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Hrobuchak v. Federal Insurance Co.

United States District Court, Third Circuit

May 24, 2013

JOAN HROBUCHAK and KAREN MAGHRAN, on their own behalf and on behalf of all others similarly situated, Plaintiffs,
v.
FEDERAL INSURANCE COMPANY, Defendant.

MEMORANDUM [2]

MALACHY E. MANNION [1] , District Judge.

Presently before the court are a motion to vacate the judgment of United States Bankruptcy Court for the District of Delaware (hereinafter "the Bankruptcy Court"), (Doc. No. 67), a motion to certify a plaintiff class, (Doc. No. 45) and motions for summary judgment filed by both the plaintiffs, (Doc. No. 68), and the defendant, (Doc. No. 71). Finding no grounds on which to vacate the judgment entered by the Bankruptcy Court, this court will deny the motion to vacate. Moreover, finding that the Bankruptcy Court's ruling includes the certification of a class pursuant to Federal Rule of Civil Procedure 23, the court finds the motion to certify the plaintiff class to be moot. The court will grant plaintiffs' motion to the extent that the court finds the judgment of the Bankruptcy Court to be valid. The court will not, however, enter the damage amount as requested. The court will grant the defendant's motion for summary judgment in part and deny it in part regarding the scope of the policy coverage as discussed below.

BACKGROUND

The plaintiffs represent a class of plaintiffs who were allegedly subject to unlawful debt collection practices by American Counseling Services, Inc. (hereinafter "ACCS") in the Commonwealth of Pennsylvania. The defendant, Federal Insurance Company, issued an errors and omissions insurance policy to ACCS for a period running from October 29, 2007 to October 29, 2008 (hereinafter "the Policy"). The Policy contained a $2, 500, 000.00 limitation on liability and $500, 000.00 class claim deductible. (Doc. No. 70, Att. 1)

On June 20, 2008, Victor Cataquet filed a purported class action in the United States District Court for the Middle District of Pennsylvania against ACCS regarding the unlawful practices (hereinafter "the Cataquet Action"). The complaint alleged violations of the Fair Debt Collections Practices Act ("FDCPA"), the Pennsylvania Fair Credit Extension Uniformity Act ("PFCEU"), the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("PUTPCPL"), and the Due Process Clause of the Fourteenth Amendment to the United States Constitution.

On January 19, 2009, ACCS filed for protection under Chapter Eleven of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. In light of the bankruptcy proceedings, the Cataquet Action was stayed without a class having been certified in the action. On January 15, 2009, the Bankruptcy Court entered a Judgment Allowing Proof of Claim, (hereinafter "the Judgment"), (Doc. No. 70, Att. 7 at 18). The Judgment states that it is "in the amount of $2, 550, 000.00 and is entered in favor of the PA Class Action Claimants against Debtor American Corrective Counseling Services, Inc." (Id.). The "PA Class Action Claimants" are defined as:

the holders of PA Class Action claims and consist of all individuals who have been informed by Debtor American Corrective Counseling Services, Inc. that they have or allegedly have violated the provisions of the Pennsylvania Crimes Code pertaining to the issuance of bad checks, 18 Pa. C.S. §4105, and have been subject to debt collection as a result.

(Id.). In addition, the Judgment provided that: "the PA Class Representatives may immediately proceed to enforce the Judgment against the Debtors' insurance policy pursuant to, and as limited by, the First Amended Plan of Liquidation..." (Id.).

On November 2, 2009, the Bankruptcy Court entered an order confirming the First Amended Plan of Liquidation (hereinafter "the Order"), (Doc. No. 70, Att. 7), which gave effect to the Judgment and incorporated the provisions of the First Amended Plan of Liquidation (hereinafter "the Liquidation Plan"), (Doc. No. 70, Att. 6). With respect to the class certification and the Judgment, the Order further states that:

In accordance with paragraph 19, the Judgment Allowing Proof of Claim to be entered in conjunction with this Order and, in consideration of the prerequisites for certification of Bankruptcy Rule 7023 and F.R.C.P. 23, as addressed in the Declaration of PA Class Counsel, a class consisting of PA Class Claimants is hereby certified for purposes of the Judgment and its execution in accordance with the terms of the Plan. The class includes all individuals who have been notified by Debtor American Corrective Counseling Services, Inc. that they have or allegedly have violated the provisions of the Pennsylvania Crimes Code pertaining to the issuance of bad checks, 18 Pa.C.S. §4105.

(Doc. No, 70, Att. 7 at 16). On February 16, 2010, the plaintiffs filed the instant action to enforce the Judgment against the defendant in the Court of Common Pleas of Lackawanna County. (Doc. No. 2). The plaintiffs seek the declaratory judgment that the Judgment indeed falls within the scope the Policy, that court enter damages in the amount of $2, 000, 000.00, and award the plaintiffs reasonable attorneys fees and costs. On March 3, 2010, the case was removed to this court. (Doc. No. 1).

On April 15, 2010, the defendant filed a motion to dismiss, (Doc. No. 8). The plaintiffs subsequently filed an amended complaint, (Doc. No. 20). The defendant then filed a second motion to dismiss, (Doc. No. 23). On October 21, 2010, Judge Caputo issued a memorandum and order denying the motion to dismiss. Judge Caputo found that the plaintiffs had standing to bring the action under Pennsylvania's direct action statute, 40 Pa. C.S. §117, and that the defendant's arguments that four policy provisions excluded coverage were unavailing. Specifically, Judge Caputo found: first, that Victor Cataquet's original claims were timely under the "claims made and reported" nature of the Policy; second, the underlying claims in this matter are not sufficiently related to prior litigation in other jurisdictions so as to exclude coverage under the "related claims" provision; third, the claims were similarly not barred by the "prior pending" litigation exclusion and; fourth, Endorsement No. 8 of the Policy, which excludes coverage for claims related to seven specific FDCPA cases did not bar recovery on the instant claims.

On November 11, 2010, the defendant filed a motion for reconsideration of the court's order, (Doc. No. 34), and brief in support, (Doc. No. 35), arguing that the court had interpreted 40 Pa. C.S. §117 too broadly and that such an interpretation was a clear error of law. On December 13, 2010, the court issued and memorandum and order denying the motion to reconsider, (Doc. No. 38), on the grounds that the defendant had failed to raise any new arguments related to the scope of the statue not previously raised in its unsuccessful motion to dismiss.

Presently before the court are four motions filed since the resolution of the defendant's motion to dismiss. On March 4, 2011, the plaintiffs filed a motion to certify the class, (Doc. No. 45), and brief in support, (Doc. No. 46). On May 5, 2011, the defendant filed a brief in opposition, (Doc. No. 51). On June 1, 2011, the plaintiff filed a brief in reply, (Doc. No. 52). On June 22, 2011, with leave of the court, the defendant filed a sur reply, (Doc. No. 56).

On May 9, 2012, the defendant filed a motion to vacate, or in the alternative, obtain relief from, the confirmation order and judgment allowing proof of claim pursuant to Fed.R.Civ.P. 60(b)(4), (Doc. No. 67). On June 4, 2012, the plaintiffs filed a brief in opposition, (Doc. No. 76). On June 21, 2012, the defendant filed a brief in reply, (Doc. No. 84).

Also on May 9, 2012, both the plaintiffs and the defendant filed motions for summary judgment. The plaintiffs filed their motion, (Doc. No. 68), brief in support, (Doc. No. 69), and a concise statement of material facts, (Doc. No. 70). The defendant filed a brief in opposition on June 11, 2012, (Doc. No. 81), as well as an answer to the statement of facts, (Doc. No. 82), and a declaration including several exhibits, (Doc. No. 83). On June 28, the plaintiffs filed a reply brief, (Doc. No. 88), and a declaration, (Doc. No. 90).

The defendant's motion for summary judgment, (Doc. No. 71), was supported by a brief, (Doc. No. 72), and a statement of material facts, (Doc. No. 73). On June 11, 2012, the plaintiffs filed a brief in opposition, (Doc. No. 79), and answer to the statement of facts, (Doc. No. 80). On June 28, 2012, the defendant filed a brief in reply, (Doc. No. 89). The court denied the plaintiffs' motion to file a sur reply, (Doc. No. 92).

These motions remained open at the time the case was reassigned to the undersigned in January of 2013.

DISCUSSION

This court has been presented with a final judgment from the United States Bankruptcy Court for the District of Delaware. (Doc. No. 70, Att. 6-7) See generally, United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 130 S.Ct. 1367, 1376, 176 L.Ed.2d 158 (2010)(citing In re Optical Technologies, Inc., 425 F.3d 1294, 1300 (C.A.11 2005)). This court does not sit as a court of appeals for the United States Bankruptcy Court for the District of Delaware. See 28 U.S.C.A. §158. Moreover, the Bankruptcy Court specifically retained jurisdiction over many of the issues the defendant now attempts to couch as questions of policy coverage. Section 22 of the Order incorporates Article 9 of the Liquidation Plan, which provides for the retention of jurisdiction by the Bankruptcy Court and reads, in pertinent part:

From and after the Confirmation Date, the Bankruptcy Court shall retain jurisdiction as is legally permissible, including, but not limited to, for the following purposes:
...1. To hear and determine any and all objections to the allowance of a Claim....
...6. To hear and determine any an all motions and/or objections to fix and allow any Claims arising therefrom;
...9. To interpret and determine any and all disputes arising under or regarding interpretation of the Plan or any agreement, document, or instrument contemplated by the Plan, and enforce any such determinate;
...11. To modify any provision of the Plan to the extent permitted by the Bankruptcy Code and to correct any defect, cure any omission, or reconcile any inconsistency in the Plan or in the Confirmation Order as may be necessary to carry out the purposes and intent of the Plan.

(Doc. No. 70, Att. 6 at 48). This court is bound by the principles of comity in examining the judgment before it. Beyond the defendant's challenge to the jurisdiction of the Bankruptcy Court, which would render the Judgment a nullity, the court will not entertain collateral attacks on the Judgment itself. Rather, the court will rule only on the scope of the Policy's coverage. The court will not, however, affect the judgment of the Bankruptcy Court who retains jurisdiction over issues related to the certification of the class, the rendering of the award and the calculation of damages.

I. Motion to Certify the Class Action

The court finds the motion to certify the plaintiff class to be moot because the Bankruptcy Court already certified the plaintiff class as part of the Order. (Doc. No. 70, Att. 7). The Bankruptcy Court's Order reads:

Entry of Judgment and Class Certification: In accordance with paragraph 19 [Approval of Compromise and Settlement], the Judgment Allowing Proof of Claim to be entered in conjunction with this Order and, in consideration of the prerequisites for certification of Bankruptcy Rule 7023 and F.R.C.P. 23, as addressed in the Declaration of PA Class Counsel, a class consisting of PA Class Claimants is hereby certified for purposes of the Judgment and its execution in accordance with terms of the Plan. The class includes all individuals who have been notified by Debtor American Corrective Counseling Services, ...

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