The opinion of the court was delivered by: William J. Martini, U.S.D.J.
This matter comes before the Court on a motion by Defendants Liberty Travel, Inc., GOGO Tours, Inc., Lib/Go Travel, Inc., and Holiday Vacations, Inc. (collectively, "Liberty") for summary judgment pursuant to Federal Rule of Civil Procedure 56. Also before the Court is a motion by Plaintiff Travel Re-Insurance Partners, Ltd. ("TRIP") for partial summary judgment.
For the reasons stated below, the Court will deny Liberty's motion in part and grant it in part. The Court will also deny TRIP's motion in its entirety.
I.Factual and Procedural Background*fn1
Liberty is a group of affiliated travel and leisure companies based in New Jersey. Liberty was founded by Gilbert Haroche and Fred Kassner, and prior to 2008, Liberty was owned directly and indirectly by the founders' families. Liberty has sold vacation packages and travel products to the public and wholesale since approximately 1951. For much of that time, Liberty has also offered to its customers travel insurance provided by third-party insurance companies.
In 1993, Liberty and William Davis, an individual with whom Liberty had a previously existing business relationship, formed TRIP, an affiliated captive company, to reinsure the travel insurance products Liberty sold to its customers. TRIP is a Bermuda corporation with its principal place of business in Bermuda.
Prior to January 31, 2008, Liberty owned a 75% interest in TRIP, and Mr. Davis was a shareholder and director of TRIP.
In 1994, TRIP entered into the Personal Accident Reinsurance Agreement ("PARA") with American International Group, Inc. ("AIG"), an insurance corporation that issued the insurance products Liberty sold. The PARA was amended several times, and by June 23, 1996, TRIP had agreed to reinsure 100% of the insurance that Liberty sold. AIG remained the issuer and had the primary responsibility of paying claims in the first instance.
At this time, the relationship between Liberty and TRIP was not memorialized in a written agreement, but the parties followed a settled course of conduct. Liberty's customers paid an up-front premium to Liberty for travel insurance. Liberty retained a percentage of this premium as a commission and sent the remaining amount to BerkelyCare, Inc. ("Berkely"), a third-party company associated with Mr. Davis that processed and serviced insurance claims. Berkely retained a percentage of the premium as a service fee and sent the balance to AIG. AIG retained a portion as a fee and reserved the remainder for paying out claims. At the end of every month, AIG provided statements to TRIP reflecting the flow of funds. As per its reinsurance obligations, if insurance claims paid out by AIG during a given time exceeded the amount of premiums AIG received, TRIP was responsible for paying the difference to AIG. But if insurance claims paid out by AIG fell below the amount of premiums it reserved, AIG paid the difference to TRIP. This arrangement allowed Liberty to generate significant insurance revenue.
Prior to 2008, Liberty made somewhat irregular payments to TRIP that both parties refer to as "Salvage". When a customer cancelled an already purchased trip, Liberty assessed certain penalties against the customer. Liberty would then use the penalty amount to pay its travel suppliers, who assessed a penalty against Liberty for the cancellation. Customers who purchased travel insurance could recover the amount of the cancellation penalties from AIG. As per the PARA, TRIP would ultimately be responsible for the payment of such claims. If a travel supplier did not assess a penalty against Liberty or issued a credit or reimbursement to Liberty for any cancellation penalty it preemptively paid, Liberty would end up with excess funds. The parties referred to those funds as Salvage. The parties dispute the exact amount of Salvage that was due or paid during this time and how Salvage was accounted for, but over the course of several years, Liberty paid substantial amounts of Salvage to TRIP.
On November 10, 2007, Flight Centre USA, Inc. ("Flight Centre") entered a Stock Purchase Agreement ("SPA") pursuant to which Flight Centre agreed to acquire all of the equity of Liberty from the previous owners. But Flight Centre was unable to conduct sufficient due diligence with respect to TRIP and, rather than include TRIP as part of the acquisition, Flight Centre agreed to use TRIP as its exclusive supplier of third-party travel insurance. Ownership of TRIP fell to Mr. Davis, Mr. Haroche, and Mr. Kassner's daughter, Michelle Kassner. The acquisition closed on January 31, 2008.
Pursuant to the SPA, Liberty and TRIP entered into the Exclusivity Agreement which provided that TRIP would act as Liberty's sole and exclusive source for travel insurance products. Pursuant to Section 3 of the Exclusivity Agreement, TRIP would arrange travel insurance products for resale by Liberty for a period of three years so long as (a) TRIP arranges the Insurance Products on terms and conditions reasonably competitive with those offered in the market for similar products in the United States . . .; and (b) TRIP possesses such permits as are necessary for it to arrange for the Insurance Products.
Section 4(d) of the Exclusivity Agreement provided that, on a quarterly basis, Liberty was required to "deposit to the TRIP Account an amount in cash equal to the value of all Collections received . . . in respect of Salvage attributable to claims made on Covered Travel." The Exclusivity Agreement defined Salvage as "include[ing], without limitation, all reimbursements, refunds, returned termination or other penalty fees, credits, amounts or other consideration credited, received or accrued by any of the Companies from a Travel Supplier in respect to Covered Travel that has been canceled, interrupted or otherwise delayed." Section 4 also required Liberty to "record . . . all Salvage attributable to claims made on Covered Travel and all Collections received . . . in respect of such Salvage." After the acquisition, Berkely and AIG continued to play similar roles with respect to processing claims and underwriting, respectively.
Approximately one month after the acquisition, in or around February 2008, Liberty reached out to TRIP to discuss a possible renegotiation of the Exclusivity Agreement's terms with respect to its Salvage obligations. Mr. Davis traveled to Liberty's New Jersey headquarters on or around March 5, 2008 for a meeting with Liberty representatives at which the attendees discussed Liberty's Salvage obligations. Liberty representatives noted the difficulty inherent in calculating Salvage and proposed buying out its obligations to pay Salvage by reducing its commission on the sale of TRIP's insurance products. The parties continued to discuss a possible renegotiation through March and April 2008 but never reached an agreement. The lack of a buyout notwithstanding, Liberty did not end up paying Salvage to TRIP for either 2008 or 2009, and Liberty never conducted an accounting to determine the exact amount of Salvage due, if any.
Shortly thereafter, Liberty began discussions with representatives of RBC Insurance Company of Canada ("RBC"). Prior to its acquisition of Liberty, Flight Centre had entered into an agreement with RBC whereby RBC would act as Flight Centre's exclusive provider of travel insurance. Pursuant to Articles 1.6 and 1.7 of that agreement, Flight Centre agreed that when it acquired a new company with an existing contract for travel insurance it would, "subject to the terms and conditions of [the] existing contract between any newly acquired travel agent, travel wholesaler, tour operator and/or travel distribution channel and a travel insurance provider, take all reasonable steps necessary to terminate such contract at the earliest possible date." The parties dispute the exact date on which discussions began, but at least as early as March 2008, a representative of RBC contacted Liberty and Flight Centre about providing insurance products. These discussions continued over the course of the summer of 2008.
Around that same time, TRIP reorganized its relationships with AIG and Berkely. TRIP terminated the PARA, effective June 1, 2008, thereby eliminating its reinsurance burden going forward. TRIP then entered into a new agreement with Berkeley and AIG, effective June 1, 2008, under which AIG agreed to fully insure the travel insurance sold by Liberty during the remaining term of the Exclusivity Agreement (the "Berkeley Agreement").*fn2 In addition to bearing 100% of the risk of insurance, AIG would also then be entitled to retain 100% of the underwriting profits. In consideration for this new arrangement, Berkeley and AIG agreed that each would contribute $600,000 to an escrow fund that would be paid to TRIP at the end of the Exclusivity Agreement's term. In the event that TRIP owed any money to AIG under the PARA, those funds would be used partially or fully to offset any remaining payments due. The Berkely Agreement also provided that in the event that claims made by customers who purchased travel insurance fell below expectations, TRIP would receive a one-time $200,000 payment, presumably to avoid a windfall. Ms. Kassner executed the Agreement on TRIP's behalf.
By late September 2008, Liberty had met with representatives of RBC and received proposals to replace TRIP from both RBC and another insurance provider, CSA Travel Protection, Inc. ("CSA"). Liberty's internal evaluation of the proposals found that CSA's proposal was worth more than its arrangement with TRIP. The evaluation also established that both CSA's proposal and Liberty's arrangement with TRIP were substantially worth more to Liberty than RBC's proposal. Liberty did not provide this valuation information or any of the content of the opposing proposals to TRIP. On October 6, 2008, representatives from Liberty met with representatives of RBC and CSA to discuss the proposals. Also on October 6, 2008, representatives of Liberty met with Mr. Davis and a representative of Berkely to discuss the Exclusivity Agreement and products and services provided by Berkely and TRIP. Sometime thereafter in October, representatives of Liberty and TRIP met to discuss the settlement of a variety of issues arising from the acquisition.
On October 28th, 2008, Natalie Benson, Liberty's Chief Financial Officer, sent an email to Ms. Kassner containing a six-page document outlining various proposals to resolve issues raised during the settlement discussions (the "October 28th Email"). Two of the six pages were devoted specifically to the Exclusivity Agreement, and in sum, expressed Liberty's opinion that there was no post-acquisition Salvage to pay and that TRIP was not commercially competitive with offers Liberty received from other insurance providers. Liberty then proposed that it be allowed to terminate the Exclusivity Agreement in exchange for a payment of $100,000. Ms. Kassner did not respond to these statements, and these negotiations did not lead to a resolution regarding the Exclusivity Agreement.
In early 2009, Liberty continued its discussions with RBC to replace TRIP. Although internal email reveals that Liberty considered the initial proposal from CSA to be much more valuable than the proposal from RBC, Liberty provided RBC an opportunity to match CSA's proposal. In February 2009, Liberty conducted an internal evaluation that determined that the total value of the Exclusivity Agreement with TRIP over a five-year term would be more valuable than the terms offered by RBC's proposal. Liberty provided information regarding the Exclusivity Agreement and CSA's proposal to RBC and gave RBC an opportunity to come up with a better offer. On March 5, 2009, after further negotiations, Flight Centre and RBC entered into a letter of intent reflecting their agreement to make RBC the exclusive supplier of travel insurance to Liberty. The letter was conditional upon the termination the Exclusivity Agreement.
On April 17, 2009, Liberty sent to TRIP a letter of intent to sever the Exclusivity Agreement. The letter stated that after a review of market data, Liberty had determined that TRIP's products failed to deliver reasonably competitive economic terms and conditions. The letter provided to TRIP for the first time the market data on which Liberty relied in making its determination. The letter also provided that TRIP had until April 24th to deliver to Liberty evidence that TRIP's products were reasonably competitive and evidence that TRIP was in compliance with all applicable licenses, permits, and authorizations as contemplated by the Exclusivity Agreement. On April 29, 2009, counsel for TRIP sent a response to Liberty advising that responses to the issues raised in the letter of intent would be forthcoming. On May 8, 2009, Liberty notified TRIP via letter that TRIP had failed to respond by the original April 24th deadline and further advised TRIP that Liberty was terminating the Exclusivity Agreement.
On May 11, 2009, TRIP's counsel responded that TRIP was willing to meet with Liberty to review the market data provided and discuss the competitiveness of TRIP's insurance products. The letter also advised Liberty that Berkely and AIG held the necessary licenses and authorizations contemplated by the Exclusivity Agreement. The letter further advised Liberty that it was in breach of the Exclusivity Agreement based on its failure to pay Salvage. On May 20, 2009, RBC and Flight Centre entered a formal agreement that designated RBC as the exclusive provider of travel insurance products to Liberty. On September 30, 2009, TRIP filed this lawsuit.
II.Summary Judgment Standard
A party seeking summary judgment must "show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Hersh v. Allen Prod. Co., 789 F.2d 230, 232 (3d Cir. 1986). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (noting that no triable issue exists unless there is sufficient evidence favoring nonmoving party for jury to return verdict in its favor). In deciding whether triable issues of fact exist, this Court must view the underlying facts and draw all reasonable inferences in favor of the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Pa. Coal Ass'n v. Babbitt, 63 F.3d 231, 236 (3d Cir. 1995). However, the non-moving party "may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him." Matsushita, 475 U.S. at 586.
III.Liberty's Motion for Summary Judgment
A. Breach of Contract Under ...