Solis v. The Taco Maker, Inc. et al
Filing
74
ORDER granting 48 Plaintiff's Motion for Extension of Time to File a Response and granting 52 Defendants' Motion for Leave to File Reply in Support of Partial Summary Judgment. Defendants' 42 Motion for Partial Summary Judgment i s DENIED, with the right to refile following discovery. As well, Defendants' 49 Second Motion to Disqualify Attorney is GRANTED and Third-Party Defendants' 53 Motion to Sever Third-Party Claims is DENIED. Stogner and BSS are disqualified from representing the Plaintiff in this matter. Signed by Judge Richard W. Story on 6/2/11. (cem)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
MARCELINO SOLIS,
Plaintiff and CounterDefendant,
v.
THE TACO MAKER, et al.,
Defendants, Counterclaimants,
and Third-Party Plaintiffs,
v.
BUSCH, SLIPAKOFF, & SCHUH,
LLP and SHANE STOGNER,
Third-Party Defendants.
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CIVIL ACTION NO.
1:09-CV-3293-RWS
ORDER
This case comes before the Court on Defendants Carlos Budet,
Fransglobal Corporation, and The Taco Maker, Inc.’s (collectively,
“Defendants”) Motion for Partial Summary Judgment [42], Plaintiff Marcelino
Solis’ Motion for Extension of Time to File a Response [48], Defendants’
Second Motion to Disqualify Attorney [49], Defendants’ Motion for Leave to
File Reply in Support of Partial Summary Judgment [52], and Third-Party
Defendants Busch, Slipakoff, & Schuh, LLP and Shane Stogner’s (collectively,
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“Third-Party Defendants”) Motion to Sever Third-Party Claims [53]. After a
review of the record, the Court enters the following Order.
1. Background
This case arises out of the Plaintiff Marcelino Solis’ $125,000 transfer to
the Defendants for what the Plaintiff understood to be the receipt of an equity
interest in the Defendants’ entities which would enable his own company to
receive food production orders. Aff. Solis, Dkt. No. [47] at ¶ 17. Plaintiff
initiated this action against Defendants Carlos Budet (“Budet”), The Taco
Maker, Inc. (“Taco Maker”), and Fransglobal Corporation (“Fransglobal”),
alleging several causes of action, including: (1) common law fraud; (2) sale of
unregistered securities; (3) unjust enrichment; (4) securities fraud; (5)
conversion; and (6) attorneys’ fees. Defendants moved to dismiss, and that
motion was denied. Order, Dkt. No. [7]. Defendants then answered, bringing
counterclaims against the Plaintiff and third-party claims against Plaintiff’s
counsel, Third-Party Defendants Shane Stogner and his current firm, Busch,
Slipakoff, & Schuh, LLP. Ans., Dkt. No. [8]. As to the Third-Party Defendants,
the Defendants alleged claims for: (1) legal malpractice; (2) breach of fiduciary
duty; (3) preliminary and permanent injunctive relief; and (4) attorneys’ fees.
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Two weeks later, the Defendants moved to disqualify the Third-Party
Defendants as Plaintiff’s counsel. Dkt. No. [9]. The Court held a hearing and
denied the motion, finding that there was neither a conflict of interest nor a
disclosure of confidential information. Order, Dkt. No. [25] at 2. However, the
Court made no finding as to whether an attorney-client relationship existed
between the Defendants and the Third-Party Defendants. Id. Further, the
Court agreed to grant Defendants leave to refile that motion if their claims
survived the Third-Party Defendants’ motions to dismiss. Id.
In February 2011, the Court ruled that the Defendants had sufficiently
plead a legal malpractice third-party claim against the Third-Party Defendants.
The Court granted the Defendants leave to file a motion to disqualify the ThirdParty Defendants as Plaintiff’s counsel. Dkt. No. [43]. Defendants then did so,
and the Plaintiff moved to sever the third-party claims.
Defendants additionally filed a motion for partial summary judgment.
And, due to the Plaintiff’s failure to timely file his opposition brief, the Plaintiff
now seeks an extension of time to file his brief, and the Defendants seek leave
to file a reply. The Court will consider each motion in turn.
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II. Discussion
A. Motion for Partial Summary Judgment
1. Preliminary Matters
Plaintiff has moved this Court to extend his time to respond to
Defendants’ Motion for Partial Summary Judgment. Defendants’ motion was
submitted to this Court on March 15, 2011 without opposition. After receiving
the March 15th email submission notification, Plaintiff filed his Opposition brief
the same day. Dkt. No. [46]. Plaintiff’s counsel unwittingly thought that the
brief had been filed while he was on vacation. Dkt. No. [47] at ¶ 10.
Federal Rule of Civil Procedure 6(b)(1) states that "[w]hen an act may or
must be done within a specified time, the court may, for good cause, extend the
time: . . . on motion made after the time has expired if the party failed to act
because of excusable neglect." FED. R. CIV. P. 6(b)(1). In this Circuit,
“excusable neglect” is determined by reference to a four-factor inquiry: “the
danger of prejudice to the nonmovant, the length of delay and its potential
impact on judicial proceedings, the reason for the delay, including whether it
was within the reasonable control of the movant, and whether the movant acted
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in good faith.” Advanced Estimating Sys., Inc. v. Riney, 130 F.3d 996, 997-98
(11th Cir. 1997).
While the delay was certainly within the control of the Plaintiff, the Court
finds the motion proper. Defendants are not prejudiced. In fact, they filed a
Reply Brief addressing the Plaintiff’s arguments. As well, the Plaintiff filed his
previously-prepared Opposition Brief the same day that he learned of the
mistake and the motion was submitted to the Court. Further, the Court does not
find that the Plaintiff acted in bad faith. Therefore, Plaintiff’s Motion to Extend
Time to Respond [48] and Defendants’ Motion for Leave to File Reply in
Support of Partial Summary Judgment [52] are GRANTED. Defendants’
Motion for Partial Summary Judgment will not be deemed unopposed.
2. Legal Standard
Federal Rule of Civil Procedure 56 requires that summary judgment be
granted "if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P.
56(a). “The moving party bears ‘the initial responsibility of informing the . . .
court of the basis for its motion, and identifying those portions of the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
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affidavits, if any, which it believes demonstrate the absence of a genuine issue
of material fact.’” Hickson Corp. v. N. Crossarm Co., 357 F.3d 1256, 1259
(11th Cir. 2004) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)
(internal quotations omitted)). Where the moving party makes such a showing,
the burden shifts to the non-movant, who must go beyond the pleadings and
present affirmative evidence to show that a genuine issue of material fact does
exist. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986).
The applicable substantive law identifies which facts are material. Id. at
248. A fact is not material if a dispute over that fact will not affect the outcome
of the suit under the governing law. Id. An issue is genuine when the evidence
is such that a reasonable jury could return a verdict for the non-moving party.
Id. at 249-50.
In resolving a motion for summary judgment, the court must view all
evidence and draw all reasonable inferences in the light most favorable to the
non-moving party. Patton v. Triad Guar. Ins. Corp., 277 F.3d 1294, 1296 (11th
Cir. 2002). But, the court is bound only to draw those inferences which are
reasonable. “Where the record taken as a whole could not lead a rational trier
of fact to find for the non-moving party, there is no genuine issue for trial.”
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Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir. 1997) (quoting
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
“If the evidence is merely colorable, or is not significantly probative, summary
judgment may be granted.” Anderson, 477 U.S. at 249-50 (internal citations
omitted); see also Matsushita, 475 U.S. at 586 (once the moving party has met
its burden under Rule 56(c), the nonmoving party “must do more than simply
show there is some metaphysical doubt as to the material facts”).
3. Securities Fraud and Common Law Fraud
Defendants first move for summary judgment on Plaintiff’s federal
securities law claim. To state a claim for securities fraud under section 10(b) of
the Exchange Act1 and under Rule 10b-5,2 Plaintiff must allege: (1) a
1
Section 10(b) states, in pertinent part:
It shall be unlawful for any person, directly or indirectly, by the use of any means or
instrumentality of interstate commerce, or of the mails or of any facility of any national
securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the circumstances under
which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operated or would operate
as a fraud or deceit upon any person, in connection with the purchase or sale of any
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misstatement or omission of material fact, (2) made with scienter, (3) in
connection with the purchase or sale of any security, (4) upon which the
plaintiff justifiably relied, (5) that proximately caused the plaintiff's damages.
Garfield v. NDC Health Corp., 466 F.3d 1255, 1261(11th Cir. 2006) (citing
Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1281(11th Cir. 1999).
Plaintiff has alleged two misrepresentations: (1) that if Plaintiff
transferred $125,000 to the Defendants he would receive stock in Taco Maker
and Fransglobal, and 2) that by virtue of the foregoing investment, Plaintiff
would be awarded food production contracts. Cmpl., Dkt. No. [1] at ¶¶ 19, 43.
Plaintiff alleges in his complaint that these statements occurred during April
and July 2008 meetings between the Defendants and Plaintiff. Defendants
argue that the Plaintiff’s claims are not actionable because since the Plaintiff
transferred the $125,000 equity-purchase funds prior to the July 14, 2008
meeting, Plaintiff cannot prove causation. Specifically, they argue that since the
security.
15 U.S.C. § 78j(b).
2
Rule 10b-5 makes it unlawful "to make any untrue statement of material fact or
to omit to state a material fact necessary in order to make the statements made, in the light
of the circumstances under which they were made, not misleading." 17 C.F.R. §
240.10b-5.
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transfer of funds occurred on July 11, 2008, the Plaintiff could not rely upon
any July 14th statements nor could those statements be connected to the sale of
the security.
However, a genuine issue of material fact remains on the securities fraud
claims. Plaintiff states that–beyond the July 2008 meeting–the parties met in
April to discuss the purchase and that the misrepresentations were originally
made that date. Dkt. No. [47] at ¶¶ 7-10. While Defendants never affirmatively
address the April meeting, it appears the Defendants maintain the April
misrepresentations could not have occurred as the Plaintiff was still pursuing a
prior Lausell transaction. See Def.’s PSMJ, Dkt. No. [42-2] at 7 (stating that the
Plaintiff pursued the Lausell transaction, even going so far as to draft a stock
purchase agreement, and that the Plaintiff was not approached by Defendants
until after the Lausell transaction fell apart). However, Plaintiff states
otherwise. As there is a genuine issue of material fact, Plaintiff’s
misrepresentation claims stand.
Additionally, Defendants have challenged the Plaintiff’s omission-based
securities fraud claims. Plaintiff alleges the Defendants omitted: 1) that the
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scheme-like-fashion, and 2) that none of the Defendants were registered with
either the Georgia Secretary of State or the United States Securities and
Exchange Commission to engage in securities transactions. Cmpl., Dkt. No. [1]
at ¶¶ 45, 46. Defendants fail to address the first omission on the merits but
argue that as to the second, “Defendants were exempt from the broker-dealer
registration requirements and Plaintiff’s loss was not proximately caused by a
failure to register.” MPSJ, Dkt. No. [42-2] at 9-10.
Defendants have cited O.C.G.A. § 10-5-31(b)(3) (2009), O.C.G.A. § 105-31(b)(4) (2009), and § 10-5-31(b)(4)’s federal analog–Rule 3a4-1–as
exemptions for Budet’s registration requirement, and the Plaintiff has addressed
these statutes in his opposition brief. However, while the legislation which
created these state exemptions was passed in May 2008, the effective date of the
law was July 1, 2009, after Plaintiff’s claims arose.3 Therefore, these
exemptions are not properly cited as the pre-July 2009 law controls. See 2008
GA. CODE ANN. ADV. LEGIS. SERV. 528 (West) (stating that the changes became
effective July 1, 2009 and thus were not retroactive).
3
It also appears that Plaintiff initially took this view as well–even though he
responded to the post-2009 law–because his complaint cites the pre-July 2009 law. See
Dkt. No. [1] at 8-10 (citing O.C.G.A. §§ 10-5-5, -12 (2008)(amended 2009) as
substantiating the failed broker-registration).
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However, even if the cited provisions are also substantively found in a
pre-July-2009 analog, the Court finds that the Defendant is not entitled to
judgment as a matter of law on these claims. The Plaintiff has filed a Rule
56(d) affidavit, requesting additional time to complete discovery. Dkt. No. [462]. At the time Defendants filed their Motion, the parties had not completed a
Rule 26(f) conference nor a preliminary scheduling report. Id. at ¶¶ 10-12. In
fact, at the time of this motion, only the Plaintiff had responded to the
Defendants’ written discovery. The Court agrees that the Plaintiff should be
given additional time to conduct discovery, especially as it relates to whether
the Defendants offered the same security to any other potential buyers. Those
facts would not be within the Plaintiff’s possession or control.
Therefore, Defendants’ Motion for Partial Summary Judgment is
DENIED, with the right to refile following discovery. If the parties choose to
file a motion for summary judgment, they should be mindful to formulate their
memoranda of law around pre-July-2009 law. If the parties believe that the
post-July-2009 law should apply instead, those arguments should be made in
any subsequent summary judgment briefing.
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4. Sale of Unregistered Securities
Defendants also move for summary judgment on Plaintiff’s sale of
unregistered securities claim. Defendants seek refuge under O.C.G.A. §§ 10-511(1) and -11(14) (2009),4 which provide exemptions for security registration
under the post-July-2009 code. These provisions substantively exclude
“isolated non-issuer transactions” and transactions which involve investments
by not more than 15 purchasers with neither a general advertisement nor a
commissioned broker. See O.C.G.A. §§ 10-5-11(1), -11(14) (2009).
However, assuming again that there are pre-July-2009 analogs for these
provisions, the Court finds that the Plaintiff is entitled to additional discovery
on these issues. Without completing discovery, Plaintiff is unable to know
definitively how many purchasers existed or whether this transaction was in fact
isolated. Again, these are facts not within the Plaintiff’s control. Therefore, the
Defendants’ Motion is DENIED, with the right to refile upon completion of
additional discovery.
4
Defendants and Plaintiff refer to this exemption as O.C.G.A. § 10-5-14.
However, based on the alleged substance of the cited provision and Defendants’ notation
that they are referring to post-2008 law, it appears that all of the litigants meant to cite
O.C.G.A. § 10-5-11(14) (2009). See Def.’s PMSJ, Dkt. No. [43-2] at 23.
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B. Motions to Disqualify and Sever the Third Party Claims
Defendants have additionally moved to disqualify Third-Party Defendant
Busch, Slipakoff, & Schuh, LLP (“BSS”) from representing the Plaintiff. In
response, the Third-Party Defendants oppose disqualification but request that if
the Court deems disqualification proper, the Court sever the third-party claims.
The Court has previously found that the Defendants have adequately
plead an attorney-client relationship between the Third-Party Defendants and
themselves. Dkt. No. [43] at 4-7. As a result, Defendants argue that since they
are alleged former clients of Shane Stogner, and because Mr. Stogner is now
part of BSS, his conflict is imputed to BSS. Thus, continued representation of
the Plaintiff violates Rules 1.7, 1.9, and 1.10 of the Georgia Rules of
Professional Conduct. In return, BSS argues that it is not a proper party
because Stogner’s former law firm, Taylor, Busch, Slipakoff, & Duma, LLP, is
not the predecessor in interest to BSS. Therefore, BSS is not conflicted because
it did not represent the Defendants. BSS did not raise this argument in its
12(b)(6) motion which was previously denied by this Court. See BSS’ MTD,
Dkt. No. [29].
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Pursuant to Georgia Rules of Professional Conduct 1.9(a), “a lawyer is
disqualified from representing a party against a former client in a matter that is
‘substantially related’ to the lawyer's prior representation.” Crawford W. Long
Mem. Hosp. v. Yerby, 373 S.E.2d 749, 750 (Ga. 1988); Rule 1.9(a).5 Further,
“if one attorney in a firm has an actual conflict of interest, we impute that
conflict to all the attorneys in the firm, subjecting the entire firm to
disqualification.” Rescigno v. Vesali, 703 S.E.2d 65, 69 (Ga. Ct. App. 2010)
(citing Rule 1.10(a)6).
Here, Shane Stogner allegedly maintained an attorney-client relationship
with the Defendants. And, Stogner is currently an associate at BSS. Thus, it is
Stogner who taints BSS, not some “successor-in-interest” theory. Additionally,
the subject matter here is clearly “substantially related” to the prior
representation as it was out of this representation that the Defendants assert
5
Rule 1.9(a) states in full: “A lawyer who has formerly represented a client in a
matter shall not thereafter represent another person in the same or a substantially related
matter in which that person's interests are materially adverse to the interests of the former
client unless the former client consents after consultation.”
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Rule 1.10(a) states in full: “While lawyers are associated in a firm, none of them
shall knowingly represent a client when any one of them practicing alone would be
prohibited from doing so by Rules 1.7: Conflict of Interest: General Rule, 1.8(c): Conflict
of Interest: Prohibited Transactions, 1.9: Former Client or 2.2: Intermediary.”
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their third-party claims against BSS. The alleged representation only occurred
because of the Plaintiff’s alleged equity interest purchase. Further, the ethical
conflict is only exacerbated by the fact that BSS is a party to this lawsuit.
Therefore, Defendants’ Motion to Disqualify BSS [49] is GRANTED.
BSS then argues that if it is disqualified, that the third-party claims
should be severed7 so that the Plaintiff could assert his right to choose counsel.
Federal Rule of Civil Procedure 14(a)(4) states that “[a]ny party may move to
strike the third-party claim, to sever it, or to try it separately.” The district court
is given discretion to try cases separately “[f]or convenience, to avoid prejudice,
or to expedite and economize.” FED. R. CIV. PRO. 42(b).
The Court does not find that the third-party claims should be tried
separately or severed. Judicial economy is promoted by maintaining the current
alignment. The primary claims and the third-party claims involve the same
witnesses and relate to the “contract” which was formed between the Plaintiff
and the Defendants. The Defendants maintain that Stogner’s failure to
7
It is unclear if BSS moves for the third-party claims to be “severed”–meaning
established as a separate lawsuit–or to simply be “tried separately,” as it uses both
standards in its briefing. See, BSS’ Mot. Sever, Dkt. No. [53] (stating “sever” in styling
its motion and throughout briefing, but citing to Rule 42 which governs separate trials).
The Court will construe the motion as seeking either severance or a separate trial.
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implement basic contract formalities resulted in any damages which have
occurred. Therefore, BSS’ Motion to Sever [53] is DENIED.
III. Conclusion
Based on the foregoing, Plaintiff’s Motion for Extension of Time to File
a Response [48] and Defendants’ Motion for Leave to File Reply in Support of
Partial Summary Judgment [52] are GRANTED. Defendants’ Motion for
Partial Summary Judgment [42] is DENIED, with the right to refile following
discovery. As well, Defendants’ Second Motion to Disqualify Attorney [49] is
GRANTED and Third-Party Defendants’ Motion to Sever Third-Party Claims
[53] is DENIED. Stogner and BSS are disqualified from representing the
Plaintiff in this matter.
SO ORDERED this 2nd
day of June, 2011.
_______________________________
RICHARD W. STORY
UNITED STATES DISTRICT JUDGE
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