Burk & Reedy, LLP v. Am. Guar. & Liab. Ins. Co.

• Decision Date: 23 March 2015
• Docket Number: Civil Action No. 13–890 RBW
• Citation: 89 F.Supp.3d 1
• Parties: Burk & Reedy, LLP and James Burk, Plaintiffs, v. American Guarantee and Liability Insurance Company, Defendant.
• Court: U.S. District Court — District of Columbia

89 F.Supp.3d 1

Burk & Reedy, LLP and James Burk, Plaintiffs

v.American Guarantee and Liability Insurance Company, Defendant.

Civil Action No. 13–890 RBW

United States District Court, District of Columbia.

Signed March 23, 2015

James Eddy Burk, Burk & Reedy LLP, Washington, DC, for Plaintiffs.

Adam M. Smith, Eduardo Demarco, Coughlin Duffy LLP, Morristown, NJ, William Joseph Carter, Carr Maloney PC, Washington, DC, for Defendants.

MEMORANDUM OPINION

REGGIE B. WALTON, United States District Judge

The plaintiffs, Burk & Reedy, LLP and James Burk, filed this civil action in the Superior Court of the District of Columbia (“Superior Court”) against the defendant, American Guarantee and Liability Insurance Company, seeking various forms of relief as a result of the defendant's denial of coverage and indemnification for third-party claims being asserted against them in a separate action in Superior Court. See, e.g., Notice of Removal at 1, 4. The defendant then removed the action to this Court. See id. Currently pending before the Court are the parties' motions for summary judgment. Plaintiffs' Motion for Summary Judgment (“Pls.' Summ. J. Mot.”); Defendant American Guarantee and Liability Insurance Company's Motion for Summary Judgment (“Def.'s Summ. J. Mot.”). After carefully considering the parties' submissions,¹ the Court concludes for the following reasons that it must grant the defendant's motion for summary judgment and deny the plaintiff's motion.

I. BACKGROUND

The following facts are undisputed. China Trade and Investments, LLC (“CTI”) was an importer and exporter of urea. Def.'s Facts ¶ 4; see also Pls.' Resp. to Def.'s Facts ¶ 4. Plaintiff James Burk “was a co-managing member of CTI,” who had at least a 32.5% ownership interest in CTI at all relevant times in this dispute. Def.'s Facts ¶¶ 5, 6; see also Pls.' Resp. to Def.'s Facts ¶ 4. “On or about October 31, 2008,” plaintiff James Burk and Steven Allemang, another co-managing member of CTI, executed an agreement with Gratian M. Yatsevitch, III, whereby Mr. Yatsevitch became a “32.5% owner of CTI in consideration for [Mr.] Yatsevitch's agreement to secure collateral for a loan to CTI.” Def.'s Facts ¶ 7; see also Pls.' Resp. to Def.'s Facts ¶ 4. On December 8, 2008, Mr. Yatsevitch secured a $325,000 loan for CTI from lender Hard Money Bankers, and thus became a 32.5% owner of CTI. Def.'s Facts ¶¶ 8–9; see also Pls.' Resp. to Def.'s Facts ¶ 4. Mr. Yatsevitch “was made a guarantor of the loan to CTI ... and real property owned by [Mr.] Yatsevitch was encumbered as collateral for the loan....” Def.'s Facts ¶ 10; see also Pls.' Resp. to Def.'s Facts ¶ 4. “[T]he loan was to fund CTI's transactions involving the sale of urea.” Def.'s Facts ¶ 13; see also Pls.' Resp. to Def.'s Facts ¶ 6.

Thereafter, “CTI did not consummate the urea deals and the loan was not repaid,” Def.'s Facts ¶ 14; see also Pls.' Resp. to Def.'s Facts ¶ 6, and “the lender took actions to initiate a foreclosure sale of the real property that [Mr.] Yatsevitch used as collateral for the loan,” Def.'s Facts ¶ 15; see also Pls.' Resp. to Def.'s Facts ¶ 6. The real property “was eventually sold and the loan was repaid.” Def.'s Facts ¶ 16; see also Pls.' Resp. to Def.'s Facts ¶ 6.

Mr. Yatsevitch then commenced a lawsuit in Superior Court against the plaintiffs, seeking “money and real property that he lost in connection with various business ventures allegedly orchestrated by [plaintiff James] Burk” (the “underlying action”). Def.'s Facts ¶¶ 1–2; see also Pls.' Resp. to Def.'s Facts ¶¶ 1–2; Pls.' Summ. J. Mot., Exhibit (“Ex.”) 4 (Yatsevitch Amended Complaint (“Yatsevitch Am. Compl.”)). Mr. Yatsevitch initially filed fourteen claims against the plaintiffs, but the Superior Court has since dismissed ten of those claims, leaving only four at issue, including one for legal malpractice. Def.'s Facts ¶ 17; see also Pls.' Resp. to Def.'s Facts ¶ 4. Allegations in support of the legal malpractice claim include:

CTI is the alter[ ]ego of ... [plaintiff James] Burk and [Mr.] Allemang, who are both managing members of the [c]ompany[;]

As a result, Mr. Yatsevitch told ... [plaintiff James] Burk and [Mr.] Allemang that if he were to invest, he would have to be made one of CTI's managing members. [They] ... agreed[;]

...

[Plaintiff James] Burk ... knew that Mr. Yatsevitch relied upon his advice in connection with all legal issues that arose and, in particular, in connection with the loan from Hard Money Bankers and Mr. Yatsevitch's agreement to invest in CTI[;]

[Plaintiff James] Burk provided advice to Mr. Yatsevitch in connection with his decision to invest in CTI[;]

...

[Plaintiff James] Burk breached his fiduciary duty to Mr. Yatsevitch in connection with the CTI investment in that he did not act in good faith or with complete candor when he made representations concerning Mr. Allemang and/or the profitability of CTI. To the contrary, [plaintiff James] Burk acted in bad faith, because his actions were undertaken to further his own self-interest in creating a possibility that CTI would be able to engage in a transaction that would result in substantial profits to [plaintiff James] Burk[;]

...

[Plaintiff James] Burk, who had previously represented Mr. Yatsevitch on other matters, engaged in conduct that communicated his consent to act as counsel for Mr. Yatsevitch with respect to the loan from Hard Money Bankers. As counsel to Mr. Yatsevitch, [plaintiff James] Burk had a duty to exercise reasonable care and skill with respect to the contracts to which Mr. Yatsevitch became a party, including all of the documents that relate to the loan between CTI and Hard Money Bankers ..., and to safeguard the interests of both CTI and Mr. Yatsevitch[;]

[Plaintiff James] Burk breached his duty of care by failing to inform Mr. Yatsevitch of various false representations in the Hard Money loan documents; by failing to negotiate with Hard Money Bankers in a manner to protect Mr. Yatsevitch's interests; and by failing to advise Mr. Yatsevitch about various significant aspects of the Hard Money [Bankers] loan documents[;]

[Plaintiff James] Burk failed to adhere to the D.C. Rules of Professional Conduct in connection with the CTI loan in that he became engaged in business with a client in at least two respects, (a) by acting as counsel to CTI while owning a significant percent of that company and (b) by doing business with a client while failing to accurately, fully and fairly disclose all aspects of the business to Mr. Yatsevitch[;]

[Plaintiffs James] Burk and Burk & Reedy[, LLP] were not only overseeing, but also promoting the transactions and business dealings that resulted in Mr. Yatsevitch agreeing to guaranty [sic] the loan to CTI from Hard Money Bankers .... [; and]

[Plaintiff James] Burk's breach of the applicable standard of care has caused Mr. Yatsevitch to sustain damages in that he had to repay the CTI loan (including all related charges), incurred substantial attorney[']s fees and lost money as a result of having to sell [his] [r]esidence very quickly and accept a price far below its fair market value.

Def.'s Facts ¶ 18; see also Pls.' Resp. to Def.'s Facts ¶ 7 (internal quotation marks omitted).

When Mr. Yatsevitch commenced his lawsuit, the plaintiffs were insured under “a Lawyers Professional Liability Insurance Policy” (the “Policy”) issued by the defendant. Def.'s Facts ¶ 19; see also Pls.' Resp. to Def.'s Facts ¶ 8; Pls.' Facts ¶ 9; Def.'s Resp. to Pls.' Facts ¶ 9; Pls.' Summ. J. Mot., Ex. 8 (Professional Liability Insurance Policy (“Ins. Policy”)).² The pertinent coverage provisions of the Policy include the following:

I. INSURING AGREEMENT

A. COVERAGE

The Company will pay on behalf of an Insured, subject to the limit of liability, all amounts in excess of the deductible shown in the Declarations that an Insured becomes legally obligated to pay as Damages and Claim Expenses because of a Claim³ that is made during the Policy Period and reported to the Company during the Policy Period, any subsequent renewal of the Policy or any extended reporting period based on an act or omission in the Insured's rendering or failing to render Legal Services for others.

...

B. DEFENSE AND INVESTIGATION

The Company shall have the right and duty to defend any Claim based on an act or omission in the Insured's rendering or failing to render Legal Services for others, seeking Damages that are covered by this policy and/or any Claim alleging Personal Injury made against an Insured even if any of the allegations of the Claim are groundless, false or fraudulent.

Def.'s Facts ¶ 20; see also Pls.' Resp. to Def.'s Facts ¶ 9. The Policy also states that

LEGAL SERVICES means those services performed by an Insured as a licensed lawyer in good standing, arbitrator, mediator, title agent, notary public, administrator, conservator, receiver, executor, guardian, trustee or in any other fiduciary capacity but only where the act or omission was in the rendition of services ordinarily performed as a lawyer. Legal Services shall not be extended to include services rendered as a real estate agent or broker or as an insurance agent or broker;

and that

DAMAGES means the monetary portion of any judgment, award or settlement, provided such settlement is negotiated with the assistance and approval of the Company.Damages do not include:

1. compensation for bodily injury to, sickness, disease, death of any person, emotional distress or other emotional judgments or awards;

2. compensation for injury to or destruction of tangible property or loss of use or value thereof;

3. personal profit or advantage to which the Insured was not legally entitled;

4. criminal or civil fines, penalties (statutory or otherwise), fees or sanctions;

5. punitive, exemplary or multiple damages;

6. matters deemed uninsurable;

7. legal fees, costs and expenses paid to or incurred or charged by the Insured, no matter whether claimed as restitution of specific funds, forfeiture, financial loss, setoff or otherwise, and

...