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Minnesota Lawyers Mutual Insurance Co. v. Ahrens

October 8, 2010


The opinion of the court was delivered by: William W. Caldwell United States District Judge


I. Introduction

This is a diversity action controlled by Pennsylvania law. Plaintiff, Minnesota Lawyers Mutual Insurance Company (MLM), sought a declaratory judgment that it had no duty to defend or indemnify defendants, Thomas J. Ahrens, Esq., and his law firm, Ahrens Law Firm, P.C. ("the firm"), in two civil suits pending against them in the Court of Common Pleas of Cumberland County, Pennsylvania. On May 18, 2010, we granted the requested relief, deciding there was no coverage because of an exclusion for claims "arising out of the solicitation or sale of . . . specific investments." Minnesota Lawyers Mut. Ins. Co. v. Ahrens, 2010 WL 1994181, at *5-6 (M.D. Pa. May 18, 2010).

The plaintiffs in the "Wagner action," one of the state-court actions, who were also named as defendants in this action, have filed a motion under Fed. R. Civ. P. 59(e) to alter or amend the order.*fn1 They request that we reverse our ruling, and order MLM to provide Ahrens and the firm with a defense of the Wagner action and to declare that MLM is at least conditionally required at this point to indemnify Ahrens and the firm for any judgment entered against them in the Wagner action. For the reasons that follow, we will deny the motion.

II. Background

A. The Pertinent Policy Language

MLM's policy basically insured Ahrens and the firm for legal malpractice. The policy obligated MLM to cover losses suffered "arising out of any act, error or omission of the INSURED . . . resulting from the rendering or failing to render PROFESSIONAL SERVICES while engaged in the private practice of law . . . ." (Doc. 28-2, CM/ECF p. 5, Am. Compl., Ex. A).*fn2 In a circular way, the policy defines "professional services," in pertinent part, as "legal or notary services for others . . . ." (Id., p. 7). The policy contains several exclusions. One of those exclusions precludes coverage for "any CLAIM arising out of the solicitation or sale of specific securities or specific investments by any INSURED." (Id.).

B. The State-Court Wagner Action

The Wagner action was filed to recover substantial sums of money, totaling some $8.7 million, that the nine plaintiffs in that action gave Ahrens. The defendants in the state-court action are Ahrens and the firm. The Wagner plaintiffs allege the following in their state-court amended complaint, in pertinent part. The money was to be used for "'loans'" or "'investments'" with Alfred Madeira and Sean and Shalese Healy, husband and wife. (Doc. 28-4, Am. Compl. ¶ 4). The loans or investments were to be used to purchase gold futures and other commodities. (Id.).

The plaintiffs were already legal clients of Ahrens and the firm in some form, as the defendants had performed a variety of legal services for each of the plaintiffs: "drafting wills, trusts and powers of attorney; forming businesses; serving as corporate counsel; representing estates; bringing and defending litigation and other general legal services." (Id. ¶ 20). The plaintiffs believed they were in an attorney-client relationship at the times the state-court defendants presented them with "what was described as an attractive moneymaking opportunity" with Madeira and the Healys that would provide "an extraordinarily high rate of return with no risk." (Doc. 28-4, pp. 7-8 ¶¶ 22-23, 26, 29). "Defendants promised rates of return between 20% and 150% within a few months and guaranteed that, at worst, Plaintiffs' principal would be returned in full." (Id. ¶ 27). Based on Defendants' representations, and Ahrens' "heightened credibility as a respected attorney who had provided legal counsel to each Plaintiff," the plaintiffs "provided funds to Ahrens, Law Firm, Madiera, and/or Mrs. Healy in the following amounts":

Larry Hatter$1,700,000 Randall Wagner1,645,700 John Jarboe1,645,700 James Green1,550,000 Keith Hostler800,000 Angela Hickey500,000 Picklesimer Estate355,000 Mark Randall300,000 Neil Barr225,000 Total$8,721,400

(Id. ¶ 29).

The defendants failed to disclose that they expected compensation from Madeira and the Healys of about $8.7 million for legal services performed for those individuals. (Id. ¶ 31). "After the funds were provided by the Plaintiffs, the Defendants continually reported the tremendous financial results to Plaintiffs and further represented to each of them that Plaintiffs should expect to receive far more than each Plaintiff initially provided." (Id. ¶ 32). However, Plaintiffs have received "no funds" despite the representations concerning "the use of their funds, the expected repayment dates and the performances of the loans and investments." (Id. ¶ 33).

The state-court pleading makes the following pertinent allegations concerning each of the plaintiffs. In August 2008, Ahrens contacted Randall Wagner and John Jarboe about "an attractive moneymaking opportunity" that "could achieve an extraordinarily high rate of return with no risk." (Id. ¶ 38). In October 2008, this involved a loan to Madeira so that he could buy a "gold futures contract" with a return of 50% on the "amount loaned" if gold closed at a certain price "on any day between the date of the contract and February 1, 2009." (Id. ¶ 43). If not, they "would receive a full repayment of the loan without any interest." (Id.). A second proposal for $700,000 was made shortly thereafter. (Id. ¶ 44). Wagner and Jarboe "initially provided $1,550,000" by wiring the money to Ahrens' attorney escrow account, (id. ¶¶ 47 and 48), and eventually "provided a total of $3,291,400 to Ahrens, Madeira and/or Healy . . . ." (Id. ¶ 55).

In October 2008, plaintiff Hatter met with Ahrens, who explained that Sean Healy "invested in gold and oil" and "bought contracts from failing banks and if the commodity hit a certain price by a certain date, the premium would be paid." (Id. ¶ 64 and 65). Hatter "initially provided . . . $400,000" in October 2008 and eventually "provided $1,850,000 to Ahrens, Madiera and/or Healy." (Id. ¶¶ 68 and 71).

In October 2008, Ahrens told plaintiff Green about "a business opportunity whereby Green could make a great deal of money . . . ." (Id. ΒΆ 81). "Green provided a ...

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