Jones Lang Wootton USA v. LeBoeuf, Lamb, Greene & MacRae

• Decision Date: 16 April 1998
• Court: New York Supreme Court — Appellate Division
• Parties: , 1998 N.Y. Slip Op. 3506, 1998 N.Y. Slip Op. 3507 JONES LANG WOOTTON USA, et al., Plaintiffs-Appellants, v. LeBOEUF, LAMB, GREENE & MacRAE, et al., Defendants-Respondents/Third-Party Plaintiffs-Respondents, v. OLD REPUBLIC INSURANCE COMPANY, et al., Third-Party Defendants-Appellants.

Page 280

674 N.Y.S.2d 280

243 A.D.2d 168, 1998 N.Y. Slip Op. 3506,

1998 N.Y. Slip Op. 3507

JONES LANG WOOTTON USA, et al., Plaintiffs-Appellants, v. LeBOEUF, LAMB, GREENE & MacRAE, et al., Defendants-Respondents/Third-Party Plaintiffs-Respondents, v. OLD REPUBLIC INSURANCE COMPANY, et al., Third-Party

Defendants-Appellants.

Supreme Court, Appellate Division First Department.

April 16, 1998.

John F. Triggs, of counsel (Camhy Karlinsky & Stein LLP and Grippo & Elden, attorneys), for plaintiffs-appellants/third-party defendants-appellants.

Geri S. Krauss, of counsel (Herrick, Feinstein LLP, attorneys), for defendants-respondents/third-party plaintiffs-respondents.

Before MILONAS, J.P., and ROSENBERGER, RUBIN and WILLIAMS, JJ.

RUBIN, Justice.

It is said that a party may not accomplish by indirection that which it is forbidden to do directly (e.g., Blake Electric Contr. Co. v. Paschall, P.V.S., Inc., 222 A.D.2d 264, 267, 635 N.Y.S.2d 205; Intima-Eighteen v. A.H. Schreiber Co., 172 A.D.2d 456, 457, 568 N.Y.S.2d 802, lv. denied 78 N.Y.2d 856, 574 N.Y.S.2d 937, 580 N.E.2d 409). Remarkably, plaintiff in interest in this case (third-party defendant Old Republic Insurance Co.) has managed to accomplish directly that which it is forbidden to do, even indirectly, as a matter of public policy.

I. THE LAWSUITS

This is a collateral action arising out of a dispute over excess insurance coverage provided to plaintiffs Jones Lang Wootton USA and JLW Realty, Inc., a general partner in Wootton (collectively, JLW), which together function as investment advisors, property managers and leasing agents. The controversy has its source in a failed real estate venture, resulting in a third-party action referred to in the papers as the Webb action that was brought against JLW and two of its senior employees and ultimately settled (East 32nd St. Assocs. v. Jones Lang Wootton USA, Sup.Ct., N.Y. County, index No. 10938-89). North River Insurance Co. provided primary professional liability coverage to JLW, and third-party defendant Old Republic Insurance Co. provided excess insurance coverage, which is the basis of the underlying dispute.

The settlement of the Webb action, rather than put an end to the litigation, spawned several other lawsuits. In the first of these actions (Old Republic Insurance Co. v. Pariser, Sup.Ct., N.Y. County, Feb. 24, 1995, Ira Gammerman, J., index No. 110097-94), the carrier sued JLW, its own client, to recover on a contract denominated a "Funding Agreement". Pursuant to this agreement, Old Republic advanced funds to JLW to settle the Webb action. The insurer's theory in its lawsuit against JLW and the firm's principals, Paul E. Pariser and Simon J. Milde, is restated in this action. Old Republic maintains that because it did not consent to the compromise of the Webb action, it was entitled to recover the monies it advanced to JLW to fund the settlement of that dispute. Old Republic contends that the reservation of its rights in the funding agreement permits it to assert JLW's failure to obtain the carrier's written consent to the settlement as the basis for avoiding liability under the terms of its excess insurance policy. Supreme Court agreed with the carrier's reasoning, granting summary judgment to Old Republic against JLW in the amount of $2,478,088, together with interest, costs and disbursements, and dismissing JLW's defenses and counterclaims (Old Republic Insurance Co. v. Pariser, supra).

Significantly, no appeal was taken from this ruling. Instead, soon after the decision was filed, JLW and Old Republic entered into an agreement dated April 5, 1995, in which JLW agreed to pay Old Republic $1.2 million, assigning to the carrier any claim it might have against LeBoeuf for legal malpractice (see, General Obligations Law § 13-101). It was agreed that Old Republic would select counsel for the action against LeBoeuf and would retain complete control over the litigation. Old Republic further agreed not to enter judgment against JLW, and both sides waived their right to appeal from the award of summary judgment.

Predictably, the next suit, the principal action in this case, was brought in the name of JLW against LeBoeuf for legal malpractice arising out of the representation the law firm provided to JLW in the Webb action. The complaint seeks damages in excess of $2.8 million, representing the amount awarded to Old Republic against JLW, plus prejudgment interest and legal fees. Individual defendant James F. Johnson, IV, the LeBoeuf partner principally responsible for JLW's representation, is charged with failing to advise his client that settlement of the Webb action without the written consent of the carrier was a breach of a condition of the policy, permitting the insurer to avoid liability. In their answer, LeBoeuf and Johnson emphasize that JLW failed or refused to take an appeal from Supreme Court's ruling. They further assert that the complaint is barred by the anti-champerty statute (Judiciary Law § 489) and by the doctrine of waiver and estoppel. They also contend that JLW, having assigned the malpractice claim to Old Republic, is not the real party in interest in this action. The gravamen of the law firm's defense, however, is that whatever damages JLW may have sustained are the result of its refusal to take an appeal from the award of summary judgment in Old Republic Insurance Co. v. Pariser (supra).

In the final suit, the third-party action herein, LeBoeuf charges JLW's carrier and agents--specifically, its counsel--with defamation and tortious interference with contractual relations. Third-party defendant Chicago Underwriting Group, Inc. was Old Republic's underwriting manager and claims administrator. Third-party defendant Grippo & Elden is the Chicago law firm that represented Old Republic in negotiating and documenting both the settlement and funding of the Webb action. Third-party defendant Philip C. Stahl is the Grippo & Elden partner with primary responsibility for the firm's representation of the excess carrier. The cause of action for defamation is predicated on a statement made at a settlement meeting held in Chicago during which Mr. Stahl is alleged to have told certain principals of JLW that, "were it not for your lawyers' malpractice, we wouldn't be here." It is further asserted that this and other acts and aspersions constitute tortious interference with the contractual relationship represented by the retainer agreement between LeBoeuf and its client, JLW.

II. THE MOTIONS

Third-party defendants moved to dismiss LeBoeuf's third-party complaint or for summary judgment "pursuant to CPLR 3211 and/or CPLR 3212". While the particular statutory basis for the requested relief is neither specified nor discernible from the moving papers and accompanying affidavits, the third-party answer, attached as an exhibit to the moving papers, asserts that the third-party complaint fails to state a cause of action (CPLR 3211[a][7] ). LeBoeuf and Johnson opposed the motion and cross moved for summary judgment or partial summary judgment dismissing the action for malpractice and tortious interference (CPLR 3212).

In a short-form decision, Supreme Court (Richard Lowe, III, J.) denied the third-party defendants' motion to dismiss the defamation and tortious interference claims. However, the court granted LeBoeuf's and Johnson's motion to dismiss the malpractice claim, thus departing from the earlier decision of Supreme Court in Old Republic Insurance Co. v. Pariser (supra [Ira Gammerman, J.] ), which awarded Old Republic recovery under the funding agreement. The motion court concluded, without elaboration, that the carrier's "consent was expressly given" to JLW's settlement of the Webb case and that, in any event, its refusal to accept LeBoeuf's offer to prosecute an appeal from the award of summary judgment operates to preclude this action.

III. SETTLEMENT

This Court agrees with the above conclusion drawn by Supreme Court but arrives at the result by means of a different analysis. In particular, the funding agreement cannot be read as expressing Old Republic's consent to settlement of the Webb action. To the contrary, the documentary evidence is replete with reservations of the excess insurance carrier's rights, including the right to deny coverage and to recover amounts advanced to JLW for the purpose of funding the Webb settlement. At the outset, in a letter dated June 21, 1991 (the June Agreement), Old Republic confirmed to JLW their understanding regarding the defense of the Webb action. After reciting the expenses incurred to that point, the letter states, "Based on this information and subject to a full reservation of all of Old Republic's rights (except as expressly limited below), Old Republic hereby exercises its right and opportunity to associate with JLW in the defense and control of the claim and the Litigation". The paragraph containing the limitations states that "Old Republic reserves the right to assert additional grounds for denying or limiting coverage or for seeking reimbursement of any sums expended and JLW reserves its right to contest such reservations." The paragraph makes it clear that the reservation of rights applies to both "legal fees" and "indemnity".

Likewise, the "Funding Agreement", under which Old Republic provided monies for the compromise reached by JLW with the Webb plaintiffs, recites that "Old Republic objects to, and reserves its rights as to, the terms of the settlement agreement." It states:

Old Republic's payment of the Advance is made solely to allow funding of the settlement and is subject to a complete reservation-of-rights. Neither the making of this Agreement nor any performance pursuant to it shall affect, prejudice or waive any of the rights, positions, claims, or defenses of Old Republic or JLW, or alter or modify the burden of proof on any issue which may arise in coverage litigation.

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JLW acknowledges that the Advance is an...