Minnesota Lawyers Mutual Insurance Company v. THOMAS J. AHRENS, Esquire

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 10-2779
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MINNESOTA LAWYERS MUTUAL INSURANCE COMPANY
v.
THOMAS J. AHRENS, Esquire; AHRENS LAW FIRM, P.C.;
DAVID E. RICKER; RANDALL WAGNER; JOHN JARBOE;
LARRY L. HATTER; JAMES J. GREEN, SR.; KEITH HOSTLER;
ANGELA HICKEY; ORREL E. PICKLESIMER, Executor of the
Estates of Edsel Picklesimer; MARK RANDALL; NEIL BARR
DAVID E. RICKER,
Appellant
____________
No. 10-2780
____________
MINNESOTA LAWYERS MUTUAL INSURANCE COMPANY
v.
THOMAS J. AHRENS, Esquire; AHRENS LAW FIRM, P.C.;
DAVID E. RICKER; RANDALL WAGNER; JOHN JARBOE;
LARRY L. HATTER; JAMES J. GREEN, SR.; KEITH HOSTLER;
ANGELA HICKEY; ORREL E. PICKLESIMER, Executor
of the Estates of Edsel Picklesimer; MARK RANDALL; NEIL BARR
Randall Wagner; John Jarboe; Larry L. Hatter; James J. Green, Sr.;
Keith Hostler; Angela Hickey; Orrel E. Picklesimer, Executor of
the Estate of Edsel Picklesimer; Mark Randall; Neil Barr,
Appellants

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____________
On Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. No. 09-cv-01661)
District Judge: William W. Caldwell
____________
Submitted Under Third Circuit LAR 34.1(a)
June 23, 2011
Before: HARDIMAN, GREENBERG, Circuit Judges
and POLLAK * District Judge.
(Filed: June 23, 2011)
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OPINION OF THE COURT
____________
HARDIMAN, Circuit Judge.
Minnesota Lawyers Mutual Insurance Co. (MLM) sought a declaration that an
insurance policy issued to Thomas Ahrens, Esq. and his law firm (collectively, Ahrens)
did not oblige MLM to defend or indemnify Ahrens in two Pennsylvania suits brought by
clients of the firm. The District Court granted judgment on the pleadings and the clients
appealed. Essentially for the reasons stated in the District Court‟s well-reasoned
opinions, we will affirm.
*The Honorable Louis H. Pollak, Senior Judge for the United States District Court
for the Eastern District of Pennsylvania, sitting by designation.

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I
Because we write for the parties, we recount only the essential facts and procedural
history.1 Under Pennsylvania law, an insurer‟s duty to defend is determined by comparing
the allegations in the third parties‟ complaint(s) to the conditions of the insurance policy
at issue, so the facts are drawn from the clients‟ Pennsylvania state court complaints. See
Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 226-27 (3d Cir. 2005) (citing Gen.
Accident Ins. Co. of Am. v. Allen, 692 A.2d 1089, 1095 (Pa. 1997)). In addition, the
procedural posture of the case obliges us to construe all facts and inferences in the light
most favorable to the clients. E.I. Dupont de Nemours & Co. v. United States, 508 F.3d
126, 132 (3d Cir. 2007).
Under the policy at issue, MLM insured Ahrens for losses “resulting from the
rendering or failing to render PROFESSIONAL SERVICES while engaged in the private
practice of law.” “Professional services” were defined in relevant part as “legal or notary
services for others.” At the same time, Exclusion 13 to the policy excluded coverage for
“any CLAIM arising out of the solicitation or sale of specific securities or specific
investments by [Ahrens].” The only issue on appeal is whether Exclusion 13 precludes
coverage for the allegations in the clients‟ state court complaints.
In late 2008 and early 2009, Ahrens spoke individually with ten of the firm‟s
1 The District Court had diversity jurisdiction under 28 U.S.C. § 1332. We have
jurisdiction under 28 U.S.C. § 1291.

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clients about a money-making opportunity. Ahrens described the opportunity differently
to different clients, calling it variously a “loan” or an “investment.” Although the details
varied from client to client, generally Ahrens convinced his clients to transfer money to
him which he would in turn transfer to another client, Alfred Madeira. Ahrens said
Madeira was working with a financial “whiz kid” named Sean Healy who was making
large amounts of money trading gold and commodities futures. Ahrens told his clients
that Madeira and Healy had a bank account that had been temporarily frozen by
regulators, showing some clients an account statement with a balance of $79,000,000.
Ahrens said Madeira and Healy needed cash to continue investing in commodities futures.
He promised extravagant returns ranging from 20% to 50% within a few months, and
assured his clients that, at the very least, any money given to Madeira and Healy would be
repaid from the account once it was unfrozen. All told, over $9,000,000 was transferred
from the ten clients to the Ahrens firm‟s escrow account and from there to Madeira. To
facilitate these transactions, Ahrens provided a number of services, including executing
and notarizing notes and documents memorializing the transactions, and preparing
mortgages on a property owned by Madeira to secure the contributions of at least three of
the clients.
Unsurprisingly, the too-good-to-be-true opportunity touted by Ahrens turned out to
be just that. Healy and his wife were operating a Ponzi scheme and instead of investing
the clients‟ money in commodities futures used it to repay former investors and fund their

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lavish lifestyle in Florida. The bank statement showing a $79,000,000 balance in
“frozen” funds was a fraud, and the mortgages on property owned by Madeira turned out
to be the fourth, fifth, and sixth mortgages on the same property, whose fair market value
was less than the amount for which it had been mortgaged. Finally, while the clients
allege that Ahrens was an unwitting dupe of the Ponzi scheme, they simultaneously allege
that Ahrens expected Madeira to pay him one dollar in “legal fees” for each dollar Ahrens
brought into the scheme.
When it became clear that they would neither be repaid nor receive the extravagant
returns they had been promised, the clients sued Ahrens in the Court of Common Pleas of
Cumberland County, Pennsylvania. David Ricker brought one suit and the nine other
clients (collectively, the Wagner Appellants) brought another. Ricker‟s second amended
complaint and the Wagner Appellants‟ complaint both alleged state law claims for legal
malpractice, negligent misrepresentation, and breach of fiduciary duty.
In August 2007, MLM filed a complaint against Ahrens and the clients in District
Court seeking a declaratory judgment that it had neither a duty to defend nor a duty to
indemnify Ahrens in the two Cumberland County lawsuits. The Wagner Appellants filed
an answer and counterclaim seeking a declaration that MLM had a duty to indemnify
Ahrens. In March 2010, after the pleadings were closed, Ricker and the Wagner
Appellants filed motions for judgments on the pleadings under Federal Rule of Civil
Procedure 12(c).

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The District Court denied the clients‟ motions and entered judgment for MLM,
declaring that MLM had no duty to defend Ahrens in the state court suits because all of
the clients‟ claims arose out of Ahrens‟s solicitation of the investment opportunity with
Madeira and Healy, which was subject to Exclusion 13 of the insurance policy. The
Wagner Appellants moved for reconsideration and to alter or amend the judgment under
Federal Rule of Civil Procedure 59(e), arguing that: (1) the District Court had erred by
granting a judgment on the pleadings for MLM when MLM had not moved for it; and (2)
Exclusion 13 should not apply because they made “loans,” not “specific investments”
and because their claims did not “arise out of” Ahrens‟s solicitation of specific
investments. Noting that a district court can grant a judgment on the pleadings sua sponte
but that the clients had no notice of its intent to enter judgment for MLM, the District
Court applied the more favorable standard for a motion for judgment on the pleadings
rather than the more restrictive standard for a Rule 59(e) motion. Despite the more
lenient standard, the Court denied the motion, finding that no matter how the clients
characterized their claims, Exclusion 13 applied and MLM had no duty to defend or
indemnify Ahrens because the claims arose out of the solicitation of specific investments.
Ricker and the Wagner Appellants appealed, and their appeals were consolidated.
Ahrens declined to participate in the appeal.
II
Given the unusual procedural posture of this case—including a grant of judgment

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on the pleadings for a nonmoving party, resulting in a Rule 59(e) motion that the District
Court considered under the Rule 12(c) standard—we will apply the standard of review for
an appeal from the grant of a Rule 12(c) motion, which we have articulated as follows:
Our standard of review of a motion for judgment on the pleadings under
Federal Rule of Civil Procedure 12(c) is plenary. Under Rule 12(c),
judgment will not be granted unless the movant clearly establishes that no
material issue of fact remains to be resolved and that he is entitled to
judgment as a matter of law. In reviewing the grant of a Rule 12(c) motion,
we must view the facts presented in the pleadings and the inferences to be
drawn therefrom in the light most favorable to the nonmoving party.
Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir. 2008) (quoting Jablonski v. Pan
Am. World Airways, Inc., 863 F.2d 289, 290-91 (3d Cir. 1988)). Accordingly, we will
treat MLM as the movant and the clients as the nonmoving party, viewing the facts
presented in the pleadings and the inferences to be drawn therefrom in the light most
favorable to them.
Interpretation of an insurance policy is a question of law. Sikirica, 416 F.3d at
220. If the words of an insurance policy are clear and unambiguous, the court must give
them their plain and ordinary meaning. Id. (citing Pac. Indem. Co. v. Linn, 766 F.2d 754,
760-61 (3d Cir. 1985)). When a term is ambiguous, and the intentions of the parties
cannot be discerned from the policy, the court may look to extrinsic evidence. Id.
Ambiguous terms must be strictly construed against the insurer, but the policy language
must not be tortured to create ambiguities where none exist. Id.

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III
Because we sit in diversity, we apply Pennsylvania substantive law. Erie R. Co. v.
Tompkins, 304 U.S. 64, 78 (1938). We have had occasion to apply the relevant law
before, which we summarized as follows:
Under Pennsylvania law, an insurer has a duty to defend if the complaint
filed by the injured party potentially comes within the policy‟s coverage.
The duty to defend is a distinct obligation, different from and broader than
the duty to indemnify. Because the duty to defend is broader than the duty
to indemnify, there is no duty to indemnify if there is no duty to defend.
After determining the scope of coverage under a policy, the court must
examine the complaint in the underlying action to determine whether it
triggers coverage. If the complaint avers facts that might support recovery
under the policy, coverage is triggered and the insurer has a duty to defend.
Both the duty to defend and the duty to indemnify flow from a
determination that the complaint triggers coverage.
Sikirica, 416 F.3d 214, 225-26 (internal quotation marks and citations omitted).
On appeal, the clients raise similar arguments to those presented to the District
Court in the Rule 59(e) motion: (A) the District Court should have deferred granting
judgment on the pleadings; (B) at least some of the transactions at issue were “loans,” not
investments; and (C) their claims do not “arise out of” the solicitation of specific
investments. We address these arguments seriatim.
A
“The district court may on its own initiative enter an order dismissing [an] action
provided that the complaint affords a sufficient basis for the court‟s action.” Bryson v.
Brand Insulations, Inc. 621 F.2d 556, 559 (3d Cir. 1980). Likewise, district courts can

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“enter summary judgments sua sponte, so long as the losing party was on notice that she
had to come forward with all of her evidence.” Celotex Corp. v. Catrett, 477 U.S. 317,
326 (1986). The notice requirement is satisfied when a case involves “the presence of a
fully developed record, the lack of prejudice, [and] a decision based on a purely legal
issue.” Gibson v. City of Wilmington, 355 F.3d 215, 224 (3d Cir. 2004).
Here, the record was fully developed because courts determine whether coverage
exists by comparing the policy and the complaint in the underlying action. See Gen.
Accident Ins. Co. of Am., 692 A.2d at 1095. And because “[t]he interpretation of an
insurance contract is a question of law[,]” the issue before the District Court was purely
legal. Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908
A.2d 888, 897 (Pa. 2006); see Gardner v. State Farm Fire & Cas. Co., 544 F.3d 553, 558
(3d Cir. 2008). Finally, because (1) MLM requested a judgment in its favor in its brief
opposing the clients‟ Rule 12(c) motion; (2) the clients had opportunities to argue against
such a judgment in their reply to MLM‟s brief and in their Rule 59(e) motion briefing;
and (3) the District Court reviewed the Rule 59(e) motion under the less stringent Rule
12(c) standard, we are convinced that there was no prejudice. For these reasons, it was
not error for the District Court to enter judgment on the pleadings.
B
The clients claim the District Court erred when it determined that the transactions
at issue were “specific investments,” as that term is used in Exclusion 13 of the policy.

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They argue that because some of their averments described the transactions as “loans,”
they were not investments.
Like the District Court, we are convinced that the transactions at issue were
investments, as that term is normally understood and as it is used in the policy.2
Although the clients sometimes call the transactions “loans” and call their expected
returns “interest,” the clients‟ descriptions do not end the inquiry. Mut. Ben. Ins. Co. v.
Haver, 725 A.2d 743, 745 (Pa. 1999) (“[T]o allow the manner in which the complainant
frames the request for redress to control in a case such as this one would encourage
litigation through the use of artful pleadings designed to avoid exclusions in liability
insurance policies.”). The facts as pleaded in the clients‟ state court complaints indicate
that the clients expected to profit from Healy‟s success in the gold and commodities
futures markets, and that their expected returns depended upon that success, not on an
interest rate. And while the clients were no doubt influenced by Ahrens‟s promises that
they would be repaid by a fixed date, and some of them sought mortgages to further
secure their investments, that did not convert their speculative investments into loans.3
2 We do not understand the District Court to have held, as the clients suggest in
seeking to have its ruling overturned on appeal, that all loans are necessarily
“investments” for purposes of Exclusion 13, but rather that the specific transactions in
issue in this case were investments, and it is on that basis that we are affirming the
District Court‟s orders.
3 The clients‟ secondary argument—that Ahrens did not solicit specific investments
because they did not know exactly how Healy would use their money—also fails because,

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The District Court referred to the definition of “investment” from a standard
dictionary: “an expenditure of money for income or profit.” WEBSTER‟S THIRD NEW
INTERNATIONAL DICTIONARY 1190 (1993). The Wagner Appellants argue that this
definition is too general and that the Court should have instead relied upon a more
specific definition like those found in Black‟s Law Dictionary—“an expenditure to
acquire property or assets to produce revenue; a capital outlay,” BLACK‟S LAW
DICTIONARY 902 (9th ed. 2009)—or in federal precedents defining similar terms. See
Steinhardt Group v. Citicorp, 126 F.3d 144, 151 (3d Cir. 1997) (defining “investment
contract” as used in federal securities law)4; Fin Hay Realty Co. v. United States, 398
F.2d 694, 695 (3d Cir. 1968) (distinguishing between shareholders‟ contributions of
capital to a close corporation and loans on which interest payments were deductible for
tax purposes). “Words of common usage in insurance policies are to be construed in the
as the District Court explained, the clients made specific investments of specific sums of
money in the Madeira-Healy scheme. As an illustration, providing working capital to a
firm constitutes a specific investment regardless of whether it is used to pay wages or buy
equipment.
4 More recently, the Supreme Court of the United States reiterated that, to
determine whether a particular scheme is an investment contract for securities regulation
purposes, “[w]e look to „whether the scheme involves an investment of money in a
common enterprise with profits to come solely from the efforts of others.‟” SEC v.
Edwards, 540 U.S. 389, 393 (2004) (quoting SEC v. W. J. Howey Co., 328 U.S. 293, 301
(1946)). Here, where the clients contributed their money to a common enterprise—
Madeira and Healy‟s scheme—with the expectation of profits from Healy‟s investing
acumen, we think it likely that this test would be satisfied as well.

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natural, plain, and ordinary sense, and [a court] may inform [its] understanding of these
terms by considering the dictionary definitions.” Madison Constr. Co. v. Harleysville
Mut. Ins. Co., 735 A.2d 100, 108 (Pa. 1999). Accordingly, the District Court did not err
when it used a standard dictionary to define “investment,” or when it eschewed reliance
on our precedents that defined related terms in other contexts.
The clients also urge us to find that the District Court should have considered
Ahrens‟s reasonable expectations of coverage. In The Medical Protective Co. v. Watkins,
198 F.3d 100 (3d Cir. 1999), we explained that under Pennsylvania law the insured‟s
reasonable expectations of coverage determines the extent of coverage. Id. at 106 (citing
Collister v. Nationwide Life Ins. Co., 388 A.2d 1346 (Pa. 1978)). We noted that “the
language of the insurance policy will provide the best indication of the content of the
parties‟ reasonable expectations,” but that “[c]ourts . . . must examine the totality of the
insurance transactions involved to ascertain the reasonable expectations of the insured.”
Id. (internal quotation marks omitted).
The clients suggest that certain questions and answers on Ahrens‟s insurance
application—indicating that his practice did not include securities or bond matters, or any
business other than the practice of law, and that he did not represent clients with respect
to the sale or issuance of debt or equity securities—mean that he reasonably expected that
Exclusion 13 would not apply to him. We disagree. The fact that MLM asked whether
Ahrens did securities and bond work or whether he assisted his clients‟ sales of debt and

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equities in one section does not change the meaning of the phrase “solicitation or sale of
specific securities or specific investments by [Ahrens]” in another section. Nor does the
fact that Ahrens denied undertaking anything but the practice of law mean that he could
reasonably expect to be covered when he solicited investments; the plain language of
Exclusion 13 indicates just the opposite. In sum, there is nothing to suggest that Ahrens‟
reasonable expectation of coverage was other than that articulated in the policy.
For the reasons stated, the District Court did not err in finding that the clients‟
claims arose out of the solicitation of specific investments and were excluded by
Exclusion 13 of the policy.
C
The clients also argue that, even if the transactions were investments, their claims
are not “arising out of the solicitation or sale of . . . specific investments” because they
are based on other alleged acts by Ahrens. For instance, Ricker alleged that Ahrens was
negligent in investigating and securing a mortgage to secure Ricker‟s investment because
Ahrens prepared and provided Ricker with what was purportedly a first mortgage on
property owned by Madeira, when in fact the property was already encumbered by other
mortgages, some of which were prepared by Ahrens himself. Other clients‟ claims allege
breach of fiduciary duty in failing to investigate the Madeira-Healy investment
opportunity and legal malpractice in preparing and notarizing notes or other documents
effectuating and memorializing their transactions. Like the District Court, we conclude

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that all of these claims arose out of Ahrens‟s solicitation of the Madeira-Healy investment
opportunity.
Under Pennsylvania law, the phrase “arising out of” in an insurance policy
exclusion is not ambiguous and indicates “but for” causation or a “cause and result”
relationship. Madison Constr., 735 A.2d at 109-10 (citing McCabe v. Old Republic Ins.
Co., 228 A.2d 901, 903 (Pa. 1967)). In Madison Construction, for example, the Supreme
Court of Pennsylvania found that an exclusion for bodily injury “arising out of” the
discharge of pollutants excluded claims by a worker who alleged that he was injured
when he fell in a hole upon being overcome by fumes, even though the worker‟s
complaint included claims for negligence in maintaining the construction site, failing to
warn of the danger, failing to provide protective gear, failing to detect the dangerous
condition, and failing to cover the hole into which he fell. Id.
Here, as they did below, the clients point to cases supposedly limiting the broad
sweep of “but for” causation in the phrase “arising out of.” But as the District Court
explained, those cases are inapposite because they involved particular claims against
insured parties for failing to prevent the acts of third parties alleged to have injured the
plaintiffs, whereas here, as in Madison Construction, all of the alleged negligence was
committed by the insured party, Ahrens. See Bd. of Pub. Educ. v. Nat’l Union Fire Ins.
Co., 709 A.2d 910, 916 (Pa. Super. 1998), allocatur denied, 727 A.2d 126 (Pa. 1998) (en
banc) (holding that a school district‟s insurer had a duty to defend the school district

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against negligent supervision claims, when the president of the PTA organization
allegedly molested a student, despite an exclusion for claims arising out of assault,
battery, or personal injury, because the “president‟s acts „arose out of‟ the failings of the
School District, not the other way around”) ; Coregis Ins. Co. v. City of Harrisburg, No.
03-920, 2005 WL 2179734 (M.D. Pa. Sept. 9, 2005) (holding that a county‟s insurer had a
duty to defend the county against claims that it was negligent in training and supervising
employees, when the employees intentionally violated a criminal defendant‟s civil rights,
even though the employees‟ intentional acts were excluded from coverage under the
policy). Because Ahrens‟s alleged breaches of fiduciary duty and malpractice were the
result of his own solicitation of the investments, and would not have occurred but for that
solicitation, they all “arise out of” it.
The clients also argue that the concept of “but for” causation can be limited on
proximity grounds, but the cases they cite do not justify importing proximate cause into
the “arising out of” analysis. See U.S. Underwriters Ins. Co. v. Liberty Mut. Ins. Co., 80
F.3d 90, 94 (3d Cir. 1996) (holding that a driver who was injured by slipping on grease
when he exited a car was not maintaining or using the car when he slipped, and therefore
his injuries were not “arising out of the maintenance or use of a motor vehicle” under the
Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa. C.S.A. § 1720).
Although “not every incidental factor that arguably contributes to an incident is a „but for‟
cause in the legal sense,” in the present case the clients have alleged that, far from being

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“incidental,” Ahrens‟s solicitation of the investment opportunity caused their losses. See
id.
Therefore, the District Court did not err in finding that the clients‟ claims arose out
of the solicitation of specific investments and were excluded by Exclusion 13 of the
policy.5
IV
For the foregoing reasons, we will affirm the orders of the District Court granting
MLM judgment on the pleadings and denying the Wagner Appellants‟ motion for
reconsideration.
5 Although they did not advance the argument below, the clients now claim that
Exclusion 13 is ambiguous, so the District Court should have considered extrinsic
evidence to determine its meaning. We disagree. The clients themselves moved for a
judgment on the pleadings as a matter of law, stating correctly that “an insurer‟s duty to
defend must be determined solely by reviewing the pleadings in the underlying action and
the insurance policy at issue.” Because none of the terms in Exclusion 13 was ambiguous
when applied to the facts alleged in the clients‟ complaints, it would have been improper
for the District Court to consider extrinsic evidence of their meanings. See Madison
Constr., 735 A.2d at 106 (“[C]ontractual terms are ambiguous if they are subject to more
than one reasonable interpretation when applied to a particular set of facts.”); Niagara
Fire Ins. Co. v. Pepicelli, Pepicelli, Watts & Youngs, P.C., 821 F.2d 216, 220 (3d Cir.
1987) (“Where . . . the language of the contract is clear and unambiguous, a court is
required to give effect to that language.” (citing Pa. Manufacturers’ Ass’n Ins. Co. v.
Aetna Cas. & Sur. Ins. Co., 233 A.2d 548 (Pa. 1967))).

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