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Infinet Holdings, Inc. v. Seibels Bruce Group, Inc.

Court of Appeals of Arizona, First Division, Department C

July 25, 2013

INFINET HOLDINGS, INC., an Arizona corporation; and HDC FINANCIAL SERVICES CORPORATION, an Arizona corporation, Plaintiffs/Appellants,
v.
THE SEIBELS BRUCE GROUP, INC., a South Carolina corporation; CONSOLIDATED AMERICAN INSURANCE COMPANY, a South Carolina corporation; and SOUTH CAROLINA INSURANCE COMPANY, a South Carolina corporation, Defendants/Appellees.

Not for Publication – Rule 28, Arizona Rules of Civil Appellate Procedure.

Appeal from the Superior Court in Maricopa County Cause No. CV2002-005533 The Honorable George H. Foster, Judge.

Law Office of John E. Karow, P.C. Scottsdale by John E. Karow Attorneys for Plaintiffs/Appellants.

Snell & Wilmer L.L.P. Phoenix by Christopher H. Bayley A. Evans O'Brien Martha E. Gibbs Attorneys for Defendants/Appellees Seibels Bruce Group.

Law Offices of George H. Lyons Phoenix by George H. Lyon Special Counsel for Seibels Bruce Group.

Van Cott & Talamante, PLLC Phoenix by Joyce N. Van Cott Ryan J. Talamante Jordan C. Redman Attorneys for Defendants/Appellees Consolidated American Insurance Company.

MEMORANDUM DECISION

SWANN, Judge.

¶1 Infinet Holdings, Inc. ("Infinet") and HDC Financial Services Corporation ("HDCFS") appeal from the summary judgment dismissing their breach of contract and related claims against The Seibels Bruce Group, Inc. ("SBG"), Consolidated American Insurance Company ("CAIC"), and South Carolina Insurance Company ("SCIC"). The judgment was based on the superior court's determination that the facts upon which Infinet and HDCFS's case depended had already been resolved in a bankruptcy proceeding. Because Infinet and HDCFS do not argue that the superior court erred by applying the doctrine of issue preclusion, we affirm.

FACTS AND PROCEDURAL HISTORY

¶2 Under a December 2001 Memorandum of Understanding, SBG agreed to front a captive worker's-compensation program for HDC - a professional employee organization that was, along with HDCFS, a subsidiary of Infinet -- through SBG's subsidiary SCIC and SCIC's subsidiary CAIC.

¶3 In March 2002, Infinet, HDC, HDCFS, and Du Pre Insurance Services, Inc. ("Du Pre") filed a complaint in the superior court against SBG, SCIC, and CAIC, alleging that insurance policies issued to HDC had been improperly cancelled. The plaintiffs sought declaratory relief and monetary damages based on claims for breach of contract, bad faith, punitive damages, tortious interference with contract and business relations, slander, and negligent misrepresentation. In February 2003, the plaintiffs prevailed on their declaratory judgment claim. Thereafter, protracted litigation ensued, including the filing of cross-claims and counterclaims and the entry of summary judgment in favor of SBG on the punitive damages claim.

¶4 In June 2005, HDC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. In July 2007, the bankruptcy court confirmed a plan of reorganization pursuant to which HDC was reorganized into a new entity, Reorganized HDC ("RHDC"). RHDC then pursued further litigation in the bankruptcy court to recover funds that HDCs principal, Anderton, allegedly stole from HDC. As his defense, Anderton contended that the funds at issue were Infinet's, not HDC's, and he claimed that HDCFS, not HDC, was the subsidiary that generated the vast majority of Infinet's revenue. In July 2011, the bankruptcy court found Anderton liable to RHDC for over $4.2 million. The district court affirmed in September 2012. In re Human Dynamics Corp., 2012 WL 3848446, at *11 (D.Ariz. Sept. 5, 2012) (unpublished decision).

¶5 RHDC also successfully moved to dismiss all of HDC s claims in the superior court action. With Infinet and HDCFS as the sole remaining plaintiffs after Du Pre settled its claims, SBG (joined by SCIC and CAIC) moved for summary judgment on the remaining counts. SBG argued that Infinet and HDCFS could not prove damages because they did not earn revenue from any operations that the defendants' conduct could have harmed: rather, HDC was the operational subsidiary, and it was no longer a plaintiff. SBG attached to its motion consolidated tax returns showing that Infinet's gross receipts consisted solely of revenue earned by HDC and the management fees that Infinet charged HDC. In response, Infinet and HDCSF argued that an issue of fact existed as to whether they were damaged by the defendants' conduct, because "HDCFS produced the greatest portion of Plaintiffs' ...


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