Genesis Merchant Partners, L.P., et al., Plaintiffs-Respondents,
Gilbride, Tusa, Last & Spellane, LLC, et al., Defendants-Appellants.
Elser Moskowitz Edelman & Dicker LLP, New York (Judy C.
Selmeci of counsel), for appellants.
Office of Wallace Neel, P.C., New York (Wallace Neel of
counsel), for respondents.
Richter, J.P., Kapnick, Webber, Oing, Singh, JJ.
Supreme Court, New York County (Nancy M. Bannon, J.), entered
March 2, 2017, which granted plaintiffs' motion for
summary judgment on the issue of liability for legal
malpractice and for summary judgment dismissing the
counterclaims, unanimously reversed, on the law, without
costs, and the motion denied.
issue on this appeal is whether plaintiffs Genesis Merchant
Partners, L.P. and Genesis Merchant Partners II, L.P.
(collectively, Genesis) are entitled to summary judgment on
liability in this legal malpractice action premised the
failure of defendant Gilbride, Tusa, Last & Spellane,
LLC, and defendant attorneys in that firm, Jonathan M. Wells,
Kenneth M. Gammill, Jr., and Charles S. Tusa (collectively,
Gilbride) to perfect security interests in life insurance
policies. Because issues of fact exist, Supreme Court erred
in granting Genesis summary judgment.
plaintiffs are related venture capital firms. Between 2008
and 2011, Genesis agreed to make four secured loans totaling
$4.425 million to nonparty Progressive Capital Solutions LLC
(Progressive) to finance Progressive's purchase of
several portfolios of life insurance policies. The loans were
to be secured, in part, by the insurance policies themselves.
Portions of the loan proceeds were to be used to buy life
insurance policies to collateralize the loans.
2008, Genesis retained Gilbride to represent it in connection
with the first of the loans, which Progressive repaid.
Gilbride also represented Genesis in connection with three
additional loans, issued on December 22, 2008, July 31, 2009,
and February 3, 2011 (respectively, the second, third and
undisputed that Gilbride drafted the loan documents,
including the Collateral Assignment of Contracts and the
UCC-1 financing statements for each loan. Gilbride filed a
UCC-1 financing statement on May 27, 2008, for the first
loan, listing Progressive as the Debtor and Genesis as the
Secured Party and broadly declaring a security interest in
all of Progressive's assets. The UCC-1 financing
statements for the second, third and fourth loans, also filed
by Gilbride, contained similar declarations. However, the
UCC-1 financing statement for the fourth loan also listed,
for the first time, the policy numbers of each insurer for
seventeen life insurance policies pledged as additional
defaulted on the latter three loans. Genesis brought a
lawsuit against Progressive in Connecticut. The parties
entered into a settlement that imposed additional performance
and payment obligations upon Progressive. Progressive
defaulted on the settlement. Thereafter, Genesis contacted
the underwriting insurers to collect on the life insurance
policies. The underwriters refused to give Genesis any
information or proceeds in connection with the insurance
policies because they had no record of the collateral
assignments to Genesis.
commenced this action, alleging that Gilbride committed legal
malpractice by failing to perfect Genesis's security
interests in the life insurance policies that served as
collateral on the second, third and fourth loans, resulting
in the loss of millions of dollars on life insurance policies
valued at more than $84 million. Gilbride denied committing
legal malpractice and counterclaimed for $112, 000 in unpaid
attorneys' fees on the theories of quantum meruit and
crux of the factual dispute is whether Gilbride had a duty to
perfect Genesis's security interests in the collateral.
Genesis alleges that Gilbride was retained to advise it on
the loans, including drafting the loan documents and ensuring
that Genesis's security interests in the collateral were
secured and perfected under applicable law. Gilbride
maintains that it was retained only to draft the loan
documents and that this limited representation was at the
express instruction of Genesis.
9 of the UCC regulates security interests to personal
property, permitting creditors to protect their interest in
collateral held by debtors or third parties (Badillo v
Tower Ins. Co. of N.Y., 92 N.Y.2d 790, 794 ).
However, article 9 "does not apply to...a transfer of an
interest in or assignment of a claim under a policy of
insurance" (UCC 9-109[d]).
security interest in the proceeds of an insurance policy may
be created by possession of the policy (Matter of
Bickford's Estate, 265 App Div. 266, 268 [3d Dept
1942]; Cornell v Cornell, 54 N.Y.S.2d 434, 435-436
[Sup Ct, NY County 1945], affd 269 App Div. 931 [1st
Dept 1945]). Alternatively, a creditor may obtain collateral
assignment of the policies. This process entails obtaining
signed documents that assign the benefits to the creditor -
in this case, Genesis - and then filing them with the
carriers for the insurance policies. Here, it is undisputed
that the security interests in the life insurance policies
were not perfected.
Court granted Genesis summary judgment, rejecting
Gilbride's contention that perfecting the security
interests was outside the scope of its representation. The
court held - on a theory not raised by the parties in the
briefing below - that even if Gilbride ultimately established
that the scope of representation was limited at Genesis's
instructions, Gilbride "voluntarily assumed the
obligation to perfect the security interests, " by
filing the UCC-1 financing statements and billing Genesis for
that work, and that Gilbride negligently discharged that