BRENT H. GREENWALD dba, GREENWALD NEUROSURGICAL, P.C., an Idaho Corporation, Plaintiff-Respondent-Cross Appellant,
WESTERN SURETY COMPANY, Defendant-Appellant-Cross Respondent.
from the District Court of the Seventh Judicial District,
State of Idaho, Bonneville County. Joel E. Tingey, District
judgment of the district court is vacated and the
case is remanded for further proceedings consistent
with this opinion.
& Burke, P.A., Boise, for appellant. Joshua S. Evett
Swafford Law, P.C., Idaho Falls, for respondent. Larren K.
appeal arises out of a Dishonesty Bond (the bond) issued by
Western Surety Company (Western) that insured Greenwald
Neurosurgical, P.C. (the P.C.), for up to $100, 000 in losses
caused by any fraudulent or dishonest act of any employee of
summary judgment stage, the district court found that an
employee of the P.C. caused over $100, 000 in losses to the
P.C., while he was acting in the ordinary course of the
P.C.'s business. The district court then issued a
judgment to the P.C. for the policy amount of $100, 000.
Western appeals the district court's determinations that
the employee caused the loss while acting in the ordinary
course of business and that the P.C. actually suffered the
loss. The P.C. cross-appeals from the district court's
findings that it was the only entity insured under the bond
and argues it was awarded too little by way of attorney's
fees. For the reasons set out, we reverse the order granting
summary judgment, vacate the judgment, and remand the case
for further proceedings.
I. FACTUAL AND PROCEDURAL BACKGROUND
H. Greenwald, M.D. (Greenwald), is a neurosurgeon practicing
in Idaho Falls, Idaho. Greenwald practices medicine under a
professional corporation named Greenwald Neurosurgical, P.C.
The P.C. was created in 2001. According to Greenwald, his
medical office functioned as headquarters not only for the
P.C., but also for his personal financial dealings and
investments, as well as his real estate business.
original bond application indicates that on November 5, 2002,
Greenwald applied for a $100, 000 Dishonesty Bond to insure
"Greenwald Neurosurgical" from losses caused by its
employees. On November 11, 2002, Western issued a $100, 000
Dishonesty Bond insuring "Brent H. Greenwald dba
Greenwald Neurosurgical" against the criminal acts of
any employee as defined by the bond.
December 8, 2009, the P.C. hired Matthew Udy (Udy) as a
business and financial manager. According to Greenwald,
Udy's responsibilities included receiving income from all
sources, making payments on accounts payable, payments to
credit card accounts, payments for other miscellaneous
charges and services, and managing information technology
issues at the medical office. Greenwald referred to Udy as
his personal assistant and as a "financial manager of
[the] medical practice." However, as evidenced by a 2012
W-2, the P.C. is the sole entity that employed Udy and paid
for his services. (During the course of this litigation,
Western conceded that the P.C. is an insured entity under the
bond. However, it also maintained that only the P.C. was an
insured because of language in the policy that limited
coverage to fraudulent or dishonest acts of an employee of
2009, Greenwald formed a real estate company, Allagash
Realty, LLC (Allagash). According to Greenwald, Udy was
responsible for managing Allagash, which included collecting
Allagash's rents and other payments, as well as paying
September 11, 2013, Janeene Ditmore (Ditmore), the P.C.'s
office manager, was notified that a questionable purchase had
been made with one of Greenwald's credit cards. Udy was
suspected of making the questionable purchase. Greenwald,
along with Ditmore and Troy Clayton (Clayton), the CPA for
the P.C., confronted Udy about the purchase. Udy confessed to
wrongfully appropriating money and was fired that day. Due to
the admitted wrongdoing, Clayton conducted an internal
financial audit for the P.C. The audit consisted of an
analysis of the P.C.'s financial records, Allagash's
financial records, and Greenwald's personal credit card
accounts. Greenwald reported Udy's financial embezzlement
to the police. Ultimately, on November 10, 2014, Udy pleaded
guilty to felony Unauthorized Use of an Access Device (in
violation of 18 U.S.C. § 1029) in federal court. He was
subsequently sentenced on March 17, 2015. As a result of
pleading guilty to Unauthorized Use of an Access Device, Udy
was ordered to pay $275, 488.32 in restitution.
Prelitigation communication between Western and the
letter dated October 10, 2013, Larren Covert, the lawyer for
Greenwald and Greenwald Neurosurgical, notified Western of
their claim pursuant to the bond, that an employee had
"stolen funds from the business." As a result of
this notification, Ginger Barnes (Barnes), Western's
claim manager, alerted the firm representing Greenwald and
the P.C. by letter dated October 17, 2013, that a sworn proof
of loss form, along with other documentation, needed to be
submitted to Western in order for her to process the claim.
responded to Western by letter dated January 19, 2014, with
an attached sworn proof of loss form dated January 22, 2014.
The proof of loss form identified the "approximate
loss" in the amount of $347, 395. Greenwald also
submitted an affidavit dated January 15, 2014, with an
attached, undated Summary Of Total Amounts Stolen (the
prelitigation summary), in support of his claim. In his
affidavit, Greenwald commented that Udy paid for the
fraudulent credit card purchases "with stolen/embezzled
funds from my checking accounts using a complex scheme of
transfers between accounts."
also broke down the estimated losses as follows: $32, 000 in
resulting legal fees and costs; $23, 907.74 in
"unauthorized charges, accounts, and expenses[;]"
$161, 396.52 embezzled from accounts; and $130, 091.20 in
"[f]raudulent use of business credit card
accounts." Totaling these amounts equals $347, 395.46,
which is almost identical to the "approximate loss"
identified in the proof of loss.
undated prelitigation summary submitted to Western attempted
to substantiate the amounts listed by Greenwald. Regarding
the $161, 396.52 embezzled from accounts, the prelitigation
summary itemized that amount as follows: $140, 095 stolen
"from Allagash[;]" and $21, 301.52 stolen from
Idaho Spine & Brain. The latter amount (stolen from Idaho
Spine & Brain) was further broken down into three
separate checks from "ReHabAuthority." Those checks
were made out to "Allagash," and each check's
memo reads "Allagash c/o Idaho Spine & Brain 3155
Channing Way, Suite B Idaho Falls, ID 83404," which is
also the address of the P.C.'s office. (The P.C.'s
letterhead reads "The Spine & Brain Specialty
Center;" however, the record does not explain the
relationship between the Spine and Brain Specialty Center and
the P.C.) The police report, submitted in support of the
P.C.'s claim, indicated that the $140, 095 "from
Allagash" was an estimated amount of Allagash rents
collected and stolen by Udy.
prelitigation summary broke down the $130, 091.20 in
fraudulent charges to credit card accounts into five separate
amounts specific to the following credit card accounts:
Citibank, Chase Marriott, CapitalOne Visa, Amex Personal, and
Zions. (This total is substantially different from the $25,
102.10 found owed to the various credit card companies in the
restitution order. See supra note 1.)
January 27, 2014, Barnes spoke with Clayton on the phone
about the claim. Western contends that Barnes told Clayton on
the phone that if any losses were to be reimbursed, they had
to be sustained by the P.C. The reason for Western's
position was the language of the bond itself. The Bond only
covers the fraudulent or dishonest "act of an employee
of the Insured . . . ." Western contended that Udy was
only an employee of the P.C. and consequently only the P.C.
would be insured under the bond. A few months later, on March
21, 2014, Barnes once again informed Greenwald that Western
was still awaiting documentation demonstrating that the P.C.
incurred a loss caused by Udy.
29, 2014, counsel for Greenwald and the P.C., Ronald Swafford
(Swafford), wrote Western, requesting a response regarding
the P.C.'s claim and attached Greenwald's previous
January 15, 2014, affidavit with the prelitigation summary.
Barnes responded by letter on June 3, 2014, outlining the
previous communications and again noting that Western still
required documentation of the P.C.'s actual losses.
Barnes noted that the $21, 301.52 loss in checks appeared to
be a loss attributable to the P.C. but noted that it was
unclear who suffered the $130.091.20 loss in credit card
charges. Barnes concluded by again requesting documentation
showing the P.C.'s actual losses.
received no response, Barnes again wrote Swafford on August
26, 2014, seeking the information and documentation
previously requested. On December 17, 2014, Swafford
responded to Western and attached Udy's Plea Agreement.
It does not appear from the record that Swafford provided any
documentation evidencing the P.C.'s direct loss in that
correspondence. On January 5, 2015, Barnes again wrote
Swafford and requested the necessary documentation. That
letter reads in pertinent part:
This bond covers loss due to an employee of Brent H.
Greenwald dba Greenwald Neurosurgical only. The application
states it is to cover the business of
"Neurosurgery." Losses incurred involving the
Allugash [sic] properties are not covered by this bond.
Losses incurred to Brent Greenwald personally are also not
covered. The Restitution portion of the Plea Agreement shows
a loss of "$250, 386.22 payable to the doctor."
There is nothing that sets out exactly what portion of the
loss was caused to Greenwald Neurosurgical. It appears the
credit card losses were resolved by each credit card company
as restitution has been awarded five companies.
At this time, I request a break down as to what makes up the
$250, 386.22 payable to the doctor. It appears at least $140,
095 is the loss regarding the Allugash [sic] properties. If
the loss involves credit card companies other than the five
who received restitution, please provide us with
documentation showing whether those cards were personal
accounts or business accounts and whether business funds
were used to pay those personal charges by Mr. Udy. I
requested this information from the accountant, Troy Clayton
on January 27, 2013 [sic], but never received any
Once I receive this documentation, I will proceed
April 17, 2015, just over four months later, Swafford wrote
back to Western. Swafford failed to provide the documentation
requested (although he confirmed the information regarding
Udy's criminal charges), and again requested payment from
Western. Subsequently, on May 15, 2015, Swafford wrote to
Western's counsel, replying to a "response and
explanation" that was presumably from Western but has
not been included in the record. Swafford's May 15, 2015,
letter stated for the first time that the P.C. took the
position that the bond covered all of
Greenwald's businesses, not just the P.C. Given the
position taken, the P.C. deemed it unnecessary to provide
Western with documentation demonstrating direct loss to the
P.C. Swafford did not attach any substantiation of the
Western asked for documentation demonstrating the P.C.'s
losses as contemplated by the bond at least four times (in
the phone call on January 27, 2014, and in three letters
dated March 21, 2014, June 3, 2014, and January 5, 2015),
each time without success. As a result, Western denied the
P.C.'s claim because the P.C. had never substantiated its
losses to Western's satisfaction.
District court proceedings.
Western's refusal to pay under the bond, Greenwald, doing
business as the P.C., filed the complaint in this action on
November 5, 2015, alleging breach of contract and unjust
enrichment. The P.C. demanded a jury trial. On April
20, 2016, the P.C. answered Western's first set of
interrogatories and requests for production of documents.
answering discovery requests, the P.C. continued to avoid
providing clear information on how the P.C. had been damaged.
When asked to "itemize each element of damages . . . and
state in dollars and cents the amount of money you are suing
for each[, ]" the P.C. answered generally that Udy had
converted $275, 488.32 dollars from Greenwald and his various
businesses. When asked to "provide an itemized
list of amounts taken from accounts in the name of
Greenwald's neurological practice[, ]" the P.C.
responded that "Udy did not withdraw any funds from any
account. Matt Utdy [sic] created and submitted fraudulent
invoices or charges for unauthorized payments." (While
this does not appear wholly inconsistent with Ditmore's
and Clayton's later accounts of Udy's actions, no
invoices were produced.) Finally, when asked to produce all
exhibits, the P.C. responded that "Clayton previously
provided all documents and source information to Western
Surety. The documents clearly verify the amounts
stolen." (The district court later found that
"there is nothing in the 214 pages [representing
everything the P.C. provided Western in discovery] that
clearly identifies any transfers wrongfully made from the
P.C. account to either Allagash, Greenwald's credit
accounts, or some other destination.")
October 21, 2016, Western moved for summary judgment. Western
argued that the P.C. could not recover because it failed to
submit any evidence that the P.C. had sustained a direct
loss, that Udy was not acting in the regular course of his
employment at a neurology practice when the loss occurred,
and that the bond application omitted material information,
thus precluding the P.C. from recovering. (The last of these
three arguments has not been appealed.) The P.C. contested
these arguments, specifically maintaining that the bond
covered all of Greenwald's businesses conducted at the
office. On November 30, 2016, the district court denied
Western's motion for summary judgment by finding the bond
was ambiguous regarding who in fact was the
December 15, 2016, Western filed a motion to reconsider the
November 30, 2016, order. Western contended that even if
Greenwald intended to have three "insured" parties,
Greenwald personally, the P.C., and Allagash, only the P.C.
employed and paid Udy; therefore, it was the only entity that
could recover under the bond. On January 13, 2017, the
district court adopted the reasoning set forth by Western and
granted its motion for reconsideration. The district court
ruled that because the bond only protected against losses
caused by employees who were compensated or paid by the
insured, and only the P.C. had paid Udy, that only the P.C.
could recover under the bond. (The P.C. has appealed this
ruling.) The district court concluded that the remaining
issues were whether the P.C. sustained losses as a result of
Udy's actions, and if so, the amount of those losses.
result of the district court's narrowing of the issues,
the P.C. filed its motion for summary judgment on April 25,
2017. The P.C. argued that there was no genuine issue as to
the amount of loss directly sustained by the P.C. In order to
support its argument, the P.C. had to finally demonstrate how
the P.C. suffered losses. The P.C. attempted to accomplish
this by attaching the affidavits of Ditmore and Clayton. The
two affidavits were both dated January 25, 2017, twelve days
after the district court's ruling that only the P.C.
could recover under the bond, but not served on Western until
April 25, 2017, when the P.C. filed its motion for summary
to both Ditmore and Clayton, Udy fraudulently induced Ditmore
to transfer money from the P.C.'s accounts to pay for
both credit card charges made by Udy and for fraudulent
Allagash expenses and debts. Both affiants claimed that the
P.C. suffered $291, 487.72 in damages through this deceptive
practice employed by Udy. The itemized amounts of losses
established by both Ditmore's and Clayton's
affidavits are identical as to the amounts claimed in the
affidavit claims that $140, 095.00 in "Allagash expenses
and debts" were caused to be fraudulently transferred
from the P.C. This is the same amount of rents stolen
"[f]rom Allagash." Clayton stated that Ditmore
would transfer P.C. funds for Allagash expenses "into
the fraudulent Allagash account" created by Udy. In
contradiction to Clayton, Ditmore stated that "the
office was unaware of" the second fraudulent Allagash
account created by Udy, and that she would instead deposit
P.C. funds into the "valid checking accounts."
Ditmore continued stating that Udy would then transfer the
recently deposited P.C.'s funds from the "valid
Allagash or personal account for his own personal use . . .
affidavits claim that Udy fraudulently induced Ditmore to
transfer $130, 091.20 in P.C. funds for Udy's fraudulent
credit card expenditures. This amount is identical to the
amount claimed in the prelitigation summary. Additionally,
the affidavits also state that Udy stole $21, 301.52 in tax
payments from tenants in the Allagash properties, which was
later repaid by the P.C. This is the same amount that was