United States District Court, D. Massachusetts
For Mount Vernon Fire Insurance Company, Plaintiff, Counter Defendant: James J. Duane, III, Jennifer Ellis Burke, Scarlett M. Rajbanshi, LEAD ATTORNEYS, Peabody & Arnold LLP, Boston, MA.
For Visionaid, Inc., formerly known as H.L. Boulton Co. Inc, Defendant: Heather B. Repicky, Kenneth R. Berman, LEAD ATTORNEYS, Nutter, McClennen & Fish, LLP, Boston, MA.
For Visionaid, Inc., Counter Claimant: Heather B. Repicky, Kenneth R. Berman, LEAD ATTORNEYS, Nutter, McClennen & Fish, LLP, Boston, MA.
MEMORANDUM & ORDER
Nathaniel M. Gorton, United States District Judge.
Plaintiff Mount Vernon Fire Insurance Company (" Mount Vernon" ) seeks a declaratory judgment as to its obligation, if any, to prosecute a counterclaim defendant VisionAid, Inc. (" VisionAid" ) has asserted against a former employee who sued VisionAid for wrongful termination. VisionAid responded with its own claim for declaratory judgment to establish the scope of Mount Vernon's duty to defend and VisionAid's right to appoint independent counsel.
Pending before the Court are the parties' cross-motions for summary judgment and VisionAid's motion for attorney's fees. For the reasons that follow, the Court will allow Mount Vernon's motion for summary judgment and deny VisionAid's cross-motion.
A. Underlying Insurance Policy
VisionAid is a manufacturer of eyewash and lens cleaning products. Mount Vernon provides VisionAid with employment practices liability insurance. Specifically, Mount Vernon issued a liability policy (" the Policy" ) to H.L. Bouton, Inc., the operating name of VisionAid until shortly after the issuance of the policy that was in effect from May, 2011 through May, 2012.
The Policy provides, in relevant part, that Mount Vernon
will pay on behalf of [VisionAid], Loss ... for which this coverage applies that [VisionAid] shall become legally obligated to pay because of Claims first made against [VisionAid].
It proceeds to describe Mount Vernon's affirmative obligation to defend VisionAid if any employment practices claim is asserted against it and defines the " Defense Costs" which Mount Vernon must pay as
reasonable and necessary legal fees and expenses incurred by [Mount Vernon] or by any attorney designated by [Mount Vernon] ... to defend [Visionaid], [that] result[s] from the ... defense ... of a Claim.
Finally, the Policy notes that a " Claim" encompasses a proceeding " initiated against" VisionAid in which a party seeks to hold it liable for a purported wrongful act.
Notably, the Policy includes no obligation of Mount Vernon to assert, or pay for, affirmative claims on behalf of VisionAid.
B. Suit against VisionAid in State Court
In October, 2011, VisionAid terminated the employment of its Vice President of Operations, Gary Sullivan (" Sullivan" ). In December, 2011, Sullivan brought suit against VisionAid in the Massachusetts Commission Against Discrimination (" MCAD" ), alleging wrongful termination on the basis of age discrimination. After receiving notification of the MCAD suit, Mount Vernon appointed counsel to represent VisionAid. During the pendency of that action, appointed counsel filed pleadings which denied any discrimination against Sullivan and asserted three non-discriminatory reasons for his termination, one of which was that Sullivan had misappropriated corporate funds. VisionAid's alleged knowledge of the misappropriations emanated from a September, 2011 forensic accounting report it received which detailed a variety of dubious personal transactions made by Sullivan with corporate funds.
Mount Vernon explains that VisionAid accepted its defense in that matter for 18 months without objection. It contends that because VisionAid knew of the misappropriation before September, 2011, it could have elected to bring an affirmative action against Sullivan to recoup the allegedly misappropriated funds at any time after his termination but elected not to do so. VisionAid responds that, under the original MCAD claim, there had been no need to allege the counterclaim for misappropriation. In February, 2013, Sullivan dismissed his MCAD complaint and shortly thereafter filed suit in the Massachusetts Superior Court for Plymouth County.
At the outset of the second state suit, VisionAid requested that Mount Vernon prosecute a counterclaim for misappropriation of funds against Sullivan. In July, 2013, Mount Vernon withdrew its reservation of rights and informed VisionAid that it would not fund VisionAid's counterclaim because 1) it was beyond its obligations under the Policy and 2) appointed counsel was fully capable of exercising independent judgment while defending VisionAid. Moreover, Mount Vernon has repeatedly advised VisionAid that it is free to pursue its misappropriation counterclaim against Sullivan at its own expense.
VisionAid continues to maintain that the counterclaim is a critical element of its defense against Sullivan and is therefore ...