First Circuit Addresses Scope of Antitrust Exclusion in E&O Policy

by Traub Lieberman Straus & Shrewsberry LLP

In its recent decision in The Saint Consulting Group, Inc. v. Endurance Am. Specialty Ins. Co., 2012 U.S. App. LEXIS 22631 (1st Cir. Nov. 2, 2012), the United States Court of Appeals for the First Circuit, applying Massachusetts law, had occasion to consider the application of a restraint of trade exclusion in a professional liability policy.
The insured, The Saint Consulting Group (“Saint”), was a real estate consulting firm specializing in land use disputes. In particular, Saint had developed a specialty in representing grocery stores in their attempts to prohibit or delay Wal-Mart from opening stores in their client’s territories by spurring litigation and regulatory proceedings. At issue in the insurance coverage dispute were Saint’s efforts to block two Wal-Mart stores from being developed in Illinois. Underlying plaintiff, Rubloff Development, had purchased two parcels of land it intended sell to Wal-Mart to be used for construction of Wal-Mart and other retail stores. Saint, acting on behalf of a competing grocery store, undertook efforts to rally local businesses against the Wal-Mart stores. Saint’s efforts in these regards were led by a single employee, Leigh Mayo, who used a pseudonym while pursuing these efforts, allegedly concocted false stories about the negative the effects of Wal-Mart stores, and concealed the fact that he was a Saint employee working on behalf of a Wal-Mart competitor.
While these anti-Wal-Mart efforts were still proceeding, Leigh Mayo left Saint’s employ, and shortly thereafter sold to Rubloff thousands of internal documents concerning Saint’s efforts to block the Wal-Mart stores. Upon learning of this, Saint demanded the documents back. Rubloff shortly thereafter filed suit action against Saint seeking only a judicial declaration that the documents were not privileged and that Rubloff could keep them for future use in a lawsuit. Rubloff shortly thereafter amended its complaint to seek various forms of injunctive relief concerning other documents in Saint’s possession. While the court dismissed Rubloff’s claim for injunctive relief, it ultimately declared that Rubloff was entitled to keep the documents. Just prior to ruling on Rubloff’s claim for declaratory relief, Rubloff filed a second amended complaint that included substantive causes of actions relating to Saint’s efforts to block or delay the Wal-Mart stores. Specifically, the second amended complaint included causes action of for RICO violations based Saint’s efforts to conceal Mayo’s true identity and employer, conspiracy to restrain trade under the Sherman Act and Illinois Antitrust Act, tortious interference with prospective economic advantage, common law fraud, and conspiracy.
Saint ultimately was successful in having each of these causes of action dismissed. It did so, however, without the assistance of its professional liability insurer, Endurance, which had denied coverage to Saint for the original and amended complaints on the basis of a restraint of trade exclusion stating that coverage did not apply:
… to any Claim based upon or arising out of any actual or alleged price fixing, restraint of trade, monopolization or unfair trade practices including actual or alleged violations of the Sherman Anti-Trust Act, the Clayton Act, or any similar provision [of] any state, federal or local statutory law or common law anywhere in the world.
In the subsequent insurance coverage action, the United States District Court for the District of Massachusetts granted Endurance’s motion to dismiss, concluding that the exclusion barred coverage for the causes of action specifically brought under the Sherman Act and the Illinois Antitrust Act, and that it also applied to the other causes of action since each such cause of action arose out of the same alleged restraint of trade.
In considering the matter on appeal, the First Circuit noted that under Massachusetts law, if even one cause of action escaped the restraint of trade exclusion, then Endurance would have an obligation to defend the suit in its entirety. Beginning first with the amended complaint filed in the underlying action, the court agreed that the causes of action for antitrust violation under federal and state statute were excluded. “Far more interesting” to the court was whether the RICO causes of action and common law causes of action were excluded, notwithstanding the fact that they were not titled as “restraint of trade” counts. In considering this issue, the court observed that the exclusion applied to causes of action “based upon or arising out of any actual or alleged . . . restraint of trade.” The phrase “arising out of,” it noted, is typically afforded a broad construction under Massachusetts law. With this in mind, the court observed that:
It can hardly be disputed that the factual allegations of the Second Amended Complaint allege a conspiracy to forestall competition through misuse of legal proceedings and through deception. And every count in the Rubloff Action that is not itself described as an antitrust claim depends centrally on the alleged existence of such a scheme.
The court therefore concluded that because the statutory and common law causes of action in the second amended complaint were premised on Saint’s efforts to restrain trade, the exclusion applied to each such cause of action. In so holding, the court rejected Saint’s argument that its success in the underlying action evidenced the fact that Saint had not engaged in the prohibited conduct. The court found this argument to be a “non-sequitur,” explaining:
Exclusion N depends not on whether conduct occurred or, if so, whether it was unlawful, but on what the complaint alleged. What was factually alleged in the Second Amended Complaint in no uncertain terms was an anti-competitive scheme and, where the pertinent counts arise out of that alleged scheme, Exclusion N negates coverage. The exclusion does not depend on whether a successful defense can be advanced: it excludes meritless claims quite as much as ones that may prove successful.
After concluding that Saint was not entitled to coverage for the second amended complaint, the court then sought coverage for the initial complaint concerning only Rubloff’s declaratory judgment action to keep the internal documents sold by Mayo as well as certain injunctive relief. The court concluded that coverage was unavailable for that complaint, since the dispute over possession of documents did not involve a wrongful act arising out of Saint’s professional services, and thus did not fall within the policy’s insuring agreement.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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