On appeal from the Superior Court of New Jersey, Law Division, Somerset County, 131-04.
The opinion of the court was delivered by: Coburn, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Coburn, Collester and S.L. Reisner.
This dispute between Federal Insurance Company and Campbell Soup Company requires interpretation of an insurance policy. In essence, the policy requires payment of defense costs and indemnification for any claims arising out of Campbell's participation in the sale or purchase of securities. When a third party sued Campbell, Campbell asserted that the action arose out of such a securities transaction and demanded coverage from Federal. Federal filed this declaratory judgment action, alleging that the underlying transaction was not covered by its policy and that the complaint unambiguously alleged facts demonstrating that point. Campbell moved for partial summary judgment on the duty to defend, and Federal cross-moved for summary judgment as to defense and indemnification.
The underlying claim arose from an exchange of securities between Campbell, as parent corporation, and its wholly owned subsidiary, Vlasic Foods International, Inc. ("VFI"), whose shares, as part of the overall transaction, were distributed to Campbell's shareholders. The first issue is whether the transaction with VFI involved a "purchase" or "sale" of securities under the insurance policy. The second issue is whether the complaint alleged facts indicating a covered transaction. In a thorough and well-reasoned opinion, Judge Harriet Derman agreed with Federal in all respects. Campbell appealed. We affirm.
Our statement of facts is based on the lengthy complaint filed against Campbell, but is limited to its essential allegations. Campbell is a publicly traded corporation with billions of dollars in sales each year. In September 1997, it announced the spin-off plan at issue, and in November, it formed VFI, a wholly owned subsidiary, to carry out the plan. On March 26, 1998, Campbell and VFI signed agreements calling for the transfer of various Campbell subsidiaries to VFI in return for VFI's promise, agreed to by the banks, to be solely responsible for the repayment of a $500 million loan to be made to Campbell.
The $500 million was supposed to represent VFI's fair share of Campbell's overall debt. These transactions were to be completed on March 30, the date set for the proportional distribution of VFI's shares through Campbell to its shareholders, but before the actual distribution. The transfers and the distribution of VFI's stock to Campbell's shareholders took place as scheduled, and until that time, Campbell completely dominated VFI as its wholly owned subsidiary.
We assume for present purposes that Campbell knowingly placed excessive debt and other obligations on VFI in relation to the assets transferred, which caused VFI to file for bankruptcy protection in January 2001. As part of the bankruptcy plan, VFB L.L.C. was formed as the successor to VFI; and in February 2002, on behalf of VFI's unsecured creditors, VFB filed the underlying action against Campbell, asserting damages of $200 million under New Jersey statutes governing fraudulent transfers and conveyances, the United States Bankruptcy Code, and common law. The complaint did not allege any violation of federal or state securities laws.*fn1
The relevant portion of the insurance policy Federal issued to Campbell offers defense and indemnification with respect to "any Claim which in whole or in part, is . . . based upon, arising from or in consequence of a Securities Transaction . . .;" and defines a "Securities Transaction" as "the purchase or sale of, or offer to purchase or sell, any securities issued by any Insured Organization."
Campbell contends that the allegations of VFB's complaint correspond with the plain language of the insurance policy because the complaint bases liability on the purchase and sale of securities, and the policy covers actions arising out of the purchase or sale of securities. Campbell further contends that those transactional terms should be given their plain and ordinary meaning, as defined by dictionaries, New Jersey case law, and the New Jersey Uniform Securities Law. Federal also argues that the complaint and policy are unambiguous, but it says that since the complaint alleges transactions between Campbell and a wholly owned entity, there are no allegations of sales or purchases of securities out of which the underlying case could arise. It ...