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Attorneys Liability Protection Society, Inc. v. Wynne

United States District Court, Ninth Circuit

August 30, 2013

Attorneys Liability Protection Society, Inc., Plaintiff,
Mary Wynne, et al., Defendants.


STEPHEN M. McNAMEE, District Judge.

Before the court is Plaintiff's Motion for Summary Judgment or, in the Alternative, Default Judgment. (Doc. 29.) Defendants Mary Wynne and Daniel Gargan have not responded to the motion, and the deadline for them to do so has passed, making the matter fully briefed. After consideration, the Court will grant the motion for default judgment.


Plaintiff is Attorneys Liability Protection Society, Inc., a provider of professional liability insurance. Plaintiff brought this action against Mary Wynne, d/b/a Wynne Law Firm, and Wynne's husband Daniel Gargan (collectively "Defendants").

I. The Underlying Lawsuits

Wynne was a licensed attorney in the states of North Dakota, South Dakota, and Washington during the time period relevant to this suit, and represented Ms. Sandra Evans in probate proceedings related to the death of Ms. Evans' father William Wapato Evans in 2003. These probate proceedings involved Ms. Evans' dispute with her three nephews regarding the division of William Wapato Evans' property, including interests in federal Indian trust real property, specifically his 100% interest in the Moses Allotment No. 10 ("MA-10"). These probate issues were resolved by a settlement agreement in 2005, whereby Ms. Evans was to receive a 100% interest in William Wapato Evans' interest in MA-10, and for a period of five years loan 35% of her annual MA-10 income to her nephews through their company, Wapato Heritage, LLC. The settlement agreement was approved by November, 2005.

Some time prior to December 17, 2005, Ms. Evans retained Defendant Gargan to provide services as a financial advisor, and executed a power of attorney granting Gargan authority to act on her behalf with respect to financial matters. In April of 2006, Gargan instructed the Bureau of Indian Affairs to transfer Evans' MA-10 income from her Individual Indian Money account to a business account in the name of Wynne Law Firm at a Wells Fargo Bank branch in Mission, South Dakota. Both Wynne and Gargan had signatory authority over this account. Between April 2006 and August 2007, $1, 259, 255.56 of Evans' income was transferred from her Individual Indian Money account to the Wells Fargo Account.

Neither Wynne nor Gargan took any steps to ensure that the required 35% of the WA-10 income was paid to Wapato Heritage. Instead, between April 2006 and August 2007, Gargan paid Evans an allowance of $340, 000, paid himself a salary of $225, 000, paid for half of the expenses for his and Wynne's residence in Chandler, Arizona, and paid the Wynne Law Firm $75, 000. In October of 2007, Wapato Heritage and Ms. Evans' nephews filed a lawsuit ("the MA-10 lawsuit") against Evans for her failure to loan the required 35% of the MA-10 income to Wapato Heritage pursuant to the settlement agreement.

Later that same month, First Phoenix International, Inc. was incorporated by Evans, Wynne, and Gargan as a "development company." In October of 2008, Wynne entered appearance on behalf of Ms. Evans in the MA-10 lawsuit. In correspondence dated that same day, attorney R. Bruce Johnston, counsel for the nephews and Wapato Heritage, requested that Wynne withdraw her appearance in the MA-10 lawsuit, in part due to Wynne's conflict of interest in representing Evans because Evans had potential claims against Wynne associated with the improper use of moneys from the MA-10 account by Wynne and Gargan.

On November 13, 2008, Wynne submitted an application for professional liability insurance to Plaintiff. Wynne's application did not disclose any information regarding Johnston's assertions in the October, 2008 letter that Evans may have had claims against Wynne arising out of her representation of Evans in executing the probate settlement.

In December of 2008, attorney Leslie Weatherhead of the firm Witherspoon, Kelley, Davenport & Toole, P.S. ("Witherspoon Kelley") entered an appearance on behalf of Evans in the MA-10 lawsuit. In a January 2009 letter addressed to Evans and copied to Wynne, Witherspoon Kelley agreed to represent Evans with respect to matters related to the MA-10 lawsuit, but explicitly excluded from the scope of its representation any possible claims Evans may have had against Wynne. The letter specifically referenced Johnston's repeated suggestions that Evans may have had claims against Wynne and/or Gargan.

In October of 2009, Wapato Heritage and Evans' nephews filed a motion to disqualify Wynne as counsel for Evans in the MA-10 lawsuit, asserting that she had irreconcilable conflicts of interest with Evans and had committed unethical acts. The court granted the motion to disqualify Wynne in part.

Wynne subsequently submitted a Solo Renewal Application to Plaintiff for renewal of her professional liability insurance in December of 2009. In her application and supplementary information, she stated that she had "received no notification of any potential claims against me or the Firm for acts or failures to act in my professional capacity as an attorney, during the year 2009 or in any prior year when I have practiced law." (Doc. 21 ΒΆ 39.) Two days later, Wynne submitted to Plaintiff two separate faxes containing additional information, which finally revealed the potential that she may have been liable to Wapato Heritage and Evans' nephews due to her management of the Wells Fargo account, though Wynne did not mention the assertions that she had engaged in unethical conduct, nor did she disclose the Johnston letter or the Witherspoon Kelley letter. Plaintiff thereupon issued a renewal of Wynne's insurance policy, albeit with a revised quote, based on the information contained in her renewal application and the supplemental information she provided.

On February 19, 2010, the Blackstone Corporation, a wholly owned subsidiary of Witherspoon Kelley, filed suit ("the Blackstone suit") against Evans for attorneys' fees and costs incurred on her behalf in the MA-10 lawsuit. Evans responded by filing a third-party complaint against attorney Weatherhead and the firm of Witherspoon Kelley. Weatherhead and Witherspoon Kelley then filed a fourth-party complaint against Wynne and Gargan, seeking contribution and/or apportionment based on Wynne's representation of Evans in the MA-10 lawsuit and Gargan's provision of financial advice to Evans. Evans thereafter amended her third-party complaint to add claims against Wynne and Gargan alleging breaches of their duties to her in connection with both the MA-10 lawsuit and the management of the MA-10 funds.

At the same time, Wapato Heritage served Wynne with a summons and copy of a complaint in a separate suit ("the Wapato Heritage suit"). The Wapato Heritage suit asserted claims for conversion, unjust enrichment, constructive trust, and legal malpractice based on Wynne's representation of Evans, and Gargan's provision of financial advice to Evans. Thus, the claims asserted against Defendants in both of the underlying suits (the Blackstone suit and the Wapato Heritage suit) relate only to the disposition of Evans' MA-10 income and the exclusive control Wynne and Gargan exercised over those funds, and these suits sought the return of such funds.

Plaintiff accepted Wynne's tender of the defense of both lawsuits, subject to a complete reservation of its rights to deny coverage and seek reimbursement of amounts paid in defense of non-covered claims. Plaintiff also accepted the defense of Gargan in the underlying suits subject to the same complete reservation of rights. Plaintiff eventually paid $194, 503.38 in attorneys' fees and costs in defense of Wynne and Gargan against the underlying suits, up until the point at which defense ...

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