Schmidt v. Travelers Indem. Co. of Am.

• Decision Date: 31 March 2015
• Docket Number: Case No. 1:13–cv–932.
• Citation: 101 F.Supp.3d 768
• Parties: Michael R. SCHMIDT, et al., Plaintiffs, v. The TRAVELERS INDEMNITY COMPANY OF AMERICA, Defendant.
• Court: U.S. District Court — Southern District of Ohio

101 F.Supp.3d 768

Michael R. SCHMIDT, et al., Plaintiffs,

v.The TRAVELERS INDEMNITY COMPANY OF AMERICA, Defendant.

Case No. 1:13–cv–932.

United States District Court, S.D. Ohio, Western Division.

Signed March 31, 2015.

Paul M. De Marco, Terence Richard Coates, Christopher D. Stock, Markovits, Stock & Demarco LLC, Cincinnati, OH, for Plaintiffs.

D. John Travis, Gary L. Nicholson, Melanie R. Shaerban, Gallagher, Sharp, Fulton & Norman, Cleveland, OH, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT (Doc. 8) AND DENYING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT (Doc. 9)

TIMOTHY S. BLACK, District Judge.

This civil action is before the Court on the parties' cross motions for partial summary judgment (Docs. 8, 9) and responsive memoranda (Docs. 14, 15, 16, 17).

I. BACKGROUND FACTS

Plaintiffs Michael R. Schmidt (“Schmidt”) and Cohen, Todd, Kite & Stanford LLC (“CTKS”) allege that Defendant Travelers Indemnity Company of America (“Travelers”) breached the parties' contract and acted in bad faith when it refused to indemnify Plaintiff CTKS pursuant to an insurance policy. (SeeDoc. 1 at ¶¶ 34–39, 42–47). In addition to damages and attorney's fees, Plaintiffs seek a declaration that the loss is a covered loss under the policy and, therefore, Defendant owes Plaintiff CTKS a duty of indemnification. (See id.at ¶¶ 40–41).

Plaintiffs and Defendant filed cross-motions for partial summary judgment.¹

Plaintiffs argue that Defendant breached its obligations under the insurance policy then in effect (the “Policy”) by refusing to pay Plaintiff CTKS for its covered losses. Defendant argues that the Policy does not cover the loss sustained and, in any event, the loss is specifically excluded.²

II. UNDISPUTED FACTS

A. In Support of Plaintiffs' Motion for Partial Summary Judgment³

1. CTKS paid insurance premiums to Travelers in exchange for which Travelers provided business owners insurance coverage to CTKS under Policy No. 1–680–9A246743–TIA–11 (“Policy”). (Doc. 9–1 at 2, ¶ 1; Doc. 1–3 at 2–3).

2. As a result of CTKS's payment of the insurance premiums when due, the Policy was in effect from December 14, 2011 through December 14, 2012. (Doc. 9–1 at 2–3, ¶ 2; Doc. 1–3 at 2–3).

3. The Policy contains a “Computer Fraud” provision stating that insurance may be extended “to apply to loss of or damage to Business Personal Property resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside the building at the described premises or ‘banking premises': (a) To a person outside those premises; or (b) To a place outside those premises.” (Doc. 9–1 at 6, ¶ 13; see alsoDoc. 1–4 at 26).

4. On February 21, 2012, while the Policy was in effect, Schmidt received an email on his CTKS computer requesting legal representation from a person purporting to be Erick Carpenter, supposedly a resident of Japan. (Doc. 9–1 at 4, 6, ¶¶ 3, 14; see alsoat Doc. 9–2 at ¶¶ 2–3, 28).

5. On February 27, 2012, Plaintiffs and the person purporting to be Erick Carpenter entered into a retention agreement via electronic mail, whereby Plaintiffs undertook to represent the purported Erick Carpenter with respect to his claims against North American Iron and Steel Company (“North American”), in exchange for a 25 percent contingent fee. (Doc. 9–2 at ¶¶ 6, 28; Doc. 9–1 at 4, 7, ¶¶ 4, 15; see alsoDoc. 1–1 at 2–5).

6. The person purporting to be Erick Carpenter then provided Schmidt with additional details regarding his purported claim against North American via electronic mail. (Doc. 9–2 at ¶¶ 5, 28; see alsoDoc. 9–1 at 7, ¶ 16).

7. After entering into the retention agreement, Schmidt drafted a demand letter to North American and forwarded the draft to the person purporting to be Erick Carpenter through the use of a computer. (Doc. 9–2 at ¶ ¶ 7–8, 28; see alsoDoc. 9–1 at 7, ¶¶ 17–18).

8. In response to Schmidt's email, the purported Erick Carpenter sent his approval of the draft letter to Schmidt via electronic mail. (Doc. 9–2 at ¶¶ 9, 28; see alsoDoc. 9–1 at 8, ¶ 19).

9. On February 29, 2012, Schmidt sent a letter to North American via electronic mail using his CTKS computer. (Doc. 9–2 at ¶¶ 10, 28; see alsoDoc. 9–1 at 4, 8, ¶¶ 4, 20).

10. The letter, which was sent to an email address that the purported Erick Carpenter had provided, demanded payment of $378,000 to Schmidt as counsel for Carpenter. (Doc. 9–2 at ¶¶ 10, 28; see alsoDoc. 9–1 at 4, 8, ¶¶ 4, 20).

11. Also on February 29, 2012, a person purporting to be Edgar Marshall, on behalf of North American, responded to Schmidt's demand letter, also via email. (Doc. 9–2 at ¶¶ 11, 28; see alsoDoc. 9–1 at 8, ¶ 21).

12. In the email to Schmidt, the purported Edgar Marshall offered that North American would pay the balance of the outstanding $378,000 supposedly owed to Erick Carpenter and would do so in two separate $189,000 payments. (Doc. 9–2 at ¶¶ 12, 28).

13. Schmidt conveyed that offer to the person purporting to Erick Carpenter via electronic mail using his computer. (Doc. 9–2 at ¶¶ 13, 28; see alsoDoc. 9–1 at 8, ¶ 22).

14. Via electronic mail, the person purporting to be Erick Carpenter sent his authorization to Schmidt to accept the offer made by Edgar Marshall. (Doc. 9–1 at 9, ¶ 23; see alsoDoc. 9–2 at ¶¶ 14, 28).

15. Via electronic mail and through the use of his computer, Schmidt conveyed to the person purporting to be Edgar Marshall that Erick Carpenter had accepted Marshall's offer. (Doc. 9–1 at 9, ¶ 24; see alsoDoc. 9–2 at ¶¶ 15, 28).

16. Following these communications, all of which took place via electronic mail, CTKS received what purported to be a cashier's check in the amount of $189,000 from North American on March 6, 2012. (Doc. 9–1 at 4–5, ¶ 6; see alsoDoc. 9–2 at ¶¶ 16, 28).

17. The person purporting to be Erick Carpenter, via electronic mail, transmitted instructions to Schmidt for wiring $141,750 ($189,000 minus CTKS's 25 percent contingent fee) to Carpenter's account in Japan. (Doc. 9–1 at 9, ¶ 25; see alsoDoc. 9–2 at ¶¶ 18, 28).

18. Plaintiffs deposited the purported $189,000 cashier's check into CTKS's IOLTA account. (Doc. 9–2 at ¶ 17).

19. On March 7, 2012, CTKS wired $141,750 to the Japanese bank account of the person purporting to be Erick Carpenter, as instructed. (Id.at ¶ 19).

20. Only after wiring the amount of $141,750 did Plaintiffs learn from their own bank that the cashier's check they received from North American and then deposited was fraudulent. (Id.at ¶ 20).

21. A second cashier's check for $189,000 from North American, which Plaintiffs received on March 12, 2012, also was fraudulent. (Id.)

22. On March 14, 2012, more than a week after Plaintiffs wired the amount of $141,750 to the account of the person purporting to be Erick Carpenter and learned that the purported cashier's checks from North American were fraudulent, the person purporting to be Erick Carpenter, via electronic mail, separately informed Schmidt that he would send a check for $141,750 to Schmidt. (Doc. 9–1 at 10, ¶ 26; see alsoDoc. 9–2 at ¶¶ 21, 28).

23. Plaintiffs have received no money back from the person or persons purporting to be Erick Carpenter or Edgar Marshall. (Doc. 9–2 at ¶ 22).

24. CTKS, through its Cincinnati insurance agent, Neace Lukens, filed a timely claim for its losses with Travelers in the amount of $141,750, asserting that its losses should be covered under the Policy. (Doc. 9–1 at 5, ¶ 8; see alsoDoc. 9–2 at ¶¶ 24, 26).

25. CTKS later submitted to Travelers additional information supporting its claim for insurance coverage. Travelers denied CTKS's claim for coverage in letters dated April 17, 2012 and May 2, 2012. (Doc. 9–1 at 5, ¶ 10; see alsoDoc. 9–2 at ¶ 27).

26. In a January 7, 2013 letter, Travelers again denied CTKS's claim for insurance coverage under the Policy. (Doc. 9–1 at 5, ¶ 9; see alsoDoc. 9–2 at ¶ 27).

B. In Support of Defendant's Motion for Partial Summary Judgment⁴

1. Plaintiffs Michael R. Schmidt (“Schmidt”) and Cohen, Todd, Kite & Stanford LLC (“CTKS”) seek indemnification from Defendant Travelers Indemnity Company of America (“Travelers”) for the loss CTKS sustained when Schmidt, acting on behalf of CTKS, wired $141,750 from CTKS's IOLTA (trust) account at Chase Bank to Erick Carpenter's bank account in Japan (“$141,750 Loss”). (Doc. 1 at ¶¶ 21–27, 33).⁵

2. Schmidt, a member of CTKS licensed to practice law in the State of Ohio, agreed on behalf of CTKS to represent Erick Carpenter relating to a purported breach of a settlement agreement between Carpenter and his former employer, North American Iron and Steel Company (“North American”). (Id.at ¶¶ 2, 9, 12).

3. Schmidt drafted and emailed a letter to North American demanding that it pay the balance owed on the purported settlement agreement ($378,000), and a person purportedly acting on behalf of North America (Edgar Marshall) offered to make a payment of $378,000 to Carpenter in two installments of $189,000. (Id.at ¶¶ 13, 16, 17).

4. Schmidt emailed Erick Carpenter's acceptance of Edgar Marshall's offer, and on March 6, 2012 Schmidt received what appeared to be a cashier's check in the amount of $189,000 from North American (“North American Check”). (Id.at ¶ ¶ 20, 21).

5. Schmidt deposited the North American Check into CTKS's IOLTA (trust) account at Chase Bank, deducted CTKS's twenty-five percent contingent fee, and wired the balance of $141,750 to Erick Carpenter's bank account in Japan, account no. 1017380 (“Wire Transfer”). (Id.at ¶¶ 22, 23).

6. After the Wire Transfer was complete, Chase Bank notified CTKS, and Schmidt learned, that the North American Check had been dishonored as fraudulent. (Id.at ¶ 24).

7. After Schmidt learned that the North American Check had been dishonored, Schmidt left Edgar Marshall telephone messages notifying North American that the North American Check was dishonored, and sent Erick Carpenter an email demanding that he return the $141,750 that Schmidt wired to Erick Carpenter's bank account. (Id.at ¶¶ 25, 26).

8. Edgar Marshall did not respond to Schmidt's

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