Free Response in Opposition to Motion - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Bruce M. Friedman, Esq. (admitted pro hac vice) RUBIN, FIORELLA & FRIEDMAN LLP 292 Madison Avenue New York, New York 10017 Tel. (212) 953-2381 Fax (212) 953-2462 Gerald Gaffaney, No. 003789 David J. Ouimette, No. 006423 MARISCAL, WEEKS, McINTYRE & FRIEDLANDER, P.A. 2901 North Central, Ste. 200 Phoenix, Arizona 85012 Tel. (602) 285-5000 Fax (602) 285-5100 ATTORNEYS FOR PLAINTIFFS/COUNTER-DEFENDANTS UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA --------------------------------------------------------X U-HAUL INTERNATIONAL, INC.; U-HAUL COMPANY OF PENNSYLVANIA; U-HAUL COMPANY OF FLORIDA; AND REPUBLIC WESTERN INSURANCE CASE NO. CIV-04-0662-PHX-DGC COMPANY, Plaintiffs, -againstLUMBERMENS MUTUAL CASUALTY COMPANY, Defendant. --------------------------------------------------------X Plaintiffs and counter-defendants U-Haul International, Inc. and Republic Western PLAINTIFFS' MEMORANDUM IN OPPOSITION TO LMC'S MOTION TO SUBSTITUTE APPEAL BONDS

21 Insurance Company (collectively, "U-Haul" or "Plaintiffs") respectfully submit this 22 Memorandum of Law in opposition to the motion of defendant and counter-plaintiff 23 Lumbermens Mutual Casualty Company ("LMC") to substitute two new bonds in place of 24 the appeal bond previously filed in this action. 25 26 27 28 Nature of LMC's Motion This action concerns U-Haul's efforts to recover money owed by its excess insurer, LMC, and LMC's efforts to delay or avoid payment. After years of delay, lengthy motion

Case 2:04-cv-00662-DGC

Document 217

Filed 06/25/2008

Page 1 of 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

practice and a trial, this Court granted U-Haul Judgment against LMC for a total of over $2.3 million, including attorneys' fees, costs and pre- and post-judgment interest. Under FRCP Rule 62(d), this Court stayed enforcement of the Judgment pending appeal after LMC posted a Supersedeas and Appeal Bond from National Indemnity Company (the "Nat'l Indemnity Bond"). The appeal to the Ninth Circuit has now been fully briefed. LMC moves this Court for permission to substitute new bonds from two other sureties in place of the Nat'l Indemnity Bond. The proposed new sureties are Scor Reinsurance Company and "North American Specialty Insurance Company Subsidiaries and Affiliates," though the body of LMC's motion only identifies Scor.1 The sole stated reason for changing the Nat'l Indemnity Bond is that LMC no longer likes its arrangement with National Indemnity, which required it to post collateral. LMC now apparently prefers using two different sureties that do not require full collateral. U-Haul does not consent to the proposed change. Counsel for U-Haul previously informed LMC that U-Haul did not agree to changing the Nat'l Indemnity Bond, especially if it would require collecting from two separate sureties, which would increase the costs of any collection. A copy of the e-mail exchange between counsel for the parties is Exhibit A to the accompanying Affidavit of Gerald A. Greenberger (the "Greenberger Aff").2 The proposed bond from Scor (Ex. E to LMC's motion) is not acceptable to U-Haul. That bond

North American is referred to only in a proposed bond (Ex. E) that is annexed as an exhibit to LMC's motion. It is not apparent why LMC only discusses the benefit of using Scor as a surety and submits an affidavit from Scor, even though the proposed Scor bond would be slightly over 7 % of the total, without identifying North American, whose proposed bond would be almost 93 % of the total or attaching a copy of the proposed North American bond. Alternatively, LMC may only intend to replace 7 % of the National Indemnity Bond by the proposed Scor bond and have National Indemnity issue a new bond for the remaining 93%­but that would free up only 7 % of the collateral­an apparently de minimis benefit. Likewise, it would not explain why North American is named in the proposed Scor bond. As demonstrated below, U-Haul seeks to avoid all potential ambiguities and anomalies in the appeal bond here. LMC's original request, stated in the April 3, 2008 e-mail from its counsel, called for a bond from North American, with no mention of Scor. See Exhibit A to the Greenberger Aff. -22

1

Case 2:04-cv-00662-DGC

Document 217

Filed 06/25/2008

Page 2 of 7

1 2 3 4 5 6 7 8

names Scor, rather than LMC, as the "Principal," whose obligation to U-Haul is protected, even though Scor has no direct obligation to U-Haul. Even if that bond might arguably protect U-Haul, U-Haul has a right to avoid any potential uncertainties and complications relating to the meaning and effect of the proposed bonds as well as any arguable "defenses" that may arise in the event that LMC is determined to be insolvent.

POINT I 9 10 11 U-Haul relies upon the Nat'l Indemnity Bond to assure payment of the Judgment if 12 it is affirmed on appeal. There is a substantial basis for U-Haul to be concerned about the 13 ability of LMC to pay the Judgment. The most recent report from A.M. Best Company 14 shows LMC to be in deep financial distress. This report shows that LMC has "substantially 15 ceased its underwriting activities:" 16 17 18 19 20 21 22 23 24 25 26 27 28 -3Since July 2003, LMC and most of its affiliates have been subject to a Corrective Order issued by the Illinois Department of Financial and Professional Regulation - Division of Insurance (Division) not to write any new or renewal business except as necessary to comply with contractual commitments or as expressly permitted by the Division. * * * THE APPEAL BOND IS IMPORTANT TO U-HAUL BECAUSE THERE IS DOUBT ABOUT LMC'S ABILITY TO PAY A JUDGMENT HERE

The Division retains the discretion at any time to place LMC in a formal proceeding (conservatorship or receivership, rehabilitation or liquidation). (at 2). A copy of that report is Exhibit B to the accompanying Greenberger Aff. Since it is unclear whether LMC will be able to pay the Judgment if it is affirmed by the Court of Appeals, U-Haul must rely upon the Nat'l Indemnity Bond to assure timely and complete payment.

Case 2:04-cv-00662-DGC

Document 217

Filed 06/25/2008

Page 3 of 7

1 POINT II 2 3 4 5 6 7 8 9 10 11 12 13 14 POINT III 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -4IMPOSING NEW BONDS WOULD BE PREJUDICIAL TO U-HAUL There is no need to change the Nat'l Indemnity Bond that was posted to protect UHaul during LMC's appeal or replace it with two new bonds. LMC's present desire to change its sureties should not be permitted to introduce ambiguities and anomalies that may affect the protections provided by the appeal bond already in place There is no need for U-Haul, whose efforts to collect money under its insurance policy with LMC have been delayed for years, to accept anything other than a single appeal bond. At a minimum, substituting two bonds in place of the Nat'l Indemnity Bond will increase the time, effort and expense of enforcing the Judgment if LMC will not immediately pay the Judgment once it is affirmed. THERE IS NO LEGAL BASIS FOR IMPOSING NEW BONDS UPON U-HAUL LMC's motion presents no basis for imposing new appeal bonds upon U-Haul in the face of U-Haul's opposition. LMC presents no Federal Rule or statute that grants it the right to make such a change as of right. Likewise, LMC presents no precedent showing that this Court should exercise its discretion to grant such relief. LMC's business arrangements with its present surety, National Indemnity, are not a matter that should properly be before this Court. LMC freely entered into its surety relationship with National Indemnity. If LMC now desires to enjoy the benefit of its desired relationship with its two new sureties, it should attempt to persuade National Indemnity to accept bonds from those sureties, or other security, in place of collateral, rather than seeking to impose the change upon U-Haul.

Case 2:04-cv-00662-DGC

Document 217

Filed 06/25/2008

Page 4 of 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

As the beneficiary of an appeal bond that was issued by an independent surety shortly after the Judgment was entered, U-Haul should be fully protected: it should not have to assess the language and obligations of the proposed new bonds, identify and resolve potential ambiguities and anomalies or deal with any additional potential "defenses" that might be asserted by the new sureties. The proposed bond from Scor (Ex. E to LMC's motion) is not acceptable to U-Haul because it appears to provide little or no protection to U-Haul. The Nat'l Indemnity Bond identifies LMC as the "Principal(s)" and National Indemnity as the "Surety." In contrast, the proposed Scor bond identifies Scor as the "Principal" and "North American Specialty Insurance Company Subsidiaries and Affiliates" as the "Surety." It is not apparent why Scor is named the "Principal" since the Judgment is not a direct obligation of Scor. No direct obligation of Scor is at issue here. Indeed, the remainder of LMC's motion appears to refer to Scor as a surety, rather than a principal. Since the proposed bonds do not fully protect U-Haul, LMC's motion should be denied. Nor is it clear which North American entity is the "Surety" or why North America is a surety for Scor with respect to Scor's 7% of the Judgment. However the proposed bonds may be intended to function, U-Haul should not be required to parse them, to correct them, or to determine whether they would fully protect U-Haul's rights. In view of the apparent ambiguities and/or anomalies in the proposed Scor bond, this Court should deny LMC's motion. Likewise, U-Haul and its counsel need not be required to assess any arguable defenses, such as whether Scor's role as a "reinsurer" may limit U-Haul's right to enforce its bond directly; whether the payments under the new bonds may be deemed "preferences" if LMC is declared insolvent; or any potential questions about the allocation of costs, indemnity, interest and expenses between the two proposed new bonds. Even if such arguable "defenses" are entirely meritless, there would still be no reason why U-Haul should

-5-

Case 2:04-cv-00662-DGC

Document 217

Filed 06/25/2008

Page 5 of 7

1 2 3 4 5 6

have to assess them or any other additional arguable defenses that could be raised by the proposed new sureties. LMC's lengthy rearguard efforts have delayed the collection of money due U-Haul for years. After successfully litigating this straight-forward but costly case, U-Haul is entitled to be fully and completely protected during LMC's appeal. CONCLUSION

7 Based on the foregoing, LMC's motion to substitute bonds should be denied in all 8 respects. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
214-4648\M emLaw in O pposition to Sub. B ond.w pd

Dated:

June 25, 2008 MARISCAL, WEEKS, McINTYRE & FRIEDLANDER, P.A. By: s// David J. Ouimette Gerald Gaffaney, Esq. David J. Ouimette, Esq. 2901 North Central, Ste. 200 Phoenix, Arizona 85012 Tel. (602) 285-5000 Fax (602) 285-5100 and RUBIN, FIORELLA & FRIEDMAN LLP By: s // Bruce M. Friedman Bruce M. Friedman (admitted pro hac vice) 292 Madison Avenue New York, New York 10017 Tel. (212) 953-2381 Fax (212) 953-2462 Attorneys for Plaintiffs/Counter-Defendants

26 27 28 -6-

Case 2:04-cv-00662-DGC

Document 217

Filed 06/25/2008

Page 6 of 7

1 2 3 X CERTIFICATE OF SERVICE I hereby certify that on the 25th day of June 2008, I electronically transmitted

4 the attached Memorandum in Opposition to LMC's Motion to Substitute Bonds to the Clerk's 5 Office using the CM/ECF System for filing and transmittal of a Notice of Electric Filing for 6 the following CM/ECF registrants: 7 8 9 10 11 12 13 14 15 16 17 18 and 19 20 21 22 23 24 By: s// David J. Ouimette 25 David J. Ouimette, Esq. 26 27 28 MARISCAL, WEEKS, McINTYRE & FRIEDLANDER, P.A. WILLIAMS. MONTGOMERY & JOHN LTD. 20 North Wacker Drive, Suite 2100 Chicago, IL 60606-3094 Attorneys for Defendant A copy of this document was provided by United States Mail to: Honorable David G. Campbell United States District Court Sandra Day O'Connor U.S. Courthouse, Ste. 526 401 West Washington, SPC 62 Phoenix, AZ 85003-2158 Steven Plitt [email protected] Daniel Maldonado [email protected]

Case 2:04-cv-00662-DGC

Document 217

Filed 06/25/2008

Page 7 of 7