by Chris Graham and Joseph Kelly

Fromhart v. Tucker, et al, Case No. 5:11CV97 (N.D. WV July 3, 2013)

Tucker was sued by Fromhart for $700,000 in loans that were allegedly fraudulently procured and not repaid. Tucker filed a third-party complaint against attorney Thomas for legal malpractice. Thomas removed the case to federal court and moved for and received a summary judgment.

Thomas argued that Tucker has no standing to sue for legal malpractice because Thomas owed him no duty. Thomas argued he only represented Tucker’s companies – OVA and Mound City – and he didn’t represent Tucker individually.

Thomas’s most convincing proof was the engagement letter sent to Tucker regarding his representation of OVA and Mound City.

The District Court concluded:

“In this letter, Mr. Thomas repeatedly states that he has been retained ‘to undertake representation of Ohio Valley Amusement Company and Mound City, Inc. in their pending Chapter 11 bankruptcy cases.’ [citation omitted]. He also specifically requests that OVA and Mound City ONLY furnish him and his firm with a retainer. Id. Finally, Mr. Thomas briefs Mr. Tucker in this letter regarding his impressions of the state of the OVA/Mound City bankruptcy, and informs Mr. Tucker that it may become necessary for him to file for bankruptcy individually. However, Mr. Thomas clearly indicates that, if filing for bankruptcy individually becomes necessary, Mr. Tucker ‘will need to consult with another lawyer, as there would be a conflict of interest that would prohibit us from being the lawyers for you at the same time that we are representing your companies.’

As such, it is clear that Mr. Thomas only represented OVA and Mound City, and did not represent Mr. Tucker individually. It is equally clear that Mr. Thomas made this fact clear to Mr. Tucker. Further, as Mr. Thomas points out, absent evidence of special circumstances showing an arrangement otherwise, a corporation’s attorney does not owe an attorney/client duty to the corporation’s shareholders.”

by Chris Graham and Joseph Kelly

Pelagatti v. Minnesota Lawyers Mutual Ins. Co., Case No. 11-7336 (E.D. Pa. June 26, 2013)

Plaintiff lawyer filed suit against its legal malpractice insurer claiming a breach of the duty to defend and bad faith.

Plaintiff renewed his annual legal malpractice policy from 2003-2010. In response to insurer’s “Firm Information Verification Form” which stated:

“There have been changes to the Firm Name, Schedule of Lawyers or significant changes to the previously submitted application information or the firm is aware of a claim(s) or circumstances that could reasonably result in claims or disciplinary actions that have not been reported to Minnesota Lawyers Mutual. The undersigned will provide immediate written notification on this form or an attachment describing the changes, claims, potential claims and disciplinary actions to Minnesota Lawyers Mutual before accepting the quotation.”

Plaintiff responded by listing his firm’s name change, but didn’t discuss mention any potential claims.

The Policy states:

“WE will pay, subject to OUR limit of liability, all DAMAGES the INSURED may be legally obligated to pay and CLAIM EXPENSE(S), due to any CLAIM, provided that:

(1) the CLAIM arises out of any act, error or omission of the INSURED or a person for whose acts the INSURED is legally responsible;

(2) the act, error, or omission occurred on or after the PRIOR ACTS RETROACTIVE DATE and prior to the expiration date of the POLICY PERIOD;

(3) the CLAIM results from the rendering of or failure to render PROFESSIONAL SERVICES;

(4) the CLAIM is deemed made during the POLICY PERIOD; and

(5) the CLAIM is reported to US during the POLICY PERIOD or within 60 days after the end of the POLICY PERIOD.

The Policy also states that a claim is made when “an INSURED first becomes aware of any act, error or omission by any INSURED which could reasonably support or lead to a demand for damages.”

In July 2006, Tondalia Cliett retained plaintiff for a wrongful death and survivorship action relating to her son’s death on an unsupervised beach the previous month in New Jersey. Plaintiff didn’t advise Cliett that he wasn’t licensed to practice law in New Jersey.

Plaintiff filed suit in New Jersey District Court against against Ocean City, NJ in September 2006. Ocean City moved to dismiss for failure to timely place the city on notice as required by the New Jersey Tort Claims Act (“NJTCA”). Plaintiff filed a motion for leave to file a late notice of claim. The District Court converted the city’s motion to dismiss into a motion for summary judgment and granted it. Plaintiff filed a motion for reconsideration, withdrew that motion, and then appealed to the Third Circuit. The Third Circuit dismissed the appeal as untimely because it was more than 30 days from the district court’s final order. Plaintiff then moved the District Court to reinstate his motion for reconsideration. The District Court denied that motion and stated that plaintiff should’ve filed a new motion but couldn’t now because it would be untimely. The Third Circuit affirmed that denial. Plaintiff, in October 2009, informed Cliett that the appeals didn’t succeed.

In February 2010, Cliett filed a legal malpractice suit against plaintiff alleging negligence for not complying with the NJTCA. Plaintiff notified his legal malpractice insurer which refused to defend because of untimely notice and because notice wasn’t given when plaintiff found out Cliett’s claim was dismissed in 2006 for failure to follow the NJTCA. Cliett was granted summary judgment and plaintiff then filed suit against its insurer.

Defendant moved for summary judgment. Plaintiff argued in pertinent part that its insurer failed to prove that it was prejudiced by plaintiff’s untimely notice. The District Court rejected that argument stating:

“Although Pennsylvania law requires that insurers demonstrate prejudice in order to deny coverage under some types of policies […]”; and

“Whether Plaintiff violated the terms of the Policy by failing to timely report a claim is determined under a hybrid subjective/objective test. [citation omitted]. Defendant must establish two factors in order to satisfy this two-pronged test: (1) that Plaintiff was aware of a given set of facts; and (2) that a reasonable attorney in possession of those facts would have believed that those facts could support or lead to a demand for damages. Id.; see Policy 1. Under this two-pronged approach, the Court “consider[s] the subjective knowledge of the insured and then the objective understanding of a reasonable attorney with that knowledge.” [citation omitted.”

Here, plaintiff’s knowledge of a potential claim when he applied for insurance satisfied the subjective part of the test and the objective part of the test was met because a reasonable attorney would’ve reported the claim in its application.
The District Court thus granted insurer’s motion for summary judgment.

by Chris Graham and Joseph Kelly

Piles Chevrolet Pontiac Buick, Inc. v. Auto Owners Ins. Co., Nos. 2011-CA-002317-MR, 2011-CA-002340-MR (Kent. App. May 17, 2013)

Insured’s bookkeeper, along with her husband, defrauded Insured of over $572,000. Bookkeeper wrote unauthorized checks to herself, her husband, and her husband’s business, hid them in a pile of legitimate checks to be signed, and presented the pile of checks to authorized persons for signature. She also purchased vehicles from Insured (a car dealer), and used her knowledge of Insured’s bookkeeping system to make sure their checks for the purchase price of those vehicles were never cashed. In total, bookkeeper engaged in 28 vehicle transactions and 45 unauthorized checks.

The umbrella Policy between Insurer and Insured covered $15,000 for commercial crime caused by employee dishonesty, $10,000 for loss of property caused by forgery or alterations to negotiable instruments, each per occurrence.

“Occurrence” is defined under the Policy as “all loss caused by, or involving one or more `employees’, whether the result of a single act or series of acts.”

Insurer denied coverage for the full amount of loss Insured sustained, and Insured filed suit seeking coverage of the full loss. The key issue at summary judgment was whether bookkeeper’s actions were one occurrence or multiple occurrences under the policy. Trial court held that bookkeeper’s actions were one occurrence, and ordered Insurer to pay $35,000. Both parties appealed but the Court affirmed, resolving the issues before it as follows:

Issue #1: Did the bookkeeper’s fraudulent actions constitute one occurrence of fraud under the Policy? Yes.

The Court noted that the facts clearly established an ongoing scheme by bookkeeper and her husband to defraud Insured and that the Policy clearly defines “occurrence” as “all loss caused by, or involving one or more `employees’, whether the result of an act or series of acts.”

Issue #2: Was the loss recoverable under the forgery and alteration section of the Policy? Yes.

Insurer unsuccessfully argued that the forgery and alteration coverage language excluding any “loss resulting from any dishonest or criminal act committed by any [Insured] employees . . . whether acting alone or in collusion with other person.” Bookkeeper was not an employee of Insured when she drafted the first 13 fraudulent checks. She was performing work for Insured, but was paid by and was under the control of a third party during that period.

Insurer also unsuccessfully argued that bookkeeper didn’t forge or alter checks, but instead deceived her superiors to sign legitimate checks. As “forgery” was not defined under the Policy, the Court afford the word its plain meaning which under the applicable criminal statute defined a forged instrument as “a written instrument which has been falsely made, completed, or altered.” Court held bookkeeper was essentially altering checks prior to their completion, and thus the checks were forgeries.