The opinion of the court was delivered by: MICHAEL BAYLSON, District Judge
Following this Court's Memorandum and judgment of March 17, 2004, the
Plaintiffs have moved under Fed.R.Civ.P. 59, to alter or amend the
Court's judgment, or alternatively under Fed.R.Civ.P. 62, for a stay
of the judgment. Although these motions were originally filed as to all
Defendants, the motions have been withdrawn as to Defendant Venetis. The
Court held a telephone conference with counsel on April 2, 2004, which
was not recorded. For the reasons set forth below, the motions will be
Plaintiffs assert that this Court erred in concluding that it could not
make a legal determination that the carriers had effectively unilaterally
rescinded the policy, at least as to the Defendants on this motion.
Alternatively, Plaintiffs ask this Court to stay the judgment so the
Plaintiffs can return to Bankruptcy Judge Gerber to seek clarification
from him that his Order did not intend to prevent this Court from making
a finding of unilateral rescission as to the Defendants in this case.
The parties appear to agree that the issue of unilateral rescission and
the ability of this Court to make a finding on this issue was first
considered in any detail at the oral argument on February 13, 2004. At
that oral argument, Plaintiffs' counsel asserted that in verbal remarks
at a hearing Judge Gerber indicated that he believed that this Court had
the power and authority, notwithstanding the stay as to the proceedings,
to consider whether the Plaintiffs had effectively unilaterally rescinded
the insurance policy, at least as to the Defendants in this case. (Tr.
pp. 16-17). In seeking this Court's stay so that Plaintiffs can return
to Judge Gerber for clarification, Plaintiffs have not shown why there
was anything to prevent them from returning to Judge Gerber for this
clarification immediately after this issue was first raised at the oral
argument. Not having done so, Plaintiffs now seek to deprive the
Defendants of the benefit of this Court's ruling so that they can now
return to Judge Gerber for clarification. Considering all of the
equitable considerations that go into the granting of a stay under Fed.
R. Civ. P. 62,*fn1 the Court declines to enter a stay for this purpose.
This Court continues to conclude that Judge Gerber's stay order precludes
this Court from considering the issue of rescission, and Plaintiffs'
motion must be denied for this reason.
As to the issue of partial rescission, Plaintiffs correctly assert that
they only intended to unilaterally rescind the insurance policy as to the
Defendants in this case. The Plaintiffs' letter of September 23, 2002
sent to J. Bradford McIlvain, attorney for the four Rigas Defendants
stated "by copy of this letter to counsel for Adelphia and ABIZ AEGIS
hereby tenders that portion of the policy's premium allocable to coverage for your Clients. Please
advise to whom that premium refund should be paid."
Although plaintiffs assert that the Court was in error by ruling that
Pennsylvania law requires an actual return of the premium, and that
Pennsylvania law supports unilateral rescission by a mere tender, the
Court specifically said it "makes no finding as to the validity of
rescission." Associated Electric & Gas Services Ltd, et al. v.
Rigas, 2004 U.S. Dist. LEXIS 4498, at *14 (E.D. Pa. March 17, 2004).
The Court then noted that the premium had not been returned.
Id. Plaintiffs are correct that the black letter statement of
Pennsylvania law allows a party seeking rescission "to return or tender"
the consideration received. Keenheel v. Commonwealth,
579 A.2d 1358 (Pa. Commw. 1990) (holding that "[o]ne who wishes to rescind a
contract must restore or tender a return of the property or security
which was the subject matter of the contract"). However, the cases cited
by the Plaintiffs are not directly applicable to this case.
Most obviously, Plaintiffs present no case dealing with unilateral
rescission in the insurance context. The Pennsylvania cases cited by
Plaintiffs all address traditional contracts. See,
e.g., Fowler v. Meadow Brook Water Co. (addressing
validity of contract to construct a tunnel). This is of particular
importance because insurance law holds insurers to a high standard. Lee
Russ & Thomas Segalia, Couch on Insurance § 32:63 (3d
ed. 2003) (stating that relinquishment of consideration is essential to
rescission by insurer); Couch on Insurance § 32:79 (stating
that return of consideration must be a good faith attempt, and is excused
only if the insured blocks the return). In addition, although the
Pennsylvania cases use the words "restore or tender," a thorough reading
reveals that these cases stand for the principle that unilateral
rescission requires placing the other party in a position that restores
the status quo, to the best of the rescinding party's ability. See Schwartz v.
McCloskey, 156 Pa. 258 (1893) (finding that rescinding party in a
real estate transaction should have tendered the consideration because
that party cannot rescind the contract and still hold both the property
and the price paid for it.) Finally, "tender" is a specific term in
contract law, which "requires that the subject matter be produced" and
the strict definition of tender does not include an offer of performance.
E. Allan Farnsworth, Farnsworth on Contracts, § 8.10 (2d
In view of the Court's conclusion about the effect of Judge Gerber's
stay, the Court did not in its Memorandum of March 17, 2004, and does not
now, decide whether the quoted language in the above-cited letter is a
"tender".*fn2 For these reasons, Plaintiffs' motions will be denied.
An appropriate order follows.
AND NOW, this 7th day of April, 2004, it is hereby ORDERED as follows:
1. Plaintiffs Federal Insurance Company and Greenwich Insurance
Company's Motion to Alter or Amend Judgment (Docket No. 38) is DENIED.
2. Plaintiff Associated Electric & Gas Insurance Services, Ltd's
Motion to Stay and Alter or Amend Judgment ...