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McPeek v. Travelers Casualty and Surety Co. of America

May 10, 2006

ANNETTE MCPEEK AND JONATHAN K. HERGERT, PLAINTIFFS,
v.
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: McVerry, J.

MEMORANDUM OPINION AND ORDER OF COURT

Before the Court for consideration and disposition are PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION TO ENFORCE THEIR RIGHT TO ADVANCEMENT OF THEIR DEFENSE EXPENSES, with brief in support ("Motion" and "Brief") (Document Nos. 3 & 4), DEFENDANT TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA'S OPPOSITION TO PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION (Document No. 20), and PLAINTIFFS' REPLY BRIEF IN SUPPORT OF THEIR MOTION FOR A PRELIMINARY INJUNCTION (Document No. 21). The issues have been fully briefed, and the matter is ripe for disposition. For the reasons which follow, the Motion will be denied without prejudice.

Background

On January 27, 2006, Plaintiffs Annette McPeek and Jonathan K. Hergert ("McPeek" and "Hergert," and collectively "Plaintiffs") filed a three-count Complaint against Defendant Travelers Casualty and Surety Company of America ("Defendant"). Count I seeks a declaration of their right to the advancement of their defense expenses in a related action presently pending before the undersigned. Counts II and III allege that Defendant's refusal to advance their defense expenses constitutes statutory bad faith under 42 Pa.C.S.A. § 8371 and the common law, respectively.

Plaintiffs are two of the six defendants in Gilliland et. al. v. Geramita et. al., Civil Action No. 05-1059 ("the Gilliland action"). In the Gilliland action plaintiffs David L. Gilliland and Southeastern Imaging Group, LLC ("the Gilliland plaintiffs") allege, inter alia, that defendants Anthony J. Geramita ("Geramita"), Hergert, McPeek, Main Medical Holding, LLC, Mid-Atlantic Imaging Network, Inc., and Main Medical Ventures, LLC (the "Main Medical Defendants") made a variety of fraudulent and/or negligent misrepresentations and/or omissions in connection with the purchase of two notes. As for the first note, the Gilliland Complaint alleges that "Defendant Geramita executed a Promissory Note and Security Agreement (the 'Geramita Note') in favor of Plaintiff Gilliland in an original principal amount of $550,000." Gilliland Complaint at p. 3. As for the second note, the Gilliland Complaint alleges that "the Main Medical Defendants jointly executed a promissory note in favor of Southeastern (the 'Main Medical Note') in an initial principal amount of $810,000," which "was executed on behalf of each of the Main Medical Defendants and was issued in return for a loan from Southeastern of $810,000 ..." Id. at 6. It is alleged that Geramita has repudiated his obligations under the Geramita Note, and that the Main Medical Defendants have defaulted on the Main Medical Note. Gilliland Complaint at ¶¶ 32, 35.

The Complaint in this case alleges that until on or about August 12, 2005, McPeek was the Treasurer and Chief Accounting Officer of the Main Medical Defendants. Complaint at ¶¶ 1-2. The Complaint also alleges that until on or about August 12, 2005, Hergert was a member of the Board of Directors of Mid-Atlantic Imaging Network, Inc., and was a member of the Board of Managers of Main Medical Holding, LLC and Main Medical Ventures, LLC. Complaint at ¶ 3.*fn1

On March 3, 2006, Plaintiffs filed the instant Motion and Brief. Plaintiffs contend that Defendant is obligated to advance them their defense expenses in the Gilliland action pursuant to Health Care Directors and Officers Policy No. 003LB10349789B ("the Policy"). Motion at 1.

Defendant contends, generally speaking, that it is not obligated to advance defense costs under the policy, and that the requirements for a preliminary injunction have not otherwise been met.

Standard of Review

A party which seeks a preliminary injunction must demonstrate the following four factors: "(1) a likelihood of success on the merits; (2) that it will suffer irreparable harm if the injunction is denied; (3) that granting preliminary relief will not result in even greater harm to the nonmoving party; and (4) that the public interest favors such relief." KOS Pharmaceuticals, Inc. v. Andrx Corp., 369 F.3d 700 (3d Cir. 2004). Preliminary injunctive relief is "an extraordinary remedy" and "should be granted only in limited circumstances." American Tel. & Tel. Co. v. Winback & Conserve Program, Inc., 42 F.3d 1421, 1427 (3d Cir. 1994), cert. denied, 514 U.S. 1103 (1995). "The injunction should issue only if the plaintiff produces evidence sufficient to convince the district court that all four factors favor preliminary relief." Id.

Discussion

A. The Likelihood of Success on the Merits

Plaintiffs' likelihood of success on the merits turns on whether the claims asserted against them are covered by an exclusion in the Policy for claims which "arise out of" liability under a contract.*fn2 The eight claims asserted in the Gilliland action are summarized as follows:

Count 1: Securities Fraud (in violation of 70 P.S. ยง 1-401, 1-501 and 1-503) in Connection With the Offer and Sale of the Geramita Note (Plaintiff Gilliland v. ...


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