The opinion of the court was delivered by: Lowell A. Reed, Jr., Senior District Judge.
Defendant F. Craig LaRocca ("LaRocca"), an attorney, has been
sued in the Superior Court of New Jersey for his role in a
botched real estate investment scheme. The complaints and
counterclaims in those suits allege that LaRocca was negligent in
his conduct as an attorney and as a partner and trustee in a
realty business enterprise. LaRocca claims he is entitled to
coverage for the legal malpractice claims in those suits under
the professional liability insurance policy he holds with
plaintiff Coregis Insurance Company ("Coregis"). Coregis brought
this declaratory judgment action under 28 U.S.C. § 2201, seeking
a determination of whether LaRocca is eligible for coverage.
LaRocca counterclaimed, seeking declaration of coverage and
alleging breach of contract and breach of the duties of good
faith and fair dealing.
The facts of the case are largely undisputed. LaRocca was one
of three trustees of the New Gretna Realty Trust, which was
formed in March 1994 for the purpose of acquiring real estate to
be developed and sold. The trust successfully acquired the
property it sought and commenced construction of a real estate
development called "Drewes Landing," which was to consist of
residential lots upon which modular houses would be built and
sold at a profit. In December 1994, for tax purposes, the trust
was transformed into the New Gretna Realty, L.L.C.,*fn2 which
continued the work of the trust. LaRocca was one of 16 partners
in New Gretna Realty, and he held a 7.5 % interest in the
company. (Motion of Defendant F. Craig LaRocca for Summary
Judgment, Exhibit B, at 24) ("LaRocca Motion").
New Gretna contracted with a company called the Page Group,
Inc., to construct homes on the lots. The Page Group was headed
by Joseph Paggi. Paggi proceeded to encumber the Drewes Landing
properties with millions of dollars in mortgages, apparently
without authority.*fn3 Paggi committed suicide in August 1995.
The underlying suits in the Superior Court of New Jersey (the
suits in which LaRocca is a defendant and for which LaRocca seeks
coverage from Coregis) arose out of competing lien rights and
other damages resulting from the financial irregularities that
plagued the Drewes Landing project. Three suits have been filed
in which LaRocca has been named as a defendant or third-party
defendant: Carnegie Bank, N.A. v. Page Group, Inc., No. 5036-96
(Sup.Ct. N.J. Ocean Cty. 1996); Serot v. Page Group, No.
1153-96 (Sup.Ct. N.J. Ocean Cty. 1996); Pesce v. Page Group,
Inc., No. 03252-96 (Sup.Ct. N.J. Burlington Cty. 1996). In each
case, LaRocca is alleged to have violated his duty as a trustee
of New Gretna, and to have committed legal malpractice. It is for
the latter claims that LaRocca seeks coverage.
The policy does not apply to: . . .
E. any CLAIM arising out of an INSURED'S activities
as an officer, director, partner, manager or
employee of any company, corporation, operation,
organization or association other than the NAMED
INSURED; . . .
G. any CLAIM arising out of or in connection with the
conduct of any business enterprise other than the
NAMED INSURED (including the ownership, maintenance
or care of any property in connection therewith)
which is owned by an INSURED or in which any
INSURED is a partner, or which is directly or
indirectly controlled, operated or managed by any
INSURED either individually or in a fiduciary
capacity; . . .
(Memorandum of Law in Support of Coregis Insurance Company's
motion for Summary Judgment Against F. Craig LaRocca and
Pearlstine/Salkin Associates, Exhibit B to Exhibit 1, Coregis
Lawyers Professional Liability Insurance Policy, No. PL-319334-4,
Policy Period Jan. 23, 1996 through Jan. 23, 1997 ("Coregis
Policy") [emphasis in original]).
LaRocca contends that the conduct at issue in the underlying
claims arose solely out of the legal services that he provided to
New Gretna, not out of his role as a trustee or partner of ...