IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
October 31, 1999
CHEMICAL LEAMAN TANK LINES, INC. PLAINTIFF,
THE AETNA CASUALTY & SURETY ROBIN ANTHONY GILDART JACKSON, INSURANCE COMPANY LTD. AN UNDERWRITER AT LLOYD'S LONDON, ET AL. DEFENDANTS.
The opinion of the court was delivered by: Brotman, District Judge
OPINION ON MOTION REGARDING THE 1977-80 POLICIES
Before this Court is plaintiff Chemical Leaman Tank Lines, Inc.'s motion regarding the 1977-80 policies. Specifically, the plaintiff asks this Court to enforce its August 10th 1992 Stipulation and Order, which provides, in pertinent part, that Walbrook Insurance Company Ltd. is liable for a 19.05% share of the first 80% of coverage under excess policy number 77-3833-19. *fn1
I. PROCEDURAL AND FACTUAL BACKGROUND
On August 10th, 1992, this Court approved and entered a stipulation between plaintiff Chemical Leaman Tank Lines, Inc. ("Chemical Leaman") and defendant London Market Insurers ("LMI") which identified the applicable insurers and their relative percentages of coverage liability under the various policies at issue in the upcoming jury trial. See August 10th 1992 Stipulation and Order at 10. The stipulation identified a page stamped "X1186" as an amendment determinative of the parties rights with respect to policy number 77-3833-19. See id.
Page X1186 provided, in pertinent part, that Walbrook Insurance Company Ltd. ("Walbrook") would be liable for a 19.05 % share of the first 80% of coverage under the policy. See Decl. of John P. Dean Ex. 3. At trial Chemical Leaman offered into evidence, without objection from LMI, the documents stipulated to as policy 77-383319. See Pl.['s] Br. at 3-4. Included within these submissions was page X1186. See Pl.['s] Br. at 3. Following the trial, this Court entered a judgment declaring LMI liable in accordance with the policy limits set forth in the stipulation. On appeal, the Third Circuit affirmed the Court's liability determinations, but remanded for further allocation proceedings unrelated to the issue in the instant motion. *fn2
Over four years after the initial jury determination, during an October 1997 settlement conference with Magistrate Judge Rosen, counsel for LMI asserted that the subscribers for policy 77-3833-19 were not determined by X1186, but rather by "endorsement 17," a document that was not included in the 1992 stipulation. See Pl.['s] Br. at 4-5. The defendant contended that endorsement 17 amended X1186 by providing that Walbrook would assume 80% of the liability risk, not the 15.24 % *fn3 prescribed by the stipulation. See Decl. of Henry Lee Ex. A.; see also Def.['s] Br. at 6; Decl. of John P. Dean Ex. 5.
The issue of endorsement 17's validity has taken on critical importance since Walbrook, the London insurer whose liability percentage was significantly increased, has become insolvent. See Pl.['s] Br. at 5. While the London Market Insurers acknowledge that endorsement 17 was in their possession prior to the agreement, LMI claims that the document was inadvertently omitted from the stipulation. See Lee Decl. at ¶ 4; Def.['s] Br. at 6. The excess insurers contend that they were first alerted to the omission by the instant motion, and that relief would have been promptly sought had they been informed sooner. See Def.['s] Br. at 14. Although LMI does not dispute endorsement 17's absence from the stipulation, it opposes Chemical Leaman's motion on two grounds: 1) the defendant argues that the express language of the stipulation allows for post-trial modification; and 2) LMI alternatively contends that enforcement of the stipulation would result in "manifest injustice" since the modification allegedly occurred at the behest of agents for Chemical Leaman.
A. MANIFEST INJUSTICE
As a general rule, absent an express limitation or a clear manifestation of intent to the contrary, pretrial stipulations remain binding between parties during subsequent proceedings. See Waldorf v. Shuta, 142 F.3d 601, 616 (3d Cir. 1998). Courts have, however, allowed for modification in "exceptional circumstances." See Kohn v. American Metal Climax, Inc., 458 F.2d 255, 307 (3d Cir. 1972). The Third Circuit has recognized that "[a]llowing parties easily to set aside or modify stipulations . . . wast[es] judicial resources and undermin[es] future confidence in such agreements." See Waldorf v. Shuta, 142 F.3d 601, 616 (3d Cir. 1998). Therefore, federal caselaw clearly establishes that a stipulation remains in effect unless a failure to modify or set it aside would result in "manifest injustice." See Waldorf, 142 F.3d at 616; Wheeler v. John Deere Co., 935 F.2d 1090, 1097 (10th Cir. 1991); Hunt v. Marchetti, 824 F.2d 916 (11th Cir. 1987).
In Waldorf v. Shuta, the Third Circuit listed four factors that courts have focused on in determining whether a refusal to alter or modify a stipulation would result in manifest injustice:
1) the effect of the stipulation on the party seeking to withdraw the stipulation; 2) the effect on the other parties to the litigation; 3) the occurrence of intervening events since the parties agreed to the stipulation; and 4) whether evidence contrary to the stipulation is substantial. Id. at 617-18 (citations omitted).
After analyzing LMI's contentions within the framework established in Waldorf, this Court concludes that it would not be manifestly unjust to enforce the stipulation.
1. Effect of the Stipulation on the Party Seeking Modification
Defendant's brief contends that enforcement of the 1992 stipulation as drafted would prejudice the excess insurers included in the stipulation because those companies received no consideration for the coverage they are charged with. See Def.[`s] Br. at 22. This argument, however, ignores the fact that the proposed amendments were available to LMI's counsel prior to the stipulation agreement, a factor the court relied upon to dismiss analogous claims of prejudice by the Waldorf defendant.
In Waldorf v. Borough of Kenilworth, 878 F.Supp. 686, 694 (D.N.J. 1995), aff'd sub nom. Waldorf v. Shuta, 142 F.3d 601, 618 (3d Cir. 1998), the court rejected a similar contention. Emphasizing that the defendant "seeks to offer evidence that probably has been available to it since the time of the first trial," the Waldorf court dismissed defendant's argument that enforcement of its pretrial stipulation to liability would result in prejudice. Id. at 694. The court imputed a duty of due diligence upon the moving party, recognizing that a failure to provide an adequate explanation for the initial omission of the evidence, "would lead to the right to relief based only upon evidential rethinking and other morning-after quarterbacking[.]" Id. On appeal, the Third Circuit affirmed the Waldorf decision, emphasizing that the moving party did not "claim that the evidence [was] the product of an intervening event or that it previously could not have [been] discovered. . . . Thus, this case does not involve circumstances that have changed dramatically so as to warrant granting . . . relief from the stipulation." Waldorf, 142 F.3d at 618.
LMI concedes that the evidence in question was in its possession prior to entering the stipulation, but contends that the omission of the evidence was "due to inadvertence or oversight." See Def.[`s] Br. at 4. While LMI asserts that its omission was the result of mere inadvertence, this contention is severely undercut by Chemical Leaman's uncontradicted assertions that counsel spent nine months negotiating and drafting the stipulation order. See Decl. of Ann Staron at ¶ ¶ 1-5. Hence, it appears that any prayer for relief advanced by LMI is grounded upon its own failure to exercise due diligence with respect to the pre-trial stipulations, an argument that was soundly rejected in Waldorf.
1. The Effect on the Other Parties to the Litigation
LMI astutely observes that allowing modification of the stipulation in the instant matter would require no additional litigation because "issues of coverage and allocation are the same regardless of what companies provide the security." See Def.['s] Br. at 24. This observation, however, ignores the considerable time and efforts this Court has invested addressing the instant motion, as well as any additional time that would be required had the Court elected to conduct a hearing on the matter. Moreover, a careful examination of LMI's opposition papers reveals the dangers inherent in allowing such a modification. Specifically, a footnote in the defendant's brief asserts that "[a] preliminary investigation has identified omitted London broker documents from LMI policy number 77-3833-18." See Id. at 11n.2. The footnote further asserts that "[h]aving now been alerted to the omission . . . LMI's counsel initiated an investigation of the remaining LMI excess policies . . . to ascertain if other London broker documents from other LMI excess policies were omitted from the Policy Stipulation." See id.
While it may be true that allowing modification in the instant case will not require additional litigation, counsel for the defendant has clearly expressed its intent to relitigate any of the remaining stipulations that it finds unsatisfactory. Resolution of `other' stipulation disputes would a fortiori require judicial involvement which would clearly burden the judicial system and potentially upset the expedited scheduling track that this case is currently on. Thus, allowing the defendant seven years later to review each and every stipulation for similar `oversights' would prejudice the judicial process and undermine the certainty and judicial economy that stipulations are intended to provide. See Waldorf v. Shuta, 142 F.3d at 616.
Opening the door to review of future stipulation amendments would likewise prejudice Chemical Leaman. Relitigating the veracity of stipulations agreed to seven years ago requires the considerable time and efforts of counsel in preparing opposition papers and reviewing voluminous insurance agreements. The Waldorf court noted the prejudice inherent in revisiting issues after a lengthy time lapse, explaining that "there would be further delays in the case, because [the plaintiff] would have to determine the availability of witnesses and marshal the evidence that pertained to an issue which the parties had not contested for years." See Waldorf, 142 F.3d at 615. Thus, it is clear that the significant lapse between the stipulation and the instant motion prejudices Chemical Leaman as well as the Court, *fn4 and therefore weakens any claims of `manifest injustice' proffered by LMI.
2. Occurrence of Intervening Events
While the Waldorf opinion articulated four factors for consideration, this Court has found that the majority of the reviewing courts cited by the circuit appeared to focus primarily on one common question: whether a subsequent change of circumstances was so dramatic that strict adherence to the pretrial stipulation would result in `manifest injustice.' See Graefenhain v. Pabst Brewing Co., 870 F.2d 1198, 1206 (7th Cir. 1989)(holding that a district court's refusal to rescind a stipulation does not constitute an abuse of discretion, "unless circumstances have changed so dramatically that relief is necessary to prevent a `manifest injustice'"); Logan Lumber Co. v. Commissioner, 365 F.2d 846, 854-56 (5th Cir. 1966)(explaining that a stipulation may be voided where the relevant law relied upon at the time of the stipulation is overruled thereafter); Bail Bonds By Marvin Nelson, Inc. v. Commissioner, 820 F.2d 1543, 1547-48 (9th Cir. 1987)(upholding the tax court's refusal to vacate a stipulation because "nothing subsequently occurred to change the effect of the original stipulation").
Like the Waldorf defendant, LMI's argument is not based upon newly discovered evidence, but rather evidence that was in the moving party's control prior to the agreement. LMI's brief concedes that it had the alleged policy amendments in its possession prior to the 1992 stipulation. See Lee Decl. at ¶ 4 (acknowledging that LMI produced the relevant documents to Chemical Leaman in 1989 or 1990). In fact, the only relevant change in circumstances subsequent to the 1992 stipulation, Walbrook's insolvency, militates against rescission of the agreement. Thus, it can not be reasonably argued that the modification sought is the result of an intervening occurrence, a critical factor the Third Circuit focused on in the Waldorf decision. See Waldorf, 142 F.3d at 601(rejecting a request to rescind the stipulation because the defendant "does not claim that the evidence is the product of an intervening event or that it previously could not have discovered the evidence").
3. Substantial Evidence Contrary to the Stipulation
LMI's opposition papers argue that substantial evidence exists contrary to the stipulation. See Def.['s] Br. at 13 -17. In support of its assertions, the defendant submitted several declarations from various insurers, as well as other documentary evidence. After carefully reviewing the record before it, the Court concludes that LMI has failed to satisfy this evidentiary requirement.
In its brief LMI contends that the changes embodied in endorsement 17 were made on behalf of Chemical Leaman's agents in accordance with the general practices of the London insurance industry. See Def.['s] Br. 10-11. The excess insurers claim that John J. Manley ("Manley"), Chemical Leaman's retail insurance broker, contacted Stewart Smith East ("Smith"), a wholesale surplus lines broker located in the U.S., to obtain surplus lines coverage. See Def.['s] Br. at 8. LMI asserts that Smith then contacted Stewart Wrightson ("Wrightson"), a London insurance broker, who approached London based underwriter H.S. Weavers Underwriting Agencies Ltd. ("Weavers") with a request for coverage. See id. Acting on behalf of several insurers, Weavers then negotiated the terms memorialized in X1186. See id. at 8-9.
According to the defendant, after the terms were negotiated Wrightson issued a cover note to Smith, who checked the terms to ensure compliance with Pennsylvania's surplus line laws. See id. at 9-10. Discovering that Walbrook was the only insurer that was listed under Pennsylvania law as an eligible surplus line insurer, LMI contends that Smith contacted Wrightson and requested that Weavers modify the policy to conform with Pennsylvania law. See id. at 9-11. After receiving Smith's instruction, defendant claims that Wrightson negotiated the requested modification with Weavers, substituting Walbrook for an additional 60.95% of the policy. See id. Shortly thereafter, defendant alleges, Wrightson sent the amendment to Smith, who forwarded a copy to Chemical Leaman's retail broker, Manley. See id. at 11.
While the defendant's account of endorsement 17's origin appears persuasive at first glance, a close examination of the supporting documentation reveals that LMI's contentions are based on general averments, not `substantial evidence.' The documentary evidence submitted by LMI includes evidence that both Wrightson and Smith were aware of proposed endorsement 17, see Lee Decl. Ex. H, K., but fails to provide direct evidence establishing that either Chemical Leaman or its retail broker John J. Manley, Inc. either initiated or received information concerning the proposed change. *fn5
LMI argues, however, that proof of direct involvement by either Chemical Leaman or Manley is unnecessary because, according to LMI, Smith and Wrightson were acting as Chemical Leaman's agents when the alleged changes were made. This argument, however, ignores the applicable agency law and fails to provide a competent evidentiary basis for its assertions. LMI alleges that Wrightson, acting as Chemical Leaman's agent, proposed the policy change to excess insurer Weavers in order to conform with a Pennsylvania surplus line requirement identified by Smith. In support of this contention defendant proffers declarations from various insurance brokers associated with the companies involved. See generally Decl. of Peter Wilson; Decl. of Michael G. Cobb; Decl. of Alexander J. Wayne. Noticeably absent from the evidence submitted is the testimony of anyone who dealt directly with these transactions. LMI's submissions include a letter purportedly prepared by Caroline Fontanella, the Stewart Smith employee who allegedly handled the transaction. The letter, however, is unsigned and the excess insurers neglected to provide any testimonial evidence from her on the matter. Instead, LMI offers conclusory statements which testify to the `general' practices of the excess insurance market and opine based on these statements that any change would have to be initiated by an agent for the insured. While the evidence provides a solid basis for understanding the London insurance industry, it lacks the specificity necessary to constitute `substantial evidence.' This is especially apparent when the purported amendment occurred two years after the alleged impetus for the change.
The original policy, no. 77-3833-19, went into effect on April 1, 1977 and was dated July 25, 1977. See Decl. of John P. Dean at ¶ 4 & accompanying Ex. 3. Endorsement 17, the amendment allegedly requested by Stewart Smith East after reviewing the initial policy, is dated July 18, 1979. See Decl. of Henry Lee at ¶ 7 & accompanying Ex. A. One would think that if the policy was reviewed upon receipt by the domestic wholesale broker for conformity with applicable regulations, as defendant alleges, that the broker would not wait approximately two years to request a modification to ensure compliance. This unexplained delay in the procedural chain articulated by LMI raises serious doubts as to the accuracy of its account, especially in light of LMI's failure to provide any direct evidence linking either Chemical Leaman or its retail broker to the modification. Further, while the defendant contends that Chemical Leaman is bound by the actions of the wholesale brokers, it fails to assert a competent legal basis for this assertion. Citing a California district court case, LMI argues that London brokers act as agents for the insured as a matter of law. See Def.[`s] Br. at p. 12. However, an examination of the relevant authorities reveals that the issue of whether a wholesale broker is an agent of the insured is a question of fact. *fn6 Thus LMI's failure to provide competent evidence of any agreements or directives from either Manley or Chemical Leaman to the wholesale brokers necessarily falls short of establishing `substantial evidence' of an agency relationship.
Moreover, even if LMI could present substantial evidence contrary to the stipulation, this Court contends that such proof, on its own, would not constitute `manifest injustice.' In Sims v. Wyrick, 743 F.2d 607, 610 (8th Cir. 1984), the Eight Circuit rejected the notion that stipulations could be modified upon such a showing.
We see no suggestion of manifest injustice . . . and . . . cannot accept the suggestion that a stipulation may be disregarded whenever substantial evidence contradicting it were introduced. Indeed, if substantial evidence . . . were all that was required to disregard it, the purpose of stipulations would be severely undercut. . . . If a party could be relieved of a stipulation on a mere showing of substantial contrary evidence, litigants could not rely on stipulations of fact and would have to be fully prepared to put on their proof. Id. (emphasis added).
This Court agrees with the Eighth Circuit's reasoning. Allowing parties repeated bites of the apple for their failures to `get it right' the first time unnecessarily encumbers the courts and removes counsel's burden to earnestly pursue the stipulation process. Thus while a showing of `substantial evidence contrary to the stipulation' is a factor to be considered within the framework of the Third Circuit's Waldorf opinion, this Court finds that it is the least compelling of the factors and weights it accordingly. Therefore, after reviewing the arguments proffered by LMI within the framework of the Third Circuit's Waldorf opinion, this Court finds that enforcement of the August 10th 1992 stipulation would not constitute `manifest injustice.'
B. RELIEF UNDER THE STIPULATION
LMI alternatively contends that the language of the stipulation expressly entitles them to seek modification in this instance. See Def.['s] Br. at 14-17. The pertinent language of the agreement reads as follows:
This Stipulation shall not prohibit either Chemical Leaman or the London Market Insurers from offering any policy, endorsement, or other document into evidence at trial, or prevent Chemical Leaman or the London Market Insurers from offering any other evidence at trial.
Finally Chemical Leaman and the London Market Insurers shall act in good faith to determine whether this Stipulation should be modified or supplemented prior to trial . . . if the evidence clearly shows that a stipulated fact is misleading or in error. Further, each party shall have the express right to ask the Court to modify, supplement or void the entire Stipulation or any portion of this Stipulation based on . . . evidence clearly establishing that some fact or set of facts is in error or is materially misleading. August 10th 1992 Stipulation and Order at 2-3 (emphasis added).
While the defendant correctly notes that the pretrial stipulation authorizes judicial modification for errant stipulations, for the reasons discussed below, LMI's argument fails.
The excess insurers claim that the absence of any time related language from the last sentence implies that no time limit exists with respect to a parties right to petition the court for relief. This argument, however, appears inconsistent when viewed within the context of the two surrounding paragraphs. Examining the relevant language in its entirety, it is clear to the Court that the stipulation agreement did not contemplate post-trial modifications, but rather outlined a potential avenue of relief prior to and during trial: the first paragraph contemplates the proffer of evidence at trial, while the second paragraph outlines a process by which the parties may seek relief from the stipulations prior to trial.
Specifically, the first sentence of the second paragraph instructs the parties to make a good faith effort to settle any pre-trial stipulation disputes amongst themselves, while the second sentence provides that if no agreement can be reached the parties have the right to seek court assistance. Thus, viewing the language within the context of the paragraph, it appears clear that the parties intended to limit a party's right to judicial intervention to the pre-trial period. Conversely, acceptance of the limitless jurisdiction argued by LMI would lead to absurd results. Surely the parties did not intend, nor would this Court accept, a role in which the Court served as a perpetual guardian, charged with overseeing the sanctity of the stipulation agreement long after this matter has left the Court's docket. *fn7
Moreover, a close examination of the agreement's language reveals that the stipulation does not provide automatic relief in the enumerated instances, but merely grants parties the right to petition the court for assistance. The last sentence provides, in pertinent part, that "each party shall have the express right to ask the Court to modify" the stipulation. Id. at 3 (emphasis added). Thus, assuming arguendo that the language provides an indefinite time frame for judicial intervention, any decision to rescind or modify is left with the discretion of the court. *fn8 For the reasons discussed supra, this Court does not believe that either recission or modification is warranted. Stipulations play an important role in the judicial process, and this Court refuses to devalue them by altering them seven years later based on evidence that was in the parties possession prior to the agreement.
For the reasons stated above, Chemical Leaman's motion regarding the 1977-80 policies is granted. Accordingly the August 10th 1992 Stipulation and Order shall be enforced and liability for policy number 77-3833-19 will be determined in accordance with page X1186. The Court will enter an appropriate order.
Dated: October , 1999