[00:00:00] Speaker 02:
Good morning, and if you can we can pause for just a minute to make sure that council for Apple II who's Not yet on the screen is here All right there.

[00:00:22] Speaker 02:
We are I didn't okay, and mr.. Blau.

[00:00:25] Speaker 02:
Can you can you hear us?

[00:00:27] Speaker 02:
Yes.

[00:00:27] Speaker 01:
Can you hear me?

[00:00:28] Speaker 01:
Yes.

[00:00:28] Speaker 01:
OK, great.

[00:00:29] Speaker 01:
Thank you.

[00:00:29] Speaker 02:
Thank you very much.

[00:00:30] Speaker 02:
All right.

[00:00:31] Speaker 02:
Mr. Kentra, you may proceed.

[00:00:33] Speaker 01:
May it please the court.

[00:00:34] Speaker 01:
My name is Chris Kentra, and I represent the appellant here, Jan 1.

[00:00:38] Speaker 01:
This is an insurance coverage dispute about whether a request for a deposition issued by the SCC constituted an inquiry as that term is defined in the Great American policy that is at issue in this case, such that Jan 1, a Great American is responsible for

[00:00:54] Speaker 01:
certain defense expenses occurred by Jan 1 in responding to additional subsequent acts by the SEC.

[00:01:01] Speaker 01:
In December of 2017, the SEC began an investigation of a company called Live Ventures.

[00:01:07] Speaker 01:
And specifically, the SEC investigated a transaction in which Jan 1, a company related to Live Ventures,

[00:01:14] Speaker 01:
sold one of its wholly owned subsidiaries named Appliance Smart to a subsidiary of Live Ventures.

[00:01:20] Speaker 01:
The SEC sought testimony from certain individuals that were employees, officers, and or directors of both Live Ventures and JAN 1.

[00:01:29] Speaker 01:
The SEC deposed JAN 1's CEO, who was also a director of Live Ventures, Mr. Tony Isaac,

[00:01:38] Speaker 01:
And in that deposition, the SEC asked Mr. Isaac questions about his role at Live Ventures, but at the same time, asked questions about his position as CEO of Jan 1 and Jan 1's decision to engage in the Impliance Smart transaction.

[00:01:55] Speaker 01:
As set forth in Mr. Isaac's affidavit that was submitted in opposition to Great American's motion for summary judgment,

[00:02:02] Speaker 01:
This was the first time that Mr. Isaac came to believe that Jan 1 was becoming the subject of the SEC's investigation.

[00:02:10] Speaker 01:
The SEC then notified Jan 1's counsel, Mr. Isaac's counsel, that it wanted to take the deposition of a gentleman by the name of Mr. Tim Matula.

[00:02:18] Speaker 01:
Mr. Matula was a director of Jan 1, and most importantly here, he was the sole member of the special committee for Jan 1's board of directors overseeing the Appliance Smart transaction.

[00:02:29] Speaker 01:
The SEC informed

[00:02:32] Speaker 01:
Jan 1's counsel that they wanted to talk to Mr. Matula about the appliance smart sale and the role that he played with respect to on behalf of the board of directors for Jan 1.

[00:02:45] Speaker 01:
Jan 1 gave notice of the request for Mr. Matula's deposition, but as this court knows, Mr. Matula's deposition was never taken.

[00:02:53] Speaker 01:
The request for the deposition by the SEC was withdrawn.

[00:02:56] Speaker 01:
Upon receipt of the notice that Jan 1 gave to Great American that, in fact,

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The SEC had requested Mr. Matula's deposition.

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Great America acknowledged that Mr. Matula qualified as an insured person under the Great American policy.

[00:03:12] Speaker 01:
And its counsel also acknowledged in a letter that to the extent that Mr. Matula is going to be questioned about his role with respect to the Appliance Smart Transaction on behalf of Jan 1, that in fact that deposition or inquiry would constitute an inquiry under the policy.

[00:03:29] Speaker 02:
Suppose we agree with you that it does constitute an inquiry, and it's not really clear to me that the other side is seriously contesting that at this point.

[00:03:42] Speaker 02:
Even if it's an inquiry, the expenses still have to arise out of it to be covered, and how does anything arise out of a deposition that didn't actually take place?

[00:03:57] Speaker 01:
Well, I don't think it necessarily needs to arise out of the deposition under the reading of the policy, Your Honor.

[00:04:03] Speaker 01:
I think that, in fact, the arising out of language talks about that an inquiry, under the policy, inquiries are treated as claims under the great American policy.

[00:04:23] Speaker 01:
And under the terms of the policy, when notice is given of an inquiry, the policy states that any other claim that arises out of the inquiry shall be deemed to have first been made at such time the written inquiry was received by the insurer.

[00:04:38] Speaker 01:
Here we believe this was the first instance, and there's evidence in the record that, in fact, the SEC wanted to talk to Mr. Matula about Jan 1 and its decision to sell Appliance Smart, and this was the first instance

[00:04:51] Speaker 01:
of the SEC investigating Jan 1 that led to the subsequent activities.

[00:04:56] Speaker 01:
The record shows that after the Matulla deposition request was withdrawn, other Jan 1 representatives were deposed.

[00:05:06] Speaker 01:
Wells notices were issued against Jan 1 and to their CFO, Mr. Verland Johnson, and then obviously suit was filed.

[00:05:13] Speaker 02:
So, I mean, that, if that's true, that means that they're related

[00:05:19] Speaker 02:
in some way, and maybe both the notice of intent to take Mr. Matula's deposition and the other things arise out of, you would say that they all arise out of one common investigation, but I don't understand how the subsequent events can be said to arise out of the notice to take Mr. Matula's deposition, which is what it seems like you need to be able to show.

[00:05:46] Speaker 02:
Excuse me, under the policy, isn't it?

[00:05:48] Speaker 01:
So we've cited case law where courts have interpreted the phrase arise out of quite broadly.

[00:05:55] Speaker 01:
There's a disagreement among the parties about whether Nevada law should control the interpretation of this provision or whether Minnesota law, but under either instance, I think it leaves the same result.

[00:06:06] Speaker 01:
And the authority that we've cited, we've cited several decisions of this court as well as a Nevada decision, finding that the phrase arising out of means

[00:06:13] Speaker 01:
incident to or having a connection with.

[00:06:16] Speaker 01:
There's evidence in the record in this case that, in fact, the SEC wanted to speak with Mr. Matula with respect to the unique role that he played with respect to the transaction that was being investigated.

[00:06:26] Speaker 01:
That's in the record.

[00:06:28] Speaker 01:
And to the extent that it had a connection with the subsequent activities that the SEC pursued against GN 1, then I think under the common meaning of this policy, it's under the definition of a rise out of that, in fact, the standards

[00:06:43] Speaker 02:
And so the cases that I looked at, a number of them used the phrase causally connected with it.

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Do you agree that there has to be at least some form of causation for something to arise out of something else?

[00:06:57] Speaker 01:
I'm not sure that's necessary, Your Honor.

[00:07:00] Speaker 01:
I think the causally connect language, as I understand

[00:07:03] Speaker 01:
of the cases that were cited by the parties, the favor decision and the doherty decision.

[00:07:11] Speaker 01:
I think when you look at the iron shore indemnity

[00:07:19] Speaker 01:
The language that's used is incident to or having a connection with.

[00:07:24] Speaker 02:
So Iron Shore, that's a federal case applying Nevada law, right?

[00:07:29] Speaker 01:
Correct.

[00:07:29] Speaker 02:
Yeah.

[00:07:30] Speaker 02:
And there, I thought the court there said that the thing that arose out of the other thing had flowed from it and would not have happened but for it, which the but for sounds like the language of causation.

[00:07:47] Speaker 02:
to me, so you think they were saying something else?

[00:07:50] Speaker 01:
I think they're saying it more broadly, Your Honor, and I think the terminology has been used significantly in the Sentinel Therapeutics case, which is a prior decision of this court, Ironshore, Continental Casualty, and the LA Lakers case that was cited as well.

[00:08:05] Speaker 01:
And here, I mean, if you look at Great America's interpretation, at page 34 of their brief, Great American argues that a rising out of has to be narrowly construed

[00:08:15] Speaker 01:
such that a subsequent claim only arises out of an inquiry to the extent that a deponent somehow gives damaging information during the inquiry and subsequently further action is taken against the deponent.

[00:08:30] Speaker 01:
That's not what this language says.

[00:08:32] Speaker 01:
The language in endorsement number three in the great American policy refers to the insureds generally.

[00:08:40] Speaker 01:
It also says that to the extent that notice of an inquiry is given, the inquiry shall be treated as a claim

[00:08:45] Speaker 01:
and quote, any other claim which arises out of such inquiry shall be deemed to have first made at such time that the insurance company received notice.

[00:08:53] Speaker 01:
I think that's the operative language that controls here and that's why the series of events that were in the record that were largely discounted by the district court show that there was a continuation here and these were all connected.

[00:09:06] Speaker 01:
That Mr. Matula's deposition request was relating to the fact that he was serving as the sole member of a special committee

[00:09:14] Speaker 01:
with respect to the transaction that was being investigated.

[00:09:18] Speaker 01:
I think that the purpose of a special committee is very important here.

[00:09:22] Speaker 01:
A special committee is constituted by the board of directors

[00:09:25] Speaker 01:
for purposes of protecting its shareholders, the company shareholders.

[00:09:29] Speaker 01:
In the context where potentially there's a conflict of interest or some issue with respect to the board's ability to carry out its normal function.

[00:09:37] Speaker 01:
Mr. Matula served a really important role here, and he only served it on behalf of Jan one.

[00:09:41] Speaker 01:
And as we see from the subsequent activities of the SEC, in fact,

[00:09:48] Speaker 01:
They kept going, and it was all related.

[00:09:50] Speaker 01:
They're all casually connected.

[00:09:51] Speaker 01:
They asked for Mr. Matula's deposition, decided they didn't want it, but they deposed other Jan 1 individuals.

[00:09:56] Speaker 01:
Then they issued well notices to the Jan 1 CFO and to Jan 1, and then obviously filed suit challenging aspects of the appliance smart transaction.

[00:10:09] Speaker 01:
So I'd like to reserve the rest of my time for rebuttal.

[00:10:12] Speaker 02:
You may.

[00:10:14] Speaker 02:
Mr. Blau?

[00:10:16] Speaker 00:
Can you hear me okay, Your Honor?

[00:10:18] Speaker 00:
Yes.

[00:10:19] Speaker 00:
And may it please the court good morning.

[00:10:22] Speaker 00:
I want to address a few quick things first and then I'll rewind a little bit.

[00:10:25] Speaker 00:
First of all, on page 34 or nowhere in our brief has Great American argued that arising out of under any state law should be narrowly construed.

[00:10:35] Speaker 00:
And nor did we say that damaging information had to be given at the depot.

[00:10:41] Speaker 00:
What we said was, and what our position is, is that yes, it's broadly construed.

[00:10:46] Speaker 00:
Arising out of is in fact broadly construed under most state laws, including Nevada and Minnesota.

[00:10:52] Speaker 00:
And however, there is some causal connection.

[00:10:56] Speaker 00:
I mean, arising out of means arising out of, flowing from, originating from, growing out of.

[00:11:04] Speaker 00:
There's, it's not any connection with that is sort of an absurd notion and it's not supported by any case and it's not.

[00:11:12] Speaker 03:
How do you, how do you deal with iron shore?

[00:11:14] Speaker 03:
That seems to have a broader definition that may not strictly be tethered to causation.

[00:11:22] Speaker 00:
Well, first, if you read the decision in the cases that fire shore relied on those cases are originating from having its origin in growing out of things like that, which are consistent with common sense.

[00:11:38] Speaker 00:
And also consistent with what we're talking about here.

[00:11:41] Speaker 00:
So if I may rewind a little bit, first of all, or going back a little bit, we don't know, and Great American has not conceded whether the, what we are calling the Matchula Notice, right?

[00:11:54] Speaker 00:
The SEC's email saying, we want to depose Mr. Matchula.

[00:11:59] Speaker 00:
We don't know whether that's an inquiry, regardless of his role with either or both companies, right?

[00:12:06] Speaker 00:
Because he was never deposed.

[00:12:08] Speaker 00:
No documents were produced in response to the subpoena that came after our policy expired.

[00:12:14] Speaker 00:
The only thing that happened during our policy was the SEC saying, we want to take your deposition.

[00:12:20] Speaker 00:
What Great America said at that time was, hey, look, we don't know if this is an inquiry.

[00:12:24] Speaker 00:
It could be.

[00:12:25] Speaker 00:
We don't know in what capacity or why they want to depose Mr. Mitchell.

[00:12:31] Speaker 00:
OK, we'll pay for the cost of the depot.

[00:12:33] Speaker 00:
And then we'll review the deposition transcript and then we'll be able to determine whether or not it's an inquiry, the capacity in which Mr. Machula was going to be deposed.

[00:12:44] Speaker 00:
We don't know if it was an inquiry because he was never deposed.

[00:12:48] Speaker 00:
Even if he, even if it does qualify as an inquiry, just by the nature of what council is saying that someone knew even that everybody presumed that the SEC wanted to question him.

[00:13:04] Speaker 00:
a bit machula about Jan 1 and not about in-rail line ventures, even if it was an inquiry, nothing can arise from nothing, no matter how you really define arising out of logically.

[00:13:20] Speaker 03:
The reason I ask the question is that if you apply Nevada law, and we don't know whether that's proper or not, our insurer says incident two or having connection with, which is different from causation,

[00:13:35] Speaker 00:
that would be different from causation, but it doesn't mean, arising out of doesn't mean proximate cause.

[00:13:43] Speaker 00:
It means some sinew connecting it.

[00:13:46] Speaker 00:
And here, even if it was incident two, the deposition never happened.

[00:13:51] Speaker 00:
We have the notice of the deposition.

[00:13:53] Speaker 00:
We have the note from the SEC saying we want to depose him.

[00:13:57] Speaker 00:
He was never deposed.

[00:14:00] Speaker 00:
No documents were produced.

[00:14:01] Speaker 00:
In fact, in their briefing,

[00:14:05] Speaker 00:
Jan 1 says documents regarding Mr. Machila were produced way before this SEC note came in.

[00:14:11] Speaker 00:
So we can't have anything, there's no connection because the deposition never happened.

[00:14:18] Speaker 00:
No documents were produced just because the SEC for a second thought they may want to talk to this gentleman does not mean everything related

[00:14:30] Speaker 00:
any way, anything related to Jan 1 that happened afterwards, right?

[00:14:34] Speaker 00:
Which by the way, Mr. Machula was never involved in any of it afterwards.

[00:14:39] Speaker 00:
Verlin Johnson, Mr. Safranowski, they were deposed.

[00:14:44] Speaker 00:
The Wells notices much later went to Jan 1 and Verlin Johnson.

[00:14:50] Speaker 00:
Mr. Machula was nowhere to be seen.

[00:14:53] Speaker 00:
I think any logical, if you look at what we're talking about is a later claim, we'll relate back under the language of the great American policy, if it arises out of the inquiry.

[00:15:12] Speaker 00:
If you look at what we're talking about here in the context, the only reasonable, the only logical explanation could be some flowing from,

[00:15:20] Speaker 00:
some causal connection, some connectivity, right?

[00:15:25] Speaker 00:
Even if you're just, your honor, talking about connectivity, there is none, because there's nothing to connect to.

[00:15:35] Speaker 00:
I would then just, if anybody has any questions, I'm happy to answer them.

[00:15:43] Speaker 02:
It appears we do not.

[00:15:45] Speaker 02:
Thank you.

[00:15:46] Speaker 00:
Thank you.

[00:15:49] Speaker 02:
Rebuttal?

[00:16:00] Speaker 01:
Just briefly on the issue of inquiry, I think it's really important to emphasize that the definition of inquiry in the great American policy says a request or demand for an insured person to either appear at a meeting, deposition or interview or to produce documents.

[00:16:15] Speaker 01:
It doesn't say a request for a deposition and testimony.

[00:16:22] Speaker 01:
It says request.

[00:16:23] Speaker 01:
It doesn't say a deposition.

[00:16:25] Speaker 01:
So here, I don't think there's any question that Mr. Metula, even though he wasn't deposed, the request for his deposition was an inquiry.

[00:16:32] Speaker 01:
And to the extent, what do we know from this record?

[00:16:34] Speaker 01:
Mr. Metula was this sole member of special committee with respect to Jan Juan's approval of the transaction the SCC was

[00:16:44] Speaker 01:
Investigating there is nothing in the record to indicate that mr. Matula had any role for live ventures with respect to the appliance smart sale There's nothing so the suggestion that somehow because this deposition didn't happen We don't know why the SEC was going to question mr. Matula something that great American got timely notice of wasn't connected with per iron shore and related to a

[00:17:08] Speaker 01:
the subsequent activities for which Jan.

[00:17:10] Speaker 01:
196 coverage I think is completely inappropriate and wrong.

[00:17:15] Speaker 01:
I think that unquestionably, in the context of this case, during the Great American policy period,

[00:17:24] Speaker 01:
After questioning Mr. Isaac about Jan 1's decision to sell Appliance Smart, the SEC gave written notice that it wanted to speak with Mr. Matula, and we know what his position was.

[00:17:34] Speaker 01:
He was overseeing that transaction only on behalf of Jan 1.

[00:17:40] Speaker 01:
Jan 1 gave timely notice of that inquiry, and therefore, because that is related to Mr. Matula's

[00:17:47] Speaker 01:
The question to speak with Mr. Matulas related to the subsequent activities against Jan 1, they're all related and therefore it arose out of and the subsequent expenses incurred by Jan 1 should be covered here.

[00:17:59] Speaker 01:
Thank you, Your Honors.

[00:18:01] Speaker 02:
Thank you very much.

[00:18:02] Speaker 02:
We thank both counsel for their arguments.

[00:18:04] Speaker 02:
The case is submitted and we are adjourned for the day.