Opinion
Civil No. 02-4724 (DWF/SRN)
February 11, 2004
Sherwin Brown, Pro Se, St. Paul, Minnesota, for Plaintiff's
Timothy Schupp, Esq., Andrea Kiehl, Esq., and Christopher Kaisershot, Esq., Flynn, Gaskins Bennett, Minneapolis, Minnesota, counsel for Defendant
MEMORANDUM OPINION AND ORDER
Introduction
The above-entitled matter came on for hearing before the undersigned United States District Judge on January 23, 2004, pursuant to Defendant's Motion for Summary Judgment. For the reasons outlined below, Defendant's motion is denied.
Background
Sherwin Brown is a licensed and registered stock broker whose principal place of business is in Hennepin County, Minnesota. Brown was insured as a registered representative of SunAmerica Securities, Inc. ("SunAmerica") under a Securities Broker/Dealer's Professional Insurance Policy, No. 857-89-87 (the "Policy"), issued by National Union to SunAmerica. Under the Policy, National Union agreed to indemnify Brown for any claims that were asserted against Brown and covered by the Policy and to defend Brown against any such claims. The Policy allowed for a $10 million cap, with a $2 million limit per individual claim. The Policy was valid from January 28, 1999, through March 31, 2003.
In 2001, some of Brown's clients alleged that Brown committed wrongful acts in rendering his professional services, triggering coverage under the Policy and also resulting in Brown incurring attorney fees in defending himself. Specifically, Brown's clients alleged Brown engaged in trading practices that jeopardized their investments through "unsuitable and unauthorized trading, unauthorized use of margin accounts, and fraudulent misrepresentation." (Defendant's Memorandum In Support Of Motion For Summary Judgment at 2.)
Brown's tender of defense was accepted by National Union under a reservation of rights on August 15, 2001. At that time, Brown was advised that there was a $5,000 registered representative deductible applicable to the claim. National Union also notified SunAmerica that, because the claims against Brown involved similar allegations, the claims were "interrelated" as defined by the Policy. Thus, the claims would be subject to a $2 million cap.
The Policy defines "interrelated" acts as follows:
"Interrelated Wrongful Act(s)" means Wrongful Acts which are the same, related or continuous, or Wrongful Acts which arise from the same, related or common nexus of facts regardless of whether such Claims involve the same or different claimants, Insureds, or legal causes of action.
(Affidavit of Heidi Schneider, ¶ 3, Ex. 2 (the "Policy") at 6.)
On April 22, 2002, SunAmerica terminated Brown's affiliation as a registered representative of Sun America. After his termination from SunAmerica, Brown requested that National Union provide both himself and SunAmerica with separate counsel. National Union agreed to provide Brown and SunAmerica separate counsel and notified Brown that the $2 million policy limitation applied to all claims against him. National Union has paid Brown's defense costs in the underlying NASD arbitration proceedings. However, National Union asserts that Brown has only recently begun to cooperate with National Union in settling the claims against Brown.
Discussion
1. Standard of Review
Summary judgment is proper if there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The court must view the evidence and the inference that may be reasonably drawn from the evidence in the light most favorable to the nonmoving party. Enter. Bank v. Magna Bank of Missouri, 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated, "[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy, and inexpensive determination of every action.'" Celotex Corp v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed.R.Civ.P. 1).
The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Enter. Bank, 92 F.3d at 747. The nonmoving party must demonstrate the existence of specific facts in the record that create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995). A party opposing a properly supported motion for summary judgment may not rest on mere allegations or denials, but must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Krenik, 47 F.3d at 957.
2. Interrelated Wrongful Acts
The Minnesota Supreme Court has held that the term "related" encompasses both logical and causal connections. See American Commerce Ins. Brokers, Inc. v. Minnesota Mut. Fire and Cas. Co., 551 N.W.2d 224, 228 (Minn. 1996) (citing Bay Cities Paving Grading, Inc. v. Lawyers' Mut. Ins. Co., 855 P.2d 1263 (1993)). However, the court cautioned that the term "related" does not "encompass every conceivable logical relationship," because claims might be "so attenuated or unusual that an objectively reasonable insured could not have expected that they would be treated as a single claim under the policy." Id. at 228. Therefore, a court should consider several factors in determining whether dishonest acts are related, including "whether the acts are connected by time, place, opportunity, pattern, and, most importantly, method or modus operandi." Id. at 231.
Brown brought this declaratory judgment action requesting a ruling from the Court that each claim against him is a separate wrongful act under the Policy. Thus, Brown asserts that coverage of up to $2 million per act and up to $10 million total is available for defending and settling the claims against him. National Union, on the other hand, contends that Brown's acts are interrelated pursuant to the Policy definition, and thus that National Union is only subject to up to $2 million in total liability. Specifically, National Union asserts that acts are interrelated as the term is defined in the Policy when one registered representative is alleged to have used only one methodology in depriving multiple clients of funds. National Union contends that its interpretation of the Policy must be necessarily correct, because if the Court were to find that the claims were not related, Brown would be liable to National Union for multiple deductibles.
The Court finds that a genuine issue of material fact exists as to whether the allegedly wrongful acts committed by Brown were "interrelated wrongful acts" as defined by the Policy. Defendants concede the allegedly wrongful acts were committed against multiple clients over a long period of time, but assert that these acts were committed using "the same methodology of illegal and unauthorized trading, unauthorized misuse of margin accounts, and misrepresentations. . . ." (Defendant's Memorandum In Support Of Motion For Summary Judgment at 11.) The Court is less confident than National Union that the variety of allegations against Brown concern only one method whereby Brown allegedly defrauded his clients.
In addition to the arguably four different methods of defrauding clients cited by National Union in its brief, counsel for National Union represented to the Court at oral argument on this matter that other types of actions that could be deemed different fraudulent methods, such as the churning of client's accounts, were alleged to have been committed by Brown. Until the record is made clear as to the allegations against Brown and the different types of activities that he allegedly engaged in with regard to his clients, a genuine issue of material fact remains as to whether the allegedly wrongful acts committed by Brown were "interrelated acts" as defined by the Policy. Thus, National Union is not entitled to summary judgment on this issue at this time.
3. Doctrine of Waiver
Waiver is the intentional relinquishment of a known right. See Seavey v. Erickson, 69 N.W.2d 889, 895 (Minn. 1955) (citation omitted). Waiver must be consensual in nature, but the intention to waive a right may be inferred from conduct. See id. The knowledge required to waive a right may be actual or constructive. See id.
National Union asserts that, by his conduct, Brown has waived any right he might have to the more than $2 million in defense and settlement costs under the Policy. Specifically, National Union contends that Brown chose to accept the defense that National Union offered him at the time that National Union was insisting that a $2 million cap existed for the defense and settlement of all claims against him. Brown asserts that he has not waived any rights under the Policy.
The Court agrees with Brown that he has not waived any rights under the Policy. Brown did accept the defense National Union offered him, but Brown never agreed that the Policy limited his defense and settlement costs to $2 million. The best evidence of Brown's intent not to waive his rights under the Policy is this suit that Brown brought for the very purpose of challenging National Union's assertion that the $2 million cap applied to all claims asserted against Brown. Based on these considerations, the Court finds that the doctrine of waiver is not applicable to this suit.
For the reasons stated, IT IS HEREBY ORDERED:
1. Defendant's Motion for Summary Judgment (Doc. No. 49) is DENIED.