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  • Beazley Insurance Company, Inc v. Take-Two Interactive Software, Inc.Commercial Division document preview
  • Beazley Insurance Company, Inc v. Take-Two Interactive Software, Inc.Commercial Division document preview
  • Beazley Insurance Company, Inc v. Take-Two Interactive Software, Inc.Commercial Division document preview
  • Beazley Insurance Company, Inc v. Take-Two Interactive Software, Inc.Commercial Division document preview
  • Beazley Insurance Company, Inc v. Take-Two Interactive Software, Inc.Commercial Division document preview
  • Beazley Insurance Company, Inc v. Take-Two Interactive Software, Inc.Commercial Division document preview
  • Beazley Insurance Company, Inc v. Take-Two Interactive Software, Inc.Commercial Division document preview
  • Beazley Insurance Company, Inc v. Take-Two Interactive Software, Inc.Commercial Division document preview
						
                                

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FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK --------------------------------------------------------------x BEAZLEY INSURANCE COMPANY, INC. : : Plaintiff, : Index No. 650532/2018 : -against- : FIRST AMENDED : VERIFIED COMPLAINT TAKE-TWO INTERACTIVE SOFTWARE, : INC. : : Defendant. : : ---------------------------------------------------------------x Beazley Insurance Company, Inc. ("Beazley"), as and for its First Amended Verified (" Complaint against Defendant Take-Two Interactive Software, Inc. ("Take-Two"), based on information and belief herein alleges: NATURE OF THE ACTION 1. This action concerns an actual controversy between Beazley and Take-Two regarding a contract of directors, officers and company liability insurance between Beazley and 1 Take-Two. PARTIES, JURISDICTION, AND VENUE 2. Plaintiff Beazley, a Connecticut corporation with its principal place of business located at 30 Batterson Park Road, Farmington, Connecticut 06032, is an insurance company and issued the policy at issue in this case, Policy No. V121F3140301. 3. Defendant Take-Two is a publisher, developer, and distributor of video games, including the Grand Theft Auto franchise. Take-Two is a Delaware corporation, with its 1 herein retain definition in Capitalizedterms, not otherwise defined are intended to the found thePolicy. 4739146 1 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 principal place of business at 622 Broadway, New York, New York 10012. Take-Two regularly transacts business in the State of New York. 4. Rockstar Games, Inc. ("Rockstar") is a wholly-owned subsidiary of Take-Two, with itsprincipal place of business located at 622 Broadway, New York, New York 10012. North" Take- 5. Rockstar North, Ltd. ("Rockstar North") is a wholly-owned subsidiary of Two, with its principal place of business located at 1 Greenside Row, Edinburgh, Scotland, United Kingdom. 6. Upon information and belief, Leslie Benzies ("Benzies") is a citizen of the United Kingdom and formerly served as President of Rockstar North. 7. Upon information and belief, Sam Houser is an individual residing in New York State, and currently serves as President of Rockstar, with his place of business at Rockstar located at 622 Broadway, New York, New York 10012. 8. Upon information and belief, Dan Houser is an individual residing in New York State, and currently serves as Vice President of Creativity of Rockstar, with his place of business at Rockstar located at 622 Broadway, New York, New York 10012. 9. This Court has jurisdiction over Take-Two pursuant to CPLR § 302, because Take-Two regularly transacts business in the State of New York. 10. Venue is proper pursuant to CPLR § 503, because at least one of the parties in to this action resides in the County of New York at the time this action was commenced. INSURANCE POLICY ALLEGATIONS 11. Beazley issued Directors, Officers and Company Liability Insurance Policy number V121F3140301 to Take-Two, reflecting a Claims first-made Policy Period of June 1, "Policy" 2014 to June 1, 2015 (the "Policy"). 2 4739146 2 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 Company" 12. Take-Two is listed as the "Parent under the Policy. The Policy provides coverage, subject to the terms therein, for the Parent Company, its Subsidiaries, and its Directors and Officers (all,as defined in the Policy). 13. The Policy is a renewal of Policy Number V121F3130301, also issued by Beazley, reflecting a Claims first-made Policy Period of June 1, 2013 to June 1, 2014. 14. Beazley also issued a renewal of the Policy, Policy Number V121F3150401, reflecting a Claims first-made Policy Period of June 1, 2015 to June 1, 2016. 15. Rockstar is a Subsidiary, as defined by the Policy. 16. Rockstar North is a Subsidiary, as defined by the Policy. 17. Sam Houser and Dan Houser (collectively, the "Housers") are Directors and Officers as defined by the Policy. 18. The Policy reflects an applicable $10,000,000 per Claim Limit of Liability and a Retention of $5,000 for each claim under Insuring Clause I.A., $50,000 in the aggregate under the same clause, $5 million retention for each Claim other than a Securities Claim under Insuring Clause I.B., as well as $5 million retention for each Securities Claim under Insuring Clauses I.B. and I.C. There is no applicable retention for Claims under Insuring Clause I.D. or I.E. 19. Insuring Clause B of the Policy, as amended by the New York Free Trade Zone Amendatory Endorsement, provides: The Insurer shall pay on behalf of the Company all Loss which the Company is required or permitted to pay as indemnification to any of the Directors and Officers resulting from any Claim first made against the Directors and Officers during the Policy Period for a Wrongful Act provided such Claim is reported in writing to the Insurer or to a licensed agent of the Insurer in the state of New York as soon as practicable but in no event later than sixty (60) days after the end of the Policy Period or the last day of the Automatic Extension Period or Optional Extension Period, ifpurchased. 3 4739146 3 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 20. Insuring Clause C of the Policy, as amended by the New York Free Trade Zone Amendatory Endorsement, provides: The Insurer shall pay on behalf of the Company all Loss resulting from any Securities Claim first made against the Company during the Policy Period for a Wrongful Act provided such Securities Claim is reported in writing to the Insurer or to a licensed agent of the Insurer in the state of New York as soon as practicable but in no event later than sixty (60) days after the end of the Policy Period or the last day of the Automatic Extension Period or Optional Extension Period, ifpurchased. 21. Clause II.K. of the Policy, as amended by Endorsement E05894, provides in relevant part: "Loss" means the amounts which the Insureds become legally obligated to pay on account of a Claim, including 1. damages, judgments, including pre and post-judgment interest, settlements and Costs, Charges and Expenses, punitive, exemplary and multiplied damages where the applicable law allows coverage for punitive, exemplary or multiplied damages, incurred by any of the Insureds, but Loss (other than Costs, Charges and Expenses) shall not include: a) [inapplicable] b) [inapplicable] c) matters deemed uninsurable under the law pursuant to which this Policy shall be construed; d) any wages, salary or benefits owed pursuant to the terms of any employment contract; e) [inapplicable] 22. Clause V.B. of the Policy, as amended by Endorsement E05897, provides: The Insureds shall not settle any Claim, select any defense counsel, incur any Costs, Charges and Expenses, admit or assume any liability, stipulate to any judgment or otherwise assume any contractual obligation without the Insurer's prior written consent, which shall not be unreasonably withheld. The Insurer shall not be liable for any settlement, Costs, Charges and Expenses, assumed obligation, admission or stipulated judgment to which it has not consented or for which the Insureds are not legally obligated. The Insureds shall not knowingly take any action which increases the Insurer's exposure for Loss under this Policy. Notwithstanding any of the Insurers' foregoing, the consent shall not be required for a settlement where such settlement is for an amount below $2,500,000 (inclusive of Costs, Charges and Expenses), provided the Insureds shall give the Insurer details of the settlement amounts and the date such settlement is confirmed by the court as soon as practicable 23. Clause VII.C. of the Policy provides in relevant part: 4 4739146 4 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 If both Loss covered by this Policy and loss uncovered by this Policy are incurred, either because the Claim includes both covered and uncovered claims or because it includes both insured and uninsured parties, then the Insureds and the Insurer agree to fairly and reasonably allocate such amount between covered Loss and uncovered loss. 24. Clause IX of the Policy, as amended by Endorsement E05898 provides in relevant part: The Insureds agree to provide the Insurer with such information, assistance and cooperation as the Insurer or their counsel may reasonably request, and they further agree that they shall not take any action which in any way increases the Insurer's exposure under this Policy. The failure of any of the Directors and Officers to give the Insurers or their counsel the information, assistance and cooperation that they may reasonably request shall not impair the rights of any other natural person under this Policy. 25. Clause II.E. of the Policy, as amended by Endorsement E05896, provides: Expenses" "Costs, Charges and means reasonable and necessary legal fees and expenses, including reasonable and necessary expert fees, to which the Insurer consents and which are incurred by or on behalf of the Insureds in defending, settling, appealing or investigating any Claim and the cost of appeal, attachment or similar bonds, but shall not include: [.. .] 26. Clause II.U. of the Policy, as amended by Endorsement E03234, provides: Claim" "Securities means any Claim alleging a violation of the Securities Act of 1933, the Securities Exchange Act of 1934, rules or regulations of the Securities and Exchange Commission under either or both Acts, any similar securities laws or regulations of the United Kingdom, or any common law relating to any transaction arising out of, involving, or relating to Securities issued by the Company, whether on the open market or through a public or private offering. GENERAL ALLEGATIONS 27. Benzies and the Housers are the creators of the Grand Theft Auto video game franchise which is marketed and sold by Take-Two and produced by Rockstar. Plan" 28. Benzies and the Housers participated in a royalty plan (the "Royalty Plan") that was sponsored and funded by Take-Two. The Royalty Plan, which has been in place since 2002, and has been renewed several times, provides for royalty payments that can be paid to employees 5 4739146 5 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 Committee" of Rockstar. The Royalty Plan establishes an "Allocation that decides how to allocate the annual royalties among the Rockstar employees. 29. On or about March 23, 2015, counsel for Benzies sent correspondence (the Letter" "Benzies Demand Letter") to Take-Two, Rockstar "and those acting on their behalf", regarding Matter" the distribution of royalties pursuant to the Royalty Plan (the "Benzies Matter"). 30. The Benzies Demand Letter, which sought an immediate audit of all royalty allocations and distributions under the Royalty Plan, alleged that Benzies had not received royalty distributions under the Royalty Plan since April 28, 2014, and stated itappeared he had been excluded from at least two distributions. 31. On or about April 2, 2015, counsel for Benzies sent a subsequent correspondence to Take-Two, stating that Benzies was terminating his employment with Take-Two and its Letter" subsidiaries (the "April 2015 Letter"). Negotiations took place during the spring and summer of 2015. 32. Following unsuccessful severance negotiations, Benzies filed an action in the Supreme Court for the State of New York, New York County on or about April 12, 2016 Index "Complaint" Number 0651920/2016 (the "Complaint"). 33. Take-Two, Rockstar, Rockstar North, and the Housers (collectively, the "Assured Defendants" Defendants") are named defendants in the Complaint. 34. The Complaint alleges that Benzies was fraudulently induced by the Assured Defendants to sign a royalty agreement which was not in his best interests, and the Assured Defendants further conspired to have Benzies take a sabbatical from Rockstar while at the same time divesting Benzies from his share of royalty distributions. 35. The Complaint further alleges that, upon returning from his sabbatical, Benzies was constructively terminated from his employment by Take-Two. 6 4739146 6 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 Complaint" 36. Benzies subsequently filed an amended complaint (the "Amended Complaint") on or about February 13, 2017. The Amended Complaint and the Complaint (collective, the Actions" "Benzies Actions") assert similar allegations, with the Amended Complaint including an additional cause of action for violation of New York Labor Law. TENDER, COVERAGE INVESTIGATION, AND COVERAGE DETERMINATION 37. Although Benzies directed correspondence to Take-Two in March and April 2015 regarding the Benzies Matter, Beazley was not provided notice of the Benzies Demand Letter or the April 2015 Letter until on or about October 8, 2015. 38. Prior to tendering the Benzies Matter to Beazley on or about October 8, 2015, ("Lynch" Take-Two retained Michael Lynch ("Lynch") of Kelley Drye & Warren LLP ("Kelley Drye") to represent Take-Two in connection with the Benzies Matter. 39. Prior to tendering the Benzies Matter to Beazley on or about October 8, 2015, Take-Two directed Lynch to initiate settlement discussions in connection with the Benzies Matter. 40. On or about October 19, 2015, Beazley was notified, by way of a correspondence from Lynch, of a mediation taking place in New York the following day, on October 20, 2015, between Take-Two and Benzies. The letter demanded that Beazley attend the mediation with authority to settle up to the full Limit of Liability of the Policy. 41. Beazley attended the October 20 mediation, but in the late afternoon of October stay" 20, Beazley was advised by Lynch that there was "no need to and that Beazley should leave the mediation. 7 4739146 7 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 42. Beazley acknowledged the tender of the Benzies Matter under the Policy on or about October 28, 2005, noting a mutual general reservation of rights under the Policy, at law, and in equity. 43. On or about October 30, 2015, Lynch advised Beazley that the parties mediated until two in the morning without reaching an agreement. 44. On or about November 13, 2015, Beazley received a correspondence from Lynch that advised that at the end of the October 20, 2015 mediation, the parties had reached agreement on a settlement figure in exchange for full releases. Lynch's November 13, 2015 correspondence further requested immediate written consent from Beazley "to fund the proposed settlement up to limits." the policy 45. On or about November 23, 2015, Beazley issued correspondence which, among other things, noted that "if a settlement was reached without Beazley's prior consent, a denial of order." coverage will be in 46. In response to Beazley's November 23, 2015 correspondence, Lynch advised that the settlement was only as to the dollar amount, and that itwas not final or binding. 47. By way of a responsive correspondence dated on or about January 20, 2016, Beazley requested additional information about the purported settlement. 48. On or about February 26, 2016, Beazley was informed of an additional mediation session between Take-Two and Benzies, scheduled for March 3, 2016. 49. Upon attending the March 3, 2016 mediation, Beazley was segregated in a separate room and was provided no information about the discussions being held between Benzies and Take-Two. Beazley was specifically excluded from all mediation discussions at the March 3, 2016 mediation, and Beazley's reasonable attempts to participate in the mediation discussions at the March 3, 2016 mediation were rejected. 8 4739146 8 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 50. In response to Beazley's request for information about the mediation session, Lynch wrote to Beazley on or about March 7, 2016, to convey that final terms of the settlement were not reached, and advised that if the insurers wanted information about the matter, they needed to execute a confidentiality agreement. 51. On or about March 18, 2016, Lynch advised Beazley that there was a third mediation scheduled for April 15, 2016. 52. On or about April 13, 2016, Lynch advised Beazley that the mediation process had been terminated. 53. On or about April 12, 2016, Benzies filed the Complaint. 54. Without the consent of Beazley, Take-Two retained the law firm of Dontzin, Nagy, & Fleissig LLP ("Dontzin") to represent Rockstar, Rockstar North and the Housers in connection with the Complaint. 55. On or about April 22, 2016 Beazley issued correspondence to Lynch expressing Beazley's coverage determinations for the Complaint, noting that coverage is unavailable for Take-Two, Rockstar, and Rockstar North, as the allegations in the Complaint do not constitute a Securities Claim against Take-Two or its Subsidiaries. 56. In its April 22, 2016 correspondence, Beazley further advised Lynch that Beazley reserved the right to deny coverage for any defense counsel retained without Beazley's consent. 57. On or about September 23, 2016, without the consent of Beazley, Dontzin was replaced with the law firm of Dechert LLP ("Dechert") as the defense counsel for the Housers, Rockstar, and Rockstar North. 58. Upon information and belief, Housers are and continue to be represented by Dechert relative to the Benzies Actions. 9 4739146 9 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 59. Upon information and belief, Kelley Drye has never represented the Housers relative to the Benzies Actions. 60. On or about December 22, 2016, the Court dismissed several causes of action "duplicative" within the Complaint which were found to be of the breach of contract claims. 61. On or about February 13, 2017, Benzies filed the Amended Complaint that reasserted all of the claims previously asserted in the Complaint, and added additional claims based on the alleged withholding of royalty allocations. 62. On or about June 15, 2017, the Court again dismissed the non-contract related causes of action, with the exception of a cause of action for constructive termination. FIRST CAUSE OF ACTION Declaration That Insuring Clause C of the Policy is not Triggered by the Benzies Actions, Precluding Coverage for Take-Two, Rockstar, and Rockstar North 63. Beazley realleges and restates each of the preceding paragraphs as if fully set forth herein. 64. Insuring Clause C of the Policy only potentially provides entity coverage for a Securities Claim. 65. The allegations asserted in the Benzies Actions do not constitute a Securities Claim, as defined by the Policy. 66. Accordingly, Beazley seeks a declaration that Beazley does not owe any coverage obligations under the Policy to Take-Two, Rock Star, and Rockstar North, because the Benzies Actions do not trigger Insuring Clause C of the Policy. 10 4739146 10 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 SECOND CAUSE OF ACTION Declaration that the Fees and Costs Incurred by Kelley Drye are Not Covered by the Policy 67. Beazley realleges and restates each of the preceding paragraphs as if fully set forth herein. 68. Under the Policy, Beazley is obligated to pay for "reasonable and necessary legal " fees and expenses to which the Insurer consents . .. 69. Beazley's payment obligation relative to Take-Two and itssubsidiaries can only Company." be triggered by a Securities Claim made "against the 70. The allegations asserted in the Benzies Actions do not constitute Securities Claims. 71. Upon information and belief, Take-Two is and continues to be represented by Kelley Drye. 72. Upon information and belief, Kelley Drye has never represented the Housers or any other Directors and Officers. 73. Beazley seeks a declaration that any fees and costs incurred by Kelley Drye in connection with the Benzies Matter or the Benzies Actions are not subject to coverage under the Policy. THIRD CAUSE OF ACTION Declaration in the Alternative that, ifKelley Drye are Found to also Represent the Housers, and not Otherwise Excluded from Coverage, an Allocation of Kelley Drye's Fees and Costs is Required 74. Beazley realleges and restates each of the preceding paragraphs as if fully set forth herein. 11 4739146 11 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 75. Clause VII.C. of the Policy provides that "[i]f both Loss covered by this Policy and loss uncovered by this Policy are incurred...then the Insureds and the Insurer agree to fairly loss." and reasonably allocate such amount between covered Loss and uncovered 76. Upon information and belief, Take-Two is and continues to be represented by Kelley Drye. 77. The Housers are Directors and Officers, and Beazley has not denied coverage to the Housers. 78. To the extent that Kelley Drye has incurred fees and costs related to the defense of the Housers, such costs would only constitute a portion of the total fees and costs incurred by Kelley Drye. 79. Neither Kelley Drye nor the Housers have provided Beazley with any documents or information upon which Beazley could reasonably conclude that any fees and costs incurred by Kelley Drye are related to the defense of the Housers. 80. Beazley seeks a declaration that, if Kelley Drye incurred fees and costs related to the defense of the Housers, such fees and costs are subject to an allocation, pursuant to Clause VII.C. of the Policy. FOURTH CAUSE OF ACTION Declaration in the Alternative that the Fees and Costs Incurred by Dontzin and Dechert, if not Otherwise Excluded from Coverage, are Subject to an Allocation Under the Policy 81. Beazley realleges and restates each of the preceding paragraphs as if fully set forth herein. 82. Clause VII.C. of the Policy provides that "[i]f both Loss covered by this Policy and loss uncovered by this Policy are incurred...then the Insureds and the Insurer agree to fairly loss." and reasonably allocate such amount between covered Loss and uncovered 12 4739146 12 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 83. Coverage under the Policy is only potentially available related to the defense of the Housers. 84. To the extent that Dontzin and/or Dechert incurred fees and costs related to the defense of Take-Two, Rockstar, or Rockstar North, such fees and costs would not be subject to coverage under the Policy. 85. Neither Dontzin, Dechert, nor the Housers have provided Beazley with any documents or information upon which Beazley could reasonably conclude what portion, if any, of the fees and costs incurred by Dontzin or Dechert are related to the defense of the Housers 86. Accordingly, Beazley seeks a declaration that, if Dontzin and/or Dechert incurred both covered and non-covered fees and costs in this matter, such fees and costs are subject to an allocation pursuant to Clause VII.C. of the Policy. FIFTH CAUSE OF ACTION Declaration that any Damages in Connection with the Benzies Actions Constitute Wages, Salary, or Benefits and are Not Loss Under the Policy 87. Beazley realleges and restates each of the preceding paragraphs as if fully set forth herein. 88. Pursuant to Clause II.K. of the Policy, as amended by Endorsement E05894, the definition of Loss does not include "any wages, salary or benefits owed pursuant to the terms of contract." any employment Benzies' 89. Upon information and belief, Benzies Employment Agreement with Take-Two specifically incorporated the Royalty Agreement when referencing compensation, and provides "certain" that Benzies is entitled to royalties. 90. In the Benzies Actions, Benzies seeks to recover those amounts owed to him pursuant to the Royalty Agreement. 13 4739146 13 of 22 FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018 NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018 91. Any Damages arising out of the Benzies Actions are premised on the terms of the Benzies' Royalty Agreement which was expressly incorporated into Employment Agreement, and constitute "wages, salary or benefits owed pursuant to the terms of any employment contract." 92. Accordingly, Beazley seeks a declaration that Beazley does not owe any obligations under the Policy for any damages, whether by settlement or judgment, arising from the Benzies Actions, as such damages constitute wages, salary or benefits, and are not Loss under the Policy. SIXTH CAUSE OF ACTION Benzies' Declaration that Damages Arising From Breach of Contract Claims Are Not Loss Under the Policy 93. Beazley realleges and restates each of the preceding paragraphs as if fu