Bank's insurer wants out of $7.4 million judgment entered by Gleeson

Steve Korris Oct. 23, 2009, 1:10am


GREENBELT, Md. – The insurer of a bank facing a $7.4 million judgment in favor of disbarred lawyer Amiel Cueto is seeking a court ruling that it has no duty to defend or indemnify the bank.

St. Paul Mercury Insurance argues in a Maryland federal court proceeding that it did not receive timely notice from American Bank Holdings, Inc. (ABHI) of Cueto's lawsuit against the bank.

St. Clair County Associate Judge Andrew Gleeson entered a default judgment awarding about $98 million to Cueto last year, but trimmed the figure to $28 million this June and $7.4 million in July.

Cueto tried to enforce the judgment in Maryland state court, but a judge ruled in August that Gleeson lacked jurisdiction over ABHI.

By then, Gleeson had grown to doubt his own jurisdiction.

In July he asked Fifth District appeals judges in Mount Vernon to decide whether he lacked jurisdiction and, if so, whether the bank waived objection to his jurisdiction.

Meanwhile the judgment stands, and St. Paul Mercury wants no part of it.

St. Paul Mercury issued a policy covering the bank from 2007 through 2010.

On June 11, 2008, Cueto filed a pro se action against ABHI and others, claiming their actions caused him to lose more than $7 million on a real estate sale.

CT Corporation, the bank's registered agent, accepted service of the suit.

The bank didn't answer the complaint, and Cueto moved for default judgment.

Gleeson granted it on July 23, 2008, initially awarding Cueto $7,390,855.10 in actual damages, $66,517,695.50 in punitive damages, and $24,636,183.65 in attorney fees.

This February, Cueto sued the bank in Maryland state court to collect the judgment.

The bank responded at last in St. Clair County, moving to vacate the judgment.

The bank notified St. Paul Mercury of the judgment, and St. Paul Mercury sued the bank in federal court at Greenbelt, Md. on April 15.

The insurer contended that it had no duty to defend or indemnify the bank.

Bank lawyer Albert Mezzanotte of Baltimore explained in August that no one at the bank knew about the suit until February.

Mezzanote wrote that CT Corporation sent the suit to American Federal Savings Bank, a separate entity at a different address.

He wrote that neither the bank nor CT Corporation received service of Cueto's default motion or Gleeson's judgments.

St. Paul Mercury represented that it would cover the complaint and defend the bank in St. Clair County, he wrote.

St. Paul Mercury did not conduct an investigation to determine whether the judgments were valid and enforceable or whether they could be vacated, he wrote.

St. Paul Mercury never sought an opinion as to the circumstances under which the judgments were entered, he wrote.

For St. Paul Mercury, lawyer Thomas Judge of Washington, D.C. answered that a claim is made when service is perfected.

"ABHI cannot pretend that it did not have notice of the Cueto claim when its registered agent undeniably received such notice," Judge wrote.

St. Paul Mercury reserved its rights from the outset, he wrote, and it never assumed the bank's defense in the Cueto suit.

He wrote that CT sent the package to a person who had left the company.

He wrote that "failure by the insured to update routing instructions for legal process precludes coverage."

He wrote that the policy limited liability to $2 million per year.

"ABHI reportedly has spent hundreds of thousands of dollars seeking to vacate these judgments," he wrote.

On Sept. 17, Judge asserted that St. Paul Mercury could limit or preclude coverage due to a determination that the bank engaged in deliberate fraud.

He wrote that St. Paul Mercury could limit coverage due to the bank's failure to obtain consent before incurring defense costs.

He wrote that St. Paul Mercury could limit or preclude coverage due to the bank's failure to provide complete and accurate information about Cueto's suit.

The Maryland dispute landed in Gleeson's court on Oct. 19, when bank lawyer Gary Feinerman of Chicago asked him to accept the insurance policy as an appeal bond in connection with the bank's appeal from the default judgment in favor of Cueto.

Cueto said, "This is a mess they have created, not me or the court or anyone else."

Gleeson told Feinerman, "Your client has put me in a real trick bag."

Alluding to Gleeson's certification of an appeal concerning his jurisdiction to have entered a default against ABHI, Feinerman said a judge in Maryland shared Gleeson's doubts about jurisdiction.

Gleeson said, "That is not precedential."

He said, "Your client has presented to me a Pandora's box of problems."

Cueto said, "They knew when they tendered this (insurance policy as a bond), it was worthless."

Gleeson said he was reluctant to accept the insurance policy, and asked if there were other options.

Feinerman said, "Not at the moment."

Gleeson declared a break and returned in 20 minutes.

"I am going to accept the insurance policy as surety," he said.

Cueto said, "I'm going to file a notice of appeal."

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