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Alps Property & Casualty Insurance Co. v. Merdes & Merdes, P.C.

United States District Court, D. Alaska

December 29, 2014

MERDES & MERDES, P.C., et al. Defendants.


SHARON L. GLEASON, District Judge.

This is an action by ALPS Property & Casualty Insurance Company ("ALPS") seeking a declaration that it has no duty to defend or indemnify the named insureds of two professional liability policies that it issued in a suit against those insureds presently proceeding in Alaska state court. Before the Court at Docket 35 is ALPS' Motion for Summary Judgment filed on April 15, 2014.[1] Defendants opposed on May 23, 2014, and ALPS replied on June 16, 2014.[2] Oral argument was not requested and was not necessary to the Court's determination. For the reasons discussed below, ALPS' Motion for Summary Judgment will be granted in part and denied in part.


This action is brought against three defendants: Ward M. Merdes, an attorney admitted to practice in Alaska; the law firm Merdes & Merdes, P.C. ("Merdes Firm"); and the law firm Merdes Law Office, P.C. ("Merdes Law Office") (collectively "Defendants").

On July 6, 2012, ALPS issued a Lawyers Professional Liability Insurance Policy to the Merdes Firm ("Merdes Firm Policy").[3] Ward M. Merdes was the only named attorney insured under the policy. The Merdes Firm Policy was in effect from July 18, 2012 until July 18, 2013. It had a retroactive date for Ward Merdes of January 1, 1990, and a loss inclusion date of July 18, 1989.[4]

On January 17, 2013, Mr. Merdes incorporated the Merdes Law Office.[5] On April 29, 2013, ALPS issued a Lawyers Professional Liability Insurance Policy to the Merdes Law Office ("Merdes Law Office Policy").[6] Ward M. Merdes was the only named attorney insured under the policy. The Merdes Law Office Policy was in effect from April 1, 2013 until April 1, 2014. It had a retroactive date for Ward Merdes of April 1, 2013, and a loss inclusion date of April 1, 2013.[7]

The language of each policy is set forth in ALPS' Amended Complaint and attached exhibits and is not reproduced here.[8] Each policy is a "claims-made and reported" policy, extending coverage to claims made against the insured and reported to the insurer during the effective period of the policy.[9] The provisions of each policy at issue are substantively identical, with the exception of a special endorsement to the Merdes Law Office Policy which excludes coverage for any "act, error or omission in professional services rendered or that should have been rendered by the Insured in regard to the Insured's relationship with or work performed for or on behalf of [the Merdes Firm.]"[10]

Although the policies were issued in 2012 and 2013, the events that give rise to this case began much earlier and do not appear to be in dispute. In 1988, Edward A. Merdes, the father of Mr. Merdes, entered into a written contingency fee agreement to represent Leisnoi, Inc. in a land claims lawsuit. Leisnoi is a village corporation certified under the Alaska Native Claims Settlement Act (ANCSA) and was being sued by a third party that sought to prevent the transfer of certain land patents to Leisnoi.[11] On February 22, 1990, Edward Merdes and Ward Merdes formed the Merdes Firm. Defendants allege that Edward Merdes assigned his rights under the contingent fee agreement to the Merdes Firm.[12]

On July 24, 1992, Leisnoi prevailed in the land claims lawsuit.[13] A fee dispute then arose between Leisnoi and the Merdes Firm. In 1995, the Alaska Bar Association's Fee Review Committee found that pursuant to the parties' contingent fee agreement, the Merdes Firm was entitled to $721, 000 plus interest, together with $55, 000 in court-awarded fees. The Alaska Superior Court issued a judgment against Leisnoi in accordance with the Committee's finding. Leisnoi made partial payments on the judgment to the Merdes Firm from 1995 to 2001, but defaulted in 2002.[14] On January 27, 2009, the Merdes Firm moved the Superior Court for a writ of execution on the judgment. Leisnoi opposed, asserting that the Merdes Firm's motion was untimely. On May 19, 2009, Leisnoi moved the Court for relief from the 1995 judgment under Alaska Rule of Civil Procedure 60(b).[15] On January 13, 2010, the Alaska Superior Court granted the Merdes Firm's motion for a writ of execution on the balance owing on the 1995 judgment and denied Leisnoi's 60(b) motion.[16] On February 22, 2010, Leisnoi appealed the Superior Court's writ of execution and denial of its 60(b) motion, arguing that the "fee agreement with [the] Merdes [Firm], the Arbitration Panel's fee award, the superior court's 1995 entry of judgment, and the superior court's 2010 issuance of the writ of execution violated" ANCSA.[17] However, on July 28, 2010, Leisnoi paid the Merdes Firm $643, 760, the entire remaining balance then owed on the judgment.[18] Leisnoi sought the return of that payment in its appeal, but there is no indication in the record that when Leisnoi paid the Merdes Firm, it requested that the Merdes Firm safeguard that payment or that Leisnoi sought to deposit the funds with the Court in lieu of tendering them directly to the Merdes Firm while the appeal was pending.[19]

On February 1, 2013, the Alaska Supreme Court issued its decision. The Court held that the writ of execution was unlawful because "Leisnoi's contingency fee agreement with [the Merdes Firm] violated ANCSA's prohibition against contingency fee agreements."[20] The Court also held that "Leisnoi is entitled to recover the balance that it paid after the writ of execution was unlawfully issued, but it is not entitled to recover payments made prior to the issuance of the writ of execution."[21]

In a letter from Leisnoi dated February 13, 2013 that was addressed to Mr. Merdes and the Merdes Firm, Leisnoi demanded the return of the $643, 760 that it had paid on July 28, 2010, together with interest.[22] In a letter to ALPS that was also dated February 13, 2013, Mr. Merdes requested defense and indemnity from ALPS for Leisnoi's claims under the Merdes Firm Policy. That letter also notified ALPS that the Merdes Firm was "shutting down" and requested a new policy for the Merdes Law Office.[23] In a letter to Mr. Merdes dated February 21, 2013, ALPS stated that based on the information Mr. Merdes had provided about the Leisnoi demand, "it is ALPS [] position that no coverage exists under any ALPS policy for this matter."[24] As noted above, on February 29, 2013, ALPS issued the Merdes Law Office Policy with an effective date of April 1, 2013.[25]

On May 20, 2013, Leisnoi filed the suit for which Defendants seek coverage in Alaska Superior Court.[26] It amended its complaint on August 19, 2013.[27] Leisnoi named the Merdes Firm, the Merdes Law Office, and Mr. Merdes as defendants in its suit, along with "John Doe I and John Doe II... individuals who are currently unknown to Leisnoi, but who are believed... to have fraudulently received assets from the Merdes Firm."[28] Leisnoi brings five claims and generally alleges that Defendants took actions to transfer value from the Merdes Firm to other parties so that the Merdes Firm would be unable to repay the now-invalid 2010 payment.[29] In its first count, it seeks compensatory damages for breach of contract from the Merdes Firm and Mr. Merdes, alleging that they each failed in their contractual obligation to safeguard disputed funds. In its second and third counts, Leisnoi seeks compensatory damages and equitable relief to remedy alleged fraudulent conveyances between the Defendants. In its fourth count, Leisnoi seeks compensatory and treble damages for alleged violations of Alaska's Unfair Trade Practices and Consumer Protection Act. And in its fifth count, it seeks punitive damages.[30] On June 18, 2013, Defendants notified ALPS of the suit.[31] On July 11, 2013, ALPS denied coverage for the claims made in the Leisnoi suit under both the Merdes Firm Policy and the Merdes Law Office Policy.[32] This suit was then filed on August 1, 2013.[33]


I. Jurisdiction

This Court has jurisdiction over this matter under 28 U.S.C. ยง 1332(a)(1) because complete diversity exists between ALPS and Defendants, and the amount in controversy exceeds the sum of $75, 000, exclusive of interest and costs.[34]

II. Summary Judgment Standard

In this diversity action, the Court applies federal law to procedural issues and Alaska law to substantive legal issues. ALPS moves the Court for summary judgment, seeking a declaration that it has no duty to defend or indemnify Defendants under the Merdes Firm and Merdes Law Office Policies. Federal Rule of Civil Procedure 56(a) directs a court to "grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." The burden of showing the absence of a genuine dispute of material fact initially lies with the moving party.[35] If the moving party meets this burden, the non-moving party must present specific evidence demonstrating the existence of a genuine issue of fact.[36] The non-moving party may not rely on mere allegations or denials. It must demonstrate that enough evidence supports the alleged factual dispute to require a finder of fact to make a determination at trial between the parties' differing versions of the truth.[37]

When considering a motion for summary judgment, a court must accept as true all evidence presented by the non-moving party and draw "all justifiable inferences" in the non-moving party's favor.[38] To reach the level of a genuine dispute, the evidence must be such "that a reasonable jury could return a verdict for the non-moving party."[39] The non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts."[40] If the evidence provided by the non-moving party is "merely colorable" or "not significantly probative, " summary judgment is appropriate.[41]

III. The Duty to Defend & Indemnify

Under Alaska law, an insurer's duty to defend and its obligation to indemnify are separate and distinct contractual elements.[42] As ...

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