Free Motion to Bifurcate - District Court of Colorado - Colorado

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

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO
Civil Action No. 01- CV- 2018- RPM- MJW
AP ARTMENT INVESTMENT AND MANAGEMENT COMPANY , a/k/a AIMCO , a Maryland corporation

Plaintiff,

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH , P A, a Pennsylvania corporation , et aI.
Defendants.

MOTION FOR BIFURCATION
Pursuant to Fed. R.Civ. P. 42(b), defendants First Capital Agency, Inc. d/b/a First Capital

Group (" First

Capital Group ) and Roger Metzger

Associates (" RMA" )

(collectively the

Wholesale Broker Defendants ), by their undersigned attorneys , submit this motion to bifurcate

the trial of this case so that the primary claims between Plaintiff Apartment Investment

and

Management Company (" AIMCO" ) and Defendant National Union Fire Insurance Company of
Pittsburgh , P A ("National Union ) are tried first , with any remaining claims - if there are any -

to be deferred to a later proceeding. In support of this Motion , the Wholesale Broker Defendants
state as follows:

CERTIFICA TION
Pursuant to D. Colo. L.Rule 7. , the Wholesale Broker Defendants have conferred with

counsel for all other parties in this litigation with respect to this motion. AIMCO and National

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Union object to this motion. NPS has no objection. At the time of filing, no response was
received from the remaining parties.

INTRODUCTION
This case began fundamentally as a breach of contract and premium accounting dispute

between two multi- billion dollar corporations , AIMCO and National Union , (both of whom are now under investigation by the SEC for accounting irregularities), relating to a primary property

insurance policy issued by National Union.

While both parties have spent years bitterly

litigating this dispute , adding multiple parties and claims that needlessly expanded the issues and
required years of

additional discovery and expense ,

the case remains primarily a breach of

contract and premium accounting dispute between AIMCO and National Union. Decision

of

those primary claims will eliminate the need to decide any of the other claims against

the

Wholesale Broker Defendants which in turn will eliminate the need to decide any derivative
third- party
claims asserted by the

Wholesale Broker Defendants. l Thus , this motion seeks to

bifurcate the primary claims between AIMCO and National Union and have them set for trial
first.

s convenience , the Broker Defendants have attached to this motion a chart Exhibit A. While this motion does not of the claims asserted among the various address AIMCO' s claims against defendant Security Insurance Company of Hartford (" SOH" these Defendants believe those claims may be addressed through determination of SOH' s motion
parties. See

1 For the Court'

for summary judgment.

g.,

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BRIEF PROCEDURAL BACKGROUND

AIMCO filed its initial complaint in this case on October 11 , 2001 which was
amended shortly thereafter on November 25 , 2001.
Cmplt.
AIMCO initially filed suit See

AIMCO' s Amended Complaint (" Amd.

against National Union onlv

seeking the following

declaratory relief:

rights to the effect that the coverage originally purchased from and bound by National Union with pre- payment of all premiums due during its term was not
of its

AIMCO seeks a declaration

subject to cancellation , except for narrow

circumstances not

present here , and

full three- year term and return of the additional policy $10 000 000 premium AIMCO paid under threat of cancellation

that AIMCO is entitled

to

coverage for the

and in return for promises that National Union failed to honor by canceling AIMCO' coverage for non- payment of premium
effective April 28 , 2001.
Amd. Cmplt. ~ 40.

AIMCO did not allege any claims against any of the intermediary brokers in the

chain between AIMCO and National Union despite clearly having knowledge that there were
many involved.

See ,

e.

Amd. Cmplt. , ~ 8 (" Ray Baldwin. . .

agent for AIMCD

for purposes

of the procurement of insurance , approached AIG through intermediaries, including First Capital
Group ) and ~ 12 (" Baldwin met with representatives of AIG, First Capital , and other entities at

the offices of National Program Services , Inc. Rather ,
identifying Mr. Baldwin

only after National

Union filed its designation

of non- parties

at fault

(AIMCD' s agent

according to AIMCO), National Program Services
to add claims

NPS" ), RMA and First Capital , only then did AIMCO decide

against First

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Capital.

See

AIMCO' s Motion for Leave to File Second Amended Complaint , (Docket # 40).

AIMCO subsequently filed its Third Amended Complaint adding claims against SOH , NPS , Vito
Gruppuso and RMA. See

AIMCO' s Unopposed Motion to File Third Amended Complaint

(Docket #60).

While AIMCO' s Fourth Amended Complaint no longer contains
claim against National Union ,
it does

a declaratory

assert several other claims against National Union
involving alleged " misappropriation" of and

including bad faith breach of insurance contract
failure to "

properly account for and return unearned premiums due AIMCO.

See

AIMCO'

Fourth Amd. Complt. ~ 108 (Docket # 222- 1).

AIMCO has asserted four claims against the Wholesale Broker Defendants claims for negligence , negligent misrepresentation , violation of the CCP A and common plan or
design.

See id

Fourth ,

Sixth , Seventh & Eighth Claims for Relief.

These claims allege the

Wholesale Broker Defendants breached duties owed to AIMCO regarding information used to
procure the insurance from National Union and/or the handling of premiums in connection with
that insurance. 2

As a result of AIMCO' s claims against them , the Wholesale Broker Defendants
filed third- party

derivative claims against Ray Baldwin , Swain & Baldwin Insurance Inc.
See

Lockton Companies of Colorado and Lockton Companies , Inc.

October 16 ,

2003 Defendant

2 Note that AIMCO' s claims against the Wholesale Broker Defendants do not involve

alleged conduct leading up to the coverage provided by Security of Hartford - but rather only Fourth Amended conduct relating to the Complaint. This is another reason these Defendants believe AIMCO' s claims against Security of Hartford are ripe for determination by summary judgment.
procurement of coverage by National Union. See

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First Capital' s

Combined Counter- Complaint and Jury Demand Against Plaintiff Apartment

Investment & Management Company, and Cross- Complaint and Jury Demand Against
Defendant National Program Services ,
Inc. ,

and Third Party Complaint and Jury

Demand

Against Ray Baldwin , Swain & Baldwin Insurance , Inc. , Lockton Companies , Inc. , and Lockton
Companies of Colorado ,
Inc. (Docket #252), October 16 , 2003 Defendant Roger Metzger

Associates '

Third Party Complaint Against

Ray Baldwin and Swain & Baldwin Insurance
Third Party

(Docket # 248), and October 16 ,

2003 Defendant Roger Metzger Associates '

Complaint Against Lockton Companies , Inc. and Lockton Companies of Colorado , Inc. (Docket
#249).

On May 16 , 2005 , AIMCO filed a Motion for Summary Judgment on National
Union
s Counterclaim (Docket #
546). In

its motion , AIMCO

argues that despite National

Union s allegations of having been provided fraudulent information by AIMCO and its agent
Ray Baldwin , National Union affirmed and ratified the insurance policy by its acceptance of

additional premium after National Union became aware of the alleged fraud. Therefore , AIMCO
argues , National Union s counterclaims fail as a matter of summary judgment.

The Wholesale Broker Defendants made similar arguments
summary judgment motions directed at National Union
policy.
See

to this Court

s attempts to seek rescission of the

First Capital'

s November 7 , 2003 Motion for Partial Summary Judgment (Docket
For example

#286) and RMA'

s April 3

, 2003 Motion for Summary Judgment (Docket # 158). 3

3 Because National Union has since withdrawn its cross- claims against the Wholesale
Broker Defendants ,

the Wholesale Broker Defendants ' summary judgment motions have also

been withdrawn.

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in its motion for partial summary judgment ,
acceptance of the

First Capital argued

that National Union
it had
In

additional $10 million in premium after National Union suspected

received inaccurate information demonstrated National Union s affirmance of the contract.

addition , National Union accepted an additional $5. 15 million a few months later - again after

having " discovered"
Defendants argued ,

the

alleged " fraudulent"

information.

Thus , the Wholesale Broker

National Union waived any right to demand rescission of the insurance

contract , and any assertions of misconduct by the Wholesale Broker Defendants were moot.
10.

If AIMCO is successful in its argument that National Union ratified the insurance

contract after learning of the inaccurate information allegedly provided by the Wholesale Broker
Defendants , the alleged wrongful conduct on the part of the Wholesale Broker Defendants would

be irrelevant. Thus , this case is currently postured such that trial of the AIMCO/National Union

primary claims will effectively streamline the issues for determination and

these Defendants

believe will result in any secondary claims against them to be dismissed as moot.

LEGAL ARGUMENT
The premise of this motion is simple: if the Court finds that National Union ratified the
insurance contract with AIMCO , this case is all but over. All of the remaining
secondary claims

against the Wholesale Broker Defendants , along with the Wholesale Broker Defendants ' thirdparty derivative claims , will be moot. This Court should bifurcate the primary claims between

AIMCO and National Union from the remainder of this case and decide those primary claims
first.

Rule 1 of the Federal Rules of Civil Procedure provides that the Rules " shall be construed
to secure the just ,

speedy, and inexpensive determination of every action. " Rule 42(b) of the

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Federal Rules is one rule that provides the means for the courts to implement this goal. Rule
42(b) states:
The court in furtherance of convenience or to avoid prejudice , or when separate trials will be conducive to expedition and economy, may order a separate trial of any claim , cross- claim , counterclaim , or third- party claim , or of any separate issue
or any number of claims , cross- claims , counterclaims ,
third- party claims , or

issues , always preserving inviolate the right of trial by jury as declared by the Seventh Amendment to the Constitution or as given by a statute of the United States.

This Court has wide discretion to order separate trials for purpose of convenience ,
avoid prejudice

to

, or if it will serve the purpose of expedition or
85 F. RD. 654 ,

economy.

See Martin

v.

Bell

Helicopter Company,

658 (D. Colo. 1980). As noted by this Court , Rule 42(b)

provides for the " deferral of costly and potentially unnecessary discovery and trial preparation on

other phases of the case pending resolution of preliminary dispositive issues.
Ellingson Timber Co. v.

Id See also
(Rule
issues);

Great Northern Railway Co.

424 F.2d 497 , 499 (9th Cir. 1970)

42(b) provides court with power to order separate trial of any separate issue or
Distributors, Inc.
v.

Reines

Admiral Corp. 257 F. Supp. 619 ,

620 (S.

Y. 1965) (court should order

bifurcation where trial of separate issue would simplify presentation , reduce expense and yield
no prejudice).

Bifurcation of the AIMCO/National Union claims will serve all three goals of Rule 42(b).
First , the proposed bifurcation will promote convenience by carving out the primary claims and

damages at issue in this case , leaving for another day the proof of AIMCO' s allegations of
misconduct by the Wholesale Broker Defendants that may ultimately have no bearing on the
overall outcome. AIMCO' s fundamental complaint in the litigation is that it pre- paid premiums

for three years of insurance coverage that it did not receive - and then it paid an additional $10

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million and an additional $5. 15 million to National Union to maintain what it did receive.
AIMCO' s Motion for Summary Judgment on National Union

See

s Counterclaim (Docket #546).

AIMCO seeks return of " unearned premiums " from National Union. National Union counters
that because it was deceived by AIMCO , it is entitled to retain the premiums paid , in particular
the $10 million ,

as " fully

earned.

See

National Union s Response in Opposition to AIMCO'

Motion for Summary Judgment (Docket # 574). The resolution of the AIMCO/National Union

primary claims will be more convenient because they will involve a limited portion of evidence
and testimony without getting bogged down with the testimony of scores of other witnesses and
exhibits relating to the allegations against the Wholesale Broker Defendants.

No party will be prejudiced by the proposed bifurcation. Rather ,

the trial of the

AIMCO/National Union primary claims first will result in a significant reduction of trial time

testimony and juror confusion. Relevant and material facts relating to the conduct of any of the

Wholesale Broker Defendants could be established through stipulations and/or deposition

testimony. A streamlined

presentation of evidence pertaining only to

AIMCO and National

Union is clearly less prejudicial than the incredibly complex presentation of evidence that would
be required in this case in its current posture.

4 For the Court'

s consideration , the Wholesale Broker Defendants have included as

Exhibit B a list of all the witnesses deposed in this case along with the Wholesale Broker
Defendants ' prediction of the witnesses called for just the AIMCO/National Union primary claims versus the witnesses called if all of the claims were tried in one proceeding. A trial of the AIMCO/National Union primary claims first would likely reduce the witness list by 50% - and that assumes that all of the AIMCO and National Union witnesses deposed would be called to testify.

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Third ,

severing the prImary claims will be conducive to

expedition and economy.

Litigation of the AIMCO/National Union primary claims may result in the dismissal of all
remaining claims against the Wholesale Broker Defendants and thus , the dismissal of all thirdparty derivative claims. Moreover , the reduction in the scope and breadth of evidence required

will most certainly serve the goals of judicial expediency and economy.

CONCLUSION

These Defendants believe AIMCO asserted claims against the Wholesale Broker
Defendants as an after thought , not out of any desire to seek the truth , but rather to play the

litigation game in an effort to gain whatever advantage it could from whichever defendant is

willing or able to pay. This point is perhaps best demonstrated by consideration of the related
litigation spawned as a result of the misdeeds of

AIMCD' s agent

Ray Baldwin ,

and his
attached

association with Mr.

Gruppuso and NPS.

See

Summary of other related litigation ,

hereto as Exhibit C. While AIMCO , Baldwin and NPS are parties to some or all of the related
litigation , this case pending before this Court is the only case where any claim has been asserted

against the Wholesale Broker Defendants by any party.

The reality is that this case

started out as , and fundamentally remains , a breach of

insurance contract dispute between AIMCO and National Union. For all of the reasons outlined
in the above motion , Defendants First Capital Group and Roger Metzger Associates respectfully

request that this Court bifurcate the trial of the AIMCO/National Union primary claims from the

remaining secondary claims and schedule resolution of the AIMCO/National Union primary
claims first.

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Dated this 21 s1 day of June , 2005.

s/ Julie M. Walker John R Trigg Julie M. Walker Attorneys for Defendant First Capital Group Wheeler Trigg Kennedy LLP 1801 California Street , Suite 3600 Denver , CO 80202
c. Box 19

Telephone: 303- 292- 2525 Facsimile: 303- 294- 1879

walker~wtklaw. com
and

s/ Robert 1. Zavaglia, Jr.
Paul E. Collins

Robert 1. Zavaglia , Jr.

Attorneys for Defendant Roger Metzger Associates Treece , Alfrey, Musat & Bosworth , P. 999 18th Street , Suite 1600 Denver , CO 80202 Telephone: 303- 292- 2700 Facsimile: 303- 295- 0414
I ~- ~ y~

g Ii ~t (f!)J 11 mbJ~ w

J;~

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CERTIFICATE OF SERVICE (CM/ECF)
I hereby certified that on June 21 , 2005 , I electronically filed the foregoing MOTION with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses:
FOR BIFURCATION

Nicholas Aidan Brady
nick. brady~bakerbotts. com

Jeffrey A. Chase
j chase~j ctkk. com vlsanders~j ctkk. com

Melissa C. Collins collins~wtklaw. com Paul E. Collins pcollins~tamblaw. com cjones~tamblaw. com

Karma Micaela Giulianelli Karma. Giulianelli~Bartlit- Beck. com Lester C. Houtz lester. houtz~bartlit - beck. com

Steven Matthew Kelso kelso~wtklaw. com John D. Martin
j martin~ostermartin. com

Michael C. Massengale
michael. massengale~bakerbotts. com patti. barker~bakerbotts. com

James M. Miletich
j miletich~msfuc. com mdavis~msfuc. com

John Paul Mitzner
j mitzner~allman- mitzner. com renztimr~msn. com

Thomas Leroy Roberts tlr~rlplaw. com kjh~rlplaw. com Barry Alan Schwartz
bschwartz~j ctkk. com dpugh~j ctkk. com

John R. Trigg

trigg~wtklaw. com testa~wtklaw. com Charles R. Tumey

crt~gd- llc. com acs~gd- llc. com Julie M. Walker walker~wtklaw. com Robert James Zavaglia, Jr
rzavaglia~tamblaw. com jyencho~tamblaw. com

and I hereby certify that I have mailed or served the document or paper to the following non
CM/ECF participants in the manner (mail , hand- delivery, etc. ) indicated by the non- participant's
name:

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Todd B. Denenberg
Grotefeld & Denenberg, LLC 30800 Telegraph Road #3858 Bingham Farms , MI 48025

Donna B. Howard
Grotefeld & Denenberg, LLC 30800 Telegraph Road #3858 Bingham Farms , MI 48025

William H. Jeffress, Jr
Baker & Botts1299 Pennsylvania Avenue , N. #1300 Washington , DC 20004- 1109

Scott Andrew Martin
Baker & Botts1299 Pennsylvania Avenue , N. #1300 Washington , DC 20004- 1109
Jed Reeg

Lathrop & Gage , LC- Kansas City Missouri
2345 Grand Boulevard

#2800 Kansas City, MO 64108
J. Evans Rice,

III

Baker & Botts1299 Pennsylvania Avenue , N. #1300 Washington , DC 20004- 1109
Leonard B. Rose

Lathrop & Gage , LC- Kansas City Missouri
2345 Grand Boulevard

#2800 Kansas City, MO 64108

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Elizabeth Leigh Thompson
Bartlit, Beck , Herman , Palenchar & Scott- Illinois 54 West Hubbard Street #300 Chicago , IL 60610

John T. Wolak Gibbons , Del Deo , Dolan , Griffinger & Vecchione One Riverfront Plaza Newark , NJ 07102

s/ Julie M. Walker by Deborah 1. McGuire John R Trigg Julie M. Walker Attorneys for Defendant First Capital Group Wheeler Trigg Kennedy LLP 1801 California Street , Suite 3600 Denver , CO 80202
c. Box 19

Telephone: 303- 292- 2525 Facsimile: 303- 294- 1879

walker~wtklaw. com