United States District Court, S.D. New York
MEMORANDUM OPINION & ORDER
M. WOOD, District Judge
an interpleader action brought by Plaintiff XL Specialty
Insurance Company ("XL") to resolve competing
claims to the remaining $1, 372, 596.10 (the
"Interpleaded Funds") of a $3 million financial
services liability policy (the "Policy") purchased
by non-party Capital L Group, LLC ("Capital L"),
which provided insurance for Capital L's CEO, Defendant
John R. Lakian, and its COO, Defendant Diane W. Lamm, with
certain exceptions. XL interpleaded as defendants Lakian,
Lamm, and Kobre & Kim LLP ("Kobre & Kim").
On January 15, 2015, the Honorable Analisa Torres granted
motions to intervene by Eiseman Levine Lehrhaupt &
Kakoyiannis, P.C. ("Eiseman"), Brief Carmen &
Kleiman ("Brief Carmen"), and Merrill
Communications LLC ("Merrill"), and denied motions
to intervene from Knox, LLC d/b/a Knox, LLC of New York
("Knox") and DJW Advisors, LLC ("DJW").
ECF No. 68. On March 19, 2015, XL, Lakian, Lamm, Kobre &
Kim, Eiseman, Brief Carmen, and Merrill filed a settlement
agreement (the "Settlement Agreement"), ECF No. 87,
which Judge Torres ordered on April 24, 2015, ECF No. 100.
Following a decision by the Second Circuit Court of Appeals,
Judge Torres vacated the order denying Knox and DJW's
motion to intervene and the final judgment implementing the
Settlement Agreement, and instead granted Knox and DJW's
motion to intervene and a motion to intervene by Pangea
Capital Management, LLC ("Pangea"). ECF No. 122.
The case was transferred to the undersigned on November 11,
the Court are motions for summary judgment filed by (1)
Kobre & Kim, Eiseman, Brief Carmen, and Merrill (the
"K&K" motion), (2) Knox and DJW (the
"Knox" motion), and (3) Pangea. ECF Nos. 138, 143,
Knox and Pangea each claim that they are entitled to the
Interpleaded Funds; K&K moves to dismiss Knox's,
DJW's, and Pangea's claims to the Interpleaded Funds,
and moves for a judgment in accordance with the terms of the
Settlement Agreement. For the reasons set forth below the
Knox and Pangea motions are DENIED, and the K&K motion is
interpleader action arises from an insurance policy,
Financial Services Liability Policy Number ELU1236303-11,
issued by XL to Capital L for the period of November 11,
2011, toNovemberll, 2012. K&K56.1 Stmt. ¶ 1, ECF No.
137; Hansen Decl. Ex. 1 ("Policy"), Fin. Servs.
Liab. Policy Decls. Items 1-3, ECF No. 140-1. The Policy
provided for a maximum aggregate limit of liability of $3
million, of which $1, 372, 596.10 remains. K&K 56.1 Stmt.
¶ 11. That remainder, the Interpleaded Funds, was
deposited with the Court on July 28, 2014, pursuant to Local
Civil Rule 67.1 and as required by 28 U.S.C. § 1335.
K&K 56.1 Stmt. ¶ 12; Dkt. Entry, July 31, 2014,
Receipt No. 465401101200.
Policy provides that "[t]he Insurer shall pay on behalf
of the Insured Persons Loss resulting from Claims first made
against the Insured Persons during the Policy Period ... for
Wrongful Acts." K&K 56.1 Stmt. ¶ 3; Policy,
Inv. Advisers Mgmt. Liab. Coverage Part § 1(A). The
Policy also provides that "[t]he Insurer shall pay on
behalf of the Adviser Loss which the Adviser is required or
is permitted to pay .. . resulting from Claims first made
against the Adviser ... for Wrongful Acts." Policy, Inv.
Advisers Mgmt. Liab. Coverage Part § 1(B).
Policy defines "Insured Persons" as including
"any past, present or future director, officer, or
member of the Board of Managers of Capital L. K&K 56.1
Stmt. ¶ 6; Policy, Inv. Advisers Mgmt. Liab. Coverage
Part § 11(D)(1). The Policy defines a "Loss"
as including "damages, judgments, settlements or other
amounts (including punitive, exemplary or multiplied damages
where insurable by law) in excess of the Retention that the
Insured is obligated to pay, and Defense Expenses, whether
incurred by the Insurer or the Insured." K&K 56.1
Stmt. ¶ 5; Policy, Endorsement No. 6. The Policy defines
a "Claim" as including, among other things,
"any civil proceeding in a court of law or equity, or
arbitration." K&K 56.1 Stmt. ¶ 10; Policy, Gen.
Terms & Conditions, § 1(B)(2). The Policy defines a
"Wrongful Act" as "any actual or alleged act,
error, omission, misstatement, misleading statement or breach
of duty, " and must arise, for an Insured Person,
"solely by reason of his or her status as [an Insured
Person]." K&K 56.1 Stmt. ¶ 7; Policy, Inv.
Advisers Mgmt. Liab. Coverage Part § 11(F)(1), (2).
Policy states that "[i]t shall be the duty of the
Insured to defend any Claim under this Policy." K&K
56.1 Stmt. ¶ 8; Policy, Gen. Terms & Conditions
§ 11(B)(1). Further, "No Insured may incur any
Defense Expenses or admit any liability for, make any
settlement offer with respect to, or settle any Claim without
the Insurer's consent, such consent not to be
unreasonably withheld." K&K 56.1 Stmt. ¶ 9;
Policy, Gen. Terms & Conditions § 11(B)(2). "As
a condition precedent to any right to payment under this
Policy, the Insured shall give written notice to the Insurer
of any Claim as soon as practicable after it is first
made." Id. § 11(C)(1).
Policy excludes Loss in connection with any Claim that was
"brought about or contributed to in fact by any: (1)
intentionally dishonest, fraudulent or criminal act or
omission or any willful violation of any statute, rule or
law; or (2) profit or remuneration gained by any Insured to
which Insured is not legally entitled." Id.
§ III(A). Once the limit of liability is reached,
"all obligations of the Insurer under this Policy will
be completely fulfilled and exhausted, and the Insurer will
have no further obligations of any kind whatsoever under this
Policy." Id. § II(J).
The Knox Action
2012, Knox and DJW filed a complaint against Capital L,
Lakian, Lamm, and JRL Investment Group, Inc. (not a party
here) (the "Knox Action"). K&K 56.1 Stmt.
¶ 13; see Knox LLC, et al. v. Capital L Group, LLC,
etal., No. 651880/2012 (N.Y. Sup. Ct). The complaint
included allegations that Lakian and Lamm fraudulently
induced Knox and DJW to invest over $2 million in Capital L
and that they breached their fiduciary duties by misusing the
investments for personal benefit. Knox 56.1 Stmt. ¶ 4,
ECF No. 144. Lakian and Lamm initially retained Kobre &
Kim to defend them. Compl. ¶ 39, ECF No. 2. When Kobre
& Kim withdrew, Lakian hired Eiseman, and Lamm hired
Brief Carmen. Id. ¶ 41. The Knox Action
constitutes a "Claim" under the Policy, K&K
56.1 Stmt. ¶ 19, and on June 20, 2012, XL acknowledged
coverage under the Policy for Lakian and Lamm. Knox 56.1
Stmt. ¶ 5; Compl. ¶38.
being served with a copy of the complaint and, later, an
amended complaint, Capital L failed to appear in the Knox
Action. K&K 56.1 Stmt. ¶¶ 14-16. On January 3,
2013, XL's counsel sent a letter (the "January 2013
Letter") to Capital L's insurance broker that
acknowledged that Knox and DJW had filed a motion for default
judgment against Capital L, noted that Capital L had a duty
to defend under the Policy, and requested information as to
whom to contact at Capital L. Knox 56.1 Stmt. ¶ 8;
Halpern Aff. Ex. F at 4, ECF No. 148-7. Knox and DJW's
motion for a default judgment against Capital L was granted
in July 2013. K&K 56.1 Stmt. ¶ 17; Knox,
No. 651880/2012, Doc. No. 63 (N.Y. Sup. Ct. July 23, 2013).
Default judgments against Capital L in favor of Knox and DJW
totaling over $2.5 million were filed in the New York County
Clerk's Office in March 2014. K&K 56.1 Stmt. ¶
18; Knox 56.1 Stmt. ¶ 11.
and Lamm were charged, in February 2015, in a five-count
criminal indictment that alleged conspiracy to commit
securities fraud, wire fraud, and bank fraud, and two counts
of securities fraud. Knox 56.1 Stmt. ¶¶ 18-19.
Lakian and Lamm pled guilty to the two securities fraud
counts in February 2016. Knox 56.1 Stmt. ¶ 20; Halpern
Aff. Exs. M, N.
parties disagree about whether (1) XL acknowledged coverage
under the Policy for Capital L, (2) Capital L sought or
obtained XL's consent before defaulting, and (3) XL was
ever served with a copy of the default judgment against
Capital L. K&K 56.1 Stmt. ¶¶ 20-22; Knox Resp.
to K&K 56.1 Stmt. ¶¶ 20-22 (denying all three
paragraphs); Pangea Resp. to K&K 56.1 Stmt. ¶¶
20-22 (admitting all three paragraphs).
The Branigan Action
addition to his role as a member of Capital L's Board of
Managers, Lakian served as a managing member of Pangea from
approximately 2009 to 2011. K&K 56.1 Stmt. ¶ 23. In
June 2012, Pangea and one of Pangea's managing members,
Mark Branigan, filed a complaint against Lakian and Lamm,
among others, in New York State Supreme Court (the
"Branigan Action"). K&K 56.1 Stmt. ¶ 24;
see Spatola Decl. Ex. 3 ("Branigan
CompL"), ECF No. 142-3. The allegations in the Branigan
Action "concern[ed] the fiduciary obligations owed by
the managers of Pangea to each other, and to Pangea, itself,
and Lakian's abuse of that position of trust to
perpetrate a fraud upon Branigan, Pangea, and its investors,
" with the assistance of Lamm. K&K 56.1 Stmt. ¶
25 (internal quotation marks omitted); Branigan Compl. ¶
10. The Branigan Action plaintiffs alleged that Lakian and
Lamm fraudulently induced them into making investments in
Capital L and then misused those investments. Compl. ¶
26. XL has confirmed its obligation to cover Lamm in
connection with the Branigan Action, but has denied coverage
to Lakian. See Compl. ¶ 31-32; K&K 56.1
Stmt. ¶ 27. The parties agreed to resolve the Branigan
Action by arbitration. K&K56.1 Stmt. ¶ 28. The
arbitration statement of claim was filed in November 2012,
and included the same causes of action as the state court
complaint and additional causes of action arising out of the
same underlying conduct. K&K 56.1 Stmt. ¶¶ 29,
30. On February 2, 2016, Pangea obtained an award (the
"Arbitration Award") against Lakian on its claims
for fraud, breach of fiduciary duty, and a violation of RICO.
K&K 56.1 Stmt. ¶ 32. On November 22, 2016,
subsequent to the filing of the present motions, the
Arbitration Award was reduced to a judgment, and the
Honorable Lewis A. Kaplan entered a judgment (the
"Arbitration Judgment") of over $14 million against
Lakian. K&K 56.1 Stmt. ¶ 34; Letter from Pangea, ECF
No. 170; Pangea Capital Management, LLC v. Lakian,
No. 16 Civ. 840, ECF No. 87. The action against Lamm was
stayed due to Lamm's filing of Chapter 7 bankruptcy in
September 2014. Pangea 56.1 Stmt. ¶ 17, ECF No. 146.
parties disagree on whether the Branigan Action, the
arbitration, the Arbitration Award, and the Arbitration
Judgment arose solely out of Lakian's status as a member
of Capital L's Board of Managers, or whether they arose,
at least in part, out of his status as a managing member of
Pangea. K&K 56.1 Stmt. ¶¶ 26, 31, 33; Knox
Resp. to K&K 56.1 Stmt. ¶¶ 26, 31, 33
(admitting all three paragraphs); Pangea Resp. to K&K
56.1 Stmt. ¶¶ 26, 31, 33 (denying all three
paragraphs). If the award did not arise solely out of
Lakian's status as a member of Capital L's Board of
Managers, it may not be covered by the Policy. See
Policy, Inv. Advisers Mgmt. Liab. Coverage Part §
2(F)(1) (limiting coverage of a "Wrongful Act" for
"Insured Persons" to acts "solely by reason of
his or her status as [an Insured Person]").
SUMMARY JUDGMENT STANDARD
judgment shall be granted if "the movant shows that
there is no genuine dispute as to any material fact and that
the movant is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(a). A dispute of fact is genuine if "the
evidence is such that a reasonable jury could return a
verdict for the nonmoving party." Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is
material if it "might affect the outcome of the suit
under the governing law." Id.; see also Roe v. City
of Waterbury, 542 F.3d 31, 35 (2d Cir. 2008).
"Where the record taken as a whole could not lead a
rational trier of fact to find for the non-moving party,
there is no 'genuine issue for trial.'"
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986). In determining whether
there are genuine disputes of material fact, the Court
"must 'resolve all ambiguities, and credit all
factual inferences that could rationally be drawn, in favor
of the party opposing summary judgment.'"
Roe, 542 F.3d at 35 (quoting Brown v.
Henderson, 257 F.3d 246, 251 (2d Cir. 2001)). "In
an interpleader action, each claimant has the burden of
establishing her right to the property by a preponderance of
the evidence, and although certain claims may be disposed of
by summary judgment, that does not automatically entitle the
remaining defendants to the funds." McEnery v.
Gallagher, No. 93 Civ. 5795, 1996 WL 457297, at *3
(S.D.N.Y. Aug. 14, 1996) (citing Midland Ins. Co. v.
Friedgood, 577 F.Supp. 1407, 1410 (S.D.N.Y. 1984)).