Opinion
Civil No. 02-4724 (DWF/SRN)
September 8, 2003
Robert J. Hajek, Esq., and Roger E. Meyer, Esq., Warchol, Berndt Hajek, Minneapolis, Minnesota for Plaintiff;
Timothy R. Schupp, Esq., Christopher Kaisershot, Esq., and Andrea Kiehl, Esq., Flynn, Gaskins Bennett, Minneapolis, Minnesota for Defendant
MEMORANDUM OPINION AND ORDER
Introduction
The above-entitled matter came on for hearing before the undersigned United States District Judge on August 22, 2003, pursuant to Defendant's Motion for Partial Summary Judgment. Plaintiff and his counsel were not present for the hearing, and, therefore, the Court took the matter under advisement without arguments being heard on the matter. In ruling on Defendant's motion, the Court will also rule on Plaintiff's Motion to Accept Late Filing of Plaintiff's Reply to Defendant's Motion for Partial Summary Judgment. For the reasons stated below, the Court orders that Plaintiff's Motion for Acceptance of Late Filing of Affidavit in Opposition to Defendant's Motion for Partial Summary Judgment and Plaintiff's Memorandum in Opposition to Defendant's Motion for Partial Summary Judgment is granted, and Defendant's Motion for Partial Summary Judgment is granted.
The Court reserves the right to grant sanctions, including attorney fees and costs, for Plaintiff's failure to appear at the noticed hearing.
Background
Sherwin Brown ("Brown") is a licensed and registered stock broker whose principal place of business is in Hennepin County, Minnesota. National Union Insurance Company of Pittsburgh ("National") issued a Securities Brokers/Dealer's Professional Liability Insurance Policy ("Policy"), No. 857-89-87, to SunAmerica Securities, Inc. ("SunAmerica"). Brown is insured under the Policy as an independent contractor with SunAmerica acting through his business, Jamerica Financial, Inc. ("Jamerica"). Under the terms of 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 April 1, 2000, to April 1, 2002.
While the Policy was still valid, a number of Brown's clients began to come forward with allegations that Brown had committed wrongful acts while rendering his professional services. Lancer Claims Services, Inc. ("Lancer"), on behalf of National, alerted Brown of the complaints pending against him by letter dated August 15, 2001. ( See Schupp Aff. ¶ 8, Ex. 7.) In its letter, Lancer stated that National would defend Brown. However, Lancer stated that the defense would be tendered under a reservation of rights. Lancer also informed Brown that it had hired Jeffrey D. Hedlund, Esq., of the law firm of Faegre Benson, LLP, to serve as his counsel for the securities litigation/arbitration. Similar information was provided to SunAmerica in a letter dated September 26, 2001. ( See Schupp Aff. ¶ 4, Ex. 3.) In addition, SunAmerica was notified that because National believed the wrongful acts alleged to have been performed by Brown were "interrelated" as defined by the policy, the claims would be cumulatively subject to the $2 million limit of liability.
The Policy states: "The Insurer shall have the right and duty to defend, subject to and as part of the Limits of Liability, any Claim made against an Insured during the Policy Period or Discovery Period (if applicable) and reported in writing to the Insurer pursuant to the terms of this policy for any actual or alleged Wrongful Act for which coverage is afforded by this policy, even if any of the allegations of the Claim are groundless, false or fraudulent."
Mr. Hedlund contacted Brown by letter on September 26, 2001, to confirm matters concerning Faegre Benson's representation of Brown. ( See Schupp Aff. ¶ 9, Ex. 8.) The letter informed Brown that Hedlund would be representing Brown, Jamerica, and SunAmerica. The letter states:
[I]t presently appears that your interests and those of Jamerica are in common with and not inconsistent with the interests of SunAmerica. We therefore have concluded that it is appropriate to represent both you and Jamerica and SunAmerica in these arbitrations. Nonetheless, in matters such as this, where one law firm is requested to represent more than one person or entity, there always exists a possibility that, as the arbitration progresses, a future conflict may arise between you or Jamerica and SunAmerica and that you, Jamerica or SunAmerica may conclude, or we may conclude, that separate representation may be advisable or required.
( Id.) Brown reviewed the letter with counsel he had hired on his behalf and requested modifications to the letter before signing it. ( See Schupp Aff. ¶ 17, Ex. 16.)
On April 22, 2002, SunAmerica terminated its business relationship with Brown. ( See Schupp Aff. ¶ 10, Ex. 9.) Eight days after having his employment with SunAmerica terminated, Brown notified SunAmerica that he was interested in having separate counsel provided for himself and Jamerica. ( See Schupp Aff. ¶ 11, Ex. 10.) On May 7, 2002, Brown's request for separate counsel was granted. ( See Schupp Aff. ¶ 12, Ex. 11.) Brown was, and still is, represented in the securities litigation/arbitration proceedings by lawyers from Oppenheimer, Wolff Donnelly and Winthrop Weinstine, P. A.
At the end of May, Brown sent a letter to National requesting that he be reimbursed $98,025 for fees he had personally paid to the Wiese Law Firm. ( See Schupp Aff. ¶ 13, Ex. 12.) In addition, he requested that an outstanding balance of $32,319.21 be paid to the Wiese Law Firm. Brown also responded to previous statements made to him by National that the $2 million policy limit was being eroded by his defense costs. Brown asserted the defense costs previously paid by National were for the benefit of SunAmerica and not for either himself or Jamerica.
Brown brought this declaratory judgment action so that the Court would determine whether the pending and future suits against him would be subject to the Policy's $2 million or $10 million policy cap. Brown also contends National has breached the terms of the Policy in failing to reimburse him for his attorney fees and in failing to pay outstanding attorney fees.
Here, National moves for Partial Summary Judgment, claiming that Brown is not entitled to recover legal fees related to his retention of the Wiese Law Firm. National also asserts that Brown's request for the recovery of legal fees in the underlying declaratory judgment matter should be denied. Brown requests that the Court consider his memorandum in opposition to National's motion even though it was submitted after the filing deadline. Before turning to the Motion for Partial Summary Judgment, the Court will consider Brown's Motion to Accept Late Filing of Plaintiff's Reply.
Analysis
I. Plaintiff's Motion to Accept Late Filing of Plaintiff's Reply
Rule 6(b) of the Federal Rules of Civil Procedure provides the court authority to extend the amount of time available to the parties in responding to motions when the failure to act was the result of "excusable neglect." In assessing whether a party's failure to act is "excusable neglect," courts have looked to a number of factors, including: the danger of prejudice to the opposing party, the good faith of the claimant, and the extent of the delay. Pioneer Inv. Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 392 n. 9 (1993) (citations omitted).
National filed its Motion for Partial Summary Judgment on May 21, 2003. Brown states that he attempted to discharge his attorney of record, Robert Hajek, two weeks before the motion was filed. ( See Brown Aff. ¶ 2.) On June 18, 2003, Brown asked that Mr. Hajek transfer his files to the Seifert Vander Wiede law firm. ( See id. ¶ 3.) Brown states that he discussed the need to respond to National's motion with Mr. Vern Vander Wiede, Esq. ( See id.) On July 14, 2003, Mr. Vander Wiede had all of Brown's files transferred back to Mr. Hajek's office. ( See id. ¶ 4.) Brown asserts that Mr. Vander Wiede told him that he had only agreed to review the files, and that upon doing so, he had determined that he would not be interested in representing Brown. ( See id.) Vander Wiede did not file a reply to National's motion. On July 31, 2003, Mr. Hajek filed a response on Brown's behalf to reduce the delay to the Court as Brown searched for a new attorney. On August 6, 2003, National replied to Brown's memorandum in opposition to National's motion.
Brown asserts that each of the factors weighed by the Court in determining whether to grant his motion and extend the time to file are in his favor. In its reply memorandum, National does not address Brown's request for additional time. Brown does indicate a number of events that, while under his control, could serve as a basis for excusing the late filing of his memorandum. The Court grants Brown's request and has considered his memoranda in opposition to National's Motion for Partial Summary Judgment.
II. Defendant's Motion for Partial Summary Judgment
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 inferences 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 which 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 upon 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.
A. Attorney Fees In The Securities Litigation/Arbitration
The interpretation and construction of an insurance contract is a question of law. See Iowa Kemper Ins. Co. v. Stone, 269 N.W.2d 885, 886-87 (Minn. 1978). When a claim "is not clearly outside coverage, the insurer has a duty to defend." Prahm v. Rupp Constr. Co., 277 N.W.2d 389, 390 (Minn. 1979). If an insurer, while acting with full knowledge of the facts of a claim, defends its insured without reserving its right to deny coverage, the insurer may later be estopped from denying coverage. See Mutual Service Cas. Ins. Co. v. Luetmer, 474 N.W.2d 365, 368 (Minn.Ct.App. 1991). An insured is entitled to counsel of its own choice if "an actual conflict of interest, rather than an appearance of a conflict of interest" can be established between its position and that of the insurer. Luetmer, 474 N.W.2d at 368.
In opposition to this motion, Brown asserts that he was entitled to the "counsel of his own choice" once the conflict between his interests and those of the other parties became apparent. Brown argues that an indemnification provision in the contract between SunAmerica and himself created an actual conflict of interests once SunAmerica and National began to receive complaints against Brown. Brown cites Dairy Farmers of America, Inc. v. Travelers Ins. Co., 292 F.3d 567 (8th Cir. 2002) for support of his contention that National should have informed him of conflict of interest and provided him with separate counsel based on the existence of the indemnification provision.
In this case, the Court agrees that National has not violated its duty to defend under the terms of the Policy or under Minnesota state law. Assuming an actual conflict of interest existed from the time SunAmerica and National began to receive complaints about Brown's conduct, National had a duty to disclose any conflicts it was aware of at the time, explain the consequences of joint representation, and obtain from its insureds their express consent to joint representation. However, Brown has not put forth any evidence showing that National, or the attorney that National hired on behalf of Brown, Jamerica, and SunAmerica, was aware of any conflict of interest among the parties when the underlying securities litigation/arbitration matter began. The retainer agreement specifically stated that future conflicts of interest could arise between the parties and that Brown could request separate counsel at any time. Brown had independent counsel review the retainer agreement, requested modifications to the language of the agreement, and eventually signed the agreement. Once National received Brown's request for separate counsel, it immediately approved the request. In accepting Brown's request for separate counsel, National asked Brown whether he had any specific firms in mind with regard to his representation. National then hired attorneys from Oppenheimer, Wolff Donnelly and Winthrop Weinstine, P.A. National fulfilled its duty to defend throughout the underlying securities litigation/arbitration. Thus, this Court grants National's Motion for Summary Judgment on Count Two of Brown's Amended Complaint.
B. Attorney Fees In The Declaratory Judgment Action
"Attorney fees are recoverable in a declaratory judgment action only if there is a breach of a contractual duty or statutory authority exists to support such recovery." American Standard Ins. Co. v. Le, 551 N.W.2d 923, 927 (Minn. 1996) (citing Morrission v. Swenson, 142 N.W.2d 640, 647 (Minn. 1966)) (emphasis added). The insured cannot recover attorney fees "incurred in maintaining or defending a declaratory action to determine the question of coverage unless the insurer has breached the insurance contract in some respect-usually by wrongfully refusing to defend the insured." Id. The Minnesota Supreme Court recently reiterated that it has "consistently resisted efforts to expand the Morrision holding to allow collection of attorney fees in actions which do not involve the insurer's breach of contract by failure to assume the duty to defend." In re Silicone Implant Ins. Coverage Litig., 2003 WL 21982491, at *17 (Minn. Aug. 21, 2003).
Brown alleges National has breached the terms of the Policy, because "it will not offer indemnification or defense which is in excess of the $2 million limit." The Court finds no merit to Brown's argument. As previously discussed, the Court finds that National has not violated its duty to defend Brown and Jamerica in the underlying securities litigation/arbitration. As a matter of law, Brown's claim that National has violated the Policy's terms of coverage cannot support Brown's claim that he is entitled to recover his attorney fees in the declaratory judgment action.
For the reasons stated, IT IS HEREBY ORDERED:
1. Plaintiff's Motion for Acceptance of Late Filing of Affidavit in Opposition to Defendant's Motion for Partial Summary Judgment and Plaintiffs Memorandum in Opposition to Defendant's Motion for Partial Summary Judgment (Doc. No. 35) is GRANTED;
2. Defendant's Motion for Partial Summary Judgment (Doc. No. 32) is GRANTED.