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Lexington Insurance Co. v. 3039 B Street Associates, Inc.

United States District Court, E.D. Pennsylvania

March 6, 2014

LEXINGTON INSURANCE COMPANY, Plaintiff,
v.
3039 B STREET ASSOCIATES, Inc., et al., Defendants.

OPINION

JOEL H. SLOMSKY, District Judge.

I. INTRODUCTION

This interpleader[1] action stems from the 2010 vandalism and theft at a warehouse located at 3039 B Street in Philadelphia, Pennsylvania ("the Property"). A company named 3039 B Street Associates, Inc. ("3039 B Street") owned the warehouse. Investors Trust LC ("Investors") held a mortgage on the Property. The mortgage agreement between 3039 B Street and Investors required 3039 B Street to obtain hazard insurance. Lexington Insurance Company ("Lexington") issued a hazard insurance policy to 3039 B Street.

On or about January 19, 2010, someone broke into the Property and removed copper wiring from the building. That same month, 3039 B Street submitted a claim to Lexington for the loss it sustained (the "2010 Loss Claim"). Around the same time, 3039 B Street entered into a contract with a public adjuster, Marc J. Grossman Associates ("MJGA"), which advised and assisted 3039 B Street in submitting the 2010 Loss Claim.

After MJGA completed its work on the claim, Lexington agreed to pay $206, 349.72 to cover the loss. Lexington has already issued two checks to Investors to cover the loss in the amounts of $56, 876.37 and $9, 631.37. After the 2010 loss, 3039 B Street defaulted on the mortgage. In October 2012, Investors, as mortgagee of the Property, foreclosed on the mortgage and became the record owner.

On December 5, 2012, Lexington filed this interpleader action. Lexington agrees it is obligated to pay an additional $130, 041.98 under the policy but filed this interpleader action because of a dispute between 3039 B Street and Investors over who is entitled to receive the additional proceeds. MJGA, the adjuster, was permitted to join in this action as an additional defendant and also seeks a portion of the insurance proceeds pursuant to its agreement with 3039 B Street to adjust the loss. All of the parties, except MJGA, have filed motions for summary judgment. Those motions are now before the Court for disposition.

II. FACTUAL BACKROUND

A. The 2008 Loss Claim

The Property located at 3039 B Street had been damaged prior to the vandalism and theft that took place in January 2010. On or about January 6, 2008, a sprinkler pipe ruptured, flooding and damaging the warehouse. (Doc. No. 7 at ¶ 33.) At the time, 3039 B Street owned the warehouse. It acquired ownership in 2005, when an individual named Frank Raffaele loaned $250, 000 to 3039 B Street to purchase the Property. (Doc. No. 7 at ¶ 8.) The loan was evidenced by a Promissory Note which was secured by a Mortgage. (Id. at ¶¶ 1, 3.) On January 18, 2006, Raffaele assigned the mortgage to Investors Mortgage LC. ( Id., Ex. C.) On May 1, 2010, Investors Mortgage LC assigned the mortgage to Investors Trust LC, the Defendant in this case. ( Id., Ex. E.)

The mortgage agreement between Investors and 3039 B Street required 3039 B Street to maintain hazard insurance on the Property. ( Id., Ex. B at ¶ 5.) Lexington issued the hazard insurance policy to 3039 B Street ("Policy One"). (Doc. No. 36, Ex. 1.) The Policy, No. 7478565, was effective from June 30, 2007 to June 30, 2008. (Doc. No. 36, Ex. 1, Policy No. 7478565 at 1.) Policy One contained a Mortgage Clause which provided that in the event of loss or damage to the Property, Lexington would pay the insurance proceeds to the mortgagee, which in this case is Investors. (Id. at 29.)

After the pipes burst in January 2008, 3039 B Street made a claim for payment (the "2008 Loss Claim") under Policy One. Lexington issued two checks as payment for the 2008 Loss Claim. The first check is dated July 3, 2009 and was made payable to: "3039 B Street Assoc. Investors Mortgage, LC" in the amount of $78, 511.84. (Doc. No. 7, Ex. F.) The second check is dated July 30, 2010 and was made payable to: "3039 B Street Associates, Inc., Harry P. Begier, Jr., [2] Investors Mortgage, LLC" in the amount of $62, 111.16.[3] ( Id., Ex. G.) The two checks totaled $140, 632 and were sent to 3039 B Street. According to Investors, 3039 B Street put the funds in its operating account and used the money for ordinary business expenses rather than repairs. (Doc. No. 7 at ¶ 39.) Moreover, 3039 B Street admits that the insurance proceeds for the 2008 Loss Claim were not paid to Investors to reduce the balance owed under the mortgage. (Doc. No. 44-2 at ¶ 10.)

One of 3039 B Street's partners, Gianni Pignetti, endorsed both checks on behalf of 3039 B Street. (Doc. No. 39, Ex. 7 at 35:7-14.) He did not present either check to Investors for its endorsement (Id. at 35:15-18), and Investors never received any portion of the insurance proceeds from the 2008 Loss Claim. Despite being listed as a payee on both checks, Investors did not learn about the flood damage or the 2008 Loss Claim until July 29, 2010. (Doc. No. 39-14, at ¶ 14.)

B. The 2010 Loss Claim

On or about January 19, 2010, vandals entered the Property, dismantled the electrical system and removed copper wiring from the building. (Doc. No. 44-2 at ¶¶ 17-18.) A different insurance policy covered this loss, Policy No. 4271548 ("Policy Two"). (Doc. No. 36, Ex. 2.) Lexington also issued this insurance policy to 3039 B Street, and it was effective from June 30, 2008 to June 30, 2011. (Doc. No. 36, Ex. 2 at 1.) Like Policy One, Policy Two contained a Mortgage Clause which provided that in the event of loss or damage to the Property, Lexington would pay the insurance proceeds to the mortgagee, which again in this case is Investors. (Id. at 29.) After the Property was vandalized in January 2010, 3039 B Street submitted a claim to Lexington for the loss it sustained (the "2010 Loss Claim").

Around the same time, as noted above, 3039 B Street entered into a contract with MJGA to adjust the claim. (Doc. No. 43 at ¶ 19.) MJGA is a public adjusting firm which was hired to advise and assist 3039 B Street on the 2010 Loss Claim. (Id.) The contract provided that MJGA was entitled to receive ten percent (10%) of any proceeds paid by Lexington to 3039 B Street in settlement of the 2010 Loss Claim. (Doc. No. 43, Ex. A.)

After MJGA completed its work on the claim, Lexington agreed to pay $206, 349.72 to cover the loss. (Doc. No. 1 at ¶ 11.) Thus far, Lexington has issued two checks as payment on the 2010 Loss Claim. On March 17, 2011, Lexington issued a check in the amount of $56, 876.37. (Doc. No. 39-14 at ¶ 18.) On August 3, 2011, Lexington issued a second check in the amount of $9, 631.37. (Id.) Both checks were endorsed over to Investors and were applied to reduce the balance of the mortgage. (Id.)

In March 2011, 3039 B Street defaulted on the mortgage. (Id. at ¶ 20.) On May 16, 2011, Investors initiated foreclosure proceedings. (Id. at ¶ 21.) Almost a year later, Investors obtained summary judgment in the foreclosure action against 3039 B Street in the amount of $173, 415.33. (Id. at ¶ 22.) A sheriff's sale of the Property took place on August 7, 2012. (Id. at ¶ 23.) Investors purchased the Property at the sheriff's sale and is now the record owner. (Id.) On May 15, 2013, the state court in the foreclosure action fixed the fair market value of the Property at $250, 000. (Doc. No. 39-1 at 7.) The court also found that Investors incurred damages of $287, 410.57[4] as a result of 3039 B Street's default. (Id.) The court therefore entered a deficiency judgment in the amount of $37, 410.57[5] in favor of Investors and against 3039 B Street. (Id. at 7-8.)

On December 5, 2012, Lexington filed the present interpleader action, naming only 3039 B Street and Investors as Defendants. (Doc. No. 1.) Lexington agrees it is obligated to pay $130, 041.98[6] under Policy Two, but filed the interpleader action because of a dispute between 3039 B Street and Investors over who is entitled to receive the proceeds. In its Answer, Investors brought a counterclaim against Lexington for breach of contract based on Lexington's failure to pay Investors the insurance proceeds issued as a result of the 2008 Loss Claim.[7] (Doc. No. 7.) In turn, Lexington filed a crossclaim against 3039 B Street for unjust enrichment for retaining the insurance payment for the 2008 loss. In the event that Lexington is liable to pay Investors for the insurance proceeds that were paid to 3039 B Street for the 2008 loss, Lexington is seeking, in the crossclaim, to recoup those funds. (Doc. No. 15.)

Investors also filed a crossclaim against 3039 B Street for breach of contract based on 3039 B Street's default in paying the mortgage, arguing that Investors is entitled to the interpleaded funds which resulted from the 2010 Loss Claim. (Doc. No. 7.) Moreover, on July 18, 2013, adjuster MJGA moved to join in the interpleader action as an additional defendant. (Doc. No. 24.) The Court granted the motion. (Doc. No. 40.) Thereafter, MJGA filed an Answer which contained crossclaims against both 3039 B Street and Investors. (Doc. No. 43.)[8]

On September 19, 2013, Lexington filed a motion for summary judgment on all claims. (Doc. No. 35.) Investors filed a cross-motion for summary judgment on its breach of contract claim against Lexington based on Lexington's alleged breach of the insurance policy by paying the $140, 632 of insurance proceeds to 3039 B Street rather than Investors after the 2008 loss. (Doc. No. 39.) Investors also filed a motion for summary judgment on its breach of contract claim against 3039 B Street for 3039 B Street's default of the Note and Mortgage. (Id.) Investors seeks at least $37, 410.57 of the interpleaded insurance proceeds from the 2010 Loss Claim which represents the deficiency judgment entered against 3039 B Street.

In turn, 3039 B Street filed a cross-motion for summary judgment against Investors which relates to the disbursement of the 2010 insurance proceeds that have been interpleaded with the Court. (Doc. No. 44.) 3039 B Street argues that Investors is only entitled to $37, 410.57 of the proceeds, the amount of the deficiency judgment. It contends that 3039 B Street should receive the remaining balance of $92, 631.41.[9]

The three motions for summary judgment are before the Court for disposition. For reasons that follow, Lexington's Motion for Summary Judgment (Doc. No. 35) will be denied as to Investors' counterclaim for breach of contract in connection with the 2008 loss. The Motion will be denied on Lexington's crossclaim against 3039 B Street for unjust enrichment for the proceeds 3039 B Street received for the 2008 loss. Investors' Motion for Summary Judgment (Doc. No. 39) will be granted as to its counterclaim against Lexington for Lexington's failure to pay Investors after the 2008 loss, and will be granted on its crossclaim against 3039 B Street for the full amount of the insurance proceeds that have been interpleaded with the Court as a result of the 2010 loss. Finally, 3039 B Street's Motion for Summary Judgment (Doc. No. 44) will be denied in its entirety.[10]

III. STANDARD OF REVIEW

Summary judgment is an extraordinary remedy. Summary judgment is only appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). In reaching this decision, the court must determine whether "the pleadings, depositions, answers to interrogatories, admissions, and affidavits show there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Favata v. Seidel, 511 F.Appx. 155, 158 (3d Cir. 2013) (quoting Azur v. Chase Bank, USA, Nat. Ass'n , 601 F.3d 212, 216 (3d Cir. 2010) (quotation omitted)). A disputed issue is "genuine" only if there is a sufficient evidentiary basis on which a reasonable jury could find for the non-moving party. Kaucher v. Cnty. of Bucks , 455 F.3d 418, 423 (3d Cir. 2006) (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248 (1986)). For a fact to be considered "material, " it "must have the potential to alter the outcome of the case." Favata, 511 App'x at 158. Once the proponent of summary judgment "points to evidence demonstrating no issue of material fact exists, the non-moving party has the duty to set forth specific facts showing that a genuine issue of material fact exists and that a reasonable factfinder could rule in its favor." Id . (quoting Azur , 601 F.3d at 216 (internal quotation marks omitted)).

In deciding a motion for summary judgment, "[t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor." Id . (quoting Chambers ex rel. Chambers v. Sch. Dist. Of Philadelphia Bd. Of Educ. , 587 F.3d 176, 181 (3d Cir. 2009) (quotation omitted)). The Court's task is not to resolve disputed issues of fact, but to determine whether there exist any factual issues to be tried. Anderson , 477 U.S. at 247-249. Whenever a factual issue arises which cannot be resolved without a credibility determination, the Court must credit the non-moving party's evidence over the evidence presented by the moving party. Anderson, Id. at 255. If there is no factual issue, and if only ...


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