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London v. PA Child Care

April 14, 2010

ALEA LONDON, AND ATRIUM UNDERWRITERS LIMITED, PLAINTIFFS,
v.
PA CHILD CARE, LLC, ROBERT POWELL, AND GREGORY ZAPPALA, DEFENDANTS,



The opinion of the court was delivered by: Judge Caputo

MEMORANDUM

Presently before the Court is a Motion for Judgment Pursuant to Rule 12(b)(6) and Motion to Strike (Doc. 13) by Defendants PA Child Care, LLC ("PACC") and Gregory Zappala ("Zappala").*fn1 For the reasons discussed below, the motion will be granted in part and denied in part. This Court has jurisdiction pursuant to 28 U.S.C. § 1332 (diversity jurisdiction).

BACKGROUND

I. Factual Background

In the instant case, Plaintiffs Alea London ("Alea") and Atrium Underwriters Limited ("Atrium") have filed a Complaint seeking a declaration that they do not owe the Defendants a duty to defend the underlying civil litigation or a duty to indemnify them for any liability. The allegations in Plaintiffs' Amended Complaint are as follows:

Plaintiffs Alea and Atrium are insurance entities who entered into contracts with the Defendants. (Amend. Compl. ¶¶ 1-2, 45-46.) Defendant PACC is a Pennsylvania limited liability company charged with housing and rehabilitating juveniles adjudicated delinquent by the Luzerne County Court of Common Pleas. (Amend. Compl. ¶ 3.) Defendants Zappala and Robert Powell ("Powell") are the co-owners and operators of PACC. (Amend. Compl. ¶¶ 4-5.)

A. The Underlying Case

The instant suit arises from the following cases filed in the Middle District of Pennsylvania: Wallace v. Powell, No. 3:09-cv-286 (hereinafter "Wallace"), Conway v. Conahan, No. 3:09-cv-291, H.T. v. Ciavarella, No. 3:09-cv-357, and Humanik v. Ciavarella, No. 3:09-cv-630. (Amend. Compl. ¶ 28.) These suits have all been consolidated under civil action number 3:09-cv-0286 by this Court's Case Management Order of May 14, 2009. (Wallace, Doc. 82.) This opinion will discuss only the facts necessary for an understanding of the current declaratory judgment action.*fn2

There are two complaints in the underlying litigation, the Master Individual Complaint ("MIC") (Wallace, Doc. 134) and the Master Class Action Complaint ("MCAC") (Wallace, Doc. 136). The MIC alleges that Powell and Zappala, doing business as PACC, were part of a conspiracy in which two Luzerne County judges received kickbacks for maintaining a high rate of occupancy in PACC's juvenile detention facility. (MIC ¶¶ 31, 40, 81.) As part of this conspiracy, the judges would often violate the civil rights the juveniles appearing before them by denying them right to counsel, ensuring disproportionately large sentences, and causing other rights violations. (MCAC ¶¶ 177-78.) The MIC charges the Defendants with Violation of the RICO Act (Count I), Conspiracy to Violate the RICO Act (Count II), Deprivation of Substantive and Procedural Due Process pursuant to 42 U.S.C. § 1983 (Count III), Deprivation of Rights Pursuant to 42 U.S.C. § 1983 (Count IV), Deprivation of Substantive Due Process pursuant to 42 U.S.C. § 1983 (Count V), Civil Conspiracy (Count VIII), and False Imprisonment (Count IX). The claims against the Defendants in the MCAC are Conspiracy to Violate Plaintiffs' Right to an Impartial Tribunal Guaranteed by the Fifth, Sixth and Fourteenth Amendments, pursuant to 42 U.S.C. § 1983) (Count II), Conspiracy to Deprive Youth of Their Right to Counsel an/or Knowing, Intelligent, and Voluntary Guilty Plea in violation of the Fifth, Sixth and Fourteenth Amendments, pursuant to 42 U.S.C. § 1983 (Count IV), Civil RICO Act violations pursuant to 18 U.S.C. § 1962(c) (Count V), Civil RICO Act violations pursuant to 18 U.S.C. § 1962(b) (Count VI), Civil RICO Act violations pursuant to 18 U.S.C. § 1962(d) (Count VII), and Wrongful Imprisonment (Count IX).

B. The Alea and Atrium Policies

The Defendants were insured by a series of policies, each one year in length, issued by Alea from January 31, 2003 until January 31, 2006. (Amend. Compl. ¶ 49.) The Defendants were then insured under a series of one-year policies by Atrium from January 31, 2006 until January 31, 2010. (Amend. Compl. ¶ 50.) Each of these policies are attached as exhibits to Plaintiffs' Amended Complaint. (Alea Policy 0137/LEA624 (Ex. L); Alea Policy 1165/LEA624 (Ex. M); Alea Policy 1866/LEA624 (Ex. N); Atrium Policy 3525/ATR049 (Ex. O); Atrium Policy 6580/ATR049 (Ex. P); Atrium Policy 9900/ATR049 (Ex. Q); Atrium Policy 12145/ATR049 (Ex. R).)*fn3 Each policy contained two types of coverage: first, Coverage A protecting against bodily injury and property damage liability, and second, Coverage B protecting against personal and advertising injury liability. (Amend. Compl. ¶¶ 53-54.)

After the Defendants were named in each of the four underlying actions, they requested that Alea and Atrium provide legal defense and indemnification. (Amend. Compl. ¶ 45.) Alea and Atrium determined that the alleged conduct was not covered, either because it was beyond the scope of the policies or because the alleged conduct fell within the policies' exceptions. (Amend. Compl. ¶ 47.) Alea and Atrium formally denied coverage to the Defendants. (Amend. Compl. ¶ 48.)

II. Procedural Background

Plaintiffs filed their complaint in the United States District Court for the Middle District of Pennsylvania on November 17, 2009 seeking a declaratory judgment as to their duty to defend and indemnify the Defendants in the underlying action. (Doc. 1.) That same day, and before any response by the Defendants, Plaintiffs filed an Amended Complaint. (Doc. 2.) On February 7, 2010, Defendants PACC and Zappala filed the ...


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