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Ironshore Indem., Inc. v. Synergy Law Group, LLC

United States District Court, N.D. Illinois, Eastern Division

February 25, 2013

IRONSHORE INDEMNITY, INC. and Ironshore Specialty Insurance Company, Plaintiffs,
v.
SYNERGY LAW GROUP, LLC and Bartley J. Loethen, Defendants.

Page 1006

Paul Francis Matousek, Tiffany Suzan Saltzman-Jones, Walker Wilcox Matousek LLP, Chicago, IL, for Plaintiffs.

David Scott Klevatt, Alexis Ann Bettis, Klevatt & Associates, Chicago, IL, for Defendants.

Page 1007

MEMORANDUM OPINION AND ORDER

VIRGINIA M. KENDALL, District Judge.

Plaintiffs Ironshore Indemnity, Inc. and Ironshore Specialty Insurance Company (collectively " Ironshore" ) filed suit against Synergy Law Group, LLC and Bartley J. Loethen seeking a declaratory judgment that Ironshore is not required to defend or indemnify Defendants under two insurance policies. In February of 2012, Defendants moved to dismiss, arguing that Ironshore's Complaint in federal court should be dismissed under the " first to file" rule in light of a Third-Party Complaint previously filed by Defendants against Ironshore in an ongoing state court action. On May 30, 2012, the Court denied Defendants' Motion to Dismiss without prejudice, but stayed this action pending resolution of Ironshore's Motion to Sever or Dismiss the Third Party Complaint in State Court. The Circuit Court of Cook County has since denied Ironshore's Motion to Sever and has scheduled a hearing on Ironshore's Motion to Dismiss for January of 2013. Based on these developments, this Court lifted its stay in this case on December 17, 2012 in order to determine whether the Court should dismiss this action in favor of the ongoing state court case under the Colorado River doctrine. For the reasons stated herein, Ironshore's Complaint for declaratory relief is dismissed.

BACKGROUND

I. The Underlying Actions

In 2006, Synergy drafted a Shareholders' Agreement for one of its former client's, Gaston Advertising, Inc. In 2008, Rena Zito, a shareholder holding 20 percent of Gaston stock, sued Gaston in the Circuit Court of Cook County claiming that she was owed over $1 million under the terms of the Shareholders' Agreement (the " Zito I Lawsuit" ). Gaston retained Synergy to defend it in the Zito I Lawsuit and Synergy appeared on behalf of Gaston in October of 2008. Zito moved for summary judgment in February of 2010.

On March 26, 2010, Synergy applied for lawyers' professional liability insurance with Ironshore. As part of the application for insurance, Synergy responded " No" to the question " Are you or any members of [sic] employees of your firm aware of any fact, circumstance, or situation which might reasonably be expected to give rise to a claim?" ( Id. ¶ 27.) The application also gave the following warning: " You must report any known claim, suit, or incident, act or omission that may in the future give rise to a claim or suit, to your current professional liability insurer before the claims-reporting period under that policy expires." ( Id. ¶ 28.) In reliance on Synergy's application, Ironshore issued the first of the two policies to Synergy with a policy period from May 1, 2010 to May 1, 2011 (the " First Policy Period" ). ( Id. ¶¶ 30-32.) The policy provided coverage for claims first made and reported to Ironshore during the First Policy Period. ( Id. ¶ 33.) The policy also provided:

The insurer shall not be liable to make any payments in connection with any Claim made against any Insured: ... alleging, arising out of, based upon or attributable to Professional Legal Services if an Insured, prior to the effective date of the first Lawyers Professional Liability Policy issued by the Insurer to the Insured, had knowledge of the circumstances that gave rise to the Claim and reason to believe that a Claim might result.

( Id. ¶ 35.)

On August 9, 2010, the State Court granted summary judgment against Gaston in the Zito I Lawsuit finding Gaston

Page 1008

liable on the option to purchase shares at a price per share based on the equation contained in the Shareholders' Agreement. ( Id. ¶ 24.) The court further stated in its Order that it " would be hard pressed to find [Gaston] exercised reasonable care when it erred either by drafting the Shareholder's [sic] Agreement to result in a per-share calculation or in calculating the value owed if it exercised its option to purchase [Zito's] shares." ( Id. ¶ 25.) On September 13, 2010, the court entered a judgment in favor of Zito and against Gaston in the amount of $1,267,090. ( Id. ¶ 26.)

On January 5, 2011, Synergy provided a memorandum, drafted by Loethen, to notify Ironshore of a potential claim by Gaston against Synergy for malpractice (the " Synergy Memorandum" ) ( Id. ¶ 46.) In that memorandum, Loethen explained the nature of the Gaston situation, describing the professional services provided by Defendants to Gaston from 2006 to 2010, including but not limited to the Shareholders' Agreement, Gaston's attempt to repurchase Zito's shares with Defendants' assistance, Synergy's subsequent involvement with Gaston, and the resulting Zito I Lawsuit. ( Id. ¶ 47.) On January 28, 2011, Ironshore acknowledged receipt of the Synergy Memorandum and hired counsel to represent Synergy, consistent with its duty to defend, and subject to a full reservation of rights. ( Id. ¶¶ 48-49.) On April 21, 2011, Ironshore issued a letter to Synergy stating that it had no duty to defend or indemnity Synergy in connection with the potential claim by Gaston because Synergy was aware, no later than October of 2008 when the Zito I Lawsuit was filed, of the circumstances surrounding the Gaston situation and that those circumstances might give rise to a claim. ( Id. ¶ 50.) Ironshore also advised Synergy that Ironshore was " prepared to file a declaratory judgment action immediately," but that the policy contained a " Dispute ...


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