DALLAS – A suit filed by
filed by owner of Chuck E. Cheese franchises
CEC Entertainment Inc. in August 2016
progressed to federal court on Nov. 18, with
CEC Entertainment Inc. claiming that
Travelers Casualty and Surety Co. of America could not opt out of a
The suit claimed
that Travelers evaded its role under a liability policy to pay for CEC’s defense
of a shareholder suit. CEC alleged that
Travelers was to provide coverage from February 2014 to February 2020 after
Travelers issued a director, officers and organization liability policy to CEC. CEC claimed it was subject to a $10 million
limit for all claims.
CEC explained in court that a director, officers and
organization liability provides coverage for securities claims against the
company alleging wrongful acts.
appraisal lawsuit alleged a valuation by CEC of its stock and a $54 per share
price prior to a merger, which the appraisal plaintiffs maintained was unfair
or artificially low,” CEC said. “CEC’s valuation – or adoption or acceptance as
fair – of the $54 price per share constitutes an ‘act.’ The appraisal
plaintiffs filed their lawsuit to establish that the valuation or acceptance of
the $54 per share price was an 'error,' asking a court to determine the shares’
According to court documents, Travelers argued against the
notion, saying CEC was improperly reading allegations into the appraisal
action. Travelers asked for the court to
decline coverage of CEC in a shareholder suit stemming from CEC’S
merger with an Apollo Global Management LLC affiliate.
Travelers argued that no coverage exists in this situation because
the shareholders didn’t assert that the company engaged in any misconduct.
attempt to re-characterize the appraisal action as alleging a wrongful act is
inconsistent with the factual allegations in the pleading and with applicable
law and constitutes nothing more than an imagined factual scenario and
unwarranted deduction," Travelers' attorneys wrote.
Travelers said that the policy with CEC only covered pre-merger conduct. It continued saying that it
contains multiple provisions barring coverage for any wrongful acts on or after
the date of a merger. The appraisal is
connected to the merger, making it impossible to involve pre-merger conduct.
attorney wrote that the event that created the appraisal could not have occurred prior to the merger.
But CEC said Nov. 18 that its merger with the
Apollo Global Management LLC affiliate at least potentially alleged a wrongful
act under its policy, which the policy defines to include both “acts” and “error.”
It rejected Travelers’ notions saying that the valuations
took place before the merger, noting that the prices for CEC’S shares were
The defendant, Travelers Casualty and Surety Co. of
America, is being represented by J. Price
Collins and Ashley F. Gilmore of Wilson Elser Moskowitz Edelman & Dicker LLP. The plaintiff, CEC Entertainment Inc., is
represented by Amy Elizabeth Stewart and Katherine Hendler Fayne of Amy Stewart PC of Dallas.
suit is CEC Entertainment Inc. v. Travelers Casualty and Surety Co. of America,
suit number 3:16-cv-02493,
in the U.S. District Court for the Northern District of Texas, Dallas Division.