Free Brief in Opposition to Motion - District Court of Colorado - Colorado

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 1 of 13

IN THE UNITED STATESDISTRICT COURT FOR THE DISTRICT OF COLORADO (OES) Civil ActionNo. 04-M-725 TIIE QUZNO'S MASTER LLC, a Coloradolimited liability compart and THE QUIZNO'S HOLDING COMPANY, a Nevadacorporation,asassignee andsuccessor in of interestto The Quizno's Corporation,a Coloradocorporation,

Plaintiffs,

FIRE INSURANCE COMPANY, a New York corporation, and WESTCHESTER ROYAI INDEMNITY COMPANY, a Delawarecolpontion, Dfendants.

DEFENDANT WESTCIIESTER FIRE INSURANCECOMPAI{Y'S OPPOSITIONTO QUIZNO'S MOTION FOR PARTIAL SUMMARY JUDGMENT

DefendantWestchester Insuance Company("Westcheste/'),by andthroughits Fire counsel,submitsthis Brief in oppositionto Quizno'sMotion for Partial SummaryJudgment. I. SUMMARY OF ARGUMENT is Quizno's motion for partial summaryjudgment defectivein severalregards.First, it fails to requestreliefas to any singleclaim or defense.Instead,Quizno's seeksdetermination of legal sub-issues bearon, but do not necessarily that determine, liability for anycauseof action. is procedure pemits a Suchan approach improperbecause federalstatuteor recognized no paxtialjudgment asto lessthan the whole of a claim.
483?,8568-0128.1

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 2 of 13

Scond, reliefit seeks to two ofthe threeissues as it failsto ideniifytheprecise Quizno's raises. In particular,Quizno's setsforth two relationback issuesand asserts their that determination will impactth potentialliability ofboth defendants, which havetaken adverse positions. However,Quizno's fails to offer anyargument supportofor againsta detemination in that the mattersrclateback. Instad,Quizno's simply asksthe court to decidethis issue,but fails to prcvide anypoints andauthoritiesfor the cout. As such,Quizno's "motion" is, in fact, an impermissiblerequestfor the cout to becomeQuizno'srepresentative advocate position and a requesr.l for Quizno'sto take. Accordingly. courtshould rhe denyQuizno's Finally, Quizno's argues that ExclusionA.7 (the "Proflts Exclusion') ofWestchester's policy doesnot excludecoverage (1) herebecause the underllng litigation did not involve profit, and(2) Quizno's indemnifiedits dirccto$ for a loss. Fi6t, the retentionofan uneamed underlyingclaims for which Quizno's seeks concemclaimsthat Quizno's covemge undoubtedly ard the Schadens retainedprofits to which theywerenot entitledby paing insufficient consideration Quizno's stock.z Second, exceptionto the Profits Exclusionhasno effect for the

rln the eventthe court determines shoulddecidethe relation backissuesQuizno's it mises,it shoulddetemine that both the Sebesta Nickersohclaimsrelatebaakto the facts, arrd circumstances, situations and 11, to ruised its February 1999noticeofcircumstance in Quizno's Royal. Westchester it incorporates reference argument setsforth on this sameissuein its by the motion for sunmaryjudgnent at sectionIII, subsection C. llndeed, no coverage policy dueto a numberof reasons. existsunderthe Westchester Theseinclude the absence ofan insurablelossandthe previousnotice of intefielatedwrongful actsunderthe Royal policy. Suchreasons fu1lysetforth andexplainedin Westchester's are Motion for Sumrnarv Judsment.
48t7-8568-0t28.t

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 3 of 13

underQuizno's motion sinceQuizno'shasfaild to prsentevidence that it hasindemnifiedits directors. Accordingly, the cowt must denyQuizno'smotion. II. STATEMENT OF FACTS 1. provided On February 1999, 11, Royalwith "a noticeofclaim" with Quizno's

proposalto buy all outstanding respectto the Schadens' shares Quizno's not ownedby them of for an amountbhveen $7.84and$8.20pe. shale. Quizno'senclosedaletter from sharcholdet Paul Eisnerwho assefied the "proposed price is substaotially thanthe shares rrorth" that lss are suit. Quizno's Statement ald threatened ofundisputed Material Facts(.'QSIJMF) l; Decl. of Meye6, Exh, F, G. 2. OnJ.une24,1999,severalmonthsafter Royal accepted Notice of the

Circumstance, ProtectionInsuancePolicy No. DON 648267 Quizno's obtaineda Management policy thatprovidedDirectors,Officers andCompany ftom Westchester.This is a claims-made Securities liability coverage from June 1999until June24,2000.QSUMF5; Decl.of 24, Meyers,Exh. B. 3. ExclusionA.7 of the Westchester Policfi providesthat "the Insurershall not be

liable for . . , loss on accountofany claim madeagainstanyinsuredbased upon, arisingout oi or attdbutableto suchInsuredgainingin fact anyprofit, rernuneration financial advantage or to which suchInsuredwasnot legally entitledtbut this exclusionshall not apply to Loss a For purposes ofthis brief, the "Westchester Policl' shall referjointly to Policy Nos. DON 648267, DOX 648318, DON 648451.Eachofthesepolicies and represented a renewal of the Directors,Officers andCompanySecurities liability coverage beganJune24, 1999. that
48.17-85684128.1

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 4 of 13

indemnifiedby the Company.Decl. ofMeyers, Exh. B. 4. On November73,2000, Qraizno's madea tenderoffer for $8.00per share. Decl.

of Meyers,Exh. I. 5. O)r.May21,2001, the Schadens madean offer to Quizno's "to acquireall the

outstanding sharcsofQuizno's commonstock. . . for $8.00per sharein orderto effct the secondstephansaction." Th squze-out mergerprovidedfor the mergerofQuizno's into Firenze,which wasownedby the Schadens, wherebyQuizno'swould be the surviving corporation,wholly ownedby the Schadens. merger,those Underthe proposed squeeze-out rrIinorily shareholders who hadnot participatedirt Quizno's selftenderoffer were offered $8.50 per share. Decl.ofMeyers,Exh.J, pp. 4-5, 11. 6. purportedly bhalfofall On November 2001,Edward 13, Sebest4 on

broughta legal actionagainstQuizno's andsevenmembers shareholders, ofthe boardof directorsgto preventthe Firenzemergerard to obtail compensatory damages.Decl. of Meyers, Exh.K. 7. A.rnong otherthings,the .Seresla complaintallegedthat Quizno's andits directors

profited or benefittedfrom the going privatetransaction the expense shaxeholdeK at of by obtainingQuizno's "without payinga fair price to Quizno'spublic stockholderc."Decl. of Meyers, Exh.K, u 7. 8. clumwas Quizno's admittedin its fllings in the Serestocasethat the Sebesta

zThe Se6esta Coult dismissed claims againstfour ofthese directors-BradGriffrn, Mark Brcmberg,Edc Lawrence,andJohnTodd-beforcthe rcmainingpaxties reached settlement. a
4837-8568{r28.1

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 5 of 13

solely aboutundervaluation the tenderoffer, which allowedQuizno's andits directoN to retain of profit: uneamed Sebesta claimsto be a shareholder who thfuks $8.50is not enough. His complaintis essentially aboutmoney:he thinks the fair value pricethat ofhis Quizno's stockis geaterthar the $8.50 share per the Special Committee ofQuizno'sBoaxd, the Special and Committee'sprofessional advisors, detemined was fair. Oppo.to TRO,Decl.ofSlome,Exh.A-1, pp. 1-2. 9. On October15,2003,Quizno's andthe otherpartisto the Sebe.srd action entered

into a stipulationof settlement wherebyholdersof 316,197shares Quizno's commonstock of plus a furtherindemental awardpegged would receivean imnediate awad of $1.00per share, to thejudicialappraisal ofQuizno'sshares. Decl.ofMeyers,Exh.T,ufl l-3. 10. The Nickersonactiort,which namdQuizno's andcertainofits directorsand

pu4,ortedto be broughton behalf of a classof shareholders officers asdefendants, who participated thetender in offer. Decl.ofMeyers, Exh.V,flu5-11, 14. 11. The Nickerso allegations aclion,namelythat minored thosemadelnthe Sebesta

price for shares.Decl. ofMeyers, Quizno's alld its directorsprofited by palng ar inadequate Exh.V,\fl2,29-37,53. 12, "representing per share" to into an esqow $10 Quizno'sagreed pay$7,540,550.00

accountaspart ofa settlement with the i/icierson plaintiffs. Decl. ofMeyers, Exh. CC, DD. IIL TIIE COURT SHOULD DENY QUIZNO'S MOTION BECAUSENO AUTHORITY PERMITS SUMMARY JUDGMENT OF LESS THAN A SINGLE CLAIM In seekinga ruling regardingwhetherits claimsrclateto oneanotherandwhetherthey
48:t7-8568{128.1

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 6 of 13

policy inaepted,Quizno's rclateback to claimsloticed to Royal beforethe Westchester improperlyrequests this court adjudicateonly a particularaspectof its claims againstRoyal that '?artial summaryjudgment"only asto issues andWestchester.Rule 56(c) expressly authorizes of liability.t No authority suggests other individual issues within a claim or defense may be that adjudicated beforetrial. See,e.9.,Capitol Records, Inc. r. Pt ogressRecordDistrib. Inc.,106 (N.D.I . t985).. F.R.D. 28-10 25, Quizno's relies on subdivision(a) asauthorityfor its motion, claiming that it permits "a

judgrnenton a part ofa plaintiffs claims throughthe summaxy court to enterpartial summary judgmentprccess." Whereas subdivision(a) indeedpermitsjudgmnt on lessthan all of a plaintiffs claims,it doesnot pemit adjudicationof only portionsof claims. That is, Rule 56 (a) empowers couts to dispose ofless than all causes action,but doesnot authorizpartial of summaryjudgment whereno claimis eliminated. v. See, e.g.,Moss Wad.,450F.S\pp.591,594 judgment (D.C.N.Y.1978)(determining partialsummary maybe issued with respect one to that of severalclaims). "Rules 56(a)and56(b) simply do not pemit the piecemealing ofa single claimor [any]typeofissue-narrowing. . [D]espite reference 'all or anypart' of .. Rule56(a)'s to a claim, the Rule authorizes only the grantingofappealableludgmelts' disposingofentie claims."Aradot. General Fbe Extinguisher 506,509(N.D.Ill. 1985); see Corp.,626F.Stpp. alsoFelix v. SunMicrosystems, Inc.,2004 WL 9l l303 *7 @.Md. 2004). "Summaryjudgmant may be had asto oneclaim amolg many,but it is well settledthat neithersubsection allows such gSubdivision(c) states pertinentpaxt,"summary judgment,interlocutoryin character, in may be rendered the issueof liability alonealthoughthereis a genuineissueasto the amount on ofdamages."
4837-8568-01:8.1

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 7 of 13

ajudgment asto oneportion a claim." Kendall Mccaw Labs, Inc. v. Cmty.Mem'l Flosp., 125 F.R.D.420,42r (D.N.J. 989). I Indeed,couts haverepeatedly detemined that pre{rial adjudicationofsub-issuesor ofa claim areinapprcpdate. SeeBonda'sVeetoederfabriek elements Proyimi, B.V.v. Proyimi, 'Judgment not berenderd a 1ac., F.Supp. 425 1034,1036(D.C.Wis.1976) may on Gtating, portionof oneclaim'); Tiangle Ink & Color Co.,Inc. y. Shenyin-Williar Co.,64F.R.D,536, s judgnentis not authorized arry 537-538 portionof a claimlessthan for @.C. . 1974)(summary a whole). Accordingly, "a plaintiffmay not move for summaryjudgment lessthan a single on countunderRule 56(a)." Capplanco Eleven,[nc. v. Xerox Corp., 1990WL16469*3 (N.D.Ill. 1990).Here,Quizno'sseeks ajudgment to whether ofits claims-those as two based the on Sebesta Nickersonactions-relate one anotherandwhetherthoseclaimsrelateto claim eu]fi, to uponwhich Quizno'sgave noticeto Royal. Ajudicial determination ofeitheroftheseissues will not serveeitherto establish to extinguishliability againstWestchester Royal sincethe or or relationback ofthese claimsis but oneof severalreasons why Quizno'shasno coverage its for claims. To establishliability, Quizno'swould haveto preselt evidence that it suffereda lossfor which it was covered. Whetherthe claimedlossfalls within a given policy period asa claim madeis only one consideratiol. Dtrminations to whetherthe losswas a covercdeventand as whetherary exclusionsapply are anong other additionalconsidentionsthat are!91!the subject ofQuizno'smotion. Quizno's Motion for PartialSummary p. Judgment, 17. Further, Quizno's motion explicitly excludesa third action,an appraisal action,uponwhich Quizno's alsobases eachof its claims againstRoyal and Westchester. 16?d.Accodingly, no final determination may
481?-8568-0123.1

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 8 of 13

be madeon any of Quizno's claimsbecause centxal issuesarenot pendingbeforethis cowt. Therefore, authoritypernits sumnaryjudgmentofthe issuesQuizno'spresents. no IV. QUIZNO'S FAILS TO OTTTR AIIY ARGUMENT REGARDING THE FACTS, CIRCUMSTANCES, OR SITUATIONS OUT OF WHICH ITS CLAIMS AROSE Initially, the moving paxtybeamthe burdento establish that thereis "no genuineissueof materialfact andthat the moving party is entitledto judgmentasa matterof law." Fed.R. Civ. Proc.56(c);seealsoBritishAinuays Boardv. BoeingCo.,585F.2d946,951(9b Cir. 1978). Herc,whereas partiesdo not disputethe matedalfacts,Quiao's hasfailed to meatits burden the to stablishentitlementto judgnent asa matterof 1awagainsteitherdefendant. as Quizno's hasfiled what bestcanbe descdbed a bipolar motion for partial summary judgnent againstboth Royal andWestchester. This motion is remaxkable that it raisestwo in relationback issues, fails to takea position asto either. "The fimt questionis whetherthe but claims madeagainstThe Quizno's Corporationandits boardofdirectors in the Sebesta Action and,/or Nickersonactionariseout ofthe samecircumstances rcferenced the Notice the as in Letters. The second questionis whetherthe claimsmadeagainstThe Quizno's Corporationand members its boardof directon in the NickersonAction arisout ofthe samefacts, of circumstance situationasthe claimsmadein the Sebesta or action." (Quizno's Motion for p. PartialSummary Judgment. 16.) Essentially,Quizno's motion amounts a requestfor declaratory to rclief asto oneofthe disputedelements eachofits claims. However,unlike sucha request, in Quizno's motion neitherrcquests suggests nor what the cowt shoulddeclarenor offers anyauthorityto give the
48J7-8568-0t28.t

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 9 of 13

court dircction. lnstead,Quizno's simply asksthe court "Who is Correct?"andoffers no argument.(Quizno's Motion for Partial Summary pp. Judgrnent, 25-26.) As such,neither Westchester Royal,both againstwhom Quizno'sbrings this motioq cantecbnicallyoppose nor it. A fortiori, the court cannither"grant" nor "deny' the first two issuesQuizno'sraises. Moreover,althoughQuizno'shasprovideda statement offacts liom which it asksthe court to decidetwo legal issues, hasfailed to provide anypoints and authoritieson theseissues. it points andauthoritiesconstitutes admission the motion shouldbe Failureto present an that denied.Jones Bentsen, 1995WL125391 (N.D.Ca1 (citingJerse,Cent. v. 1995) Powe/& Light F.2d 1103x2 (3'dCir. 1985)).Accordirgly, cowt should not to makea Co.v Lacey,172 opt this determination upon theseissuesQuizno's,asthe moving party,mises,but fails to address.

THE PROFITSEXCLUSION PRECLUDESCOVERAGE FOR QUIZNO'S PRESENT CLAIMS In the insufalce contacts betweenQuizno's andWestchester, ExclusionA.7, the "Profits Exclusion," providesthat the insurershall not be liable for: losson accountof anyclaim madeagainstanyinsuredbased upon, arisiogout of, or attributableto suchInsued gainingin fact any profit, remuneration financial advartage which suchInsured or to not legally entitled;but this exclusionshallnot apply to Loss was indemnifiedby the Company. that the Quizno's axgues this exclusionis inapplicablebecause underlyinglitigation did rot proflts and,evenifit did, the exceptionprovides"exclusion shall involve retentionof uneamed

4337-8568{128.1

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 10 of 13

not apply to Lossindemnifiedby the Company.'s However,the pleadings,motions,and in settlements eachmatterrcvealsthat the cenhalissueofthe SeDesta Nickersonactionswas ar'd retentionofuneamedprofits. Further,Quizno's fails to offer Quizno's andthe Schadens' sufficient evidence that it hasindernnifiedits directorc. A, Ouiztro'sHasAdmitted That this Action Is aboutProlit to Which It Was Not Entitled that Quizno's asserts the underlyingSereslaalldNicke$o actionsdo not seek for recompense profits that Quizno's andits dircctorsretained, did not eam. This is simply but inaccurate.hr severalsubmissions, is Quizno'shasadmittedthat the clux ofthe allegations that to Quizno's and it s directo$ retainedprofits or advantages which theywere not legally entitled. For example,in oppositionto a motion for temporaryrcstaining order,Quizno's admittd: Sebesta claimsto be a shareholder thinks$8.50is not enough. who His complaintis essentially aboutmo[ey: he thinks the fair value ofhis Quizno's stockis greater price that thanthe $8.50per shaxe the Special Committee ofQuizno'sBoard,andthe Special Committee'sprofessional advisors, detemined was fair. Oppo. TRO,Decl.ofSlome,Exh.A-1, pp. l-2. to In its reply brief suppoting ajoint motion to consolidate, Quizno'sreferredto the SeDestc actionandan appraisal actionas follows. With the denialofplaintiff s requestfor injunctive rc1ief,the ody questionremainingin the Sebesta litigation is whetherQuizno's andits agents breached their [sic] fiduciary duty to its shaxeholders, including the Respondents, whenthey agreed pay them $8.50 to sWestchester alsoargues, amongotherthings,that no coverage existsbecause Quizno's hasfailed to identiry any legally cognizable loss. SeeWestchester Motion for Summary

Judgment,m, A. $
48:17-85684128.1

10

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 11 of 13

per sharc. In both cases, seek Quizno's former shareholders more moneyfor their shares.Only the legal theoriesemployedto attemptto extractadditionalpayrnent dilfers. Reply brief, Decl. of Slome, Exh.A-2, p. 3, fir l. Indeed,an examimtion ofthe complaintsin eachactionmore explicitly setsforth that the basisfor the,Sebesta Nickeqon alaimswasthe profit tllat Quizno's andthe Schadens and In receivedby withholding moneyrightfully duefomer sharcholders. Seresla,the plaintiffs alleged: Suchactiol andinactionrcpresent effort by the individual an defendants pemit insidersto gain completecontrol over the to valuable assets busilesses Quizno's and of withoutpaing a fair price to Quizno'spublia stockholde$.

in Unlessenjoinedby this Cowt, defendants . . . succeed their will plan to enfich ma agerlert by excludingthe Classfrom its fair proportionate share ofQuizno'svaluable assets businesses. and Decl. ofMeyers, Exh. K, lftl 7, 46 (emphasis added). Moreover,theNickersonComplaint exgessly allegedthat Quizno'sprofited or otherwisereceivedbenefitsftom the sale By being ableto purchase Nickerson'sandthe Classmmbers' shares faxlessthantheir actualvalue, Qzizho'sbeneftted for directlyfrom said breachofrt&tcia.ry d ty.

Defenda t Quizno'sleceiveda benefitftomthrcugh permittingthe breaches fiduciary duty ouflired above,andby failing to of prevent,or stopsuchbraches fiduciary duty. discoumge, of Decl.ofMeyers,Exh.V, fllJ53, 56 (emphasis added).Givanthis unambiguous evidence, Quizno's position that the underlyinglitigations wasnot basedon claims of an impropergain of
4837-8s68-0128.1

l1

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 12 of 13

financial advantage simplyunrenable. are B. Ouizno'sF.ils to Offer Evidence Sufficientto Establishthat it Has IndemnifiedIts Directors materialfactsasevidence that it hasindemnifiedits Quizno's citesonly two undisputed officels. The fiIst ofths. number25. states: to of Quizno's agreed indemnify the members the boardof directolsnamedin Sebesta with respectto their lossesassociatsd with the Sebesta Action andprusuant Iodemnification to Agreements with eachboardmember. That is, Quizno's hasofferedevidence statingonly that it agreed, beforc any litigation began,to indemnify its dircctoN pursua.nt cedainagrcements. to Quizno'shasfailed to offer anyevidence that it hasindemnifiedthe directorsfor their losses action. Moreover, with respectto the Sebs,sla at Quizno's fails to offer anyevidence all with rcspectto the i/ic*erso, action. The second undisputed matedalfact that Quizno's cites,number30, is completely irrelevantto this question. It states: agreed advance Westchster to certaindefense costsassociated with the Sebesta Action. Westchester initially a$eed to also a advance certainpoftion ofthe defense costsassociated with the Dissenters Action. As such,the partiesentered into an Intenm pursuant which Westchester just under paid FundingAgreement to (afterapplying $250,000 a retention) ofQuizno'sdefense $300,000 costsassociated with the Sebesta Action andthe Dissenter's Action. Westchester madethesepa)4nents December in 2002 and Febnrary2003. Thosearethe only amounts Westchester paic. has As thesestatements to offer anyevidence fail that Quizno'shasindemnifiedany loss, Quizno'shasfailed to carryits burdenin showingthat the Proflts Exclusiolris inapplicable. As such,the court shoulddenyQuizno'smotion.
4817-85684128.1

12

Case 1:04-cv-00725-RPM

Document 42

Filed 07/21/2005

Page 13 of 13

VII. CONCLUSION For the reasons forth above,Westchester set respctfullyrequests this court deny that Quizno's motion in its entirety.

p41Bp. .r I r-, I o3

By

-/Ort-/
LEWIS BRISBOISBISGAARD & SMITH LLP R. GaylordSmith EmestSlome R. Anthony Moya 550WestC. Street, Suite800 Diego,CA 92101 San (619) 233-1006 FiIe Attomels for DefendantWestchester IisuranceCompary

4837-85684128.1

13