Templeton v. Catlin Specialty Insurance , 612 F. App'x 940 ( 2015 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT July 6, 2015
_________________________________
Elisabeth A. Shumaker
Clerk of Court
FORREST DARYL TEMPLETON,
Plaintiff Counter Defendant -
Appellant,
v. No. 14-1261
(D.C. No. 1:12-CV-00859-RPM)
CATLIN SPECIALTY INSURANCE (D. Colo.)
COMPANY,
Defendant Counterclaimant –
Appellee,
and
H. THOMAS FEHN; ORLY DAVIDI;
GREGORY J. SHERWIN; FIELDS,
FEHN & SHERWIN,
Defendants.
____________________________
FORREST DARYL TEMPLETON,
Plaintiff Counter Defendant -
Appellant,
v. 14-1381
(D.C. No. 1:12-CV-00859-RPM)
DALE K. HALL, (D. Colo.)
Defendant - Appellee,
and
CATLIN SPECIALTY INSURANCE
COMPANY; H. THOMAS FEHN; ORLY
DAVIDI; GREGORY J. SHERWIN;
FIELDS, FEHN & SHERWIN,
Defendants.
_____________________________
FORREST DARYL TEMPLETON,
Plaintiff Counter Defendant -
Appellant,
v. 14-1453
(D.C. No. 1:12-CV-00859-RPM)
H. THOMAS FEHN; ORLY DAVIDI; (D. Colo.)
GREGORY J. SHERWIN; FIELDS,
FEHN & SHERWIN,
Defendants - Appellees,
and
CATLIN SPECIALTY INSURANCE
COMPANY,
Defendant - Counterclaimant,
and
DALE K. HALL,
Defendant.
ORDER AND JUDGMENT*
* This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. It may be cited, however, for its
persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
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Before TYMKOVICH, MATHESON, and MORITZ, Circuit Judges.
Forrest Daryl Templeton was a licensed securities broker. Between 2004 and
2007, he sold high-risk investments to Robert and Lisa Cordaro. Mr. Templeton sold one
of those investments, a secured note in Medical Providers Financial Corporation IV
(“MedCap IV”), while he was a registered representative for CapWest Securities, Inc.
(“CapWest”). After the investments failed, the Cordaros filed claims against Mr.
Templeton, CapWest, their former broker-dealer, and others with the Financial Industry
Regulatory Authority (“FINRA”), which resolves disputes between broker-dealers and
their customers through arbitration.
Catlin Specialty Insurance Company (“Catlin”) insured Mr. Templeton and
CapWest under an errors and omissions policy (the “Policy”). The Policy covered claims
against Mr. Templeton and CapWest regarding sales of securities while Mr. Templeton
was a registered representative at CapWest. Catlin agreed to defend Mr. Templeton and
CapWest against the Cordaros’ claim subject to a reservation of rights.
Catlin retained counsel for Mr. Templeton and CapWest, but the law firm it
retained withdrew after a dispute with CapWest over legal fees. A dispute ensued
between Catlin and CapWest over replacement counsel. CapWest requested Catlin to
retain Fields, Fehn & Sherwin (“FF&S”), which had been serving as general counsel for
CapWest in the Cordaro matter. Catlin objected but eventually gave FF&S limited
authority to attempt to settle with the Cordaros.
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Shortly before the FINRA arbitration hearing, FF&S negotiated a settlement,
which resulted in the Cordaros dismissing CapWest—but not Mr. Templeton—from the
FINRA proceeding. Mistakenly believing the settlement had also resolved the claims
against him, Mr. Templeton did not attend the FINRA arbitration hearing. The
arbitration panel awarded the Cordaros $500,000 in damages, plus interest and costs.
Mr. Templeton paid the Cordaros $555,000 to settle the arbitration award. He
then initiated this action in the District of Colorado against Catlin; Dale Hall, the
President and Chief Executive Officer of CapWest; FF&S; and FF&S attorneys H.
Thomas Fehn, Orly Davidi, and Gregory Sherwin (collectively with FF&S, “attorney-
defendants”). The district court granted Mr. Hall’s motion to dismiss and Catlin’s and
FF&S’s motions for summary judgment, thereby dismissing all of Mr. Templeton’s
claims against the defendants. Mr. Templeton now appeals those orders.
Mr. Templeton argues the district court erred when it: (1) dismissed his negligent
misrepresentation claim against Mr. Hall, (2) granted summary judgment to Catlin on his
indemnification claim and Catlin’s counterclaim, (3) granted summary judgment to
Catlin on his breach of the duty to defend claim, and (4) granted summary judgment to
the attorney-defendants on his legal malpractice and breach of fiduciary duty claims.
Exercising jurisdiction under 28 U.S.C. § 1291, we affirm on the first, second, and fourth
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issues, and affirm in part and reverse and remand in part on the third issue.1
I. BACKGROUND
A. Factual Background
1. Mr. Templeton Sells Securities to the Cordaros
From February 14, 2002 to September 15, 2005, Mr. Templeton worked as a
registered representative for United Securities Alliance, Inc. (“USA”). During that time,
he established a broker-customer relationship with the Cordaros. Between June 2004 and
August 2005, Mr. Templeton sold the Cordaros the following five private placement
investments totaling $515,000: In June 2004, the Cordaros purchased (1) a $100,000
three-year note and (2) a $130,000 five-year note in Medical Provider Financial
Corporation II (“MedCap II”), a subsidiary of Medical Capital Holdings, Inc. (“MedCap
Holdings”); (3) a $150,000 investment instrument in Triple Net NNN 2003 Value Fund
LLC (“Triple Net”); and (4) a $100,000 investment instrument in DBSI State Office
Fund, LLC (“DBSI”). In August 2005, they purchased an additional (5) $35,000 five-
1
Mr. Templeton initially filed a notice of appeal as to the Catlin judgment (No.
14-1261) before final judgment as to all defendants and without district court approval
under a Federal Rule of Civil Procedure 54(b) certification. Catlin moved to dismiss the
appeal because the judgment was not final. At Mr. Templeton’s request, the district court
subsequently entered a Rule 54(b) certification as to its judgments against Catlin and Mr.
Hall, making Mr. Templeton’s appeal as to Catlin valid. Mr. Templeton also filed a
notice of appeal of the judgment in favor of Mr. Hall at that time (No. 14-1381). After
the district court granted summary judgment to the attorney-defendants, it entered a final
judgment dismissing the action. Mr. Templeton then filed a notice of appeal as to the
attorney-defendants (No. 14-1453). The motion to dismiss is denied as moot because the
judgment as to all defendants is now final and appealable.
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year note in MedCap II. In total, the Cordaros invested $265,000 in MedCap II while Mr.
Templeton was employed with USA.
On September 16, 2005, Mr. Templeton began working at CapWest. The
Cordaros transferred their investment account to CapWest. In June 2007, the Cordaros’
investment on their $100,000 MedCap II note matured. They worked with Mr.
Templeton to reinvest the $100,000 they received into a seven-year note in Medical
Provider Financial Corporation IV (“MedCap IV”), another subsidiary of MedCap
Holdings. CapWest was the broker-dealer on the MedCap IV transaction.
In fall 2008, the Cordaros stopped receiving payments on all of their investments
with Mr. Templeton, including the MedCap IV investment.
In July 2009, the U.S. Securities and Exchange Commission (“SEC”) sued
MedCap Holdings for violating federal securities laws. In August 2009, the district court
appointed a temporary receiver and then a permanent receiver for MedCap Holdings and
its subsidiaries, including MedCap IV. The court’s orders also froze MedCap IV’s assets.
2. The Cordaros Initiate the FINRA Action
On November 18, 2009, the Cordaros filed a statement of claim with FINRA
against Mr. Templeton, CapWest, USA, and USA’s principals for Mr. Templeton’s sales
of the Triple Net, DBSI, MedCap II, and MedCap IV notes. The Cordaros demanded
arbitration and sought to recover the $515,000 they had invested with Mr. Templeton,
claiming that Mr. Templeton had sold them speculative securities without adequate
investigation or disclosure.
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The statement of claim described each of Mr. Templeton’s sales of securities to
the Cordaros, including the MedCap IV note, as to which the Cordaros alleged:
In 2007, when the [$100,000 MedCap II note] matured, respondent
Templeton induced claimants to roll it over into a new, 7 year note for the
same amount. By that time, Templeton was working for another broker
dealer, CapWest Securities, which is named as a respondent herein by
virtue of the offer and sale of that note to claimants.
App. at 790. They alleged the prospectuses for both the MedCap II and MedCap IV sales
were inadequate because they did not disclose lawsuits involving a MedCap Holding
principal that should have been disclosed and because they included unsupported
financial information. They further alleged that Mr. Templeton and CapWest should
have known the MedCap IV investment was too risky because it was unsuitable for any
customer “who was not a speculator,” and the Cordaros specifically told them that
“preservation of capital was their primary invest[ment] objective.” Id.
3. Mr. Templeton and CapWest’s Insurance Policy
When the Cordaros filed their FINRA action, Catlin insured CapWest and Mr.
Templeton through an errors and omissions policy. The Policy’s coverage period was
September 1, 2009 through September 1, 2010. The Policy covered:
Damages which the Insured becomes legally obligated to pay because of a
Claim that is both made against the Insured and reported to the Insurer in
writing during the Policy Period . . . for a Wrongful Act committed solely
in the rendering or failing to render Professional Services for a Client,
provided . . . such Wrongful Act occurred on or after the Retroactive Date.
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Id. at 876 (Policy § I.A).2 The Policy defined “Wrongful Act” as “a negligent act or
omission . . . committed by an Insured in the rendering of Professional Services,” id. at
882 (Policy § II.V), and “Professional Services” to include a registered representative’s
“sale, attempted sale or servicing of Securities that are approved and authorized by and
actually distributed through the Broker/Dealer,” id. at 881 (Policy § II.Q.1.b).
The Policy’s “Retroactive Date” was defined as the later of January 1, 2005, or the
date when the Insured Registered Representative “first entered into an uninterrupted or
continuously renewed contract with the Broker/Dealer.” Id. at 882 (Policy § II.T.2). Mr.
Templeton began working at CapWest on September 16, 2005. Thus, the Policy covered
claims within the policy period arising from Mr. Templeton’s negligent acts or omissions
in rendering professional services that occurred on or after September 16, 2005. The
Policy therefore potentially provided coverage for the MedCap IV note Mr. Templeton
sold to the Cordaros. It did not cover the sales Mr. Templeton made to the Cordaros
while employed with USA.
The Policy contained exclusions from coverage, two of which are relevant here—
the “Interrelated Wrongful Acts” exclusion (“Exclusion D.1.b”) and the
“Insolvency/Receivership” exclusion (“Exclusion N”). Exclusion D.1.b stated, in
relevant part:
2
The Policy defined “Insured” to include the Named Insured Broker/Dealer,
CapWest, and “Insured Registered Representative(s).” App. at 878-79 (Policy § II.K
(“Insured(s)”), II.B (“Broker/Dealer”). Mr. Templeton was an Insured Registered
Representative.
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This Policy shall not apply to and the Insurer shall pay neither Damages nor
Defense Expenses for any Claim . . . arising out of, based upon or in
consequence of, directly or indirectly resulting from or in any way
involving . . . any Wrongful Act occurring on or after the Retroactive Date
which, together with a Wrongful Act occurring on or prior to such
Retroactive Date, would constitute Interrelated Wrongful Acts. . . .
Id. at 882 (Policy § III.D.1.b). The Policy defined “Interrelated Wrongful Act” as:
[A]ny Wrongful Acts that are:
1. similar, repeated or continuous; or
2. connected by reason of any common fact, circumstance, situation,
transaction, casualty, event, decision or policy or one or more series of
facts, circumstances, situations, transactions, casualties, events, decisions or
policies.
Id. at 880 (Policy § II.M).
Exclusion N excluded from coverage any claim:
arising out of, based upon or in consequence of, directly or indirectly
resulting from or in any way involving insolvency, receivership, . . . or
inability to pay of . . . any company, organization, entity, . . . direct private
placement, . . . or arrangement of any nature in which any Insureds . . .
placed or recommended to be placed funds.
Id. at 884 (Policy § III.N).
The Policy also imposed upon Catlin a duty to defend “any civil litigations or
arbitrations against the Insureds that are covered by [the] Policy.” Id. at 876 (Policy
§ I.B). It provided that Catlin “shall appoint counsel of its selection to defend the
Insureds and pay associated Defense Expenses.” Id. The Policy had a $500,000
aggregate coverage limit, including defense expenses, for claims arising from the sale of
private placements, such as the MedCap IV sale, subject to a $100,000 self-insured
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retention per claim.
4. Catlin Agrees to Provide Representation to Mr. Templeton and CapWest in the
Cordaro Matter Subject to a Reservation of Rights
On February 4, 2010, CapWest received the Cordaros’ statement of claim, and
reported the action to Catlin’s claims office a week later. It also notified Mr. Fehn, a
general partner at FF&S, who regularly did legal work for CapWest as general counsel.
On February 19, 2010, Mr. Hall sent an email to Mr. Templeton and other CapWest
registered representatives notifying them that those registered representatives named in
FINRA arbitrations would be required to pay 75% of the legal fees incurred in defending
those claims.
On May 5, 2010, Catlin’s coverage counsel, Richard Rogers, sent a letter to
CapWest and Mr. Templeton stating that Catlin would defend them against the Cordaros’
claims subject to a “full reservation of rights.” Id. at 814. The letter explained the
relevant coverage provisions of the Catlin Policy, and reserved the right to deny
indemnification for the Cordaros’ claims to the extent they were not covered. It also said
Catlin was reserving its right to deny indemnity based on Exclusion N, because the
Cordaro “matter arises f[ro]m Securities that are now insolvent, bankrupt, or in
receivership.” Id. at 819. It also stated that “Catlin further reserves its right to deny
coverage for the arbitration, in whole or in part, based on other exclusions contained in
the policy, including . . . Exclusion D which applies to claims that were reported or
noticed prior to the policy period . . . .” Id.
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5. Catlin’s Initial Choice of Counsel and Counsel’s Withdrawal
Catlin initially retained the law firm Markun Zusman & Compton LLP (“Markun
Zusman”) to represent Mr. Templeton and CapWest in the Cordaro arbitration. On April
20, 2010, Markun Zusman filed an answer to the Cordaros’ statement of claim. The
answer responded to all of the Cordaros’ claims against Mr. Templeton, including those
arising out of the investments he sold while at USA.
In August 2010, Mr. Templeton left CapWest.
Around that time, CapWest became dissatisfied with the amount of Markun
Zusman’s legal bills, which it was paying under its self-insured retention, and stopped
paying its invoices. On September 28, 2010, Mr. Fehn submitted a “global settlement”
proposal to counsel representing four FINRA claimants with arbitrations pending against
CapWest, including the Cordaros, attempting to settle the claims for “approximately
3.6% of the claimed amount[s].”3 Id. at 931. The letter said that if all claimants did not
agree to the settlement, CapWest would defend the cases on a “first come, first served
basis, and then once its coverage and funds are exhausted, it will cease business activity.”
Id. The letter referred only to CapWest and not to CapWest’s registered representatives.
The claimants did not accept the settlement.
On November 5, 2010, Markun Zusman sent a letter to FINRA withdrawing as
3
At the time of the Cordaro arbitration, CapWest had a number of other FINRA
arbitrations pending against it, which were subject to the same Catlin Policy.
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counsel for CapWest and Mr. Templeton. Markun Zusman advised FINRA that Mr.
Fehn was CapWest’s general counsel and provided his contact information. Although
Markun Zusman did not send a copy of the letter to Mr. Templeton, on November 12,
2010, a lawyer with Markun Zusman notified Mr. Templeton the firm was no longer
representing him in the Cordaro arbitration. On December 13, 2010, Mr. Templeton sent
FINRA an email updating his contact information to a mail forwarding service in South
Dakota.4 In February 2011, FINRA apparently requested Mr. Templeton’s contact
information from Markun Zusman so that it could remove Markun Zusman as Mr.
Templeton’s attorney of record. Markun Zusman provided an outdated address, a P.O.
Box in Santa Fe, New Mexico. FINRA thereafter recognized Mr. Templeton as
appearing pro se.
In February 2011, Mr. Templeton emailed Mr. Hall and Ed Price, CapWest’s
Chief Operating Officer, to ask about the status of the Cordaro arbitration. Mr.
Templeton asked if Mr. Fehn was representing CapWest and him in the matter, inquired
about the status of settlement negotiations, and said he would need to adjust his travel
plans if he needed to be in Albuquerque at the end of March for the arbitration. Mr. Hall
responded, stating that “[a]t this moment [Mr. Fehn] is [representing Mr. Templeton],”
and that CapWest was working “with Catlin to make that permanent.” Id. at 935. Mr.
4
The letter explained he is a legal resident of South Dakota but travels full time
and does not have a residential address where he receives mail. It also provided his email
address, noting that email was the best way to contact him because he only receives mail
forwarding one or two times a month.
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Hall also stated that Mr. Fehn was working on a settlement with the Cordaros.
6. Catlin and CapWest’s Disagreement over Replacement Counsel
On March 1, 2011, Mr. Hall emailed Mr. Rogers requesting authorization of
$10,000 to $15,000 to settle the Cordaro matter. Mr. Fehn was copied on the email. Mr.
Rogers responded later that day, explaining that he would need time to review the matter
before responding to the settlement request. He further stated that handling the matter
was “being hampered by the state of defense counsel arrangements.” Id. at 940.
Mr. Rogers attached a letter to his email explaining Catlin’s position on retaining
defense counsel. In the letter, he summarized that CapWest rejected the law firm Catlin
proposed to represent it and Mr. Templeton and instead insisted FF&S handle the matter.
Mr. Rogers objected to retaining FF&S. He explained,
Catlin does not agree that FF&S would be appropriate for the defense, for
the reasons stated at the inception of these matters, with reference to the
firm’s specialty in the representation of claimants and related issues.
Moreover, that firm has served as the general counsel for CapWest during
these proceedings. As such, it would not be appropriate for FF&S to also
serve as independent defense counsel due to potential conflicts of interest.
Id. at 945. In addition, Mr. Rogers agreed to pay FF&S a separate $15,000 for services it
had rendered in connection with the global settlement offer after Catlin received an
itemized invoice.
On March 7, 2011, Mr. Rogers emailed Mr. Hall, copying Mr. Fehn, approving the
$15,000 settlement authority Mr. Hall had requested. Mr. Rogers further stated that the
approaching Cordaro arbitration “underscores the need for an agreed-to defense counsel
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approach to be put in place immediately.” Id. at 939. The next day, Mr. Hall replied to
Mr. Rogers, objecting to his refusal to allow FF&S handle the Cordaro matter. Mr.
Rogers and Mr. Hall continued discussing their dispute over defense counsel. On March
9, 2011, Mr. Rogers explained that CapWest wanted “Mr. Fehn, but Catlin does not agree
to him, and that they would “have to continue discussions to bridge the divide.” Id. at
949.
On March 11, 2011, Mr. Hall responded, agreeing that they would have to
continue discussions. He also provided Catlin with invoices for FF&S’s services. Mr.
Rogers responded, acquiescing to Mr. Hall’s request to pay FF&S the agreed-upon
$15,000, but renewing Catlin’s objection to FF&S providing defense services going
forward.
On March 13, 2011, at Mr. Hall’s request, Mr. Templeton sent Mr. Hall updated
financial information to pass along to Mr. Fehn. On March 17, 2011, Mr. Templeton sent
Mr. Hall another email asking if there was “anything new” in the Cordaro matter and if
Mr. Hall had received his financial information. Id. at 966. Mr. Hall responded that day,
stating: “Got the statement. Tom Fehn was to talk to the [Cordaros’] lawyer this week.
[W]ill let you know.” Id. Mr. Templeton did not communicate with anyone at Catlin or
FF&S about the Cordaro matter.
On March 21, 2011, Mr. Hall emailed a legal assistant at FF&S requesting an
update on the Cordaro matter. The legal assistant responded on March 23, 2011, stating:
“[Mr. Fehn] asked me to remind you that we don’t represent Daryl Templeton. [Mr.
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Fehn] is out this week, but the update is that we are trying to settle the case.” Id. at 973.
Mr. Hall replied later that day: “We should be representing Daryl. I mentioned that to
Tom. If we alienate Daryl our goose could be cooked.” Id. at 972-73. The legal
assistant responded, “I will let [Mr. Fehn] know asap.” Id. at 972.
7. FF&S Negotiates with the Cordaros to Settle their Claim and Dismiss CapWest
On March 25, 2011, Ms. Davidi, an associate at FF&S, reached an oral agreement
with the Cordaros’ representatives, Richard Sacks and Irwin Stein, to settle their claim
for $13,500. The Cordaros accepted the offer. But when Ms. Davidi contacted Mr.
Sacks to confirm that the settlement was with all the parties, Mr. Sacks stated the
settlement was with CapWest only and did not include Mr. Templeton. Ms. Davidi then
notified FINRA of the settlement, stating that the Cordaros had “reached a settlement
with Respondent CapWest Securities, Inc. only.” Id. at 987.
That same day, the Cordaros notified FINRA that they were dismissing their
claims against CapWest with prejudice. Mr. Stein sent Mr. Templeton notice of the
settlement to the address FINRA had on file, which was apparently the outdated New
Mexico address provided by Markun Zusman.
8. Mr. Hall Notifies Mr. Templeton and Catlin that the Cordaro Matter Had
Settled
On March 25, 2011, Mr. Hall told Mr. Templeton that the Cordaro matter had
settled. On March 28, 2011, Mr. Hall also notified Mr. Rogers that FF&S had settled the
Cordaro matter for $13,500. Neither Mr. Templeton nor Mr. Rogers were informed that
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the matter had been settled with CapWest only.
9. Mr. Templeton Does Not Attend the Cordaro Arbitration
Unbeknownst to Mr. Templeton and Catlin, the FINRA arbitration proceeded on
March 29, 2011, in Mr. Templeton’s absence. USA, the only other remaining
respondent, also did not appear.5 At the hearing, the FINRA panel heard uncontested
testimony from Mr. Cordaro and argument from Mr. Stein. At the end of the hearing, the
panel asked Mr. Stein for an accounting of damages. Mr. Stein stated: “I show 100,000
in DBSI, 150 in Triple Net; . . . 265 in Medical Capital, which I added to 515.” Id. at
1186. He then acknowledged the $515,000 should be reduced by the $13,500 settlement
reached with CapWest.
10. The Cordaros Refuse to Finalize their Settlement with CapWest Because FF&S
Attempts to Include Mr. Templeton in the Settlement Agreement
On April 4, 2011, Ms. Davidi sent a draft settlement to the Cordaros that included
CapWest and Mr. Templeton as released parties. The proposed settlement agreement
sought to release CapWest and Mr. Templeton from liability for the $100,000 MedCap
IV investment. The Cordaros refused to sign the agreement, explaining they never
agreed to the release of Mr. Templeton.
11. The FINRA Arbitration Panel Issues an Award against Mr. Templeton
On April 12, 2011, the FINRA panel issued a written decision in favor of the
5
The USA principals had been dismissed before the hearing.
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Cordaros. The panel awarded them $500,000 in damages plus costs and interest, and
held Mr. Templeton and USA jointly and severally liable for the award. The panel
declined to impose punitive damages. It did not make findings of fact and therefore did
not separate the investments the Cordaros made through Mr. Templeton when he was at
USA from the investment he made while at CapWest. A copy of the award was sent to
Mr. Templeton at the Santa Fe, New Mexico address.
12. Mr. Templeton, Mr. Hall, and Mr. Rogers Learn of the FINRA Award
On April 15, 2011, Mr. Templeton asked Mr. Hall for an update on the Cordaro
settlement. Mr. Hall then contacted Ms. Davidi to ask if she knew anything about the
“Cordaro settlement paperwork.” Id. at 1008. Ms. Davidi responded,
The latest update is that Plaintiff’s attorney is upset that Daryl Templeton is
included in the settlement at all. We told him that Mr. Templeton must be
included as he is an insured under the policy (with respect to the investment
MedCap IV at CapWest Securities, Inc[.]). Plaintiff’s attorney said he
would take that news back to his client. We have not heard from them yet,
but the case has already been taken off [sic] calendar at FINRA.
Id.
On April 25, 2011, Mr. Hall learned of the FINRA panel’s decision. Mr. Hall
emailed it to Mr. Fehn and asked: “Did FINRA misread something? I thought [the
Cordaro matter] was adjourned with a settlement.” Id. at 1010. Mr. Fehn replied that the
settlement pertained to CapWest and Mr. Templeton only as to the MedCap IV note, and
that the matter “went forward as to the rest” of the Cordaros’ claims against Mr.
Templeton. Id.
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In late April, Mr. Templeton received notice of the FINRA arbitration award.6 On
April 28, 2011, he emailed Mr. Hall the following:
Let me make sure I understand this situation. Please let me know if I have
it straight.
Tom Fehn or his firm obtained a settlement with Cordaro regarding the
CapWest Arb[itration], on behalf of our E&O Insurance. Did this
settlement include me, if not why not? It was my understanding from you
that [Mr. Fehn] was representing CapWest and Me in this Arb[itration]. If
so, will I receive some type of settlement agreement?
The arbitration went ahead with regard to the United Securities [arbitration]
with an award made to Cordaro. This amounted to a default award on my
part because USA and I did not show up.
I now need to hire an attorney to represent me in an appeal to FINRA
explaining my side of the case.
Id. at 1013. Mr. Hall replied,
I would say you have it straight. The way Tom Fehn has explained it to me
is that the portion that was a sale with CapWest is settled with you included
in that and we should have settlement paperwork for that shortly. . . . The
sales that occurred at USA was [sic] not. I was unaware that this case
involved two sets of sales in the claim with two different [broker-dealers].
Id. at 1012.
On May 4, 2011, Mr. Templeton emailed an attorney at Markun Zusman seeking
advice on how to appeal or vacate the FINRA award. On May 9, another Markun
Zusman attorney forwarded the email to Mr. Rogers and Joe Mooney, Catlin’s claims
director. He notified Catlin that he had spoken to the Cordaros’ counsel and had
6
His mail forwarding service sent the award notice from his Santa Fe address to
his South Dakota address.
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requested that they “hold off on collection efforts until [they] all collectively figure out,
what if anything can be done.” Id. at 1261. Markun Zusman eventually told Mr.
Templeton they would not be able to represent him.
The day after receiving Markun Zusman’s email, Mr. Rogers emailed Mr. Hall
stating that he had learned about the FINRA award against Mr. Templeton and asking
Mr. Hall for a copy of the settlement agreement. Mr. Hall responded the next day, as
follows:
You may be assuming, as I did, that the Cordaro v. CapWest, et al., as you
have titled it, was a case involving only CapWest and Daryl Templeton.
The case was actually titled “Cordaro v. United Securities Alliance Inc. [et
al.]” Tom Fehn offered and had the agreement, with your authority to settle
for up to $15K, to settle the case for CapWest and Daryl Templeton for
$13.5K for the amount that included CapWest. As I am sure you would
agree, he had no authority to settle for anyone else.
I told Daryl that we had settled the case, meaning CapWest’s part of the
case, not realizing there were other respondents involved. I did not instruct
him not to attend but would understand how he may have interpreted it. . . .
The claimants [sic] representative was upset that we had included Daryl
Templeton in the settlement for the CapWest portion. This is indeed an
unfortunate turn of events, however it was nothing more than a
misunderstanding on both my part and Daryl’s.
Catlin Supp. App. at 744. Mr. Rogers responded to Mr. Hall’s email, asking him to
provide documentation that the Cordaro settlement included Mr. Templeton.
On May 20, 2011, FINRA sent Mr. Templeton a notice at his South Dakota
address that he had until June 10 to satisfy the Cordaro award or his license to sell
securities would be suspended. On May 27, 2011, the Cordaros filed a complaint against
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Mr. Templeton in New Mexico state court to confirm and enforce the arbitration award.
Mr. Templeton retained counsel to represent him in the New Mexico action. His counsel
never moved to vacate, modify, or set aside the FINRA award in state court.
13. Mr. Templeton Retains Counsel and Attempts to Negotiate with CapWest and
Catlin
Mr. Templeton then retained another attorney, Ben White, to assist him in dealing
with CapWest and Catlin. On June 14, 2011, Mr. White emailed Mr. Rogers, Mr. Hall,
and Ms. Davidi alerting them that the Cordaros were willing to settle their claims against
Mr. Templeton for $485,000. Mr. White asked that Catlin, CapWest, and FF&S “put
together a counter-proposal to take back to the Cordaros’ attorney, and to take any and all
necessary steps to resolve this matter,” failing which Mr. Templeton would initiate
litigation against them. App. at 1281.
Mr. Rogers then emailed Mr. Fehn to ask for assurances that the claim against Mr.
Templeton had been settled. On June 20, 2011, Mr. Fehn responded that the Cordaros
“falsely told the arbitration panel that the case had been settled as to [CapWest] but not as
to Templeton for his trades while at [CapWest].” Id. at 1014. After Mr. Rogers asked if
he had any documentation of that, Mr. Fehn responded: “I sent a draft agreement a few
days after the settlement was reached. [I]t included [Mr. Templeton]. I knew he had to
be part of the deal.” Id.
On June 20, 2011, Mr. Rogers also responded to Mr. White, copying Mr. Fehn and
Mr. Hall, stating:
-20-
[A]s we discussed, Catlin did provide the Insureds, including Mr.
Templeton and CapWest, with a defense in this arbitration, subject to full
reservations of rights. The Insureds, however, raised objections to fee
statements for the firm that they originally agreed to undertake the defense,
and while these fees were still subject to a self-insured retention under the
Catlin policy. That resulted in the original firm withdrawing from the
Insureds’ representation, which was to be taken over by the other firm that
CapWest had requested. Catlin’s understanding was that the new firm
would represent both Insureds. Moreover, as per CapWest’s request,
settlement was also agreed to by Catlin as to both Insureds. It appears from
your statements below that something may have gone wrong with
implementing the defense and settlement of the Insureds, in accordance
with the understandings of Catlin and CapWest. Nevertheless, Catlin is
still amenable to resolution of this matter, if possible, in a manner
consistent with the terms of the policy, and with any other culpable parties
participating in same.
Catlin Supp. App. at 751. On June 28, 2011, Mr. Hall proposed that Mr. White approach
FINRA and request that the arbitration award be set aside. Mr. White rejected the
proposal, stating that “[t]here is absolutely zero chance that FINRA would ‘set aside’ the
award.” App. at 1198.
In the months that followed, Catlin continued to communicate with Mr. White in
an attempt to settle the Cordaro award against Mr. Templeton. On August 5, 2011, Mr.
White communicated a $450,000 offer from the Cordaros. On September 14, 2011, Mr.
Rogers proposed to Mr. Hall offering $50,000 of the Policy limit toward the settlement of
the Cordaros’ award against Mr. Templeton. Mr. Hall, however, objected to the
remaining funds under the Policy being used to settle the Cordaros’ award against Mr.
Templeton.
-21-
14. Mr. Templeton Settles with the Cordaros
On April 26, 2012, the New Mexico state court confirmed the arbitration award
against Mr. Templeton for $500,000 plus interest and arbitration fees. On September 25,
2012, Mr. Templeton settled the New Mexico judgment with the Cordaros for $555,000.
B. Procedural History
On April 3, 2012, Mr. Templeton filed this action in the U.S. District Court for the
District of Colorado against Mr. Hall, Catlin, and the attorney-defendants. Mr.
Templeton claimed negligent misrepresentation against Mr. Hall; indemnification and
breach of duty to defend against Catlin; and legal malpractice, breach of fiduciary duties,
and negligent misrepresentation against the attorney-defendants. The attorney-
defendants answered the complaint. Catlin answered and counterclaimed for a judgment
declaring it owed no duty to indemnify Mr. Templeton against the arbitration award.
On June 11, 2012, Mr. Hall moved to dismiss. In response, Mr. Templeton filed
an amended complaint and an opposition to Mr. Hall’s motion. The district court granted
Mr. Hall’s motion to dismiss, concluding that Mr. Templeton failed to allege sufficient
facts to state a claim for negligent misrepresentation against Mr. Hall.
After discovery, Mr. Templeton and Catlin cross-moved for summary judgment on
Mr. Templeton’s indemnification and breach of duty to defend claims. Catlin further
moved for summary judgment on its counterclaim for a declaration that it did not owe
Mr. Templeton a duty to defend. The district court entered judgment on all three claims
in Catlin’s favor.
-22-
Mr. Templeton also moved for partial summary judgment on his legal malpractice
claim against the attorney-defendants, arguing there was an attorney-client relationship
between FF&S and Mr. Templeton. The court denied Mr. Templeton’s motion in an oral
ruling. The attorney-defendants then moved for summary judgment on all of Mr.
Templeton’s claims against them. Mr. Templeton filed a cross-motion for
reconsideration of his earlier motion for partial summary judgment. The court granted
the attorney-defendants’ motion in its entirety and denied Mr. Templeton’s request for
reconsideration, concluding that Mr. Templeton’s legal malpractice and breach of
fiduciary duty claims failed because there was no attorney-client relationship between the
attorney-defendants and Mr. Templeton, nor did the attorney-defendants owe Mr.
Templeton a duty of care in the absence of an attorney-client relationship.7
II. DISCUSSION
On appeal, Mr. Templeton argues the district court erred when it: (A) dismissed
his negligent misrepresentation claim against Mr. Hall, (B) granted summary judgment to
Catlin on his indemnification claim and Catlin’s counterclaim, (C) granted summary
judgment to Catlin on his breach of the duty to defend claim, and (D) granted summary
judgment to the attorney-defendants on his legal malpractice and breach of fiduciary duty
7
The court also granted summary judgment to the attorney-defendants on Mr.
Templeton’s negligent misrepresentation claim. Mr. Templeton does not challenge the
dismissal of this claim on appeal.
-23-
claims. We affirm on all issues except the duty to defend issue, on which we affirm in
part and reverse and remand in part.
A. District Court’s Dismissal of Mr. Hall
Mr. Templeton argues the district court erred in dismissing his negligent
misrepresentation claim against Mr. Hall. We conclude the district court properly
dismissed this claim because it failed to allege Mr. Hall’s statements were made for Mr.
Templeton’s guidance in a business transaction. Accordingly, we affirm.8
1. Standard of Review and Legal Background
a. Standard of review
We review a district court’s dismissal of a claim under Rule 12(b)(6) de novo,
Thomas v. Kaven, 765 F.3d 1183, 1190 (10th Cir. 2014), applying the same legal
standard as the district court, Teigen v. Renfrow, 511 F.3d 1072, 1078 (10th Cir. 2007).
We accept all well-pled allegations as true and construe them in the light most favorable
to the non-moving party. Thomas, 765 F.3d at 1190. “To survive dismissal, ‘a complaint
must contain sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face.’” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
b. Legal background on negligent misrepresentation
To state a claim for negligent misrepresentation under Colorado law, a plaintiff
must allege: (1) the defendant, in the course of his or her business, profession or
8
Because this issue was decided based on a motion to dismiss, we must review
this issue based solely on the allegations made in Mr. Templeton’s amended complaint.
-24-
employment; (2) made a misrepresentation of material fact, without exercising reasonable
care; (3) for the guidance of others in a business transaction; (4) with knowledge that the
plaintiff would rely on his or her representation; and (5) the plaintiff justifiably relied on
the misrepresentation to his or her detriment. Allen v. Steele, 252 P.3d 476, 482 (Colo.
2011).
“[T]he requirement that the misrepresentation was made ‘for the guidance of
others in their business transactions’ is an essential element of the tort of negligent
misrepresentation.” Id. at 483. The Colorado Supreme Court has defined “business
transaction” for purposes of a negligent misrepresentation claim to mean a business or
commercial transaction. Id. at 483-84. Therefore, “to state a claim of negligent
misrepresentation, the misrepresentation must be given for the plaintiff’s business or
commercial purposes.” Id. at 484 (emphasis added).
In Allen, an attorney provided the plaintiffs incorrect information regarding the
statute of limitations for a personal injury claim during an initial consultation, which
caused them to miss a filing deadline. Id. at 479. The court held that the plaintiffs failed
to state a claim for negligent misrepresentation because “an initial consultation to discuss
a potential civil lawsuit is not sufficient” to meet the “guidance of others in their business
transactions” requirement. Id. at 484. The court explained that “[a]lthough a negligence
lawsuit against another party has the potential to affect indirectly a non-client’s financial
or economic interests, a civil lawsuit does not involve a business or commercial
relationship or transaction.” Id.-25-
2. Analysis
In his amended complaint, Mr. Templeton alleged that Mr. Hall negligently
misrepresented that FF&S was representing Mr. Templeton in the Cordaro arbitration, the
matter had settled, and Mr. Templeton did not need to attend the arbitration hearing. Mr.
Hall made these statements concerning the Cordaros’ FINRA arbitration. Although Mr.
Templeton appears to have made sufficient factual allegations to state a claim under four
of the five elements of negligent misrepresentation, we do not see how the FINRA
arbitration here is distinct from the civil lawsuit in Allen for purposes of the “business
transaction” element of the claim.
Mr. Templeton argues that the FINRA arbitration qualifies as a business
transaction because Mr. Templeton’s financial and professional interests were affected
the outcome of the proceeding. In Allen, the court acknowledged that a civil lawsuit
could affect the parties’ financial interests but concluded that the nature of the proceeding
fell outside the definition of a “business transaction.” Id. The same analysis applies here.
We conclude Mr. Hall’s statements to Mr. Templeton about the Cordaro
arbitration were insufficient to meet the “guidance of others in their business
transactions” requirement of a negligent misrepresentation claim. 9 Accordingly, we
9
In his Reply Brief, Mr. Templeton argues for the first time that Mr. Hall assumed
an agency role regarding the Cordaros’ claim and Mr. Hall was negligent in fulfilling his
agency responsibilities to Mr. Templeton. We decline to address this argument because
Mr. Templeton did not raise it until his reply brief. Stump v. Gates, 211 F.3d 527, 533
(10th Cir. 2000) (“This court does not ordinarily review issues raised for the first time in
Continued . . .
-26-
affirm the district court’s dismissal of Mr. Hall.10
B. Catlin’s Duty to Indemnify11
a reply brief.”). This argument is otherwise forfeited because Mr. Templeton did not
present it to the district court and does not argue plain error on appeal. See Richison v.
Ernest Grp., Inc., 634 F.3d 1123, 1127-28 (10th Cir. 2011).
10
Mr. Hall requests costs and attorney fees for successfully defending this appeal
under C.R.S. §§ 13-16-113 and 13-17-201. See Hall Br. at 28-29. We leave the
determination of costs and attorney fees to the district court on remand.
11
Catlin argues we lack jurisdiction to review the court’s grant of summary
judgment on its counterclaim because Mr. Templeton’s July 3, 2014 notice of appeal
concerned only the district court’s June 24, 2014 order entering judgment for Catlin on
Mr. Templeton’s claims against it, and not the district court’s August 1, 2014 order,
which entered judgment for Catlin on its counterclaim. Catlin further argues that Mr.
Templeton’s appeal of the district court’s grant of summary judgment to Catlin on his
indemnification claim is therefore moot because reversing would have no effect on the
counterclaim, which granted Catlin a declaration that it owed no duty to indemnify Mr.
Templeton. We reject both arguments.
Even though Mr. Templeton’s July 3, 2014 notice of appeal was inadequate to
appeal the court’s judgment with respect to Catlin’s counterclaim, Mr. Templeton’s
August 28, 2014 “Status Report re Rule 54(b) Certification and Supplement to His Notice
of Appeal and Docketing Statement” qualifies as a “functional equivalent” of a notice of
appeal. See Smith v. Barry, 502 U.S. 244, 248-49 (1992) (“If a document filed within the
time specified by Rule 4 gives the notice required by Rule 3, it is effective as a notice of
appeal.”). Mr. Templeton’s Status Report was filed within 30 days of the district court’s
judgment on Catlin’s counterclaim, see Fed. R. App. P. 4(a)(1)(A) (providing a 30-day
time period after the entry of judgment for filing a notice of appeal), and provides the
notice required by Federal Rule of Appellate Procedure 3(c)(1), including specifying the
district court’s judgment on Catlin’s counterclaim as an issue on appeal. See Fed. R.
App. P. 3(c)(1) (stating that a notice of appeal must “specify the party or parties taking
the appeal . . . ; designate the judgment, order, or part thereof being appealed; and . . .
name the court to which the appeal is taken”). We therefore have jurisdiction to review
Mr. Templeton’s appeal of the counterclaim summary judgment, and his appeal of his
indemnity claim is not moot.
-27-
Mr. Templeton argues the district court erred in granting summary judgment to
Catlin on his indemnification claim and Catlin’s counterclaim for declaratory relief. The
district court concluded coverage was excluded under Exclusion D.1.b and that Catlin
should not be equitably estopped from relying on the exclusion.12 We affirm because Mr.
Templeton is not entitled to indemnification based on Exclusion D.1.b of the Policy and
the district court did not abuse its discretion in denying Mr. Templeton’s request for
equitable estoppel.13
1. Standard of Review and Summary Judgment Law
We review a grant of summary judgment de novo, “using the same standard
applied by the district court pursuant to Fed. R. Civ. P. 56(a).” Cillo v. City of
Greenwood Vill., 739 F.3d 451, 461 (10th Cir. 2013). “The evidence of the non-movant
is to be believed, and all justifiable inferences are to be drawn in [its] favor.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Moreover, we must not “weigh the
evidence and determine the truth of the matter,” but instead must merely determine
“whether there is a genuine issue for trial.” Id. at 249. Summary judgment shall be
granted if “there is no genuine dispute as to any material fact” and the moving party is
12
The court also rejected Mr. Templeton’s argument that Catlin waived its right to
invoke Exclusion D.1.b. Mr. Templeton does not contest this ruling on appeal.
13
The district court also concluded Catlin had no duty to indemnify Mr.
Templeton based on Exclusion N, the “insolvency/receivership” exclusion. Because we
conclude Exclusion D.1.b bars coverage, we decline to reach whether Exclusion N also
supports summary judgment.
-28-
“entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
The moving party must first demonstrate the absence of a genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “[A] movant that will
not bear the burden of persuasion at trial need not negate the nonmovant’s claim.” Adler
v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998). Instead, the moving party
may “simply . . . point[] out to the court a lack of evidence for the nonmovant on an
essential element of the nonmovant’s claim.” Id. If the movant meets its initial burden,
“the burden shifts to the nonmovant to go beyond the pleadings and set forth specific
facts that would be admissible in evidence in the event of trial from which a rational trier
of fact could find for the nonmovant.” Id. (quotations omitted).
2. Analysis14
a. Exclusion D.1.b
i. Interpreting insurance contracts under New York law
The district court concluded Exclusion D.1.b barred coverage for Mr. Templeton’s
claim because the MedCap II transactions and MedCap IV transaction were interrelated
wrongful acts under the Policy. We agree. Exclusion D.1.b states, in relevant part:
This policy shall not apply to and the Insurer shall pay neither Damages nor
Defense Expenses for any Claim . . . arising out of, based upon or in
consequence of, directly or indirectly resulting from or in any way
14
The parties dispute whether Catlin should be able to rely on Mr. Cordaro’s
testimony before the FINRA arbitration panel to support its position. Because we
conclude Exclusion D.1.b applies without considering this evidence, we do not reach this
issue.
-29-
involving . . . any Wrongful Act occurring on or after the Retroactive Date
which, together with a Wrongful Act occurring on or prior to such
Retroactive Date, would constitute Interrelated Wrongful Acts. . . .
App. at 882 (Policy § III.D.1.b). The Policy defines wrongful acts as “Interrelated
Wrongful Acts” if they are “similar, repeated or continuous,” or “connected by reason of
any common fact, circumstance, situation, transaction, casualty, event, decision or policy
or one or more series of facts, circumstances, situations, transactions, casualties, events,
decisions or policies.” Id. at 880 (Policy § II.M).
The Catlin Policy contains a choice-of-law provision stating that New York law
governs claims brought under the Policy. Id. at 894 (Policy § XIII). New York law
therefore applies to Mr. Templeton’s indemnification claim. Under New York law,
interpretation of an insurance contract is a question of law. Int’l Multifoods Corp. v.
Commercial Union Ins. Co., 309 F.3d 76, 83 (S.D.N.Y. 2002). Summary judgment is
appropriate when the words of a contract convey a definite and precise meaning without
any ambiguity. Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir.
1992). An insurer bears the burden of proving that a claim falls within the scope of a
policy exclusion. Vill. of Sylvan Beach v. Travelers Indem. Co., 55 F.3d 114, 115 (2d
Cir. 1995). The insurer meets this burden by establishing “that the exclusion is stated in
clear and unmistakable language, is subject to no other reasonable interpretation, and
applies in the particular case.” Id. at 115-16 (quotations omitted).
ii. Exclusion D.1.b is not ambiguous
Mr. Templeton appears to argue the exclusion is ambiguous. He contends that
-30-
affording the ordinary meaning to the term “similar” is too broad and would be contrary
to the reasonable expectations of the average insured. We discern no ambiguity in this
provision because the exclusion’s language is “complete, clear, and unambiguous.”
Greenfield v. Phillies Records, Inc., 780 N.E.2d 166, 170 (N.Y. 2002).
Mr. Templeton correctly identifies that the focus of our inquiry is “on the
reasonable expectations of the average insured upon reading the policy and employing
common speech.” Mostow v. State Farm Ins. Cos., 668 N.E.2d 392, 394 (N.Y. 1996)
(citations omitted). His reliance on such reasonable expectations, however, is
unpersuasive because the terms of the exclusion are subject to only one meaning. Mr.
Templeton himself acknowledges the term “similar” is “extremely broad in everyday
usage.” Aplt. Br. at 52; see Fed. Ins. Co. v. Int’l Bus. Machs. Corp., 965 N.E.2d 934, 936
(N.Y. 2012) (explaining that a policy term will be considered ambiguous only where
“there is a ‘reasonable basis for a difference of opinion’ as to the meaning of the policy”
(quoting Greenfield, 780 N.E.2d at 170-71)). In other words, the reasonable expectation
of the average insured would be to understand the word “similar” in its common usage.
Moreover, courts have uniformly concluded that policy provisions similar to this one are
unambiguous. Glascoff v. OneBeacon Midwest Ins. Co., No. 13 Civ. 1013(DAB), 2014
WL 1876984, at *5 (S.D.N.Y. May 8, 2014) (unpublished); Zahler v. Twin City Fire Ins.
Co., No. 04 Civ. 10299(LAP), 2006 WL 846352, at *5 (S.D.N.Y. Mar. 31, 2006)
(unpublished). We therefore apply the exclusion’s plain meaning. See Greenfield, 780
-31-
N.E.2d at 170.15
iii. Exclusion D.1.b excludes coverage under its plain meaning
Under its plain meaning, Exclusion D.1.b excludes coverage for Mr. Templeton’s
claim. As stated above, the Policy defines “Interrelated Wrongful Acts” as wrongful acts
that are “similar, repeated or continuous,” or “connected by reason of any common fact,
circumstance, situation, transaction, casualty, event, decision or policy or one or more
series of facts, circumstances, situations, transactions, casualties, events, decisions or
policies.” App. at 880 (Policy § II.M). Catlin argues the exclusion bars coverage
because the MedCap II and MedCap IV transactions are “similar” or “connected” by
common facts and circumstances.
In common usage, “similar” means “having characteristics in common.”16
Merriam-Webster Online Dictionary, http://www.merriam-
webster.com/dictionary/similar (last visited June 24, 2015); see also Oxford English
Dictionary Online, http://www.oed.com/view/Entry/179873 (last visited June 24, 2015)
(defining similar as “[h]aving a marked resemblance or likeness; of a like nature or
15
Because we conclude the policy language is unambiguous, we reject Mr.
Templeton’s argument that we should apply the doctrine of contra proferentem, which
provides that an ambiguity in an insurance contract should be resolved in favor of the
insured. See Morgan Stanley Grp. Inc. v. New England Ins. Co., 225 F.3d 270, 276 (2d
Cir. 2000) (explaining rules of contract construction, such as contra proferentem, are
only applicable where the contract language is ambiguous).
16
New York courts commonly refer to dictionary definitions to ascertain the
common and ordinary meaning of the words of an insurance policy. See 2619 Realty,
LLC v. Fid. & Guar. Ins. Co., 756 N.Y.S.2d 564, 566 (App. Div. 2003).
-32-
kind”). “Connected” is defined as “joined or linked together.” Merriam-Webster Online
Dictionary, http://www.merriam-webster.com/dictionary/connected (last visited June 24,
2015); see also Oxford English Dictionary Online,
http://www.oed.com/view/Entry/39329 (last visited June 24, 2015) (defining “connected”
as “[r]elated, associated (in nature or idea).” These definitions are consistent with
applying a “sufficient factual nexus” test, which this and other courts have used in
considering similar interrelated wrongful acts provisions under New York law. See
Brecek & Young Advisors, Inc. v. Lloyds of London Syndicate 2003, 715 F.3d 1231, 1238
& n.3 (10th Cir. 2013).17
In Brecek, we considered an identical interrelated wrongful acts provision under
New York law and found claims asserted in three separate arbitration proceedings were
interrelated wrongful acts. Id. at 1238-39. Our conclusion was based on the fact
“[s]everal common facts” connected the arbitrations, including that the arbitrations had
overlapping (although not identical) respondents, all the misconduct was alleged to have
occurred during the same time frame—from the late 1990s to the mid-2000s, and all the
17
See also Glascoff, 2014 WL 1876984, at *5 (“To demonstrate a sufficient
factual nexus, the claims need not involve precisely the same parties, legal theories,
Wrongful Acts, or requests for relief.” (quotations omitted)); Quanta Lines Ins. Co. v.
Investors Capital Corp., No. 06 Civ. 4624(PKL), 2009 WL 4884096, at *14 (S.D.N.Y.
Dec. 17, 2009) (unpublished) (explaining that “[a] sufficient factual nexus exists where
the Claims are neither factually nor legally distinct, but instead arise from common facts
and where the logically connected facts and circumstances demonstrate a factual nexus
among the Claims” (quotations omitted)); Seneca Ins. Co. v. Kemper Ins. Co., No. 02
Civ. 10088(PKL), 2004 WL 1145830, at *9 (S.D.N.Y. May 21, 2004), aff’d, 133 F.
App’x 770 (2d Cir. 2005) (unpublished).
-33-
claims had similar allegations and were premised on similar legal theories of liability. Id.
at 1238. Specifically, we noted that all of the claims had similar allegations that the
respondents sold unsuitable investment products involving various annuities, all the
claims included allegations of “churning and flipping,” and Brecek’s liability in all the
actions was predicated on the same theories—vicarious liability and failure to supervise.
Id.We conclude the MedCap II transactions and the MedCap IV transaction
constitute “Interrelated Wrongful Acts” under the Policy. First, the Policy’s definition of
“Interrelated Wrongful Acts” is broad, requiring only that the wrongful acts be “similar”
or “connected by reason of any common fact, circumstance, situation, transaction,
casualty, event, decision or policy.” App. at 880 (Policy § II.M) (emphasis added).
Second, common facts connect the MedCap II and MedCap IV transactions. They were
sales to the same clients—the Cordaros, investments in subsidiaries of the same
company, and sales by the same securities broker—Mr. Templeton. Even if the Cordaros
did not merely “roll over” the proceeds from their MedCap II investment into MedCapIV,
they reinvested the entire return on their MedCapII investment into MedCap IV. Third,
the Cordaros’ claims regarding the MedCap II and MedCap IV transactions alleged
liability based on the same conduct by Mr. Templeton—his failure to disclose the same
material facts about MedCap Holdings, his failure to investigate the products he sold, and
his failure to conduct a proper suitability analysis of the Cordaros before selling them the
MedCap II and MedCap IV notes. The MedCap II and MedCap IV transactions are
-34-
“similar” and “connected by reason of any common fact [or] circumstance.” They
therefore meet the Policy definition of “Interrelated Wrongful Acts.”
Mr. Templeton’s attempt to distinguish the MedCap II and MedCap IV
transactions is not persuasive. He posits the MedCap II transactions occurred when he
was a USA registered representative, whereas the MedCap IV transaction occurred when
he was with CapWest. He further argues the Cordaros did not merely “roll over” the
funds they received when the MedCap II notes matured to purchase the MedCap IV note,
but they instead paid separately for the MedCap IV note, so he and CapWest did not
maintain control of the funds. He also contends the Cordaros filled out new account
forms with CapWest, including new suitability and risk tolerance forms.18 These
dissimilarities, however, do not show the wrongful acts were not “similar” or
“connected.”
Because the MedCap II and MedCap IV transactions qualify as “Interrelated
Wrongful Acts,” and the MedCap II transactions occurred before the Retroactive Date of
the Catlin Policy, Mr. Templeton’s indemnification claim is barred by Exclusion D.1.b.19
18
The Cordaros filled out new account forms, which included a customer
suitability and risk tolerance section, when Mr. Templeton transferred their account to
CapWest in 2005. There is no indication they filled out additional risk tolerance or
suitability forms prior to their purchase of the MedCap IV note in 2007.
19
Mr. Templeton’s argues we should reverse based on the deposition testimony of
Mr. Mooney, Catlin’s claims director and designated corporate representative, under
Federal Rule of Civil Procedure 30(b)(6). Mr. Mooney testified Mr. Templeton was
owed indemnity for the Cordaros’ claims regarding MedCap IV. This court has not
Continued . . .
-35-
b. Equitable estoppel
Mr. Templeton argues that even if Exclusion D.1.b otherwise bars coverage under
the Policy, we should nonetheless apply equitable estoppel to prevent Catlin from relying
on it because Catlin did not invoke Exclusion D.1.b in its reservation of rights letter.
Under New York law, “[w]here an insurer defends an action on behalf of an
insured, with knowledge of a defense to the coverage of the policy, it thereafter is
estopped from asserting that the policy does not cover the claim.” Hartford Ins. Grp. v.
Mello, 437 N.Y.S.2d 433, 434 (App. Div. 1981); see also Albert J. Schiff Assocs., Inc. v.
Flack, 417 N.E.2d 84, 87 (N.Y. 1980) (“[T]he intervention of principles of equitable
estoppel [is appropriate] . . . where an insurer, though in fact not obligated to provide
coverage, without asserting policy defenses or reserving the privilege to do so, undertakes
the defense in the case, in reliance on which the insured suffers the detriment of losing
the right to control its own defense.”). Estoppel applies only if the insurer’s actions have
prejudiced the insured. Hartford, 437 N.Y.S.2d at 434. Prejudice “is established only
addressed whether the testimony of a Rule 30(b)(6) representative qualifies as a judicial
or evidentiary admission. The majority of courts to reach the issue, however, treat the
testimony of a Rule 30(b)(6) representative as merely an evidentiary admission, and do
not give the testimony conclusive effect. See, e.g., A.I. Credit Corp. v. Legion Ins. Co.,
265 F.3d 630, 637 (7th Cir. 2001); 8A Charles Alan Wright, Arthur R. Miller & Richard
L. Marcus, Federal Practice & Procedure § 2103 (3d ed. 2010) (“Testimony given at a
deposition of a designated corporate representative is not a judicial admission that
ultimately decides the case.”); but see Rainey v. Am. Forest & Paper Ass’n, Inc., 26 F.
Supp. 2d 82, 96 (D.D.C. 1998) (refusing to consider an affidavit that contradicted a Rule
30(b)(6) deposition). We do not need to decide this issue because coverage is a question
of law. Regardless of whether Mr. Mooney’s testimony qualifies as a judicial or
evidentiary admission, his testimony does not create a triable issue of fact.
-36-
where the insurer’s control of the defense is such that the character and strategy of the
lawsuit can no longer be altered.” Brecek, 715 F.3d at 1242 (quotations omitted).
The district court denied Mr. Templeton’s equitable estoppel claim because the
reservation of rights letter specifically referenced Exclusion D and contained a broad
reservation of Catlin’s rights to deny coverage at any time. We review the district court’s
denial of equitable estoppel for abuse of discretion. Id. at 1240. “A district court abuses
its discretion when its judgment is arbitrary, capricious, whimsical, or manifestly
unreasonable.” Id.
As the district court concluded, Catlin provided Mr. Templeton notice that it was
reserving its rights to deny coverage of the Cordaros’ claim, and the reservation of rights
letter referenced Exclusion D as a possible basis for denying coverage. Although the
letter did not specifically mention the “Interrelated Wrongful Acts” exclusion, that
exclusion is part of Exclusion D, and Mr. Templeton cites no authority that notice here
was inadequate. In fact, an insurer’s reservation of rights prevents an insured from later
claiming detrimental reliance, “even if the insurer later disclaims [coverage] on a basis
different from the ground originally asserted in the reservation of rights.” Federated
Dep’t Stores, Inc. v. Twin City Fire Ins. Co., 807 N.Y.S.2d 62, 67 (App. Div. 2006). The
district court did not abuse its discretion in denying Mr. Templeton’s request to estop
Catlin from relying on Exclusion D.1.b.
* * * *
-37-
Accordingly, we conclude Exclusion D.1.b bars coverage to Mr. Templeton for
the MedCap IV transaction, and Catlin is not equitably estopped from relying on the
exclusion. We therefore affirm the district court’s grant of summary judgment to Catlin
on Mr. Templeton’s indemnification claim and Catlin’s counterclaim.
C. Catlin’s Duty to Defend
The district court granted summary judgment to Catlin on Mr. Templeton’s breach
of duty to defend claim. It noted the parties’ briefing addressed three phases in the
underlying proceeding potentially implicating Catlin’s duty: “the lead-up to and during
the FINRA arbitration, the time when an appeal could have been taken, and during
settlement negotiations with the Cordaros.” App. at 640. The court concluded Catlin did
not breach its duty to defend in any of these phases. Mr. Templeton argues the court
erred in granting summary judgment to Catlin and should have granted summary
judgment to him. We conclude Catlin breached its duty to defend during the first phase,
but did not breach its duty to defend during the second and third phases.
1. Standard of Review and Summary Judgment Law
We review the district court’s grant of summary judgment de novo and apply the
same standard stated in Section II.B.1, supra.
2. Analysis
Like the indemnification claim, Mr. Templeton’s duty to defend claim is based on
the Catlin policy, and New York law therefore also applies. Although the district court
and now this court have determined that Catlin did not owe Mr. Templeton
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indemnification under the Policy, Catlin nonetheless owed Mr. Templeton a duty to
defend him against the Cordaros’ claim. “Where an insurance policy includes the
insurer’s promise to defend the insured against specified claims as well as to indemnify
for actual liability, the insurer’s duty to furnish a defense is broader than its obligation to
indemnify.” Seaboard Sur. Co. v. Gillette Co., 476 N.E.2d 272, 274-75 (N.Y. 1984).
“[A]n insurer’s duty to defend its insured is exceedingly broad and an insurer will be
called upon to provide a defense whenever the allegations of the complaint suggest a
reasonable possibility of coverage.” BP Air Conditioning Corp. v. One Beacon Ins. Grp.,
871 N.E.2d 1128, 1131 (N.Y. 2007) (quotations and alterations omitted).
When, as here, an insurer undertakes to provide a defense under a reservation of
rights, the insurer’s duty to defend continues until a court determines the insured’s claim
is excluded from coverage under the policy. Burroughs Wellcome Co. v. Commercial
Union Ins. Co., 632 F. Supp. 1213, 1220 (S.D.N.Y. 1986). Catlin does not contest it
owed Mr. Templeton a duty to defend. It undertook such a duty in the reservation of
rights letter and therefore was obligated to provide him a defense under the Policy until a
court determined that Mr. Templeton was not entitled to indemnification. Catlin argues
only it did not breach that duty.
The Policy provided that Catlin had a “duty to defend any civil litigations or
arbitrations against the Insureds that are covered by th[e] Policy.” App. at 876 (Policy
§ I.B) (emphasis omitted). It further provided that Catlin had a duty to “appoint counsel
of its selection to defend the Insureds and pay associated Defense Expenses.” Id.
-39-
“When an insured has been sued, the insurer does not satisfy its duty to defend merely by
designating independent counsel to defend the litigation.” Feliberty v. Damon, 527
N.E.2d 261, 263 (N.Y. 1988). In addition, an insurer’s duty to defend includes the hiring
of unconflicted counsel and competent counsel. Cornwell v. Safeco Ins. Co. of Am., 346
N.Y.S.2d 59, 69 (App. Div. 1973); see also Feliberty, 527 N.E.2d at 263.
a. Lead-up to and during the FINRA arbitration
Mr. Templeton argues Catlin breached its duty to defend in the lead-up to and
during the FINRA arbitration. The district court concluded Catlin did not breach its duty
during this period because it justifiably believed FF&S had been handling the Cordaro
matter on behalf of both CapWest and Mr. Templeton, and that FF&S had settled the
matter before the hearing date. Mr. Templeton argues Catlin violated its duty because (1)
it never retained replacement counsel for him, as a separate insured under the Policy,
after Markun Zusman withdrew, and (2) even if Catlin did retain FF&S to replace
Markun Zusman, FF&S could not represent both Mr. Templeton and CapWest because
they had a conflict of interest. Catlin contends, because there was a conflict of interest
between itself and its insureds, it satisfied its duty to defend under New York law by
yielding to CapWest’s request to select FF&S as counsel for itself and Mr. Templeton.
See Prashker v. U.S. Guar. Co., 136 N.E.2d 871, 876 (N.Y. 1956). We agree with Mr.
Templeton and disagree with Catlin.
In Prashker, the New York Court of Appeals explained that when the insurer’s
interests in defending a lawsuit conflict with the insured’s interests, the insurer loses the
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right to control the defense. See id.; see also Pub. Serv. Mut. Ins. Co. v. Goldfarb, 425
N.E.2d 810, 815 (N.Y. 1981). The insured then has the right to select an attorney of its
choosing and the insurer is obligated to pay reasonable defense costs of the insured’s
selected counsel. Prashker, 136 N.E. 2d at 876; see also 69th Street & 2nd Ave. Garage
Assocs., L.P. v. Ticor Title Guar. Co., 622 N.Y.S.2d 13, 14 (App. Div. 1995) (“[T]he law
is clear that where a conflict of interest is probable, selection of attorneys to represent the
insured should be made by the insured rather than by the insurance company, which
should remain liable for reasonable fees.”); Pub. Serv. Mut. Ins. Co., 425 N.E.2d at 815.
Catlin argues its interests conflicted with CapWest’s and Mr. Templeton’s because
it was defending the FINRA proceeding subject to a reservation of rights, and its only
obligation was to yield to CapWest’s choice to select FF&S as defense counsel for itself
and Mr. Templeton and to pay reasonable defense costs.20 And Catlin contends Mr. Hall
had authority to act on Mr. Templeton’s behalf under the Policy because the Policy
provided that “the Broker/Dealer agrees to act on behalf of all of the Insureds for all
purposes.” App. at 893 (Policy § IX.K). These arguments are unavailing.
First, even if Mr. Hall had such authority, the facts do not show Catlin ever
yielded. When Mr. Hall requested that Catlin allow CapWest to retain FF&S, Mr. Rogers
adamantly objected, explaining that Catlin did not believe FF&S would be appropriate
20
Catlin also conceded at oral argument that it never actually paid FF&S for its
settlement negotiations with the Cordaros. Oral Arg. at 1:03:53-1:04:24; see also FF&S
Supp. App. at 44.
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“due to potential conflicts of interest.” App. at 945. Although Mr. Rogers authorized via
email Mr. Hall’s request for $15,000 so that FF&S could attempt to settle the Cordaro
matter, that email does not show that Catlin acceded to CapWest’s selection of FF&S as
defense counsel. In that same email, Mr. Rogers stated that he and Mr. Hall still needed
to find an “agreed-to defense counsel.” Id. at 939. Mr. Hall and Mr. Rogers’s
communications also show that Catlin relented only in part to pay fees related to FF&S’s
handling of the global settlement, but even then Catlin continued to object to FF&S’s
further involvement.
Second, Mr. Hall and Mr. Rogers’ communications at most can be read to show
Catlin agreed to retain FF&S to represent the insureds only for settlement negotiations
with the Cordaros. Nothing indicates Catlin agreed to FF&S’s assuming the defense of
CapWest and Mr. Templeton for the entire arbitration proceeding. Even if Catlin
reasonably believed that FF&S had settled the Cordaro matter when it was notified on
March 28, 2011, it still had not retained defense counsel for the arbitration proceeding
scheduled to start the next day and therefore did not fulfill its duty to defend Mr.
Templeton. No evidence shows that Catlin had counsel in place for CapWest or Mr.
Templeton had the arbitration actually proceeded, which it did for Mr. Templeton. If
Catlin had fulfilled its obligation to hire counsel to represent Mr. Templeton, Mr.
Templeton’s counsel would have been aware that the matter had not settled against him,
and Mr. Templeton would have been represented in the arbitration.
Third, even if Catlin had yielded to CapWest’s authority to select counsel of its
-42-
own choosing, Catlin still failed to appoint nonconflicted counsel for Mr. Templeton,
who was separately insured under the Policy. See Cornwell, 346 N.Y.S.2d at 69. Catlin
believed FF&S could not represent Mr. Templeton and CapWest because of a potential
conflict of interest. At oral argument, Catlin’s attorney acknowledged that when Markun
Zusman served as counsel for both CapWest and Mr. Templeton, the parties waived the
conflict of interest. Oral Arg. at 37:06-37:43. Catlin never received a waiver from any of
the parties for FF&S’s possible joint representation of them. Without such a waiver,
Catlin could not satisfy its duty to defend Mr. Templeton.
Catlin did not fulfill its duty to defend Mr. Templeton in the lead-up to and during
the FINRA arbitration proceedings and was not entitled to summary judgment as to this
period of time.
b. Post-arbitration period
Mr. Templeton argues the district court erred in granting summary judgment to
Catlin regarding alleged breach of its duty to retain counsel to appeal the arbitration
award. The district court rejected this claim because Mr. Templeton could not show there
was a reasonable probability that an appeal would have been successful. We affirm.
Although the duty to defend extends through the time appeals have been
exhausted, the duty to prosecute an appeal exists only if “there are reasonable grounds for
appeal.” See Kaste v. Hartford Accident & Indem. Co., 170 N.Y.S.2d 614, 616 (App.
Div. 1958) (quotations omitted). Mr. Templeton does not point to any reasonable basis to
appeal the arbitration award. He argues only that if the award had been appealed, he may
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have been more favorably positioned to negotiate a settlement with the Cordaros. But the
duty to defend does not include bringing a groundless appeal. Catlin therefore did not
breach its duty in failing to appeal the arbitration award.
c. Post-judgment duty to negotiate a settlement with the Cordaros
Mr. Templeton attempts to appeal the district court’s grant of summary judgment
to Catlin regarding alleged breach of its duty to defend in post-judgment settlement
negotiations with the Cordaros. The district court concluded Catlin did not breach any
post-judgment duty to settle with the Cordaros because Mr. Templeton failed to “discuss
this aspect of his duty-to-defend claim in his [opposition to summary judgment], and
[did] not offer any evidence showing that the Cordaros would have accepted the
remaining limits of the Catlin Policy to settle their claims.” App. at 644. Mr. Templeton
does not address this aspect of the district court’s order in his opening brief. We
therefore decline to consider it here. See Bronson v. Swensen, 500 F.3d 1099, 1104 (10th
Cir. 2007).
* * * *
Accordingly, we reverse the district court’s grant of summary judgment to Catlin
on Mr. Templeton’s duty-to-defend claim as it relates to the lead-up to and during the
FINRA arbitration proceeding. We otherwise affirm the district court’s rulings on this
issue.
-44-
D. District Court’s Grant of Summary Judgment to the Attorney-Defendants
Mr. Templeton argues the district court erred in granting summary judgment to the
attorney-defendants on his legal malpractice and breach of fiduciary duties claims
because (1) an attorney-client relationship existed between him and the attorney-
defendants, or, alternatively (2) the attorney-defendants owed him a duty of care in the
absence of an attorney-client relationship. We conclude (1) no attorney-client
relationship existed between Mr. Templeton and the attorney-defendants, and (2) the
attorney-defendants did not otherwise owe Mr. Templeton, as a non-client, a duty of care.
Accordingly, we affirm the district court’s grant of summary judgment to the attorney-
defendants.
1. Standard of Review and Summary Judgment Law
We review the district court’s grant of summary judgment de novo and apply the
same standard stated in Section II.B.1, supra.
2. Analysis
The parties agree that California law governs Mr. Templeton’s claims against the
attorney-defendants.21 Under California law, an essential element of a claim for legal
21
Under Colorado’s “most significant relationship” test, California law applies
because Mr. Fehn, Mr. Sherwin, and Ms. Davidi are all California-licensed attorneys and
California has the most significant interest in governing the conduct of its licensed
attorneys. See, e.g., Hoiles v. Alioto, 461 F.3d 1224, 1234 (10th Cir. 2006) (concluding
that under Colorado choice-of-law rules, California had the “most significant
relationship” in an action involving a California attorney’s representation of a Colorado
resident).
-45-
malpractice and for breach of an attorney’s fiduciary duties is an attorney-client
relationship or some other duty. Slovensky v. Friedman, 49 Cal. Rptr. 3d 60, 67 (Ct. App.
2006) (legal malpractice); Fox v. Pollack, 226 Cal. Rptr. 532, 534-35 (Ct. App. 1986)
(breach of fiduciary duties).
a. Attorney-client relationship
An attorney-client relationship may be created by an express or implied contract.
Responsible Citizens v. Superior Court, 20 Cal. Rptr. 2d 756, 765 (Ct. App. 1993). “No
formal contract or arrangement or attorney fee is necessary to create the relationship of
attorney and client. It is the fact of the relationship which is important.” Lister v. State
Bar, 800 P.2d 1232, 1237 (Cal. 1990) (quotations omitted). In determining the existence
of an attorney-client relationship, we must consider the “totality of the circumstances.”
Koo v. Rubio’s Rests., Inc., 135 Cal Rptr. 2d 415, 425 (Ct. App. 2003) (quotations
omitted). One party’s subjective belief that an attorney-client relationship was formed is
not sufficient. Zenith Ins. Co. v. Cozen O’Connor, 55 Cal. Rptr. 3d 911, 920 (Ct. App.
2007). “Instead, it is the intent and conduct of the parties that controls the question as to
whether an attorney-client relationship has been created.” Id.“The question of whether an attorney-client relationship exists is one of law.”
Responsible Citizens, 20 Cal. Rptr. 2d at 766. “However, when the evidence is
conflicting, the factual basis for the determination must be determined before the legal
question is addressed.” Id. Mr. Templeton does not contend there are factual disputes
precluding summary judgment on this issue. We must therefore determine whether an
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attorney-client relationship existed as a matter of law.
i. Express contract
There was no express agreement for FF&S to represent Mr. Templeton in the
Cordaro arbitration. Mr. Templeton acknowledges he never communicated directly with
anyone at FF&S or received any legal advice from any of the attorney-defendants
regarding the Cordaro matter. Mr. Templeton attempts to rely on an agency theory to
establish an express agreement for FF&S to represent him. He argues FF&S manifested
consent to represent him to both Catlin and Hall, who were acting as his agents under the
Policy. But no evidence shows that either Catlin or Mr. Hall specifically entered into an
agreement with FF&S for FF&S to represent Mr. Templeton.
Mr. Templeton relies mostly on communications between Mr. Hall and Mr.
Rogers. These communications do not show FF&S explicitly and affirmatively agreed to
represent Mr. Templeton. In fact, they show Catlin continuously objected to FF&S
representing CapWest or Mr. Templeton under the Policy. None show that Catlin or Mr.
Hall formally engaged FF&S to represent Mr. Templeton in the Cordaro arbitration.
Mr. Templeton also relies on Mr. Hall’s communications with an FF&S legal
assistant. Mr. Hall, in response to the assistant’s email that Mr. Fehn asked her to convey
that FF&S was not representing Mr. Templeton in the Cordaro matter, emailed the
assistant, “We should be representing Daryl. I mentioned that to Tom [Fehn]. If we
alienate Daryl our goose could be cooked.” App. at 972-73. This exchange failed to
establish that FF&S agreed to represent Mr. Templeton. Mr. Hall’s subjective belief that
-47-
FF&S should be representing Mr. Templeton did not create an express agreement by
FF&S to do so.
ii. Implied contract
The evidence also does not support an implied agreement for FF&S to represent
Mr. Templeton. Mr. Templeton relies on (1) CapWest’s deduction of attorney fees from
his paycheck beginning in February 2010; (2) FF&S’s attempt to negotiate a “global
settlement” of CapWest’s liability in a number of claims asserted against it, including the
Cordaro matter, in September 2010; (3) Mr. Hall’s representations to Mr. Templeton
between February and March 2011 that FF&S was representing him; and (4) FF&S’s
attempt to include Mr. Templeton in the settlement agreement with the Cordaros and
acknowledgement that it needed to include him. None of the foregoing establish that
FF&S intended to represent Mr. Templeton. Without evidence of FF&S’s intent to enter
into an agreement, we cannot recognize an implied attorney-client relationship. See
Zenith, 55 Cal. Rptr. 3d at 920 (explaining that “[a]n implied contract, in no less degree
than an express contract, must be founded upon an ascertained agreement of the parties to
perform it” (quotations and alterations omitted)).
First, CapWest’s deduction of attorney fees from Mr. Templeton’s paycheck does
not establish an implied agreement for FF&S to represent Mr. Templeton. There is no
indication CapWest used these fees to pay for FF&S’s services. When Mr. Templeton
left CapWest in August 2010, he stopped paying his share of legal fees. At that time,
Markun Zusman was still Mr. Templeton’s and CapWest’s retained counsel under the
-48-
Policy. Mr. Templeton did not pay any legal fees in 2011—the time he contends FF&S
was retained as his attorney. Further, the fees Mr. Templeton paid were pursuant to a
reimbursement provision in his independent contractor agreement with CapWest. In
Zenith, the court rejected that fees paid through a reimbursement agreement with the law
firm’s client created an implied attorney-client relationship. Id. at 921. As in Zenith, Mr.
Templeton’s reimbursement agreement with CapWest does not show FF&S agreed to
represent him.
Second, a timing problem prevents Mr. Templeton from establishing an implied
agreement based on FF&S’s attempt to negotiate a global settlement that included the
Cordaros’ claim. FF&S attempted to negotiate this global settlement in September 2010,
when Markun Zusman was still representing him and CapWest under the Policy. There
is no indication that Mr. Templeton, FF&S, CapWest, or Catlin believed FF&S was
representing Mr. Templeton at that time. Rather, FF&S was serving as CapWest’s
general counsel in attempting to settle the matters pending against it.
Third, neither Mr. Hall’s representations to Mr. Templeton nor Mr. Hall’s belief
that FF&S was representing Mr. Templeton and CapWest are relevant because they do
not establish that FF&S impliedly undertook to represent Mr. Templeton in the Cordaro
matter. Mr. Hall worked for CapWest—not FF&S. His statements and beliefs do not
show that FF&S agreed to represent Mr. Templeton. See id. at 920.
Fourth, FF&S’s attempt to include Mr. Templeton in the settlement agreement
with the Cordaros and acknowledgement that it needed to include him do not establish an
-49-
implied attorney-client relationship. FF&S’s actions are consistent with its role as
CapWest’s general counsel. Mr. Hall obtained $15,000 settlement authority for the
Cordaro matter from Catlin. FF&S was aware that both Mr. Templeton and CapWest
were insured under the Policy. Ms. Davidi’s attempt to include Mr. Templeton in the
settlement agreement and Mr. Fehn’s statement that he knew Mr. Templeton “had to be
part of the deal,” App. at 1014, merely show that FF&S knew it could not serve
CapWest’s interests without negotiating a release for Mr. Templeton. They do not
establish that FF&S agreed to represent Mr. Templeton as his attorney.
* * * *
The undisputed facts do not establish an express or implied attorney-client
relationship between Mr. Templeton and the attorney-defendants. Accordingly, the
district court properly granted summary judgment to the attorney-defendants on this
basis.
b. Duty to a non-client
Mr. Templeton argues the attorney-defendants owed him a legal duty even if he
was not their client. He relies on Biakanja v. Irving, 320 P.2d 16 (Cal. 1958), and Lucas
v. Hamm, 364 P.2d 685 (Cal. 1961). We conclude these and related California cases do
not reach as far as Mr. Templeton contends. To recognize a duty from an attorney to a
non-client, these cases require, among other things, that the attorney and his or her client
mutually intend that the primary purpose of the attorney’s services is to benefit the non-
client. The undisputed facts here fall short of meeting this standard.
-50-
i. California case law
“[A]n attorney will normally be held liable for malpractice only to the client with
whom the attorney stands in privity of contract, and not to third parties.” Borissoff v.
Taylor & Faust, 93 P.3d 337, 340 (Cal. 2004).22 In Biakanja, however, the California
Supreme Court established that, in limited circumstances, a professional may owe a legal
duty to a third party in the absence of privity of contract between them. 320 P.2d at 17-
19. In Lucas, the court recognized attorneys can have a duty to non-clients. 364 P.2d at
688. The Biakanja court listed factors to consider in assessing whether to impose a duty.
320 P.2d at 17-19. Under this balancing test, courts must consider:
[T]he extent to which the transaction was intended to affect the plaintiff, the
foreseeability of harm to him, the degree of certainty that the plaintiff
suffered injury, the closeness of the connection between the defendant’s
conduct and the injury suffered, the moral blame attached to the
defendant’s conduct, and the policy of preventing future harm.
Id. at 19. When the defendant is an attorney, the court must also consider whether
recognition of liability “would impose an undue burden on the profession.” Lucas, 364
P.2d at 688.
22
See also Schick v. Lerner, 238 Cal. Rptr. 902, 907 (Ct. App. 1987) (“An
attorney generally will not be held liable to a third person not in privity of contract with
him [or her] since he [or she] owes no duty to anyone other than his [or her] client.”); St.
Paul Title Co. v. Meier, 226 Cal. Rptr. 538, 539 (Ct. App. 1986) (“An attorney’s liability
for professional negligence does not ordinarily extend beyond the client except in limited
circumstances.”); Fox, 226 Cal. Rptr. at 534 (“With certain exceptions, an attorney has no
obligation to a non-client for the consequences of professional negligence . . . .”).
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Under the Biakanja/Lucas test, “[t]he predominant inquiry . . . is whether the
principal purpose of the attorney’s retention is to provide legal services for the benefit of
the plaintiff.” Goldberg v. Frye, 266 Cal. Rptr. 483, 489 (Ct. App. 1990). To establish a
duty, both the attorney and the client must have intended the third party to be the
beneficiary of the attorney’s legal services. See Zenith, 55 Cal. Rptr. 3d at 919
(explaining that “[t]he clear absence of this mutual intent requirement is critical, indeed
dispositive,” because “[a]n attorney’s undertaking should be the result of a conscious
decision, so that the consequences of a duty to a third person can be considered and the
undertaking declined if the risk of conflicts or financial exposure is too great”); see also
Bily v. Arthur Young & Co., 834 P.2d 745, 771 (Cal. 1992) (“California courts have
consistently required some manifestation on the part of a professional . . . that he or she is
acting to benefit a third party . . . in a specific and circumscribed transaction.”). “The
existence of such a duty is a question of law dependent upon ‘a judicial weighing of the
policy considerations for and against the imposition of liability under the
circumstances.’” Fox, 226 Cal. Rptr. at 535 (quoting Goodman v. Kennedy, 556 P.2d
737, 742 (Cal. 1976)).23
23
“Courts have generally disregarded the ‘moral blame’ factor [mentioned in
Biakanja] in evaluating an attorney’s duty to a nonclient.” Chang v. Lederman, 90 Cal.
Rptr. 3d 758, 771 n.7 (Ct. App. 2009); see also Osornio v. Weingarten, 21 Cal. Rptr. 3d
246, 255 n.15 (Ct. App. 2004) (“Our conclusion from a review of the California cases
addressing the issue of an attorney’s duty to third parties is that courts often recite this
‘moral blame’ factor mentioned in Biakanja but rarely apply it as part of their analysis.”).
-52-
In Biakanja, a non-attorney notary prepared a will for the plaintiff’s brother, which
left the testator’s entire estate to the plaintiff. 320 P.2d at 17-18. The will was declared
invalid based on the notary’s negligence, and the testator’s estate went into intestate
succession. Id. The plaintiff sued the notary for negligence. Id. The notary argued he
was not liable to the plaintiff because there was privity of contract only between the
notary and the testator. Id. The court rejected the notary’s argument, concluding the
notary owed the plaintiff a duty of care, which he had clearly breached. Id. In so
holding, the court was careful not to create a broad scope of liability for any person who
may receive a benefit under a contract. Id. Instead, the court enumerated the factors
listed above, and explained that the factors weighed in favor of imposing a duty against
the notary. Id. at 19. The court emphasized that the “end and aim” of the testator’s
transaction with the notary was to benefit the plaintiff and the plaintiff’s injury from the
notary’s negligence was clearly foreseeable. Id.
In Lucas, the court faced a situation almost identical to Biakanja except the drafter
of the will was an attorney. 364 P.2d at 686-87. The court followed Biakanja and
concluded the imposition of a duty in the absence of privity was equally applicable
against the attorney, whose negligent drafting of the will reduced the plaintiffs’ share of
the testator’s estate. Id. at 688. The court also considered whether recognizing liability
under the circumstances would impose an undue burden on the legal profession, but
concluded it would not. Id. It concluded imposing a duty was proper in this case because
“a contrary conclusion would cause the innocent beneficiary to bear the loss.” Id.
-53-
Following Lucas, California courts have imposed a duty on attorneys to third
parties in other circumstances, but only where the attorney and client intended the
attorneys’ services to directly benefit the third party and it was reasonably foreseeable
that attorney negligence would potentially harm the third party.24 California courts have
declined to impose a duty to third parties on attorneys where the attorney and client did
not intend for the attorney’s services to directly benefit the third party, harm to the third
party was not foreseeable, or policy considerations weighed against imposing a duty.25
24
See, e.g., Osornio, 21 Cal. Rptr. 3d at 263-70 (recognizing the right of an
intended beneficiary, a dependent adult who was under the care of the testator, to pursue
a malpractice action against the attorney who drafted the testator’s will naming the
plaintiff as the executor and sole beneficiary of the will because the attorney negligently
failed to advise the testator that his intended beneficiary was a presumptively disqualified
donee under the probate code); Meighan v. Shore, 40 Cal. Rptr. 2d 744, 755 (Ct. App.
1995) (concluding that a personal injury attorney had a duty to notify his client’s wife of
her potential loss of consortium claim where both spouses consulted the attorney with
respect to a personal injury suffered by the husband and the attorney knew that the wife
had a potential claim); Roberts v. Ball, Hunt, Hart, Brown & Baerwitz, 128 Cal. Rptr.
901, 905-06 (Ct. App. 1976) (recognizing the right of a third party lender to bring a
negligence action against an attorney who issued a written opinion containing incorrect
information to a client, which the attorney knew would be transmitted to and relied upon
by prospective lenders); Donald v. Garry, 97 Cal. Rptr. 191, 191 (Ct. App. 1971)
(recognizing the right of a creditor, who assigned the collection of a debt owed to it to a
collection agency, to bring a negligence action against the collection agency’s attorney
who allowed a case based on the debt to be dismissed for lack of prosecution).
25
See, e.g., Chang, 90 Cal. Rptr. 3d at 773-74 (concluding a testator’s attorney,
who allegedly was directed to revise the testator’s will to increase his wife’s share of the
estate, owed no duty to the testator’s wife to make the requested revisions); Burger v.
Pond, 273 Cal. Rptr. 709, 714-16 (Ct. App. 1990) (concluding that a divorce attorney had
no duty to his client’s prospective second wife for his alleged negligence in handling the
client’s divorce from his first wife, even though the attorney was aware of their marriage
plans); Fox, 226 Cal. Rptr. at 535-36 (concluding an attorney hired by one party in a real
Continued . . .
-54-
For example, in Goodman, the California Supreme Court declined to extend a duty
to third parties who purchased a corporation’s stock from the defendant-attorney’s
clients. 556 P.2d at 739-44. The attorney had allegedly negligently advised his clients
that they could issue and sell stocks without jeopardizing the corporation’s exemptions
from registration under securities laws. Id. The court found Biakanja and Lucas
inapplicable because the attorney had no relationship with the plaintiffs. Id. Also, there
was no indication the advice was communicated to the plaintiffs or that they acted upon
it, or that the attorney knew or should have known that it would be. Id. Moreover, unlike
in the cases involving will beneficiaries, the clients did not intend to confer a benefit on
the plaintiffs. Id. The court further explained that imposing a duty would be an undue
burden on the legal profession because an attorney would become unduly preoccupied
with “the possibility of claims based on mere negligence . . . by any with whom his client
might deal,” which would “prevent him from devoting his entire energies to his client’s
interests.” Id. at 743 (quotations omitted).
These cases illustrate that attorneys owe a duty of care to non-clients in limited
circumstances. California courts have primarily extended a duty to intended beneficiaries
estate transaction has no duty to an unrepresented, adverse party to the transaction);
Mason v. Levy & Van Bourg, 143 Cal Rptr. 389, 393 (Ct. App. 1978) (concluding an
attorney who had a contractual right to a percentage of a contingency fee under a referral
agreement had no right to sue the successor attorney to whom he referred the case for
negligence in failing to prosecute the lawsuit because the client’s intention in instituting
the lawsuit and transferring it to the successor attorney was not to benefit the first
attorney).
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in the estate planning context, where the client cannot enforce his or her own rights after
he or she dies. Beyond that context, in all of the cases where courts have extended a duty
to non-clients, the client’s and third party’s interests are aligned. In fact, courts have
declined to extend a duty where the interests of the client and third party are potentially
adverse. See Zenith, 55 Cal. Rptr. 3d at 919 (“[The defendant] thus cannot be held to be
under a duty to protect the interests of Zenith, a nonclient, where, as here, the nonclient’s
interests were, at the very least, potentially adverse to those of the client.”).26
26
See also Hall v. Superior Court, 133 Cal. Rptr. 2d 806, 811-12 (Ct. App. 2003)
(concluding an attorney, who represented a client in a wrongful death action against her
estranged husband’s mother for the death of the client’s child, had no duty to his client’s
husband based, in part, on a potential conflict of interest between the husband and wife);
Skarbrevik v. Cohen, England & Whitfield, 282 Cal. Rptr. 627, 634-36 (Ct. App. 1991)
(concluding an attorney representing a corporation had no duty to a minority shareholder
because the minority shareholder’s interests were at least potentially adverse to the client
the attorney was advising); Schick, 238 Cal. Rptr. at 908-09 (concluding an attorney
retained by a psychologist to advise him regarding revealing confidential information
about a patient in a legal action brought by the patient’s former partner seeking financial
support from the patient, had no duty to the psychologist’s patient because the attorney
was not retained to protect the patient’s rights, but rather to provide the psychologist legal
advice that was potentially adverse to the patient); Fox, 226 Cal. Rptr. at 535 (“[A]n
attorney has no duty to protect the interests of an adverse party for the obvious reasons
that the adverse party is not the intended beneficiary of the attorney’s services, and that
the attorney’s undivided loyalty belongs to the client.” (citations omitted)); St. Paul Title
Co., 226 Cal. Rptr. at 540 (concluding an attorney for the purchaser in a real estate
transaction owed no duty to the escrow agent for providing negligent advice to the
purchaser concerning escrow instructions, in part, because the attorney owed a duty of
undivided loyalty to his client and imposing a duty to third parties in the transaction
would potentially interfere with that duty).
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ii. Analysis
This case falls outside the limited circumstances in which California courts have
imposed a duty on attorneys to non-clients. We decline to stretch California precedent to
recognize a duty under the circumstances here. See Meighan, 40 Cal. Rptr. 2d at 753
(explaining that California courts routinely “refuse to find duty in fact settings clearly
outside the Biakanja criteria”).
The Biakanja/Lucas factors do not favor imposing a duty on the attorney-
defendants. Most importantly, the facts do not show that Mr. Templeton was an intended
beneficiary of the attorney-defendants’ services. The attorney-defendants and CapWest’s
primary purpose for engaging in settlement negotiations with the Cordaros was to benefit
CapWest, not Mr. Templeton. Their intention was to negotiate an agreement to resolve
CapWest’s liability in the Cordaro matter.27 The attorney-defendants attempted to
include Mr. Templeton in the settlement to benefit CapWest. That Mr. Templeton also
27
That Mr. Hall stated that the attorney-defendants “should be representing” Mr.
Templeton is entirely consistent with this conclusion. App. at 972-73. Mr. Hall was
concerned that leaving Mr. Templeton out of the settlement would prevent settling the
Cordaros’ claim against CapWest. Thus, CapWest’s “end and aim” of retaining the
attorney-defendants was to resolve its liability in the Cordaro matter, not to benefit Mr.
Templeton. Biakanja, 320 P.2d at 19. Further, even if CapWest intended in part for Mr.
Templeton to benefit from the attorney-defendants’ services, there is no evidence the
attorney-defendants intended to perform their services for the benefit of Mr. Templeton.
See Zenith, 55 Cal. Rptr. 3d at 918-19.
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might have stood to benefit from the attorney-defendants’ negotiations does not alone
give rise to a duty.28
Additionally, imposing a duty here would likely impose an undue burden on
attorneys. As in Goodman, imposing such a duty might interfere with the attorney’s
obligations to his or her own client. See Goodman, 556 P.2d at 743. Policy
considerations against imposing a duty to a non-client are strongest where, as here, doing
so creates a risk of detracting from the attorney’s representation of his or her client
because of potentially conflicting interests between the client and third party. See, e.g.,
Moore v. Anderson Zeigler Disharoon Gallagher & Gray, P.C., 135 Cal. Rptr. 2d 888,
898-99 (Ct. App. 2003); Zenith, 55 Cal. Rptr. 3d at 918-19; Fox, 226 Cal. Rptr. at 535-
36. A conflict of interest may arise whenever the interests of the client and third party are
not entirely aligned. See Zenith, 55 Cal. Rptr. 3d at 919; Skarbrevik, 282 Cal. Rptr. at
634-36. Here, as explained above, Mr. Templeton’s and CapWest’s interests were
adverse because Mr. Templeton’s liability was potentially greater than that of CapWest.
28
At most, Mr. Templeton would have been an incidental beneficiary of the
attorney-defendants’ settlement negotiations with the Cordaros, “and an incidental benefit
does not suffice to impose a duty upon the attorney.” Goldberg, 266 Cal. Rptr. at 489
(quotations and alterations omitted); see also id. (explaining that in numerous instances
representation of a client will affect third parties, but that “[t]he fact that third parties are
thus benefited, or damaged, by the attorney’s performance does not give rise to a duty by
the attorney to such third parties”).
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These policy concerns weigh against imposing a duty to a non-client under the facts of
this case.29
Because the facts do not support imposing a duty on the attorney-defendants in the
absence of an attorney-client relationship, the trial court properly granted summary
judgment on this theory as well.
* * * *
Accordingly, the district court properly granted summary judgment to the
attorney-defendants on Mr. Templeton’s legal malpractice and breach of fiduciary duties
claims.30
III. CONCLUSION
Based on the foregoing, we affirm the district court with the exception of part of
its grant of summary judgment to Catlin on Mr. Templeton’s duty-to-defend claim. On
that claim, we reverse the district court’s grant of summary judgment to Catlin for the
29
Although we doubt the attorney-defendants could have foreseen the harm that
ultimately befell Mr. Templeton, foreseeability alone is insufficient to impose liability.
See Zenith, 55 Cal. Rptr. 3d at 918; Schick, 238 Cal. Rptr. at 909. By the same token, the
degree of certainty Mr. Templeton would suffer the injury he sustained, the “closeness of
the connection” between the attorney-defendants’ conduct and Mr. Templeton’s injury,
and the deterrent to future harm in similar circumstances do not militate in favor of
imposing a duty here because the fact Mr. Templeton was not an intended beneficiary of
the attorney-defendants’ services and policy considerations strongly counsel against
imposing a duty.
30
The court also properly granted summary judgment to the attorney-defendants
on Mr. Templeton’s claim for exemplary damages based on the absence of any
underlying liability.
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period of time leading up to and during the FINRA arbitration. We remand to the district
court for further proceedings consistent with this opinion, including resolution of Mr.
Hall’s request for costs and attorney fees for defending this appeal.
ENTERED FOR THE COURT
Scott M. Matheson, Jr.
Circuit Judge
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