Case l:09-cv-00088-SM Document 22 Filed 05/24/10 Page 1 of 13

UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Northeast Credit Union, Plaintiff

v. Civil No. 09-cv-88-SM Opinion No. 2 010 DNH 08 9 CUMIS Insurance Society, Inc., Defendant

O R D E R

In an action removed from the New Hampshire Superior Court,

Northeast Credit Union ("Northeast") seeks a declaratory

judgment, pursuant to N.H. R e v . S t a t . A n n . § 491:22, that it is

entitled to coverage under a Credit Union Bond ("Bond") issued by

CUMIS Insurance Society, Inc. ("CUMIS"). Before the court is

defendant's motion for summary judgment. Plaintiff objects. For

the reasons given, defendant's motion for summary judgment is

granted.

Summary Judgment Standard

A summary judgment motion should be granted when the record

reveals "no genuine issue as to any material fact and . . . the

moving party is entitled to a judgment as a matter of law." Fe d .

R. Civ. P. 56(c). "The object of summary judgment is to 'pierce

the boilerplate of the pleadings and assay the parties' proof in

order to determine whether trial is actually required.' " Davila Case l:09-cv-00088-SM Document 22 Filed 05/24/10 Page 2 of 13

v. Corporacion de P.R. para la Diffusion Publica,

(1st Cir. 2007) (quoting Acosta v. Ames Dep't Stores, Inc.,

(1st Cir. 2004)). When ruling on a party's motion for

summary judgment, a trial court "constru[es] the record in the

light most favorable to the nonmovant and resolv[es] all

reasonable inferences in [that] party's favor." Meuser v. Fed.

Express Corp,

(1st Cir. 2009) (citing Rochester

Ford Sales, Inc. v. Ford Motor Co.,

(1st Cir.

2002 ) ) .

Background

In August, 2007, Northeast retained Warranty Title Company,

Inc. ("Warranty Title") to provide various services in connection

with a real-estate closing for two of its members, Lenare and

King Sanborn, who were refinancing their mortgage. Warranty

Title was owned and operated by its President and General

Counsel, Robert Steuk, who at the time was a member of the New

Hampshire bar. (Steuk has since been disbarred in New

Hampshire.)

In preparation for the Sanborn closing. Northeast wired

$188,000 to Warranty Title and, in turn. Warranty Title issued

three post-closing checks to Northeast. When Northeast presented

those checks for payment, all three were returned for

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insufficient funds. Northeast attempted to recoup its losses by

making a claim on the Bond covering losses occasioned by acts of

dishonesty by its directors and employees. CUMIS denied

coverage.

Northeast made its claim under that section of the Bond

issued by CUMIS providing coverage for "loss[es] resulting

directly from dishonest acts committed by an 'employee . . . "

(Def.'s Mot. Summ. J., Ex. A, at 12.) The Bond contains an

extensive definition of the term "employee," including the

following provision, on which Northeast based its claim: "For

Employee Or Director Dishonesty Coverage only, 'employee' also

means . . . [r]etained attorneys and their staff only while

performing legal services for y o u ." (I d . at 31 (emphasis

added) .)

Discussion

Northeast petitions for a declaratory judgment that it is

entitled to coverage under the Bond for losses resulting from

Warranty Title's misappropriation of the escrowed funds it should

have disbursed back to Northeast in connection with the Sanborn

refinancing. CUMIS moves for summary judgment, arguing that

under the definition in the Bond, Warranty Title was not

Northeast's employee.

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The parties agree that Northeast's entitlement to coverage

turns on a single question: Whether Warranty Title was

Northeast's employee when it misappropriated funds intended for

the Sanborn closing? CUMIS argues that Warranty Title acted as

Northeast's escrow agent rather than as retained attorney, and

that Warranty Title was not providing legal services when it

misappropriated the escrowed funds.

Northeast counters that: (1) Warranty Title's president was

an attorney, and it promoted its employees as being experienced

in providing legal services; (2) the company provided Northeast

with legal services in the form of real-estate closings,

including the preparation of legal documents; and (3) the

dishonest act in this case took place in connection with a real-

estate closing. Northeast also argues that CUMIS' definition of

the term "legal services," is overly restrictive, and that CUMIS

incorrectly attempts to compartmentalize the services Warranty

Title provided. In Northeast's view, "[t]he receipt and

distribution of funds is part and parcel" of the full panoply of

closing-related legal services it received from Warranty Title.

Northeast's fallback position is that the relevant policy

language is ambiguous and should be construed in its favor.

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Because there is no factual dispute about what Warranty

Title did, this case presents a question of law: Whether the term

"legal services" encompasses the services Warranty Title was

providing Northeast when it committed the dishonest acts that

resulted in is loss?

In New Hampshire, "[t]he interpretation of insurance policy

language is a question of law." Colony Ins. Co. v. Dover Indoor

Climbing Gvm,

(2009) (citing Godbout v. Lloyd's

Ins. Syndicates,

(2003)). Courts "construe the

language of an insurance policy as would a reasonable person in

the position of the insured based upon a more than casual reading

of the policy as a whole." I d . (citation omitted). "Policy

terms are construed objectively, and where the terms of a policy

are clear and unambiguous, [courts] accord the language its

natural and ordinary meaning." I d . (citation omitted).

"[A]bsent ambiguity, [the court's] search for the parties' intent

is limited to the words of the policy." I d . (citation omitted).

Regarding ambiguity. The New Hampshire Supreme Court has

explained:

Ambiguity exists if "reasonable disagreement between contracting parties" leads to at least two interpretations of the language. Int'l Surplus Lines Ins. Co. v. Mfqs. & Merchants M u t . Ins. Co.,

(1995); Trombly v. Blue Cross/Blue Shield, 120

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, 771 (1980). In determining whether an ambiguity exists, we will look to the claimed ambiguity, consider it in its appropriate context, and construe the words used according to their plain, ordinary, and popular definitions. Int'1 Surplus,

. If one of the reasonable meanings of the language favors the policyholder, the ambiguity will be construed against the insurer. I d . Where, however, the policy language is clear, this court "will not perform amazing feats of linguistic gymnastics to find a purported ambiguity" simply to construe the policy against the insurer and create coverage where it is clear that none was intended. Hudson v. Farm Family M u t . Ins. C o .,

(1997); Curtis [v . Guaranty Trust Life Ins. C o .1, 132 N.H. [337,] 342 [(1989)].

Colony Insurance,

(parallel citations

omitted).

Here, the court must interpret the phrase "[r]etained

attorneys and their staff only while performing legal services

for you," and, in particular, the term "legal services." As a

starting point, the term "legal services" cannot be construed to

cover anything and everything a retained attorney might do. If

the term were so defined, the limitation "only while performing

legal services" would impose no limitation at all. See

Commercial Union Assur. Co. v. Brown Co.,

(1980) (interpreting clause in insurance policy in manner that

gave "meaning and effect to all the language in that clause").

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Under the natural and ordinary meaning of the words used in

the Bond, a retained attorney performing services that are not

"legal services" is not an employee. Moreover, the fact that

(former) Attorney Steuk and/or Warranty Title performed all the

services necessary to an effective real-estate closing for the

Sanborns does not transform every service Warranty Title provided

into a "legal service." Northeast is incorrect, then, in

suggesting that Warranty Titles's services should not be

compartmentalized. To the contrary, those services must be

identified and considered separately, because, under the Bond,

Warranty Title was Northeast's employee only to the extent it was

performing "legal services."

CUMIS points out, correctly, that the policy does not

specifically define "legal services." The plain meaning of that

term, however, is not difficult to discern. Legal services are

services that require legal training or experience, and in most

cases, licensure. Northeast appears to argue that real-estate

closing services, as a whole, are legal services, but that

position is incorrect; many of the services a company like

Warranty Title provides in connection with real-estate closings

can be performed without legal training or experience or pursuant

to a license to practice law. Because Northeast argues that

real-estate closing services, as a whole, are legal services, it

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avoids the real issue, which is whether Warranty Title's services

as an escrow agent fall into the category of legal services

performed by "retained attorneys and their staff" for Northeast.

Many courts have recognized the distinction between legal

services and services provided by an escrow agent. See, e.g.,

Robertson v. ADJ P'ship, Ltd., 204 S.W.Sd 484, 491 (Tex. A p p .

2006) (distinguishing between the fiduciary duties owed by a

person providing legal services and the fiduciary duties owed by

a person acting as an escrow agent); McEvov v. Helikson,

(Or. 1977) (distinguishing between "negligence of an

attorney in the performance of duties as an attorney and of a

legal nature" and "negligence of an attorney in the performance

of . . . duties of a nonlegal nature . . . [in the nature of] an

escrow under which documents are to be held subject to release

only in strict accordance with escrow instruction and which may

be performed by an attorney"), superseded by rule on other

grounds, O r . R. C i v . P. 18A, as recognized in Moore v. Willis,

(Or. 1988); Kv. Bar Ass'n v. Craft,

(Ky. 2006) ("In fact. Craft never charged the defendants for any

of his legal services or actions as escrow agent.") (emphasis

added); Chao v. Johnston, Nos. l:06-CV-226 & l:06-CV-227,

, at *7 (E.D. Tenn. July 9, 2007) ("The complaints clearly

allege Johnston 'provided escrow and legal services to the Case l:09-cv-00088-SM Document 22 Filed 05/24/10 Page 9 of 13

Plans.' ") (emphasis added). Similarly, a comment published with

the New Hampshire Rules of Professional Conduct explains:

The obligations of a lawyer under this Rule [Safekeeping Property] are independent of those arising from activity other than rendering legal services. For example, a lawyer who serves only as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transaction and is not governed by this rule.

N.H. R. P r o f . C onduct 1.15, 2 0 04 ABA Model Code C m t . [5]; see also

In re Krause, 737 A . 2d 874, 877-78 (R.I. 1999) (holding that

attorney acting as escrow agent who took escrowed funds to

satisfy seller's unpaid legal bill violated "his fiduciary duty

as escrow agent").

It is well understood, moreover, that the services of an

escrow agent, even when that escrow agent is an attorney, are not

legal services. As the Ohio Court of Appeals explained:

[A]n escrow agreement contains certain conditions imposed by both parties which the escrow agent agrees to obey. The main function of an escrow agent is to hold documents and funds until the conditions of the purchase agreement are met whereupon the escrow agent releases the documents and funds. Thus, the escrow is a fiduciary agent for both parties to a purchase agreement.

By contrast, an attorney represents one party to a purchase agreement. An attorney owes a fiduciary relationship only to the party so represented. Thus, the inherent natures of the two positions, v i z ., attorney and escrow agent, are distinct and mutually exclusive.

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It remains for the trier of fact to determine which actions were legal services performed for Saad alone and which actions were purely escrow work performed for the benefit of both parties. Therefore, the court erred when it determined that any alleged misconduct on the part of Weinberger and the firm would constitute legal malpractice. Thus, summary judgment was improperly rendered.

Saad v. Rodriquez,

(Ohio C t . App. 1986)

(citations and footnote omitted). The California Court of

Appeals has written to similar effect:

Defendant's role as pledgeholder was separate and distinct from his role as attorney. In his role as pledgeholder, defendant acted simply as an escrow, holding shares of the corporation for the benefit of plaintiff until Keller had completed the payments due under the contract. One need not be an attorney to act as pledgeholder, and it is clear that one acting as a pledgeholder is not performing legal services.

Von Rott v. Johnson, 196 C a l . Rptr. 55, 58 (Cal. C t . App. 1983)

(citation omitted, emphasis added). In Lazzaro v. Kelly,

(N.Y. App. Div. 1982), in the context of resolving a

statute-of-limitations issue, the court held that an attorney

serving as an escrow agent did not have an attorney-client

relationship with the entity for which he provided escrow

services, i d . at 104; see also Int'l Strategies Group, Ltd. v.

Greenberg Traurig, LLP,

(1st Cir. 2007) (explaining

that when ISC executed a power of attorney to John Pappalardo

"authorizing him to transfer to an interest bearing escrow

account any funds belonging to ISG that he succeeded in

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recovering from Swan Trust" that "limited power of attorney did

not create an express attorney-client relationship," i d .

(citations omitted). Finally, in Harlandale Independent School

District v. Cornvn, 25 S.W.Sd 328 (Tex. App. 2000), the Texas

Court of appeals explained that " [a]ttorney-client privilege . .

. does not apply to communications between a client and an

attorney where the attorney is employed in a non-legal capacity,

for instance as an accountant, escrow agency, negotiator, or

notary public," i d . at 332 (citations omitted).

While the decisions cited above resolved a variety of legal

issues, all of them, in one way or another, affirm the

proposition that one acting as an escrow agent does not perform

legal services.1 Attorneys can and do provide a wide variety of

services to clients involved in real-estate closings. Some, but

not all of them are legal services. As used in the Bond, the

term "legal services" has a plain and ordinary meaning that does

not include the escrow services that resulted in Northeast's

1 Lapham v. Stewart,

(Idaho 2002), might appear to stand for the opposite proposition, i.e., that one acting as an escrow agent does perform legal services, but that case is materially distinguishable. Unlike Steuk, an attorney who owned and operated a company that handled real-estate closings, and not one alleged to have operated a legal practice, the attorney in Lapham "was not operating an escrow business separate from his legal practice," i d . at 403, but, rather, had been "engaged . . . as an attorney to provide professional services in connection with [a] proposed real estate loan," i d . (emphasis added).

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losses. Warranty Title's responsibility to collect, hold, and

properly disburse funds in connection with the Sanborn closing

constituted escrow, not legal, services. Finally, because the

policy language is clear, and Northeast has articulated no

reasonable basis for construing the term "legal services" to

include the services provided by an escrow agent, there is no

ambiguity in the policy language to construe in Northeast's

favor. See Colony Insurance,

.

In sum, CUMIS is entitled to judgment as a matter of law

that: (1) Warranty Title's dishonest act, its misappropriation of

escrowed funds, was not the act of retained attorneys and their

staff while performing legal services for Northeast; (2) Warranty

Title was not, therefore. Northeast's employee; and (3) Northeast

is not entitled to coverage under the Bond for Warranty Title's

misappropriation of funds.

Conclusion

For the reasons given, defendant's motion for summary

judgment (document no. 18) is granted. The clerk of the court

shall enter judgment in accordance with this order and close the

case.

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SO ORDERED.

/ceven j / McAuliffe hief Judae

May 24, 2010

cc: Russell F. Hilliard, Esq. Daniel E. Will, Esq. Lauren S. Irwin, Esq. Bradford R. Carver, Esq. Derek D. Lick, Esq. CharCretia V. Di Bartolo, Esq.

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