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Case 2:11-cv-02019-WJM -MF Document 1 Filed 04/08/11 Page 1 of 44 PageID: 1

JERROLD N. POSLUSNY, JR. (JP7140)


COZEN O’CONNOR
A Pennsylvania Professional Corporation
Liberty View, Suite 300
457 Haddonfield Road
Cherry Hill, NJ 08002
856-910-5000

BENJAMIN A. BLUME
COZEN O’CONNOR
333 W. Wacker Drive, Suite 1900
Chicago, IL 60606
312-382-3100

Attorneys for Illinois Union Insurance Company

IN THE UNITED STATES DISTRICT COURT


FOR THE DISTRICT OF NEW JERSEY

ILLINOIS UNION INSURANCE :


COMPANY, :
:
Plaintiff, :
: Civil Case No. ____________
v. :
: The Honorable
DONALD V. BIASE, SOLELY IN HIS :
CAPACITY AS CHAPTER 7 TRUSTEE :
OF CONNOLLY PROPERTIES, INC., :
DAVID M. CONNOLLY, CHARLES M. :
FORMAN SOLELY IN HIS CAPACITY :
AS CHAPTER 7 TRUSTEE OF :
PLAINFIELD APARTMENTS, LLC, 158 :
SOUTH HARRISON ASSOCIATES, :
LLC, 179 S. HARRISON, LLC, :
CYPRESS HOUSE, LLC, FULTON- :
HARRISON, LLC, CRESCENT :
AVENUE INVESTMENT GROUP,
TUDOR ARMS, LLC, BEACON :
VILLAGE, LLC, SETTLES PLACE, :
LLC, WASHINGTON CROSSING, LP, :
WASHINGTON CROSSING :
CORPORATION, STERLING :
APARTMENTS, LLC, PARKSIDE
:
VILLAGE, LLC, FULTON TOWERS,
LLC, ALLENTOWN APARTMENTS, :

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LLC, 111 SOUTH HARRISON STREET :


ASSOCIATES, LLC, 195 PROSPECT :
STREET ASSOCIATES, LLC, 242 :
PROSPECT STREET ASSOCIATES,
LLC, 243 SOUTH HARRISON, LLC, :
HARRISON HOUSE 2003, LLC, :
PROSPECT HARRISON ASSOCIATES, :
LLC, RITZ COURT, LLC, THE :
WILLIAMSBURG-HICKORY ARMS,
:
LLC, CORNELL-PINGRY ARMS, LLC,
CENTRAL AVENUE APARTMENTS, :
LLC, GREEN BROOK VILLAGE, LLC, :
609 MADISON, LLC, LIBERTY ARMS, :
LLC, MAYFAIR HALL, LLC, MILTON :
PLACE, LLC, EXECUTIVE ARMS, LLC,
:
PARK REGENCY LLC, WATCHUNG
GARDENS, LIVINGSTON :
APARTMENTS, LP, CATERAT ARMS, :
LLC, CATERAT ARMS :
MANAGEMENT, LLC, GRAMERCY :
PARK GARDEN ASSOCIATES, LLC,
GRAMERCY MANAGER CORP., :
CRESCENT GARDEN ASSOCIATES, :
LLC, CRESCENT MANAGER :
CORPORATION, NETHERWOOD :
VILLAGE, LLC, GRAND COURT :
VILLAS, LLC, SIESTA PARK, LLC,
CONNOLLY, COLASUANNO & :
OBLORE, HILLSIDE VALLEY :
MANAGEMENT, INC., MADISON :
GARDENS, LP, MONTY L. DAVIS, :
MARY R. DAVIS, RICHARD L.
:
BERGMARK, TONI M. BERGMARK,
EDWARD P. BOYKIN, PHYLLIS A. :
BOYKIN, AZIZ S. HASAN, CAROL A. :
HASAN, RONALD K. WALKER and :
JANE C. WALKER, ANTHONY AND :
DIANE ZARILLO, NICHOLAS AND
:
ANGELA CORIO, ANTHONY AND
AUDREY CORIO, CARL R. JIENCKE :
AND EILEEN PURCELL, CHARLES :
AND JOANNE EIBLE and VINCENT :
UVARI AND MARY ANNE ZARILLO, :
:
Defendants.
:

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COMPLAINT FOR DECLARATORY JUDGMENT


AND IN THE ALTERNATIVE TO INTERPLEAD FUNDS

NOW COMES Plaintiff, Illinois Union Insurance Company (“Illinois Union”), by and

through its undersigned attorneys, and complaining against Donald V. Biase (“Biase”), solely in

his capacity as Chapter 7 Trustee of Connolly Properties, Inc. (“CPI”), David M. Connolly

(“Connolly”), Charles M. Forman (“Forman”), solely in his capacity as Chapter 7 Trustee of

Plainfield Apartments, LLC (“Plainfield”), 158 South Harrison Associates, LLC (“158 South

Harrison”), 179 S. Harrison, LLC (“179 S. Harrison”), Cypress House, LLC (“Cypress House”),

Fulton-Harrison, LLC (“Fulton-Harrison”), Crescent Avenue Investment Group (“Crescent

Avenue Group”), Tudor Arms, LLC (“Tudor Arms”), Beacon Village, LLC (“Beacon Village”),

Settles Place, LLC (“Settles Place”), Washington Crossing, LP (“Washington LP”), Washington

Crossing Corporation (“Washington Corp.”), Sterling Apartments, LLC (“Sterling”), Parkside

Village, LLC (“Parkside”), Fulton Towers, LLC (“Fulton Towers”), Allentown Apartments,

LLC (“Allentown Apts.”), 111 South Harrison Street Associates, LLC (“111 South Harrison”),

195 Prospect Street Associates, LLC (“195 Prospect”), 242 Prospect Street Associates, LLC

(“242 Prospect”), 243 South Harrison, LLC (“243 Harrison”), Harrison House 2003, LLC

(“Harrison House”), Prospect Harrison Associates, LLC (“Prospect Harrison”), Ritz Court, LLC

(“Ritz Court”), The Williamsburg-Hickory Arms, LLC (“Williamsburg-Hickory”), Cornell-

Pingry Arms, LLC (“Cornell Pingry”), Central Avenue Apartments, LLC (“Central Avenue”),

Green Brook Village, LLC (“Green Brook”), 609 Madison, LLC (“609 Madison”), Liberty

Arms, LLC (“Liberty Arms”), Mayfair Hall, LLC (“Mayfair”), Milton Place, LLC (“Milton”),

Executive Arms, LLC (“Executive”), Park Regency LLC (“Park Regency”), Watchung Gardens

(“Watchung”), Livingston Apartments, LP (“Livingston”), Caterat Arms, LLC (“Caterat”),

Caterat Arms Management, LLC (“Caterat Management”), Gramercy Park Garden Associates,

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LLC (“Gramercy Park”), Gramercy Manager Corp. (“Gramercy Manager”), Crescent Garden

Associates, LLC (“Crescent Garden”), Crescent Manager Corporation (“Crescent Manager”),

Netherwood Village, LLC (“Netherwood”), Grand Court Villas, LLC (“Grand Court”), Siesta

Park, LLC (“Siesta Park”), Connolly, Colasuanno & Oblore (“CC&O”), Hillside Valley

Management, Inc. (“Hillside Valley”), Madison Gardens, LP (“Madison Gardens”), Monty L.

Davis, Mary R. Davis, Richard L. Bergmark and Toni M. Bergmark (collectively referred to as

the “Davis Claimants”), Edward P. Boykin, Phyllis A. Boykin, Aziz S. Hasan, Carol A. Hasan,

Ronald K. Walker and Jane C. Walker, (collectively referred to as the “Boykin Claimants”),

Anthony Zarillo, Diane Zarillo, Nicholas Corio, Angela Corio, Anthony Corio, Audrey Corio,

Carl R. Jiencke, Eileen Purcell, Charles Eible, Joanne Eible, Vincent Uvari and Mary Anne

Zarillo (collectively referred to as the “Zarillo Claimants”), states as follows:

NATURE OF THE ACTION

1. This is an action for, among other things, declaratory judgment, pursuant to 28

U.S.C. §2201, seeking to resolve matters of actual controversy as to the rights and obligations of

the parties under a Business and Management Indemnity Policy issued by Illinois Union to CPI,

as further described below, with respect to final judgments entered in favor of the Davis

Claimants and the Boykin Claimants against Connolly, in actions pending in the United States

District Court for the District of New Jersey, and judgments entered in favor of the Zarillo

Claimants against Connolly, in the Superior Court of Middlesex County, New Jersey.

2. Illinois Union seeks a declaration that it has no obligation to indemnify Connolly

for judgments entered against him and in favor of the Davis Claimants, the Boykin Claimants, or

the Zarillo Claimants. Illinois Union also seeks a declaration that Connolly is obligated to

reimburse Illinois Union for “Costs, Charges or Expenses” incurred by Illinois Union for the

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defense of Connolly in the underlying litigation under the terms of the Policy because coverage

is precluded by Exclusion f) of the Policy. In the alternative, to the extent that the Court finds

that Illinois Union has a duty to indemnify Connolly for judgments in favor of the Davis

Claimants, the Boykin Claimants or the Zarillo Claimants, Illinois Union seeks to pay the

available policy limits into court so that the Court may declare and determine the rights of the

respective claimants with respect to the available policy limits.

3 As described more fully below, Illinois Union seeks no relief against Plainfield,

158 South Harrison, 179 S. Harrison, Cypress House, Fulton-Harrison, Crescent Avenue Group,

Tudor Arms, Beacon Village, Settles Place, Washington, LP, Washington Corp., Sterling,

Parkside, Fulton Towers, Allentown Apts., 111 South Harrison, 195 Prospect, 242 Prospect, 243

South Harrison, Harrison House, Prospect Harrison, Ritz Court, Williamsburg-Hickory, Cornell-

Pingry, Central Avenue, Green Brook, 609 Madison, Liberty Arms, Mayfair, Milton, Executive,

Park Regency, Watchung, Livingston, Caterat, Caterat Management, Gramercy Park, Gramercy

Manager, Crescent Garden, Crescent Manager, Netherwood, Grand Court, Siesta Park, CC&O,

Hillside Valley or Madison Garden. As described below, these parties are named as defendants

in this action only because they may claim an interest in the Policy or its proceeds. If they agree

to be bound by the results in this action, they will be dismissed as defendants.

THE PARTIES

4. Plaintiff Illinois Union is a corporation organized and existing under the laws of

the State of Illinois with its principal place of business in Illinois.

5. Upon information and belief, Biase is a resident of the State of New Jersey. Biase

is named as a defendant in this action solely in his capacity as Chapter 7 Trustee of CPI.

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6. Upon information and belief, CPI is a corporation organized and existing under

the laws of the State of New Jersey, with its principal place of business in New Jersey. CPI is

currently in a Chapter 7 Bankruptcy pending in the United States Bankruptcy Court for the

District of New Jersey (the “Bankruptcy Court”).

7. Upon information and belief, David M. Connolly (“Connolly”) is a citizen of the

State of New Jersey. As explained below, Connolly contends that he is an insured under the

Policy.

8. Upon information and belief, Forman is a resident of the State of New Jersey.

Forman is named as a defendant in this action solely in his capacity as Chapter 7 Trustee of

Plainfield.

9. Upon information and belief, Plainfield is a limited liability company organized

and existing under the laws of the State of New Jersey, with its principle place of business in

New Jersey. As described below, Plainfield is listed in Endorsement No. 1 on the Policy.

Plainfield is currently in a Chapter 7 bankruptcy case pending in the Bankruptcy Court. On

April 6, 2011, the Bankruptcy Court granted Illinois Union relief from the automatic stay to

pursue its rights.

10. Upon information and belief, 158 South Harrison is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principle place of

business in New Jersey. As described below, 158 South Harrison is listed in Endorsement No. 1

on the Policy. 158 South Harrison is currently in a Chapter 11 bankruptcy case, pending in the

Bankruptcy Court. On April 6, 2011, the Bankruptcy Court granted Illinois Union relief from

the automatic stay to pursue its rights.

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11. Upon information and belief, 179 S. Harrison is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principle place of

business in New Jersey. As described below, 179 S. Harrison is listed in Endorsement No. 1 on

the Policy. 179 S. Harrison is currently in a Chapter 11 bankruptcy case, pending in the

Bankruptcy Court. On April 6, 2011, the Bankruptcy Court granted Illinois Union relief from

the automatic stay to pursue its rights.

12. Upon information and belief, Cypress House is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principle place of

business in New Jersey. As described below, Cypress House is listed in Endorsement No. 1 on

the Policy. Cypress House is currently in a Chapter 11 bankruptcy case, pending in the

Bankruptcy Court. On April 6, 2011, the Bankruptcy Court granted Illinois Union relief from

the automatic stay to pursue its rights.

13. Upon information and belief, Fulton-Harrison is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principle place of

business in New Jersey. As described below, Fulton-Harrison is listed in Endorsement No. 1 on

the Policy. Fulton-Harrison is currently in a Chapter 11 bankruptcy case, pending in the

Bankruptcy Court. On April 6, 2011, the Bankruptcy Court granted Illinois Union relief from

the automatic stay to pursue its rights.

14. Plainfield, 158 South Harrison, 179 S. Harrison, Cypress House and Fulton-

Harrison are named as defendants in this action because their bankruptcy estates may claim an

interest on the Policy or its proceeds. They may also claim to be “Parent Companies” within the

meaning of the Policy and that they have a right to consent to any settlement under the Policy. If

they agree to be bound by the results in this action, they will be dismissed as defendants.

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15. Upon information and belief, Crescent Avenue Group is a limited liability

company organized and existing under the laws of the State of New Jersey, with its principal

place of business in New Jersey. As described below, Crescent Avenue Group is listed in

Endorsement No. 1 on the Policy.

16. Upon information and belief, Tudor Arms is a limited liability company organized

and existing under the laws of the State of New Jersey, with its principal place of business in

New Jersey. As described below, Tudor Arms is listed in Endorsement No. 1 on the Policy.

17. Upon information and belief, Beacon Village is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Beacon Village is listed in Endorsement No. 1 on

the Policy.

18. Upon information and belief, Settles Place is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Settles Place is listed in Endorsement No. 1 on the

Policy.

19. Upon information and belief, Washington Crossing is a limited partnership

organized and existing under the laws of the Commonwealth of Pennsylvania, with its principal

place of business in Pennsylvania. As described below, Washington Crossing is listed in

Endorsement No. 1 on the Policy.

20. Upon information and belief, Washington Corp. is a corporation organized and

existing under the laws of the Commonwealth of Pennsylvania, with its principal place of

business in Pennsylvania. As described below, Washington Corp. is listed in Endorsement No. 1

on the Policy.

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21. Upon information and belief, Sterling is a limited liability company organized and

existing under the laws of the State of New Jersey, with its principal place of business in New

Jersey. As described below, Sterling is listed in Endorsement No. 1 on the Policy.

22. Upon information and belief, Parkside is a limited liability company organized

and existing under the laws of the State of New Jersey, with its principal place of business in

New Jersey. As described below, Parkside is listed in Endorsement No. 1 on the Policy.

23. Upon information and belief, Fulton Towers is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Fulton Towers is listed in Endorsement No. 1 on

the Policy.

24. Upon information and belief, Allentown Apts. is a limited liability company

organized and existing under the laws of the Commonwealth of Pennsylvania, with its principal

place of business in Pennsylvania. As described below, Allentown Apts. is listed in

Endorsement No. 1 on the Policy.

25. Upon information and belief, 111 South Harrison is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, 111 South Harrison is listed in Endorsement No. 1

on the Policy.

26. Upon information and belief, 195 Prospect is a limited liability company,

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, 195 Prospect is listed in Endorsement No. 1 on the

Policy.

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27. Upon information and belief, 242 Prospect is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, 242 Prospect is listed in Endorsement No. 1 on the

Policy.

28. Upon information and belief, 243 South Harrison is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, 243 South Harrison is listed in Endorsement No. 1

on the Policy.

29. Upon information and belief, Harrison House is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Harrison House is listed in Endorsement No. 1 on

the Policy.

30. Upon information and belief, Prospect Harrison is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Prospect Harrison is listed in Endorsement No. 1

on the Policy.

31. Upon information and belief, Ritz Court is a limited liability company organized

and existing under the laws of the State of New Jersey, with its principal place of business in

New Jersey. As described below, Ritz Court is listed in Endorsement No. 1 on the Policy.

32. Upon information and belief, Williamsburg-Hickory is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Williamsburg-Hickory is listed in Endorsement

No. 1 on the Policy.

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33. Upon information and belief, Cornell-Pingry is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Cornell-Pingry is listed in Endorsement No. 1 on

the Policy.

34. Upon information and belief, Central Avenue is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Central Avenue is listed in Endorsement No. 1 on

the Policy.

35. Upon information and belief, Green Brook is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Green Brook is listed in Endorsement No. 1 on the

Policy.

36. Upon information and belief, 609 Madison is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, 609 Madison is listed in Endorsement No. 1 on the

Policy.

37. Upon information and belief, Liberty Arms is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Liberty Arms is listed in Endorsement No. 1 on the

Policy.

38. Upon information and belief, Mayfair is a limited liability company organized and

existing under the laws of the State of New Jersey, with its principal place of business in New

Jersey. As described below, Mayfair is listed in Endorsement No. 1 on the Policy.

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39. Upon information and belief, Milton is a limited liability company organized and

existing under the laws of the State of New Jersey, with its principal place of business in New

Jersey. As described below, Milton is listed in Endorsement No. 1 on the Policy.

40. Upon information and belief, Executive is a limited liability company organized

and existing under the laws of the State of New Jersey, with its principal place of business in

New Jersey. As described below, Executive is listed in Endorsement No. 1 on the Policy.

41. Upon information and belief, Park Regency is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Park Regency is listed in Endorsement No. 1 on

the Policy.

42. Upon information and belief, Watchung is a limited liability company organized

and existing under the laws of the State of New Jersey, with its principal place of business in

New Jersey. As described below, Watchung is listed in Endorsement No. 1 on the Policy.

43. Upon information and belief, Livingston is a limited partnership organized and

existing under the laws of the State of Pennsylvania, with its principal place of business in

Pennsylvania. As described below, Livingston is listed in Endorsement No. 1 on the Policy.

44. Upon information and belief, Caterat is a limited liability company organized and

existing under the laws of the State of New Jersey, with its principal place of business in New

Jersey. As described below, Carteret is listed in Endorsement No. 1 on the Policy.

45. Upon information and belief, Carteret Management is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Carteret Management is listed in Endorsement No.

1 on the Policy.

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46. Upon information and belief, Gramercy Park is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Gramercy Park is listed in Endorsement No. 1 on

the Policy.

47. Upon information and belief, Gramercy Manager is a corporation organized and

existing under the laws of the State of New Jersey, with its principal place of business in New

Jersey. As described below, Gramercy Manager is listed in Endorsement No. 1 on the Policy.

48. Upon information and belief, Crescent Garden is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Crescent Garden is listed in Endorsement No. 1 on

the Policy.

49. Upon information and belief, Crescent Manager is a corporation organized and

existing under the laws of the State of New Jersey, with its principal place of business in New

Jersey. As described below, Crescent Manager is listed in Endorsement No. 1 on the Policy.

50. Upon information and belief, Netherwood is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Netherwood is listed in Endorsement No. 1 on the

Policy.

51. Upon information and belief, Grand Court is a limited liability company

organized and existing under the laws of the State of New Jersey, with its principal place of

business in New Jersey. As described below, Grand Court is listed in Endorsement No. 1 of the

Policy.

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52. Upon information and belief, Siesta Park is a limited liability company organized

and existing under the laws of the State of New Jersey, with its principal place of business in

New Jersey. As described below, Siesta Park is listed in Endorsement No. 1 on the Policy.

53. Upon information and belief, CC&O is a partnership organized and existing under

the laws of the State of New Jersey, with its principal place of business in New Jersey. As

described below, CC&O is listed in Endorsement No. 1 on the Policy.

54. Upon information and belief, Hillside Valley is a corporation organized and

existing under the laws of the Commonwealth of Pennsylvania, with its principal place of

business in Pennsylvania. As described below, Hillside Valley is listed in Endorsement No. 1 on

the Policy.

55. Upon information and belief, Madison Gardens is a limited partnership organized

and existing under the laws of the State of New Jersey, with its principal place of business in

New Jersey. As described below, Madison Gardens is listed in Endorsement No. 1 on the Policy.

56. Crescent Avenue Group, Tudor Arms, Beacon Village, Settles Place, Washington,

LP, Washington Corp., Sterling, Parkside, Fulton Towers, Allentown Apts., 111 South Harrison,

195 Prospect, 242 Prospect, 243 South Harrison, Harrison House, Prospect Harrison, Ritz Court,

Williamsburg-Hickory, Cornell-Pingry, Central Avenue, Green Brook, 609 Madison, Liberty

Arms, Mayfair, Milton, Executive, Park Regency, Watchung, Livingston, Caterat, Caterat

Management, Gramercy Park, Gramercy Manager, Crescent Garden, Crescent Manager,

Netherwood, Grand Court, Siesta Park, CC&O, Hillside Valley, and Madison Gardens are

named as defendants in this action only because they are listed in Endorsement No. 1 of the

Policy, and may claim an interest in the Policy or its proceeds, or may claim a right to consent to

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any settlement under the Policy. If they agree to be bound by the results in this action, they will

be dismissed as defendants.

57. Upon information and belief, Defendant Monty L. Davis, is a citizen of the State

of Texas.

58. Upon information and belief, Defendant Mary R. Davis, is a citizen of the State of

Texas.

59. Upon information and belief, Defendant Richard L. Bergmark is a citizen of the

State of Texas.

60. Upon information and belief, Defendant Toni L. Bergmark is a citizen of the State

of Texas.

61. Upon information and belief, Defendant Edward P. Boykin is a citizen of the

State of Florida.

62. Upon information and belief, Defendant Phyllis A. Boykin is a citizen of the State

of Florida.

63. Upon information and belief, Defendant Aziz S. Hasan is a citizen of the State of

Florida.

64. Upon information and belief, Defendant Carol A. Hasan is a citizen of the State of

Florida.

65. Upon information and belief, Defendant Ronald K. Walker is a citizen of the State

of Florida.

66. Upon information and belief, Defendant Jane C. Walker is a citizen of the State of

Florida.

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67. Upon information and belief, Defendant Anthony Zarillo is a citizen of the

Commonwealth of Pennsylvania.

68. Upon information and belief, Defendant Diane Zarillo is a citizen of the

Commonwealth of Pennsylvania.

69. Upon information and belief, Defendant Nicholas Corio is a citizen of the

Commonwealth of Pennsylvania.

70. Upon information and belief, Defendant Angela Corio is a citizen of the

Commonwealth of Pennsylvania.

71. Upon information and belief, Defendant Anthony Corio is a citizen of the State of

New Jersey.

72. Upon information and belief, Defendant Audrey Corio is a citizen of the State of

New Jersey.

73. Upon information and belief, Defendant Carl R. Jiencke is a citizen of the State of

Florida.

74. Upon information and belief, Defendant Eileen Purcell is a citizen of the State of

Florida.

75. Upon information and belief, Defendant Charles Eible is a citizen of the

Commonwealth of Pennsylvania.

76. Upon information and belief, Defendant Joanne Eible is a citizen of the

Commonwealth of Pennsylvania.

77. Upon information and belief, Defendant Vincent Uvari is a citizen of the State of

New Jersey.

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78. Upon information and belief, Defendant Mary Anne Zarillo is a citizen of the

State of New Jersey.

79. The Davis Claimants, the Boykin Claimants and the Zarillo Claimants are

plaintiffs in underlying litigation against Connolly and CPI (the “Underlying Litigation”) and are

made parties to this action only because they may have an interest in the outcome. The Davis

Claimants, the Boykin Claimants and the Zarillo Claimants are judgment creditors of Connolly.

All of the Claimants have submitted to the jurisdiction of this Court by filing the underlying

actions against Connolly in New Jersey.

JURISDICTION AND VENUE

80. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §1332, because

there is complete diversity of the parties and the amount in controversy is in excess of $75,000,

exclusive of interest and costs.

81. Venue is proper in this Court pursuant to 28 U.S.C. §1391(a) because a

substantial part of the events or omissions giving rise to the claim occurred in this District.

THE ILLINOIS UNION POLICY

82. Illinois Union issued a Business and Management Indemnity Policy to CPI and

other entities, Policy No. BMI20062163, effective from December 12, 2008 to December 12,

2009 (the “Policy”). The Policy contains Limits of Liability applicable to the Management

Insureds and Company coverage in the amount of $1,000,000 in the aggregate. A true and

correct copy of the Policy is attached hereto as Exhibit A, and is incorporated by reference as

though fully set forth herein.

83. The Policy defines the term “Parent Company” to mean “the entity first named in

Item A of the Declarations.”

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84. Item A of the Declarations of the Policy states that CPI is the “Parent Company.”

85. Endorsement No. 1 to the Policy, entitled “Additional Parent Company,” provides

as follows:

It is agreed that Item A of the Declarations, Parent Company, is amended


by adding the following:

Crescent Avenue Investment Group


Tudor Arms, LLC
Beacon Village, LLC
Settles Place, LLC
Washington Crossing, LP
Washington Crossing Corporation
Sterling Apartments, LLC
Parkside Village, LLC
Fulton Towers, LLC
Allentown Apartments, LLC
Plainfield Apartments, LLC
111 South Harrison Street Associates, LLC
195 Prospect Street Associates, LLC
242 Prospect Street Associates, LLC
158 South Harrison Associates, LLC
243 S. Harrison, LLC
Harrison House 2003, LLC
Prospect Harrison Associates, LLC
Ritz Court, LLC
179 S. Harrison, LLC
Cypress House, LLC
Fulton-Harrison, LLC
The Williamsburg-Hickory Arms, LLC
Cornell-Pingry Arms, LLC
Central Avenue Apartments, LLC
Green Brook Village, LLC
609 Madison, LLC
Liberty Arms, LLC
Mayfair Hall, LLC
Milton Place, LLC
Executive Arms, LLC
Park Regency LLC
Watchung Gardens
Livingston Apartments, LP
Caterat Arms, LLC
Caterat Arms Management, LLC
Gramercy Park Garden Associates, LLC

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Gramercy Manager Corp.


Crescent Garden Associates, LLC
Crescent Manager Corporation
Netherwood Village, LLC
Grand Court Villas, LLC
Siesta Park, LLC
Connolly, Colasuanno & Oblore
Hillside Valley Management, Inc.
Madison Gardens, LP

86. The Policy states, among other things, that Illinois Union shall have the right to

investigate and settle any claim; “provided, however, no settlement shall be made without the

consent of the Parent Company, such consent not to be unreasonably withheld.” See Exhibit A,

Endorsement No. 9, Section F.2.

87. CPI is the Parent Company because it is the entity first named in Item A of the

Declarations.”

88. Crescent Avenue Group, Tudor Arms, Beacon Village, Settles Place, Washington,

LP, Washington Corp., Sterling, Parkside, Fulton Towers, Allentown Apts., Plainfield, 111

South Harrison, 195 Prospect, 242 Prospect, 158 South Harrison, 243 South Harrison, Harrison

House, Prospect Harrison, Ritz Court, 179 S. Harrison, Cypress House, Fulton-Harrison,

Williamsburg-Hickory, Cornell-Pingry, Central Avenue, Green Brook, 609 Madison, Liberty

Arms, Mayfair, Milton, Executive, Park Regency, Watchung, Livingston, Caterat, Caterat

Management, Gramercy Park, Gramercy Manager, Crescent Garden, Crescent Manager,

Netherwood, Grand Court, Siesta Park, CC&O, Hillside Valley, and Madison Gardens were

added to Item A of the Declarations, following CPI.

89. As the entity first named in Item A of the Declarations, CPI is the “Parent

Company” and must consent to any settlement of a Claim under the Policy.

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90. None of the entities listed in Endorsement No. 1 qualify as “Parent Companies” as

defined in the Policy because they are not the entity first named in Item A of the Declarations.

91. Connolly claims to be a Management Insured under the Policy.

92. There is only one limit of liability available to all Insureds under the Policy, and

thus all persons and entities who qualify as insureds under the policy must share in a limited

fund.

93. Under General Terms and Conditions, the Policy provides, in relevant part, as

follows:

L. ASSISTANCE, COOPERATION AND SUBROGATION

The Insureds agree to provide Insurer with such information,


assistance and cooperation as Insurer reasonably may request, and they
further agree that they shall not take any action which in any way
increases Insurer’s exposure under this Policy. ...

94. The Insuring Agreement of the Management Insureds and Company Coverage

Section provides in relevant part:

[Illinois Union] shall pay the Loss of the Management Insureds for which
the Management Insureds are not indemnified by the Company and which
the Management Insureds have become legally obligated to pay by reason
of a Claim first made against the Management Insureds during the Policy
Period, or, if elected, the Extended Period, and reported to the Insurer
pursuant to Section E1 herein, for any Wrongful Act taking place prior to
the end of the Policy Period.

95. Effective December 12, 2009, the Policy was endorsed to add an Extended

Reporting Period, which expires December 12, 2012.

96. The Policy defines the term “Loss” as follows:

Loss means damages, judgments, settlement, pre-judgment or post


judgment interest awarded by a court, and Costs, Charges and Expenses
incurred by Management Insureds under Insuring Clauses 1 or 2, or the
Company under Insuring Clause 3. Loss does not include:

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a) taxes, fines or penalties;

b) matters uninsurable under the laws pursuant to which this Policy is


construed;

c) punitive or exemplary damages, or the multiple portion of any


multiplied damage award, except to the extent that such punitive or
exemplary damages, or multiplied portion of any multiplied
damage award are insurable under the internal laws of any
jurisdiction which most favors coverage for such damages and
which has a substantial relationship to the Insureds, Insurer, this
Policy or the Claim giving rise to such damages;

d) the cost of any remedial, preventative or other non-monetary relief


of any kind or nature imposed by any judgment, settlement or
governmental authority;

e) any amount for which the Insured is not financially liable or


legally obligated to pay;

f) the cost to modify or adapt any building or property to be


accessible or accommodating, or more accessible or
accommodating, to any disabled person; or

g) any amounts owed or to be paid to one or more securities holders


of the Company under any written or express contract or
agreement.

97. The Policy defines the term “Wrongful Act” as follows:

Wrongful Act means any actual or alleged error, omission, misleading


statement, misstatement, neglect, breach of duty or act allegedly
committed or attempted by:

a) any of the Management Insureds, while acting in their capacity as


such, or any matter claimed against any Management Insureds
solely by reason of their serving in such capacity;

b) any of the Management Insureds, while acting in their capacity as a


director, officer, trustee, governor, executive director or similar
position by any Outside Entity where such service is with the
knowledge and consent of the Company; ...

98. The Policy also contains the following exclusion:

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Insurer shall not be liable for Loss under this Coverage Section on account
of any Claim: ...

f) alleging, based upon, arising out of, attributable to, directly or


indirectly resulting from, in consequence of, or in any way
involving:

(i) any dishonest, deliberately fraudulent or criminal act of an


insured; provided, however this exclusion f)(i) shall not
apply unless and until there is a final judgment against such
insured as to such conduct; or

(ii) the gaining of any profit, remuneration or financial


advantage to which any Management Insureds were not
legally entitled; provided, however, that this exclusion f)(ii)
shall not apply unless and until there is a final judgment
against such Management Insureds as to such conduct.

When f)(i) or f)(ii) apply, the Insured shall reimburse the insurer for any
Costs, Charges, or Expenses; ...

99. The Policy also contained Endorsement 9, which provided in relevant part, as

follows:

NON-DUTY TO DEFEND

It is agreed that the Management Insureds and Company Coverage Section


is amended by the addition of the following.

1. Section F. is deleted in its entirety and replaced with the following:

SETTLEMENTS AND DEFENSE

1. It shall be the duty of the Insureds and not the duty of the
Insurer to defend any Claim.

2. The Insureds agree not to settle or offer to settle any Claim,


incur any Costs, Charges or Expenses or otherwise assume
any contractual obligation or admit any liability with
respect to any Claim without the prior written consent of
the Insurer, such consent not to be unreasonably withheld.
The Insurer shall not be liable for any settlement, Costs,
Charges or Expenses, assumed obligation or admission to
which it has not consented. The insurer shall have the right
to investigate and settle any Claim; provided, however, no

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settlement shall be made without the consent of the Parent


Company, such consent not to be unreasonably withheld.
The Insureds shall promptly send to the Insurer all
settlement demands or offers received by any Insured from
the claimant(s).

3. The Insureds agree to provide the Insurer with all


information, assistance and cooperation which the Insurer
reasonably requests and agree that, in the event of a Claim,
the Insureds will do nothing that shall prejudice the
position of the Insurer or its potential or actual rights of
recovery. The Insurer may make any investigation it deems
necessary.

4. The Insurer shall, on a quarterly basis, advance on behalf of


the Insures covered Costs, Charges and Expenses, which
the Insureds have incurred in connection with Claims made
against them, prior to disposition of such Claims. Any
advancement of Costs, Charges and Expenses shall be
subject to the condition that such advanced amounts shall
be repaid to the Insurer by the Insureds severally according
to their respective interests if and to the extent the Insureds
shall not be entitled to coverage for such Costs, Charges
and Expenses under the terms and conditions of the Policy.

THE DAVIS LITIGATION

100. On or about September 8, 2009, the Davis Claimants filed an action against CPI

and Connolly in the United States District Court for the District of New Jersey, entitled Monty L.

Davis, et al. v. Connolly Properties, Inc. and David M. Connolly, Case No. 09-CV-04629 (the

“Davis Litigation”).

101. The Davis Claimants alleged that CPI and Connolly misappropriated their funds

by making unauthorized investments in real estate.

102. The Davis Claimants alleged that they had invested monies in Marshall Woods

Trust, with the objective to invest in a 305 unit apartment complex located in Norristown,

Pennsylvania.

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103. The Davis Claimants further alleged that Connolly advised he would not proceed

with acquisition of the Marshall Woods property, and that instead he intended to invest in a 182

unit garden style apartment complex located in Falls Township, Pennsylvania, known as

Newport Village.

104. The Davis Claimants also alleged that although they did not object to the

substitution of the Newport Village Property for the Marshall Woods Property, the Newport

Village transaction did not close.

105. The Davis Claimants alleged that they demanded the return of the monies that

they had invested in Marshall Woods/Newport Village.

106. The Davis Claimants also allege that Connolly and CPI never returned the funds,

but instead made unauthorized investments in a third property, Hillside Valley, located in

Allentown, Pennsylvania. Connolly allegedly had a financial interest in Hillside Valley.

107. On or about February 11, 2010, United States District Judge Chesler entered

partial summary judgment against Connolly in the Davis Litigation. A true and correct copy of

the Opinion & Order is attached hereto as Exhibit B and is incorporated by reference as though

fully set forth herein.

108. In the Davis Opinion and Order, Judge Chesler found that Connolly was liable to

the Davis Claimants for breach of fiduciary duty because it was undisputed that Connolly

invested the Davis Claimants’ money in Hillside Valley without authorization, and then refused

to return the money.

109. In the Opinion and Order, Judge Chesler also found that Connolly was liable for

conversion, finding undisputed evidence that the Davis Claimants had a right to immediate

possession of the money and that Connolly had unlawfully interfered with that right.

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110. In a second Opinion and Order entered on or about September 2, 2010, Judge

Chesler found that Connolly was liable to refund to the Davis Claimants all of the amounts that

they had invested with Connolly, less certain distributions previously paid by Connolly. Judge

Chesler entered a final judgment against Connolly and in favor of the Davis Claimants in the

total amount of $1,045,000 (the “Davis Judgment”). A true and correct copy of the Davis

Judgment is attached hereto as Exhibit C and is incorporated by reference as though fully set

forth herein.

111. The Davis Claimants have filed a Supplementary Proceeding in the United States

District Court for the Northern District of Illinois, seeking to execute on the Davis Judgment and

to recover the entire available limit under the Policy.

THE BOYKIN LITIGATION

112. On or about October 16, 2009, the Boykin Claimants filed an action against

Connolly in the United States District Court for the District of New Jersey, entitled Edward P.

Boykin, et al. v. Connolly Properties, Inc., et al., Case No. 09-CV-05267 (the “Boykin

Litigation”).

113. The Boykin Claimants alleged that CPI and Connolly misappropriated the Boykin

Claimants’ funds by making unauthorized investments in real estate in which Connolly had a

personal interest.

114. The Boykin Claimants alleged that they sent monies to CPI and Connolly to be

invested in shares of the Marshall Woods Trust, which had the objective to purchase a 305-unit

apartment complex located in Norristown, Pennsylvania, commonly known as Marshall Woods.

115. Certain of the Boykin Claimants also allege that they sent monies to CPI and

Connolly to be invested in shares of the Hampshire Court Trust, which had the objective to

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purchase an apartment complex in South Plainfield, New Jersey commonly known as Hampshire

Court.

116. The Boykin Claimants further alleged that CPI and Connolly advised they would

not proceed with acquisition of the Marshall Woods property, and that instead they would

substitute a property known as Newport Village.

117. Although certain of the Boykin Claimants allege that they did not object to

substitution, others requested the return of their monies. The Newport Village transaction did

not close.

118. The Boykin Claimants alleged that they each demanded the return of the monies

that they had invested in Marshall Woods/Newport Village or Hampshire Court.

119. The Boykin Claimants also allege that CPI and Connolly never returned the

funds, but instead made unauthorized investments in the Hillside Valley Investment Trust.

120. The Boykin Claimants also allege that the funds were then diverted from the

Hillside Investment Trust by Connolly to be used by Hillside Valley, LP to purchase the Hillside

Valley Apartments in Allentown, Pennsylvania.

121. Hillside Valley, LP is allegedly owned by Hillside Management, LLC, which in

turn is allegedly owned by Connolly.

122. The Boykin Claimants allege that their funds were diverted from a trust held for

their benefit and purchased Hillside Valley Apartments for Connolly’s own personal financial

gain.

123. On or about May 3, 2010, United States District Judge Debevoise entered partial

summary judgment against Connolly and in favor of the Boykin Claimants on Count IV of their

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Complaint, alleging breach of fiduciary duty. A true and correct copy of the Order is attached

hereto as Exhibit D and is incorporated by reference as though fully set forth herein.

124. In the Order, Judge Debevoise found that Connolly was collaterally estopped

from contesting the motion by reason of the Davis Opinion and Order.

125. In a second Order entered on or about October 25, 2010, Judge Debevoise found

that Connolly was liable to refund to the Boykin Claimants all of the amounts that had been

misappropriated by Connolly, less certain distributions previously paid by Connolly. Judge

Debevoise entered a final judgment against Connolly and in favor of the Boykin Claimants in the

total amount of $1,368,502 (the “Boykin Judgment”). A true and correct copy of the Boykin

Judgment is attached hereto as Exhibit E and is incorporated by reference as though fully set

forth herein.

126. The Boykin Claimants now claim that Connolly has assigned to them all of his

rights under the Policy. Illinois Union disputes the validity of the purported assignment.

127. The Boykin Claimants have demanded that Illinois Union pay them the entire

available limit under the Policy. The Boykin Claimants have filed a Motion to Intervene in the

supplementary proceeding filed by the Davis Claimants in Illinois and have filed a separate

action in the United States District Court for the District of New Jersey seeking, inter alia, to

recover the available limit under the Policy.

THE ZARILLO LITIGATION

128. On or about January 20, 2010, the Zarillo Claimants filed an action against

Connolly in the Superior Court of Middlesex County, New Jersey, entitled Anthony and Diane

Zarillo, et al. v. Connolly Properties, Inc., et al., Case No. L-000371-10 (the “Zarillo

Litigation”).

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120. The Zarillo Claimants alleged that they were seeking the return of funds diverted

from a trust held for their benefit. They alleged that their funds were no longer being held in

trust, but had been used by CPI and Connolly to invest in property in which Connolly had a

personal interest.

130. The Zarillo Claimants alleged that they paid monies to CPI’s Trust Account as a

deposit to be held in escrow for the purchase of shares in the Marshall Woods Trust, which had

the objective to purchase a 305-unit apartment complex located in Norristown, Pennsylvania,

commonly known as Marshall Woods.

131. Certain of the Zarillo Claimants also alleged that they paid monies to CPI and

Connolly to be invested in shares of the Hampshire Court Trust, which had the objective to

purchase an apartment complex in South Plainfield, New Jersey, commonly known as

Hampshire Court.

132. The Zarillo Claimants further alleged that CPI advised that Marshall Woods was

not performing at the levels represented in the original Offering Memorandum and that he had

opted out of the contract to purchase Marshall Woods. Instead, CPI offered as a replacement

property a property known as Newport Village.

133. Although certain of the Zarillo Claimants alleged that they did not object to the

substitution, others requested the return of their monies. The Newport Village transaction did

not close.

134. The Zarillo Claimants also alleged that CPI advised that it had recovered the

escrow and deposit monies for the Newport Village/Marshall Woods and Hampshire Court deals

and seized an opportunity to invest in a 200 unit luxury apartment complex known as Hillside

Valley.

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135. The Zarillo Claimants alleged that they each demanded the return of the monies

that they had invested in Marshall Woods/New Port Village or Hampshire Court.

136. The Zarillo Claimants also alleged that CPI and Connolly never returned the

funds, but instead made unauthorized investments in the Hillside Valley Investment Trust.

137. The Zarillo Claimants alleged that against their express direction, Connolly

diverted their escrow funds from a trust held for their benefit and purchased Hillside Valley for

his own personal gain.

138. The Zarillo Claimants alleged that Connolly failed to disclose the fact that he

would wholly own Hillside Management, LLC which owns Hillside Valley, LP.

139. The Zarillo Claimants alleged that the diversion of their escrow funds to a

transaction in which Connolly had a financial interest was wrongful.

140. The Court in the Zarillo Litigation has entered judgments on the same basis as the

orders in the Davis Litigation and the Boykin Litigation in the total amount of $455,000.

141. Upon information and belief, Connolly and CPI agreed to the entry of the Consent

Order imposing liability to the Zarillo Claimants.

CONNOLLY’S CLAIMS FOR COVERAGE

142. On October 5, 2009, CPI and Connolly first notified Illinois Union of the Davis

Litigation and demanded defense and indemnification.

143. On or about October 16, 2009, CPI and Connolly first notified Illinois Union of

the Boykin Litigation and demanded defense and indemnification.

144. Illinois Union has notice of the Zarillo Litigation and upon information and belief

Connolly will demand defense and indemnification.

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145. Pursuant to Endorsement No. 9 to the Policy, Illinois Union has funded the

defense of Connolly in the Davis Litigation, the Boykin Litigation and the Zarillo Litigation by

paying counsel of Connolly’s choice, subject to a reservation of rights.

146. Following Judge Chesler’s Order of February 11, 2010, granting the Davis

Claimants’ motion for partial summary judgment, counsel for Connolly again demanded

indemnification for the full amount of any judgment that may be entered.

147. In a letter dated March 19, 2010, counsel for Illinois Union advised that Illinois

Union would decline to indemnify Connolly for any judgment in the Boykin or Davis Litigation,

but would continue to fund the defense of Connolly.

148. On October 13, 2010, the Davis Claimants filed a supplementary proceeding in

the United States District Court for the Northern District of Illinois nominally seeking

information regarding insurance coverage available under the Policy to pay the claim and also to

execute on their judgment by seeking the entire remaining limit of liability of the Illinois Union

Policy.

149. The Boykin Claimants also are seeking to recover under the Policy for the Boykin

Judgment, and have filed a motion to intervene in the supplementary proceeding pending in

Illinois.

150. The Boykin Claimants have filed a separate action in the United States District

Court for the District of New Jersey seeking, inter alia, an order requiring Illinois Union to pay

all of the available Policy limits to the Boykin Claimants.

151. Upon information and belief, Connolly will demand indemnification for any

judgment that may be entered against him in the Zarillo Litigation.

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152. Illinois Union denies that it has any obligation to indemnify Connolly for any

portion of the judgments against him and in favor of the Boykin Claimants, the Davis Claimants

or the Zarillo Claimants.

153. There is an actual controversy among the parties as to the obligation of Illinois

Union to indemnify Connolly for the judgments against him in the Davis Litigation, the Boykin

Litigation and the Zarillo Litigation.

COUNT I-DECLARATORY JUDGMENT


PROPERTY OF THE ESTATE

154. Illinois Union hereby realleges and incorporates by reference the allegations

contained in Paragraphs 1 through 153, inclusive, as its allegations of this Paragraph 154.

155. The Declarations in the Policy identify the “Parent Company” as “Connolly

Properties, Inc.”

156. Plainfield, 158 South Harrison, 179 South Harrison, Cypress House and Fulton-

Harrison were listed in Endorsement No. 1 on the Policy.

157. The limit of liability applicable to the Management Insureds and Company

coverage under the Policy is $1,000,000 in the aggregate.

158. The Policy was issued to the debtor, CPI, which was the Parent Company because

it was the first named in Item A of the Declarations.

159. In Endorsement 1 to the Policy, Crescent Avenue Group, Tudor Arms, Beacon

Village, Settles Place, Washington, LP, Washington Corp., Sterling, Parkside, Fulton Towers,

Allentown Apts., Plainfield, 111 South Harrison, 195 Prospect, 242 Prospect, 158 South

Harrison, 243 S. Harrison, Harrison House, Prospect Harrison, Ritz Court, 179 S. Harrison,

Cypress House, Fulton-Harrison, Williamsburg-Hickory, Cornell-Pingry, Central Avenue, Green

Brook, 609 Madison, Liberty Arms, Mayfair, Milton, Executive, Park Regency, Watchung,

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Livingston, Caterat, Caterat Management, Gramercy Park, Gramercy Manager, Crescent Garden,

Crescent Manager, Netherwood, Grand Court, Siesta Park, CC&O, Hillside Valley, and Madison

Gardens were added to Item A of the Declarations, Parent Company, following CPI.

160. Accordingly, the Policy may be an asset the bankruptcy estates of CPI, Plainfield,

158 South Harrison, 179 South Harrison, Cypress House and Fulton-Harrison.

161. In addition, the other entities listed in Endorsement 1 of the Policy may claim that

they are also “Parent Companies” and have a property interest in the Policy or its proceeds, even

though they are not the entity first named in Item A of the Declarations.

162. Connolly claims to be a “Management Insured” as defined in the Policy.

163. The Davis Claimants and the Boykin Claimants have obtained judgments against

Connolly for which Connolly has made claims under the Policy.

164. The Zarillo Claimants have obtained judgments against Connolly for which

Illinois Union expects Connolly will make claims for indemnification under the Policy.

165. The Davis Claimants have filed a supplementary proceeding in the United States

District Court for the Northern District of Illinois seeking to execute on the Davis Judgment and

ultimately recover the entire available limits under the Policy.

166. The Davis Claimants claim that the supplementary proceeding imposes a lien on

the proceeds of the Policy, preventing any payments without order of the United States District

Court for the District of Northern Illinois.

167. The Boykin Claimants have intervened in the supplementary proceeding pending

in Illinois.

168. Connolly has entered into an agreement purporting to assign all of his rights to the

proceeds of the Policy to the Boykin Claimants.

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169. The Boykin Claimants have demanded that Illinois Union pay them the entire

available limit under the Policy.

170. The Boykin Claimants have filed a separate action in the United States District

Court for the District of New Jersey seeking an order. inter alia, requiring that Illinois Union

pay its limits to the Boykin Claimants.

171. On information and belief, the Bankruptcy Trustee of CPI was not aware of the

existence of the Policy prior to January 20, 2011.

172. The Bankruptcy Trustee of CPI has asserted that the Policy and its proceeds may

be property of the bankruptcy estate.

173. The Policy and its proceeds may be property of the bankruptcy estate of

Plainfield.

174. The Policy and its proceeds may be property of the bankruptcy estates of 158

South Harrison Associates, 179 S. Harrison, Cypress House, and Fulton-Harrison.

175. Upon information and belief, neither the Davis Claimants nor the Boykin

Claimants have sought relief from the automatic stay in order to seek recovery of the proceeds of

the Policy.

176. Illinois Union is at risk of duplicative or inconsistent judgments to the extent that

another Court issues rulings as to the disposition of the proceeds of the Policy.

177. A declaration from this court would resolve the controversy as to the appropriate

forum to address the rights and obligations of the parties under the Policy.

WHEREFORE, Illinois Union Insurance Company respectfully requests that this

Honorable Court issue an order adjudging, declaring and decreeing as follows:

1. Whether the proceeds of the Policy are an asset of the estate;

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2. Whether this Court is the appropriate forum to for resolving all disputes

regarding the appropriate disposition of the Policy proceeds, if any;

3. Such other relief as this Court deems just and appropriate.

COUNT II-DECLARATORY JUDGMENT


NO DUTY TO INDEMNIFY FOR THE DAVIS JUDGMENT

178. Illinois Union hereby realleges and incorporates by reference the allegations

contained in Paragraphs 1 through 177, inclusive, as its allegations of this Paragraph 178.

179. In the Davis Judgment, Judge Chesler ordered that Connolly refund to the Davis

Claimants all amounts that had been misappropriated by Connolly.

180. The Davis Claimants are not insureds under the Policy and are not third-party

beneficiaries under the Policy.

181. The funds that Connolly was found in the Davis Judgment to have

misappropriated from the Davis Claimants were allegedly used by Connolly to purchase

properties in which Connolly had a financial interest.

182. Restitution of misappropriated funds does not constitute a “Loss” as that term is

defined in the Illinois Union policy.

183. The remedy in the Davis Judgment does not constitute a “Loss” as that term is

defined in the Illinois Union Policy.

184. The Davis Judgment against Connolly does not arise from a “Wrongful Act” as

that term is defined in the Illinois Union Policy.

185. Even if the judgment entered against Connolly was a “Loss,” and arose from a

“Wrongful Act,” coverage for the judgment in the Underlying Litigation is excluded by

Exclusion f) in the Policy.

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186. As coverage is excluded by Exclusion f), Connolly is obligated to reimburse

Illinois Union for any “Costs, Charges or Expenses,” as defined in the Policy, incurred by Illinois

Union for the defense of Connolly in the Davis Litigation.

187. Illinois Union reserves the right to assert such other policy provisions or defenses

to coverage that may become apparent in this action.

188. Accordingly, Illinois Union has no duty to indemnify Connolly for the judgment

against it in the Davis Litigation, nor to pay any amounts to the Claimants.

WHEREFORE, to the extent that this Court finds that the proceeds of the Policy are an

asset of the bankruptcy estate of CPI, or any other debtor insured, and that this Court is the

proper forum to resolve disputes regarding the Policy, Illinois Union Insurance Company

respectfully requests this Honorable Court enter a judgment in its favor and against Connolly and

the Davis Claimants ordering, adjudging and declaring:

1. The Davis Claimants do not have standing to make any claim or to seek

recovery under the Illinois Union Policy;

2. That Illinois Union does not provide coverage for the Davis Judgment or

the defense costs incurred by Connolly or any other insureds in the Davis

Litigation, and that Illinois Union has no duty to indemnify Connolly for

the Davis Judgment;

3. That Illinois Union owes no amounts to the Davis Claimants;

4. That Connolly is obligated to reimburse Illinois Union for all amounts

incurred by Illinois Union for the defense of Connolly in the Davis

Litigation; and

5. Such additional relief that the Court shall deem just and proper.

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COUNT III-DECLARATORY JUDGMENT


NO DUTY TO INDEMNIFY FOR THE BOYKIN JUDGMENT
AND INVALIDITY OF ASSIGNMENT

189. Illinois Union hereby realleges and incorporates by reference the allegations

contained in Paragraphs 1 through 188, inclusive, as its allegations of this Paragraph 189.

190. In the Boykin Judgment, Judge Debevoise ordered that Connolly refund to the

Boykin Claimants all amounts that had been misappropriated by Connolly.

191. The Boykin Claimants are not insureds under the Policy and are not third-party

beneficiaries under the Policy and have no right to make a claim under the Policy.

192. Connolly had allegedly misappropriated the Boykin Claimants’ funds to purchase

properties in which Connolly had a financial interest.

193. Restitution of misappropriated funds does not constitute a “Loss” as that term is

defined in the Illinois Union policy.

194. The remedy in the Boykin Judgment does not constitute a “Loss” as that term is

defined in the Policy.

195. The Boykin Judgment against Connolly does not arise from a “Wrongful Act” as

that term is defined in the Illinois Union Policy.

196. Even if the judgment entered against Connolly was a “Loss,” and arose from a

“Wrongful Act,” coverage for the judgment in the Boykin Litigation is excluded by Exclusion f)

in the Policy.

197. As coverage is excluded by exclusion f), Connolly is obligated to reimburse

Illinois Union for any “Costs, Charges or Expenses,” as defined in the Policy, incurred by Illinois

Union for the defense of Connolly in the Boykin Litigation.

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198. Connolly’s purported assignment of rights under the Policy to the Boykin

Claimants was not effective because Connolly had no right to make the assignment without the

approval of the “Parent Companies.”

199. Illinois Union reserves the right to assert such other policy provisions or defenses

to coverage that may become apparent in this action.

200. Accordingly, Illinois Union has no duty to indemnify Connolly for the judgment

against him in the Boykin Litigation, nor to pay any amounts to the Boykin Claimants.

WHEREFORE, to the extent that this Court finds that the proceeds of the Policy are an

asset of the bankruptcy estate of CPI or any other debtor insured, and that this Court is the proper

forum to resolve disputes regarding the Policy, Illinois Union Insurance Company respectfully

requests this Honorable Court enter a judgment in its favor and against Connolly and the Boykin

Claimants ordering, adjudging and declaring:

1. That the Boykin Claimants do not have standing to make any claim or to

seek recovery under the Illinois Union Policy;

2. That the Illinois Union Policy does not provide coverage for the Boykin

Judgment or the defense costs incurred by Connolly or any other insureds

in the Boykin Litigation, and that Illinois Union has no duty to indemnify

Connolly for the Boykin Judgment;

3. That Illinois Union owes no amounts to the Boykin Claimants;

4. That the purported assignment of rights under the Policy to the Boykin

Claimants was not effective;

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5. That Connolly is obligated to reimburse Illinois Union for all amounts

incurred by Illinois Union for the defense of Connolly in the Boykin

Litigation; and

6. Such additional relief that the Court shall deem just and proper.

COUNT IV-DECLARATORY JUDGMENT


NO DUTY TO INDEMNIFY FOR THE ZARILLO JUDGMENT

201. Illinois Union hereby realleges and incorporates by reference the allegations

contained in Paragraphs 1 through 200, inclusive, as its allegations of this Paragraph 201.

202. The court in the Zarillo Litigation entered judgments in favor of the Zarillo

Claimants on the same basis as in the Davis Litigation and the Boykin Litigation. Upon

information and belief the judgments were entered by consent.

203. The Zarillo Claimants are not insureds under the Policy and are not third-party

beneficiaries under the Policy and have no right to make a claim under the Policy.

204. Connolly allegedly misappropriated the Zarillo Claimants’ funds to purchase

properties in which Connolly had a financial interest.

205. Restitution of misappropriated funds does not constitute a “Loss” as that term is

defined in the Illinois Union policy.

206. The claims asserted against Connolly in the Zarillo Litigation do not constitute a

“Loss” as that term is defined in the Policy.

207. The claims asserted against Connolly in the Zarillo Litigation do not do not arise

from a “Wrongful Act” as that term is defined in the Illinois Union Policy.

208. Even if the claims against Connolly constituted a “Loss,” and arose from a

“Wrongful Act,” coverage for the claims in the Zarillo Litigation is excluded by Exclusion f) in

the Policy.

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209. As coverage is excluded by exclusion f), Connolly is obligated to reimburse

Illinois Union for any “Costs, Charges or Expenses,” as defined in the Policy, incurred by Illinois

Union for the defense of Connolly in the Zarillo Litigation.

210. Even if the judgments entered in the Zarillo Litigation were otherwise covered,

Connolly is not entitled to coverage because he admitted liability in violation of Section F.2. of

Endorsement 9 of the Policy.

211. Even if the judgments entered in the Zarillo Litigation were otherwise covered,

Connolly is not entitled to coverage because by agreeing to the entry of the Consent Order he

violated Condition L of the Policy because by admitting liability he increased Illinois Union’s

exposure under the Policy.

212. Illinois Union reserves the right to assert such other policy provisions or defenses

to coverage that may become apparent in this action.

213. Accordingly, Illinois Union has no duty to indemnify Connolly for any judgments

against him in the Zarillo Litigation, nor to pay any amounts to the Zarillo Claimants.

WHEREFORE, to the extent that this Court finds that the proceeds of the Policy are an

asset of the bankruptcy estate of CPI or any other debtor insured, and that this Court is the proper

forum to resolve disputes regarding the Policy, Illinois Union Insurance Company respectfully

requests this Honorable Court enter a judgment in its favor and against Connolly and the Zarillo

Claimants ordering, adjudging and declaring:

1. That the Zarillo Claimants do not have standing to make any claim or to

seek recovery under the Illinois Union Policy;

2. That the Illinois Union Policy does not provide coverage for any

judgments entered in the Zarillo Litigation or the defense costs incurred by

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Connolly or any other insureds in the Zarillo Litigation, and that Illinois

Union has no duty to indemnify Connolly any such judgment;

3. That Illinois Union owes no amounts to the Zarillo Claimants;

4. That Connolly is obligated to reimburse Illinois Union for all amounts

incurred by Illinois Union for the defense of Connolly in the Zarillo

Litigation; and

5. Such additional relief that the Court shall deem just and proper.

COUNT V-DECLARATORY JUDGMENT


CONNOLLY’S OBLIGATION TO REIMBURSE DEFENSE COSTS

214. Illinois Union hereby realleges and incorporates by reference the allegations

contained in Paragraphs 1 through 213, inclusive, as its allegations of this Paragraph 214.

215. Pursuant to the Non-Duty to Defend Endorsement, Illinois Union paid for the cost

of defending Connolly in the Davis Litigation, the Boykin Litigation and the Zarillo Litigation

by paying counsel appointed by Connolly.

216. Coverage for the Davis Judgment, the Boykin Judgment and the Zarillo

Judgments is precluded by Exclusion f) in the Policy.

217. As coverage is excluded by exclusion f), Connolly is obligated to reimburse

Illinois Union for any “Costs, Charges or Expenses,” as defined in the Policy, incurred by Illinois

Union for the defense of Connolly in the Davis Litigation, the Boykin and the Zarillo Litigation.

WHEREFORE, Illinois Union Insurance Company respectfully requests this Honorable

Court enter a judgment in its favor and against Connolly, adjudging and declaring:

1. That Illinois Union has no duty to indemnify Connolly for the Judgments

against him in the underlying Davis Litigation or the Boykin Litigation

and any judgment entered in the Zarillo Litigation;

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2. That Connolly is obligated to reimburse Illinois Union for all amounts

incurred by Illinois Union for the defense of Connolly in the Davis

Litigation, the Boykin Litigation and the Zarillo Litigation; and

3. Such other relief as this Court shall deem reasonable and appropriate.

COUNT VI-INTERPLEADER AND DECLARATORY RELIEF –


ALLOCATION OF AVAILABLE POLICY LIMITS AMONG CLAIMANTS
(In The Alternative)

218. Illinois Union hereby realleges and incorporates by reference the allegations

contained in Paragraphs 1 through 217, inclusive, as its allegations of this Paragraph 218.

219. The aggregate limit under the Policy applicable to the Management Insureds and

Company Coverage is $1,000,000.

220. The aggregate limit has been eroded by the payment of defense costs in the

Boykin Litigation, the Davis Litigation, the Zarillo Litigation, and other actions.

221. The aggregate limit currently available under the Policy is $746,453.68. This

amount shall be referred to as the Available Limit and represents the largest amount for which

Illinois Union would be liable under the Policy.

222. The total judgments entered against Connolly and in favor the Davis Claimants,

the Boykin Claimants and the Zarillo Claimants exceed $2,000,000.

223. Even if the judgments against Connolly were covered, the Available Limit is

insufficient to satisfy all of the outstanding judgments.

224. There are, therefore, at least three groups of claimants, including the Davis

Claimants, the Boykin Claimants and the Zarillo Claimants, which consist of 22 individuals, who

have claimed or may claim to be entitled to the Available Limit under the Policy.

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225. In addition, Biase has indicated that the bankruptcy estate of CPI may make a

claim against the Policy or its proceeds, and may seek to recover some or all of the Available

Limit.

226. Forman may also claim that the bankruptcy estate of Plainfield has a claim against

the Policy or its proceeds, and may seek to recover some or all of the Available Limit.

227. The bankruptcy estates of 158 South Harrison, 179 S. Harrison, Cypress House

and Fulton-Harrison may also claim to have an interest in the Policy or its proceeds, and may

seek to recover some or all of the Available Limit.

228. Illinois Union has denied and continues to deny that it has any obligation to

indemnify Connolly for the Boykin Judgment, the Davis Judgment or any judgment in favor of

the Zarillos, or that it has any obligation to pay any amounts to the Davis Claimants, the Boykin

Claimants or the Zarillo Claimants.

229. Illinois Union also denies that it owes any amounts to the bankruptcy estates of

CPI, Plainfield, 158 South Harrison, 179 S. Harrison, Cypress House or Fulton-Harrison.

230. In the event that this Court determines that Illinois Union is obligated to

indemnify Connolly for the Boykin Claimants, the Davis Claimants or the Zarillo Claimants,

Illinois Union has a reasonable fear that it may be exposed to multiple or inconsistent liability

unless a court of competent jurisdiction gives direction as to the lawful and proper distribution of

the Available Limits among the claimants.

231. Accordingly, if this Court determines that Illinois Union is obligated to indemnify

Connolly for any judgments in favor of the Davis Claimants, the Boykin Claimants or the Zarillo

Claimants, or if the Court determines that any amounts are owing to any of the Bankruptcy

estates, it will be necessary for the Court to determine and declare the rights of the claimants

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with respect to the Available Limits, and to direct the distribution of the Available Limits

according to the determinations and declarations of this Court.

WHEREFORE, Illinois Union Insurance Company, pleading in the alternative,

respectfully requests this Honorable Court enter a judgment in its favor and against the Davis

Claimants, the Boykin Claimants, the Zarillo Claimants and Connolly, adjudging, decreeing and

declaring:

1. That the Available Limits under the Policy are inadequate to fully satisfy

all of the judgments pending against Connolly, including the Davis

Judgment, the Boykin Judgment and any judgment in favor of the Zarillo

Claimants;

2. That to the extent Illinois Union is obligated to indemnify Connolly for the

Davis Judgment, the Boykin Judgment, or any judgment in favor of the

Zarillo Claimants, to determine and declare the rights of all of the

Claimants with respect to the Available Limits;

3. Directing the distribution of the Available Limits among the Davis

Claimants, the Davis Claimants and the Boykin Claimants according to

the determinations and declarations of this Court;

4. That Illinois Union has no further responsibility for the Available Limits;

5. That after paying the Available Limit into Court, Illinois Union has no

further responsibility to Connolly, the Davis Claimants, the Boykin

Claimants or the Zarillo Claimants, or to any other insureds under the

Policy or to any potential claimants to the Policy proceeds.; and

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6. Such additional relief that the Court shall deem just and proper.

Date: April 8, 2011.


Respectfully Submitted,

By: /s/ Jerrold N. Poslusny, Jr.


Jerrold N. Poslusny, Jr.
Cozen O’Connor, PC
LibertyView, Suite 300
457 Haddonfield Road
Cherry Hill, NJ 08002
P: 856-910-5005
F: 877-526-3069

And

Benjamin A. Blume (ARDC # 6200914)


Cozen O’Connor
333 W. Wacker Drive, Suite 1900
Chicago, IL 60606
P: 312-382-3100
F: 312-382-8910

Attorneys for Illinois Union Insurance Company

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!JS 44 (Rev. 12/07, NJ 5/08) CIVIL COVER SHEET
The JS 44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law, except as provided
by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of Court for the purpose of initiating
the civil docket sheet. (SEE INSTRUCTIONS ON THE REVERSE OF THE FORM.)

I. (a) PLAINTIFFS DEFENDANTS


Illinois Union Insurance Company Donald V. Biase, solely in his Capacity as Chapter 7 Trustee
of Connolly Properties, Inc., et al.,
(b) County of Residence of First Listed Plaintiff County of Residence of First Listed Defendant Essex
(c) Attorney's (Firm Name, Address, Telephone Number and Email Address)
NOTE: IN LAND CONDEMNATION CASES, USE THE LOCATION OF THE
Jerrold N. Poslusny, Jr., Esq., Cozen O'Connor, PC LAND INVOLVED.

LibertyView, Suite 300, 457 Haddonfield Road, Attorneys (If Known)


Cherry Hill, NJ 08002
(856) 910-5005, (856) 910-5075 (fax), jposlusny@cozen.com Larry Lesnik, Esq. , Norris, McLaughlin & Marcus
PO Box 5933, Bridgewater, NJ 08807-5933
II. BASIS OF JURISDICTION (Place an “X” in One Box Only) III. CITIZENSHIP OF PRINCIPAL PARTIES(Place an “X” in One Box for Plaintiff
(For Diversity Cases Only) and One Box for Defendant)
" 1 U.S. Government " 3 Federal Question PTF DEF PTF DEF
Plaintiff (U.S. Government Not a Party) Citizen of This State " 1 " 1 Incorporated or Principal Place " 4 " 4
of Business In This State

" 2 U.S. Government " 4 Diversity Citizen of Another State " 2 " 2 Incorporated and Principal Place " 5 " 5
Defendant of Business In Another State
(Indicate Citizenship of Parties in Item III)
Citizen or Subject of a " 3 " 3 Foreign Nation " 6 " 6
Foreign Country
IV. NATURE OF SUIT (Place an “X” in One Box Only)
CONTRACT TORTS FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTES
" 110 Insurance PERSONAL INJURY PERSONAL INJURY " 610 Agriculture " 422 Appeal 28 USC 158 " 400 State Reapportionment
" 120 Marine " 310 Airplane " 362 Personal Injury - " 620 Other Food & Drug " 423 Withdrawal " 410 Antitrust
" 130 Miller Act " 315 Airplane Product Med. Malpractice " 625 Drug Related Seizure 28 USC 157 " 430 Banks and Banking
" 140 Negotiable Instrument Liability " 365 Personal Injury - of Property 21 USC 881 " 450 Commerce
" 150 Recovery of Overpayment " 320 Assault, Libel & Product Liability " 630 Liquor Laws PROPERTY RIGHTS " 460 Deportation
& Enforcement of Judgment Slander " 368 Asbestos Personal " 640 R.R. & Truck " 820 Copyrights " 470 Racketeer Influenced and
" 151 Medicare Act " 330 Federal Employers’ Injury Product " 650 Airline Regs. " 830 Patent Corrupt Organizations
" 152 Recovery of Defaulted Liability Liability " 660 Occupational " 840 Trademark " 480 Consumer Credit
Student Loans " 340 Marine PERSONAL PROPERTY Safety/Health " 490 Cable/Sat TV
(Excl. Veterans) " 345 Marine Product " 370 Other Fraud " 690 Other " 810 Selective Service
" 153 Recovery of Overpayment Liability " 371 Truth in Lending LABOR SOCIAL SECURITY " 850 Securities/Commodities/
of Veteran’s Benefits " 350 Motor Vehicle " 380 Other Personal " 710 Fair Labor Standards " 861 HIA (1395ff) Exchange
" 160 Stockholders’ Suits " 355 Motor Vehicle Property Damage Act " 862 Black Lung (923) " 875 Customer Challenge
" 190 Other Contract Product Liability " 385 Property Damage " 720 Labor/Mgmt. Relations " 863 DIWC/DIWW (405(g)) 12 USC 3410
" 195 Contract Product Liability " 360 Other Personal Product Liability " 730 Labor/Mgmt.Reporting " 864 SSID Title XVI " 890 Other Statutory Actions
" 196 Franchise Injury & Disclosure Act " 865 RSI (405(g)) " 891 Agricultural Acts
REAL PROPERTY CIVIL RIGHTS PRISONER PETITIONS " 740 Railway Labor Act FEDERAL TAX SUITS " 892 Economic Stabilization Act
" 210 Land Condemnation " 441 Voting " 510 Motions to Vacate " 790 Other Labor Litigation " 870 Taxes (U.S. Plaintiff " 893 Environmental Matters
" 220 Foreclosure " 442 Employment Sentence " 791 Empl. Ret. Inc. or Defendant) " 894 Energy Allocation Act
" 230 Rent Lease & Ejectment " 443 Housing/ Habeas Corpus: Security Act " 871 IRS—Third Party " 895 Freedom of Information
" 240 Torts to Land Accommodations " 530 General 26 USC 7609 Act
" 245 Tort Product Liability " 444 Welfare " 535 Death Penalty IMMIGRATION " 900Appeal of Fee Determination
" 290 All Other Real Property " 445 Amer. w/Disabilities - " 540 Mandamus & Other " 462 Naturalization Application Under Equal Access
Employment " 550 Civil Rights " 463 Habeas Corpus - to Justice
" 446 Amer. w/Disabilities - " 555 Prison Condition Alien Detainee " 950 Constitutionality of
Other " 465 Other Immigration State Statutes
" 440 Other Civil Rights Actions

V. ORIGIN (Place an “X” in One Box Only) Appeal to District


" 1 Original " 2 Removed from " 3 Remanded from " 4 Reinstated or " 5 Transferred from
another district " 6 Multidistrict " 7 Judge from
Magistrate
Proceeding State Court Appellate Court Reopened Litigation
(specify) Judgment
Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversity):
28 U.S.C. §§ 1332 & 2201
VI. CAUSE OF ACTION Brief description of cause:
Declaratory Judgment of Plaintiff's obligations pursuant to a Business & Management Insurance Policy
VII. REQUESTED IN " CHECK IF THIS IS A CLASS ACTION DEMAND $ CHECK YES only if demanded in complaint:
COMPLAINT: UNDER F.R.C.P. 23 JURY DEMAND: " Yes " No
VIII. RELATED CASE(S)
(See instructions):
JUDGE DOCKET NUMBER

Explanation:
See Attached

DATE SIGNATURE OF ATTORNEY OF RECORD

/s/ Jerrold N. Poslusny, Jr.


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VIII. RELATED CASE(S)

JUDGE DOCKET NO

Judge Chesler Case No. 09-CV-04629

Judge Debevoise Case No. 09-CV-05267

Judge Garruto Case No. L-000371-10 (Superior Court, Middlesex County)

Judge Lindberg Case 10-cv-6553 (District Court N.D. Ill.)