or Officers, arising from Claims first made during the Policy (or Discovery) Period against the
Officers or Directors, individually or collectively, for a Wrongful Act.” (Jd. §1.B.) Third, Genesis
“will pay, on behalf of [FTD.COM], Loss arising from Securities Claims first made against
[FTD.COM] during the Policy (or Discovery) Period for a Wrongful Act.” (d. § 1.C.)

The Policy also sets forth a number of different definitions of “Loss”: “any amounts which
the Directors or Officers are legally obligated to pay”; “such amounts which [FTD.COM] is required
to indemnify the Directors or Officers, or such amounts which [FTD.COM] may legally indemnify
the Directors or Officers, for Claims made against the Directors or Officers”; and “any amounts
which [FTD.COM] is legally obligated to pay for Securities Claims made against [FTD.COM].” (Id.
§ILF.)

Wil. Procedural History

On June 26, 2003, Genesis sued FTD.COM for a declaratory judgment that it had no duty
to indemnify FTD.COM for losses associated with the settlement of the Shareholder Litigation.
Genesis amended the complaint on August 18, 2003.

On October 3, 2003, FTD.COM filed its answer and counterclaims, which seek, among other
things, a declaratory judgment that Genesis “is obligated to indemnify FTD.COM for all ‘Loss’
associated with the [Shareholder Litigation], including but not limited to the costs of settling the
(Shareholder Litigation].” (Answer, Affirmative Defenses & Countercls. [31.) Genesis now brings
this motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure (“Rule”)
12(c), which is limited to FTD.COM’s counterclaim seeking a declaration that the Policy provides

coverage for the $10.7 million paid in settlement of the Shareholder Litigation.


(Settlement Agreement J 23.)

Accordingly, not only was FTD.COM not obligated to pay under the Settlement Agreement,
it would not have been liable if FTD, Inc. had breached its obligations to pay the amounts it was
obligated to pay “on behalf of’ FTD.COM and the other Shareholder Litigation defendants. Thus,
FTD.COM did not, and will not, have a legal obligation to pay under the terms of the Settlement
Agreement and suffered no “Loss” by the settlement alone.

Il. Promissory Note

FTD.COM next contends that the Settlement Agreement, the indemnification provision, and
the Promissory Note, in combination, create a legal obligation for FTD.COM to pay the $10.7
million amount paid to resolve the Shareholder Litigation. The Note was not executed until October
20, 2003, more than two months after the Settlement Agreement was signed and over two weeks
after FTD.COM filed its answer and counterclaims in the present action,* but almost a month before
the Settlement Agreement was approved by the Delaware court. Giving FTD.COM the benefit of
all inferences in its favor, the Note reflects a valid agreement between FTD.COM and FTD, Inc. to
allocate the money paid under the Settlement Agreement, and such an allocation agreement could
constitute a legal obligation to pay for a claim made for a wrongful act, ie., a “Loss” under the

Policy. Genesis maintains, however, that FTD.COM’s legal obligation to pay under the Note is

* The counterclaim therefore does not allege any facts related to the Promissory Note.
However, contrary to Genesis’s assertions, the Court may consider FTD.COM’s arguments
related to the Note in ruling on this motion for judgment on the pleadings. See Forseth v. Vill. of
Sussex, 199 F.3d 363, 368 (7th Cir. 2000) (holding that in response to a Rule 12(c) motion, the
non-movant “‘may supplement the complaint with factual narration in an affidavit or brief”)
(quoting Albiero v. City of Kankakee, 122 F.3d 417, 419 (7th Cir. 1997)).


Specifically, FTD.COM contends that under two different definitions of “Loss” provided in
the Policy, FTD.COM is entitled to coverage by Genesis. FTD.COM first argues that it suffered a
“Loss” via its indemnification of its officers and directors. FTD.COM argues that because it
indemnified its officers and directors in its corporate by-laws (pursuant to Del. Code. Ann. tit. 8, §
145), it is responsible for amounts its directors and officers are “legally obligated to pay” in
settlement of the claims in the Shareholder Litigation. (Def.’s Opp’n Br. at 7.) Second, FTD.COM
maintains that it is entitled to insurance coverage because FTD.COM is “‘legally obligated to pay’
for the Securities Claims made against FTD.COM, as a result of the Promissory Note and the
Settlement Agreement.” (dd. at 8.)

The parties agree that Illinois law applies to the interpretation of the Policy in this diversity
case. “Interpretation of an unambiguous contract--including insurance policies--poses a question of
law.” First Ins. Funding Corp. v. Fed. Ins. Co., 284 F.3d 177, 804 (7th Cir. 2002). “Under Illinois
law, when interpreting an insurance agreement, the court’s primary function is to ascertain and give
effect to the true intentions of the contracting parties.” Jd. “‘If the terms of the policy are clear and
unambiguous, they must be given their plain and ordinary meaning, but if the terms are susceptible
to more than one meaning, they are considered ambiguous and will be construed strictly against the
insurer who drafted the policy.” Commonwealth Ins. Co. v. Stone Container Corp., 351 F.3d 774,
777 (7th Cir. 2003) (quoting McKinney v. Allstate Ins. Co., 722 N.E.2d 1125, 1127 (Ill. 1999)).

L Settlement Agreement

The Court will first examine whether FTD.COM has suffered a “Loss” under the terms of

the Settlement Agreement alone, which provides that it is to be construed under Delaware law.

(Settlement Agreement § 38.) “In interpreting a contract, ‘[t]he language of the Agreement must .


DISCUSSION

Plaintiff's Rule 12(c) Motion for Judgment on the Pleadings challenges the sufficiency of
FTD.COM’s counterclaim, and “the standards governing [a] Rule 12(c) motion are the same as those
governing a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be
granted.” Gutierrez v. Peters, 111 F.3d 1364, 1368 (7th Cir. 1997). Accordingly, the motion cannot
be granted “unless it appears ‘beyond a reasonable doubt that the plaintiff can prove no set of facts
in support of his claim which would entitle him to relief.” Manning v. Miller, 355 F.3d 1028, 1031
(7th Cir. 2004) (quoting Conley v. Gibson, 355 U.S. 41, 46 (1957)). In ruling on the motion, the
Court may consider documents attached as exhibits or incorporated by reference in the pleadings.
See Menominee Indian Tribe of Wis. v. Thompson, 161 F.3d 449, 456 (7th Cir. 1999).

Parties have “no ‘right’ to declaratory relief; a request for such relief is addressed to the
discretion of the district court.” Bankers Tr. Co. v. Old Republic Ins. Co., 959 F.2d 677, 682 (7th
Cir, 1992). Genesis argues that FTD.COM is not entitled to declaratory relief because FTD.COM
is not legally obligated to pay any amounts under the Settlement Agreement and therefore has not
and will not incur any covered “Loss.” See Zurich Ins. Co. v. Raymark Indus., Inc.,514N.E.2d 150,
163 (Ill. 1987) (“The duty to indemnify arises only when the insured becomes legally obligated to
pay damages in the underlying action that gives rise to a claim under the policy.”) FTD.COM
responds that it has suffered a “Loss” as defined in the Policy because “based on the combination
of the Settlement Agreement, the indemnification provision present in FTD.COM’s by-laws and the
Promissory Note, FTD.COM and its directors are ‘legally obligated’ to pay for the settlement.”

(Def.’s Opp’n Br. at 10.)



term “at its sole expense” is not ambiguous; it clearly means that FTD, Inc. is the only party legally
obligated to pay under the Settlement Agreement. See Conley, 1992 WL 401628, at *12 (holding
that extrinsic evidence may not be considered if the contract “‘is clear and unambiguous on its
face’”) (citation omitted).

FTD.COM attempts to circumvent this problem by pointing out that FTD, Inc. was to pay
the amount due in the Settlement Agreement “on behalf of all Defendants.” (Settlement Agreement
§2.a.) FTD.COM argues, without support, that the term “on behalf of” creates some form of legal
obligation among the Shareholder Litigation defendants to pay for what FTD, Inc. has obligated itself
to pay, or at least that the term is ambiguous. But the language “on behalf of? means what it says:
FTD, Inc. paid the sums due on behalf of the other Shareholder Defendants, who were also released
under the Settlement Agreement. The term does not, by itself, create a legal obligation for
FTD.COM or any other party to pay any amounts due under the Settlement Agreement to the
Shareholder Plaintiffs, FTD, Inc., or any other Shareholder Defendant. See Rhone-Poulenc, 616
A.2d at 1196 (“Courts will not torture contractual terms to impart ambiguity where ordinary meaning
leaves no room for uncertainty.”).

Moreover, Paragraph 23 of the Settlement Agreement further belies the notion that any party
but FTD, Inc. had a legal obligation to pay under the Agreement. Paragraph 23 provides that:

In the event that FTD, Inc. fails to deliver the Settlement Shares as
required . . . then Plaintiffs’ Co-Lead Counsel shall have the option
to either (i) terminate the Settlement or (ii) enter a consent judgment
for specific performance of the Settlement which, upon request of
Plaintiffs’ Co-Lead Counsel, FTD, Inc. shall consent to. In either
case, Plaintiffs shall have the right to assert a claim against FTD, Inc.

for any damages to the Class resulting from the delay in delivery of
the Settlement Shares. ...


Minute Order Form (06/97)

~ United States District Court, Northern District of Illinois
samestAsinet | Ronald A. Guzman sing de
Judge Assigned Judge
CASE NUMBER 03 C 4444 DATE 5/28/2004
CASE GENESIS INSURANCE COMPANY vs. FTD.COM, INC.
TITLE
[In the following box (a) indicate the party filing the motion, e.g,, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly
MOTION: the nature of the motion being presented.]
DOCKET ENTRY:
(1) o Filed motion of [ use listing in “Motion” box above.]
(2) o Brief in support of motion due___.
(3) Oo Answer brief to motion due___. Reply to answer brief due___.
(4) Oo Ruling/Hearingon____set for___at
(5) im Status hearing[held/continued to] [set for/re-set for]on___—_——sset for___—_at
(6) Oo Pretrial conference[heid/continued to] [set for/re-set for]on___——ssetfor__——s at.
(7) Oo Trial[set for/re-set for]on__ at
(8) oO [Bencl/Jury trial] [Hearing] held/continued to__at
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OFRCP4(m) OLocal Rule 41.1 OFRCP41(a)(1) 1 FRCP41(a)(2).

Company’s motion for judgment on the pleadings [doc. no. 18-1] is denied.

a1) {For further detail see order attached to the original minute order.]

ao [Other docket entry] ENTER MEMORANDUM OPINION AND ORDER: Genesis Insurance

No notices required, advised in open court.

No notices required. .
number of notoes

Notices mailed by judge's staff.

JUN 4 =, 2004

Notified counsel by telephone. dale docket

o | Docketing to mail notices.

Mail AO 450 form.

Copy to judge/magistrate judge.

courtroom date mailed notice
ut

CG deputy’s gre §
initials

Date/time received in :
central Clerk's Office mallng deputy ins



of the Settlement Agreement alone does not create a legal obligation to pay has no bearing on
whether FTD.COM would ultimately be found liable in the underlying Shareholder Litigation
following an allocation determination.

Second, Genesis misconstrues the extent of FTD.COM’s present obligation under the Note.
Genesis argues that FTD.COM has no present legal obligation to pay under the Note, and any future
obligation is contingent on an affirmative finding of FTD.COM’s liability in the Insurance Litigation.
Genesis’s interpretation misreads the plain language of the Note, which provides instead for a
present obligation for the entire $10.7 million amount paid under the Settlement Agreement, with
a contingent reduction (or repayment, if a greater amount has already been paid) of the obligation
only to the extent that FTD.COM is found not liable in the Insurance Litigation. While it is possible
that after an allocation determination has been made, FTD.COM will be found not liable pursuant
to the Shareholder Litigation, and therefore not obligated to pay the amount due under the Note, that
determination has not yet occurred. See generally Caterpillar, Inc. v. Great Am. Ins. Co., 62 F.3d
955 (7th Cir. 1995) (describing various methods of allocating a settlement among covered and non-
covered claims and defendants). Viewing the allegations in the counterclaim in the light most
favorable to FTD.COM, it could prove a set of facts that would demonstrate it suffered a covered
“Loss” under the Policy and therefore could be entitled to a declaratory judgment on the issue. See
Bankers Tr. Co., 959 F.2d at 680-81 (holding that jurisdiction over a declaratory judgment claim

exists as long as there is at least “a probabilistic injury”).

11


limited to its actual liability for the settlement amount. Because that amount is zero, Genesis argues
that the Promissory Note does not create any “Loss” under the Policy.

The Note’s preamble sections acknowledge the $10.7 million paid in settlement of the
Shareholder Litigation and also describe the related Insurance Litigation, which includes this case,
the litigation brought by FTD, Inc.’s insurer against FTD, Inc., as well as “any similar dispute”
between FTD, Inc., FTDI, FTD.COM, and their insurers. The Note further states that the settlement
amount, which was paid by FTD, Inc., “will be apportioned among [FTD, Inc.], FTDI, and
FTD.COM on the basis of each party’s respective liability under the FTD.COM litigation.”
(Promissory Note at 1.) Under the terms of the Note, FTD.COM agrees to pay FTD, Inc., on
demand, the amount of $10.7 million, together with interest. (/d.)

The parties’ dispute centers on the following provision in the Note:
Notwithstanding anything herein to the contrary, if it is determined
pursuant to the Insurance Litigation that the liability of [FTD.COM]
pursuant to the FTD.COM Litigation is for an amount less than the
Settlement Amount (such lesser amount, the “Final Amount”),
[FTD.COM] shall only be obligated to pay such lesser amount
(together with interest thereon as provided herein) in full satisfaction
of this Note; provided that if [FTD.COM] has previously paid to
FTDI an aggregate amount in excess of the Final Amount and interest
with respect thereto, FTDI shall reimburse [FTD.COM] for any such
excess amount.
(d. at 2) (emphasis in original).

According to Genesis, this provision obligates FTD.COM to pay FTD, Inc. only to the extent

itis found liable under the Settlement Agreement. Genesis’s interpretation is flawed for two reasons.

First, the Note does not refer to FTD,.COM’s liability under the Settlement Agreement, but rather

its liability pursuant to the Shareholder Litigation. This Court’s earlier conclusion that the language

10



. . be the starting point.” Conley v. Dan-Webforming Int'l A/S (Ltd.), Civ. A. No. 91-401 MMS,
1992 WL 401628, at *12 (D. Del. Dec. 29, 1992) (applying Delaware law). “[I]f ‘the language of
the contract is not in any sense ambiguous, its meaning is ordinarily a question of law for the court
to ascertain from the instrument itself... .’” /d., 1992 WL 401628, at *12 (citation omitted). “[A]
contract is ambiguous only when the provisions in controversy are reasonably or fairly susceptible
of different interpretations or may have two or more different meanings.” Rhone-Poulenc Basic
Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992).

The Court concludes that under the plain meaning of the language in the Settlement
Agreement, FTD.COM is not legally obligated to pay for the settlement. Paragraph 2.a. of the
Settlement Agreement provides that: “FTD, Inc., on behalf of all Defendants, at its sole expense”
(emphasis added) is to issue $10.7 million shares of FTD, Inc. Class A Common Stock to the
plaintiffs in the Shareholder Litigation. Furthermore, Paragraph 2.c. of the Settlement Agreement
goes on to state that “[a]ll costs, taxes and fees . . . incurred in issuing or distributing the settlement
shares .. . shall be borne by FTD, Inc.” FTD.COM acknowledges that it paid nothing to the
Shareholder Plaintiffs.

FTD.COM maintains, however, that the language “at its sole expense” merely reflects the
fact that FTD, Inc. was “the only Defendant [in the Shareholder Litigation] with freely tradable
shares to issue,” (Def.’s Opp’n Br. at 9.) FTD.COM also argues that both it and FTD, Inc. believed
that most, ifnot all, liability:in the Shareholder Litigation should properly be allocated to FTD.COM.
(id. at 12.) FTD.COM’s arguments miss the point. The tax reasons why the defendants in the
Shareholder Litigation structured the Settlement Agreement in the way they did (i.e., FID, Inc.’s

shares instead of cash), despite their internal beliefs as to their relative exposure, are irrelevant. The


On October 20, 2003, FTD.COM executed a Promissory Note by which FTD.COM promised
to pay FTDI the $10.7 million amount paid in connection with the resolution of the Shareholder
Litigation. The Note provides, however, that: “[I]f it is determined pursuant to the Insurance
Litigation’ that the liability of [FTD.COM] pursuant to the [Shareholder Litigation] is for an amount
less than the Settlement Amount... , [FTD.COM] shall only be obligated to pay such lesser amount
... in full satisfaction of this Note. ...” (Promissory Note, Mem. Supp. Mot. J. Pleadings, Ex. B,
at 2.)

Il. The Genesis Policy

FTD.COM purchased a directors and officers liability insurance policy (the “Policy”) from
Plaintiff Genesis Insurance Co. (“Genesis”) for the policy period September 29, 2001 to September
29,2002. (Policy, Answer, Affirmative Defenses & Countercls., Ex. 1.) The Policy sets forth three
areas under which Genesis agreed to insure FTD,COM and/or its directors and officers. First,
Genesis “will pay, on behalf of the Directors and Officers, Loss arising from Claims first made
during the Policy (or Discovery) Period against the Directors or Officers, individually or collectively,
for a Wrongful Act, except for such Loss which [FTD.COM] pays to or on behalf of the Directors
and Officers.” (/d. § ILA.) Second, Genesis “will pay, on behalf of [FTD.COM], Loss which

{FTD.COM] is required to indemnify, or which [FTD.COM] may legally indemnify, the Directors

> The parties’ submissions refer to “FTD, Inc.” as the payee under the Note, but the Note
provides that FTDI received an assignment of the payment right from FTD, Inc., its parent. In
the interest of conformity, this opinion will also generally refer to the payee as “FTD, Inc.”

3 The Promissory Note defines the “Insurance Litigation” as, collectively, the present
case, Great American Insurance Co. v. FTD, Inc., No. 03 C 4588 (N.D. IL), which was brought
by FTD, Inc.’s insurer against FTD, Inc., “and any similar dispute among [FTD, Inc.], FTDI,
{FTD.COM], and their respective insurers regarding the [Shareholder] Litigation.”


September 1999, FTD.COM was incorporated into a stand-alone entity via an initial public offering.
Thereafter, FTDI held approximately 83% of FTD.COM’s shares with the minority remainder held
by the public.

Inearly 2001, IOS management and its principal stockholders began considering whether to
purchase the publicly traded minority interest in FTD.COM, and on October 25, 2001, legal counsel
proposed a merger whereby IOS would acquire that minority interest. The merger agreement would
create a newly formed indirect subsidiary of IOS to achieve the merger, after which FTD.COM
would be the surviving corporation and the publicly held minority share of FTD.COM common
stock would be converted into IOS common stock. As a result of the transaction, IOS, through
FTDI, would own 100% of FTD.COM stock. FTD.COM shareholders approved the merger
agreement on June 27, 2002, and the merger closed on July 8, 2002.

Beginning March 5, 2002, FTD, Inc., IOS, FTDI, FTD.COM and various officers and
directors of these entities were named as defendants in five class actions filed in Delaware state court
(the “Shareholder Litigation”). These class actions, which were filed on behalf of all public
shareholders of FTD.COM, alleged that 10S paid an unfairly low price for the FTD.COM stock, and
the directors and officers breached their fiduciary duties to the public shareholders. Shortly after
filing, these cases were consolidated. On August 4, 2003, the parties to the class actions entered into
a Stipulation and Agreement of Compromise, Settlement and Release (“Settlement Agreement”)
under which the public shareholder plaintiffs were to receive $10.7 million in FTD, Inc. stock,
thereby resolving the Shareholder Litigation. The Delaware Chancery Court approved the Settlement

Agreement on November 17, 2003. (Settlement Agreement, Mem. Supp. Mot. J. Pleadings, Ex. A.)


IN THE UNITED STATES DISTRICT COURT apn
FOR THE NORTHERN DISTRICT OF LLINOIS §=—- BOS KETED

EASTERN DIVISION
JUN 1 ~ 2004
GENESIS INSURANCE COMPANY, )
)
Plaintiff, ) ;
) 03 C 4444
v, )
) Judge Ronald A. Guzman
FTD.COM, INC., )
)
Defendant. )
) JUN 1 - 2004

MEMORANDUM OPINION AND ORDER

This insurance coverage diversity suit, which is based on a directors and officers’ liability
policy, is before the Court on Plaintiff's Motion for Judgment on the Pleadings as to Defendant’s
counterclaim seeking a declaratory judgment that Defendant is entitled to insurance coverage for a
settlement of certain securities class action lawsuits.' For the reasons set forth below, Plaintiff's
motion is denied.

BACKGROUND
I. The Shareholder Litigation

The following facts are not disputed. In 1993, Defendant FTD.COM, Inc. (“FTD.COM”)
began operations as a business unit of Florists’ Transworld Delivery, Inc. (“FTDI”), marketing
flowers and gifts via the Internet and telephone. In 1994, IOS Brands Corp. (“IOS”), the corporate

predecessor to FTD, Inc., acquired FTDI, including FTDI’s 83% interest in FTD.COM. In

' The motion does not address defense costs or other relief sought in the counterclaim.

U)


CONCLUSION
For the foregoing reasons, Genesis Insurance Co,’s Motion for Judgment on the Pleadings

[doc. no. 18-1] is denied.

SO ORDERED ENTERED: 5/6) gfo4

HON. RONALD A. GU
United States Judge

12