Friend v. Attorneys Liability ( 1997 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ROBERT W. FRIEND; IMOGENE
WILLIAMS, Executrix of the Estate of
Ralph B. Sayre, Deceased and as
Trustee under the Last Will and
Testament of Ralph Brown Sayre,
Deceased,
No. 96-2862
Plaintiffs-Appellees,
v.
ATTORNEYS LIABILITY PROTECTION
SOCIETY, a mutual risk retention
group,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of West Virginia, at Wheeling.
Frederick P. Stamp, Jr., Chief District Judge.
(CA-94-48)
Argued: October 29, 1997
Decided: December 4, 1997
Before LUTTIG and WILLIAMS, Circuit Judges, and
BULLOCK, Chief United States District Judge for the
Middle District of North Carolina, sitting by designation.
_________________________________________________________________
Reversed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Robert L. Bays, BOWLES, RICE, MCDAVID, GRAFF
& LOVE, Parkersburg, West Virginia, for Appellant. James F. Com-
panion, SCHRADER, BYRD, COMPANION & GURLEY, Wheel-
ing, West Virginia, for Appellees. ON BRIEF: John S. Bailey, Jr.,
BOWLES, RICE, MCDAVID, GRAFF & LOVE, Parkersburg, West
Virginia, for Appellant. James P. Mazzone, Michael A. Adams,
SCHRADER, BYRD, COMPANION & GURLEY, Wheeling, West
Virginia, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Plaintiffs-appellees Robert W. Friend and Imogene Williams
brought this action seeking a declaratory judgment that defendant-
appellant Attorneys Liability Protection Society ("ALPS") was liable,
under a legal malpractice insurance policy issued by ALPS to Friend,
for a judgment entered against Friend in another legal proceeding.
The district court granted summary judgment for Friend, ALPS
appeals, and for the reasons stated herein, we reverse.
I.
This lawsuit arises out of a state-court judgment entered against
Friend relating to his work as an attorney for Imogene Williams, the
executrix of the estate of Fred B. Sayre. When Friend was engaged
as the attorney for the executrix, shortly after Sayre's death, the
estate's assets were appraised at approximately $460,000 in personal
property, and $265,000 in real estate. Although the executrix was
required by law to file annual settlements accounting for the disburse-
ments and expenses of the estate, only one such form was filed
between Sayre's death in December, 1986, and March, 1993. That
form was filed at the end of the first year (1987). In March of 1993,
Friend, on behalf of Williams as Executrix of the estate, filed a com-
plaint in state court against all of the heirs and beneficiaries of the
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estate for the purpose of subjecting various tracts of real estate to sale
to pay the debts of the estate. The complaint alleged that the personal
estate of the decedent was insufficient to pay the debts and adminis-
trative costs of the estate. Almost simultaneously, Friend filed the five
annual settlements from 1988 to 1992.
The heirs and beneficiaries responded by challenging Friend's fees,
as revealed in the newly filed settlements, as grossly excessive. The
parties asked the state court "to conduct an accounting and determine
the assets and liabilities [of the estate] for the ultimate purpose of
deciding if the personal assets were insufficient to pay the debts and
cost of administration . . . [and] to determine the validity of the
claimed debts and cost of administration." J.A. at 37. Examination of
the estate's records ultimately established that Friend had billed attor-
neys' fees of more than $450,000 to the estate, as well as such fees
of almost $60,000 to trusts set up by the estate. The state court found
these fees to be unreasonable and excessive, ordered"that all amounts
paid to Friend in excess of $105,000.00 shall be refunded by Friend,"
and entered against Friend "a judgment in favor of the estate and trust
for such sums paid to Friend in excess of the amount allowed . . . ."
J.A. at 54.
Shortly thereafter, Friend brought this action against ALPS in state
court, seeking a declaratory judgment that his malpractice insurance
policy extends coverage to the judgment entered against him by the
state court. ALPS removed the lawsuit into federal court on the basis
of diversity jurisdiction. The parties each submitted motions for sum-
mary judgment, and the district court granted summary judgment for
Friend.
II.
Under the terms of the malpractice insurance policy, ALPS is obli-
gated to pay, subject to certain limits, exclusions, and conditions, "all
sums in excess of the deductible . . . which the Insured shall become
legally obligated to pay as damages" resulting from legal claims
against Friend "by reason of any act, error or omission in Professional
Services rendered or that should have been rendered by the Insured
. . . and arising out of the conduct of the Insured's profession as an
attorney . . . ." J.A. at 249 (emphasis added). We hold that the judg-
3
ment entered against Friend by the state court does not constitute a
sum which Friend has "become legally obligated to pay as damages"
within the meaning of the insurance contract.
We disagree with the district court's characterization of the judg-
ment entered against Friend in state court as an award for "damages
to the estate in the form of excessive legal fees" resulting from
"Friend's negligent rendering of services." J.A. at 721. As noted
above, the state court itself described the underlying action as, inter
alia, a proceeding "to determine the validity of the claimed debts and
cost of administration," J.A. at 37, including, primarily, the attorneys'
fees paid to Friend. Moreover, the state court characterized its judg-
ment not as awarding damages, but rather as requiring the refund of
excessive attorneys' fees. See J.A. 54 (memorandum opinion ordering
that "all amounts paid to Friend in excess of $105,000.00 shall be
refunded by Friend."); id. at 307 (formal order requiring Friend to "re-
fund and return the difference between the amounts collected . . . and
the fees and expenses approved . . . .").
Although the insurance policy does not define the term "damages,"
we do not believe that the ordinary meaning of this word would
include a court-ordered refund of excessive attorneys' fees. Such a
refund, after all, sounds not in damages, but in restitution. Nor do we
discern within what is essentially a simple malpractice insurance pol-
icy any indication of an intention to extend coverage to a judgment
of this sort. Neither as a matter of contract interpretation nor as a mat-
ter of common sense do we find any reason to believe the policy is
meant to insure Friend's ability to collect and keep the full amount
of the fees he chooses to bill for any given matter-- especially
where, as here, those fees are judicially determined to be unreason-
able and excessive.
III.
Even if we believed the state court judgment against Friend repre-
sented a sum Friend was obligated to pay as damages, we would yet
be constrained to reverse the district court's grant of summary judg-
ment, because the insurance policy explicitly excludes from coverage
claims "based upon or arising out of any dishonest, intentional, fraud-
ulent, criminal, or malicious act, error or omission committed by, at
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the direction of, or with the consent of an Insured." J.A. at 252. For
the reasons discussed below, we are confident not only that a jury
could find that Friend's actions were intentionally dishonest, but also
that such a finding would be required, as a matter of law.
In the course of finding Friend's fees to be excessive, the state
court made numerous findings that essentially compel the conclusion
that Friend's over-billing was both dishonest and intentional. Among
the most revealing of these findings are the following:
4. Imogene Williams [the executrix of the estate] retained
Robert W. Friend to represent the estate (and her) at the
agreed rate of $80.00 per hour. The evidence makes it obvi-
ous that Friend was more than willing to accept this
employment and assist Imogene Williams in her personal
whim to give the lawyer everything so the Skeens[the dece-
dent's heirs] received nothing, even to the detriment of the
beneficiaries of the Fred Sayre estate.
5. A substantial amount of the time which was expended
by Friend in connection with this matter was used to assist
Imogene Williams in carrying out her personal vendetta
against the Audrey Sayre heirs and further her desire to
deny any benefits to them from the Fred Sayre Estate .
...
14. The evidence clearly shows that the second through
sixth annual settlements (1988, 1989, 1990, 1991, 1992)
were not filed until March, 1983. . . . It appears to this
Court that a definite conflict of interest developed with
respect to Friend's representation in this case. On the one
hand he had complete charge of this estate according to the
testimony of Imogene Williams. . . . On the other hand,
Friend kept charging the estate exorbitant fees which he hid
from the beneficiaries and the Fiduciary Commissioner by
his failure to file settlements timely. . . .
...
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20. As further evidence of Friend's taking advantage of
the animosity existing between Imogene Williams and the
Skeens is the fact that while the litigation [the widow's ulti-
mately successful attempt to renounce the will in favor of
her statutory share] was pending, he made an offer, which
he claims was made in good faith. This offer was to pay
$30,000 to settle all the claims of Audrey Sayre[the widow]
to Fred Sayre's estate. . . . [T]he $30,000 offer was less than
half of what Audrey Sayre would have received had she not
renounced the will. Such an offer to take even less than what
she was already entitled to receive cannot be considered to
be made in good faith.
21. Friend employed an accounting firm to perform ser-
vices which were normally performed by an attorney. The
itemized billings by Friend for his fee strongly indicate that
he charged for much of the same services performed by the
accountants. . . .
J.A. at 39-45 (emphases added).1
At oral argument, Friend's counsel conceded the"damning"
appearance of these findings, though he argued that, taken in context,
they do not mean what they appear to mean. It is true that, in the
course of subsequent proceedings, the state court declined to make
more explicit findings that Friend's actions were intentional. See J.A.
at 312 ("[T]he Court specifically declines to make further findings as
to whether the actions by Robert W. Friend . . . were intentional . . . .
The Court's Findings of Fact and Conclusions of Law shall speak for
themselves."); J.A. at 687 (stating that the court had declined, during
subsequent proceedings, to make determinations "[w]ith respect to
intentional acts on the part of Mr. Friend"). However, given the strik-
ing nature of the findings it had already made, we believe it obvious
that the state court's declination reflects its belief that the inference
of intent from the initial findings was inescapable, not a belief that
Friend's intent was something over which reasonable minds could
disagree.
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1 These excerpted findings are representative only. They by no means
exhaust the entirety of the state court's incriminating findings.
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Furthermore, in separate disciplinary proceedings arising out of
Friend's representation of the Sayre Estate, the West Virginia
Supreme Court of Appeals, inter alia, suspended Friend from legal
practice for two years, subjected all of Friend's financial dealings
with his clients to close and independent supervision for an additional
two years upon his readmission to the bar, required Friend to return
all the money he had received from the estate, and required disclosure
of all of Friend's personal and business loans for five years. See
Lawyer Disciplinary Board v. Friend, No. 23877, reprinted in
Addendum to Appellant's Reply Brief. Given the legal system's tradi-
tional reluctance to impose stringent sanctions for lawyer misconduct,
it is inconceivable that the West Virginia Supreme Court of Appeals
would have imposed sanctions of this magnitude if it found Friend's
actions neither dishonest nor intentional. This understanding of that
court's decision is confirmed by several passages in its opinion that
make all but explicit that court's belief that Friend acted intentionally,
dishonestly, or both. See id. at 6-7, 9-10. 2
CONCLUSION
For the reasons stated herein, we reverse the judgment of the dis-
trict court.
REVERSED
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2 The West Virginia Supreme Court of Appeals' disciplinary opinion
was filed during the pendency of the instant appeal, and accordingly was
not part of the record below. When the defendant-appellant appended
that opinion to its reply brief, Friend moved to strike that portion of the
brief on the grounds that it contains material outside the record on
appeal. We deny Friend's motion. Not only has it never been thought
inappropriate to take notice of a relevant judicial opinion decided during
the pendency of an appeal, but Friend's attorney specifically discussed
the content of the disciplinary opinion at oral argument, all but conceding
the relevance of that opinion to the instant proceeding.
7