Daileader v. Certain Underwriters at Lloyds London Syndicate 1861
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 23-690 (2nd Circuit, Mar 18,2024) Published
- Tag(s):
-
- Ruling:
- Affirming the U.S. District Court for the Southern District of New York (DC), the U.S. Court of Appeals for the Second Circuit (Circuit) found no abuse of discretion in the DC's denial of the motion for a preliminary injunction, filed by Timothy Daileader (TD), compelling several excess insurers, including Certain Underwriters at Lloyds London Syndicate 1861 (Lloyds), not to defend TD in his litigation involving an affiliated group of three healthcare companies (Oaktree), chapter 7 debtors, for whom he was once an independent director and manager despite Oaktree's extant D&O policies.
- Procedural context:
-
In September 2019, each of the Oaktree entities filed for chapter 7 bankruptcy. In April 2021, the appointed trustee sent a demand letter to TD alleging, among other things, that he had breached his fiduciary duties to Oaktree by failing to file for a chapter 11 restructuring. Subsequently, the trustee filed three substantively identical adversary complaints, one for each of the three Oaktree entities. These suits triggered a dispute among the parties to this appeal - specifically, TD himself and Oaktree's excess insurers, beginning with Lloyds -- about whether the D&O policies provided by the latter group covered the aforementioned adversary proceedings once the D&O coverage afforded by Oaktree's primary insurer, non-party Landmark American Insurance Company (Landmark), had been exhausted. As justification for its refusal, Lloyds, joined by the other excess carriers, pointed to the relevant policies' "Bankruptcy/Insolvency Exclusion" provision, which generally exclude from coverage any claim against TD arising from a wrongful act alleged to have contributed to Oaktree's bankruptcy. On March 18, 2022, TD sued all the excess insurers in the U.S. District Court for the District of South Carolina; on June 27, 2022, his suit was transferred to the DC; and on April 20, 2023, the DC denied TD's preliminary-injunction motion. Having summarily affirmed this order on November 15, 2023, the Circuit issued this opinion to explain why the DC had correctly ruled that: (1) TD was seeking a mandatory rather than a prohibitory injunction, therefore requiring him to meet a heightened standard to obtain preliminary relief; (2) had not shown he would be irreparably harmed by denial of such relief; and (3) had not shown he was likely to prevail on the merits of his claim.
- Facts:
- Starting in 2015, the United States and several qui tam relators brought suit against Daniel McCollum, Oaktree's owner, as well as Oaktree itself, alleging that Oaktree had been fraudulently mismanaged. In January 2018, with litigation against Oaktree pending, Oaktree defaulted on multiple loans. Between July and December 2018, Oaktree's lenders appointed TD as the independent director and/or manager of the various Oaktree entities, a role that TD assumed through his employer, which specializes in placing investment professionals into independent director roles at financially distressed companies. Eventually, Oaktree’s distress soon put TD at risk of personal liability. Prior to TD's entrance, Oaktree had purchased insurance protecting its directors and officers against some litigation expenses. Landmark sold Oaktree a $1 million primary D&O coverage; Syndicate 1861 provided a first layer of excess coverage up to $1 million, while the other excess insurers cumulatively provided another $8 million in coverage. At no point did any of the parties to this appeal dispute that TD is among those insured by these D&O policies.
- Judge(s):
- John M. Walker Jr.; William J. Nardini; and Denny Chin
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