mericle appeal argument transcript
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1 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
2
3
4
5 No. 10-3887
6
7
8 TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA,
9 f/k/a The Travelers Indemnity Company of Illinois
10 V.
11 ROBERT K. MERICLE; MERICLE CONSTRUCTION, INC,
12 Appellants
13
14
15 Present: SCIRICA, RENDELL and SMITH, Circuit Judges
16
17
18 TRANSCRIPTION OF
19 ORAL ARGUMENT
20 (January 10, 2012)
21
22
23
24
25
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1 JUDGE SCIRICA: ...is Travelers Property
2 Casualty Company of America versus Robert Mericle.
3 Mr. Cruz.
4 MR. CRUZ: May it please the Court.
5 There are many bad actors in this case.
6 That undeniable fact produced the District Court opinion
7 here. But the District Court made a fundamental error.
8 It asked the wrong question. It asked whether
9 Plaintiffs had pleaded any claim that would fall outside
10 of the coverage. Of course they have. Travelers
11 likewise in its briefing devotes virtually all of its
12 briefing to making the case that Plaintiffs, if they
13 were able to prove a willful criminal violation by
14 Mericle, could fall outside coverage --
15 JUDGE SCIRICA: Well, don't -- we look at
16 the facts that are alleged in the Complaint.
17 MR. CRUZ: Absolutely. But on the facts
18 that are alleged, Plaintiffs also pleaded a theory that
19 would not require the proof of a willful criminal
20 conduct that caused their harm.
21 JUDGE SMITH: What was the claim?
22 MR. CRUZ: A negligence claim. And they
23 pleaded it in multiple places.
24 JUDGE RENDELL: Where?
25 JUDGE SMITH: Where?
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1 MR. CRUZ: Well, for example, Count 8 of
2 the Master Individual Complaint, which is at Joint
3 Appendix 312, it's a civil conspiracy claim. That civil
4 conspiracy claim, the Plaintiffs pleaded a civil
5 conspiracy among all -- all the Defendants specified
6 included Mericle, and they go on to say that Mericle and
7 the others --
8 JUDGE RENDELL: Sorry, you are at 312?
9 I -- maybe I just pulled the wrong section, but I have
10 A42. Starting at A42?
11 JUDGE SMITH: This is Count 8, the civil
12 conspiracy claim?
13 MR. CRUZ: Yes, Count 8, civil --
14 JUDGE SMITH: A312?
15 MR. CRUZ: Yes.
16 JUDGE RENDELL: Okay.
17 MR. CRUZ: Yes, A312. There what they
18 allege is that the parties paid bribes/kickbacks. Now,
19 that's contrary to the colloquy, and what the federal
20 prosecutor said, but we're going to assume the facts are
21 true in the Complaint.
22 JUDGE SMITH: How do you -- how do you
23 conspire negligently, if that is the count that you are
24 referring to, Count 8 civil conspiracy?
25 MR. CRUZ: Because what the Complaint
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1 describes, the complaints are subject to potentially two
2 interpretations. There's broad language that would have
3 Mericle in bed with Powell and everyone else conspiring
4 and aware of the ends of the conspiracy. Now, that's
5 contrary to what the federal prosecutors told the court,
6 but --
7 JUDGE SMITH: Okay. The entering into the
8 conspiracy, i.e. the agreement is an intentional act.
9 So what you're suggesting is that what is not
10 intentional is the consequences of the agreement.
11 MR. CRUZ: That's exactly right. And
12 under the insurance policy, the consequences have to be
13 intentional.
14 Conspiracy law allows imputed intent. And
15 because of the District Court's mistake, asking are
16 there -- the wrong question, the District Court imputed
17 the intent of other more culpable Defendants to Mericle.
18 The facts here suggest --
19 JUDGE SCIRICA: Well, it says -- it says
20 in order to conceal the first payment, Mericle signed
21 and back dated a registration and commission agreement
22 as an attempt to hide the payment as a broker's fee.
23 MR. CRUZ: Yes, Your Honor. And Mericle
24 pleaded guilty to not -- to --
25 JUDGE SCIRICA: Well, that's a different
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1 matter -- what they pleaded guilty to or not.
2 MR. CRUZ: What the -- the facts pleaded
3 in the complaint allow is the interpretation conceivably
4 of two crimes. One, they could present to the Court
5 that Mericle bribed the judges to build the facilities
6 but had no knowledge, no awareness of the quid pro quo
7 of the ongoing bribes by Powell to wrongfully sentence
8 juveniles.
9 Now, under that interpretation, which is
10 entirely consistent with the facts and is consistent
11 with how they pleaded it, Mericle would be held liable
12 not for willfully violating the rights of the juveniles,
13 because what Mericle pleaded guilty to, which was paying
14 the judges and then not affirmatively telling the IRS
15 that he was aware the judges had mischaracterized their
16 income for tax purposes, the victim of that crime was
17 the IRS. It was the federal treasury. It wasn't the
18 kids.
19 So Mericle's theory, one of their
20 theories, look, one of their theories is Mericle
21 participated directly in a criminal conspiracy. But
22 another theory is Mericle did a bribe at the outset that
23 made it part of the whole broader conspiracy and as they
24 say, here in Paragraph 163, Defendants knew or should
25 have known that the natural consequences of those acts
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1 would be Plaintiffs being unlawfully detained. Knew it
2 or should have known is not willful violation of a penal
3 statute, it's not a knowing criminal conduct, it's --
4 it's negligence. And that theory --
5 JUDGE RENDELL: But I'm still confused.
6 Under the policy there had to have been an occurrence,
7 which there wasn't here. Now, there had -- or there had
8 to have been false imprisonment with either a knowledge
9 that it was violating the rights of others or violations
10 of the penal statute. How do we -- how do you -- how do
11 you then fit within coverage? I mean, the exception
12 is -- for false imprisonment -- is if there is knowledge
13 of violating the rights of others or a penal statute.
14 Clearly that falls under one of these two
15 categories. So how -- I still don't see how, just by
16 saying, oh, knew or should have known, therefore there's
17 coverage. It doesn't fit.
18 MR. CRUZ: Let me take the different
19 pieces of your question one at a time.
20 You first asked about coverage A -- the
21 coverage for bodily injury which requires an
22 occurrence --
23 JUDGE RENDELL: An occurrence.
24 MR. CRUZ: The case law is clear that an
25 occurrence is --
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1 JUDGE RENDELL: An accident.
2 MR. CRUZ: -- is defined as something
3 unintentional --
4 JUDGE RENDELL: It's an accident.
5 MR. CRUZ: -- or unintended.
6 JUDGE RENDELL: An accident.
7 MR. CRUZ: But it's not an accident, it's
8 something that you did not intend to those consequences.
9 That's what the Pennsylvania case law is clear, that's
10 what an occurrence is.
11 In this instance, if it were the case,
12 that Mericle, let's assume, contrary to the actual
13 facts, let's assume Mericle bribed the judges to build
14 the facilities, but had no knowledge, had -- was
15 completely unaware that Powell was going to bribe the
16 judges to wrongfully sentence juveniles there.
17 JUDGE RENDELL: But if the initial act was
18 intentional --
19 MR. CRUZ: But the initial act didn't
20 cause any harm to the kids. The only person defrauded
21 was the IRS, under that theory.
22 Now, it's worth -- I would urge the Court
23 to read carefully the colloquy, which is part of this
24 record where the U.S -- the U.S. Attorney's Office came
25 into open court and --
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1 JUDGE RENDELL: That -- that's a different
2 matter. We're talking about what is pled in the
3 Complaint, it's the four corners of the Complaint. You
4 make that argument and it sounds appealing, but the
5 guilty plea colloquy has nothing to do with --
6 MR. CRUZ: Judge Rendell, with --
7 JUDGE RENDELL: -- what's before us.
8 MR. CRUZ: -- with respect, under
9 Pennsylvania case law, the guilty plea colloquy is very
10 relevant. The Pennsylvania Supreme Court has relied on
11 it in Minnesota Fire v. Greenfield. The Pennsylvania
12 Supreme Court looked to the parallel criminal proceeding
13 and to the colloquy to determine what was being pled in
14 the complaints and they looked to it and said it's
15 relevant for insurance coverage.
16 So under Pennsylvania state law --
17 JUDGE RENDELL: But that's as to what
18 was -- what he did plead to. Here, you're arguing that
19 the colloquy said that somebody didn't do something and
20 you're saying that is fact.
21 JUDGE SMITH: Yes, and so --
22 JUDGE RENDELL: We can't take that as
23 fact.
24 JUDGE SMITH: I'm sorry. And to -- to
25 follow up on that, irrespective of the appropriateness
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1 of considering what may be in a guilty plea colloquy,
2 what value is that colloquy here where obviously what
3 took place was a plea arrangement to account, which did
4 not include the conspiracy with which the Defendant was
5 originally charged. So it would be of very limited, if
6 any, applicability here, wouldn't it?
7 MR. CRUZ: The colloquy is relevant for a
8 couple of reasons. One, the prosecutor explicitly
9 states there is no evidence, zero, none that Mericle
10 knew of the quid pro quo. The colloquy also states --
11 JUDGE SMITH: Well, that gets back --
12 MR. CRUZ: -- that the payments --
13 JUDGE SMITH: -- that gets back to Judge
14 Rendell's question in point, however, that even if the
15 prosecutor said that, that's not what guides us here.
16 A, it's not within the four corners of the
17 Complaint; B, it's a prosecutor's statement, it's not an
18 admission by your client or a finding that has been made
19 from any record before the Court at the time of the
20 plea.
21 MR. CRUZ: Judge Smith, as I said, the
22 Pennsylvania Supreme Court has looked to the colloquy
23 and I will point out in this case the four corners
24 includes the Bill of Information because the Complaints
25 explicitly incorporate the Bill of Information into the
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1 four corners. So that's part of the four corners.
2 And the point is to say, if there are 49
3 theories Plaintiffs have pleaded that are based on
4 conduct that would fall outside of the insurance
5 coverage, and one theory that -- one theory that would
6 fall within, it's black letter law that Travelers has a
7 duty to defend.
8 In this case, Plaintiffs were trying the
9 boot -- the belts and suspenders. And so a theory that
10 they argued to the District Court, they argued on pages
11 12 and 13 of their supplemental Rule 12 opposition, and
12 this is in the record, it's not in the Joint Appendix, I
13 apologize for this, but it's their briefing to the
14 District Court on the Rule 12 issue. Plaintiffs argued:
15 Once a private individual becomes jointly engaged with
16 state officials and therefore is a willful participant
17 in joint activity, the question is whether the
18 prohibited action subjected or caused the deprivation of
19 constitutional rights within the meaning of 1983 and
20 what Plaintiffs argue is that all that is necessary is
21 if Plaintiff sets into motion a series of actions by
22 which the actor knows or reasonably should have known
23 would cause others to inflict the constitutional injury.
24 So Plaintiffs argued, look, it's entirely
25 possible Mericle committed a crime and he was negligent
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1 in not anticipating that Powell and others would commit
2 the violations that caused the Plaintiffs' injuries
3 here.
4 JUDGE RENDELL: But that's -- that's not
5 averred in the Complaint that he was negligent in not.
6 MR. CRUZ: With respect, Your Honor, it is
7 averred repeatedly. And we -- we cite over and over
8 again where the Plaintiffs -- that they plead multiple
9 theories, but the question I would ask, Judge Rendell,
10 would they be permitted to go to the jury and present
11 evidence that Mericle committed a crime in paying the
12 referral fee and to argue that was a kickback and that
13 he was negligent in not knowing what happened next?
14 I'll point out, the District Court in
15 Footnote 4 of its opinion explicitly said yes,
16 negligence is enough. That's what the Plaintiffs
17 pleaded, it's what they argued and the District Court
18 agreed it was a viable theory. And if that's a viable
19 theory, coverage lies.
20 JUDGE SCIRICA: Okay. Let's -- let's hear
21 from your opponent, then we'll have you back on
22 rebuttal, Mr. Cruz. Mr. Arena?
23 Morning.
24 MR. ARENA: Good morning, Your Honors.
25 May it please the Court. Sam Arena on
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1 behalf of Travelers Casualty Insurance Company of
2 America.
3 With my time this morning, in addition to
4 answering Your Honors' questions, I would like to
5 address several of the more creative arguments made on
6 behalf of the Mericle Defendants -- you just got to hear
7 some of those -- as well as what we see are the gross
8 mischaracterizations of the underlying facts as set
9 forth in the -- the three Complaints that are at issue
10 here.
11 Because Pennsylvania law, as Judge Rendell
12 said, under Pennsylvania law the duty to defend is based
13 solely upon the allegations -- the factual
14 allegations -- set forth in the four corners of the
15 Complaint, and since what these complaints actually
16 allege cuts across and is at the heart of all of the
17 issues before the Court, that's where I would like to
18 begin.
19 There should be no dispute that the duty
20 to defend turns on the four corners of the Complaint.
21 And I say should because throughout Mericle's briefs,
22 Mericle attempts to have this Court, as you just heard,
23 go outside the four corners.
24 JUDGE SCIRICA: Well, they claim that
25 your -- you've in effect alleged negligence in the
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1 Complaint. Why is that not the case?
2 MR. ARENA: The Complaints do not allege
3 negligence. As Judge Caputo, who's lived with the
4 underlying cases, he's the sitting judge on both these
5 coverage cases and the underlying cases, as he's clearly
6 laid out in his opinions, the underlying complaints
7 don't set forth claims for negligence, they set forth
8 claims for -- arising out of a criminal conspiracy to
9 deprive the minor Plaintiffs, the juveniles, of their
10 constitutional rights.
11 JUDGE SMITH: Was the opinion in this case
12 the last of the three opinions that Judge Caputo wrote
13 chronologically? It seems --
14 MR. ARENA: This one was.
15 JUDGE SMITH: Yes. So he was able to rely
16 upon his adjudications in the earlier --
17 MR. ARENA: Yes. He had not only been
18 through those, but he is also the sitting judge in the
19 underlying cases and I submit he's very well familiar,
20 perhaps better than anyone else in terms of what these
21 underlying complaints actually allege.
22 JUDGE SCIRICA: How do we -- how do we
23 define or how does Pennsylvania law define "arising
24 under" or "arising out of"?
25 MR. ARENA: I would only point to Your
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1 Honor's opinion in Essex: "but for." It's but for with
2 respect to the insuring agreement and, as Your Honor
3 found in Essex, it's but for causation with respect to
4 the exclusions. That's the law of Pennsylvania.
5 But in terms of the -- the four corners
6 rule in Pennsylvania, as I said, there really should be
7 no dispute as to the fact that that's the law of
8 Pennsylvania, but Mericle would ask this Court to go
9 outside the four corners and ask the Court to consider,
10 as you just heard, Mericle's version of the underlying
11 facts, what Mericle contends the evidence is going to
12 show at trial, what Mericle believes are the true facts.
13 JUDGE SMITH: Well, but Mericle is also
14 making a legal point, a purely legal point in arguing
15 that while it may be intentional -- it is intentional
16 conduct to enter into an agreement -- that is the
17 requisite of a conspiracy, at the same time what was not
18 intended were the actual consequences here of that
19 agreement.
20 Now, that's a legal point. Is that the
21 law? Is that the law of Pennsylvania?
22 MR. ARENA: That -- that would be nice if
23 that's -- if the actual allegations in the underlying
24 complaints supported that argument. But they don't. We
25 have, I believe, over 1,200 paragraphs of allegations
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1 across these three complaints. The Master Class
2 Complaint, which Your Honor should be aware, has no
3 allegations in it at all of reckless conduct or knew or
4 should have known, there's nothing in the Master
5 Complaint at all.
6 JUDGE RENDELL: Well, all right. But even
7 if it did, let's say that the theory was, as stated by
8 Judge Smith, that there's an intentional act but lack of
9 knowledge of the consequences, are you conceding that
10 that, therefore, means it is a negligence cause of
11 action?
12 MR. ARENA: Not at all. Not at all. And
13 in fact, that's not what the Complaints allege. The
14 Complaints allege an intentional criminal conspiracy to
15 deprive the minors of their rights --
16 JUDGE SMITH: Isn't knew or should have
17 known language the language of negligence?
18 MR. ARENA: It can be, but you have to
19 look at the consequences -- the context in which it's
20 presented. In the civil conspiracy count, you cannot
21 have a negligent conspiracy. It requires intent. And
22 if the allegations is that the parties -- and this is
23 the overarching allegation throughout all of these
24 complaints -- that the -- all of the defendants,
25 including Mericle, and one of the points I wanted to get
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1 to was the fact that they say Mericle is not
2 specifically identified. But we quote the paragraphs
3 where they specifically identify Mericle by name.
4 But the overarching allegations here
5 across these three Complaints are that the -- that the
6 Defendants, including Mericle, engaged in this
7 intentional criminal conspiracy to deprive the minors of
8 their rights and part of that conspiracy comes with it
9 the -- the execution and the consequences of the entire
10 conspiracy. You can't, under Pennsylvania law -- or the
11 law of any jurisdiction that I'm aware of -- have a
12 negligent conspiracy. You just can't have that happen.
13 JUDGE SMITH: Where --
14 MR. ARENA: And the fact that sprinkled
15 throughout these Complaints are a reckless allegation, a
16 knew or should have knew allegation -- the Clark
17 Complaint has one reckless allegation. As I said, the
18 Master Complaints have none. There are a handful, just
19 a handful, in the Master Individual Complaint.
20 And the law of Pennsylvania is quite
21 clear, and we cite the cases -- the so-called artful
22 pleading cases -- that if you sprinkle through a
23 Complaint that otherwise sets forth an intent-based
24 claim, intent-based claims here, they don't change
25 the -- the type of claims that are presented. The fact
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1 that there's scattered through a Complaint a reckless
2 allegation here, a negligence-type allegation there,
3 does not change that equation.
4 JUDGE RENDELL: So you're saying if I give
5 you a concoction of club soda and antifreeze, and you
6 die and yet, I say well, you know, I had -- had no idea,
7 you know, that this was going to cause you death, it
8 doesn't convert it -- even though I knew or should have
9 known, it doesn't convert it into a negligent act on my
10 part?
11 MR. ARENA: Absolutely.
12 JUDGE SMITH: Judge Rendell, if you
13 thought the antifreeze was Scotch, I can assure you
14 that's a mistake I would not make.
15 JUDGE RENDELL: [Laughing.]
16 MR. ARENA: Also responding to Your
17 Honor's point: One thing that I think has to be focused
18 on, here as well, is that each of the claims against
19 Mericle, and there are three types of claims -- 1983
20 Civil Rights violations, civil conspiracy we were just
21 talking about, and RICO claims -- each of those three,
22 as with respect to Mericle as a non-state actor, it's an
23 important point, require intent.
24 The Plaintiffs cannot recover against
25 Mericle on any of those theories through negligence.
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1 The 1983 case, Mericle is a non-state actor and as a
2 non-state actor he must conspire -- Plaintiffs must
3 prove that he conspired with a state actor. Again,
4 there's no such thing as a negligent conspiracy.
5 With respect to the RICO claims, they
6 require fraud, intentional conduct, the predicate acts
7 or crimes that require intentional fraudulent conduct,
8 so they can't recover against Mericle on the RICO --
9 civil RICO claims on -- with respect to negligent
10 conduct.
11 And we already talked about the civil
12 conspiracy. You can't have a negligent conspiracy.
13 So as a matter of law, with respect to
14 each of the claims against Mericle, they all require
15 intentional conduct.
16 JUDGE SCIRICA: What about --
17 MR. ARENA: And with respect to this knew
18 or should have known, we cited this in our first trial
19 court brief, but in cutting things down to the -- the
20 point to meet the requirements here for the word count,
21 one citation was left on the cutting room floor, one
22 footnote. With respect to the 1983 aspect of this, I'm
23 not an expert on 1983 actions, but the knew or should
24 have known allegations, as I understand it, are pretty
25 much boilerplate pleading in 1983 cases against state
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1 actors because the issue of whether qualified immunity
2 applies in those cases turns on whether a reasonable
3 official, government official, knew or should have known
4 that the alleged action violated the Plaintiffs' rights
5 and the case we cited in trial court was Walter v. Pike
6 County, 544 F.3d 182 (3d Cir. 2008).
7 So I submit that another reason why you
8 may very well see in these Complaints some knew or
9 should have known allegations, particularly in the --
10 JUDGE SCIRICA: Well, does that --
11 MR. ARENA: -- 1983 claims --
12 JUDGE SCIRICA: Does that cross the line
13 then into a viable claim?
14 MR. ARENA: I don't believe so at all. A
15 negligence claim? Absolutely not.
16 Again, 1983, there can be no recovery
17 against a non-state actor without proof of a conspiracy.
18 JUDGE SCIRICA: The -- the coverage under
19 the policy is excluded for knowing violation of rights
20 of another under -- under coverage B here. So I gather
21 your position is that knowledge means actual knowledge,
22 not constructive knowledge?
23 MR. ARENA: I would go back to -- Your
24 Honor, I would go back to the allegations in the
25 complaint. And here they allege that Mericle knew.
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1 They allege that as part of the conspiracy all of the
2 Defendants knew. That's what they say and I believe
3 that's inescapable. They also allege that this was
4 intentional conduct.
5 That cuts across all of the counts in the
6 complaint.
7 JUDGE SMITH: Taking you back to the
8 occurrence question, how should we read the Gene's
9 Restaurant decision? Does it suggest, does it require
10 us to conclude that all non-intentional conduct is an
11 occurrence?
12 MR. ARENA: I'm not sure that I'm
13 following your question, Your Honor.
14 JUDGE SMITH: Well, if you're not
15 following the question, then it probably doesn't warrant
16 a response. My recollection is that -- that opinion was
17 discussed in -- I thought in both of the briefs and it's
18 a Pennsylvania --
19 MR. ARENA: It is cited.
20 JUDGE SMITH: -- Pennsylvania Supreme
21 Court case. Very brief one, if I recall.
22 MR. ARENA: May I hear Your Honor's
23 question again?
24 JUDGE SMITH: I asked how we should -- how
25 we should regard that decision and whether it requires
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1 us to conclude that if it's non-intentional conduct,
2 any -- any non-intentional conduct, it's an occurrence?
3 MR. ARENA: I don't believe that --
4 intentional conduct certainly is -- does not support a
5 finding that there is an occurrence. I guess I --
6 taking it in a vacuum, I don't know that I can answer
7 Your Honor's question.
8 JUDGE SMITH: All right.
9 JUDGE SCIRICA: Okay. Anything else you
10 want to tell us?
11 MR. ARENA: A comment was made by Mr. Cruz
12 regarding the -- the footnote in Judge Caputo's Clark
13 and Wallace opinions. Those footnotes, first of all, I
14 don't believe they have any impact with respect to the
15 issues that are before this Court whatsoever for several
16 reasons.
17 Number one, they are dicta in the context
18 of the Clark and the Wallace cases. Judge Caputo had
19 already found that the complaints on the 12(b)(6)
20 motions set forth claims for intentional conspiratorial
21 conduct. So number one, they're dicta -- but the short
22 answer is, as I said before, they have no application to
23 Mericle. They were -- to the extent they had any effect
24 at all -- they would have effect with respect to the
25 state actors.
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1 JUDGE SCIRICA: All right. What about the
2 penal exclusion, public policy?
3 MR. ARENA: With respect to the public
4 policy, we've laid out in our brief that there are
5 sufficient grounds here for a finding that there should
6 be no coverage for this type of intentional criminal
7 conspiracy to violate constitutional rights under the
8 public policy of Pennsylvania. We lay that out in our
9 brief, but one point that I would like to note with
10 respect to that, more of a response to what was set
11 forth in the reply brief on behalf of the Mericle
12 defendants, the Mericle defendants attempt to convince
13 the Court that it's premature to consider the duty to
14 defend issue in the context of a public policy argument
15 at this point in the case.
16 In support of their position, they cite
17 three trial court -- three federal trial court
18 positions -- three federal trial court opinions. Those
19 opinions are -- don't have any factual basis in terms of
20 analysis and they certainly don't cite to any
21 Pennsylvania law in support of those positions.
22 They cite Perlberger, CGU, and Sedicum in
23 support of their positions. And I would ask that the
24 Court take a close look at those opinions because they
25 are simply not grounded in Pennsylvania law.
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1 Perlberger contains no analysis whatsoever
2 and it's based on the Court's assumption that the
3 carrier there did not intend to pursue the public policy
4 argument at the duty to defend stage.
5 CGU, the next opinion, simply cites to
6 Perlberger, with no analysis.
7 And Sedicum did find that the public
8 policy issue was not ripe, but stated that "again,
9 because of prior statements to this effect, it must be
10 emphasized that Sedicum's State Court complaint alleges
11 both negligent and intentional conduct," which is not
12 the situation we have here.
13 So, those cases stand, I think, in stark
14 contrast to other decisions of the Pennsylvania Supreme
15 Court, later decisions -- Perlberger was 1995, CGU was
16 2001, and Sedicum in 1993 -- but along comes the
17 Pennsylvania Supreme Court in Greenfield and finds at
18 the duty to defend stage of the case, there was no
19 coverage, no duty to defend and no duty to indemnify as
20 a matter of public policy. So the earlier federal trial
21 court cases have no analysis in them whatsoever. They
22 rely on each other and are at odds with the
23 later-decided case by the Pennsylvania Supreme Court.
24 Thank you.
25 JUDGE SCIRICA: Good. Any -- any further
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1 questions? Thank you, Mr. Arena. Mr. Cruz?
2 MR. CRUZ: Your Honor, I'd like to make
3 three points in rebuttal.
4 JUDGE SCIRICA: Surely.
5 MR. CRUZ: The first point is, my learned
6 colleague, in answering a question from Judge Scirica,
7 gave an answer that was in error, in that Your Honor
8 asked what the law of arising out of was under
9 Pennsylvania and my learned colleague said that
10 Pennsylvania law is absolutely clear, it is but for
11 causation, and he cited this Court to the Essex case.
12 Pennsylvania law is anything but clear on
13 this question, the cases are all over the map, and
14 indeed, the Essex case is an unpublished opinion of this
15 Court, authored by Judge Scirica and joined by Judge
16 Smith.
17 There is another unpublished opinion of
18 this Court authored by Judge Smith and joined by Judge
19 Scirica that says precisely the opposite in a different
20 context, and that's the National Casualty v. Wyomissing
21 case, where it says arising out of in an exclusionary
22 clause means proximate causation.
23 Likewise, the Pennsylvania case law, the
24 best case is the Eichelberger case, in our opinion, that
25 concludes it means proximate causation, but there are
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1 cases on the other side and what the courts have said is
2 it depends on the context. So it is not absolutely
3 clear, the cases are on both sides of it.
4 JUDGE RENDELL: Judge Caputo said causally
5 connected. He was giving it a fairly broad reading.
6 MR. CRUZ: He read it as -- as but for,
7 and my point is the Pennsylvania case law, if you look
8 at the Eichelburg -- Eichelberger case, the Pennsylvania
9 Superior Court is very explicit that in an exclusionary
10 clause where there is any ambiguity, and in this
11 instance we would submit there's considerable ambiguity,
12 that it should be read against the insurer, and so
13 should require more than -- than just but for causation.
14 A second point, Judge Smith asked about
15 whether Pennsylvania law was whether the insured
16 intended the consequences, and that is precisely
17 Pennsylvania law under coverage A under the bodily
18 injury standard. And I would point this Court to the
19 Elitzky case, where the Pennsylvania Supreme Court
20 discusses that at considerable length and says that the
21 damage caused has to be of the same general type. So if
22 you commit one crime, in this instance, the alleged
23 bribes dealing with construction of the prison, the
24 damage there is defrauding the IRS, it's not the same
25 general type as anticipating that there would be a
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1 subsequent corrupt bargain to misuse the judicial powers
2 and improperly send juveniles to --
3 JUDGE SMITH: A subsequent corrupt
4 bargain. Your entire position depends, does it not, on
5 the notion that there are two separate conspiracies.
6 One to build the building, the other to unlawfully
7 detain juveniles in that building, doesn't it?
8 MR. CRUZ: With one tweak --
9 JUDGE SMITH: And that's not what's
10 pleaded.
11 MR. CRUZ: With one tweak, two separate
12 crimes. And that is what's pleaded --
13 JUDGE SMITH: But what's pleaded is one
14 conspiracy, isn't it?
15 MR. CRUZ: With respect, Your Honor, it's
16 pleaded both ways. The Plaintiffs wanted belt and
17 suspenders, so they tried to do it one way but they also
18 pleaded -- if you look at paragraph 656 of the Master
19 Class Complaint, Plaintiffs plead on or before January
20 2003 Defendants agreed that Powell and Mericle will pay
21 the money. Powell understood the payments to be a quid
22 pro quo for the judge's exercise of judicial authority
23 to send the juveniles. The complaint explicitly pleads
24 just Powell. It doesn't say Mericle understood it to be
25 a quid pro quo, and I would suggest the reason is
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1 Plaintiffs were aware there was considerable evidence,
2 in fact, that Mericle didn't know that. And that's the
3 third and final point.
4 Look, Plaintiffs would be thrilled to
5 recover. If they could prove Mericle could do this
6 stuff, they'd be thrilled. But the question is not
7 that. It's are they also trying to recover if the
8 evidence shows Mericle didn't know about Powell's
9 corrupt part, and they unequivocally are. If you look
10 to -- you know, my learned brother says there are a few
11 stray references to knew or should have known. The
12 Master Individual Complaint uses that language in
13 Paragraph 109, Paragraph 113, Paragraph 114, Paragraph
14 124, Paragraph 126, Paragraph 136, Paragraph 139,
15 Paragraph 163, Paragraph 164. And the Clark complaint
16 uses it in Paragraph 248.
17 This is not one stray reference. And he
18 says well, it's artful pleading. The pleading is that
19 the Plaintiffs are trying to get maximum liability. So
20 one of the theories they're pursuing, which they
21 affirmatively argued to the District Court, is that we
22 can get recovery against Mericle under 1983 if he simply
23 knew or should have known what Powell and Ciavarella
24 were doing and the District Court explicitly agreed.
25 Remember the --
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1 JUDGE SMITH: Let me take you back to
2 Paragraph 109 that you just cited to us. I looked at
3 this before. This is a paragraph that avers 1983
4 violations.
5 MR. CRUZ: Yes.
6 JUDGE SMITH: There are numerous
7 subparagraphs there. And all of them begin with
8 "Defendants" plural. All of them. It doesn't single
9 anybody out, it doesn't limit them. All of them are
10 "Defendants" plural. Everybody, including Mericle.
11 MR. CRUZ: Precisely --
12 JUDGE SMITH: And they are -- they -- they
13 are, as I see them, allegations of intentional conduct
14 relative to conspiratorial conduct.
15 MR. CRUZ: With respect, Judge Smith, it
16 says "unlawfully and/or recklessly." Recklessness is
17 one of the basis they're trying to prove and it's belt
18 and suspenders. And if you look at the Pennsylvania
19 Supreme Court, they say look, if there are lots of
20 theories and one that would fall within coverage, then
21 it's got to be covered. The standard is, is it possibly
22 covered and, you know, my learned colleague dismisses
23 Footnote 4 of Judge Caputo's decision, as that was
24 dicta.
25 Judge Caputo explicitly --
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1 JUDGE SMITH: So does your position for
2 coverage come down to the import of the averment of
3 recklessness?
4 MR. CRUZ: Recklessness and negligence.
5 Many of those I gave are not just recklessness.
6 JUDGE SMITH: All right.
7 MR. CRUZ: They're knew -- knew or should
8 have known.
9 JUDGE RENDELL: Have you given us your
10 discrete list of everywhere in the complaint where you
11 alleges --
12 MR. CRUZ: Yes, Your Honor.
13 JUDGE RENDELL: -- or your brief outlines
14 specifically every -- every paragraph?
15 MR. CRUZ: I believe the brief does and
16 I've listed them here in the argument, the ones that say
17 either recklessness or knew or -- knew or should have
18 known.
19 And it's not artful pleading, it's they're
20 trying to get our client to pay them damages and they
21 understand -- remember, the Bill of Information is
22 explicitly incorporated into the Complaint. They know
23 that there isn't evidence that Mericle knew about the
24 bargain, but that -- but Mericle, they want Mericle to
25 pay damages. That's why they pleaded it this way. It's
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1 not because they were trying to impact the insurance
2 litigation. It's because they're trying to get a
3 recovery for what they think Mericle knew or should have
4 known. And under Pennsylvania law that satisfies the
5 test of possibly falling within the coverage.
6 JUDGE SCIRICA: Okay. Any other
7 questions?
8 Thank you very much. The case was very
9 well argued.
10 We'd like to have a transcript made of the
11 oral argument. Ask the parties share in its cost. And
12 if you would check with the Clerk's office, they'll tell
13 you how to do that.
14 Thank you very much.
15 Take the case under advisement.
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1 THE STATE OF TEXAS )I certify that the foregoing is a true and correct
2 transcription, to the best of my ability, of thefollowing .wav files: CL-MARISCRTRM_1-10-12: 9-32,
3 9-37, 9-42, 9-47, 9-52, 9-57 and 10-02.I further certify that I am neither counsel for,
4 related to, nor employed by any of the parties orattorneys in the action in this these .wav files were
5 recorded, and further that I am not financially orotherwise interested in the outcome of this action.
6 Dated: January 24, 2012.
7 /s/ Angela L. Key_________________________
8 Angela L. KeyCornerStone Documents and
9 Reporting808 Travis Street, Suite 440
10 Houston, Texas 77002
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CERTIFICATE OF ACCURACY
I hereby certify that the foregoing transcript is a true and accurate
transcription of the recording provided by the Court of the January 10, 2012 oral
argument.
/s/R. Ted Cruz
R. Ted Cruz
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CERTIFICATE OF SERVICE
The transcript was filed electronically through the Courts electronic filing
system according to the Courts instructions on January 24, 2012. Additionally,
three paper copies were sent to the court pursuant to the Courts instructions.
/s/R. Ted Cruz
R. Ted Cruz
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