Cont'l Cas. Co. v. Laurence V. Parnoff, Laurence V. Parnoff, P.C.

CONTINENTAL CASUALTY CO., Plaintiff, v. LAURENCE V. PARNOFF, LAURENCE V. PARNOFF, P.C., DARCY YUILLE, Defendants.

No. 3:17-cv-769 (MPS)

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT

September 12, 2018

RULING ON MOTION FOR JUDGMENT ON THE PLEADINGS

Plaintiff and counterclaim defendant Continental Casualty Co. ("Continental") issued a professional liability coverage policy to attorney defendant Laurence V. Parnoff ("Parnoff") and his law firm, defendant Laurence V. Parnoff, P.C. (the "Parnoff Firm" and collectively, the "Parnoff defendants"). Continental's suit seeks a declaration that the policy did not obligate it to defend Parnoff in a state court action brought by Parnoff's former client, defendant Darcy Yuille ("Yuille"), concerning Parnoff's legal fees (the "Yuille Action").¹ Both Yuille and the Parnoff defendants assert affirmative defenses to Continental's action, and the Parnoff defendants also brought counterclaims for breach of contract and breach of the duty of good faith and fair dealing for Continental's refusal to defend Parnoff. (ECF Nos. 22, 28; see ECF No. 28 at 9-13.) Continental now moves for judgment on the pleadings under Fed. R. Civ. P. 12(c), arguing that its policy does not cover the Yuille Action because that action does not seek any "Damages" under the policy, does not involve "legal services" as the policy defines them, and even if these two requirements were met, the policy's "claims-made-and-reported" and "prior knowledge" requirements have not been satisfied. (ECF No. 31 at 1-2.) Continental further argues that theParnoff defendants' counterclaims for breach of contract and the implied covenant of good faith should also be decided in Continental's favor as a matter of law. (Id. at 2.) For the reasons discussed below, I GRANT Continental's motion for judgment on the pleadings.

I. Factual Background

A. The Policy

Continental issued to the Parnoff Firm a professional liability insurance policy for the period of September 3, 2012 to September 3, 2013 (the "Policy"). (ECF No. 1-1.)² The Policy provides in relevant part:

The Company agrees to pay on behalf of the Insured all sums in excess of the deductible that the Insured shall become legally obligated to pay as damages and claim expenses because of a claim that is both first made against the Insured and reported in writing to the Company during the policy period by reason of an act or omission in the performance of legal services by the Insured or by any person for whom the Insured is legally liable[.]

(ECF No. 1-1 at 13, § I.A.)³ Under the Policy, Continental had "the right and the duty to defend in the Insured's name and on the Insured's behalf a claim covered by this Policy even if any of the allegations of the claim are groundless, false or fraudulent." (Id.) The Policy defines a "claim" in relevant part to mean "a demand, including the service of suit or the institution of any alternative dispute resolution proceeding, received by the Insured for money or services arising out of an act or omission, including personal injury, in the rendering of or failure to render legal services." (Id. at 16, § III.) "Legal services" are defined in relevant part as:

A. those services, including eleemosynary (pro bono) services, performed by an Insured for others as a lawyer, arbitrator, mediator, title agent or other neutral fact finder or as a notary public . . .B. those services performed by an Insured as an administrator, conservator, receiver, executor, guardian, trustee or in any other fiduciary capacity and any investment advice given in connection with such services;

[. . . .]

(Id. at 18, § III.) The Policy defines "damages" as "judgments, awards and settlements (including pre-judgment interest), provided any settlements negotiated with the assistance and approval of the Company." The Policy specifically excludes from "damages," however, the following:

A. legal fees, costs and expenses paid or incurred or charged by any Insured, no matter whether claimed as restitution of specific funds, forfeiture, financial loss, set-off or otherwise, and injuries that are a consequence of any of the foregoing;

[. . .]

C. punitive or exemplary amounts;

D. the multiplied portion of multiplied awards;

[and] E. injunctive or declaratory relief;

[. . . .]

(Id. at 17, § III.) Finally, the Policy also contains two relevant limitations on covered claims: (1) a 'claims-made-and-reported' deeming related claims to be made when the first claim was made and reported; and (2) a "Prior Knowledge Condition" limiting coverage for conduct of which the Parnoff defendants were aware when they first became covered. (See id. at 13, § I.A.3 ("Prior Knowledge Condition"); id. at 14, § II.D (claims made requirement).)

B. The Parnoff and Yuille Actions

According to the complaint in the Yuille Action, Yuille retained Parnoff in December 1998 to represent her in a civil claim against her former employer. (ECF No. 1-2 at ¶ 3.)⁴ Parnoff and Yuille's retainer agreement allegedly provided for a contingency fee equal to 40% of Yuille's recovery. (Id. ¶ 4.) Parnoff represented Yuille in an arbitration in which Yuille was awarded$1,096,032.93, and Parnoff subsequently claimed 40% of the award (or $438,413.17) as fees. (Id. at ¶¶ 5-6.) On November 16, 2004, Yuille and Parnoff agreed that Parnoff would pay himself $125,000, but leave the $313,413 disputed balance of his claimed fee in a trust account. (See id. at ¶¶ 7-10.) In March 2005, Parnoff sued Yuille in state court for breach of the retainer agreement (the "Parnoff Action"). (See id. at ¶¶ 10-12.)⁵ On May 20, 2010, the jury awarded Parnoff $252,044.27, which represented the fee to which he would have been entitled pursuant to Connecticut's fee cap statute, taking into account the $125,000 Parnoff had already been paid. (Id. at ¶ 13.) The parties both appealed, but on July 26, 2010 (during the appeal period following the judgment), Parnoff transferred all $363,960.87 of the disputed fee funds previously held in trust into a joint account held with his wife. (Id. at ¶ 17.) Parnoff and his wife then allegedly used the funds to pay personal expenses. (Id.) On November 20, 2012, the Connecticut Appellate Court reversed the judgment in the Parnoff Action, holding that Parnoff was not entitled to recover any fee. (Id. at ¶¶ 22-23.) The Connecticut Supreme Court subsequently declined review. (Id.)

On July 1, 2013, Yuille brought the lawsuit at issue here against Parnoff and his wife, Barbara Parnoff. (Id. at 1.) The complaint in the Yuille Action asserted seven counts, three against both Parnoff and his wife: (1) conversion, (2) constructive trust, and (3) disgorgement; and four against Parnoff only: (4) civil theft, (5) breach of fiduciary duty, (6) negligence, and (7) punitive damages. (See generally id.) The complaint sought money damages for the "depriv[ation] of funds to which [Yuille] was and is fully entitled" on the conversion, breach of fiduciary duty, and negligence counts (id. at 7, ¶ 26; id. at 9, ¶ 27; id. at 10, ¶ 27), treble damages for the civilconversion count (id. at 7-8, 13), interest (ECF no. 1-2 at 13), imposition of a constructive trust (id. at 9, ¶ 27), "disgorgement of all monies improperly taken as a purported legal fee" (id. at 13), punitive damages (id. at 11, 13), costs, and other equitable relief. (Id. at 13.)

Ten days after it was filed, on July 11, 2013, Parnoff tendered the Yuille action to Continental for coverage under the Policy. (ECF No. 25 at 5.) By letter dated July 22, 2013, Continental denied coverage. (Id.)

On February 17, 2017, the jury in the Yuille Action returned a verdict against Parnoff on the conversion and civil theft counts. (ECF No. 1-4.) The court entered judgment against Parnoff in the amount of $1,480,336.37, consisting of $363,960.87 in damages for conversion, $1,091,882.61 in treble damages for civil theft; and $24,492.89 in prejudgment interest. (See ECF No. 1-5.)

C. This Action

Continental brought this action for declaratory judgment against Yuille and the Parnoff defendants on May 10, 2017, seeking a declaration that it owed no defense or indemnity coverage to Parnoff for the Yuille Action under the Policy. (ECF No. 1.) Both Yuille and the Parnoff defendants asserted affirmative defenses to the complaint. (See ECF No. 22 at 7, ECF No. 28 at 8-9.) The Parnoff defendants also brought counterclaims for breach of contract and breach of the implied covenant of good faith and fair dealing. (ECF No. 28 at 9-13.) Specifically, the Parnoff defendants sought compensatory damages for Continental's refusal to defend Parnoff, which they allege caused the $1,480,336.37 judgment against Parnoff in the Yuille action, as well as emotional, physical, and reputational harm. (ECF No. 28 at 10, ¶¶ 6-8; id. at 11, ¶ 12; id. at 12, ¶¶ 6-8; id. at 13, ¶ 12.) Continental moved for judgment on the pleadings on October 19, 2017. (ECF No. 31.)

II. Legal Standards

Under Federal Rule of Civil Procedure 12(c), "[a]fter the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c). District courts "employ the same standard applicable to Rule 12(b)(6) motions to dismiss" in deciding a motion for judgment on the pleadings. Vega v. Hempstead Union Free Sch. Dist., 801 F.3d 72, 78 (2d Cir. 2015). The court "must accept all factual allegations in the [non-moving] party's pleading as true and draw all inferences in the non-moving party's favor." Miller v. Wolpoff & Abramson, L.L.P., 321 F.3d 292, 300 (2d Cir. 2003). A party is entitled to judgment on the pleadings "only if it has established that no material issue of fact remains to be resolved and that [it] is entitled to judgment as a matter of law." Juster Assocs. v. City of Rutland, 901 F.2d 266, 269 (2d Cir. 1990) (internal quotation marks and citation omitted). "On a 12(c) motion, the court considers the complaint, the answer, any written documents attached to them, and any matter of which the...