On December 13, 2021, Law360 profiled the Hon. Denise L. Cote’s recent decision, granting Winget, Spadafora & Schwartzberg LLP’s Fed. R. Civ. P. 12(b)(6) motion to dismiss a civil action before the United States District Court for the Southern District of New York, captioned Tessa Knox et al. v. Ironshore Indemnity Inc. (Case No.: 1:21-cv-06321-DLC). Judge Cote’s decision marks the second dismissal of lawsuits brought by a putative class of judgment creditors against WSS LLP’s client, the judgment debtor’s insurer.
The complaint alleged that each of the plaintiff putative class members were also members of an earlier certified class (“Varvatos Class”) of former John Varvatos Enterprises, Inc. (“Varvatos”) employees who obtained a judgment against the menswear retailer in an civil action captioned Knox v. John Varvatos Enterprises, Inc. (S.D.N.Y. Case No.: 1:17-cv-00772-GWG “Varvatos Action”). The Varvatos Action concerned claims of wage discrimination, wherein the Varvatos Class argued that Varvatos’ practice of providing male sales associates with a clothing allowance—but denying female sales associates the same—violated the Equal Pay Act and other, similar state law statues.
Following a jury trial before Magistrate Judge Gabriel W. Gorenstein, Varvatos was found liable on all counts. The Jury awarded the Varvatos Class $3,516,051.23 as damages, with an additional attorneys’ fees award of $748,321.21. Varvatos filed Fed. R. Civ. P. 50 and 59 motions, that were partially granted, and the two parties ultimately reached a remittitur of $1,898,746.20 as damages, with an additional $215,340.00 as attorneys’ fees. On June 23, 2021 the Clerk of Court entered its Second Amended Judgment accounting for the remittitur (“Judgment”).
Varvatos, however, did not fully satisfy the Judgment. On May 6, 2020, Varvatos filed a Chapter 11 bankruptcy petition before the United States Bankruptcy Court for the District of Delaware (“Bankruptcy Proceeding”). Thereafter, on June 9, 2020, representatives from the Varvatos Class commenced their first coverage action (“First Coverage Action”) against WSS LLP’s insurer client, to recover the Judgment pursuant to N.Y. Ins. Law § 3420(b) (“New York direct action statute”). If all of the statutory preconditions to suit are met, the New York direct action statute allows judgment creditors to step into the shoes of a judgment debtor and bring an insurance coverage action against the judgment debtor’s insurer. See N.Y. Ins. Law § 3420(b).
Through an opinion and order dated January 26, 2021, Judge Cote dismissed the First Coverage Action, finding the class representatives “failed to state a claim for relief under the New York direct action statute.” The January 26, 2021 decision discussed the New York direct action statute, finding the plaintiffs failed to meet three necessary preconditions to suit. First, as a result of Varvatos’ Fed. R. Civ. P. 50 and 59 motions (still pending at the time the First Coverage Action commenced), there was no final judgment to enforce against the insurer. Second, the New York direct action statute did not permit a claim while the Judgment was subject to a stay of execution—which remained in effect due to the ongoing Bankruptcy Proceeding. Finally, the plaintiffs’ counsel failed to serve the insurer with a copy of the Judgment in the manner required by N.Y. Ins. Law § 3420(b). In dismissing the First Coverage Action, the Court did not address any of the substantive questions of coverage at issue in the dispute.
On July 26, 2021, and following entry of the Judgment and the resolution of the Bankruptcy Proceeding, thirteen opt-in members of the Varvatos Class commenced the instant putative class action. Prior to the parties’ Fed. R. Civ. P. Rule 26(f) conference, the putative class moved for class certification and partial summary judgment, asking the Court to find that certain policy exclusions were void. WSS LLP’s attorneys responded to these motions and, again, moved to dismiss the complaint under Fed. R. Civ. Pro. 12(b)(6). Among other things, WSS LLP argued that the plain language of a policy exclusion unequivocally excluded the Judgment from the scope of insurance coverage.
The Court found the policy exclusion applied to the Judgment and granted WSSLLP’s motion to dismiss, denying the putative class plaintiffs’ motions as moot. Responding to the putative class plaintiffs’ arguments, the Court found that “[b]eyond ipse dixit, the plaintiffs do not provide any reason to conclude that this ubiquitous legal language, assuredly familiar to the commercial actors who are the parties to the insurance policy at issue in this case, is ambiguous.” In addition, the Court rejected the putative class’ insurance coverage through estoppel arguments, finding the insurer properly preserved its defenses to coverage through earlier correspondences with Varvatos that were annexed to the complaint.