First Mercury Insurance Company v. Law Office of Kenneth B. Schwartz

Filing 69

ORDER ADOPTING REPORT AND RECOMMENDATIONS - For the reasons set forth above, plaintiff's objection to so much of the Report as finds that a declaratory judgment on the issue of its duty to indemnify the Schwartz Defendants in the Dos Ramos and P ersaud Actions is premature is sustained, and that part of the Report is modified to the extent set forth herein; plaintiff's remaining objections are overruled; and the Report is otherwise accepted in its entirety. Accordingly, for the reasons set forth herein and in the Report, (i) plaintiff's motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure is granted to the extent that judgment shall be entered in favor of plaintiff declaring: (a) that plainti ff has no duty under the subject of Policy to defend or indemnify the Schwartz Defendants from any claims, liabilities, causes of action, or damages, which are the subject of the Dos Ramos Action and the Persaud Action, (b) that plaintiff may withdra w from providing a defense to the Schwartz Defendants in the Dos Ramons Action and the Persaud Action, and (c) that plaintiff is entitled to reimbursement from the Schwartz Defendants for defense costs it incurred in connection with the Dos Ramos Act ion and the Persaud Action subsequent to the date of its disclaimer of coverage, and plaintiff's motion is otherwise denied; and (ii) the Schwartz Defendants' cross motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civ il Procedure is granted to the extent that judgment shall be entered in favor of the Schwartz Defendants' declaring: (a) that plaintiff's duty to defend the Schwartz Defendants in the Johnson Action remains in effect, and (b) that plaintiff is obligated to reimburse the Schwartz Defendants for one third (1/3) of the reasonable attorney's fees and costs they incurred in defending the instant action to date, and the Schwartz Defendants' cross motion is otherwise denied. The Clerk of Court shall enter judgment in accordance with this Order and close this case. SO Ordered by Judge Sandra J. Feuerstein on 12/5/2019. (Tirado, Chelsea)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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FIRST MERCURY INSURANCE COMPANY,
Plaintiff,

FILED 
CLERK 

3:02 pm, Dec 05, 2019

U.S. DISTRICT COURT 
EASTERN DISTRICT OF NEW YORK 
LONG ISLAND OFFICE 

ORDER
17-CV-1763(SJF)(AKT)

-againstLAW OFFICE OF KENNETH B. SCHWARTZ,
KENNETH B. SCHWARTZ, P.C., KENNETH B.
SCHWARTZ and HELENE STETCH,
Defendants.
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FEUERSTEIN, District Judge:

Pending before the Court are the objections of plaintiff First Mercury Insurance Company
(“plaintiff”) to so much of the Report and Recommendation of the Honorable A. Kathleen
Tomlinson, United States Magistrate Judge, dated March 1, 2019 1 (“the Report”), as amended by
order dated March 6, 2019, as recommends: (i) denying the branch of its motion seeking
summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure on its claim for a
declaratory judgment that it has no duty to defend defendants Law Office of Kenneth B.
Schwartz, Kenneth B. Schwartz, P.C., and Kenneth B. Schwartz (collectively, the “Schwartz
Defendants”) in the underlying state court action commenced against them by Mathew Johnson
in the Supreme Court of the State of New York, Bronx County, on or about March 27, 2013 (the
“Johnson Action”), and granting the branch of the Schwartz Defendants’ cross motion seeking
summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure declaring that
On March 28, 2019, the deadline for filing objections to the Report was held in abeyance pending a determination
of a motion to intervene made by MetLife Home Loans, LLC. By order dated September 4, 2019, Magistrate Judge
Tomlinson denied the motion to intervene. The parties were ultimately granted until November 8, 2019 to file
objections to the Report. Only plaintiff filed timely objections to the Report. The Schwartz Defendants did not file
timely objections to the Report, nor a timely response to plaintiff’s objections. See Fed. R. Civ. P. 72(b)(2)
Plaintiff’s application to strike the Schwartz Defendants’ untimely response, (Docket Entry 68), is granted to the
extent that the Court declines to consider any untimely objections to the Report’s findings and conclusions in the
Schwartz Defendants’ response to plaintiff’s objections.

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plaintiff’s duty to defend them in the Johnson Action remains in effect; (ii) denying the branches
of plaintiff’s motion and the Schwartz Defendants’ cross motion seeking a declaratory judgment
with respect to plaintiff’s duty to indemnify the Schwartz Defendants in any of the three (3)
underlying actions as premature; (iii) in effect, denying the branch of plaintiff’s motion seeking
summary judgment on its claim for reimbursement from the Schwartz Defendants of any and all
defense costs it incurred in the Johnson Action after its disclaimer of coverage; and (iv) granting
the branch of the Schwartz Defendants’ cross motion seeking summary judgment on their claim
for reimbursement from plaintiff of attorney’s fees and costs to the extent of ordering plaintiff to
reimburse the Schwartz Defendants for one third (1/3) of the attorney’s fees and costs they
incurred in defending the instant action to date. For the reasons set forth below, the Report is
modified as set forth below and is otherwise accepted in its entirety.

I.

Discussion
A.

Standard of Review

Any party may serve and file written objections to a report and recommendation of a
magistrate judge on a dispositive matter within fourteen (14) days after being served with a copy
thereof. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b)(2). Any portion of such a report and
recommendation to which a timely objection has been made is reviewed de novo. 28 U.S.C. §
636(b)(1); Fed. R. Civ. P. 72(b)(3). The court, however, is not required to review the factual
findings or legal conclusions of the magistrate judge as to which no proper objections are
interposed. See Thomas v. Arn, 474 U.S. 140, 150, 106 S. Ct. 466, 88 L. Ed. 2d 435 (1985). To
accept the report and recommendation of a magistrate judge to which no specific, timely
objection has been made, the district judge need only be satisfied that there is no clear error

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apparent on the face of the record. See Fed. R. Civ. P. 72(b); Spence v. Superintendent, Great
Meadow Corr. Facility, 219 F.3d 162, 174 (2d Cir. 2000) (a court may review a report to which
no timely objection has been interposed to determine whether the magistrate judge committed
“plain error.”)
However, general objections, or “objections that are merely perfunctory responses argued
in an attempt to engage the district court in a rehashing of the same arguments set forth in the
original papers will not suffice to invoke de novo review.” Owusu v. New York State Ins., 655 F.
Supp. 2d 308, 312-13 (S.D.N.Y. 2009) (quotations, alterations and citation omitted); see also
Trivedi v. New York State Unified Court Sys. Office of Court Admin., 818 F. Supp. 2d 712, 726
(S.D.N.Y. 2011), aff’d sub nom Seck v. Office of Court Admin., 582 F. App’x 47 (2d Cir. Nov. 6,
2014) (“[W]hen a party makes only conclusory or general objections [] the Court will review the
Report strictly for clear error.[] Objections to a Report must be specific and clearly aimed at
particular findings in the magistrate judge’s proposal.” (quotations, alterations and citation
omitted)). Any portion of a report and recommendation to which no specific timely objection is
made, or to which only general, conclusory or perfunctory objections are made, is reviewed only
for clear error. Owusu, 655 F. Supp. 2d at 312-13; see also Bassett v. Electronic Arts, Inc., 93 F.
Supp. 3d 95, 100-01 (E.D.N.Y. 2015).
Whether or not proper objections have been filed, the district judge may, after review,
accept, reject, or modify any of the magistrate judge’s findings or recommendations. 28 U.S.C. §
636(b)(1); Fed. R. Civ. P. 72(b).

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B.

Plaintiff’s Objections

Plaintiff contends, inter alia, the Magistrate Judge Tomlinson erred: (i) in “overlook[ing]
the precise language of the exclusion, barring covering [sic] for ‘any “claim” arising out of
conversion, misappropriation or improper commingling of client funds[,]’” (the “Conversion
Exclusion”) (Plf. Obj. at 11-12) (emphasis omitted); (ii) in “improperly focus[ing]” her
conclusion that the Conversion Exclusion does not relieve plaintiff of its duty to defend in the
Johnson Action and the Persuad Action “on the classification of the breach of contract and legal
malpractice causes of action in [those actions], rather than on whether the acts comprising those
claims ‘arose out of’ conversion, misappropriation or improper commingling of client funds,”
(id. at 14-15); (iii) in determining that the exclusion barring coverage for “any claim that results
in any final judgment or final adjudication against any insured based upon or arising out of any
criminal, dishonest, fraudulent or malicious act” (the “Final Judgment Exclusion”) is ambiguous,
(id. at 15-16) (emphasis omitted); (iv) in purportedly overlooking both “nationwide precedent
that guilty pleas are equivalent to convictions by trial and are, therefore, not distinct from a final
adjudication on the merits[,]” (id. at 17), and “the fact that Schwartz’s sentencing is a final
adjudication against [him] ‘based upon or arising out of’ a dishonest wrongful act[,]” (id. at 20);
(v) in relying upon the case Maiello v. Kirchner, 98 A.D.3d 481 (N.Y. App. Div. 2012), in
support of her determination that the Final Judgment Exclusion “does not abrogate [plaintiff’s]
duty to defend the Schwartz Defendants in the Johnson and Persuad Actions,” (Plf. Obj. at 17,
19); and (vi) in determining that the branch of plaintiff’s motion seeking summary judgment on
its claim that it has no duty to indemnify the Schwartz Defendants in any of the three (3)
underlying actions is premature, since she found that plaintiff has no duty to defend them in the
Dos Ramos and Persuad Actions. (Id. at 20). Plaintiff also generally objects to Magistrate Judge

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Tomlinson’s findings: (i) that it is obligated to reimburse the Schwartz Defendants for one third
of the attorney’s fees and costs they incurred in defending this action to date; and, (ii) in effect,
that the Schwartz Defendants are not obligated to reimburse plaintiff for the costs it expended to
defend the Johnson Action, based solely upon its contention that Magistrate Judge Tomlinson
erred in finding that plaintiff is obligated to defend the Johnson Action. No other specific error is
attributed to such findings. In addition, plaintiff contends that the Schwartz Defendants “should
be ordered to remit payment of the $15,000.00 of the allegedly unpaid deductible under the
Policy,” (id. at 22), the determination of which Magistrate Judge Tomlinson deferred to the
undersigned.
Upon consideration of plaintiff’s objections and the Schwartz Defendants’ responses
thereto, and de novo review of the findings and conclusions in the Report to which plaintiff
specifically objects, as well as all motion papers and the entire record, (i) plaintiff’s objection to
so much of the Report as finds that a declaratory judgment on the issue of its duty to indemnify
the Schwartz Defendants in the Dos Ramos and Persuad Actions is premature is sustained; (ii)
the Report is modified to reflect that a declaratory judgment with respect to plaintiff’s duty to
indemnify the Schwartz Defendants in the Johnson Action is premature, but since there is no
duty to defend the Schwarz Defendants in the Dos Ramos and Persuad Actions, there is also no
duty to indemnify them in those actions, see, e.g. Morales v. Valley Stream Union Free Sch.
Dist. 24, No. 18-cv-3897, 2019 WL 5874136, at * 5 (E.D.N.Y. Aug. 14, 2019), report and
recommendation adopted, 2019 WL 4253975 (E.D.N.Y. Sept. 9, 2019) (citing ABC, Inc. v.
Countrywide Ins. Co., 308 A.D.2d 309, 311, 764 N.Y.S.2d 244, 247 (N.Y. App. Div. 2003)); and
(iii) plaintiff’s remaining objections are overruled and the Report is otherwise accepted in its
entirety.

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The Court declines to order defendant Schwartz “to remit payment of the $15,000.00 of
the allegedly unpaid deductible under the Policy,” (Plf. Obj. at 22), since, inter alia, plaintiff did
not seek such relief in its pleadings. 2 Plaintiff first claimed that Schwartz owes the deductible
under the subject Policy in its memorandum of law in support of its motion for summary
judgment, (Plf. Mem. at 23), and never sought leave to amend its complaint.

C.

Remainder of Report

There being no clear error on the face of the Report with respect to the findings and
conclusions of Magistrate Judge Tomlinson to which no specific timely objections are
interposed, those branches of the Report are accepted in their entirety. Accordingly, for the
reasons set forth herein and in the Report, (i) plaintiff’s motion for summary judgment pursuant
to Rule 56 of the Federal Rules of Civil Procedure is granted to the extent that judgment shall be
entered in favor of plaintiff declaring: (a) that plaintiff has no duty under the subject Policy to
defend or indemnify the Schwartz Defendants from any claims, liabilities, causes of action, or
damages which are the subject of the Dos Ramos Action and the Persuad Action, (b) that
plaintiff may withdraw from providing a defense to the Schwartz Defendants in the Dos Ramos
Action and the Persuad Action, and (c) that plaintiff is entitled to reimbursement from the
Schwartz Defendants for reasonable defense costs it incurred in connection with the Dos Ramos
Action and the Persuad Action subsequent to the date of its disclaimer of coverage, and
plaintiff’s motion is otherwise denied; and (ii) the Schwartz Defendants’ cross motion for
summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure is granted to the

Moreover, according to the Schwartz Defendants, defendant Schwartz filed for a Chapter 7 Bankruptcy in 2012
and received a general discharge in October 2013. (Schwartz Defendants’ Response to Plaintiff’s Objections at p. 5
n. 1 [citing 11 U.S.C. § 525] and Ex. B).
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extent that judgment shall be entered in favor of the Schwartz Defendants’ declaring: (a) that
plaintiff’s duty to defend the Schwartz Defendants in the Johnson Action remains in effect, and
(b) that plaintiff is obligated to reimburse the Schwartz Defendants for one third (1/3) of the
reasonable attorney’s fees and costs they incurred in defending the instant action to date, and the
Schwartz Defendants’ cross motion is otherwise denied.

II.

Conclusion
For the reasons set forth above, plaintiff’s objection to so much of the Report as finds that

a declaratory judgment on the issue of its duty to indemnify the Schwartz Defendants in the Dos
Ramos and Persuad Actions is premature is sustained, and that part of the Report is modified to
the extent set forth herein; plaintiff’s remaining objections are overruled; and the Report is
otherwise accepted in its entirety. Accordingly, for the reasons set forth herein and in the Report,
(i) plaintiff’s motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil
Procedure is granted to the extent that judgment shall be entered in favor of plaintiff declaring:
(a) that plaintiff has no duty under the subject Policy to defend or indemnify the Schwartz
Defendants from any claims, liabilities, causes of action, or damages which are the subject of the
Dos Ramos Action and the Persuad Action, (b) that plaintiff may withdraw from providing a
defense to the Schwartz Defendants in the Dos Ramos Action and the Persuad Action, and (c)
that plaintiff is entitled to reimbursement from the Schwartz Defendants for defense costs it
incurred in connection with the Dos Ramos Action and the Persuad Action subsequent to the
date of its disclaimer of coverage, and plaintiff’s motion is otherwise denied; and (ii) the
Schwartz Defendants’ cross motion for summary judgment pursuant to Rule 56 of the Federal
Rules of Civil Procedure is granted to the extent that judgment shall be entered in favor of the

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Schwartz Defendants’ declaring: (a) that plaintiff’s duty to defend the Schwartz Defendants in
the Johnson Action remains in effect, and (b) that plaintiff is obligated to reimburse the Schwartz
Defendants for one third (1/3) of the reasonable attorney’s fees and costs they incurred in
defending the instant action to date, and the Schwartz Defendants’ cross motion is otherwise
denied. The Clerk of the Court shall enter judgment in accordance with this Order and close this
case.
SO ORDERED.

__/s/ Sandra J. Feuerstein
Sandra J. Feuerstein
United States District Judge

Dated: December 5, 2019
Central Islip, New York

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