UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Chase Bailey, Individually, Plaintiff/Counter-Defendant
Jesse Ian Bailey, as Trustee of the Chase Bailey Insurance Trust, Plaintiffs
v.
Lynn Buskey, Shawn McCarthy, Case No. 12-cv-396-SM and Buskey & McCarthy, LLP, Opinion No. 2014 DNH 156 Defendants/Counter-Claimants/ Third-Party Plaintiffs
Michael E. Chubrich, and Michael E. Chubrich, P.A., Third-Party Defendants
O R D E R
Plaintiffs, Chase Bailey, individually, and Jesse Ian
Bailey, as trustee of the Chase Bailey Insurance Trust, bring
this action against the law firm of Buskey & McCarthy, LLP, and
its principals, Lynn Buskey and Shawn McCarthy. Plaintiffs
allege that the defendants breached certain professional and
fiduciary duties owed them in relation to a complex insurance
financing transaction. Defendants move for summary judgment on
all claims, doc. no. 56. Standard of Review
Summary judgment is appropriate when the record reveals “no
genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
When ruling on a motion for summary judgment, the court must
“view the entire record in the light most hospitable to the party
opposing summary judgment, indulging all reasonable inferences in
that party’s favor.” Griggs-Ryan v. Smith, 904 F.2d 112, 115
(1st Cir. 1990). However, the non-moving party cannot
“manufacture a dispute of fact by contradicting his earlier sworn
testimony without a satisfactory explanation of why the testimony
is changed.” Abreu-Guzman v. Ford, 241 F.3d 69, 74 (1st Cir.
2001).
Background
In 2008, Chase Bailey’s insurance agent, or producer, James
Archibald, referred Bailey to the law firm of Buskey & McCarthy,
LLP (“B&M”) for the purpose of creating a life insurance trust
(the “Trust”). Bailey financed a $20 million insurance policy
from AIG to fund the Trust, and B&M’s principals, Lynn Buskey and
Shawn McCarthy, provided legal services in connection with
establishing the Trust and served as trustees.
In 2009, a life insurance policy with Security Life of
Denver (“ING”) was sought to replace the AIG policy. Financing
2 of the ING policy premiums involved a complex bond transaction
(the “Transaction”), whereby Compass Bank would issue a letter of
credit and hold collateral, and Bailey would serve as a guarantor
and the source of collateral for Compass Bank. The closing on
the loan was scheduled for January 28, 2010.
Bailey delegated to Archibald and his associate, Karl Hahn,
the authority to communicate on his behalf with the Trustees
(B&M) for the purpose of handling the details of the Transaction,
including providing Bailey’s financial information. Bailey
understood that Buskey and McCarthy would be signing documents as
Trustees, on behalf of the Trust, to obtain the insurance policy
and he authorized them to do so.
In early January of 2010, Buskey and McCarthy began working
on the Transaction. Defendants made no attempt to discuss the
Transaction directly with Bailey. They did not explain risks
associated with the Transaction or the fact that, as a key aspect
of the financing, Bailey would pledge $1.7 million in collateral.
On January 26, 2010, B&M, by email, informed Bailey that it
was not serving as bond counsel, nor as Bailey’s financial
advisor. The email also cautioned Bailey that he should obtain
independent professional advice and that he should confirm his
complete understanding of the Transaction. Although Bailey says
3 he did not read the email, he responded “please proceed.”
Seeking a more definite statement of Bailey’s agreement, McCarthy
resent the email to Bailey the next day. Bailey responded
“please proceed. I agree with the terms.”
Before sending the email to Bailey on January 26, Buskey
forwarded a draft version of the email to Archibald for his
comments, referring to it as B&M’s “typical CYA letter,” and
stating “[w]e don’t want to send it to Chase without going
through you of course.” Doc. no. 59-6, at 16. Archibald
suggested that Buskey remove language which detailed Chase’s
personal risks (e.g. that he would be pledging his own assets as
collateral and making personal financial guarantees), which she
did. Also at Archibald’s urging, Buskey removed the following
sentence:
It is our responsibility as your estate planning attorneys (not as your trustees - so we are switching hats for a minute) to ensure that you understand that there is an alternative way to pay for the insurance with beneficial gift and estate tax results that does not require the involvement and fees of outside parties.
Doc. no. 59-7.
The Transaction closed, as scheduled, on January 28, 2010.
Subsequently, Bailey apparently paid some attention to the
details of the Transaction and promptly refused to provide the
required collateral. Instead, on the advice of his then
4 attorney, Michael Chubrich, Esq., he transferred a substantial
sum of cash from his personal Deutsche Bank account to offshore
accounts in an effort to avoid his financial obligation under the
Transaction.
In light of Bailey’s breach, Compass Bank instituted
arbitration proceedings against Bailey, Buskey, McCarthy, and
B&M. An arbitration panel ruled in favor of Buskey, McCarthy,
and B&M, and awarded them $18,000 in attorneys’ fees and costs.
Bailey, however, settled with Compass Bank, paying approximately
$2.8 million in damages. Bailey then sued Archibald in state
court; that case is pending. Together with the current trustee
of the Trust (Jesse Bailey) Bailey also brought this suit against
Buskey, McCarthy, and B&M, seeking to recover Bailey’s losses
(the amount paid to Compass Bank) including attorneys’ fees and
interest.
Discussion
The gist of Bailey’s claims is that the defendants, in their
handling of the Transaction, breached professional and fiduciary
duties that Bailey says they owed him, as his estate planning
attorneys.1 Specifically, Bailey complains in general terms that
1 Plaintiffs have not seriously advanced the Trustee’s claims. There was virtually no discussion about those claims at oral argument on the motion for summary judgment. More fundamentally, however, none of the four counts of the complaint state claims by the Trustee. Count I (“Breach of Duty”) alleges “duty,”
5 defendants were not experienced in handling the “extremely
complex” Transaction, and, having become “overwhelmed with the
enormity of” it, they should have requested that the closing be
postponed. Pl. Obj., doc. no. 59, at 1. In addition, Bailey
says, the defendants should have communicated better with him and
kept him informed of the “risks and/or exposure of the
transaction.” Complt., doc. no. 1, at 8, 9. Bailey alleges that
“[b]ut for” defendants’ failures to fulfill their obligations as
[his] attorneys, “Bailey would not have entered into the
transactions, investments, and/or agreements with Compass Bank
and ING.” Id.
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UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Chase Bailey, Individually, Plaintiff/Counter-Defendant
Jesse Ian Bailey, as Trustee of the Chase Bailey Insurance Trust, Plaintiffs
v.
Lynn Buskey, Shawn McCarthy, Case No. 12-cv-396-SM and Buskey & McCarthy, LLP, Opinion No. 2014 DNH 156 Defendants/Counter-Claimants/ Third-Party Plaintiffs
Michael E. Chubrich, and Michael E. Chubrich, P.A., Third-Party Defendants
O R D E R
Plaintiffs, Chase Bailey, individually, and Jesse Ian
Bailey, as trustee of the Chase Bailey Insurance Trust, bring
this action against the law firm of Buskey & McCarthy, LLP, and
its principals, Lynn Buskey and Shawn McCarthy. Plaintiffs
allege that the defendants breached certain professional and
fiduciary duties owed them in relation to a complex insurance
financing transaction. Defendants move for summary judgment on
all claims, doc. no. 56. Standard of Review
Summary judgment is appropriate when the record reveals “no
genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
When ruling on a motion for summary judgment, the court must
“view the entire record in the light most hospitable to the party
opposing summary judgment, indulging all reasonable inferences in
that party’s favor.” Griggs-Ryan v. Smith, 904 F.2d 112, 115
(1st Cir. 1990). However, the non-moving party cannot
“manufacture a dispute of fact by contradicting his earlier sworn
testimony without a satisfactory explanation of why the testimony
is changed.” Abreu-Guzman v. Ford, 241 F.3d 69, 74 (1st Cir.
2001).
Background
In 2008, Chase Bailey’s insurance agent, or producer, James
Archibald, referred Bailey to the law firm of Buskey & McCarthy,
LLP (“B&M”) for the purpose of creating a life insurance trust
(the “Trust”). Bailey financed a $20 million insurance policy
from AIG to fund the Trust, and B&M’s principals, Lynn Buskey and
Shawn McCarthy, provided legal services in connection with
establishing the Trust and served as trustees.
In 2009, a life insurance policy with Security Life of
Denver (“ING”) was sought to replace the AIG policy. Financing
2 of the ING policy premiums involved a complex bond transaction
(the “Transaction”), whereby Compass Bank would issue a letter of
credit and hold collateral, and Bailey would serve as a guarantor
and the source of collateral for Compass Bank. The closing on
the loan was scheduled for January 28, 2010.
Bailey delegated to Archibald and his associate, Karl Hahn,
the authority to communicate on his behalf with the Trustees
(B&M) for the purpose of handling the details of the Transaction,
including providing Bailey’s financial information. Bailey
understood that Buskey and McCarthy would be signing documents as
Trustees, on behalf of the Trust, to obtain the insurance policy
and he authorized them to do so.
In early January of 2010, Buskey and McCarthy began working
on the Transaction. Defendants made no attempt to discuss the
Transaction directly with Bailey. They did not explain risks
associated with the Transaction or the fact that, as a key aspect
of the financing, Bailey would pledge $1.7 million in collateral.
On January 26, 2010, B&M, by email, informed Bailey that it
was not serving as bond counsel, nor as Bailey’s financial
advisor. The email also cautioned Bailey that he should obtain
independent professional advice and that he should confirm his
complete understanding of the Transaction. Although Bailey says
3 he did not read the email, he responded “please proceed.”
Seeking a more definite statement of Bailey’s agreement, McCarthy
resent the email to Bailey the next day. Bailey responded
“please proceed. I agree with the terms.”
Before sending the email to Bailey on January 26, Buskey
forwarded a draft version of the email to Archibald for his
comments, referring to it as B&M’s “typical CYA letter,” and
stating “[w]e don’t want to send it to Chase without going
through you of course.” Doc. no. 59-6, at 16. Archibald
suggested that Buskey remove language which detailed Chase’s
personal risks (e.g. that he would be pledging his own assets as
collateral and making personal financial guarantees), which she
did. Also at Archibald’s urging, Buskey removed the following
sentence:
It is our responsibility as your estate planning attorneys (not as your trustees - so we are switching hats for a minute) to ensure that you understand that there is an alternative way to pay for the insurance with beneficial gift and estate tax results that does not require the involvement and fees of outside parties.
Doc. no. 59-7.
The Transaction closed, as scheduled, on January 28, 2010.
Subsequently, Bailey apparently paid some attention to the
details of the Transaction and promptly refused to provide the
required collateral. Instead, on the advice of his then
4 attorney, Michael Chubrich, Esq., he transferred a substantial
sum of cash from his personal Deutsche Bank account to offshore
accounts in an effort to avoid his financial obligation under the
Transaction.
In light of Bailey’s breach, Compass Bank instituted
arbitration proceedings against Bailey, Buskey, McCarthy, and
B&M. An arbitration panel ruled in favor of Buskey, McCarthy,
and B&M, and awarded them $18,000 in attorneys’ fees and costs.
Bailey, however, settled with Compass Bank, paying approximately
$2.8 million in damages. Bailey then sued Archibald in state
court; that case is pending. Together with the current trustee
of the Trust (Jesse Bailey) Bailey also brought this suit against
Buskey, McCarthy, and B&M, seeking to recover Bailey’s losses
(the amount paid to Compass Bank) including attorneys’ fees and
interest.
Discussion
The gist of Bailey’s claims is that the defendants, in their
handling of the Transaction, breached professional and fiduciary
duties that Bailey says they owed him, as his estate planning
attorneys.1 Specifically, Bailey complains in general terms that
1 Plaintiffs have not seriously advanced the Trustee’s claims. There was virtually no discussion about those claims at oral argument on the motion for summary judgment. More fundamentally, however, none of the four counts of the complaint state claims by the Trustee. Count I (“Breach of Duty”) alleges “duty,”
5 defendants were not experienced in handling the “extremely
complex” Transaction, and, having become “overwhelmed with the
enormity of” it, they should have requested that the closing be
postponed. Pl. Obj., doc. no. 59, at 1. In addition, Bailey
says, the defendants should have communicated better with him and
kept him informed of the “risks and/or exposure of the
transaction.” Complt., doc. no. 1, at 8, 9. Bailey alleges that
“[b]ut for” defendants’ failures to fulfill their obligations as
[his] attorneys, “Bailey would not have entered into the
transactions, investments, and/or agreements with Compass Bank
and ING.” Id.
“In a legal malpractice case, a plaintiff must prove: (1)
that an attorney-client relationship existed, which placed a duty
upon the attorney to exercise reasonable professional care, skill
and knowledge in providing legal services to that client; (2) a
breach of that duty; and (3) resultant harm legally caused by
that breach.” Furbush v. McKittrick, 149 N.H. 426, 432 (2003).
“Whether an attorney-client relationship exists is a question of
law that ‘is predicated on the circumstances of each case.’” In
“breach,” and “damages” as to Bailey, individually, but none as to the Trustee. Count II (“Consumer Protection”) alleges a violation as to Bailey, individually. Count III (“Breach of Fiduciary Duty”) does a little better, as it alleges a fiduciary duty owed by the defendants to the Trust, but it fails to allege that defendants breached any duties owed to the Trust, or that the Trust was harmed in some way. For these reasons, the Trustee’s claims, such as they are, are dismissed.
6 re Mullen, 2007 WL 2712957, at *6 (Bankr. D.N.H. Sept. 14, 2007)
(citing McCabe v. Arcidy, 138 N.H. 20 (N.H. 1993)).
The motion for summary judgment turns on defendants’
contention that Buskey and McCarthy were not Chase Bailey’s
estate planning attorneys, as alleged, and therefore cannot be
liable for malpractice (at least not in that capacity). The
court agrees that the uncontroverted evidence establishes that
defendants were not Bailey’s estate planning attorneys, as that
role is generally understood. Bailey himself concedes that he
did not retain the defendants to handle the broad array of estate
planning transactions that typically comprise estate planning
work. But the absence of an estate planning lawyer-client
relationship does not end the story.
Oral argument on defendants’ motion for summary judgment
productively narrowed and clarified the issues in this case, and
the court appreciates the candor and rigor of counsel for both
sides. At bottom, the question here is whether defendants had
any attorney-client relationship with Bailey. As counsel for
defendants correctly conceded, they did. Defendants plainly were
retained to perform legal work for Bailey in connection with the
establishment of the insurance trust. Chase Bailey was both the
settlor and guarantor. Although the precise scope of the
limited-purpose relationship, and defendants’ fulfillment of its
7 legal responsibilities remain in dispute, there is no question
that an attorney-client relationship existed between Chase Bailey
and the defendants. Additional material factual disputes appear
to exist, as well, with respect to causation and, if liability
exists, the extent of any damages arising from Bailey’s decision,
on the apparent advice of Attorney Chubrich, to breach his
contractual obligation to Compass Bank under the terms of the
Accordingly, because resolution of Bailey’s claims depend on
resolution of disputed material facts, the motion for summary
judgment (doc. no. 56) is necessarily denied as to those claims.
The motion is granted as to the Trustee’s claims.
SO ORDERED.
____________________________ Steven J. McAuliffe United States District Judge
July 15, 2014
cc: Scott M. Fogg, Esq. Sean T. O’Connell, Esq. Kristyn D. Kaupas, Esq. Robert A. McCall, Esq. Tierney M. Chadwick, Esq.