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Evanston Insurance Co. v. Workland & Witherspoon, PLLC

United States District Court, E.D. Washington

April 28, 2015

EVANSTON INSURANCE COMPANY, Plaintiff,
v.
WORKLAND & WITHERSPOON, PLLC, a limited liability company; and ERIC SACHTJEN, an individual, Defendants.

ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT FOR DECLARATORY JUDGMENT AND GRANTING DEFENDANTS' MOTION TO STRIKE STATEMENT OF FACTS

ROSANNA MALOUF PETERSON, Chief District Judge.

Before the Court is Plaintiff Evanston Insurance Company's Motion for Summary Judgment for Declaratory Judgment of No Coverage, ECF No. 29. Also before the Court is Defendants' Motion to Strike Plaintiff's Statement of Facts, ECF No. 35. The Court has reviewed the motions, all other relevant findings, and is fully informed.

BACKGROUND

A. Procedural History

Plaintiff Evanston Insurance Company ("Evanston") is an Illinois insurance corporation that issued two legal malpractice insurance policies to Defendant Workland & Witherspoon, PLLC, a Washington state law firm and Professional Limited Liability Company. ECF No. 1 at 1-3. Defendant Eric Sachtjen (collectively with Defendant Workland and Witherspoon, "Workland") was an attorney-employee of Workland & Witherspoon. ECF No. 1 at 2.

This insurance coverage dispute arises from two state tort actions, referred to as the Red Tower and Unit 3 lawsuits, filed by James Darling and others on April 2, 2014, against Workland in Spokane County Superior Court concerning Workland's alleged involvement in a fraudulent real estate purchasing scheme. ECF No. 1 at 2-3. The plaintiffs in those state proceedings seek damages and other remedies from Workland. ECF No. 1 at 2-3.

Workland tendered the defense and indemnity of both lawsuits to Evanston under the policies valid through January 2015. ECF No. 1 at 3. Evanston agreed to represent Workland in the state court actions, subject to a reservation of rights to deny coverage, including any duty to defend or indemnify Workland. ECF No. 1 at 3. In letters dated June 12, 2014, Evanston reserved its right to completely deny Workland coverage for the Red Tower and Unit 3 lawsuits pursuant to the "Specific Incidents Exclusion" of the Policies. ECF No. 1-1, Ex. 5 at 122-23; ECF No. 1-1, Ex. 6 at 136-37.

Evanston then filed this diversity suit, seeking a declaration of non-coverage and lack of duty to defend Workland in the underlying actions. ECF No. 1. Plaintiff initially claimed six bases for lack of coverage, ECF No. 1 at 3-4, but the Court stayed consideration of five pending the completion of the underlying state actions. ECF No. 18.

Evanston now moves for summary judgment for a declaratory judgment of no coverage under 28 U.S.C. ยง 2201. Evanston contends that when applying for coverage Workland disclosed two prior lawsuits, referred to as the Rothrock and Rockrock lawsuits, concerning the sale of related properties and involving several of the same individuals as the transactions giving rise to the Red Tower and Unit 3 lawsuits at issue in this case. ECF No. 29 at 2. Evanston argues that the connection between the four lawsuits bars coverage of the Red Tower and Unit 3 lawsuits pursuant to a specific provision of the policies, and thus urges the Court to declare non-coverage for claims arising from those suits. ECF No. 29 at 2.

i. The Red Tower and Unit 3 Lawsuits

It is undisputed that on April 2, 2014, the Red Towe r and Unit 3 lawsuits were filed against Workland in Spokane County Superior Court concerning Workland's alleged involvement in a fraudulent real estate purchasing scheme. ECF No. 1-1, Exs. 1-2. Evanston contends that the Red Tower " and " Unit 3" lawsuits concern Workland's allegedly injurious conduct involving the sale of Units in the Ridpath Hotel and the Ridpath building in 2008. ECF No. 30 at 3-5.[1]

Evanston contends that both lawsuits claim that Defendant Sachtjen represented plaintiffs in the sale of Units 1 and 2 of the Ridpath Hotel and Unit 3 of the Ridpath building. ECF No. 1-1, Exs. 1-2. Evanston further argues that the complaints allege that in March of 2008, Defendant Sachtjen was hired by the plaintiff James Darling at the recommendation of the plaintiff Brian Main. ECF No. 1-1, Ex. 1 at 13; ECF No. 1-1, Ex. 2 at 35. Defendant Sachtjen allegedly created Red Tower, LLC for James Darling, Lawrence Brown, and Brian Main for the purpose of purchasing Units 1 and 2 in the Ridpath Hotel. ECF No. 1-1, Ex. 1 at 13; ECF No. 1-1, Ex. 2 at 35. Defendant Sachtjen remains the registered agent of Red Tower, LLC. ECF No. 1-1, Ex. 1 at 14; ECF No. 1-1, Ex. 2 at 35-36.

According to the complaints, another defendant, Jeffreys, allegedly later secured Defendant Sachtjen to represent both parties in the Ridpath Hotel transaction. ECF No. 1-1, Ex. 1 at 13; ECF No. 1-1, Ex. 2 at 35. The plaintiffs claim that Defendant Sachtjen also represented Darling in the financing and purchase of Unit 3 of the Ridpath building. ECF No. 1-1, Ex. 2 at 36.

The complaints accuse Defendant Sachtjen as an employee of Defendant Workland & Witherspoon of engaging in legal malpractice related to the Ridpath transactions. ECF No. 1-1, Exs. 1-2. Defendant Sachtjen allegedly represented all parties in the Ridpath transactions despite his pre-existing attorney-client relationship with Darling and in the absence of a waiver of any conflict of interest. ECF No. 30 at 4 (citing ECF No. 1-1, Ex. 1 at 13-14; ECF No.1-1, Ex. 2 at 35). Both complaints allege that the defendants engaged in a civil conspiracy "to cooperate together in a continuous scheme to use the Ridpath building to defraud and commit torts against the plaintiffs." See ECF No. 1-1, Ex. 1 at 19; ECF No. 1-1, Ex. 2 at 45. Finally, the complaints contend that Jeffreys and Sachtjen knew that the properties in question were appraised at less than the listed purchase prices and failed to disclose that knowledge. ECF No. 1-1, Ex. 1 at 14-15; ECF No.1-1, Ex. 2 at 36-38.

ii. The Insurance Policies

Workland applied for professional liability insurance with Evanston two separate times. ECF No. 30 at 11. The applications were identical and include the same disclosures. ECF No. 1-1, Ex. 3 at 70-77; ECF No. 1-1, Ex. 4 at 99-109. In each insurance application, Workland replied affirmatively when asked whether "any Professional Liability claim(s) [have] been made against the Applicant or any person or entity proposed for this insurance or any predecessor firm(s) in the past five (5) years." ECF No. 1-1, Ex. 3 at 75; ECF No. 1-1, Ex. 4 at 104. In both applications, Workland indicated that four claims had been made against them. ECF No. 1-1, Ex. 3 at 75; ECF No. 1-1, Ex. 4 at 104.

The initial 2013 application referenced the attached "CNA Application for Lawyers Professional Liability Insurance, " which mentioned the Rothrock and Rockrock lawsuits and attached the complaints of those lawsuits. ECF No. 1-1, Ex. 3 at 75; ECF No. 31-2, Ex. 11. The 2014 application contained a "Supplemental Claim Form" that detailed both the Rothrock and Rockrock lawsuits, among other past lawsuits, and referenced attached materials for more information. ECF No. 1-1, Ex. 4 at 106-108.

Approving both applications, Evanston issued two professional liability insurance policies ("the Policies") to Workland covering the period of 2013 through 2015. ECF No. 1 at 3; ECF No. 33 at 1-2; ECF No. 30 at 7. The first policy, Policy No. LA 806379, issued for the period of January 1, 2013, to January 1, 2014. ECF No. 30 at 7; ECF No. 33 at 1. The second policy, Policy No. LA806828, covered the period from January 1, 2014, to January 1, 2015. ECF No. 30 at 7; ECF No. 33 at 2. The language of the policies, including the attached endorsements and exclusions, is identical. See ECF No. 1-1, Exs. 3-4.

The Policies contained a provision titled the "Specific Incidents Exclusion, " which Evanston now contends bars coverage of the Red Tower and Unit 3 lawsuits. ECF No. 29 at 2. The Specific Incidents Exclusion states:

This policy shall not apply to any Claim made against any Insured based upon, arising out of, or in any way involving any Wrongful Act or Personal Injury, any fact, circumstance, situation, incident, claim or suit referred to in an answer to any question of the application(s) or addendum(a) attached to this policy, or if this policy is a renewal or replacement of any policy issued by the Company or any of its affiliated companies, the application(s) or addendum(a) attached to the initial policy.
ECF No. 1-1, Ex. 3 at 55; ECF No. 1-1, Ex. 4 at 85.

DISCUSSION

A. Defendants' Motion to Strike

Workland moves to strike portions of Evanston's statement of material facts, ECF No. 30, and the supporting Declaration of Curt H. Feig, ECF No. 31 on several bases. ECF No. 35. At the hearing on summary judgment, Workland also objected to the certified exhibits attached to ECF No. 42, filed ...


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