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Cincinnati Insurance Co. v. Regions Bank

United States District Court, E.D. Tennessee, Chattanooga

September 27, 2019

CINCINNATI INSURANCE CO., Plaintiff and Counter-Defendant,
v.
REGIONS BANK, Intervenor Plaintiff, Counter-Claimant, And Cross-Claimant,
v.
MARY McLEAN and TIMOTHY McLEAN, Defendants, Cross-Defendants, and Counter-Claimants,
v.
IN RE $125, 000, Intervenor.

          LEE JUDGE

          MEMORANDUM OPINION & ORDER

          REEVES JUDGE

         What began as an action for declaratory relief filed by Cincinnati Insurance Co. (“Cincinnati Insurance”) against Mary McLean and Timothy McLean (collectively, the “McLeans”) is now an interpleader action between the McLeans’ former attorney, William T. Alt, P.C. (“Alt”), and Regions Bank. In the original dispute, Cincinnati Insurance deposited $125, 000 with the Court in accordance with a settlement between Cincinnati Insurance, the McLeans, and Regions Bank. Alt contends that he has a priority charging lien on the settlement funds arising from representation in the separate state-court action that prompted this case. Regions Bank contends that they have a priority lien on the settlement to the funds as garnishee to money owed to the McLeans and held by Cincinnati Insurance.

         Three motions are before the court: Alt’s motion for summary judgment [D. 83], Regions Bank’s cross-motion for summary judgment [D. 86], and Alt’s motion to strike an affidavit filed by Regions Bank in support its cross motion for summary judgment [D. 94]. The Court will first address the cross-motions for summary judgment, followed by the motion to strike.

         I. Motions for Summary Judgment

         A. Background

         1. History of the Case

          This decade-long litigation saga began in 2009 when Jason and Honey Taylor sued the McLeans and their contractor, Vision Homes, LLC (“Vision Homes”) in the Hamilton County Chancery Court, due to a dispute regarding construction of a new home in Signal Mountain, Tennessee on neighboring property. The McLeans cross-claimed against Vision Homes for a variety of construction defects and contractual violations. Cincinnati Insurance aided Vision Homes in its defense of the cross-claim brought by the McLeans because the suit alleged property damage, which triggered Cincinnati Insurance’s obligation to defend under an insurance policy.

         However, the home was never completed and the McLeans defaulted on their construction loan from Regions Bank. In 2013, Regions Bank foreclosed on the property and sought to recover a deficiency from the McLeans. This case was consolidated with the prior case against the McLeans, and Regions Bank received a deficiency judgment in July 2015 in the amount of $419, 420.99. Regions Bank recorded the judgment in the Hamilton County Register’s Office on September 22, 2015.

         In 2016, the McLeans prevailed in their claim against Vision Homes in the amount of $536, 000. But, because of the previous foreclosure on the home by the time of trial, the McLeans instead sought restitution damages under the contract between Vision Homes and the McLeans, not property damages. The Hamilton County Chancery Court awarded restitution damages. However, Vision Homes had been dissolved in 2013, leaving Cincinnati Insurance, insurer of Vision Homes, in a predicament. Cincinnati Insurance had participated in Vision Homes’ defense because the suit alleged property damage, but the restitution damages awarded were debatably not covered by the insurance policy’s indemnification provisions.

         Consequently, in June 2016, Cincinnati Insurance brought this action in this Court seeking a declaratory judgment as to whether, under its contract with Vision Homes, it was obligated to indemnify Vision Homes for the damages awarded to the McLeans in the state court action.

         In July 2016, Regions Bank brought a garnishment action in the Hamilton County Chancery Court seeking to garnish any money owed to the McLeans by Cincinnati Insurance, later moving for entry of conditional judgment and for a writ of scire facias. However, Cincinnati Insurance removed the garnishment action to this Court in August 2016, and, in September 2016, Regions Bank moved to intervene in this case, which this Court allowed.

         In October 2016, the parties were ordered to mediation, which resulted in a tentative settlement between Cincinnati Insurance, the McLeans, and Regions Bank. Notably, the settlement required that “[Cincinnati Insurance] would pay $125, 000, which would go to [Regions Bank].”

         2. Development of Mr. Alt’s Claim

         Alt represented the McLeans in the Vision Homes litigation pursuant to a retainer agreement executed on August 3, 2015 and substituted for the McLeans’ original counsel. However, the protracted litigation sapped the McLean’s ability to pay Alt’s rate and Alt and the McLeans amended the retainer to provide Alt with a contingency fee of “25% of any judgment that is recovered by the McLeans against Vision Homes, LLC, but in no event less than Fifty Thousand Dollars ($50, 000).” He recorded an “Abstract of Lien Lis Pendens” in the Hamilton County Register’s Office on December 4, 2015, along with a “Notice of Attorney’s Statutory Lien.”

         Alt continued to represent the McLeans in this case as well, including at the aforementioned mediation. Alt purportedly accepted the settlement on the McLeans behalf, then withdrew his representation due to a conflict of interest. He then filed his first motion to intervene in this case, seeking a lien on the settlement funds to recover attorney’s fees.

         3. Clash of Claims

          The ensuing confusion arising from Alt’s claim ultimately scuttled the settlement. After cross-motions to enforce the settlement, the Court found in July 2017 that the ambiguity in the ...


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