Stonewell Corp. v. CONESTOGA TITLE INSURANCE CO.

• Decision Date: 07 January 2010
• Docket Number: No. 04 CV 9867(KMW)(GWG).,04 CV 9867(KMW)(GWG).
• Citation: 678 F. Supp.2d 203
• Parties: STONEWELL CORP., and Richard Gladstone, Plaintiffs, v. CONESTOGA TITLE INSURANCE CO., William Kolshorn, and Jerseysearch Title Services, Inc., Defendants. Conestoga Title Insurance Co., William Kolshorn, and Jerseysearch Title Services, Inc., Plaintiffs, v. Stonewell Corp., Richard Gladstone, Defendants/Third-Party Plaintiffs, v. Jerseysearch Title Services, Inc., William Kolshorn, Dollinger Gonski & Grossman, and Matthew Dollinger, Third-Party Defendants.
• Court: U.S. District Court — Southern District of New York

678 F.Supp.2d 203

STONEWELL CORP., and Richard Gladstone, Plaintiffs, v. CONESTOGA TITLE INSURANCE CO., William Kolshorn, and Jerseysearch Title Services, Inc., Defendants.

Conestoga Title Insurance Co., William Kolshorn, and Jerseysearch Title Services, Inc., Plaintiffs, v. Stonewell Corp., Richard Gladstone, Defendants/Third-Party Plaintiffs, v. Jerseysearch Title Services, Inc., William Kolshorn, Dollinger Gonski & Grossman, and Matthew Dollinger, Third-Party Defendants.

No. 04 CV 9867(KMW)(GWG).

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

January 7, 2010.

E. Elliot Adler, The Adler Law Group, San Diego, CA.

Richard Bruce Herman, Richard B. Herman, LLC, New York, NY, for Plaintiffs/Counter Claimants.

Bradford Ted Howes, Robert A. Weiner, Audrey Lu, Michael Robert Huttenlocher, Jr., McDermott, Will & Emry, LLP, Joseph

De Donato, Morgan, Melhuish, Monaghan, Arvidson, Abrutyn & Lisowski, Richard Bruce Herman, Richard B. Herman, LLC, New York, NY, Paul A. Carbon, Margolis Edelstein, Berkeley Heights, NJ, for Defendants/Third-Party Plaintiffs.

OPINION AND ORDER ON THIRD-PARTY DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

KIMBA M. WOOD, District Judge.

I. Introduction

A jury trial is scheduled in the above-captioned cases for January 26, 2010. Third-Party Defendants Matthew Dollinger and Dollinger, Gonski, & Grossman (hereinafter "Dollinger") have moved for summary judgment with respect to all claims asserted by Stonewell and Gladstone (collectively, "Stonewell") in their Third-Party Complaint. (Docket Entry ("DE") 36.)

Stonewell asserts three separate claims alleging that Dollinger committed legal malpractice while representing Stonewell in proceedings related to Stonewell's purported property rights over a Center Point Mall property in New Jersey. First, Stonewell claims that Dollinger committed legal malpractice by (1) advising Stonewell to pursue certain legal actions, including filing an "innocent owner" petition pursuant to 18 U.S.C § 1963(l) in the Middle District of Florida; (2) failing to advise Stonewell of the risks of taking such legal actions; (3) advising Stonewell to stay related proceedings in the Southern District of New York; and (4) failing to advise Stonewell of or otherwise address an alleged conflict of interest with respect to a second "innocent owner" petition in light of Dollinger's relationship with Conestoga Title Insurance Company (hereinafter "Conestoga").¹

Second, Stonewell alleges that Dollinger failed to convey a settlement offer related to the claims and counter-claims between Conestoga and Stonewell that are pending in this litigation. Third, Stonewell claims that Dollinger failed to cooperate with and produce litigation documents to Stonewell's counsel upon request.

Dollinger argues that summary judgment is warranted with respect to Stonewell's legal malpractice claim on the grounds that: (1) Dollinger had a continuing duty to inform the court in the Southern District of New York of any developments that may impact adjudication of the case, including the status of related Florida forfeiture proceedings; (2) any errors in professional judgment committed by Dollinger do not rise to the level of malpractice; (3) Stonewell has failed to establish that any negligent conduct by Dollinger proximately caused the alleged injury; and (4) the advice given with respect to filing the "innocent owner" petition in the Florida district court was appropriate.

Dollinger also contends that the Court should grant summary judgment on Stonewell's other claims. Dollinger argues that there is no evidence that Conestoga made a settlement offer and thus no viable claim that Dollinger failed to communicate such an offer to Stonewell. With respect to the third cause of action, Dollinger submits that Stonewell fails to allege any injury or to identify a proper claim for relief stemming from Dollinger's purported failure to provide documents and otherwise assist Stonewell.

For the reasons stated below, the Court GRANTS Dollinger's motion for summary judgment with respect to its first and third claims. The motion for summary judgment is DENIED with respect to Stonewell's second claim.

II. Factual and Procedural Background

This litigation has a complex factual and procedural background is set forth in the Court's Opinion and Order, dated September 24, 2009, and several decisions issued by the district court of the Middle District of Florida and the Court of Appeals for the Eleventh Circuit. The Court reviews those facts that bear on adjudication of the instant motion for summary judgment.

In 1997, Stonewell Corporation, a corporation whose sole shareholder, officer, and director is Richard J. Gladstone, sought to purchase a mortgage on a property located at the Center Point Mall in New Jersey. Stonewell contacted Conestoga, a business engaged in providing title insurance, in an effort to secure such insurance for the mortgage.

Conestoga arranged for William Kolshorn and Jerseysearch Title Services, Inc. to conduct a title search of the Center Point Mall and to assess whether title to the property had any defects, liens, or encumbrances. Kolshorn and Jerseysearch Title Services, Inc. discovered but did not disclose a title impediment in the form of a lis pendens, that is, a notice that the property was the subject of pending litigation. Stonewell subsequently sought to purchase the title to the Center Point Mall property. On March 24, 1997, Conestoga issued a mortgage policy to Stonewell with respect to that title. The policy insured up to $4,000,000 against loss or damage arising from particular defects in Stonewell's claim of title. The mortgage policy provided that Stonewell could request that Conestoga fund its legal fees in defense against third-party claims adverse to Stonewell's title interest, with some enumerated exceptions.

Shortly before Stonewell's attempted purchase of the mortgage policy, several legal proceedings were initiated that stood to impact Stonewell's alleged title to the Center Point Mall property. In 1996, the Insurance Commissioner for the State of Delaware, Donna Lee H. Williams, brought a lawsuit in the Southern District of New York against the officers of the Heritage Life Insurance Company ("Heritage Life"). See Williams v. LPDA Acquisition Corp., et al. (the "Williams Action"), 96 Civ. 3079. Williams, the acting bankruptcy receiver for Heritage Life, claimed that officers of Heritage Life had stolen money from the company and used it to purchase the Center Point Mall in New Jersey. She sought to obtain title to the Center Point Mall property, sell the property, and provide proceeds from the sale to the defrauded company.

Stonewell sought to establish the validity and priority of its title to the Center Point Mall mortgage in the Williams action. On November 17, 1997, Stonewell notified Conestoga of the status of the Williams proceedings. On November 25, 1997, Conestoga responded by letter that it agreed to fund Stonewell's legal defense in the Williams action and included a general reservation of rights. Conestoga retained Matthew Dollinger, an attorney at Dollinger, Gonski, & Grossman, to represent Stonewell's interests. A trial took place in early 1998, and the parties awaited any further proceedings and a decision from the district court.

On April 29, 1998, some Heritage Life officers, including Sholam Weiss, were indicted in the Middle District of Florida for looting and defrauding Heritage Life. Following a jury trial, Weiss was convicted of violating the Racketeer Influenced and Corrupt Organizations Act. See United States v. Weiss, 98-cr-99-Orl-19 (the "Weiss Action"). The jury returned a special verdict of forfeiture against Weiss, finding that Weiss's alleged interest in a number of assets, including Stonewell Corporation and the Center Point Mall property, should be forfeited.² On February 4, 2000, the Florida district court entered a Preliminary Order of Forfeiture, through which Weiss would forfeit title to his interests in Stonewell and the Center Point Mall property to the United States. On April 2, 2000, Dollinger advised the court presiding over the Williams action in the Southern District of New York of the Florida district court's Preliminary Order of Forfeiture and requested an interim stay pending the outcome of the Florida proceedings. The Williams court granted Stonewell's motion for an interim stay.

On or about April 5, 2000, Dollinger, acting on behalf of Gladstone, submitted an "innocent owner" petition pursuant to 18 U.S.C. § 1963(l) in the district court in the Middle District of Florida. In the petition, Gladstone asserted that he had full and complete right, title, and interest in Stonewell, and that Stonewell was a bona fide purchaser for value and rightful owner of the Center Point Mall property.³

Gladstone then filed a motion for summary judgment on his claim of ownership to Stonewell, which was denied by the Florida district court. Following extensive evidentiary proceedings, the magistrate judge in the Middle District of Florida recommended that the district court find that Gladstone had sustained his burden of proof with respect to his ownership of Stonewell but had not established his or Stonewell's ownership of the Center Point Mall mortgage. On October 29, 2002, the district court adopted the substantive recommendations of the magistrate judge, finding, inter alia, that (1) Weiss had no ownership interest in Stonewell, (2) Gladstone had participated in a "scam" with Weiss to shield the Center Point Mall mortgage from government forfeiture, and (3) Stonewell had no ownership interest in the Center Point Mall mortgage.

Gladstone appealed the district court's finding that the United States Government was entitled to possession, title, and control of the Center Point Mall mortgage. On April 15, 2004, the Court of Appeals for the Eleventh Circuit affirmed the district court's conclusion that Gladstone and Stonewell never...