The opinion
Opinions of the United
2001 Decisions States Court of Appeals
for the Third Circuit
8-29-2001
Coregis Ins Co v. Baratta & Fenerty
Precedential or Non-Precedential:
Docket 99-1740
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Filed August 29, 2001
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos: 99-1740 & 00-1175
(Consolidated)
COREGIS INSURANCE COMPANY
v.
BARATTA & FENERTY, LTD; ANTHONY BARATTA, ESQ.;
KENNETH LEE; DANIELLE LEE
BARATTA & FENERTY, LTD; ANTHONY BARATTA, ESQ.,
Appellants
Appeal from the United States District Court
for the Eastern District of Pennsylvania
D.C. No. 99-cv-00573
District Judge: The Honorable J. Curtis Joyner
Submitted Under Third Circuit LAR 34.1(a)
September 13, 2000
Before: BECKER, Chief Judge, NYGAARD and
AMBRO, Circuit Judges
(Opinion filed August 29, 2001)
David Kraut
Craig J. Fleischmann
Cardis, Kraut & Harris
1777 Sentry Parkway West
Abington Hall, Suite 200
Blue Bell, PA 19422
Attorneys for Appellants
Mary L. Cole
Bollinger, Ruberry & Garvey
354 Eisenhower Parkway,
Suite 1500
Livingston, NJ 07039
Attorney for Appellee
OPINION OF THE COURT
AMBRO, Circuit Judge:
Appellants Anthony P. Baratta ("Baratta") and Baratta &
Fenerty, Ltd. ("B&F ") appeal from judgments of the United
States District Court for the Eastern District of
Pennsylvania (the "District Court") (1) granting summary
judgment in favor of appellee Coregis Insurance Company
("Coregis") and (2) denying Baratta's and B&F 's motion for
relief from judgment based on newly discovered evidence.
The primary issue that we must decide is whether Baratta
and B&F could have reasonably foreseen, prior to the
effective date of their professional liability insurance policy,
that Baratta's handling of his clients' case involved a
breach of professional duty that might be the basis of a
legal malpractice claim. If the answer is yes, coverage for
those legal malpractice claims is excluded under the policy.
I. Background Facts and Procedural History
Kenneth Lee sustained severe injuries to his head on
December 19, 1978 when he fell out of the passenger door
of his car onto a highway. He sought treatment at Sacred
Heart Hospital ("Sacred Heart") in Norristown, Pennsylvania
where he was initially examined by Dr. Theodore Harrison,
the emergency room physician on staff. After it became
apparent that Dr. Harrison would not admit Mr. Lee to
Sacred Heart, nor transfer him to a hospital that could do
a CAT-scan of his injuries, Mr. Lee decided to return home
with his wife, Danielle Lee.
Two days later, on December 21, 1978, Mrs. Lee returned
home from work to find Mr. Lee collapsed on the floor. Mr.
2
Lee was then taken to St. Mary's Hospital ("St. Mary's") in
Langhorne, Pennsylvania, arriving in the mid- to late
morning. Mr. Lee's condition deteriorated as he was
required to await treatment throughout the afternoon. At
5:00 p.m., a neurologist arrived and ordered Mr. Lee
transported to Mercer Hospital in Trenton, New Jersey for
a CAT-scan that ultimately revealed a subdural hematoma
and brain contusion. The physicians at Mercer Hospital
performed emergency surgery on Mr. Lee. However, as a
result of the delay in treatment, Mr. Lee allegedly suffered
severe and debilitating injuries.
In January of 1979, Mr. and Mrs. Lee consulted with
Baratta, who was then with the law firm Baratta & Takiff,
about the possibility of filing a medical malpractice case
against Sacred Heart, St. Mary's, and the doctors who had
treated Mr. Lee for the injuries he had suffered on
December 19, 1978. Baratta advised the Lees that they
should file a medical malpractice claim against Sacred
Heart and Dr. Harrison but not against St. Mary's. He
explained that he "was a personal friend of a Dr. Cahill,
who was a physician at St. Mary's Hospital, and that if the
Lees did not sue St. Mary's Hospital, [Dr. Cahill] would be
able to testify as to the negligence of Sacred Heart Hospital
and Dr. Harrison."
On March 23, 1981, Baratta filed a complaint in the
Montgomery County, Pennsylvania, Court of Common Pleas
(the "Court of Common Pleas") on behalf of the Lees alleging
that Sacred Heart and Dr. Harrison failed to treat and
diagnose properly Mr. Lee's injuries. More than ten years
later, on September 17, 1991, the Court of Common Pleas
dismissed the Lees' suit for lack of activity. In January of
1994, Baratta, who was by that time a partner in B&F, met
with the Lees and informed them that their case had been
dismissed for lack of activity but that he had taken action
to get the case reinstated. On January 13, 1995, Mr. Lee
sent Baratta a letter expressing his dissatisfaction with the
handling of his case that stated in part:
You have, for whatever reason that you never
explained, dragged this case on since 1979. You have
constantly brushed off inquiries for a case status
report. You caused and continue to cause great
3
anguish to me and my family by ignoring my case, my
plight, my right to expect you to abide by your contract
with me, to represent me and my best interest, in my
case for the medical negligence I encountered at the
hands of Dr. Harrison at the Sacred Heart Hospital in
December of 1978.
On February 22, 1995, the Court of Common Pleas denied
Baratta's petition to have the Lees' case reinstated, a
decision that was affirmed by the Pennsylvania Superior
Court on November 20, 1995, and by the Supreme Court of
Pennsylvania on April 18, 1996.
On April 24, 1996, Baratta and B&F submitted an
application for professional liability insurance to Coregis,
which extended coverage under Policy No. PLL 319978-8
(the "Policy") for the period May 6, 1996 to May 6, 1997. On
November 6, 1996, the Lees initiated a legal malpractice
action against Baratta and B&F by filing a Writ of
Summons in the Court of Common Pleas. Baratta and B&F
promptly reported this event to Coregis. On December 18,
1996, Coregis sent a letter to Baratta and B&F reminding
them that Exclusion B of the Policy provides that"[the]
policy does not apply to . . . any CLAIM arising out of any
act, error, omission or PERSONAL INJURY occurring prior
to the effective date of this policy if any INSURED at the
effective date knew or could have reasonably foreseen that
such act, error, omission or PERSONAL INJURY might be
expected to be the basis of a CLAIM . . . ." Coregis followed
up on this letter by denying coverage in January 1997 for
the Lees' malpractice claims against Baratta and B&F.
On October 27, 1998, the Lees filed a complaint in the
legal malpractice suit alleging, inter alia, a failure to fulfill
contractual obligations, failure to exercise skill and
knowledge possessed by other attorneys in the community,
and failure to prosecute the Lees' case against Sacred Heart
and Dr. Harrison. In addition, the complaint alleged legal
malpractice for failing to sue St. Mary's.
On November 20, 1998, Baratta and B&F renewed their
request for coverage, which Coregis denied on February 9,
1999. In addition, on February 3, 1999, Coregis initiated in
the District Court a declaratory judgment action against
4
Baratta and B&F to obtain a declaration of its rights and
obligations under the Policy. In granting Coregis' motion for
summary judgment on August 3, 1999, the District Court
concluded that "a reasonable attorney in the position of
Baratta would foresee that his lack of action in the Lees[']
medical malpractice case might be expected to be the basis
of not only a tort claim, but also a contract claim" and that
"Exclusion B in the 1996-97 policy . . . precludes coverage
for the Lees' legal malpractice action against Baratta as a
matter of law." Coregis Ins. Co. v. Baratta & Fenerty, LTD.,
57 F. Supp. 2d 179, 184 (E.D. Pa. 1999). On August 31,
1999, Baratta and B&F appealed to this Court.
Notwithstanding their appeal, on December 10, 1999,
Baratta and B&F filed in the District Court a motion for
relief from judgment pursuant to Federal Rule of Civil
Procedure 60(b). The Rule 60(b) motion presented the
District Court with newly discovered evidence contained in
reports from Drs. Frederick J. McEliece and Joseph J.
Levinsky that were submitted in connection with the Lees'
legal malpractice action against Baratta and B&F in
February and September of 1998, respectively. The
McEliece report provides that despite "some confusion and
at least poor communication" at Sacred Heart, there was no
deviation from "the standard of care at the time," but with
regard to St. Mary's, "if indeed [Kenneth Lee] arrived at 8:00
. . . in the morning and was evaluated at that time[,] the
delay until 2:00 P.M. until obtaining a neurosurgical
consultation is not acceptable."1 The Levinsky report states
that "[e]valuation of the care rendered [at Sacred Heart]
shows no evidence of a deviation from the accepted
standard of emergency medical care in 1978." However,
"[e]valuation of the care at St. Mary's Hospital reveals
significant deviations from the accepted standard of medical
care."
_________________________________________________________________
1. Although the McEliece report indicates that Mr. Lee arrived at St.
Mary's at 8:00 a.m. and had a neurological consultation at 2:00 p.m.,
the Levinsky report states that Mr. Lee arrived at 10:00 a.m. and had a
neurological consultation at 5:00 p.m. In any case, both reports suggest
that the interval of time at St. Mary's may have constituted negligence in
its handling of Mr. Lee's medical care.
5
By order entered on March 17, 2000, the District Court
denied Baratta and B&F 's Rule 60(b) motion. On March 22,
2000, Baratta and B&F filed another appeal. By order of
this Court on April 4, 2000, the two appeals were
consolidated. We have appellate jurisdiction under 28
U.S.C. S 1291.
II. Summary Judgment
Rule 56 of the Federal Rules of Civil Procedure provides
that a moving party is entitled to summary judgment"if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with affidavits, if any, show
that there is no genuine issue as to any material fact." Fed.
R. Civ. P. 56(c). Summary judgment is only appropriate if
the evidence cannot reasonably support a verdict for the
non-moving party. Allstate Ins. Co. v. Brown, 834 F. Supp.
854, 856 (E.D. Pa. 1993). In making this determination, all
of the facts must be reviewed in the light most favorable to,
and all inferences must be drawn in favor of, the non-
moving party. Anderson v. Liberty Lobby, Inc. , 477 U.S.
242, 248 (1986). Although the moving party bears the
initial burden of demonstrating the absence of genuine
issues of material fact, the non-movant must establish the
existence of each element of his case. Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986).
In the case before us, the District Court granted
summary judgment in favor of Coregis after concluding that
"[e]xclusion B in the 1996-97 policy . . . precludes coverage
for the Lees' legal malpractice action against Baratta as a
matter of law." 57 F. Supp. 2d at 184. We exercise plenary
review of this decision. See Farley v. Philadelphia Hous.
Auth., 102 F.3d 697, 700 (3d Cir. 1996); Olson v. Gen. Elec.
Astrospace, 101 F.3d 947, 951 (3d Cir. 1996).
Exclusion B of the Policy excludes coverage for acts,
errors, or omissions occurring prior to the effective date of
the Policy if Baratta and B&F knew or could have
reasonably foreseen that they might be the basis of a claim.
Baratta and B&F do not dispute that the Lees' claims arise
out of acts, errors, or omissions occurring prior to the
effective date of the Policy. However, they do dispute
6
whether they knew or could have reasonably foreseen prior
to that date that these acts, errors, or omissions might be
expected to be the basis of a claim.
In Selko v. Home Ins. Co., 139 F.3d 146 (3d Cir. 1998),
we applied a mixed subjective/objective standard to
determine whether claims were excluded from coverage
under an insurance policy:
First, it must be shown that the insured knew of
certain facts. Second, in order to determine whether
the knowledge actually possessed by the insured was
sufficient to create a `basis to believe,' it must be
determined that a reasonable lawyer in possession of
such facts would have had a basis to believe that the
insured had breached a professional duty.
Id. at 152. Although the exclusionary provision interpreted
in Selko differed in language from the one before us,2 our
holding in that case is applicable here insofar as it
instructs us first to consider the subjective knowledge of
the insured and then the objective understanding of a
reasonable attorney with that knowledge. In Selko, we used
this mixed standard to determine whether the insured had
a "basis to believe" he had breached a professional duty.
We will apply this same standard to determine whether
Baratta and B&F could have reasonably foreseen that
Baratta's prior conduct might be the basis of a claim.
A. Failure To Keep Case Active Against Sacred Heart &
Dr. Harrison
There is no question that Baratta and B&F knew, prior to
applying for professional liability insurance, that the Court
of Common Pleas had dismissed the Lees' medical
malpractice complaint against Sacred Heart and Dr.
Harrison for lack of activity and that the decision of the
Court of Common Pleas had been affirmed by both the
_________________________________________________________________
2. The policy in Selko provided coverage for an act, error or omission
occurring prior to the policy period "provided that prior to the effective
date of this policy . . . the insured had no basis to believe that the
insured had breached a professional duty." Selko, 139 F.3d at 149 n.1.
As noted, the Policy in our case focuses on the foreseeability of a basis
for a malpractice claim.
7
Pennsylvania Superior Court and the Supreme Court of
Pennsylvania. Moreover, Baratta and B&F knew by May of
1996 that the Lees were dissatisfied with the legal
representation they had received. To repeat the relevant
portion of Kenneth Lee's January 13, 1995 letter to Baratta:
"You have, for whatever reason that you never explained,
dragged this case on since 1979. You have constantly
brushed off inquiries for a case status report. You caused
and continue to cause great anguish to me and my family
by ignoring my case, my plight, my right to expect you to
abide by your contract with me, to represent me and my
best interest . . . ."
In our view, a reasonable attorney in possession of these
facts would have realized that Baratta had breached a
professional duty by failing to prosecute the Lees' case
against Sacred Heart and Dr. Harrison, and that
consequently there might be a basis for a claim. 3 A
reasonable attorney also "would have realized that he had
a dissatisfied client who would undoubtedly take further
legal action absent a miraculous and unlikely turnaround"
in events. Selko, 139 F.3d at 154.
Baratta and B&F nevertheless contend that they had no
reason to foresee a legal malpractice claim by the Lees
because, by the time of the effective date of the Policy in
May of 1996, the Lees' legal malpractice action was already
time-barred by the Pennsylvania statute of limitations. We
disagree. When an attorney has a basis to believe he has
breached a professional duty, he has a reason to foresee
that his conduct might be the basis of a professional
liability claim against him. He cannot assume that the
claim will not be brought because he subjectively believes it
is time barred or lacks merit.
In this case, there remains an open question whether the
statute of limitations had run out on the Lees' malpractice
action by the time Baratta and B&F applied for professional
liability coverage with Coregis. Relying upon Sherman
Industries Inc. v. Goldhammer, 683 F. Supp. 502 (E.D. Pa.
_________________________________________________________________
3. A breach of a professional duty and a basis for a claim are thus "two
peas in a pod." If the former occurs, experience teaches that the latter
can be expected to follow.
8
1988), Baratta and B&F argue that the statute of
limitations began to run in January of 1994 when the Lees
were informed that their case had been dismissed. Baratta
and B&F maintain that they therefore had no reason to
foresee a claim in May of 1996 because the two year statute
of limitations under a tort theory of legal malpractice had
expired by January of 1996.
However, we do not believe that a reasonable attorney
could have been certain in May of 1996 that the statute of
limitations had run on the Lees' claim. In Pennsylvania,
"the point of time at which the injured party should
reasonably be aware that he or she has suffered an injury
is generally an issue of fact to be determined by the jury."
Sadtler v. Jackson-Cross Co., 587 A.2d 727, 732 (Pa. Super.
Ct. 1991). "Only where the facts are so clear that
reasonable minds cannot differ may the commencement of
the limitation period be determined as a matter of law." Id.
In the Lees' case, application of the discovery rule would
have involved a highly fact sensitive and legally complex
inquiry that might have resulted in equitable tolling of the
statute of limitations. For example, Mr. Lee's letter to
Baratta on January 13th, 1995 evidences confusion over
whether the Lees' case had been reinstated, stating"[y]ou
are still my attorney bound by our contract. I want from
you, in writing, to tell me what the status of my case is,
what you have done to correct your error, and when we can
plan to proceed to court. You have exactly two weeks to
reply." On the basis of this letter, the statute of limitations
arguably was tolled if the Lees had not been provided
sufficient information to determine whether they had
suffered an injury meriting a malpractice action against
their attorney. In any event, to this date the Lees'
malpractice action against Baratta and B&F has not been
dismissed on statute of limitations grounds.
In short, we are uncertain when the statute of limitations
began to run on the Lees' legal malpractice claim and
whether the limitations period had expired by the effective
date of the Policy in May of 1996. In our view, a reasonable
attorney in Baratta and B&F 's position could not have been
certain, and thus should not have assumed, that the
limitations period had expired as a matter of law. Rather, a
9
reasonable attorney would have foreseen that there might
be the basis for a claim because the statute of limitations
may have been tolled beyond May of 1994 under the
discovery rule.
For similar reasons, we believe Baratta and B&F had
reason to foresee that there might be the basis for a
malpractice claim based on a breach of contract theory, for
which the statute of limitations (of four years) had not
expired in May of 1996. The Court of Common Pleas may
conclude that a complete failure to prosecute the case
against Sacred Heart constitutes a failure to perform a
"specific instruction" by the Lees to develop and prosecute
that case. See Edwards v. Thorpe, 876 F. Supp. 693, 694
(E.D. Pa. 1995). Baratta and B&F were not justified in
assuming otherwise and therefore had reason to foresee
that there might be the basis for a claim against them.
We therefore affirm the District Court's determination
that Exclusion B of the Policy precludes coverage of the
Lees' claim alleging that Baratta committed legal
malpractice by failing to keep their case active against
Sacred Heart and Dr. Harrison.
B. Failure To Sue St. Mary's Hospital
We also agree with the District Court's conclusion that
Exclusion B precludes coverage of the Lees' claims
asserting that Baratta failed to investigate and file suit
against St. Mary's. An allegation in the complaint filed in
the Lees' legal malpractice action against Baratta and B&F
in October of 1998 demonstrates that Baratta knew that
the Lees had a potential claim against St. Mary's. It alleges
that the following exchange took place in 1979 when the
Lees first approached Baratta with their medical
malpractice case:
Attorney Baratta advised the Lees not to file any action
against St. Mary's Hospital. He stated that he was a
personal friend of a Dr. Cahill, who was a physician at
St. Mary's Hospital, and that if the Lees did not sue St.
Mary's Hospital, he would be able to testify as to the
negligence of Sacred Heart Hospital and Dr. Harrison.
Baratta and B&F also knew by May of 1996 that Baratta
had failed to prosecute that very case against Sacred Heart
10
that allegedly would have been strengthened by forgoing
suit against St. Mary's. Finally, as the District Court
observed, Baratta had received a letter from the Lees
expressing their general frustration over the handling of
their case. It alleged that Baratta had "brushed off inquiries
for a case status report" and "dragged on" and "ignor[ed]"
the case.
We conclude that a reasonable attorney in possession of
these facts would have foreseen that he had breached a
professional duty by failing to investigate and pursue a case
against St. Mary's, and that consequently there might be a
basis for a legal malpractice claim against him. Baratta
presented the Lees with a strategy for maximizing their
claims against Sacred Heart, which he then botched
through sheer negligence and inattention. Not only did he
fail to prosecute the case against Sacred Heart that was
allegedly strengthened by forgoing suit against St. Mary's,
he also failed to reconsider the decision not to sue St.
Mary's when, by his own inaction, he was not pursuing the
case against Sacred Heart. Put another way, Baratta in
effect excuses his failure to sue St. Mary's by his failure to
pursue the suit already brought against Sacred Heart. The
alleged understanding not to sue St. Mary's can have no
preclusive effect when the predicate for that alleged
understanding (to pursue suit against Sacred Heart and to
use as a witness against it Dr. Cahill of St. Mary's) does not
exist.
Moreover, we agree with the District Court that"the Lee
letter would clearly put a reasonable attorney in the same
position as Baratta on notice that the Lees were frustrated
about more than just the dismissal of their medical
malpractice action" against Sacred Heart. 57 F. Supp. 2d at
184. That letter expresses a general frustration with
Baratta's failure to spend adequate time developing their
case.
Thus, we also affirm the District Court's determination
that Exclusion B precludes coverage for the Lees' claim
alleging that Baratta committed legal malpractice by failing
to pursue a case against St. Mary's.
11
III. Relief Under Rule 60(b)
Rule 60(b) of the Federal Rules of Civil Procedure
provides in part that "[o]n motion and upon such terms as
are just, the court may relieve a party or a party's legal
representative from a final judgment, order, or proceeding
for the following reasons . . . (2) newly discovered evidence
which by due diligence could not have been discovered in
time to move for a new trial." This standard requires that
"the new evidence (1) be material and not merely
cumulative, (2) could not have been discovered before trial
through the exercise of reasonable diligence and (3) would
probably have changed the outcome of the trial." Compass
Tech., Inc. v. Tseng Labs., Inc., 71 F.3d 1125, 1130 (3d Cir.
1995).
Baratta and B&F sought relief under Rule 60(b) based
upon newly discovered evidence in the McEliece and
Levinsky reports. The District Court concluded that relief
from judgment was not appropriate because, "[a]fter
reviewing the newly produced report, it remains clear that
a reasonable attorney in the position of Mr. Baratta would
have foreseen that the Lees would likely file a malpractice
claim against him, and therefore that Exclusion B
precludes coverage for the Lees's legal malpractice action."
We review this decision for abuse of discretion. See Lorenzo
v. Griffith, 12 F.3d 23, 26 (3d Cir. 1993); Harris v. Martin,
834 F.2d 361, 364 (3d Cir. 1987).
The McEliece report was prepared on February 11, 1998,
and the Levinsky report was prepared seven months later
on September 21, 1998. Baratta and B&F discovered these
reports in November of 1999 through the Lees' responses to
interrogatories submitted to them on September 15, 1999
in connection with their action against Baratta and B&F for
legal malpractice. The reports seem to suggest that (1) the
Lees were not damaged by Baratta's failure to keep the
Lees' medical malpractice case against Sacred Heart and
Dr. Harrison active because Sacred Heart and Dr. Harrison
followed accepted standards of medical care and that (2)
the Lees were damaged by Baratta's failure to include St.
Mary's as a defendant in the case because St. Mary's
deviated from accepted standards of medical care.
12
These reports do not undermine the District Court's
determination that Baratta and B&F had reason to foresee
on or before the effective date of the Policy that Baratta's
handling of the Lees' case might be expected to be the basis
of a claim. In fact, we believe these reports demonstrate
how off the mark Baratta was in advising the Lees to sue
Sacred Heart instead of St. Mary's, and therefore reinforce
our belief that Baratta and B&F should have known by May
of 1996 that Baratta had breached a professional duty in
his handling of this case that provided the basis for a claim
against him.4 The District Court therefore acted within its
discretion to deny Rule 60(b) relief from judgment on the
ground that the McEliece and Levinsky reports would not
have changed the outcome of its decision. See Compass
Tech., 71 F.3d at 1130.
* * * * *
For the reasons set forth above, we affirm the District
Court's decision granting summary judgment in favor of
Coregis because Exclusion B precludes coverage of the
Lees' legal malpractice claims against Baratta and B&F. We
also affirm the judgment of the District Court denying Rule
60(b) relief from judgment.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
4. We also note that the McEliece and Levinsky reports, published on
February 11, 1998 and September 21, 1998 respectively, probably could
have been discovered through the exercise of reasonable diligence before
the District Court entered judgment on September 15, 1999, and
therefore do not qualify as "newly discovered evidence" justifying Rule
60(b) relief from judgment.
13