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Taylor v. Bar Plan Mutual Ins. Co.

Court of Appeals of Missouri, Western District, Special Division

April 29, 2014

JIMMIE LEE TAYLOR, Appellant,
v.
THE BAR PLAN MUTUAL INSURANCE COMPANY, ET AL., Respondents.

Appeal from the Circuit Court of Jackson County, Missouri The Honorable Sandra Midkiff, Judge

Before Cynthia L. Martin, Presiding Judge, Gary D. Witt, Judge and Zel M. Fischer, Special Judge

OPINION

Gary D. Witt, Judge

This case involves the interpretation of an insurance contract providing coverage for legal malpractice. Appellant Jimmie Lee Taylor ("Taylor"), upon the advice of his now-disbarred attorney, made several loans to the law firm of the attorney and to a separate entity, which was also a client of the attorney. After both the attorney and the other entity defaulted on the loans, Taylor prevailed in a civil action against the attorney for malpractice. In this subsequent equitable garnishment action, the attorney's insurer, Respondent The Bar Plan Mutual Insurance Company ("The Bar Plan"), was granted summary judgment. Taylor appeals. We reverse.

FACTUAL AND PROCEDURAL HISTORY [1]

This matter arises from an attorney's representation of a client in the midst of numerous significant ethical breaches. The facts are not in dispute. In September 2006, Taylor, the trustee and sole beneficiary of the Jimmie Lee Taylor and Leilla V. Taylor Revocable Trust (the "Trust"), [2] retained James C. Wirken ("Wirken") of the Wirken Law Group as his attorney to handle certain legal claims regarding the management of the Trust. Wirken's legal representation continued into 2008 and included matters relating to estate planning and estate administration. Throughout the extended legal representation, Taylor came to rely on the advice of Wirken.

Wirken was the 100 percent equity owner in the Wirken Law Group. Although he has since been disbarred, during all relevant times, Wirken was licensed to practice law in Missouri, and Wirken Law Group was a Missouri professional corporation engaged in the practice of law. The Bar Plan is an insurance company doing business in Missouri and sold Wirken and the Wirken Law Group their professional liability insurance.

The underlying dispute arose from two sets of loans made by Taylor (from the Trust) and facilitated by and on the advice of Wirken: three loans went directly to Wirken Law Group, and three loans to Longview Village Development Company ("Longview"). On the latter three loans, Wirken received a "finder's fee" from Longview for securing the loans.

Loans to the Wirken Law Group

Prior to April 5, 2007, while Wirken was representing Taylor and the Trust, Wirken approached Taylor about the Trust loaning money to the Wirken Law Group. Wirken did not inform Taylor that the Wirken Law Group was strapped for cash and needed additional funding for its needs and for his personal expenses. Unknown and undisclosed to Taylor, Wirken had approached multiple lending institutions for loans and had been rejected, Wirken's personal assets were heavily leveraged, and Wirken also had unpaid loans from multiple other clients. Wirken falsely indicated to Taylor that he had multiple contingent fee cases that had already been settled but not yet paid, the proceeds of which would be sufficient to repay the loans to the Trust.

The Wirken Law Group borrowed money from Taylor three times in 2007. The agreements were executed by way of promissory notes, guaranteed by Wirken personally, but Taylor took no security interest in any of Wirken's assets or in the Wirken Law Group or its assets. Those three loans totaled $250, 000, each with ten percent interest until default and fifteen percent thereafter. The three notes all provided that a reasonable attorney fee was due in the event the notes were placed for collection.

When Wirken was drafting these notes and advising as to the method of repayment, Taylor believed that Wirken was his lawyer and was acting in his and the Trust's best interests. Wirken conceded that he was the attorney for Taylor and the Trust and had a fiduciary duty to them as clients. Nonetheless, Wirken never suggested that Taylor seek the advice of an uninterested lawyer before entering into these transactions, nor did he make any written disclosure regarding his ethical obligations under the Code of Professional Responsibility when engaging in a business transaction with a client.

Taylor was never repaid for these three loans.

Loans to Longview

As for the three loans to Longview, sometime prior to May 24, 2007, Wirken advised Taylor that Longview was seeking short-term lenders for its projects and encouraged him to become a lender. Longview was another of Wirken's clients. Wirken advised Taylor that any loans to Longview would be secured by the personal guaranty of Jeffrey Montgomery, a Kansas City Royals baseball player, implying that Wirken would review the paperwork to assure that the personal guaranty was included.[3] Taylor loaned Longview a total of $261, 740 in the three 2007 loans. Wirken drafted all of the agreements. The agreements were executed by way of promissory notes, bore interest at the rates of thirty-two to thirty-six percent, and provided for reasonable attorney fees upon default.

The first loan was executed May 24, 2007 and was for $150, 000. Per the trial court's judgment, that loan was "memorialized by a note from Longview." It bore thirty-two percent interest, was due August 24, 2007, and required reasonable attorney fees in the event of default. The first ninety days of interest were paid in advance and subtracted from the loan amount, so that funding the note only required $138, 000.

The documents signed by Longview included an executed promissory note and a second mortgage on certain real property that Wirken informed Taylor "will be recorded in Johnson County, Kan." Taylor's check for $138, 000 was payable to The Wirken Law Group Trust Account and was used to fund the loan. Taylor later learned that the mortgagor of the property serving as collateral for the $150, 000 loan did not own the property offered as security, that the mortgage was never recorded, and that Wirken did not confirm ownership of the property or the recording of the mortgage prior to Wirken funding the loan from the Wirken Law Group Trust Account. Taylor also later learned that Wirken was paid a "finder's fee" for delivering Taylor as a lender and that Longview owed Wirken money at the time that Wirken brought Longview to Taylor's attention.

The second loan Taylor made to Longview was executed June 6, 2007 for $90, 000, payable to the Wirken Law Group Trust Account. It bore thirty-six percent interest, was due July 7, 2007, and provided for the payment of reasonable attorney fees in the event of default. This note was secured in part by the pledge of a Smith-Barney account. Taylor later learned that the Smith-Barney account did not exist and that Wirken had not confirmed its existence prior to funding the loan from his trust account.

As for the third loan, on June 22, 2007, per Wirken's instruction, Taylor loaned Longview $21, 740 with an interest rate of thirty-six percent, due on July 22, 2007. The loan was also funded with a check to Wirken's trust account and provided for a recovery of attorney fees in the event of default.

The Trust was never repaid for these three loans.

Subsequent Litigation

Taylor filed an action against Wirken and the Wirken Law Group, alleging breach of fiduciary duties to him as his lawyer in representing him and causing him to fund the various loans.[4] The Bar Plan provided Wirken and the Wirken Law Group a defense against Taylor's suit, but it reserved the right to deny coverage if the court entered judgment against either defendant for acts or omissions its policy did not cover. Wirken requested that The Bar Plan either withdraw its reservation of rights or withdraw from the defense. The Bar Plan withdrew its defense, and Wirken and the Wirken Law Group hired their own counsel.

After a bench trial, the trial court entered judgment in favor of Taylor. As to the first set of loans, the trial court found that an attorney-client relationship existed, that Wirken drew the notes memorializing the loans to the Wirken Law Group, and that Wirken breached his fiduciary duty to Taylor.[5] As to the second set of loans, the trial court also determined that the attorney-client relationship was in force during the loan transaction with Longview and that Wirken "was performing legal services . . . by passing documents [from Longview to Taylor] through his offices, by implying that Wirken would review the paperwork and the transaction details to see that Taylor's interests were served, and by serving as the vehicle for funding the loans from Taylor to Longview." The trial court also determined that Wirken breached his fiduciary duty by neglecting to tell Taylor about the fee he received from Longview and that Longview was indebted to Wirken. The trial court found that Wirken's breach of his fiduciary duties was the proximate cause of Taylor's damages. Accordingly, the trial court assessed damages based on the face value of the loans plus interest and attorney fees in the amount of $415, 971.69 on the loans to the Wirken Law Group and in the amount of $524, 873.13 on the loans to Longview.

Taylor then filed an equitable garnishment action[6] against The Bar Plan, which is the subject of this appeal, seeking to recover the damages assessed in the judgment against Wirken and the Wirken Law Group. The trial court in the garnishment action determined that Wirken and the Wirken Law Group were engaged in the provision of legal services to Taylor in connection with efforts to document the various loans and/or collateral security for the loans, thus bringing the activity within the coverage expressed by the insuring agreement, [7] but it was subject to a policy exclusion. Specifically, the trial court granted summary judgment to The Bar Plan, determining that the activity was excluded by Section III(B)(4) of the policy, which states that for "ANY CLAIM BASED UPON OR ARISING OUT OF…[a]n Insured's capacity as…[a] legal representative of investors in regard to and resulting in investment in an enterprise in which an Insured owns an equity interest or for which the Insured receives a fee or commission from an Entity other than the investor."

Taylor appeals from the summary judgment in the equitable garnishment action.

ANALYSIS

Taylor argues that the trial court erred in entering summary judgment in favor of The Bar Plan on the ground that the phrase "resulting in investment in an enterprise" in the exclusion is ambiguous. Taylor additionally argues: (1) that a covered concurrent proximate cause will result in coverage even if another cause is excluded, (2) that The Bar Plan's asserted exclusion is not applicable because the Wirken Law Group is a professional corporation in which non-lawyers are legally barred from "investing, " and (3) that additional ambiguity arises because the exclusion is dependent on other "capacities" in that it combines multiple, separate exclusions by use of the word "and." Because we agree with Taylor that the phrase "resulting in investment in an enterprise" and the terms "investment" and "investor" are ambiguous as used within the policy and thus that The Bar Plan did not meet its burden of establishing that the exclusion applied, the cause is reversed and remanded.

Standard of Review

Our Supreme Court has set forth our standard of review:
Summary judgment is appropriate only when the moving party demonstrates that "there is no genuine dispute as to the facts" and that "the facts as admitted show a legal right to judgment for the movant." The movant bears the burden of establishing both a legal right to judgment and the absence of any genuine issue of material fact required to support the claimed right to judgment. The propriety of summary judgment is purely an issue of law, and this Court's review is essentially de novo. "As the trial court's judgment is founded on the record submitted and the law, an appellate court need not defer to the trial court's order granting summary judgment."

Bob DeGeorge Assoc.'s, Inc. v. Hawthorn Bank, 377 S.W.3d 592, 596 (Mo. banc 2012) (quoting ITT Commercial Fin. Corp. v. Mid-Am. Marine Supply Corp., 854 S.W.2d 371, 380 (Mo. banc 1993)) (citations omitted).

Additionally, the interpretation of an insurance policy is a question of law that we also determine de novo. Seeck v. Geico Gen. Ins. Co., 212 S.W.3d 129, 132 (Mo. banc 2007) (citations omitted); Blumer v. Auto. Club Inter-Ins. Exch., 340 S.W.3d 214, 218 (Mo. App. W.D. 2011) (holding that where "resolution of the case involves the interpretation of an insurance ...


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