UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 10-2404

MINNESOTA LAWYERS MUTUAL INSURANCE COMPANY,

Plaintiff - Appellee,
v.
ANTONELLI, TERRY, STOUT & KRAUS, LLP; DONALD E. STOUT, Esq.,
Defendants - Appellants,
and
ADRIENNE ANDROS FERGUSON, individually and on behalf of THE
ESTATE OF ANDREW A. ANDROS; EMILY J. ANDROS, individually
and on behalf of THE ESTATE OF ANDREW A. ANDROS; JULIA LYNN
ANDROS, individually and on behalf of THE ESTATE OF ANDREW
A. ANDROS; PENELOPE J. ANDROS, individually and on behalf of
THE ESTATE OF ANDREW A. ANDROS; JOHN S. RICHARDS; ABBAS
YOUSEF; MIRSUL INVESTMENTS S.A.; IMPORTECHNO INTERNATIONAL
INCORPORATED,
Defendants.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.
Liam OGrady, District
Judge. (1:08-cv-01020-LO-TCB)

Argued:

December 6, 2011

Decided:

Before MOTZ, GREGORY, and KEENAN, Circuit Judges.

Affirmed by unpublished per curiam opinion.

March 29, 2012

ARGUED: Lon Arthur Berk, HUNTON & WILLIAMS, LLP, McLean,

Virginia, for Appellants.
Danny Mark Howell, SANDS ANDERSON,
PC, McLean, Virginia, for Appellee. ON BRIEF: Brian J. Gerling,
HUNTON & WILLIAMS, LLP, McLean, Virginia, for Appellants.
Mikhael D. Charnoff, SANDS ANDERSON, PC, McLean, Virginia, for
Appellee.

Unpublished opinions are not binding precedent in this circuit.

PER CURIAM:
Antonelli, Terry, Stout & Kraus, LLP (the Antonelli Firm)
and Donald E. Stout, Esq. (Stout) (collectively Appellants)
seek

declaratory

judgment

that

their

insurer,

Minnesota

Lawyers Mutual Insurance Co. (MLM), has a duty to defend them

in a pending Florida state court action (the Ferguson action).
The district court, applying Virginia law, determined that MLM
does not have a duty to defend Appellants because the Ferguson
complaint

falls

within

Enterprise Exclusion.

the

insurance

policys

Business

We affirm.

I.
This case returns to us after we previously reversed and
remanded the district courts dismissal of the action.

Minn.

Lawyers Mut. Ins. Co. v. Antonelli, Terry, Stout & Kraus, LLP,
355 F. Appx 698 (4th Cir. 2009).

We instructed the district

court on remand to decide[ ] whether the allegations in the

[Ferguson]
policy.

complaint
Id. at 702.

were

within

the

scope

of

the

insurance

To do so, the district court compared the

Ferguson complaint and the insurance policy.

The district court

thoroughly described both documents, so we need only briefly

recount the most salient points.

A.
According to the Ferguson complaint, in 1986, inventor and
entrepreneur Andrew Andros formed Telefind Corp. in order to
develop and market wireless email technology (WET).
retained

Appellants

behalf.

Over

attorneys

to

to

perform

time,

patent

Appellants

equity

investors

role
to

Telefind

prosecutions
evolved:

on

from

increasingly

its
pure

immersing

themselves in counseling and managing Telefinds strategy and

operations.
Telefind
group

of

Richards

received

outside

substantial

investors

Investors

lent

(the

financial
Richards

Telefind

$6

backing

from

Investors).

million

via

a
The

loan

convertible to equity through a Panamanian corporation, Flatt

Morris,
serve

S.A.

as

The

trustee

loan
for

agreement

Flatt

specified

Morris

and

that

would

Stout

hold

would

all

of

Telefinds intellectual property [both current and prospective]

in trust for the benefit of Flatt Morris . . . in the event that
Telefind defaulted.

Over time, Appellants acquired a majority

equity share of Flatt Morris, including its Telefind assets.

In 1989, Telefind signed a leasing agreement with Computer
Leasco, Inc. (Leasco) whereby Leasco provided Telefind with
computers in exchange for a monthly fee and a security interest
in Telefinds intellectual property.
on its payments, Leasco sued.

When Telefind fell behind

Around the same time, Telefind

4

began negotiating with AT&T and France Telecom regarding the

potential

sale

of

its

WET.

Concerned

that

Leasco

might

interrupt these negotiations with a judgment against Telefind,

Stout negotiated a standstill agreement with Leasco pending
the outcome of the AT&T and Telecom negotiations.
As the negotiations faltered and Leasco became impatient,
Stout devised

Investors

Andy

and

legal

strategy

Andros

that

would

he

told

legally

Telefind[s] . . . interest in the [WET].

[the]

protect

Richards
.

In order to avoid

Telefinds creditors, Stout recommended placing the WET patents

in a separate legal entity.

Stout stressed that the Ferguson

plaintiffs would lose their entire interest in the [WET] if

they did not follow his advice.
To implement Stouts strategy, three ESA Telecommunications
(ESA)

employees

previously

inventors.
Investors

filed
Stout

could

the

company
WET

patents

emphasized

not

have

that

that

any

Telefind

in

their

Andros

documented

and

worked
own
the

direct

with

names

as

Richards
ownership

interest in the [WET], but he assured them that they would

continue
[WET].

to

participate
Pursuant

to

in

any

this

benefits

associated

understanding,

the

with

Ferguson

plaintiffs disavowed their legal interest in the patents.

ESA employees then assigned the patents to Stout.

the

The

Finally, in

June 1992, Stout created a shell corporation, NTP, Inc., to hold

the WET patents.
The strategy succeeded.

Though Leasco eventually obtained

a judgment against Telefind, NTP prevented Leasco from obtaining

any share of the WET patents.

NTPs success was based, in part,

on representations from Andros stating that he had no interest

in the WET.

Andros allegedly made these representations based

on Appellants assurances that he would continue to retain a

share of any future profits.
In late 2001, ten months after Andros died, NTP filed a
patent infringement action against Research In Motion (RIM),
alleging

that

RIMs

Blackberry

system

patents.

In March 2006, RIM settled the suit for $612.5 million

and received a perpetual license.

infringed

on

the

WET

Stout, his partners at the

Antonelli firm, and others apportioned the settlement.

When Andross surviving family and the Richards Investors
contacted Stout regarding their share of the RIM settlement,
Stout denied the existence of any such arrangement and refused
to share the settlement.

The Ferguson action ensued, asserting,

on the bases of the above facts, claims of breach of fiduciary

duty,

breach

estoppel.

In

of

contract,

the

unjust

complaint,

the

enrichment,
Ferguson

promissory

plaintiffs

challenge NTPs ownership of the WET patents.

and

do

not

They argue only

that their implicit understanding with Appellants was that they

would receive a share of any WET profits.
B.
During

the

relevant

period,

the

Antonelli

Firm

had

Professional Liability Insurance Policy (the Policy) with MLM

that covered
all sums . . . which the INSURED may be legally
obligated to pay as DAMAGES due to any CLAIM:
(1) arising out of any act, error or omission of the
INSURED or a person for whose acts the INSURED is
legally responsible; and
(2) resulting from the rendering or failing to render
PROFESSIONAL SERVICES while engaged in the private
practice of law . . . .
Applying this language, the district court determined that some
of the damages alleged in the Ferguson complaint resulted from
[covered] legal services rendered by [Appellants].

It thus

held that, barring any applicable exclusions, MLM has a duty to

defend [Appellants] in the underlying action.

MLM does not

challenge this conclusion on appeal.

The district court next considered MLMs argument that the
allegations

in

the

Ferguson

complaint

Business Enterprise Exclusion (BEE).

triggered

the

Policys

The BEE excludes

Before the district court, MLM also argued that it had no

duty to defend because (1) the Ferguson allegations fell within
the Specific Entity Exclusion and (2) Stout failed to provide
adequate notice. The district court did not reach these claims,
however, and MLM does not reassert them on appeal.
7

any
CLAIM
arising
out
of
PROFESSIONAL
SERVICES
rendered by any INSURED in connection with any
business enterprise:
(a) owned in whole or part;
(b) controlled directly or indirectly; or
(c) managed,
by any INSURED, and where the claimed DAMAGES resulted
from conflicts of interest with the interest of any
client or former client or with the interest of any
person claiming an interest in the same or related
business enterprise.
The district court found that the BEE applied because
[Appellants]
rendered
[professional]
services
in
connection with the Telefind, Flatt Morris, and NTP
enterprises.
Flatt Morris and NTP were both owned,
controlled, or managed by [Appellants].
The damages
alleged in the complaint resulted from a conflict of
interest
between
[Appellants]
and
the
Ferguson
Plaintiffs, who claimed an interest in NTP, Telefind,
and Flatt Morris.
Appellants challenge this determination.

II.
Appellants first argue that a number of terms within the
BEE are ambiguous, and therefore should be construed in their
favor.
would

Applying such a favorable construction, they contend,

demonstrate

within the BEE.

that

the

Ferguson

complaint

does

not

fall

We must reject this argument.

Under Virginia law, insurance policies and their exclusions

are

construed

according

to

contract

principles.

Seabulk

Offshore, Ltd. v. Am. Home Assur. Co., 377 F.3d 408, 419 (4th
Cir. 2004).
alleged

Insurers bear the burden of establishing that the

conduct

unambiguously

falls
8

within

the

exclusionary

language.
Cir.

Fuisz v. Selective Ins. Co., 61 F.3d 238, 242 (4th

1995).

If

contract

contains

ambiguities

it

must

be

construed against the insurer, [b]ut this does not authorize

the court to make a new contract for the parties, nor to adopt a
construction
parties.

not

justified

by

the

language

or

intent

of

the

Res. Bankshares Corp. v. St. Paul Mercury Ins. Co.,

407 F.3d 631, 636-37 (4th Cir. 2005) (quoting Ocean Accident &
Guar. Corp. v. Wash. Brick & Terra Cotta Co., 139 S.E. 513, 517
(1927)).

Thus we must determine whether the BEE unambiguously

applies to the Ferguson complaint pursuant to a reading of the

exclusion

that

is

reasonable

and

avoids

absurd

results.

Transit Cas. Co. v. Hartmans Inc., 239 S.E.2d 894, 896 (Va.
1978).
Under the terms of the Policy, the BEE excludes coverage
for

claims

(1)

arising

out

of

professional

services

(2)

rendered in connection with any business enterprise (3) owned,

controlled, or managed, by any insured, and (4) resulting from
conflicts of interest with the interest of any client or former
client.
There

is

no

dispute

that

this

case

aris[es]

out

of

professional services that Appellants provided to the Ferguson

plaintiffs, thereby satisfying the first requirement of the BEE.
Appellants

counseled

Andros

and

others

to

renounce

their

interest in the WET patents in order to avoid their creditors.

9

This strategy prevented Leasco from reaching the WET assets, but
also created the circumstances whereby plaintiffs were frozen
out of future profits.
Further, and just as clearly, these professional services
were

rendered

in

connection

with

[a]

business

enterprise,

meeting the second requirement of the exclusion.

The phrase in

connection

that

with

is

common

particularly broad scope.

insurance

phrase

is

given

See, e.g., Goldman Paper Stock Co. v.

Richmond, F. & P.R., 212 Va. 293, 296 (Va. 1971) (in connection
with broader than arising out of); see also Coregis Ins. Co.
v. Am. Health Found., Inc., 241 F.3d 123, 128-29 (2d Cir. 2001)
(explaining in connection with encompasses more than causal
connection); Metro. Prop. & Cas. Ins. v. Fitchburg Mut. Ins.,
793 N.E.2d 1252, 1255 (Mass. App. 2003) (In connection with
should not be construed narrowly but [is] read expansively in
insurance contracts.) (collecting cases).

Moreover, although

the phrase business enterprise is not defined by the policy,

there

can

be

little

dispute

that

it

encompasses

the

various

corporations involved here -- Telefind, Flatt Morris, and NTP.

The

Ferguson

complaint

also

clearly

meets

the

third

requirement of the exclusion since it alleges that Appellants

owned, controlled, or managed at least Flatt Morris and NTP.
Stout

served

eventually

as

acquired

trustee
a

for

majority
10

Flatt
equity

Morris,

and

interest.

Appellants
Similarly,

Stout helped incorporate NTP.

NTP had no employees and Stout,

other attorneys at the Antonelli Firm, and their families were

among NTPs few shareholders.
Finally,

the

asserted

conflicts of interests.
allegedly

obtained

damages

surely

resulted

from

The defendant attorneys in this case

complete

ownership

and

control

of

their

clients assets and exploited those assets for personal benefit.

This conduct violates any number of Virginia professional ethics
rules.

See, e.g., Va. R. Profl Conduct 1.8(a) (A lawyer shall

not enter into a business transaction with a client or knowingly

acquire an ownership, possessory, security or other pecuniary
interest adverse to a client . . . .); id. at 1.8(b) (A lawyer
shall not use information relating to representation of a client
for the advantage of the lawyer or of a third person or to the
disadvantage of the client . . . .); id. at 1.8(j) (A lawyer
shall not acquire a proprietary interest in the cause of action
or subject matter of litigation the lawyer is conducting for a
client . . . .).
In sum, we find the allegations of the Ferguson complaint
unambiguously fall within the BEE.

III.
Perhaps recognizing the weakness of their contention that
the BEE does not apply, Appellants offer one other argument.

11

They assert that even if this exclusion applies to the Ferguson

complaint on the whole, because the Ferguson plaintiffs might
prove

only

the

allegations

falling

within

coverage

without

proving the allegations within the exclusion, the district court

should have found a duty to defend.
out

that

insurers

are

required

Appellants correctly point

to

defend

insureds

if

allegations may potentially be covered by the policy.

any
CACI

Intl, Inc. v. St. Paul Fire & Marine Ins. Co., 566 F.3d 150,
154 (4th Cir. 2009).
owes

duty

to

Under this potentiality rule, an insurer

defend

if

complaint

alleges

facts

and

circumstances, some of which would, if proven fall within the

risk

covered

Northbrook

by

Prop.

the
&

policy.

Cas.

Ins.

Va.
Co.,

Elec.

475

&

S.E.2d

Power
264,

Co.
265

v.
(Va.

1996).
Appellants

hypothesize

that

the

Ferguson

plaintiffs

prove allegations that trigger coverage, but not the BEE.

example,

the

Ferguson

plaintiffs

may

prove

that

may
For

Appellants

provided professional services by advising their clients how to

avoid their creditors, but may fail to show that these services
were rendered in connection with any business enterprise or
resulted from conflicts of interest.

In essence, Appellants

argue that the Ferguson action may amount to merely a claim for
legal malpractice.

We reject this hypothesis.

12

Virginias
complaint

and

potentiality
determine

rule

whether

requires
any

us

potential

that complaint would fall within the Policy.

566 F.3d at 155.

to

examine

judgment

the

under

See CACI Intl,

This process does not disregard the actual

allegations that are made.

See, e.g., Nationwide Mut. Ins. Co.

v. Overlook, LLC, 785 F. Supp. 2d 502, 533 (E.D. Va. 2011)

(refusing
because

insureds
every

attempt

claim

in

to

pick

the

out

certain

underlying

allegations
.

complaint

implicates the defective drywall as the basis for the claim, or

the cause of the resulting damages.

Thus every claim implicates

the Pollution Exclusion.).

In the Ferguson complaint, each cause of action is premised
on

an

agreement

between

plaintiffs

would share any WET proceeds.

and

Appellants

that

they

As both parties acknowledged at

oral argument, because the plaintiffs consented to every initial

step of Appellants strategy, if Appellants had shared the WET
proceeds with the Ferguson plaintiffs, there would be no loss
for the Ferguson plaintiffs to recover.
loss, there can be no duty to defend.

Without any potential

See Va. Elec. & Power,

475 S.E.2d at 265-66 (explaining insurer has no duty to defend

where there is no possibility that insurer will be required to
indemnify insured).

Thus because the breach of the agreement is

central to any potential recovery, Appellants cannot obtain a

defense by having a court assume plaintiffs will fail to prove
13

the heart of their allegations.

Rather, we must evaluate the

Ferguson complaint presuming that plaintiffs will prevail.

In

doing so, we conclude that MLM has no duty to defend because the
BEE

applies.

See

Part

II,

supra;

see

also

AES

Corp.

v.

Steadfast Ins. Co., 715 S.E.2d 28, 33 (Va. 2011) (The gravamen
of [the] nuisance claim is that the damages sustained were the
natural

and

probable

consequences

of

AESs

intentional

emissions.); Fuisz, 61 F.3d at 243 ([I]f the Terex complaint

only permits Terex to recover upon proof that Fuisz specifically
intended to cause the company injury, then Selective has no duty
to defend Fuisz.).
Appellants heavy reliance on Parker v. Hartford Fire Ins.
Co., 278 S.E.2d 803 (Va. 1981), is misplaced.

The policy at

issue in Parker specifically excluded intentional torts, and the

underlying complaint alleged a willful trespass.

The Supreme

Court of Virginia determined that the action was nonetheless

covered by the policy because the pleadings could also support a
claim

of

unintentional

trespass.

Id.

at

804

(citing

Chesapeake & O. R. Co. v. Greaver, 66 S.E. 59, 60 (Va. 1909)).

Appellants seek to stretch Parker too far.

Parker is premised

on a unique feature of Virginia trespass law -- when a landowner

alleges

intentional

allegation,

the

trespass

owner

is

but

still

fails

entitled

to
to

sustain
recover

damages on proof of the unintentional trespass.

14

this
actual

Id. at 804.

Parker thus stands for the principle that alternative causes of

action that give rise to a duty to defend include both those
explicitly alleged and those implied by law.

In this case,

however, Appellants have cited no authority, and we have found

none, demonstrating that any of the Ferguson causes of action
implicitly create a claim for legal malpractice that might fall
within the Policy.
Appellants reliance on authority finding a duty to defend
where some alternative allegations fall within the policy is
also

unavailing.

Cases

considering

alternatively

worded

complaints do not look to any conceivable cause of action.

They

require that the complaint actually asserts the claim.

See,

e.g., Fuisz, 61 F.3d at 245 (avoiding intentional act exclusion

because each of the four causes of action alleged reckless
disregard
Ferguson

in

addition

complaint

does

to

actual

not

malice).

assert

legal

Given

that

malpractice

the

as

an

alternative theory, we will not infer such potential liability.

IV.
For the foregoing reasons, the judgment of the district
court is
AFFIRMED.

15