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CREDIT GEN. INS., CO. v. MIDWEST INDEM. CORP.

December 29, 1995

CREDIT GENERAL INSURANCE, COMPANY, Plaintiff,
v.
MIDWEST INDEMNITY CORPORATION; and VICEROY MANAGEMENT, INC., Defendants, MIDWEST INDEMNITY CORPORATION, Third-Party Plaintiff, v. ANDERSON, McPHARLIN & CONNERS, a California Partnership; G. WAYNE MURPHY, an individual; and LARRY E. ROBINSON, Third-Party Defendants, ANDERSON, McPHARLIN & CONNERS, a California Partnership; G. WAYNE MURPHY; and LARRY E. ROBINSON, Cross-Plaintiffs, v. VICEROY MANAGEMENT, INC., Cross-Defendant.



The opinion of the court was delivered by: ASHMAN

REPORT AND RECOMMENDATION

 Pending before this Court are three motions brought by Defendant/Cross-Defendant, Viceroy Management, Inc. ("Viceroy"): (1) Viceroy's Rule 12(g). Consolidated Motion to Dismiss and Strike Third-Party Defendants/Cross-Plaintiffs', Anderson, Mcpharlin & Conners and Larry Robinson ("collectively referred to as "the AMC Defendants"), four-count cross claim; (2) Viceroy's Consolidated Rule 12(g) Motion to Dismiss and Strike Counts VII and VIII of Plaintiff, Credit General Insurance Company's ("Credit General"), First Amended Complaint; and (3) Viceroy's Rule 56 Motion for Summary Judgment as to Credit General's Counts VII and VIII.

 This case commenced on December 11, 1990, when Credit General filed suit against Defendant/Third-Party Plaintiff, Midwest Indemnity Corporation ("Midwest"), for damages related to a claim made on a surety bond issued by Midwest, in the name of Indiana Lumbermen's Mutual Insurance Company ("Indiana"), pursuant to a Limited General Agency Agreement ("LGAA") between Credit General and Midwest. Credit General subsequently amended its complaint on January 20, 1995 to add two counts against Viceroy, the claims administrator. On January 14, 1994, Midwest filed its Third-Party Complaint against the AMC Defendants seeking damages, to the extent Midwest is found liable to Credit General, on a theory of legal malpractice. In turn, on March 17, 1995, the AMC Defendants filed a four-count cross claim against Viceroy for contribution and indemnity, seeking damages to the extent it is found liable to Midwest and seeking damages incurred in the settlement of a legal malpractice suit brought by Indiana. All materials and briefs on these motions were submitted by November 15, 1995 and oral argument was held on December 1, 1995.

 I. Relevant Background

 As gleaned from previous Orders and the parties' pleadings and arguments, the following is a brief summary of the extensive background of this case.

 On April 15, 1984, Credit General, an Ohio-based insurance company, entered into an LGAA with Midwest, an Illinois corporation engaged in the business of underwriting and selling large surety bonds. The LGAA authorized Midwest to solicit, underwrite and issue contracts of suretyship on behalf of Credit General. In addition, under the LGAA, Midwest agreed to indemnify Credit General for any losses or expenses associated with these bonds resulting from negligent or intentional acts, errors or omissions by Midwest, excluding any losses caused by Credit General's own misconduct.

 On August 20, 1986, Midwest issued a bond, later amended in December 1986, which bound Indiana to a subcontractor's performance and payment bond totalling $ 1,125,000 guaranteeing the contractual performance of W. S. Lee Construction Company ("W. S. Lee") in favor of Jones Brothers Construction Company ("Jones Bros.") related to a hotel construction project in California. Under the fronting agreement, Credit General indemnified Indiana from any losses associated with this bond.

 Sometime in 1987, W. S. Lee failed to fulfill its contractual obligations, thus stimulating a chain of litigation. Jones Bros. brought suit in California in 1988 against Indiana seeking to enforce the surety bond, and also seeking damages for alleged bad faith in handling of the claims. Credit General, being the ultimate obligor, directed the litigation for Indiana and retained the AMC Defendants, a California law firm, as counsel. As alleged in Midwest's Third-Party Complaint against the AMC Defendants, Credit General informed the AMC Defendants upon their retention that it, Credit General, was contractually bound to indemnify Indiana for all costs and expenses awarded in the Jones Bros. litigation and that Credit General expected Midwest to indemnify it for any sums that Credit General was required to pay as a result of the litigation.

 On September 6, 1991, judgment in favor of Jones Bros. was entered on a jury's special verdict. In the special verdict, the jury found that Indiana committed bad faith and was guilty of oppression, fraud or malice in its dealings with Jones Bros. The jury awarded contract damages of $ 1,167,644.16, consequential damages of $ 1,000,000, and punitive damages of $ 2,500,000 plus attorney's fees, interest, costs and expenses. On October 3, 1991, the litigating parties reached a settlement whereby Indiana agreed to pay $ 3,650,000 and Jones Bros. agreed to release all claims and dismiss its suit. *fn1" The Settlement Agreement was memorialized in a Court Order dated October 31, 1991, which vacated the September 6, 1991 judgment, rendered the judgment (and the subsequently filed appeal) moot by settlement, found the judgment no longer equitable and just such that it should not have prospective preclusive effect, and denied the judgment any prospective preclusive effect. Thereafter, Indiana brought suit in California against the AMC Defendants alleging the AMC Defendants' legal malpractice. This suit was settled in July 1994 by the payment of an unspecified amount of money by the AMC Defendants to Indiana.

 II. Discussion

 The Court will first address Viceroy's Consolidated Motions to Dismiss and Strike the AMC Defendants' Cross-claim and Credit General's Complaint and then consider Viceroy's Motion for Summary Judgment against Credit General.

 A. Standard of Review - Rule 12 Motions

 Viceroy challenges the sufficiency of the AMC Defendants' and Credit General's complaints in its Rule 12(g) Consolidated Motion *fn2" by seeking to have the respective complaints dismissed under Rule 12(b)(6) *fn3" and/or seeking to have portions of the complaints stricken pursuant to Rule 12(f). *fn4"

 When considering a motion to dismiss or a motion to strike, the Court must consider the allegations in the complaint to be true and view them, along with reasonable inferences to be drawn from them, in the light most favorable to the plaintiff. A complaint should be dismissed for failure to state a claim only if it appears beyond doubt that the plaintiff is unable to prove any set of facts that would entitle him to relief. While the plaintiff need not set out in detail all the facts upon which the claim is based, he must allege sufficient facts to outline a cause of action. Doe v. St. Joseph's Hosp. of Ft. Wayne, 788 F.2d 411, 414 (7th Cir. 1986)

 Motions to strike under Rule 12(f) are generally infrequently granted. 5A CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE, § 1380 (1990). A motion to strike must state with particularity the grounds therefor and set forth the nature of relief or type of orders sought. In moving to strike matters as irrelevant, the movants must clearly show that the matter is outside the issues in the case and is prejudicial. 5A WRIGHT & MILLER, § 1380. Typically, unnecessary evidentiary details in a pleading will not be stricken especially if inconsequential or non-prejudicial or if they might assist the Court or litigants in better understanding the issues. 5A WRIGHT & MILLER, § 1383. The granting of a motion to strike is within the discretion of the Court. 5A WRIGHT & MILLER, § 1380.

 1. Viceroy's Motion To Dismiss The AMC Defendants' Cross Claim

 In their cross claim, the AMC Defendants seek contribution and indemnification for damages to the extent the AMC Defendants are held liable to Midwest (Counts I and II) and for damages related to the settlement of the legal malpractice suit brought by Indiana in California (Counts III and IV).

 The Court will first address Viceroy's motion as to Counts II and IV, the indemnification claims. Indemnity is defined as:

 
a contractual or equitable right under which the entire loss is shifted from a tortfeasor who is only technically or passively at fault to another who is primarily or actively responsible.

 BLACK'S LAW DICTIONARY. SIXTH ED., p. 707. In both Counts II and IV, the AMC Defendants assert a contractual basis for their indemnification. Specifically, the AMC Defendants allege the existence of the LGAA between Credit General and Midwest (Cross-Claim, P 6), and a services agreement between Midwest and Viceroy (Cross-Claim, P 8). For ...


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