{ "id": 1916819, "name": "Jeffrey MORRIS, et al. v. VALLEY FORGE INSURANCE COMPANY", "name_abbreviation": "Morris v. Valley Forge Insurance", "decision_date": "1991-03-18", "docket_number": "90-185", "first_page": "25", "last_page": "32", "citations": [ { "type": "official", "cite": "305 Ark. 25" }, { "type": "parallel", "cite": "805 S.W.2d 948" } ], "court": { "name_abbreviation": "Ark.", "id": 8808, "name": "Arkansas Supreme Court" }, "jurisdiction": { "id": 34, "name_long": "Arkansas", "name": "Ark." }, "cites_to": [ { "cite": "268 Ark. 300", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1715331 ], "weight": 2, "year": 1980, "opinion_index": 0, "case_paths": [ "/ark/268/0300-01" ] }, { "cite": "345 N.W.2d 209", "category": "reporters:state_regional", "reporter": "N.W.2d", "case_ids": [ 10668989 ], "weight": 2, "year": 1984, "pin_cites": [ { "page": "213" } ], "opinion_index": 0, "case_paths": [ "/nw2d/345/0209-01" ] }, { "cite": "239 Ark. 400", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1730641 ], "weight": 2, "year": 1965, "opinion_index": 0, "case_paths": [ "/ark/239/0400-01" ] }, { "cite": "291 Ark. 473", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1872637 ], "weight": 2, "year": 1987, "pin_cites": [ { "parenthetical": "quoting Lane v. Rachel, 239 Ark. 400, 389 S.W.2d 621 (1965)" }, { "parenthetical": "quoting Lane v. Rachel, 239 Ark. 400, 389 S.W.2d 621 (1965)" } ], "opinion_index": 0, "case_paths": [ "/ark/291/0473-01" ] }, { "cite": "302 Ark. 175", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1884345 ], "weight": 2, "year": 1990, "opinion_index": 0, "case_paths": [ "/ark/302/0175-01" ] }, { "cite": "301 Ark. 139", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1885520 ], "weight": 2, "year": 1990, "opinion_index": 0, "case_paths": [ "/ark/301/0139-01" ] }, { "cite": "303 Ark. 74", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1882765 ], "weight": 3, "year": 1990, "opinion_index": 0, "case_paths": [ "/ark/303/0074-01" ] } ], "analysis": { "cardinality": 710, "char_count": 14304, "ocr_confidence": 0.908, "pagerank": { "raw": 2.393320363572425e-07, "percentile": 0.7981191181416368 }, "sha256": "a5626fc163b98f6cff3534546f52e182e2986bebf2a20fbe1a51d47e27f6fce3", "simhash": "1:1332c4e1c66bdeb4", "word_count": 2352 }, "last_updated": "2023-07-14T19:53:54.224345+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "Brown, J., not participating." ], "parties": [ "Jeffrey MORRIS, et al. v. VALLEY FORGE INSURANCE COMPANY" ], "opinions": [ { "text": "Jack Holt, Jr., Chief Justice.\nThis case concerns legal malpractice insurance coverage wherein the appellants, Jeffrey Morris and James Mays, appeal from a grant of summary judgment in favor of Mays\u2019 insurance carrier, the appellee, Valley Forge Insurance Company (Valley Forge). The trial court held that Mays\u2019 policy with Valley Forge afforded no coverage for a legal malpractice judgment obtained against him by Morris. Since we find remaining issues of material fact, we reverse the trial court\u2019s decision and remand the case for trial.\nMays was an attorney practicing in Little Rock who represented Morris in a divorce action. The two were also friends and business associates in various investment ventures. Mays sold a motel, owned by his company, the Mays-Connealy Corporation, to JWM Investment Enterprises, Inc. (JWM), a company owned by Morris. Mays did not inform Morris that the property was already encumbered by a substantial lien, nor did he provide clear title upon Morris\u2019 completion of purchase payments, as he had promised. The bank foreclosed on the motel, and Morris lost both the property and his investment.\nMorris brought suit in Pulaski County Circuit Court against Mays, individually and as a principal of the Mays-Connealy Corporation, alleging legal malpractice, fraud, and breach of contract. The claims against the corporation and all allegations of fraud and breach of contract were dropped during trial, however, and the case was submitted to the jury on the single issue of negligent malpractice against Mays. The jury returned a verdict in favor of Morris for the amount of his investment in the motel. Valley Forge provided a defense for Mays in that action, under a reservation of rights.\nFollowing judgment, Valley Forge filed an action for declaratory relief in Jefferson County Circuit Court, contending that the policy issued to Mays did not provide coverage for the judgment. Valley Forge then filed a motion for summary judgment, specifically alleging: 1) that Mays\u2019 acts and omissions resulting in the loss to Morris were not done in the performance of legal services, as required by the policy; 2) that even if legal services were rendered, coverage was excluded under the exception for \u201cany dishonest, fraudulent, criminal or malicious act or omission of the insured;\u201d 3) that Mays\u2019 acts fell within the exclusion for professional services rendered for a business owned by the insured; and 4) that Mays\u2019 acts fell within the exclusion for performance of professional services as an attorney and an officer, director, employee or trustee of a business.\nAfter consideration of the pleadings, to which portions of the testimony at the previous trial were attached, depositions, briefs, and oral arguments of counsel, the trial court granted the motion, holding that Mays\u2019 conduct \u201cdid not constitute performance of professional services as a lawyer\u201d and that such conduct \u201cfell within policy exclusions.\u201d\nWe agree with the appellants that the exclusions and policy provisions relied on by Valley Forge, and presumably upon which the trial court based its decision, involved questions of fact and summary judgment was improper.\nPERFORMANCE OF PROFESSIONAL SERVICES\nThe trial court first erred in finding, as a matter of law, that the motel transaction did not amount to professional services rendered by Mays as Morris\u2019 attorney.\nThe policy provided that Valley Forge agreed:\nTo pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages:\n1. arising from the performance of professional services for others in the insured\u2019s capacity as a lawyer, real estate title insurance agent or notary public because of an act or omission of the insured or of any other person or firm for whose act or omission the insured is legally responsible ....\nMorris contended throughout the trial that the motel transaction came about as the result of Mays\u2019 representation and advice during his divorce. Morris, who was living in Pine Bluff when the divorce proceedings first began, testified that Mays recommended he move to Little Rock so that Mays could better represent him. Also at Mays\u2019 suggestion, Morris formed a corporation, JWM, in an attempt to shield assets from his wife. The purchase of the motel was further recommended by Mays as a way to generate income and conserve assets.\nMays denied that the discussion concerning the sale of the motel occurred in any context other than between friends mutually interested in a business investment. Valley Forge further points to Morris\u2019 testimony where he conceded that he wasn\u2019t \u201crelying on Mays as his attorney\u201d when Mays drew up the papers for the sale. Valley Forge argues that a distinct line may be drawn between Mays\u2019 representation and advice in the context of Morris\u2019 divorce, and Mays\u2019 conduct in the actual property transaction. The line is a dubious one and, at best, presents a question of fact.\nSummary judgment, like a mistrial, is an extreme remedy and should only be granted if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Ark. R. Civ. P. 5(c); Guthrie v. Kemp, 303 Ark. 74, 793 S.W.2d 782 (1990). The burden of proving that there is no genuine issue of material fact is upon the movant, and all proof submitted must be viewed in a light most favorable to the party resisting the motion. Any doubts and inferences must be resolved against the moving party. Guthrie v. Kemp, supra.\nMorris repeatedly testified that he entered into the purchase on the direct advice of Mays in connection with his divorce. Such a relationship would impose a fiduciary duty on Mays to disclose the existence of the lien and to recommend to Morris that he seek independent counsel. See Model Rules of Professional Conduct 8.1 (1985). (The jury, at the trial on this matter, received instructions on negligent legal malpractice and obviously recognized the existence of the attorney-client relationship, and Mays\u2019 corresponding duties, since it rendered a verdict against him.)\nWe note that the trial court, in its order, stated that the facts concerning Mays\u2019 conduct were \u201cwell known as there [had] already been a full trial with regard to Mays\u2019 liability to Morris,\u201d and that the only remaining issues were whether those facts fell within policy coverage or exclusion. This finding is erroneous, however, since the established facts before the court were in dispute. Although our decision here may result in a retrial of essentially the same facts, the specific issues of policy coverage must be determined by a jury or trier of fact as the facts deciding those issues remain in conflict.\nDISHONEST OR FRAUDULENT ACTS EXCLUSION\nSummary judgment on the basis of the policy\u2019s exclusion for \u201cdishonest, fraudulent, criminal, or malicious\u201d acts or omissions was also improper.\nProof of fraud requires a showing of five elements: 1) a false representation of a material fact; 2) knowledge or belief on the part of the person making the representation that the representation is false; 3) an intent to induce the other party to act or refrain from acting in reliance on the misrepresentation; 4) a justifiable reliance by the other party; and 5) resulting damages. Brookside Village Mobile Homes v. Meyers, 301 Ark. 139, 782 S.W.2d 365 (1990).\nAgain, the testimony in the depositions and at trial creates factual questions as to whether Mays actually intended to defraud Morris and to induce his reliance on the acts and omissions at issue.\nThe facts not in dispute show that Morris\u2019 company, JWM, paid the Mays-Connealy Corporation $100,000 for a lease with an option to purchase the motel. The total purchase price was listed at $175,000. As stated earlier, Mays did not inform Morris of an approximate $80,000 lien on the property. Morris later exercised his option to purchase and paid, through JWM, $35,000 toward the purchase price. Upon Morris\u2019 discovery of the existence of the lien, Mays told Morris that if he would pay the balance of the purchase price ($40,000) he would deliver title. Morris paid the balance, but Mays never delivered title, and the bank foreclosed on the motel.\nWhat remains in dispute is whether Mays\u2019 failure to deliver clear title was fraudulent or dishonest. Mays\u2019 testimony at trial on this issue is sufficient to create a genuine issue of material fact. The following exchange occurred on direct examination:\nQ: What was your position in December of 1984, Jim, about whether your corporation was required to deliver a deed to Mr. Morris\u2019 corporation?\nA: It was my belief that, technically, it was not necessary to do so, but if he were to pay me his half of what we were losing in M & M that I\u2019d take that and pay off the mortgage that was there and deliver one to him.\nQ: In other words, if you received the money from the telethon, you would use it to extinguish the lien at Worthen.\nA: That\u2019s right.\nQ: And deliver the deed.\nA: That\u2019s correct.\n* * * *\nQ: Was there any time when you formed any intent not to pay off the mortgage at Worthen Bank and deliver a deed, if you had the money to do it.\nA: I always intended to do that.\n* * * *\nThis testimony, at the least, compels a consideration of appellants\u2019 argument that Mays never intended to permanently withhold delivery of title but, rather, hoped to pay off the lien from the profits of another investment thereby enabling him to give clear title. Any question of credibility is solely for the trier of fact to resolve. Weber v. Bailey, 302 Ark. 175, 787 S.W.2d 690 (1990).\nAs to Mays\u2019 failure to inform Morris of the lien, Mays testified that he thought no more about the lien than on any other occasion where he had rented out an apartment and there was a lease on the building. This precludes a determination that Mays possessed a fraudulent or dishonest intent as a matter of law. Furthermore, an attorney\u2019s failure to disclose the existence of a lien to his client, without proof of actual fraud or dishonesty, implicates only \u201cconstructive fraud.\u201d\nWe have defined constructive fraud as \u201cc breach of legal or equitable duty which, irrespective of the moral guilt of the fraud feasor, the law [declares] fraudulent because of its tendency to deceive others . . . Neither actual dishonesty of purpose nor intent to deceive is an essential element.\u201d (Emphasis added.) Davis v. Davis, 291 Ark. 473, 725 S.W.2d 845 (1987) (quoting Lane v. Rachel, 239 Ark. 400, 389 S.W.2d 621 (1965)). It has been held that policy exclusions for \u201cfraudulent acts\u201d should not include constructive fraud or acts or omissions which are deemed fraudulent only because they constitute a breach of fiduciary obligations. See R. Mallen and J. Smith, Legal Malpractice, \u00a7 28.19 (1989). See also Perl v. St. Paul Fire & Marine Ins. Co., 345 N.W.2d 209 (Minn. 1984) where the court held that an attorney\u2019s failure to inform his client of his business relationship with an insurance adjuster, with whom he was negotiating on the client\u2019s behalf, constituted only constructive fraud, thus making the policy\u2019s fraud exclusion inapplicable. \u201cSince much of an attorney\u2019s practice involves fiduciary duties, to exclude such conduct from an attorney\u2019s liability policy would eviscerate the policy coverage.\u201d Id. at 213.\nSurely Valley Forge did not intend to exclude coverage for a breach of fiduciary duty without a showing of intentional wrongdoing, which, as we stated, presents a factual issue.\nBUSINESS EXCEPTIONS\nLastly, summary judgment should not have been granted on the basis of the policy exclusion concerning an \u201cowned business,\u201d or the exclusion concerning an attorney\u2019s activities as an officer, director, employee, or trustee of a business enterprise.\nThe \u201cowned business\u201d exclusion provides that the policy will not cover:\n* * * *\nB. the performance of professional services for a business enterprise not named in this policy, owned by an insured or their spouse, a business enterprise in which an insured or their spouse is a partner, or a business enterprise which is controlled, managed or operated by an insured or their spouse.\nThe other business exclusion denies coverage for:\nC. a claim arising out of the insured\u2019s activities as a lawyer and:\n1. an officer, director, employee or trustee of a business enterprise not named in this policy, charitable organization, or a pension, welfare, profit-sharing, mutual or investment fund or trust. . .\nunless such entity is a client of the insured and the claim relates solely to such lawyer/client relationship.\nThe pivotal question with regard to both of these exclusions is whether Mays was acting in the interests of the Mays-Connealy Corporation when he arranged the sale of the motel. We agree with the appellants that although the facts, on the surface, appear to fit within the language of these exclusions, the application of the exclusion depends on the real nature of the transaction. Was Mays acting on behalf of his company or was he arranging a deal for Morris as his attorney, or both?\nA determination of whether Mays was acting \u201cfor\u201d the Mays-Connealy Corporation, and whether the claim \u201carose out of\u2019 his connection with that company, turns on the credibility of Morris\u2019 testimony that the whole transaction would not have occurred but for Mays\u2019 professional advice in connection with the divorce, versus the credibility of Mays\u2019 testimony that he \u201cassumed\u201d he was representing his company in drafting the lease papers. This is a matter for a trier of fact.\nWe have said that exclusionary clauses in insurance policies are strictly interpreted, and all reasonable doubts are resolved in favor of the insured. Southern Title Ins. Co. v. Oller, 268 Ark. 300, 595 S.W.2d 681 (1980). Again, we find that factual issues remain as to Mays\u2019 acts in connection with his company and that summary judgment in favor of Valley Forge on the basis of either of these exclusions was, therefore, improper.\nFor the foregoing reasons, we reverse and remand for trial.\nBrown, J., not participating.", "type": "majority", "author": "Jack Holt, Jr., Chief Justice." } ], "attorneys": [ "Gary Eubanks & Assoc., by: Hugh F. Spinks and James Gerard Schulze, for appellant.", "Barber, McCaskill, Amsler, Jones & Hale, P. A., by: GailK. Ponder, for appellee." ], "corrections": "", "head_matter": "Jeffrey MORRIS, et al. v. VALLEY FORGE INSURANCE COMPANY\n90-185\n805 S.W.2d 948\nSupreme Court of Arkansas\nOpinion delivered March 18, 1991\nGary Eubanks & Assoc., by: Hugh F. Spinks and James Gerard Schulze, for appellant.\nBarber, McCaskill, Amsler, Jones & Hale, P. A., by: GailK. Ponder, for appellee." }, "file_name": "0025-01", "first_page_order": 51, "last_page_order": 58 }