United States District Court, E.D. New York
ABRAMS, FENSTERMAN, FENSTERMAN, EISMAN, GREENBERG, FORMATO & EINIGER, LLP, Plaintiff,
UNDERWRITERS AT LLOYD'S, LONDON, Defendant.
[Copyrighted Material Omitted]
Keith J. Singer, Abrams, Fensterman, Fensterman, Flowers Greenberg & Eisman, LLP, Lake Success, NY, for Plaintiff.
Frederick J. Wilmer, Mark P. Giacopelli, Kissel, Pesce, Hirsch & Wilmer LLP, Tarrytown, NY, for Defendant.
MEMORANDUM AND ORDER
WEXLER, District Judge.
Plaintiff Abrams, Fensterman, Fensterman, Eisman, Greenberg, Formato & Einiger, LLP (the " Abrams Firm" ) brings this action against defendant Underwriters at Lloyd's, London (" Lloyd's" ) for, inter alia, a declaration that Lloyd's is obligated to defend and (potentially) indemnify the Abrams Firm in certain underlying actions against the firm pursuant to a professional liability insurance policy (the " Policy" ) with Lloyd's. The parties cross-move for summary judgment under Rule 56 of the Federal Rules of Civil Procedure (" FRCP" ). For the reasons below, the Court grants summary judgment to Lloyd's and denies summary judgment to the Abrams Firm.
A. The Burman Action
In or about June 2010, Jan Burman, Steven Krieger and Scott Morrell (the " Burman Plaintiffs" ) commenced an action in Delaware Chancery Court (the " Burman Action" ) against various defendants (the " Burman Defendants" ), including the Abrams Firm and its managing partner, Howard Fensterman, Esq. (" Fensterman" ). The original complaint contained the following " causes of action" : (1) breach
of fiduciary duty; (2) aiding and abetting breach of the fiduciary duty; (3) malpractice; (4) breach of contract; (5) breach of contract; (6) unjust enrichment; (7) fraud in the factum; (8) fraud in the inducement; (9) negligent misrepresentation; (10) conversion; (11) aiding and abetting conversion; (12) constructive trust; (13) violations of 18 U.S.C. §§ 1961 et seq. (" RICO" ); (14) RICO conspiracy; and (15) an accounting (the " Burman Complaint" ). Fensterman was named in all claims, and the Abrams Firm was named in most but not all. As alleged, the claims arose out of the Burman Defendants' fraudulent scheme to induce the Burman Plaintiffs to invest in a Delaware limited liability company, American Gulf Insurance, LLC (" AGIC" ), whose primary business purpose was to underwrite and sell personal and commercial insurance coverage. The Burman Defendants misappropriated the Burman Plaintiffs' funds and concocted an absurd story that the funds were stolen by members of a royal family in the United Arab Emirates (" UAE" ).
In or about October 2007, Fensterman solicited the Burman Plaintiffs to purchase membership interests in AGIC, and represented that AGIC would be created to operate as an insurance company in the UAE. Fensterman was a founding member and managing director of AGIC, as well as a principal of Jordstac, LLC— a named defendant which was also a founding member of AGIC. Several of the Abrams Firm's other partners also held interests in AGIC. Fensterman also was a founding member and holder of a 25% interest in American Gulf Management Company, LLC (" AGMC" ), which was formed to manage AGIC. Fensterman stated to the Burman Plaintiffs that he had partnered with other Burman Defendants, including Michael J. Weinberg (" Weinberg" ), who had experience in the insurance industry, and Amer and Azzam Rustom, who had ties in the UEA that would facilitate AGIC's operations and licensing requirements. Fensterman purportedly traveled to the UAE with Weinberg— a founding member and managing director of AGIC and managing member and holder of a 25% interest in AGMC— to explore potential business opportunities for AGIC.
Thereafter, Fensterman induced the Burman Plaintiffs to wire a total of $1,600,000 to the Abrams Firm's IOLA account in December 2007 and July 2008 in connection with their investments in AGIC, and the Burman Plaintiffs executed AGIC " Subscription Agreements for Investor Membership Interests" in July and August 2008 regarding their investments. By the end of 2009, the Burman Plaintiffs learned that the funds they had invested in AGIC had been misappropriated. Fensterman allegedly made numerous false representations and omissions in connection with the Burman Plaintiffs' investments in AGIC and regarding the misappropriation of their funds.
The Burman Plaintiffs alleged that they relied on Fensterman and the Abrams Firm for legal advice and counsel regarding investing in AGIC. In particular, they alleged that they executed the AGIC subscription agreements " upon the advice of Fensterman, as [their] attorney," which agreements were countersigned by Fensterman " on behalf of AGIC." Burman Complaint ¶¶ 82-84. The malpractice claim, the third cause of action, alleged that Fensterman and the Abrams Firm committed malpractice by, inter alia: (1) failing to conduct requisite due diligence before and after the Burman Plaintiffs' investments in AGIC; (2) failing to review and investigate the documents issued in connection with the Burman Plaintiffs' investments in AGIC; (3) failing to adequately disclose Fensterman's and the Abrams Firm's interests in AGIC; (4) failing
to obtain a waiver of conflict of interest from the Burman Plaintiffs relating to Fensterman's and the Abrams Firm's interests in AGIC; (5) failing to protect the Burman Plaintiffs' investments in AGIC; (6) failing to disclose to, and concealing from, the Burman Plaintiffs the loss of the Burman Plaintiffs' investments in AGIC; and (7) failing to perform their professional duties as the Burman Plaintiffs' attorneys and to ensure the accuracy of documents governing the Burman Plaintiffs' investments in AGIC. Similarly, the fourth cause of action, for breach of contract, alleged that the Burman Plaintiffs invested monies in AGIC in reliance and upon the consultation and advice of Fensterman and the Abrams ...