Defendant, Liberty Insurance Underwriters, Inc. (“Liberty”), petitions the Court to set aside the Verdict rendered against it on May 4, 2018 and direct judgment in its favor as a matter of law; or for a new trial; or to reduce the Jury Verdict. Plaintiff opposes the application in all respects.In making its determination, the Court has considered the following submissions:1. Defendant’s Notice of Motion To Set Aside The Verdict and Direct Judgment As A Matter of Law To Liberty; Affirmation of Peter A. Stroili In Support, inclusive of Exhibits 1 through 7 and A through BB and Memorandum of Law In Support;2. Plaintiffs Memorandum of Law In Opposition; and3. Defendant’s Reply Affirmation of Peter A. Stroili with Exhibits A through G and Memorandum of Law In Reply.The statutory framework within which Defendant seeks relief is found at Civil Practice Law and Rules §4404(a). It provides that after a verdict is rendered the court can set it aside and either (1) grant judgment to which a party is entitled to it as a matter of law or (2) order a new trial on the ground that the verdict is “contrary to the weight of evidence”.As is its habit, the Court has consulted New York Practice, Fifth Edition Practitioner Treatise Series, David D. Siegel, West Publishing. Professor Siegel notes at section 405:The judge is authorized to grant judgment as a “matter of law” only when [he/she] believes that on this record reasonable minds could not differ and there is therefore only one way the jury can go. The difficulty is that reasonable minds may differ about whether reasonable minds may differ, and among them may be the reasonable minds that inhabit the appellate court. If the trial court grants judgment for a side under CPLR 4401 without letting a jury pass on the issues, an appellate court that disagrees with the judges’s action has no verdict to reinstate and must therefore order a new trial, wasting the earlier one. But if the trial court waits until a verdict is in, saving its action for CPLR 4404 and granting judgment notwithstanding the verdict (should the jury have found the other way), a disagreeing appellate court has a verdict to reinstate. This is no small economy, and it accounts for the widespread practice among judges of letting a fully tried case go to the jury before ruling on a motion for judgment.This Court allowed the case to be submitted to the jury.Defendant’s application as noted hereinabove seeks one of three remedies: (1) judgment as a matter of law; (2) a new trial; or (3) to reduce the jury verdict.Preceding trial, this matter was the subject of comprehensive motion practice. On March 6, 2018, this Court issued a Short Form Order which noted:This is an action to recover damages for breach of contract, bad faith, and breach of the covenant of good faith and fair dealing based upon the alleged improper denial of insurance coverage to certain non parties by the defendant. It is undisputed that the defendant issued a director’s and officer’s liability insurance policy to the directors and officers of nonparty QGSI, Inc. in July 2007. In May 2008, QSGI created a special purpose vehicle called QSGI-CCSI, Inc. in order to complete the acquisition of Contemporary Computer Services, Inc. (“CCSI”), located at 200 Knickerbocker Avenue, Bohemia, New York 11716. At that time, the plaintiff was the president and owner of CCSI. The Stock Purchase Agreement between QSGI-CCSI, Inc. and QSGI, as buyers, and the plaintiff, as seller, was executed by all parties in May of 2008.Pursuant to an insurance renewal application filed by QGSI, Inc., the defendant issued Directors & Officers Policy No. D04N3 86075004 to QSGI, Inc. of Hightstown, New Jersey, effective July 8, 2008 to July 8, 2009 (the D&O policy)… After the closing of the sale on July 7, 2008, CCSI ceased to exist as a freestanding company and became QSGI-CCSI, Inc., doing business as CCSI. After QGSI, Inc. failed to pay the plaintiff the agreed compensation for the purchase of CCSI, QGSI, Inc. declared bankruptcy… (emphasis added)Thereafter, the plaintiff commenced an action against the directors and officers of QGSI, Inc. for fraud, self-dealing and breach of fiduciary duty entitled Riconda v. Sherman, Supreme Court, Suffolk County, Index No. 11-6678 (the underlying action). Despite requests by the defendants in said action, their insurer, the defendant herein, disclaimed coverage. The underlying action was settled when, among other things, Edward L. Cummings (Cummings), a former officer of QSGI and a defendant in the underlying action, entered into a confession of judgment in favor of the plaintiff, and assigned his right to proceed against the defendant for the failure to indemnify him as an insured in the underlying action to the plaintiff.The instant action was commenced by the plaintiff against the defendant, as Cumming’s assignee, alleging that the defendant has breached the contract of insurance and the D&O policy by failing to provide coverage to Cummings and to pay the amount due under the confession of judgment, has acted in bad faith, and has breached its duty of good faith and fair dealing.This Court’s findings in the March 6, 2018 Short Form Order referenced hereinabove presents findings of fact tantamount to the law of the case. That history undeniably establishes that Plaintiff, John R. Riconda (“Riconda”) stepped into shoes of an insured, Cummings, as his assignee and thereafter prosecuted claims against Defendant, Liberty. In essence, Riconda as the assignee of an insured was suing the insurer to defend his assignor against claims brought by Riconda.The history of this litigation, inclusive of the underlying litigation, reveals that Plaintiff originally commenced an action for breach of contract. That contract involved the sale of his company. It is apparent to the Court, that case (the underlying case) lacked traction. At that point in time, as a matter of strategy, Riconda changed directions. The change in direction led to the negotiation of the assignment by Cummings in return for a covenant not to enforce a confession of judgment duly negotiated and executed between Cummings and Riconda. That change of strategy was prompted by the realization that the only entity with “deep pockets” was Defendant, Liberty.1Throughout the pre-trial and trial, the exclusion relied upon by Defendant concerning coverage was found at section 5.6 of the policy (the insured versus insured exception). Section 5 reads as follows:5. Exclusions: The insurer shall not be liable to make any payment for loss in connection with any claim:5.6 brought or maintained by or on behalf of the insured organization to any insured person, in any capacity.On or about July 8, 2008, Liberty issued a renewal executive advantage policy (Directors & Officers Policy) to QSGI, Inc. (“QSGI”) for the policy period commencing July 8, 2008 through and including July 8, 2009. As noted above, the exclusion found at section 5.6 of the Policy also known as the Insured versus Insured Exclusion provided that the “insurer shall not be liable to make any payment for loss in connection with any claim: brought or maintained by… any insured person defined as an officer or director of the insured organization, QSGI or any subsidiary.” No party raised “ambiguity” as an issue.The evidence adduced at trial was that Plaintiff commenced negotiations with QSGI for the acquisition of his company, CCSI. Those negotiations, resulted, in May 2008, of a stock purchase agreement. The agreement provided for the purchase of all of the issued and outstanding shares of CCSI (Plaintiff’s company) by QSGI-CCSI, Inc. (“QSGI-CCSI”), a wholly owned subsidiary of the insured, QSGI. In consideration for the transfer Plaintiff was provided with a $10 million, 10 percent convertible Note. That Note was subordinated to QSGI’s obligation to an entity known as Victory Park. Victory Park provided QSGI with a $10 million revolving credit line. It is undisputed that the Stock Purchase Agreement provided that Mr. Riconda “would resign as Chief Executive Officer of CCSI, but he would remain employed as president to run the day-to-day operations of the company.” (emphasis added)Worthy of mention is the fact that with the July 7, 2008 closing of the transaction, Mr. Riconda executed and entered into various documents referred to as the “transition documents” including an employment agreement with QSGI-CCSI, INC d/b/a CCSI. Additionally, transition documents were executed at the closing, which included an Employment Agreement with QSGI-CCSI, Inc, d/b/a CCSI, that provided Riconda “will be employed by the company [QSGI-CCSI, Inc., d/b/a CCSI] as president of the company.” Furthermore, the transition documents clearly established that QSGI-CCSI, d/b/a CCSI” was a wholly owned subsidiary of QSGI2 as well as a resignation letter, whereby Plaintiff resigned “from all positions held as an officer of [CCSI] his prior company except for the position of President effective immediately. (emphasis added)It is undisputed that QSGI filed on the day of the closing a schedule 13D with the Securities Exchange Commission disclosing the completed acquisition and confirming:” as a result of the acquisition, John R. Riconda has joined the executive management team of QSGI Inc.”As alluded to earlier, on June 10, 2009 approximately 11 months after the July 7, 2008 transaction, Plaintiff commenced a lawsuit against QSGI. In essence, alleging that QSGI breached its obligations under the Note (defaulted in payment). As pointed out in Defendant’s submission, paragraph seven of Plaintiffs Verified Complaint against QSGI stated unequivocally: “The QSGI-C CSI transaction closed on July 7, 2008.” Plaintiff in that (prior) action sought to rescind the various documents he executed in connection with the sale of his company to QSGI and QSGI-CCSI. Contrary to his position at trial, he did not assert that the closing never occurred or that ownership was never transferred. As noted by Defendant “to the contrary, Plaintiff alleged: QSGI should be compelled to pay for the company it bought…” No court issued any order in connection with the early litigation rescinding the transaction. Instead, Riconda negotiated with a Defendant therein (Cummings) to take an assignment of rights and step into his shoes in exchange for a confession of judgment containing a covenant not to enforce.On or about February 25, 2011, Plaintiff brought an action against Mark Sherman, Edward L. Cummings, et al, in Supreme Court, Suffolk County. In paragraph 4 of his complaint in that action (Exhibit D), Plaintiff alleged:4. In July 2008 John Riconda consummated a transaction with QSGI in which Riconda, as seller, agreed to sell the stock and assets of CCSI to QSGI… To collateralize the Note, QSGI placed 100 percent of the capital stock of CCSI, in escrow, pursuant to a pledge and escrow agreement dated July 7, 2008.During the course of the trial (March 28, 2018) the following question was put to Mr. Riconda:Q. So the transaction on that date was consummated, correct?A. Whatever that means.Furthermore, is undisputed that the referenced Escrow and Pledge Agreement [Trial Exhibit ZZ], in turn provides that “consummation” means, Pledgor [QSGI-CCSI] will be the record and beneficial owner of one hundred percent (100 percent ) of the capital stock of the Company [CCSI].”This action (the D & O action) was forwarded to Defendant for consideration. Transaction documents contemporaneous with the closing of the transaction were studied by the Defendant. Those documents report that Plaintiff became the President of a subsidiary. Eventually Liberty denied coverage based on the Insured Versus Insured Exclusion found at exclusion 5.6 of the Policy. Liberty thereafter issued three coverage letters to consider additional information provided by its insured’s.It should be noted at this point, the litigation posture taken by Plaintiff in the D & O action, was that the original sale never completely closed and that the ownership of his former company [CCSI] was not transferred to QSGI-CCSI as a result of a closing. This despite the fact as noted hereinabove, that in Plaintiff’s verified pleadings, he alleged that the closing was “consummated” and that ownership was transferred from CCSI to QSGI-CCSI, a subsidiary.At the trial, Plaintiff was confronted with his deposition testimony. Plaintiff swore in accord with his verified pleadings: (i) that the closing occurred; (ii) that CCSI’s shares were transferred to QSGI-CCSI; and (iii) that the Company of which he was President and where he was employed was then owned by QSGI-CCSI to wit:“At the time of the closing of the Stock Purchase Agreement, the shares of CCSI that you owned were transferred to QSGI or QSGI-CCSI; is that correct?”…ANSWER: Right.”3“QUESTION: Your understanding after July 7th 2008 CCSI became a subsidiary of QSGI-CCSI?4ANSWER: Right. That’s my recollection. That’s why they formed that, for that purpose.”“QUESTION: But the stock, the company itself, CCSI, was owned by QSGI-CCSI?ANSWER: That’s correct.”5“QUESTION: What entity were you an employee of?…ANSWER: CCSI.QUESTION: And CCSI, at that point in time, was owned by what entity?ANSWER: “I believe it was QSGI-CCSI.”6It is a well settled principle of law in our state that a party who assumes a certain position in a legal proceeding may not thereafter, simply because his interests have changed, assume a contrary position. Invocation of the doctrine of judicial estoppel is required in such circumstances lest a mockery be made of the search for the truth.The doctrine of judicial estoppel precludes a party from taking a position in one legal proceeding, which is contrary to that which he or she took in a prior proceeding, simply because his or her interest have changed. Tedesco v. Tedesco, 64 A.D.3d 583, Supreme Court, Appellate Division Second Department. The doctrine rests upon the principle that a litigant should not be permitted to lead a court to find a fact one way and then contend in another judicial proceeding that the same facts should be found otherwise (Environmental Concern v. Larchwood Constr. Corp., 101 A.D.2d 591, 594,476 N.Y.S.2d 175. The doctrine is invoked to estop parties from adopting such contrary positions because the judicial system “cannot tolerate this playing fast and loose with the courts.” Scarano v. Central R. Co. of N.J., 203 F.2d 510, 513 [Third Circuit 1953]. In the case of Festinger v. Edrich, 32 A.D.3d 412, dicta indicates that the doctrine of judicial estoppel warranted dismissal of Plaintiff’s suit claiming ownership interest in real and personal property on ground that he had funded his sister’s purchase of land and transferred cash and personal property to her for safekeeping, since plaintiff’s claims were manifestly at odds with his representations in prior sentencing proceeding, for violating probation by failing to report assets and income available for restitution, that he had no money or assets; lenient sentence which Plaintiff received constituted such benefit for the purposes of the doctrine of judicial estoppel, and application of doctrine was essential to avoid fraud upon the court and mockery of truth-seeking function. The doctrine of judicial estoppel precludes a party from taking a position in one legal proceeding which is contrary to that which he or she took in a prior proceeding, simply because his or her interest have changed. Private Capital Group, LLC v. Hosseinipour, 86 A.D. 3-D 554, 556 [2011], quoting Matter of New Cr. Bluebelt, Phase 4, 79 A.D.3d 888, 890 [2010].Many of the cases where the doctrine of judicial estoppel has been successfully invoked turn on whether or not the party against whom the doctrine is invoked received any form of benefit as a result of taking the prior inconsistent position. In the matter at bar, Plaintiff negotiated a transaction and resolution with an admittedly insured party (Cummings) to obtain that party’s rights under the subject insurance policy. Liberty was not a party on the prior action and compellingly the heart of Riconda’s claim in the action against Cummings, et. al. was a breach of contract in failing to pay the agreed price for his company.Defendant correctly asserts that the doctrine of judicial estoppel mandates this Court grant it relief. Why? In simple terms, at trial for the first time, Plaintiff contended that specific conditions precedent compelled a finding that the transaction never closed. In essence, Plaintiff put forth a prosecution that looked back to the time of earlier litigation not involving Defendant herein and said “never mind.”Defendant’s submission accurately reflects that during the summary judgment stage, consistent with the aforementioned verified pleadings as well as deposition testimony, Plaintiff admitted that the closing took place and that ownership of CCSI was transferred to QSGI-CCSI. It is accurate that Plaintiff’s position, up until the time of trial, was not that the deal never closed, and therefore he never became president, which, if true would neutralize the exclusion relied upon by the Defendant, but that “after the sale,” his authority was so eclipsed that “he retained purely ceremonial title of president after the sale.” (emphasis added)Once again at the summary judgment stage, Plaintiff submitted another sworn affidavit, dated July 17, 2017, which was read into the record at trial, confirming: “ultimately, the deal signed on July 7, 2008. At that time CCSI, Inc. ceased to exist as an independent legal entity.” Furthermore, as noted hereinabove, this Court on its March 6, 2019 Short Form Order concerning the choice of law question noted the following: “after the closing of the sale on July 7, 2008 CCSI ceased to exist as a freestanding company and became QSGI-CCSI, Inc. d/b/a CCSI.”As an aside, the Court’s choice of law decision became a critical moment to the Plaintiff. It is apparent to the Court that Plaintiff was somewhat confident that the Court would find that Florida law as opposed to New York law was applicable to this litigation. Under Florida law the admission that the transaction closed would be grossly immaterial and irrelevant to the coverage issue and therefore Plaintiff could remain faithful to his verified allegations and testimony alleged in the earlier (Cummings) suit.At trial, Plaintiff’s memorandum of law (trial Exhibit FFFFF), noted at pages 3-4: “as of the close of the transaction, CCSI ceased to exist as a distinct legal entity, and became a d/b/a for QSGI-CCSI Inc.” Followed by a chart showing that “after the closing:” CCSI became QSGI-CCSI, d/b/a CCSI.As another aside the Court focused on Plaintiffs responses to Liberty’s Commercial Division Rule 19-a Statement of Material Facts (the “responses”), which mirrored the aforementioned deposition testimony whereby Plaintiff admitted that the closing took place. That the closing took place, that CCSI ceased to exist as an independent entity; and its stock was transferred as a wholly-owned subsidiary of QSGI. When questioned by the Court as to the import of the Rule 19 a Statement of Material Facts it was suggested by counsel that Plaintiff is not bound by his statement of material facts other than to suggest that for the purposes of the motion those facts are only offered essentially as a stipulation and not to be deemed an admission by Plaintiff. Essentially, if the Court applied Florida law as Plaintiff’s counsel hoped, the question of whether or not a closing took place would become immaterial and irrelevant. However, under New York law, the admission is fatal as the exclusion relied upon by Defendant bars coverage. Once the Court made a determination to apply New York law, Plaintiff was required to change the theory of his case and contest the fact that “the closing” took place. This despite the fact that throughout the litigation history, inclusive of the prior litigation, the Plaintiff steadfastly prosecuted his claims for breach of contract in failing to pay the bargained for consideration.Defendant convincingly argues that Plaintiff improperly changed its course at trial. In fact, as noted in Defendant’s submissions, its counsel objected to Plaintiff’s counsel being allowed to put on a case at trial centered around the proposition that the closing was like a “mirage” that never happened, and a total contradiction to Plaintiff’s formal judicial admissions prior to trial. Defendant’s counsel noted in the absence of the jury the following:Mr. Riconda’s attorney is not permitted, during the course of this trial, to try to put in evidence which is contrary to what they have admitted…. And now he comes into court and tries to say to this jury, this transaction never happened. That this is all a mirage. That this never went on. He never sold his company…. So they are basically trying to create imagery before this Court, which does not have basis in fact or their own admissions.On the record, Plaintiff’s counsel then proceeded to admit at least eight times that the closing occurred, noting:John is not going to get up there and deny that he went, scheduled a closing and at that certain things happened. The question is what’s what’ the effect?”7“If you look at the way this is, Riconda was president after the closing. We don’t deny that there was a closing; what we deny is what the effect was.”8“John will admit, and he’s right here, he will say, Sure, there was a closing. We traded signature pages in advance. This July 7th was the date. All those blanks, everyone signed it. Both sides.”9“So we don’t dispute that there was a closing, and we don’t, in fact, dispute that John said, I’m going to give you time to come up with the money, let’s kind of hold this in abeyance, I’m going to put the shares in a vault, and I’ll I’ give you time. Let’s try to work together while you come up with the money.10“After the closing of the transaction. Well, it closed, but we saw [sought] a rescission” — which is patently false.11“I’m not going to deny, and John is not going to deny that there was a closing.”12“He will not deny that he was the president of CCSI after closing. Absolutely not.” 13Upon all parties resting, Liberty petitioned the Court for a directed verdict. To wit:Mr. Riconda was a president after the sale of the stock of CCSI and that whether you call it the company CCSI after July 7, 2008 or you call it QSGI-CCSI doing business as, the result is the same, he was president, he admits he was president, and as president of a subsidiary of QSGI after July 7th, he is the insured person that makes the position of the insurance company with respect to the applicability of the exclusion correct.14Defendant correctly points out that during the argument on Liberty’s Motion for a Directed Verdict, the Court asked Plaintiffs counsel to “address the allegation that the deal closed.” The Court posed the following question to Plaintiffs counsel “would you concede that if the deal closed, if it closed, he is an insured and the insured versus insured exclusion precludes recovery?” Although the Court was not provided with a concise answer during closing remarks, Plaintiff’s counsel conceded that if the deal closed, Plaintiff would have been an insured person under the policy and the exclusion would preclude recovery:Now, there’s no dispute, there’s no dispute that if this deal went according to plan John would have been an insured. Of course he would have. He would have been nominated as a Director of QSGI. That was supposed to happen. He would have become the president of QSGI-CCSI, and QSGI would have owned his company. That was the plan.The Court made an inquiry during the course of Plaintiff’s counsel’s argument on Liberty’s Petition for a directed verdict: “Don’t conditions precedent have to happen before the closing?” In the Court’s mind, what Plaintiff’s counsel depicted as a failure of a condition precedent to closing was actually an alleged breach. The Court noted “That’s a breach”… “There is a difference between a closing and a breach of contract. It’s clearly a breach here.”Ultimately the jury rendered a verdict in favor of Plaintiff pursuant to interrogatories placed to the jurors. The jury awarded Plaintiff $2,282,000.The rule is that a claim made or position taken in a former action or judicial proceeding will estop the party from making any inconsistent claim or taking a conflicting position in a subsequent action or judicial proceeding to the prejudice of the adverse party. It is the finding of this Court that this verdict of the jury must be set aside as a matter of law.This Court finds the doctrine of judicial estoppel compels the Court to GRANT Defendant’s application in all respects.The foregoing constitutes the decision and Order of the Court. Submit Order on Notice.Dated: September 7, 2018
