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Taylor v. Bar Plan Mutual Ins. Co.

Supreme Court of Missouri, En Banc

March 10, 2015

JIMMIE LEE TAYLOR, Appellant,
v.
THE BAR PLAN MUTUAL INSURANCE COMPANY, Respondent

Page 341

APPEAL FROM THE CIRCUIT COURT OF JACKSON COUNTY. The Honorable Sandra Midkiff, Judge.

Taylor was represented by Jonathan Sternberg of Jonathan Sternberg, Attorney, PC in Kansas City.

The Bar Plan was represented by Brent W. Baldwin and M. Brendham Flynn of The Baldwin Law Group in St. Louis.

Mary R. Russell, Chief Justice. Breckenridge, Stith, Draper, and Teitelman, JJ., and Richardson and Zerr, Sp.JJ, concur. Fischer and Wilson, JJ., not participating.

OPINION

Mary R. Russell, Chief Justice.

Page 342

An attorney advised his client to make loans both to his law firm and to a business from which he received a commission for the referral. The attorney did not make a written disclosure or advise his client to seek independent legal advice, both of which are required by the rules of professional responsibility when entering a self-interested business transaction with a client. The loans were never repaid. After the client obtained a malpractice judgment against the attorney for breach of fiduciary duty, he sued the attorney's malpractice insurer seeking to recover the judgment under the policy. The trial court granted summary judgment for the insurance company, finding that the " legal representative of investors" exclusionary clause denied coverage.

This Court affirms. The word " investment" in the exclusionary clause unambiguously encompasses the loans. No reasonable attorney purchasing this insurance would understand the policy to cover advising a client on these loans.

Background

The facts are not in dispute. Plaintiff Jimmie Lee Taylor (Client) was the trustee and sole beneficiary of The Jimmie Lee Taylor and Leilla V. Taylor Revocable Trust (the trust).[1] Client retained attorney James Wirken (Attorney) to handle various legal claims pertaining to the management of the trust. Attorney was the 100 percent equity owner of his law firm, the Wirken Law Group (Law Group). Eventually, Attorney also came to represent Client and his wife in matters of their own estate planning and administration. As a result, Attorney became very familiar with Client's assets.

The Law Group Loans

Upon Attorney's advice, Client loaned the Law Group money three times. All three loans were short term and were executed by promissory notes personally drafted and guaranteed by Attorney. The first two loans were each for $100,000. The third was for $50,000. All three notes bore interest at 10 percent before default, 15 percent after default, and provided for attorney's fees in the event of default.

Attorney told Client he would be able to repay the loans because he had several contingent fee cases that would settle before the end of the year. In truth, Attorney did not know whether the cases would settle, much less in time to repay the loans. Client relied on the truthfulness of Attorney's statements, believing that Attorney was acting in his best interests. Unbeknownst to Client, Attorney and Law Group were in financial distress and had been rejected for loans by multiple lending institutions. Attorney had similar loan arrangements with numerous other clients, all of which were unpaid.

Attorney never advised Client that he should consult with another lawyer before making the loans, and he did not make any

Page 343

written disclosure regarding his ethical obligations--both of which are required by the Rule 4-1.8(a) when engaging in a business transaction with a client. Attorney admitted that, in drafting the notes and advising on the method of repayment, he was providing legal services and that he owed a fiduciary duty to Client. The loans were never repaid.

The Longview Loans

During the same year, Attorney directed Client to the Longview Village Development Company (Longview), another of Attorney's clients. Attorney told Client that Longview was looking for short-term lenders and that it was a " tremendous investment opportunity." Client made three loans to Longview in the amounts of $150,000, $90,000, and $21,740, with interest rates ranging from 32 to 36 percent.[2] All loans were executed via promissory notes and provided for attorney's fees in the event of default. Attorney was paid a commission for delivering Client as a lender, but he did not advise Client of this arrangement, the fact that Longview owed Attorney money, or the advisability of obtaining other counsel regarding the transactions. Attorney drafted the notes, which were signed by Longview. Client transferred funds into Law Group's trust account, and Attorney transferred funds to Longview. The loans were never repaid.

Subsequent Litigation

Client filed suit against Attorney and Law Group alleging breach of fiduciary duties. The Bar Plan Mutual Insurance Company (Bar Plan), Attorney's malpractice insurer, provided Attorney and Law Group a defense under a reservation of rights. It later withdrew its defense at Attorney's request.

After a bench trial, judgment was entered for Client. The court found that an attorney-client relationship existed at all times relevant for all six loans. Regarding the Law Group loans, it found that Attorney provided legal services to Client and the trust by structuring the terms of the loans and drafting the documents and personal guaranties. Regarding the Longview loans, it found that Attorney provided legal services by structuring loan terms, drafting documents, and handling all communications and documents between Client and Longview. The court found that Attorney breached his fiduciary duties to Client in regard to all six loans and that those breaches proximately caused damages in the amount of the loans' principal plus interest and attorney's fees. Client was awarded damages in the amount of $415,971.69 for the Law Group loans and $524,873.13 for the Longview loans.[3]

Client filed an equitable garnishment action to collect on the judgment by suing the Bar Plan directly under section 379.200, RSMo 2000. The Bar Plan filed for summary judgment, arguing both that there was no coverage under the policy and, if there was, that coverage was excluded under the " legal representative of ...


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