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Jonathan Pepper Co., Inc. v. Hartford Casualty Insurance Co.

September 26, 2007

JONATHAN PEPPER COMPANY, INC., AND TEAKNIQUES CORPORATION, PLAINTIFFS,
v.
HARTFORD CASUALTY INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge

MEMORANDUM OPINION AND ORDER

On August 31, 2002, a fire occurred at a warehouse in Aurora, Illinois. According to investigators, the fire was suspicious. When plaintiff Jonathan Pepper Company, Inc. ("Jonathan Pepper") filed a property loss notice with defendant Hartford Casualty Insurance Company ("Hartford") under its policy with Hartford (on which plaintiff Teakniques Corporation ("Teakniques") was a loss payee), Hartford refused to pay, stating that it believed Teakniques' president and Jonathan Pepper's officer Gary Cryster ("Cryster") intentionally set the fire and misled Hartford during its investigation. Plaintiffs then filed a breach of contract claim also seeking attorneys' fees under 215 ILL. COMP. STAT. 5/155 (2007). Hartford has asserted counterclaims for fraud and civil damages for insurance fraud under 720 ILL. COMP. STAT. 5/46-5.

Hartford has brought a motion for summary judgment on plaintiffs' claims and on its counterclaim for civil damages for insurance fraud. For the following reasons, I grant defendant's motion in part and deny it in part.

I.

Summary judgment is appropriate where the record and affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Steen v. Myers, 486 F.3d 1017, 1021 (7th Cir. 2007) (citing FED. R. CIV. P. 56(c)). If the moving party meets this burden, the non-moving party must go beyond the pleadings and set forth specific facts showing that there is a genuine issue for trial. Ptasznik v. St. Joseph Hosp., 464 F.3d 691, 694 (7th Cir. 2006) (citing FED. R. CIV. P. 56(e); Becker v. Tenenbaum-Hill Assocs., Inc., 914 F.2d 107, 110 (7th Cir. 1990)). The existence of merely a scintilla of evidence in support of the non-moving party's position is insufficient; there must be evidence on which the jury could reasonably find for the non-moving party. Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986)). I must construe all facts in the light most favorable to the non-moving party and draw all reasonable and justifiable inferences in its favor. Anderson, 477 U.S. at 255.

The parties agree that, taking the facts in the light most favorable to plaintiffs, on August 31, 2002 a fire occurred in a warehouse partially leased by Jonathan Pepper. The parties disagree about many of the other relevant facts, and have filed extensive motions to strike each others' summary judgment papers. Plaintiffs originally filed a motion to strike Hartford's motion for summary judgment, statement of material facts, and evidence in support of its motion, arguing that Hartford improperly relied on inadmissible documents. I deferred ruling on that motion to allow Hartford to file any additional evidence supporting admissibility. Hartford did provide additional evidence. Hartford then filed its own motion to strike plaintiffs' statement of additional facts and certain exhibits in support of plaintiffs' response to Hartford's motion for summary judgment, also arguing that the response and exhibits contain inadmissible evidence and are otherwise improper. Finally, plaintiffs filed a motion to strike portions of Hartford's reply in support of its motion for summary judgment, arguing that the reply contains facts not referenced in Hartford's statement of material facts. I have discretion whether to grant these motions. O'Regan v. Arbitration Forums, Inc., 246 F.3d 975, 987 (7th Cir. 2001). While I deny these motions, I will not consider any objected-to aspect of either side's briefing or statements of fact that rely on inadmissible evidence or that do not comport with the local rules.

I must resolve certain of the evidentiary disputes between the parties in order to resolve Hartford's motion for summary judgment. Hartford asks me to consider a whole host of evidence about the fire and the post-fire investigation from certain documents attached in support of its motion for summary judgment, including (1) a transcript of an interview a Hartford investigator purportedly conducted with Cryster on September 18, 2002, attached as Exhibit 4; (2) a transcript of an interview Aurora fire investigators conducted with Cryster on September 18, 2002 (Ex. 6); (3) a transcript of an "Evaluation Under Oath" conducted of Cryster on October 14, 2003 (Ex. 5); (4) a letter Hartford sent to counsel for Jonathan Pepper denying its claims (Ex. 8); (5) an "investigation report" from 2001 of a purported loss Cryster claimed from another insurer caused by a car fire (Ex. 9); (6) telephone records (Ex. 10); (7) a summary of an interview conducted by the United States Department of Justice Bureau of Alcohol, Tobacco and Firearms ("ATF") of L.G. "Red" Bernhart (Ex. 13); (8) a transcript of a purported interview with Cryster's ex-wife Carol Cryster on October 21, 2002 (Ex. 14); (9) a Trans Union credit report on Cryster (Ex. 16); (10) a transcript of Carol Cryster's deposition (Ex. 20); (11) a transcript of a purported Hartford interview with Cryster's son William Cryster on November 19, 2002 (Ex. 23); (12) internal Hartford records (Ex. 26); (13) a transcript of a purported Hartford interview with Finley on October 3, 2002 (Ex. 27); (14) a document entitled "Aurora Police Department Incident Report" (Ex. 29); (15) a document entitled "Aurora Fire Department Incident Questionnaire and Narrative" (Ex. 30); (16) documents from the Woodhaven Association (Ex. 33); (17) an expert report of William J. Bradshaw (Ex. 34); and (18) a printout report purporting to show previous insurance claims by Cryster (Ex. 35). Cryster has raised various evidentiary objections to each of these exhibits, primarily concerning Hartford's failure to authenticate and provide foundation for them. Hartford in turn has raised evidentiary objections to portions of certain exhibits Cryster included in opposition to Hartford's motion, including (1) Cryster's affidavit (Ex. D); (2) a copy of a recording of the September 18, 2002 Hartford interview of Cryster, a transcript of which Hartford includes as Exhibit 4 in support of its motion (Ex. G); (3) records from the Aurora Township assessor (Ex. H); and (4) an affidavit of adjuster Steven Padula (Ex. M).

Although given the opportunity to cure the evidentiary defects in its exhibits, Hartford has not completely done so, and many of its attempts to cure demonstrate misapplication or misunderstanding of the Federal Rules of Evidence. First, although Hartford makes the general assertion that any documents plaintiffs produced in discovery are automatically authenticated, this is not true. If plaintiffs were contesting the authenticity of documents that they created or maintained, it is true that their production of these documents to Hartford would automatically authenticate them. See, e.g., United States v. Brown, 688 F.2d 1112, 1116 (7th Cir. 1982). None of the cases Hartford has cited support the proposition that any document plaintiffs produced in discovery from whatever source are automatically authenticated simply because plaintiffs produced them. This position defies logic.

While the additional affidavits and evidence that Hartford presented resolved some evidentiary defects by laying foundation and authenticating transcripts of certain interviews by Hartford or investigators, Hartford has not resolved all the evidentiary objections raised by plaintiffs. For instance, Hartford provides a statement from Thomas Wickey ("Wickey") stating that Exhibits 9, 16 and 35 are true and correct copies of a document he received from Farmers Insurance Group, a credit report from Trans Union, and a claims report obtained from an unidentified source, but Wickey's affidavit does not demonstrate that Wickey has any personal knowledge of what these documents are in order to authenticate them, and it does not lay any foundation demonstrating why these documents are not inadmissible hearsay (the fact that they were "obtained" in the regular course of Hartford's business does not establish an exception to the hearsay rule). While plaintiffs admitted that Exhibit 13 was a true and accurate copy of a document plaintiffs received from the ATF, Hartford has not shown that the statement contained within the document is admissible or otherwise resolved plaintiffs' objection that this is an inadmissible unsworn statement. Hartford has presented no testimony authenticating Exhibit 14, a transcript of an interview of Carol Cryster by Kevin Wolsfelt; Wolsfelt's oblique reference in his deposition that he conducted an interview of Cryster does not establish the authenticity of this transcript, and Hartford has still presented no evidence or argument explaining how this transcript is not inadmissible hearsay (Hartford's contention that this qualifies as the admission of a party opponent is plainly incorrect as Carol Cryster is not a party or a representative of a party in this matter). Hartford has presented no additional argument or evidence authenticating Exhibits 29 or 33, a purported Aurora Department police report and documents from the Woodhaven Association, other than its specious argument that plaintiffs authenticated Exhibit 29 by producing it, and somehow Woodhaven Association authenticated Exhibit 33 by producing it in response to a subpoena. Hartford presented no argument concerning Exhibit 8, a purported letter from Hartford to counsel for Jonathan Pepper. Therefore, I cannot consider Exhibits 9, 13, 14, 16, 29, 33 and 35.*fn1

With these evidentiary contours in mind, taking the facts in the light most favorable to plaintiffs, the relevant facts are as follows: Hartford is an Indiana corporation with its principal place of business in Hartford, Connecticut. Jonathan Pepper is an Illinois corporation; at all times relevant to this lawsuit its president and majority shareholder was Sanford Finley ("Finley"). The other plaintiff in this case, Teakniques, is also an Illinois corporation whose articles of incorporation were filed with the Illinois Secretary of State in 2002; at all times relevant to this lawsuit its president and only shareholder was Crytser.

Cryster is a central figure in this lawsuit. Cryster became involved in purchasing furniture in Indonesia for resale in the United States. In August of 2002 he transferred to Teakniques ownership of his inventory of Indonesian furniture in exchange for Teakniques stock. The same day he transferred his inventory, Teakniques entered into a consignment agreement for Jonathan Pepper to sell Teakniques' furniture inventory. However, the bill of sale attached to the consignment agreement, which listed the furniture consigned to Jonathan Pepper as part of the consignment agreement, was dated a week later than the consignment agreement.

In July of 2001, Jonathan Pepper entered into a lease agreement for warehouse space at 641 Archer Avenue, #141, in Aurora, Illinois (the "Aurora warehouse"). Cryster signed the lease agreement as Jonathan Pepper's vice president. Cryster signed another lease as an officer of Jonathan Pepper to lease space in Amboy, Illinois.

Hartford issued insurance policy 83 SBA FM4025 (the "policy") to Jonathan Pepper. The policy had effective dates of August 9, 2002 through August 9, 2003. The terms of the policy provided that Hartford would pay for "direct physical loss of or damage to Covered Property at the premises." The declarations page of the policy originally provided a $21,100 limit of insurance on the replacement cost of business personal property, and provided no coverage for the replacement cost of the personal property of others. However, on August 9, 2002 Hartford issued a policy endorsement changing the limit of insurance for business personal property from $21,100 to $250,000. On August 27, 2002, Hartford issued another policy endorsement changing the business personal property coverage from $250,000 to $25,000, adding coverage for the replacement cost of the personal property of others of $225,000, and adding "TEAK NIQUES, INC." as a loss payee for the "personal property of others." On August 16, 2002 Hartford issued a policy endorsement revising the location of premises to read "641 ARCHER AVE #141 SHETLAND BUSI AURORA, IL. 60506." The location of the premises previously read "255 HIGHLAND AVENUE AURORA IL 60506" which plaintiffs contend was the address indicated on its lease agreement and another way of identifying the Shetland Business Park location of the Aurora warehouse.

Under the terms of the policy, Hartford will not pay for e. Dishonesty: Dishonest or criminal act by you, any of your partners, employees, directors, trustees, authorized representatives or anyone to whom you entrust the property for any purpose:

(1) Acting alone or in collusion with others; or

(2) Whether or not occurring during the hours ...


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