hartford

via U.S. Mail via Hand Delivery via Facsimile via Overnight Mail via CM/ECF e-mail

9

Case 1:01-cv-02018-RPM-MJW

Document 600

Filed 06/21/2005

Page 10 of 11

Paul E. Collins, Esq. Robert J. Zavaglia, Esq. TREECE, ALFREY, MUSAT & BOSWORTH, P.C. 999 ­ 18th Street, Suite 1600 Denver, CO 80202 [email protected]; [email protected] Attorneys for Roger Metzger Associates

via U.S. Mail via Hand Delivery via Facsimile via Overnight Mail via CM/ECF e-mail

John T. Wolak, Esq. GIBBONS, DEL DEO, DOLAN, GRIFFINGER & VECCHIONE, P.C. One Riverfront Plaza Newark, NJ 07102 [email protected] Attorneys for Vito Gruppuso

via U.S. Mail via Hand Delivery via Facsimile via Overnight Mail via CM/ECF e-mail

James M. Miletich, Esq. MCCONNELL, SIDERIUS, FLEISCHNER, HOUGHTALING & CRAIGMILE, LLC 4700 South Syracuse Street, Suite 200 Denver, CO 80237 [email protected] Attorneys for Vito Gruppuso

via U.S. Mail via Hand Delivery via Facsimile via Overnight Mail via CM/ECF e-mail

William H. Jeffress, Jr., Esq. Joe Robert Caldwell, Jr., Esq. Nicholas A. Brady, Esq. Michael Massengale, Esq. BAKER BOTTS, LLP The Warner Building 1299 Pennsylvania Ave. NW Washington, DC 20004 [email protected]; [email protected]; [email protected]; [email protected] Attorneys for Ray Baldwin and Swain & Baldwin

via U.S. Mail via Hand Delivery via Facsimile via Overnight Mail via CM/ECF e-mail

10

Case 1:01-cv-02018-RPM-MJW

Document 600

Filed 06/21/2005

Page 11 of 11

Leonard B. Rose, Esq. Jed D. Reeg, Esq. LATHROP & GAGE 2345 Grand Avenue, Suite 2800 Kansas City, Missouri 64108-2684 [email protected]; [email protected] Attorneys for Lockton

via U.S. Mail via Hand Delivery via Facsimile via Overnight Mail via CM/ECF e-mail

John P. Mitzner, Esq. ALLMAN & MITZNER LLC 535 16th Street, Suite 727 Denver, CO 80202 [email protected] Attorneys for Ray Baldwin and Swain & Baldwin

via U.S. Mail via Hand Delivery via Facsimile via Overnight Mail via CM/ECF e-mail

s/ Karma Giulianelli___________________ Karma Giulianelli Attorney for Plaintiff AIMCO BARTLIT BECK HERMAN PALENCHAR & SCOTT LLP 1899 Wynkoop Street, 8th Floor Denver, Colorado 80202 Telephone: (303) 592-3100 Fax: (303) 592-3140 E-mail: [email protected]

11