Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

McDowell Building, LLC v. Zurich American Insurance Co.

United States District Court, D. Maryland

May 7, 2015

McDOWELL BUILDING, LLC, Plaintiff,
v.
ZURICH AMERICAN INSURANCE CO., Defendant.

MEMORANDUM OPINION

RICHARD D. BENNETT, District Judge.

In this diversity action, Plaintiff McDowell Building, LLC ("McDowell Building") has sued Zurich American Insurance Co. ("Zurich American") for breach of an architect's malpractice insurance policy. McDowell Building alleges that it was harmed by the negligence of its architect, and that Zurich wrongfully denied coverage under that architect's malpractice insurance policy.

This Court held a three-day bench trial on April 20, 21, and 23, 2015 and has carefully considered the exhibits introduced into evidence, the testimony of the witnesses who testified in person, the written submissions of the parties, and the oral arguments of counsel. The following constitutes this Court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure with respect to the bench trial. This Court finds that coverage in this matter is barred under the terms of the policy because the insured had subjective knowledge of facts that might give rise to a claim prior to the effective date of the policy. Alternatively, this Court finds that Zurich American properly denied coverage because Zurich American was actually prejudiced by the insured's late notice of the claim to Zurich American. Accordingly, the accompanying Order enters Judgment in favor of Defendant Zurich American Insurance Company and against Plaintiff McDowell Building, LLC.

I. FINDINGS OF FACT

A. The McDowell Building Project

Plaintiff McDowell Building, LLC ("McDowell Building") is a real estate developer involved in a project known as the "McDowell Building, " located in the Mt. Vernon neighborhood of Baltimore, Maryland. McDowell Building was originally formed by D. Ronald Brasher ("Ronald Brasher" or "Mr. Brasher") and Kemp Byrnes, but by the spring of 2003, McDowell Building included the following members: D. Ronald Brasher, John Day II, John Day III, Kemp Byrnes, and Frank Zokaites. Zokaites held a 33.33% interest in the company, while the other members each held a 16.67% share. As part of the development plan, the members of McDowell Building hoped to obtain state and federal tax credits.[1]

On October 31, 2002, the accounting firm Reznick Fedder & Silverman (the Reznick Group) wrote a letter to one of the McDowell Building members[2] indicating that the project had received Part II approval from the Maryland Historical Trust and noting that the project should be eligible for a tax credit provided it met the other criteria. See Pl.'s Ex. 1; Def.'s Ex. 20. Specifically, the letter stated:

Per your request, we have reviewed information in our files regarding the availability of historic rehabilitation tax credits for McDowell Building project located at 339-341 North Charles Street. We have determined that the project has received Part II approval from both the Maryland Historic Trust and the National Park Service. The MHT approval was dated 1/19/99, and as such appears to be eligible for the state tax credit under the 2001 law providing for a 25% credit. The NPS ["National Park Service"] issued its approval as of May 11, 2000. Assuming that other program criteria are met, this project should be eligible to claim both federal and Maryland historic tax credits.

This letter was used to attract investors to fund the project, and the transaction to purchase the property was closed on December 1, 2003.

McDowell Building hired Mr. Brasher's architectural firm, DR Brasher, Inc., d/b/a Brasher Design, ("Brasher Design") to complete the applications necessary for obtaining the required credits. Karen Starika, an employee of Brasher Design, was tasked with preparing and filing the applications.[3] Mr. Brasher testified that he signed both applications and that he subsequently had discussions with employees at the Maryland Historical Trust about the project.

By September 23, 2004, Brasher Design had discovered that the Maryland Historical Trust had no application for the McDowell Building project on file. See Pl.'s Ex. 3; Def.'s Ex. 4. The Maryland Historical Trust further declared that it was now too late for McDowell Building to apply for the tax credit. Ronald Brasher contends that, at that time, his firm conducted an investigation and concluded that the applications had been submitted and that he and his firm had made no error. Ronald Brasher did not immediately inform the other McDowell Building members of the issue, but instead engaged in discussions with the Maryland Historical Trust in the hopes of resolving the problem.

Specifically, Ron Brasher and Brasher Design contacted various state officials in the fall of 2004. On October 13, 2004, Brasher Design sent emails to Mr. Day and Mr. Sams at the Maryland Historical Trust on October 13, 2004 and October 28, 2004 in an effort to resolve the state tax credit issue. Def.'s Exs. 5 & 6. On November 4, 2004, Brasher Design sent a letter to Mr. Day at the Maryland Historical Trust requesting a meeting with him and his legal representative to address the state tax credit issue. Def.'s Ex. 7. Additionally, on November 9, 2004, Brasher Design sent a letter to Mr. Little at the Maryland Department of Housing and Community Development, Office of Preservation Service in its further attempts to address the state tax credit issue. Def.'s Ex. 8. On November 11, 2004, Brasher Design sent another letter to Mr. Sams. Def.'s Ex. 9. On or about November 17, 2004, Ron Brasher met with Mr. Little and other representatives of the Maryland Historical Trust in attempt to resolve the state tax credit issue, but he was unable to resolve the problem to his satisfaction. On November 22, 2004, Brasher Design sent an email to Mr. Schaefer and Ms. Jennings with the Office of the Comptroller of Maryland in a further attempt to resolve the state tax credit issue. Def.'s Ex. 10. On November 24, 2004, Brasher Design received a response from the Office of the Comptroller, but was still unable to resolve the state tax credit issue to its satisfaction. Def.'s Ex. 11.

By at least January 31, 2005, Ron Brasher had informed the other members of McDowell Building about the problem with the state tax credit. After the issue was brought to the attention of the other members, there was some discussion about the next course of action. For example, on January 31, 2005, Kemp Byrnes, one of the McDowell members, sent an email to Brasher and the other members of McDowell stating:

There is almost $600, 000 at stake and we don't want to get in a position that we have to start suing each other's insurance company. Frank [Zokaites] is ready to send a letter to Reznick asking them to pass this matter on to their insurance company and was asking me if DR Brasher had insurance to cover the $600, 000 if there was a mistake on their part.

Def.'s Ex. 12.

On May 17, 2005, Brasher sent an email to the other members that stated, in part: "[I]t was intimated to me last week by a partner that perhaps the legal bill should be born [ sic ] by me or my firm. If this is the intent of the partnership, then fire your guns now and tell [M]r. [M]arr, see you later." Def.'s Ex. 33.

Byrnes sent another email on May 20, 2005 to Brasher and the other members that stated, in part:

I feel at liberty to share with you and [the entire membership] my thoughts and feelings about your inappropriate behavior and the major financial problem that you have created for the McDowell LLC....
You did show me some signs of integrity, professionalism and maturity when you admitted to all the members that you and your firm screwed up and you personally accepted responsibility. I was encouraged until I received a copy of your May 17, 2005 email reversing your position.... The bottom line is that I'm not intimidated by your arrogance, pressure to respond to paying your legal costs immediately or you're ready to go to battle with all the members. I am totally against paying for the legal cost to correct the mistakes and negligence of you and your firm.... I would propose that we take your suggestion and fire our guns at the heart of the problem, YOU. I would rather spend my legal money pursuing you and let you and your attorney try to recoup some of your damages from the State and Reznick.

Pl.'s Ex. 4; Def.'s Ex. 13.

Similarly, on June 6, 2005, John Day sent a letter to the other McDowell members stating, in part, that "[t]he partnership also faces other issues which will cause significant stress and possibly money to the members[, ].... [including] potential lawsuits between the Company, John E. Day Associates, and Brasher Design as well as possible suits between the actual individual partners." Pl.'s Ex. 5; Def.'s Ex. 14.

B. Litigation Regarding the State Tax Credits

Despite these communications regarding a lawsuit, McDowell Building did not initially sue Mr. Brasher or Brasher Design. Instead, McDowell Building brought suit against the Maryland Historical Trust on October 28, 2005 in the Circuit Court for Baltimore City, seeking a writ of mandamus and a declaratory judgment forcing the Maryland Historical Trust to process McDowell Building's state tax credit application. The suit also sought damages from the Reznick Group for ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.