United States District Court, D. Nebraska
MEMORANDUM AND ORDER
F. ROSSITER, JR. UNITED STATES DISTRICT JUDGE
matter is before the Court on defendant and counter-claimant
COR Clearing, LLC's (“COR”) Motion for
Partial Judgment on the Pleadings (Filing No. 50) and Motion
to Strike (Filing No. 77), and plaintiff and
counter-defendant Federal Insurance Company's
(“Federal”) Motion for Summary Judgment (Filing
No. 85). See Fed. R. Civ. P. 12(c) and (f) and 56.
With jurisdiction under 28 U.S.C. § 1332,  the Court grants
the Motion for Summary Judgment and denies the remaining
motions as moot.
a settlement and clearing firm that allows independent broker
dealers to buy and sell stock for their customers. COR
maintains offices in Nebraska, California, and New Jersey.
Its President and Chief Financial Officer (“CFO”)
both work in the Nebraska office, and its Chief Executive
Officer works in the California office.
Harbor Insurance Company (“Indian
Harbor”) issued liability policies to COR effective
from December 27, 2013, to February 27, 2015, and February
27, 2015 to February 27, 2016 (the “XL
policies”). Federal issued a financial institution bond
(the “bond”) to COR effective from April 15,
2014, to April 15, 2015, and COR renewed the bond effective
April 15, 2015, to April 15, 2016. The bond contains four
insuring clauses-1.A, 1.B, 1.D, and 4-and six exclusions-2.e,
2.f, 2.1, 2.k, 2.m, and 3.a-that are at issue in this case.
August of 2013, COR hired Christopher Cervino
(“Cervino”) as a registered representative to
work at COR's Equity Desk located in Edison, New Jersey.
Cervino's duties and responsibilities were limited to
executing trades as directed by clients. He was prohibited
from soliciting trades.
summer of 2014, COR began to investigate customer complaints
that accounts overseen by Cervino had allegedly been opened
without the customers' knowledge or permission, and that
unauthorized stock trades in a company named VGTel Inc.
(“VGTL”) had been placed in those accounts.
Cervino initially claimed the customer was always present on
the phone when he was placing trades but later admitted that
was not the case. COR ultimately terminated Cervino for
violating COR's policy regarding acceptance of orders
from someone other than the account holder without the proper
authorization on file.
that year, Helen Cherry named COR as a party in a Financial
Industry Regulatory Authority (“FINRA”)
arbitration (“Cherry Arbitration”) and filed a
Statement of Claim (“Cherry Statement”) in the
Cherry Arbitration alleging that Larry Werbel, who was not a
COR employee, convinced her to invest in VGTL stock. Cherry
averred she suffered financial loss resulting from her
investment in VGTL.
April 29, 2015, Carl Alexen and twenty-one other claimants
(collectively, the “Alexen Claimants”) filed a
FINRA arbitration (“Alexen Arbitration”) against
COR. The Alexen Claimants alleged they were the victims of
unauthorized trades masterminded by Edward Andrew Durante
(“Durante”), who was not a COR employee, and
involving Cervino. The Alexen Claimants sought to recover
“compensatory and other damages of approximately $6,
December 18, 2015, the Securities and Exchange Commission
(“SEC”) unsealed an indictment against Durante.
On January 6, 2016, the SEC filed an amended criminal
indictment against the alleged participants in the VGTL
scheme including Cervino.
settled the Cherry Arbitration for $80, 000 on January 5,
2016, and settled the Alexen Arbitration for $2, 000, 000 in
August of 2016. Also in 2016, COR submitted claims to both
Indian Harbor under the XL Policies and Federal under the
bond. COR ultimately received some funds from Indian Harbor,
but the nature of the remuneration is disputed. COR has not
received any funds from Federal.
December 22, 2016, Federal filed a five-count Complaint
(Filing No. 1) in this case requesting declaratory judgment.
Count I requested a declaration that COR's claim was not
covered by any of the insuring clauses and that Exclusion 2.e
applied. The remaining four counts requested declarations
that Exclusions 2.f, 2.i, 2.k, and 2.m applied, respectively.
Answer (Filing No. 18), COR included a counterclaim for
breach of contract against Federal, alleging it was entitled
to coverage under insuring clauses 1.A, 1.B, 1.D, and
COR moved for partial judgment on the pleadings (Filing No.
50), and Federal moved to strike (Filing No. 77) one of
COR's filings and also moved for summary judgment (Filing
there is ‘no dispute of material fact and reasonable
fact finders could not find in favor of the nonmoving party,
summary judgment is appropriate.'” Sieden v.
Chipotle Mexican Grill, Inc., 846 F.3d 1013, 1016 (8th
Cir. 2017) (quoting Shrable v. Eaton Corp., 695 F.3d
768, 770-71 (8th Cir. 2012)). In reviewing a motion for
summary judgment, the Court will view “all facts and
mak[e] all reasonable inferences favorable to the
nonmovant.” Gen. Mills Operations, LLC v. Five Star
Custom Foods, Ltd., 703 F.3d 1104, 1107 (8th Cir. 2013).
Choice of Law
asserts New Jersey law applies to the interpretation of the
bond. Federal claims Nebraska law applies. A federal court
sitting in diversity generally should apply the substantive
law of the state in which it sits, including its
choice-of-law rules. Klaxon Co. v. Stentor Elec. Mfg.
Co., 313 U.S. 487, 496 (1941). In cases involving a
dispute over interpretation of an insurance contract or bond,
Nebraska uses the Restatement (Second) of Conflict of Laws.
See Johnson v. U.S. Fid. & Guar. Co., 696 N.W.2d
431, 441 (Neb. 2005) (analyzing the Restatement (Second) of
Conflict of Laws §§ 188 and 193 to determine
controlling law for interpreting a contract).
Court should interpret a fidelity bond under “the local
law of the state which the parties understood was to be the
principal location of the insured risk during the term of the
policy, unless with respect to the particular issue, some
other state has a more significant relationship under the
principles stated in § 6.” Restatement (Second) of
Conflict of Laws § 193. COR argues that the principle
location of the insured risk is New Jersey because the bond
covered employee misconduct in the New Jersey office.
However, the bond would have also covered employee misconduct
in the Nebraska and California offices. Because there is
no single principal location of the insured risk, the Court
turns to § 188, which applies the principles of § 6
§ 188, the relevant state contacts to analyze are
“(a) the place of contracting, (b) the place of
negotiation of the contract, (c) the place of performance,
(d) the location of the subject matter of the contract, and
(e) the domicil, residence, nationality, place of
incorporation and place of business of the parties.”
Id. § 188.
primary place of business is Nebraska,  as evidenced by
the presence of the company's President and CFO and the
address COR listed on its renewal application. Federal's
primary place of business is New Jersey. The contract was
presumably negotiated from both companies' primary place
of business. The record is unclear as to the place of
performance, and the location of the subject matter are all
three states in which COR maintains an office. Finally,
“the place of contracting is the place where occurred
the last act necessary, under the forum's rules of offer
and acceptance, to give the contract binding effect[.]”
Id. cmt. e. In this case, the last act necessary to
make the contract binding was Federal's acceptance of the
application for the bond. Although a close question, after
analyzing the issue under § 188 the Court concludes New
Jersey has a more significant relationship to the transaction
and the parties than Nebraska.
words of an insurance policy should be given their plain
meaning.” Benjamin Moore & Co. v. Aetna Cas.
& Sur. Co., 843 A.2d 1094, 1103 (N.J. 2004).
“The interpretation and construction of a contract is a
matter of law for the trial court[.]” Cumberland
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