Free Order - District Court of Arizona - Arizona

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

Meadowlark Lemon, a married man, Plaintiff, vs. Harlem Globetrotters International, Inc., et al., Defendants. Fred "Curly" Neal, et al., Plaintiffs, vs. Harlem Globetrotters International, Inc., et al., Defendants ________________________________ Harlem Globetrotters International, Inc., et al., Counter-claimants, vs. Meadowlark Lemon, a married man,

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Counter-defendant. ________________________________

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No. CV-04-299-PHX-DGC and CV-04-1023-PHX-DGC

ORDER

This matter arises on the Joint Motion of Plaintiffs Meadowlark Lemon, Fred "Curly" Neal, Larry "Gator" Rivers, Dallas "Big D" Thornton, Robert "Showboat" Hall, Marques Haynes, and James "Twiggy" Sanders (collectively referred to as "Plaintiffs") to Enforce Settlement Conference Order Requiring Defendant GTFM's Insurer to Appear at the
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Settlement Conference (docket # 447). The Honorable David G. Campbell, the assigned trial judge, referred this matter to the undersigned for a determination of solely whether GTFM's insurer should be required to appear at the settlement conference scheduled on September 28, 2006. (docket # 448) This issue is fully briefed and ready for review. BACKGROUND On July 13, 2006, GTFM served a Notice of Service of Third Amended Initial Disclosures (docket # 432, hereinafter "Third Amended Disclosures") on Plaintiffs. Paragraph four of the Third Amended Disclosures includes a significant change of GTFM's position regarding the existence of insurance coverage. Specifically, the Third Amended Disclosure states that "GTFM is NOT insured for damages, claims, or actions that are the subject of this litigation." (docket # 447, Exh. A) Plaintiffs state that over a year ago GTFM had represented that there was insurance coverage for damages, claims, or actions that are the subject of this litigation. (docket # 447, Exh. D) Plaintiffs further argue that GTFM inexplicably waited until nine months after the close of discovery in this matter to inform Plaintiffs that no coverage existed. Plaintiffs claim that GTFM knew that Plaintiffs would be prejudiced by this tardy disclosure and that GTFM has not explained its failure to disclose this material fact in a timely manner. During a July 14, 2006 telephonic conference with the undersigned, counsel for GTFM advised the court that insurance coverage was no longer available. On July 17, 2006, the court issued an order setting a settlement conference which provided that "[i]f a Defendant is an insured party, a representative of that party's insurer with full and complete authority to discuss settlement of the case SHALL physically appear at the aforesaid date and time." (docket # 433)(emphasis in original). Plaintiffs argue that because GTFM delayed in filing its Third Amended Disclosure "in an attempt to circumvent having its insurer present at the conference," the Court should enforce the order setting settlement conference and require GTFM's insurer to appear. In response to Plaintiffs' Motion, GTFM has filed the Declaration of Ira Sacks, a partner in the New York law firm of Dreier LLP, attorneys for Defendant GTFM. (docket #
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442) Defendant argues that the Court should not order GTFM's former insurance carrier to appear at the settlement conference because it is no longer obligated to pay for any costs related to this litigation. Defendant explains that until February 8, 2006, GTFM was receiving payment of fees related to this matter from its insurance carrier, St. Paul Travelers and Insurance Company (the "Insurer"), under a reservation of rights. The Insurer paid for attorneys' fees in this matter under a reservation of rights because, among other reasons, GTFM was fully indemnified by Harlem Globetrotters International, Inc. ("HGI") under the terms of the June 1, 2002 license agreement. (docket # 442, ¶¶ 3-5) On April 12, 2005, HGI brought suit against GTFM in the Southern District of New York in an action entitled Harlem Globetrotters International Inc. v. GTFM, LLC, 05-CV3727 (NRB) (the "HGI Litigation"), alleging violations of the licensing agreement. On April 29, 2005, GTFM filed an answer and counterclaim against HGI (the "GTFM Counterclaims"), alleging violations of the licensing agreement, including the indemnity provision. (docket # 442, ¶ 6) On February 8, 2006, HGI and GTFM resolved the HGI Litigation and the GTFM counterclaims (the "HGI/GTFM Settlement"). As part of that settlement, HGI reaffirmed its obligation to pay the attorneys' fees and costs associated with this litigation, along with any judgment and/or settlement, and GTFM released the Insurer from any claims under the policy with respect to this litigation, except in the event of a default by HGI. Accordingly, since February 8, 2006, GTFM has been uninsured in connection with this matter. (docket # 442, ¶ 7) GTFM explains that the HGI/GTFM Settlement did not occur until after the close of discovery in this matter on September 30, 2005. GTFM claims that it did not amend its disclosures in February of 2006 because there were no disputes regarding insurance at that time. (Id. ¶ 8) GTFM notes that it served its Third Amended Disclosures on July 13, 2006 in anticipation of the settlement conference in this matter and that Plaintiff's did not object until seven weeks later. GTFM argues that because the Insurer does not have coverage obligations

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to GTFM in relation to this matter, no purpose would be served by requiring a representative of the Insurer to attend the Settlement Conference. /// /// ANALYSIS At issue in this matter is a sentence in the Order Setting Settlement Conference which provides that "[i]f a Defendant is an insured party, a representative of that party's insurer with full and complete authority to discuss settlement of the case SHALL physically appear at the aforesaid date and time." (docket # 433)(emphasis in original). The purpose of requiring the relevant insurance representatives to attend the settlement conference is to facilitate settlement by securing the presence of individuals with ultimate control and settlement authority at the conference. When the Court issued the order setting settlement conference, it was unaware of the February 8, 2006 Settlement Agreement pursuant to which GTFM released the Insurer from any claims under the policy with respect to this litigation. In support of their motion to require GTFM's insurer to attend the settlement conference, Plaintiffs cite In Re Novak, 932 F.2d 1397 (11th Cir. 1991). Novak, however, is distinguishable from this case. In Novak, the court found that while the district court lacks the authority to directly order a nonparty insurer to attend a settlement conference, the court has the authority "to order the named parties to produce individuals with full settlement authority (including an insurer) at pretrial conferences." Novak, 932 F.2d at 1408. Although the rule announced in Novak -- that the district court has the inherent authority to order named parties to produce individuals with settlement authority at pretrial conferences -- is relevant, there is no reason to use that rule to direct GTFM to produce its former Insurer or one of its employees at the September 28, 2006 settlement conference in this case. Unlike Novak, in this case, the Insurer has now denied coverage. Thus, this is not a case where "a nonparty insurer controls the litigation" and requiring GTFM to produce its Insurer at the upcoming settlement conference would serve no purpose. Moreover, because GTFM is not an "insured party" for purposes of this litigation, the directive in the order setting settlement conference -- that insured defendants
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produce a representative of the insurance company at the settlement conference -- does not apply to GTFM.

Notwithstanding the Insurer's current position that no liability insurance coverage exists for any of the claims brought by Plaintiffs against GTFM, the absence of the former Insurer or any of its representatives may create an opportunity for the parties to consider a Damron/Morris Agreement authorized under certain conditions pursuant to longstanding Arizona law. Damron v. Sledge, 105 Ariz. 151, 460 P.2d 997 (Ariz. 1969); USAA v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987); Associated Aviation Underwriters v. Wood, 209 Ariz. 137, 98 P.3d 572, 577 n. 1 (Ariz. App. 2004) cert. denied 126 S. Ct. 390 (2005) ([W]e use the term "Morris agreement" to describe a settlement agreement entered into when the insurer is defending under a reservation of rights, under which the insured stipulates to a judgment, assigns his rights against the insurer to the claimant, and receives in return a covenant from the claimant not to execute against the insured. An agreement with the same general characteristics entered into when the insurer refuses to defend is referred to as a "Damron agreement.)(internal citations and cases omitted). Such agreements, however, are potentially problematic for defense counsel and create potential ethical issues for defense counsel selected by the insurer. Parsons v. Continental Nat. Am. Group, 113 Ariz. 223, 227 550 P.2d 94, 98 (Ariz. 1976) ("The attorney representing [defendant] in the personal injury suit instituted by the [plaintiffs] had to be sure at all times that the fact he was compensated by the insurance company did not `adversely affect his judgment on behalf of or dilute his loyalty to (his) client, [defendant].'") (citations omitted). See also, American Family Mut. Ins. Co. v. Zavala, 302 F.Supp.2d 1108, 1120 (D. Ariz. 2003) (District Judge David. G. Campbell presiding). Whether any of these agreements are viable or appropriate for this settlement conference under the circumstances of this case is left to the discretion of counsel and their clients. After consideration of this matter, the Court will deny Plaintiffs' Motion and will not require GTFM to produce its Insurer at the settlement conference scheduled for September
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28, 2006. The parties, including GTFM, remain obligated under the order setting settlement conference to produce at the September 28, 2006 settlement conference individuals who possess full and complete settlement authority as defined in the settlement conference order. In the event any or all counsel now believe that the absence of the Insurer from the settlement conference or that there now exists a material change in circumstances since Judge Campbell ordered the settlement conference on July 10, 2006 (docket # 429) to warrant consideration of vacating the subject settlement conference, the settlement conference order outlines the procedure for counsel to follow to avoid a futile attempt at settlement and an economic waste of everyone's time and money. Accordingly, IT IS ORDERED that Plaintiffs' Joint Motion to Enforce Settlement Conference Order Requiring Defendant GTFM's Insurer to Appear at the Settlement Conference (docket # 447) is DENIED. DATED this 19th day of September, 2006.

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