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Strategic Capital Bancorp Inc. v. St. Paul Mercury Insurance Co.

July 1, 2010

STRATEGIC CAPITAL BANCORP INC. AND GARY L. SVEC, PLAINTIFFS,
v.
ST. PAUL MERCURY INSURANCE COMPANY, DWIGHT MILLER, WELLS ANDERSON, GENE KING, TERESA KING, AND GLENDA L. LANE AS TRUSTEE OF THE GLENDA L. LANE TRUST, DEFENDANTS.



The opinion of the court was delivered by: Michael P. McCUSKEY Chief U.S. District Judge

OPINION

This case is before the court for a ruling on Plaintiff, Strategic Capital Bancorp Inc.'s (SCBI), Motion for a Preliminary Injunction (#11). This court has carefully considered both the arguments and documentation submitted by both parties. Following this careful and thorough review, SCBI's Motion for a Preliminary Injunction is DENIED.

FACTS

Strategic Capital Bancorp Inc. (SCBI) filed the present suit to require Defendant, St. Paul Mercury Insurance Company (St. Paul), to cover their attorneys' fees in an action filed against them in the Circuit Court of the Sixth Judicial Circuit, Champaign County, Illinois. SCBI claims that St. Paul is required to pay any fees associated with the case pursuant to a duty to defend clause in the insurance policy (Policy) issued to SCBI by St. Paul. After the case was removed to the Central District of Illinois, SCBI filed a motion for a preliminary injunction that the court now addresses.

St. Paul issued an insurance policy to SCBI on July 8, 2008 with an expiration date of July 8, 2011. The Policy, SelectOne for Community Banks policy number EC01201615, includes a section entitled "Duty of the Insurer to Defend" which insures the policyholder against losses incurred in defending against any claim covered under the policy. The Policy also states "[t]he Insurer shall not be liable for Loss on account of any Claim made against any Insured brought or maintained by or on behalf of any Insured..." This exclusion is known as the Insured v. Insured exclusion.

SCBI's motion for a preliminary injunction comes after St. Paul failed to cover any of its defense costs associated with an action brought against SCBI in the Circuit Court of the Sixth Judicial Circuit, Champaign County, Illinois (see Miller below). According to SCBI, St. Paul refused coverage based on the Insured v. Insured exclusion in the policy.

On October 5, 2009, Dwight Miller, Wells Anderson, Gene King, Teresa King, and Glenda L. Lane as Trustee of the Glenda L. Lane Trust filed an action in the Circuit Court of the Sixth Judicial Circuit, Champaign County, Illinois against SCBI, John E. Gorman, and Gary L. Svec. The case, styled Miller, et al. v. Strategic Capital Bancorp, Inc., et al., (Miller) case number, 2009 CH-200, arose out of plaintiffs' purchase of shares in SCBI through a private offering and asserted claims of fraud, violation of the Illinois Consumer Fraud and Deceptive Business Practice Act, and civil conspiracy based on alleged misstatements or omissions regarding these securities. Three of the five plaintiffs in the Miller action, Miller, Lane, and Anderson, are former directors of SCBI; their claims account for 81% of the total damages claimed.

The present action was filed on February 2, 2010 in the Circuit Court of the Sixth Judicial Circuit, Champaign County, Illinois. SCBI and Gary Svec filed a Complaint for Declaratory Judgment and Damages against St. Paul and the Miller plaintiffs seeking a judgment requiring St. Paul to pay their attorneys' fees for the Miller action. Pursuant to 28 U.S.C. §1441(a) and 28 U.S.C. §1332 the case was removed to the United States District Court for the Central District of Illinois on Wednesday March 17, 2010.

After removal of the case against St. Paul, the Circuit Court ruled on SCBI, Gorman, and Svec's motions to dismiss the underlying Miller case. On April 23, 2010, the Circuit Court dismissed the claims against Svec and Gorman with prejudice and dismissed the claims against SCBI without prejudice.

On May 18, 2010, SCBI filed the present Motion for a Preliminary Injunction (#11) with this court to require St. Paul, pursuant to their insurance policy, to cover all the loss SCBI incurred and continues to incur in defending the Miller case. SCBI asks the court to advance all costs, even those which the court may ultimately determine are not covered under the Policy.

The Miller plaintiffs filed an Amended Complaint against SCBI in the Circuit Court on June 14, 2010. The amended complaint asserts claims for fraud, negligence, and alleged violation of the Illinois Consumer Fraud and Deceptive Business Practices Act based on alleged misstatements or omissions in connection with plaintiffs' purchase of shares in SCBI through a private offering. The case is currently pending before the Circuit Court.

ANALYSIS

I. PRELIMINARY INJUNCTION STANDARD

A preliminary injunction is "an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion." Goodman v. Illinois Dept. of Financial and Professional Regulation, 430 F.3d 432, 437 (7th Cir. 2005) (emphasis in original), quoting Mazurek v. Armstrong, 520 U.S. 968, 972 (1997). A party seeking to obtain a preliminary injunction must demonstrate: (1) its case has some likelihood of success on the merits; (2) that no adequate remedy at law exists; and (3) it will suffer irreparable harm if the injunction is not granted. Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 895 (7th Cir. 2001). If the movant satisfies these three threshold conditions, then the court must consider the irreparable harm that the nonmoving party will suffer if preliminary relief is granted, balancing such harm against the irreparable harm the moving party will suffer if relief is denied. Ty, 237 F.3d at 895. The court must also consider the public interest in denying or granting the injunction. Ty, 237 F.3d at 895. If the movant was able to meet its threshold burden, then the inquiry becomes a "sliding scale" analysis and all of the factors are weighed against one another. Joelner v. Village of Washington Park, Illinois, 378 F.3d 613, 619 (7th Cir. 2004).

II. LIKELIHOOD OF SUCCESS

"A party with no chance of success on the merits cannot attain a preliminary injunction." AM General Corp. v. DaimlerChrysler Corp., 311 F.3d 796, 804 (7th Cir. 2002). At the initial stage all that is necessary is for the moving party to show that it has "any likelihood of success." AM General, 311 F.3d at 804. With this preliminary injunction SCBI seeks a court order requiring St. Paul to advance all reasonable and necessary defense costs and expenses that have been incurred in the Miller action including any costs which the court may later find are not covered under the policy. For the following reasons, the court finds that SCBI has not carried the burden of ...


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