Ashby & Geddes PA v. Brandt et al
Filing
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MEMORANDUM OPINION. Signed by Judge Sue L. Robinson on 8/1/2011. (nmf)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
ASHBY & GEDDES, P.A.
Plaintiff,
v.
LEONARD J. BRANDT and
BRANDT VENTURES, GP,
Defendants.
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) Civ. No. 10-591-SLR
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Stephen E. Jenkins, Esquire and Catherine A Gaul, Esquire of Ashby & Geddes P.A.,
Wilmington, Delaware. Counsel for Plaintiff.
Kevin W. Gibson, Esquire of Gibson & Perkins LP, Wilmington, DE. Counsel for
Defendants. Of Counsel: Gerald A. Klein, Esquire, of Klein and Wilson.
MEMORANDUM OPINION
Dated: August 1, 2011
Wilmington, Delaware
~~ictJUdge
I. INTRODUCTION
On May 21, 2010, plaintiff Ashby & Geddes, P.A. ("plaintiff") filed the present
action against defendants Leonard J Brandt ("Brandt") and Brandt Ventures, GP
(collectively "defendants"). (0.1. 1) Defendants removed the case to this court on July
12,2010, pursuant to the court's diversity jurisdiction. (D./. 1) Plaintiff alleges in its
complaint that defendants failed to pay their legal fees stemming from a series of
lawsuits over the control of CNS Response, Inc. ("CNS") that plaintiff was retained to
litigate. (0.1. 18 at 1) In their answer to plaintiff's complaint, defendants assert three
counterclaims: (1) breach of contract; (2) professional negligence;1 and (3) breach of
fiduciary duty. (0.1. 16 at 13-17) The court has jurisdiction over this matter pursuant to
28 U.S.C. § 1332(a)(1). Presently before the court is plaintiff's motion (0.1. 17) to
dismiss defendants' counterclaims for failure to state a claim. For the reasons that
follow, the court grants in part and denies in part plaintiff's motion.
II. BACKGROUND
Brandt is a shareholder, director, and former officer of CNS. (0.1. 18 at 4)
During a series of legal battles over the control of CNS, Brandt hired the Yocca Law
Firm LLP ("Yocca") to represent his interests in California, and plaintiff to represent his
interests in Delaware. (Id. at 4-5) Yocca was to formulate the strategy for the litigation,
and plaintiff was to implement it in Delaware. (Id.) After a series of losses at the Court
of Chancery, Brandt substituted The Williford Firm, LLC ("Williford") for Yocca and
1 Defendants' professional negligence claim is a legal malpractice claim, and the
court will use the terms interchangeably.
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plaintiff. (Id. at 5) Williford represented Brandt before the Delaware Supreme Court,
who rejected his appeal as having no merit. (Id.)
On May 21, 2010, plaintiff filed a complaint against defendants in Delaware
Superior Court for the nonpayment of fees and the dishonor of a check. (Id. at 6)
Defendants removed the case to this court, and attempted to dismiss the action
pursuant to Federal Rules of Civil Procedure 12(b)(2), (3), (4), (5), and (7). (D.1. 1,4)
Defendants then answered, asserting various counterclaims that are largely duplicative
of each other. (D.I. 16) First, defendants allege that plaintiff breached its Retention
Agreement by failing to provide defendants with '''the most cost effective' legal services
possible ... at or above the standard of care of Delaware attorneys." (ld. at 13)
Second, defendants allege that plaintiff was professionally negligent by failing to
determine whether the proposed litigation would accomplish defendants' goals, and
failing to advise defendants of said analysis. (Id. at 15) Finally, defendants contend
that plaintiff breached the fiduciary duty that it owed to defendants by "failing to perform
its services at or above the standard of care for competent Delaware attorneys
practicing in the areas for which they were retained and by putting the interests of [itself]
above the interests of [defendants]." (ld. at 16)
III. STANDARD
In a diversity action, the court must first address the threshold issue of which law
governs the rights and liabilities of the parties before it. For substantive issues, the
court looks to the substantive law of the forum state in which it sits. Erie R.R. Co. v.
Tompkins, 304 U.S. 64, 78 (1938).2 The forum state's choice of law doctrine is included
2 Here the parties agree that Delaware law controls.
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within its substantive law. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496-97
(1941); Kruzits v. Okuma Machine Tool, Inc., 40 F.3d 52,55 (3d Cir. 1994).
In reviewing a motion filed under Federal Rule of Civil Procedure 12(b)(6), the
court must accept the factual allegations of the non-moving party as true and draw all
reasonable inferences in its favor. See Erickson
V.
Pardus, 551 U.S. 89, 94 (2007);
Christopher v. Harbury, 536 U.S. 403, 406 (2002). A court may consider the pleadings,
public record, orders, and attached exhibits. Oshiver v. Levin, Fishbein, Sedran &
Berman, 38 F.3d 1380, 1384-85 n.2 (3d Cir. 1994).
A complaint must contain "a short and plain statement of the claim showing that
the pleader is entitled to relief, in order to give the defendant fair notice of what the ...
claim is and the grounds upon which it rests." Bell At!. Corp.
V.
Twombly, 550 U.S. 544,
545 (2007) (interpreting Fed. R. Civ. P. 8(a)) (internal quotations omitted). A complaint
does not need detailed factual allegations; however, "a plaintiff's obligation to provide
the 'grounds' of his entitle[ment] to relief requires more than labels and conclusions, and
a formulaic recitation of the elements of a cause of action will not do." Id. at 545
(alteration in original) (citation omitted). The U[f]actual allegations must be enough to
raise a right to relief above the speculative level on the assumption that all of the
complaint's allegations are true." Id. Furthermore, U[w]hen there are well-pleaded
factual allegations, a court should assume their veracity and then determine whether
they plausibly give rise to an entitlement to relief." Ashcroft v. Iqbal, 129 S. Ct. 1937,
1950 (2009). Such a determination is a context-specific task requiring the court "to
draw on its judicial experience and common sense." Id.
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IV. DISCUSSION
In its motion to dismiss, plaintiff argues that: (1) defendants' breach of contract
claim is defective because it is redundant of defendants' professional negligence claim;
(2) plaintiff is not liable for professional negligence because plaintiff is not the proximate
cause of any damages defendants allegedly suffered; and (3) plaintiff did not owe
defendants a fiduciary duty. (0.1. 36 at 5, 11, 19)
A. Breach of Contract
"[A] client who sues his attorney for breach of contract 'must allege that an
attorney breached a contract term or failed to follow a specific instruction of the client.
P'
Edelstein v. Goldstein, Civ. No. 09C-05-034, 2011 WL 721490, at *5 (Del. Super. Mar.
1,2011) (citations omitted). However, "Delaware courts have recognized that, in the
context of legal malpractice, a claimant cannot assert both negligence and breach of
contract claims based on the same conduct because tort claims and breach of contract
claims are not alternative theories of recovery for the same acts." Id. at *7.
Defendants argue that their breach of contract claim is different than their
professional negligence claim because, for their professional negligence claim,
defendants allege that "[they] were improperly advised as to the likelihood of success of
[their] case and wasted money on legal fees pursuing a claim that should never [have]
been filed." (0.1. 19 at 11) "As to the breach of contract claim, [defendants] specifically
alleged [plaintiff breached its] promise to provide [defendants] with the most cost
effective legal services possible. (/d.)
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Defendants' breach of contract counterclaim is best described as the "kitchen
sink" method of pleading. While the counterclaim does include a succinct paragraph
alleging that, "[a]s part of the Retention Agreement with [defendants], [plaintiff]
expressly agreed it would provide [defendants] with 'the most cost-effective' legal
services possible in the matters where [plaintiff] provided legal services to [defendants]"
(D.1. 16 at 13), it also includes the following, sprawling accusation:
As an implied term of the Retention Agreement, [plaintiff] agreed it would:
(1) provide services at or above the standard of care of Delaware
attorneys practicing in the types of cases similar to those presented by
[defendants]; (2) develop cost-effective and reasonable strategies to
accomplish [defendants'] goals; (3) properly advise [defendants] of
[their] chances of success and competently advise [defendants]
regarding the risks and rewards of litigation; (4) perform all necessary
research to understand the law and competently advise [defendants]
regarding [their] options; (5) keep no secrets from [defendants] and be
forthright in its communications with (defendants]; (6) provide [defendants]
with a competent legal analysis of the issues (defendants] presented and
develop a cost effective strategy to achieve [defendants'] goals, or advise
[defendants] if [their] goals were unreasonable and would not likely be
accomplished; (7) bill [defendants] fairly; (8) take on all responsibilities and
obligations a reasonably competent Delaware lawyer would assume in
that lawyer's representation of [defendants'] interest; and (9) would
exercise the prudence, care. skill, diligence, and reasonable professional
judgment to protect [defendants'] interests in the matters (plaintiff] was
handling for (defendants].
(Id.)
Plaintiff allegedly breached said terms of the agreement in the following ways:
(1) [plaintiff] did not properly analyze the claims at issue and, therefore,
could not properly advise (defendants]; (2) [plaintiff] either did not
understand the claims [defendants'] California attorneys were asserting or
quietly allowed (defendants] to believe those claims had merit when
[plaintiff] knew or should have known such claims did not have merit; (3)
(plaintiff] failed to provide [defendants] with a proper legal analysis of the
claims [plaintiff] and Yocca were asserting on [their] behalf and failed to
advise [defendants as to] what [their] chances of success were in a timely
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fashion; (4) [plaintiff] overcharged for its services, either by intentionally
over billing or by performing its services in an inefficient way, leading to
excessive charges; and (5) [plaintiff] failed to perform its services in
accordance with the standard of care as required by its contract.
(Id. at 14)
The majority of defendants' breach of contract counterclaim is duplicative of its
professional malpractice and breach of fiduciary duty claims. To the extent the claims
are duplicative, the breach of contract claim is dismissed. That said, the allegation that
"[plaintiff] overcharged for its services, either by intentionally over billing or by
performing its services in an inefficient way, leading to excessive charges" is unique to
defendants' breach of contract claim and, if true, directly violates a provision of said
contract. While the counterclaim is pled in fairly generic terms, it puts plaintiff on notice
as to what it must defend, and plausibly states a claim for which relief can be granted.
B. Professional Negligence/Legal Malpractice
"[E]ach of the following elements must be met to establish a legal
malpractice/professional negligence: (1) the employment of an attorney; (2) the
attorney's neglect of a professional obligation; and (3) resultant loss. Ede/stein, 2011
WL 721490, at *6. Under the Rules of Professional Conduct, a lawyer has the
obligation to "explain a matter to the extent reasonably necessary to permit the client to
make informed decisions regarding the representation". Del. Prof. Condo R. 1.4{b)
Furthermore, "[a] lawyer shall not bring or defend a proceeding, or assert or controvert
an issue therein, unless there is a basis in law and fact for doing so that is not frivolous."
/d. at 3.1. "To prove the third element, the damages element, the plaintiff in a legal
malpractice action must demonstrate that, 'but for his lawyer's negligence, [he] would
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have been successful' in the underlying action." HeathTrio v. Margules, Civ. No. 06C
04-196,2007 WL 544156, at *9 (Del. Super. Ct. Jan. 16,2007) (citations omitted).
In the case at bar, there is no dispute that plaintiff was employed by defendants.
Nor does plaintiff dispute in this proceeding that it failed in its duty to review defendants'
claims, and advise defendants on the viability of said claims. Instead, plaintiff argues
that it is not the proximate cause of defendants' losses in the underlying action, as
defendants' appeal was denied after retaining new counsel, the litigation strategy was
created by Yocca and, had plaintiff declined representation, defendants "would have
found some other Delaware counsel to do so." (D.1. 18 at 13)
The court declines to interpret the law so narrowly. Plaintiff had an independent
duty to advise defendants of the variability of their claims and litigation strategy.
Defendants pled (and plaintiff does not deny in its brief) that plaintiff failed to perform
said duty. While plaintiff's failure to perform its duty did not cause defendants to lose in
the various CNS litigations, plaintiffs failure did plausibly cause defendants to spend
hundreds of thousands of dollars in unnecessary legal fees. It cannot be the law that a
attorney is insulated from a malpractice lawsuit when it takes on a client, fails to advise
it of the viability of its claims, and then allows the client to spend large sums of money
tilting at windmills. Although the attorney's negligence does not change the outcome of
the underlying case, it is the proximate cause of substantial pecuniary damages to the
client, and forms a basis for a malpractice claim.
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C. Fiduciary Duty
The typical relationships that carry fiduciary duties are trusts, corporations,
partnerships, and estates. There are narrow circumstances where an
attorney takes on fiduciary duties, "such as in the case of client trust
accounts or when an attorney is acting in a second capacity like a trustee
or corporate manager...." Indeed, attorneys are colloquially referred to
as "fiduciaries," but an attorney must act in some capacity beyond the
mere provision of legal services to owe actionable fiduciary duties.
Rich Realty, Inc. v. Potter Anderson & Corroon LLP, Civ. No. 09C-12-273, 2011 WL
743400, at *3 (Del. Super. Feb. 21, 2011) (citations omitted). See also Gelof v. Prickett,
Jones & Elliot, P.A., Civ. No. 4930, 2010 WL 759663, at *3 (Del. Ch. Feb., 19,2010);
Sokol Holdings, Inc. v. Dorsey & Whitney, LLP, Civ. No. 3874,2009 WL 2501542, at *4
(Del. Ch. Aug. 5, 2009)
Defendants make no assertion that plaintiff mishandled client trust accounts or
acted in a second capacity as a trustee or corporate manager. They only allege that
plaintiff failed to analyze their claims and properly advise them of their chance of
success. (D.1. 16 at 16) This is a claim of professional malpractice, not a breach of
fiduciary duty. Therefore, defendants' counterclaim for breach of fiduciary duty is
dismissed for failure to state a claim.
V. CONCLUSION
For the reasons stated above, plaintiffs motion to dismiss defendants'
counterclaims is granted in part and denied in part. An appropriate order shall issue.
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