Thomas Riley, Jr. v. Mutual Insurance Co Ltd

• Court: Court of Appeals for the Third Circuit
• Decided: February 19, 2020
• Docket: 19-1321
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ______________

No. 19-1321 ______________

THOMAS A. RILEY, JR., Appellant v.

MUTUAL INSURANCE COMPANY LIMITED ______________

Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 2-17-cv-00489) District Judge: Hon. Paul S. Diamond ______________

Submitted Under Third Circuit L.A.R. 34.1(a) October 4, 2019 ______________

Before: SHWARTZ, SCIRICA, and FUENTES, Circuit Judges.

(Opinion filed: February 19, 2020)

______________

OPINION ______________

FUENTES, Circuit Judge.

 This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7, does not constitute binding precedent. Appellant, Thomas A. Riley, asserts breach of contract and bad faith claims

against Appellee Mutual Insurance Company Limited (“Mutual”) as a third-party

claimant. Riley filed the present case after Mutual declined to cover a default judgment

that Riley obtained against Journal Register East, a media company purportedly insured

by Mutual during the relevant period. The District Court held that Riley lacked standing

to sue Mutual and granted Mutual’s motion for summary judgment. For the following

reasons we affirm.

I.

This appeal arises out of a defamation suit filed in 2012 by Riley against Journal

Register East and the Philadelphia Inquirer in the Philadelphia Court of Common Pleas.1

At the time Riley filed his suit, Journal Register East’s corporate parent, Journal Register

Company, had an insurance contract with Mutual which provided coverage to Journal

Register Company and its subsidiaries (the “Indemnity Agreement”).2 The Indemnity

Agreement covered a variety of claims including those for libel, slander, and defamation.

While Riley’s defamation suit was ongoing, Journal Register East filed for

bankruptcy. As a result, all claims against Journal Register East were automatically

stayed, including Riley’s defamation proceeding. The Bankruptcy Court established a

1 In that defamation suit, Riley alleged that Journal Register East and the Philadelphia Inquirer defamed him by publishing false reports that, as former Vice Chairman of the Pennsylvania Convention Center, he had improperly directed hundreds of thousands of dollars in fees to his law firm. 2 App. 5a; 1352a. 2 Liquidating Trust, overseen by a Liquidating Trustee, and confirmed a Liquidation Plan

for Journal Register East on October 15, 2013.

Riley obtained counsel, Janet Charlton, to secure a release from the bankruptcy

stay. Counsel for the Liquidating Trustee, Kenneth Enos, and Charlton drafted a

stipulation entitled, “Stipulation and Order Between The Liquidating Trustee And

Thomas A. Riley, Jr., Modifying The Automatic Stay Solely For The Limited Purpose Of

Allowing Plaintiff To Proceed Against Non-Debtor Third Parties And Recover Available

Insurance Proceeds” (the “Stipulation”).3 The final draft of the Stipulation was executed

by the parties and entered by the Bankruptcy Court on January 7, 2014. Mutual was

neither a party to, nor aware of, the Stipulation at the time it was entered by the

Bankruptcy Court and asserts that it learned of the Stipulation when Riley moved to lift

the litigation stay to proceed with his case against the defendants.

After Mutual was notified of the Stipulation, Mutual and the Liquidating Trustee

began to debate who bore the obligation to defend against Riley’s claim. Mutual wrote to

the Liquidating Trustee stating that, under the Indemnity Agreement, Journal Register

East had the duty to defend itself against claims like those brought by Riley, and

demanding that the Liquidating Trustee fulfill the obligations of Journal Register East by

undertaking the defense. In response, the Liquidating Trustee informed Mutual and

Journal Register East that, in light of the Stipulation in which Riley waived his right to

pursue the collection of any judgment against Journal Register East, it would not be

3 App. 1828a-1833a. 3 defending the Riley action. In that communication, counsel for the Liquidating Trustee

stated that “[g]iven the posture of these cases and the terms of the stipulation . . . the

Debtors do not believe that they have an interest in the lawsuit and even a default

judgment against them would not result in any liability for the estates.”4 Mutual

repeatedly requested that the Liquidating Trustee undertake the defense, warning that a

failure to do so would be a material breach of the Indemnity Agreement.

The common pleas court allowed counsel for Journal Register East to withdraw

from Riley’s action. Eventually, Riley moved for entry of a default judgment against

Journal Register East. At that point, Mutual contacted Enos, counsel for the Liquidating

Trustee, and reiterated its position that “the continuing failure and refusal of the

Liquidating Trustee to defend the Riley litigation is a breach of the terms and conditions

of the Policy resulting in the denial of coverage and disclaiming of any further obligation

to the Debtor or to the Estate.”5 Ultimately, neither Mutual, the Liquidating Trustee, nor

Journal Register East defended against Riley’s defamation claim.

Riley obtained a default judgment against Journal Register East, and the court

awarded Riley $1.5 million in damages. Riley then submitted the damages award to

Mutual as a claim for payment of $1.5 million under the Indemnity Agreement. When

Mutual refused to pay, Riley filed the present suit against Mutual in the Philadelphia

Court of Common Pleas arguing that he has standing to sue Mutual as an “assignee” of

4 App. 1871a-1872a; 1876a. 5 App. 1935a. 4 the Indemnity Agreement.6 Mutual then removed the action to federal court and

answered the complaint with a counterclaim.7 Mutual subsequently moved for summary

judgment, which the District Court granted in January 2019 holding that Riley did not

have standing to bring suit.

II.8

A.

Riley argues that he has standing as an assignee of the Indemnity Agreement

between Mutual and Journal Register East. Specifically, Riley states that the Stipulation

releasing him from the bankruptcy stay effected an assignment of rights.

Judgment creditors, such as Riley, have standing to sue their tortfeasor’s insurance

company where they have obtained an assignment of rights under the tortfeasor’s

insurance policy.9 Under Pennsylvania law, both equitable10 and legal11 assignments are

6 App. 66a. 7 After removal to federal court, Riley filed a motion to compel documents relating to Mutual’s ability to assist with and control Journal Register East’s defense of the defamation lawsuit. The District Court denied that motion. 8 The District Court had jurisdiction under 28 U.S.C. §§ 1332 and 1441. We have jurisdiction under 28 U.S.C. § 1291. This Court’s review of the District Court’s grant of summary judgment is plenary. Alexander v. National Fire Ins. Of Hartford, 454 F.3d 214, 219 n. 4 (3d Cir. 2006). 9 Gray v. Nationwide Mut. Ins. Co., 223 A.2d 8, 11 (Pa. 1966). 10 An equitable assignment is “any order, writing, or act by the assignor which makes an absolute appropriation of a chose in action or fund to the use of the assignee with the intention to transfer a present interest, although not amounting to a legal assignment.” Melnick v. Pa. Co. for Banking & Trusts, 119 A.2d 825, 826 (Pa. 1956). 11 A legal assignment is defined as “a transfer or setting over of property, or of some right or interest therein, from one person to another, and unless in some way qualified, it is properly the transfer of one whole interest in an estate, chattel, or other thing.” In re Purman’s Estate, 56 A.2d 86, 88 (Pa. 1948). 5 only valid where the assignor had the present intent to transfer or divest themselves of a

right or interest.12 In this case, after assessing the purported assignor’s intent, the District

Court concluded that no assignment had taken place.13 Riley argues that the District

Court erred in its conclusion. We disagree.

First, Riley questions the District Court’s conclusion that the plain language of the

Stipulation does not reflect an assignment because it does not contain “words typically

found in an assignment.”14 Riley notes that “[u]nder Pennsylvania law, no words of art

are required to constitute an assignment; any words that fairly indicate an intention to

make the assignee []the owner of a claim are sufficient.”15 Although Riley is correct that

no magic words need be invoked, his argument misses the mark. Critically, the

Stipulation at issue is not simply missing words of art, it is missing any words that “fairly

indicate” assignment.

The Stipulation states that its purpose is to modify the litigation stay to allow Riley

to proceed with his lawsuit to a final judgment and to recover and collect from any non-

Debtor third parties or under any insurance policies. The relevant text states:

12 See Melnick, 119 A.2d at 826 (discussing the intent necessary for legal and equitable assignments). 13 App. 7a-13a. The District Court also concluded that an assignment would not have been legal under the Bankruptcy Code. Because we conclude, based on the plain language of the Stipulation and testimony of the individuals involved, that no reasonable juror could conclude that the purported assignor, Enos, intended the Stipulation to effect an assignment of rights, we do not address whether an assignment would have been legal under the Bankruptcy Code. 14 Appellant’s Br. 23. 15 Id. (citing In re Poole, 2015 Bankr. LEXIS 3044, at *17 (Bankr. W.D. Pa. Sept. 9, 2015)). 6 The Automatic Stay shall be modified for the sole purpose of: (a) permitting the Action to continue to final judgment or resolution of claims against the Debtors, (b) liquidating the claims of Riley (if any); and (c) permitting Riley to recover and collect from any non-Debtor third parties or under any insurance policies; provided, however, that (i) no action may be taken by Riley to execute on, or otherwise attempt to collect any judgment from the assets of the Debtors’ estates except as against non-debtor third parties or under any insurance policies, (ii) no action may be taken by Riley to execute on or otherwise attempt to collect any judgment from assets of the Debtors; and (iii) no action shall be taken with respect to any of the Debtors’ director and officer insurance coverage.16

Notably, the Stipulation does not use the terms “authorize,” “assign,” “convey,” or

“transfer,” words frequently used to manifest an intent to assign rights.17 Furthermore,

neither Mutual nor the Indemnity Agreement between Mutual and Journal Register

Company are specifically mentioned in the Stipulation and the Stipulation provides that it

shall not “impact, affect, determine, release, waive, modify, limit, or expand” insurance

coverage or “alter any insurance carrier’s existing indemnity payment obligations.”18

In support of his position that the language above effects an assignment, Riley

cites an unpublished 2014 case from the Middle District of Pennsylvania, Hrobuchak v.

Federal Insurance Company, in which a court held that a liquidation plan constituted an

assignment where it “authorized” class representatives to pursue declaratory relief against

the debtor’s insurance carrier.19 He argues that, similar to Hrobuchak, the Stipulation

was clear that it contemplated authorizing Riley to pursue a judgment that was to be

16 App. 1831a. 17 App. 1828a-1833a; e.g., W. United Life Assur. Co. v. Hayden, 64 F.3d 833, 838 (3d Cir. 1995). 18 App. 1831a. 19 No. 10-0481, 2013 WL 2291875, at *9 (M.D. Pa. May 24, 2013). 7 satisfied only by the Policy’s insurance proceeds.20 Riley’s argument, however,

overlooks a critical difference in context between Riley’s Stipulation and the liquidation

plan interpreted in Hrobuchak. In Hrobuchak, the parties expressly authorized the

judgment creditors to pursue a declaratory judgment against the insurer to determine

coverage.21 In the present case, the Stipulation included no express authorization of a

declaratory judgment but merely modified a stay to allow Riley’s case, in which he still

needed to prove liability, to proceed.

Riley also argues that a holding contrary to Hrobuchak would lead to an irrational

result because the parties understood that Riley was giving up his rights to pursue his

claim against Journal Register East in order to collect on Journal Register East’s

insurance. He argues that “if [Mutual’s argument] were accepted, it would mean that

Enos transferred an empty promise, allowing Riley the ability to pursue his claim against

[Journal Register East], obtain a judgment, and then come away with no recourse against

the policy.”22 However, as noted by the District Court, this argument “ignores . . . [that

Riley] has standing to institute a garnishment proceeding against [Mutual]” and chose not

to proceed on such a basis.23

Second, in addition to the lack of evidence in the plain language of the Stipulation

that an assignment was intended, the sworn witness testimony does not show that Enos,

the purported assignor, intended to assign the Indemnity Agreement to Riley. In fact,

20 Appellant’s Reply Br. 2. 21 2013 WL 2291875, at *9. 22 Appellant’s Reply Br. 4. 23 App. 13a. 8 Enos repeatedly testified that that he did not intend to assign insurance rights under the

Stipulation calling such an assignment a “legal impossibility” and stating, “I did not ever

intend to assign the - - it was never my belief that the insurance policy or indemnification

rights or anything was being assumed and assigned.”24 He also testified that if he had

intended an assignment he would have “included language such that, you know, policy X

is – or rights under policy X are hereby assumed by the debtors and assigned to Mr.

Riley, it would have said something about the cure amount involved . . . and . . . various

other bells and whistles . . .”25 In the face of this decisive testimony, Riley argues that

Enos only disclaims an assignment under § 365 of the Bankruptcy Code and leaves open

the possibility that an assignment “could be valid under other operation of law.”26 Such a

characterization misrepresents Enos’ testimony, in which Enos repeatedly stated, without

qualification, that he did not intend an assignment. Thus, there is simply no evidence that

the purported assignor, Enos, intended the Stipulation to effect an assignment.

Based on the Stipulation’s plain language and the testimony in this case we

conclude that there is no genuine issue of material fact as to whether the Stipulation was

an assignment of rights under the Indemnity Agreement. On this basis, the District Court

appropriately granted summary judgment.

24 App. 1393a-1394a; 1418a-1419a. 25 App. 1429a:21-24–1430a:1-20. 26 Reply Br. 5. 9 B.

In the alternative, Riley argues that even if he is not an assignee he has standing to

bring his claims under Pennsylvania’s Direct Action Statute, which allows an injured

person to bring suit directly against an insurance company to recover proceeds under a

third-party’s insurance policy if that third-party has declared bankruptcy.27 The District

Court concluded that that Riley had waived any claim of standing under 40 P.S. § 117

because he did not reference § 117 in his Complaint or plead facts supporting the

required elements of the statute.

On appeal, Riley fails to address the District Court’s conclusion that he waived

any possible claim of standing under § 117. Federal Rule of Appellate Procedure

28(a)(9) requires that an appellant’s brief contain “appellant’s contentions and the

reasons for them, with citations to the authorities and parts of the record on which the

appellant relies.”28 Where an appellant fails to comply with Rule 28(a)(9) by providing

argument on a particular issue, that issue is normally considered abandoned or waived

and need not be addressed by the court of appeals.29 In this case, Riley failed to address

the District Court’s holding that he waived any possible claim of standing under § 117.

Therefore, we conclude that Riley abandoned any argument that he did not waive his

claim. For that reason, we affirm the District Court’s holding that Riley waived any

27 40 P.S. § 117. 28 Collins v. Boyd, 541 F. App'x 197, 203 (3d Cir. 2013) 29 Kost v. Kozakiewicz, 1 F.3d 176, 182 (3d Cir.1993). 10 claim for relief under § 117 and conclude that Riley lacks standing to pursue his claims

against Mutual. 30

III.

For the reasons stated above, we will affirm the District Court’s order entering

judgment in Mutual’s favor.

30 Because we conclude that Riley does not have standing to sue Mutual, we do not reach the following legal issues: (1) whether Mutual owes liability under the Indemnity Agreement; (2) whether the District Court correctly denied Riley’s motion to compel the production of policies or manuals that “permit or require” Mutual to “associate with and control [Journal Register East’s] defense”; and (3) whether Mutual committed bad faith in denying coverage. 11