Lucas v. Lalime, 96-CV-0185A.

• Decision Date: 13 February 1998
• Docket Number: No. 96-CV-0185A.,96-CV-0185A.
• Citation: 998 F.Supp. 263
• Parties: Richard LUCAS, M.D. and Mary Ann Lucas, Plaintiffs, v. James L. LALIME, Esq., John L. Kadow, David Miller and Judy Kadow, Defendants.
• Court: U.S. District Court — Western District of New York

998 F.Supp. 263

Richard LUCAS, M.D. and Mary Ann Lucas, Plaintiffs, v. James L. LALIME, Esq., John L. Kadow, David Miller and Judy Kadow, Defendants.

No. 96-CV-0185A.

United States District Court, W.D. New York.

February 13, 1998.

ORDER

ARCARA, District Judge.

The above-referenced case was referred to Magistrate Judge Carol E. Heckman pursuant to 28 U.S.C. § 636(b)(1)(B), on May 28, 1996. On January 20, 1998, Magistrate Judge Heckman filed a Report and Recommendation, recommending that plaintiffs' motion be denied and that defendants' motion be denied.

The Court having carefully reviewed the Report and Recommendation, the record in this case, as well as the pleadings and materials submitted by the parties; and no objections having been timely filed, it is hereby

ORDERED, that pursuant to 28 U.S.C. § 636(b)(1), and for the reasons set forth in Magistrate Judge Heckman's Report and Recommendation, both plaintiffs' motion and defendants' motion are denied.

The case is referred back to Magistrate Judge Heckman for further proceedings.

IT IS SO ORDERED.

REPORT AND RECOMMENDATION

HECKMAN, United States Magistrate Judge.

This matter was referred to the undersigned by the Hon. Richard J. Arcara to hear and report on dispositive motions in accordance with 28 U.S.C. § 636(b). Currently pending for decision are plaintiffs' motion for summary judgment on their third cause of action (Item 27) and defendant Lalime's motion for summary judgment on his affirmative defense of indemnification against co-defendant Miller (Item 29). For the reasons that follow, it is recommended that plaintiffs' motion be denied, and that defendant's motion be denied.

BACKGROUND

Plaintiffs commenced this action on March 20, 1996, alleging that defendant Lalime disbursed $1,300,000 of plaintiff Dr. Lucas' funds out of trust contrary to an escrow agreement. The complaint advances numerous grounds for relief including breach of contract, breach of fiduciary duty, legal malpractice, conspiracy to defraud, fraudulent misrepresentation, conversion, obligation under constructive trust, and unjust enrichment.

It is uncontested that the events giving rise to plaintiffs' claims began on January 26, 1996, when Dr. Lucas met with Isidore Grossman [Grossman] of Page & Associates, Inc.,¹ Wayne Hawk [Hawk] of Hale Associates, Inc.,² and Mark Fried [Fried], a financial planner, to discuss investing in viaticals.³ At the meeting, plaintiff was told of an opportunity to purchase viaticals and then roll them over in a short time through the JADA Trust [JADA] and American Express Financial Advisors, Inc.

In sum, plaintiff was told that he could participate in a program whereby he would purchase a viatical, but rather than hold the policy until the death of the viator, he would immediately assign his interest to JADA in return for 105 percent of the acquisition price. The proceeds from the sale to JADA would then be used to purchase a further viatical, with the process to continue until plaintiff chose to terminate his investment. Defendant Lalime and co-defendant Miller are the grantors and trustees of JADA Trust.⁴

As to the transaction itself, it was explained that plaintiffs' investment funds were to be forwarded to American Express. American Express would then issue a negotiable bill of exchange, maturing in 21 days in the amount of $1,365,000. That instrument would be sent to Northern Trust, the escrow agent for Page & Associates, Inc. Upon completion of the viatical transaction with Page, JADA was to acquire the life insurance policy rights by paying plaintiff 105 percent of his acquisition cost through an American Express account. The entire process would then recommence.

At the January 26, 1996 meeting, Lucas received forms to open an American Express account and also wrote a check in the amount of $1,300,000 payable to American Express. Plaintiff's check was forwarded to co-defendant John Kadow, who was to serve as the escrow agent to hold plaintiff's funds. Grossman, Hawk, Fried and Kadow all represented to plaintiff that John Kadow was affiliated with American Express (Lucas Deposition, p. 47). However, an account was not opened for the benefit of plaintiffs at that time, and plaintiffs' check was returned.

Although the parties disagree as to the circumstances surrounding the returned check, they do agree that Fried subsequently proposed that defendant Lalime be used as an escrow agent. Fried had obtained Lalime's name from co-defendant Miller, a trustee of JADA. All parties agreed to the use of Lalime, and on February 14, 1996, plaintiff Dr. Lucas signed an escrow agreement. The agreement was also signed by Miller, as representative of the JADA Trust, Wayne Hawk, on behalf of Hale Associates, defendant Lalime, as the trust escrow agent, and plaintiffs' attorney, Alex Murland, Esq., as the participant escrow agent. The agreement provides that Lalime would receive plaintiff's funds by wire transfer from Murland. Lalime was to provide a written receipt of funds and simultaneously cause the trust to have issued a negotiable bill of exchange maturing in 21 days (Lalime Exhibit Book, Ex. N).

The following day, on February 15, 1997, Murland wired $1,300,000 of Dr. Lucas's funds to an account in defendant Lalime's name at a Marine Midland Bank in Buffalo, New York, using bank coordinates supplied by Lalime. Those moneys were received by the James L. Lalime Esq. Attorneys Escrow Account # 741-78018-6 on February 15, 1996 (Item 27, Berrigan Affidavit, Ex. C). There was $7,241.04 on deposit in Lalime's escrow account prior to receipt of the Lucas funds (Id.).

On February 16, 1996, one day after receiving the funds, Lalime wire transferred $42,500 to a Merrill Lynch trust account established in Pennsylvania for the benefit of Bobbie Packard, defendant Miller's fiancee (Id.).

On February 20, 1996, Lalime wired $1,235,000 to the Western Corporate Federal Credit Union in San Dimas, California, to a Smith Barney account in his own name. These funds were then transferred to the South Bay Credit Union in Redondo Beach, California, to account # 130420 in the name of defendant Judith A. Kadow (Id. at Ex. D, p. 2).

On February 21, 1996, Lalime wire transferred $10,000 to First Union National Bank in Virginia, which was deposited to the credit of Bobbie Packard (Id. at Ex. C). On this same date, $850,000 of the California funds were wire transferred to the trust account of the House Law Firm in North Carolina (Id. at Ex. D, p. 3). The funds were used by Don R. House, attorney for David Miller, to purchase real property in the name of The Obbie'B —R.E. Trust in a transaction which closed on February 21, 1996.

A facsimile of a document purporting to be an American Express Bill of Exchange was received by Grossman or Hawk on or about February 22, 1996 (Lalime Exhibit Book, Ex. G). The document, dated February 22, 1996 and showing a maturity date of March 14, 1996, was later determined to be fraudulent. On the date the bill of exchange was purportedly issued, only $8,781 remained on deposit in Lalime's attorney escrow account.

On March 4, 1996, $25,000 was transferred from the South Bay Credit Union back to Lalime's account at Marine Midland Bank in Buffalo.

On April 18, 1997, plaintiffs moved for partial summary judgment with respect to their third cause of action as alleged against defendant Lalime. Their complaint states in pertinent part as follows:

61. For good and valuable consideration, Lalime, acting as an attorney and counsellor at law for and on behalf of plaintiffs, entered into the Escrow Agreement, ... as the Trust Escrow Agent, and thereby assumed the obligation of rendering professional services to plaintiffs and received from plaintiffs the sum of $1,300,000 [Dr. Lucas' funds].

62. Under the Escrow Agreement aforesaid, Lalime was required to use the Dr. Lucas' funds to secure a Negotiable Bill of Exchange maturing in 21 days in the amount of $1, 365,000 to be used for the purchase of viaticals.

63. Lalime, by reason of his lacking the requisite learning, skill or experience reasonably expected to be possessed by an attorney assuming the obligations of an escrow agent or because he failed to use reasonable care in the exercise of his duties as escrow agent, carelessly and negligently, by an act of legal malpractice, caused the escrowed funds to be forwarded to the control of the defendant John L. Kadow, thereby making them unavailable for the purchase of viaticals.

Plaintiffs argue that defendant Lalime committed legal malpractice when he failed to carry out the terms of the escrow agreement.

Defendant Lalime responded to plaintiffs' motion on May 6, 1997, arguing that the claim for legal malpractice must fail because there was no attorney-client relationship between plaintiffs and himself. Defendant also asserts that, should the court consider plaintiff's claim, there are genuine issues of fact as to whether he was negligent in performing his duties.

Defendant Lalime has moved for indemnification against co-defendant Miller on the ground that Miller admitted in his deposition testimony to exercising improper control over $902,500 of plaintiffs' funds.

DISCUSSION

I. Summary Judgment.

Summary judgment is appropriate if the pleadings, discovery materials, and affidavits on file "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In reaching this determination, the court must assess whether there are any material factual issues to be tried while resolving ambiguities and drawing reasonable inferences against the moving party. Coach Leatherware Co., Inc. v. Ann-Taylor, Inc., 933 F.2d 162, 166-67 (2d Cir. 1991). "Entry of summary judgment indicates that no reasonable jury could return a verdict for the losing party." Id. at 167.

As stated by the Second Circuit:

[T]he trial court's task at the summary judgment motion stage of the...