Friday, September 12, 2014
Panel Asks Alaska Court for Help in Coverage Case
Malpractice Insurance Dispute Is Related to Charges Against Former Prosecutor
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals has asked the Alaska Supreme Court for help in untangling an insurance coverage dispute related to the case of a former Bay Area prosecutor who admitted taking more than $52 million from a trust.
Judge Jacqueline Nguyen, writing Wednesday for the court, said the case involved controlling issues of Alaska law as to which the Alaska high court has never ruled, and as to which federal judges in the state have reached conflicting conclusions.
The dispute arose after the trustee for the bankruptcy estate of Security Aviation, a company founded by Mark J. Avery, sued an Alaska law firm for converting more than $100,000 the trustee said rightfully belonged to the bankruptcy estate.
The firm, Ingaldson Fitzgerald, P.C.—formerly Ingaldson, Maasen & Fitzgerald—represented Avery, a former San Francisco district attorney currently under indictment for wire fraud, and Security Aviation in civil proceedings brought by the May Smith Trust. It also represented Avery’s business associate, Rob “Commander” Kane, in his successful defense of federal firearms charges.
The trustee claimed the converted funds were part of a $150,000 retainer for the firm’s services in the Kane case, and that a portion was retained by the firm as legal fees and the rest returned to Kane.
The law firm tendered its malpractice defense to its carrier, Montana-chartered Attorneys Liability Protection Society, Inc. The company agreed to defend the firm under a reservation of rights, with right of reimbursement if it was determined there was no coverage.
The insurer sued the law firm in federal district court in Alaska, seeking a declaration that no coverage existed, as well as for reimbursement. A district judge ruled that even if there was no coverage, an Alaska statute precluded reimbursement.
The statute reads:
“In providing independent counsel, the insurer is not responsible for the fees and costs of defending an allegation for which coverage is properly denied and shall be responsible only for the fees and costs to defend those allegations for which the insurer either reserves its position as to coverage or accepts coverage.”
The plain reading of the law, Nguyen said, is that the insurer must “cover defense costs if it either covers the claims against its insured, or defends pursuant to a reservation of rights.” What the law “does not squarely address,” she said, is whether the insurer, by including specific language in the policy and in its reservation of rights letter, may retain a right to reimbursement.
The court asked the Alaska court to determine that issue, and—in the event the court determines that the statute precludes reimbursement based on the policy, whether the insurer can obtain reimbursement on a different ground, “that the duty to defend never arose under the policy because there was no possibility of coverage.”
The case is Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., 13-35115.
‘Back to Scratch’
In the criminal case against Avery, the government went “back to scratch,” a prosecutor told reporters, after the Ninth Circuit threw out his original convictions for fraud and money laundering last year.
Avery pled guilty in 2008 and was sentenced to 8.5 years in prison. But the court granted habeas corpus relief under Skilling v. United States (2010) 130 S. Ct. 2896, which rejected the Justice Department’s broad interpretation of the federal law making “honest services” fraud a crime, limiting the reach of the law to bribery and kickback schemes.
The ruling allowed prosecutors to press the case if they believe they can convict him on a different theory. He was reindicted last fall.
The information to which he originally pled guilty accused Avery of having engaged “in a fraudulent financing scheme in which he abused his fiduciary obligations and his position of trust to acquire over $52 million dollars through an ambiguous loan arrangement which used the May Smith Trust as collateral.”
According to news accounts—the case has been reported on in the San Francisco Chronicle and in several Alaska publications—Avery was one of three trustees, a position that reportedly paid him about $400,000 per year, in addition to fees for legal services rendered. He took over as a trustee following the 2001 death of his father, prominent tax and trust attorney Luther Avery.
Prior to his father’s death, Mark Avery was a deputy district attorney, first in Santa Clara County and then in San Francisco. He was one of 14 deputies fired by incoming District Attorney Terence Hallinan in 1996.
Avery, who Hallinan told the Chronicle was “real bitter” about the firing, claimed the termination violated his free speech rights and sued, but was unsuccessful. He subsequently moved to Alaska at the urging of a friend.
Avery got a job as a prosecutor in Anchorage, resigning after his father died and he took over as one of the Smith trustees. The beneficiary, who suffered from dementia and died in 2006, was the widow of an Australian who made hundreds of millions of dollars through mining in Malaysia.
The $52 million that Avery borrowed was used to pay for various items and to pay off “personal mortgages”—Avery bought a 5,300-square foot mansion in the Anchorage suburbs—and pay for jet air travel for him and others, including the other trustees and their friends and families. He also used the money to start Security Aviation and other businesses that collapsed, forcing him to file for bankruptcy and resulting in foreclosure on collateral that had belonged to the trust.
The Chronicle reported that “he also bought five World War II- vintage planes, a dozen Czech jet fighters, several helicopters, a $230,000 Carver Yacht, a Navy-style patrol boat, two Soviet-era rocket launchers, several all-terrain vehicles, two motor homes and several snow machines.”
Kane reportedly obtained the jet fighters with plans to transfer them to the Philippines to train pilots, even though that country has no air force.
Copyright 2014, Metropolitan News Company