Powertrain, Inc. v. Ma et al

Filing 235

MEMORANDUM OPINION re 234 Order on Motion to Dismiss for Failure to State a Claim,, Order on Motion for Sanctions,, Order on Motion for Summary Judgment,. Signed by Senior Judge Glen H. Davidson on 8/8/14. (rel)

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF MISSISSIPPI

ABERDEEN DIVISION

POWERTRAIN, INC., a Mississippi corporation

v.

PLAINTIFF

CIVIL ACTION NO. 1:II-cv-00105-GHD-DAS
DEFENDANT

JOYCEMA

MEMORANDUM OPINION GRANTING THIRD-PARTY DEFENDANTS' MOTION

TO DISMISS THIRD-PARTY COMPLAINT, DENYING MOTION FOR SANCTIONS,

AND DENYING MOTION FOR SUMMARY JUDGMENT AS MOOT

Presently before the Court are a motion to dismiss [144], motion for sanctions [184], and
motion for summary judgment [208] filed by Third-Party Defendants William H. Shawn and
ShawnCoulson, LLP. Upon due consideration, the Court finds that the motion to dismiss [144]
should be granted, the motion for sanctions [184] should be denied, and the motion for summary
judgment [208] should be denied as moot.

A. Factual and Procedural Background
Plaintiff PowerTrain, Inc. ("PowerTrain") brings this diversity action against Defendant
Joyce Ma ("Ma"), I a California citizen.2 The parties apparently agree that Mississippi law
governs the action. PowerTrain alleges that Ma, both individually and as the alter ego of Best
Machinery & Electrical, Inc., imported to the United States from China small engines that
violated EPA's emission and labeling standards and were not covered by certificates of
conformity; PowerTrain purchased 78,284 of the engines (the "subject engines") from Ma;
I PowerTrain also initially sued Defendant Best Machinery & Electrical, Inc. On November 20,2013, the
Court granted PowerTrain's motion for default judgment against Defendant Best Machinery & Electrical, Inc. See
Ct.'s Default J. [124]; see also Ct.'s Order [117] & Mem. Op. [118] Re: Service of Process on Defendant Best
Machinery & Electrical, Inc.

2 Diversity jurisdiction is established in this action, as complete diversity of citizenship exists between
PowerTrain, a Mississippi resident, and Ma, a California resident, and the jurisdictional amount in controversy is
satisfied by PowerTrain's prayer for damages exceeding $2,000,000.

1

PowerTrain sold and/or distributed the subject engines to Wood Sales, Inc. for further resale in
the United States by Wood Sales, Inc. and/or Tool Mart, Inc.; and the EPA detennined that the
subject engines violated the Clean Air Act and regulations promulgated thereunder. PowerTrain
alleges that as a direct and proximate result of Ma's sale of the subject engines to PowerTrain,
the United States filed civil actions against PowerTrain for injunctive relief and the assessment
of civil penalties for these violations and a consent decree/judgment was entered against
PowerTrain for civil penalties in the amount of $2 million plus interest and ordering PowerTrain
to export or pennanently destroy the certain engines that were in violation of federal law and·
implement an emission off-set project. PowerTrain asserts causes of action against Ma for
negligence/wantonness, breach of contract, breach of warranty, and piercing-the-corporate­
veil/alter ego liability.
In the midst of the proceedings in the instant case, on May 24,2012, Defendant Ma filed
a motion for leave [39] to file a third-party complaint against William H. Shawn and
ShawnCoulson, LLP. Defendant Ma asserted in her motion for leave that the instant case "was
spawned from" previous litigation styled Powertrain, Inc., et al., v. American Honda Motor Co.,
et al., No. 1:03-cv-668, 2007 WL 2254346 (N.D. Miss. Aug. 2,2007) (the "Honda case"), a case

concerning whether PowerTrain and others had illegally copied American Honda Motor Co.'s
trade dress.

She further asserted that William H. Shawn and ShawnCoulson, LLP had

represented both Defendant Ma and PowerTrain in the Honda case, and that "as a proximate
result" of this alleged representation, "[PowerTrain was] able to bring this case against
[Defendant Mal" in breach of an agreement between PowerTrain and Defendant Ma that
PowerTrain would do no hann to her. Def.'s Mot. Leave [39] at 1-2. While denying any
liability in the instant case, Defendant Ma stated that "if it be shown that she is in fact liable to

2

[PowerTrain] on account of the matters and things alleged in the original [c]omplaint, then ...
the Defendant [Ma] should be entitled to recover from [William H. Shawn and ShawnCoulson,
LLP] the full amount of any" such judgment. Id. at 2. The United States Magistrate Judge
assigned to this cause granted the Third-Party Plaintiff's request for leave to file her third-party
complaint against the Third-Party Defendants.
On July 3, 2012, the Third-Party PlaintiffIDefendant Ma (the "Third-Party Plaintiff")

filed her complaint [42] against the Third-Party Defendants William H. Shawn and
ShawnCoulson, LLP (the "Third-Party Defendants"), invoking the Court's diversity jurisdiction. 3
The third-party complaint asserted the following eight causes of action: breach of contract,
conflict of interests, breach of fiduciary duty, fraud, negligent misrepresentation, constructive
fraud, negligence, and legal malpractice.

The Third-Party Defendants subsequently filed a

motion to dismiss [57] all third-party claims. In an Order [111] dated September 24, 20l3, the
Court denied the motion to dismiss [57] and allowed the Third-Party Plaintiff to amend her
complaint.
On October 8, 2013, the Third-Party Plaintiff filed her amended complaint [114]. The
amended third-party complaint asserts the following seven causes of action: breach of the duty of
loyalty, conflict of interests, breach of fiduciary duty, negligent misrepresentation, constructive
fraud, negligence, and legal malpractice. 4 Thereafter, the Third-Party Defendants filed a motion
to dismiss [144] those claims, a motion for sanctions [184] against the Third-Party Plaintiff and

3 It is undisputed that the Third-Party Plaintiff and Third-Party Defendants are completely diverse and that
the jurisdictional amount-in-controversy is satisfied. Apparently, it is also undisputed that Mississippi law governs.
4 The amended third-party complaint thus adds a cause of action for breach of the duty of loyalty and does
away with the breach of contract and fraud claims asserted in the original third-party complaint.

3

her attorney, and a motion for summary judgment [208], all of which are fully briefed and ripe
for review. The Court addresses first the motion to dismiss and then the motion for sanctions. 5
B. Federal Rule ofCivil Procedure 12(b)(6) Motion to Dismiss
Rule 12(b)(6) of the Federal Rules of Civil Procedure allows a party to move for
dismissal of a complaint when the plaintiff has failed to state a claim upon which relief can be
granted, but such motions "are viewed with disfavor and are rarely granted." Kocurek v. Cuna
Mut. Ins. Soc'y, 459 F. App'x 371, 373 (5th Cir. 2012) (citing Gregson v. Zurich Am. Ins. Co.,
322 F.3d 883, 885 (5th Cir. 2003». In ruling on a motion to dismiss brought under Rule
12(b)(6), the Court "must take all of the factual allegations in the complaint as true," but "[is] not
bound to accept as true a legal conclusion couched as a factual allegation." Wood v. Moss, ­

u.s. -, 134 S. Ct. 2056, 2065 n.5 (May 27,2014) (quoting Ashcrofl v. Iqbal, 556 U.S. 662,678,
129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) (internal quotation marks omitted». "[P]laintiffs must
allege facts that support the elements of the cause of action in order to make out a valid claim."
Webb v. Morella, 552 F. App'x 238, 241 (5th Cir. 2013) (per curiam) (quoting City of Clinton,
Ark. v. Pilgrim's Pride Corp., 632 F.3d 148, 152-53 (5th Cir. 2010».
Although the plaintiff's allegations "need not pin the plaintiff's claim for relief to a
precise legal theory" or present "an exposition of his legal argument," see Skinner v. Switzer, ­
U.S. - , 131 S. Ct. 1289, 1296, 179 L. Ed. 2d 233 (Mar. 7,2011), "a complaint must contain
sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face,"
Iqbal, 556 U.S. at 678, 129 S. Ct. 1937 (internal quotation marks and citation omitted). "A claim
is facially plausible if the plaintiff pleads facts that allow a court 'to draw the reasonable
inference that the defendant is liable for the misconduct alleged.' " Boyd v. Farrin, -

F. App'x

5 Because the motion to dismiss all third-party claims must be granted, the motion for summary judgment
must be denied as moot.

4

- , 2014 WL 3586661, at *2 (5th Cir. July 22, 2014) (per curiam) (quoting Iqbal, 556 U.S. at
678, 129 S. Ct. 1937). "[C]onclusory allegations or legal conclusions masquerading as factual
conclusions will not suffice to prevent a motion to dismiss."

Webb, 522 F. App'x at 241

(quoting Fernandez-Montes v. Allied Pilots Ass 'n, 987 F.2d 278, 284 (5th Cir. 1993)).
In filing the present motion to dismiss, the Third-Party Defendants attach several
documents filed in the Honda case and ask the Court to take judicial notice of these documents
under Rule 201(b) of the Federal Rules of Evidence. "If, on a motion under Rule 12(b)(6) or
12{c), matters outside the pleadings are presented to and not excluded by the court, the motion
must be treated as one for summary judgment under Rule 56." FED. R. CIV. P. 12(d). However,
"a district court may take into account documents incorporated into the complaint by reference or
integral to the claim, items subject to judicial notice, matters of public record, orders, items
appearing in the record of the case, and exhibits attached to the complaint whose authenticity is
unquestioned." Meyers v. Textron, Inc., 540 F. App'x 408,409-10 (5th Cir. 2013) (per curiam)
(citing Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S. Ct. 2499, 168 L.
Ed. 2d 179 (2007); 5B CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE §
1357 (3d ed. 2014)). See Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011) ("[T]he
district court took appropriate judicial notice of publicly-available documents and transcripts ...
which were matters of public record directly relevant to the issue at hand."). Because all of the
attached documents are matters of public record, the Court takes judicial notice of the
documents.

With all of the foregoing in mind, the Court turns to the Third-Party Plaintiff's

claims.

5

a. Third-Party Plaintiff's Allegations

The Court accepts the following factual allegations from the Third-Party Plaintiffs
amended complaint as true for purposes of ruling on the present motion to dismiss. See Warren
v. Chesapeake Exploration, L.L.c.,
2014).

F.3d - , 2014 WL 3511880, at *1 (5th Cir. July 16,

On or about December 19, 2003, PowerTrain and others filed a complaint against

American Honda Motor Co. in the Honda case. Shortly thereafter, Oneal Wood, the owner of
PowerTrain, informed this Third-Party Plaintiff that PowerTrain needed her help in the Honda
case and offered to represent her. The Third-Party Plaintiff informed Oneal Wood that she was
afraid of being personally involved in the Honda case. Oneal Wood "offered to [her] that
Power[T]rain would do no harm to [her] and represent [her] if [American Honda Motor Co.]
were to sue [her] and if Best [Machinery & Electrical Co.] would refuse to pay [her] attorney[']s
fees." Third-Party Pl.'s Am. Compi. [114]

~

7. The Third-Party Plaintiff accepted the offer.

Third-Party Defendant William H. Shawn, Esquire ("Third-Party Defendant Shawn"), lead
counsel for PowerTrain and others in the Honda case, then "prepared [the Third-Party Plaintiff]
for and represented [her] in [her] deposition by [American Honda Motor Co.]." Id.

~

9.

Subsequently,
[w]hile representing [the Third-party Plaintiff] and Power[T]rain,
[Third-Party Defendant] Shawn reassured [the Third-Party
Plaintiff] that Power[T]rain would do no harm to [her]. However,
[Third-Party Defendant] Shawn failed to execute an implied
promise, including, but not limited to, putting the terms in writing.
[Third-Party Defendant] Shawn acted as the attorney and agent for
Power[T]rain when making this representation to [the Third-party
Plaintiff].
Id.

mr 9-10.

Any efforts to form a contract between PowerTrain and the Third-Party Plaintiff

were done so by Third-Party Defendant Shawn as the attorney and agent of PowerTrain. Jeffrey
Wood, son of Oneal Wood and employee of PowerTrain, further promised the Third-Party
6

Plaintiff that if American Honda Motor Co. were to involve her personally in the Honda case
PowerTrain would file papers with the court to dismiss the Third-Party Plaintiff. The Third­
Party Plaintiff cooperated fully with PowerTrain and performed her part of the bargain in the
Honda case. Subsequently, the Third-Party Plaintiff contacted Third-Party Defendant Shawn

and requested information concerning the Honda case. Third-Party Defendant Shawn stated that
he had turned over all the documents to Oneal Wood after winning the lawsuit against Oneal
Wood for attorney's fees and that he had no documents on the Honda case in his possession.
Third-Party Defendant Shawn further denied ever representing the Third-Party Plaintiff.
Subsequently, on May 3, 2011, PowerTrain, through its local counsel Duncan L. Lott, Esquire,
filed the instant complaint against the Third-Party Plaintiff, thereby breaching the contract
entered into by the Third-Party Defendants with the Third-party Plaintiff
The Third-Party Plaintiff asserts that the above factual allegations make out claims for
breach of the duty of loyalty, conflict of interests, breach of fiduciary duty, negligent
misrepresentation, constructive fraud, negligence, and legal malpractice. These asserted claims
have many overlapping legal elements and factual allegations and center on the Third-Party
Defendants' alleged representation of the Third-party Plaintiff in the Honda case. First, her
claims for breach of the duty of loyalty, breach of fiduciary duty, and constructive fraud are
actually one and the same under Mississippi law, and exist underneath the larger umbrella of
legal malpractice. See Estate olSt. Martin, --- So. 3d ---, 2014 WL 2132731, at *3 (5th Cir. May
22, 2014) (citing Wilbourn v. Stennett, Wilkinson & Ward, 687 So. 2d 1205, 1215 (Miss. 1996);
Tyson v. Moore, 613 So. 2d 817,823 (Miss. 1992)}. Thus, in asserting these causes of action, the

Third-Party Plaintiff actually pleads a claim for legal malpractice based on the Third-Party

7

Defendants' alleged breach of the duty of loyalty. The only other claim the Third-Party Plaintiff
pleads is one for negligent misrepresentation.
Although the Third-Party Plaintiff also asserts a cause of action for negligence, those
allegations are identical to the allegations supporting a legal malpractice claim based on breach
of the duty of loyalty.

See Third-Party PL's Am. CompL [114]

mr 31-33.

Further, her

negligence allegations fail to support an additional legal malpractice claim based on a negligence
theory, as the Third-Party Plaintiffs allegations fail to show that "but for [the Third-Party
Defendants'] negligence, [the Third-Party Plaintiff] would have been successful in the
prosecution or defense of the underlying action [the Honda suit]," as would be required to
sustain such a claim. See Crist v. Loyacono, 65 So. 3d 837, 842 (Miss. 2011); see also id. at 843
(in negligence-based legal malpractice claim, "attorneys are only held professionally liable
where their failures to adhere to the standard of care actually impacted the plaintiff's interests in
the case"). To the extent the Third-Party Plaintiff is attempting to frame a legal malpractice
claim on a duty of care theory by her allegations that but for the alleged acts she would not have
been sued in this action, the Court finds that she has failed to state such a claim. Accordingly,
the Court finds that the amended complaint presents neither a stand-alone negligence claim nor a
legal malpractice claim based on a negligence theory.

b. Analysis and Discussion
The Third-Party Defendants present two arguments in support of dismissaL First, the
Third-Party Defendants argue that the third-party claims are time-barred under Mississippi's
three-year statute of limitations, Mississippi Code § 15-1-49.

Second, the Third-Party

Defendants argue that the amended third-party complaint fails to state a claim upon which relief
may be granted. The Court will address each argument in tum.

8

i. Statute of Limitations
First, the Third-Party Defendants argue that the Third-Party Plaintiffs claims are time­
barred under Mississippi Code § 15-1-49(1), which provides that "[aJll actions for which no
other period of limitation is prescribed shall be commenced within three (3) years next after the
cause of such action accrued, and not after." The Third-Party Defendants maintain that the
claims may have accrued sometime in 2005-either on May 5, 2005, when the claims were
allegedly clear and obvious, or on September 20, 2005, when the Third-Party Plaintiff retained
independent counsel in the Honda case. The Third-Party Defendants attach to their motion to
dismiss an application for admission pro hac vice dated September 20, 2005, filed by the Third­
Party Plaintiff and Best Machinery and Electrical, Inc. in the Honda case, indicating that they
had retained Raymond Buendia, Esquire to represent them. See Appl. [144-1] at 2. The Third­
Party Defendants further maintain that the earliest assertion of the third-party claims was on May
7,2012, when the third-party complaint was filed; thus, the Third-Party Defendants maintain that
the third-party claims were brought either six-and-one-half or seven years after the claims
accrued and that the Third-Party Plaintiff knew or should have known of her claims when she
retained her own counsel in September of2005. Thus, the Third-Party Defendants argue that the
third-party claims are time-barred under Mississippi law.
The Third-Party Plaintiff argues that her claims are not time-barred, because she did not
discover her injury until the instant suit was filed. The Third-Party Plaintiff maintains that she
first discovered the alleged malpractice in May of2011, when PowerTrain filed the instant case
in violation of the alleged oral do-no-harm agreement between PowerTrain and herself.
Therefore, the Third-Party Plaintiff argues that the statute of limitations began to run no earlier
than the date this case was filed, May 3, 2011. She further points to her lack of legal expertise to

9

recognize the significance of the Third-Party Defendants' alleged failure to put the alleged do­
no-hann agreement between PowerTrain and the Third-Party Plaintiff in writing; the potential
conflict between PowerTrain and her; and the conflict of interests of the relationship between the
Third-Party Defendants and PowerTrain and the relationship between the Third-Party
Defendants and the Third-Party Plaintiff. She maintains that when she alleged the conflict of
interest was clear and obvious in her amended third-party complaint, she meant that the conflict
was clear and obvious to the Third-Party Defendants, as lawyers-not to her, as a nonlawyer.
She states that "[h]ad the do-no-hann promise been properly handled by her lawyers, the Third [­
]Party Defendant[s], by memorializing the promise in writing, [the Third-Party Plaintiff] would
not be in this lawsuit." Third-Party Pl.'s Mem. Br. Supp. Resp. Opp'n to Third-Party Defs.'
Mot. Dismiss [148] at 6. She further states that the Honda case-the case which she referred to
in her motion for leave to file the initial third-party complaint as having "spawned" this case, see
Def.'s Mot. Leave File Third-Party Compl. [39] at 1-2-is "only marginally relevant to the
instant case." See Third-Party PI.'s Mem. Br. SUpp. Resp. Opp'n to Third-Party Defs.' Mot.
Dismiss [148] at 7. She maintains that the application pro hac vice of her retained counsel in the
Honda case is irrelevant to this matter, because her retained counsel was not involved in the do­

no-hann agreement. Finally, she states that "it is entirely possible that [the Third-Party Plaintiff]
was only nominally engaged in the Honda case, e.g., the decisions of filing any papers and
engaging any attorneys were made by others." Id. at 8. 6

6 Apparently, the Third-Party Plaintiff requests leave to amend both her amended third-party complaint
and answer to PowerTrain's first amended complaint to include allegations that she never formed any contract with
PowerTrain to sell the engines and thus that PowerTrain's claims are time-barred. These requests are not well taken,
as this Court has already given the Third-Party Plaintiff ample opportunity to amend her third-party complaint; the
proposed amendment would be futile, as the same would have no bearing on her third-party claims; and a request to
amend an answer in the instant case is not properly before the Court in a brief concerning the viability of the third­
party complaint. Therefore, the requests are denied.

10

Although the applicable statute of limitations is three years from the date the cause of
action accrued, "[i]n actions ... which involve latent injury or disease, the cause of action does
not accrue until the plaintiff has discovered, or by reasonable diligence should have discovered,
the injury." MISS. CODE ANN. § 15-1-49(2). "A latent injury is one where the plaintiff [is]
precluded from discovering harm or injury because of the secretive or inherently undiscoverable
nature of the wrongdoing in question." Aldridge v. Aldridge, --- So. 3d ---, 2014 WL 1013467,
at *5 (Miss. Ct. App. Mar. 18,2014) (quoting Ill. Cent. R.R. v. Guy, 682 F.3d 381,393 (5th Cir.
2012) (citation and internal quotation marks omitted». The Third-Party Plaintiff alleges in her
amended third-party complaint that she was not aware of the primary breach-the failure to
memorialize the do-no-harm agreement-until PowerTrain filed the instant suit against her in
May of 2011. She thus maintains that she filed her third-party complaint a little more than one
year after the instant suit was filed, and thus that her third-party claims are not time-barred under
Mississippi law. Ma alleges that the discovery rule applies and her third-party claims are not
time-barred. Even assuming this is true, as shown below, she has failed to state either a claim for
legal malpractice or negligent misrepresentation.
ii. Legal Malpractice
First, the Third-Party Plaintiff alleges that the Third-Party Defendants committed legal
malpractice. The threshold inquiry in a legal malpractice claim is whether "a lawyer-client
relationship has come into being." Singleton v. Stegall, 580 So. 2d 1242, 1244 (Miss. 1991)
(internal citations omitted). "The client's payment of a lawyer's fee cinches the point, although
we have never held it a sine qua non the relationship has arisen." Id. (internal citation omitted).
An attorney-client relationship exists when:

(1) A person manifests to a lawyer the person's intent that the
lawyer provide legal services for the person; and
11

(2)(a) The lawyer manifests to the person consent to do so, or (b)
fails to manifest lack of consent to do so, knowing that the person
reasonably relies on the lawyer to provide the services, or (c) a
tribunal with power to do so appoints the lawyer to provide the
services.
Id. at 1244 n.2 (citation omitted). "[T]he existence of a professional, attorney-client relationship

is fact-specific." Baker Donelson v. Sea, 42 So. 3d 474, 485 n.28 (Miss. 2010).
Nothing before this Court on the Rule 12(b)(6) motion supports the Third-Party
Plaintiff s condusory allegation that the Third-Party Defendants represented her in the Honda
case. The Third-Party Plaintiff alleges that Oneal Wood, the owner of PowerTrain, informed the
Third-Party Plaintiff that PowerTrain needed her help in the Honda case and offered to represent
her in that case; she resisted until Wood assured her that PowerTrain would do no harm to her
and would represent her if American Honda Motor Co. sued her and Best Machinery &
Electrical, Inc. refused to pay her attorney's fees; and she "accepted the offer." See Third-Party
Pl.'s Am. Compl. [114]

mr 6-8.

These allegations, taken as true, support that Wood agreed to

pay the Third-Party Plaintiffs attorney's fees to represent her in the Honda case only if two
conditions were met: (1) if American Honda Motor Co. sued her, and (2) if Best Machinery &
Electrical, Inc. did not pay her attorney's fees. Although the documents attached to the motion
to dismiss support that American Honda Motor Co. did sue her in the Honda case, nothing before
the Court at this Rule 12(b)(6) stage supports that Best Machinery & Electrical, Inc. in fact
refused to pay the Third-Party Plaintiff's attorney's fees.

Even the amended third-party

complaint is bereft of any such allegations.
The Third-party Plaintiff attempts to piece together that a representation did in fact exist
by alleging that the Third-Party Defendants prepared her for her May 2, 2005 deposition taken
by American Honda Motor Co. in the Honda case and "represented" her in that deposition, id.
12

~

9; and that the Third-Party Defendants reassured her that PowerTrain would do no hann to her
but did not memorialize this do-no-hann agreement, id. ~ 10. These allegations do not establish
that the Third-Party Defendants represented the Third-Party Plaintiff in the Honda case. The
Third-Party Plaintiffs subsequent statement in her response to the motion that she was only
"nominally engaged in the Honda case, e.g., the decisions of filing any papers and engaging any
attorneys were made by others" belies her earlier conclusory allegations of representation.
Overall, the amended third-party complaint, third-party amended complaint, motion papers, and
attached documents filed in the Honda case fail to reveal the existence of a lawyer-client
relationship between the Third-Party Defendants and the Third-Party Plaintiff.

In fact, the

documents filed in the Honda case reveal that the Third-Party Plaintiff hired several attorneys to
represent her-none of which was Third-Party Defendant Shawn or any attorney at Third-Party
Defendant ShawnCoulson, LLP.
Because a lawyer-client relationship is an essential element in any legal malpractice
claim, and because the Third-Party Plaintiff fails to plead sufficient facts to establish such a
relationship, her legal malpractice claim fails at the threshold.

However, even assuming

arguendo that the Third-Party Plaintiffs amended complaint sufficiently alleges that a lawyer­

client relationship existed between the Third-Party Defendants and herself, her legal malpractice
claim fails on other grounds.
Generally, a lawyer owes to his or her clients duties falling into three broad categories:
(1) "a duty of care consistent with the level of expertise he holds himself out as possessing"

which "imports not only skill or expertise, but diligence as well"; (2) "a duty of loyalty and
fidelity, which includes duties of confidentiality, candor[,] and disclosure"; and (3) "any duties
created by his contract with his client." Estate ofSt. Martin, 2014 WL 2132731, at *2 (quoting

13

Baker Donelson, 920 So. 2d at 449) (internal quotation marks omitted». Here, the Third·Party
Plaintiff asserts a legal malpractice claim based on an alleged breach of the duty of loyalty. A
lawyer's duty of loyalty includes a duty to "safeguard the client's confidences and property,
avoid conflicting interests that might impair the representation, and not employ adversely to the
client powers conferred by the client·lawyer relationship." Waggoner v. Williamson, 8 So. 3d
147, 154-55 (Miss. 2009) (quoting Tyson, 613 So. 2d at 827) (in turn quoting Singleton, 580 So.
2d at 1245) (internal quotation marks omitted». Also included within the lawyer's duty of
loyalty is the "duty to inform his client of all matters of reasonable importance related to the
representation or arising therefrom." ld. at 154 (quoting Tyson, 613 So. 2d at 827 (citation
omitted». A breach of the duty of loyalty may involve a situation "in which the attorney obtains
an unfair personal advantage, such as acquiring property from a client," or a situation "in which
the attorney or other clients have interests adverse to the client in question." Singleton, 580 So.
2d at 1244-1245 (citations omitted).
To sustain a legal-malpractice claim based on an alleged breach of the duty ofloyalty, the
plaintiff must establish "the acts constituting a violation of the attorney's fiduciary duty," "that
the breach proximately caused the injury," and "the fact and extent of the injury." Estate ofSt.

Martin, 2014 WL 2132731, at *3 (quoting Crist, 65 So. 3d at 842-43) (internal quotation marks
omitted». The complaint must "state with particularity the facts which purportedly created the
duty that was breached, so that the court [can] determine as a matter of law whether there was
such a duty." Wilbourn, 687 So. 2d at 1216. The plaintiff need not prove "that, but for the
breach, the plaintiff would have won the underlying case. Rather, the proof of proximate cause
in such cases is to be tailored to the injury the client claims and the remedy he elects." Estate of

14

St. Martin, 2014 WL 2132731, at *3 (quoting Crist, 65 So. 3d at 842) (internal quotation marks

omitted)).
In this case, the Third-Party Plaintiff maintains that the Third-Party Defendants breached
their duty of loyalty to her by not memorializing the alleged do-no-harm oral agreement between
PowerTrain and herself; by assuring her that if she cooperated with PowerTrain in the Honda
case that no harm could come to her; by failing to keep records for her; and by failing to resolve
the conflict of interest between their representation of PowerTrain et al. and their alleged
representation of her, even though said conflicts were "clear and obvious." See Third-Party Pl.'s
Am. Compl. [114]

'If'lf 17-20, 22, 24-26, 29-30, 32, 35. Although she alleges these four

instances of breach, the amended complaint attempts to tie only one of these alleged instances of
breach to her alleged injury: she alleges that the Third-Party Defendants' failure to memorialize
the oral do-no-harm agreement between her and PowerTrain "caus[ ed], at least partially, the
breach of the contract [that occurred] when Power[T]rain filed the instant suit against [her]" on
May 3, 2011. 7 Id.

'If 18. She later argues in response to the motion to dismiss that "[h]ad the do­

no-harm promise been properly handled by her lawyers, the Third [-]Party Defendant [s], by
memorializing the promise in writing, [the Third-Party Plaintiff] would not be in this lawsuit."
Third-Party Pl.'s Mem. Br. Supp. Resp. Opp'n to Third-Party Defs.' Mot. Dismiss [148] at 6.
Clearly, she alleges that harm befell her when circumstances led to PowerTrain's filing of the
instant action against her, despite an oral agreement to the contrary. The remedy she seeks is
compensatory damages for costs she has incurred and will incur in the instant suit as a result of
the alleged breach of the alleged do-no-harm agreement.

7 The Third-Party Plaintiff incorrectly states that PowerTrain filed the instant complaint against her on
May 5, 2011. The complaint was filed on May 3, 2011, as indicated on the docket report of the case sub judice.

15

"The proximate cause of an injury is that cause which in natural and continuous sequence
unbroken by any efficient intervening cause produces the injury, and without which the result
would not have occurred." Grisham v. John Q. Long

v.F.w.

Post, No. 4057, Inc., 519 So. 2d

413, 417 (Miss. 1988). To sustain a legal malpractice claim based on breach of duty of loyalty,
the Third-Party Plaintiff must show "the fiduciary breach was a proximate cause of the injury."
See Wilbourn, 687 So. 2d at 1217. The Third-Party Defendants correctly argue that the Third­

Party Plaintiff's allegations are vague and fail to establish a causal connection between the
Third-Party Defendants' alleged failure to memorialize the alleged do-no-harm oral agreement
between PowerTrain and the Third-Party Plaintiff and the eventual filing of the instant suit. The
Third-Party Plaintiff alleges that Oneal Wood, the owner of PowerTrain, promised the Third­
Party Plaintiff that if she would cooperate with PowerTrain in the Honda case "Power[T]rain
would do no harm to [her] and represent [her] if [American Honda Motor Co.] were to sue [her]
and if Best [Machinery and Electrical, Inc.] would refuse to pay [her] attorney[']s fees." Third­
Party Pl.'s Am. Compl. [114]

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7. The Third-Party Plaintiff further alleges that Jeffrey Wood,

Oneal Wood's son and a PowerTrain employee, "promised [her] that if [American Honda Motor
Co.] were to involve [her] personally in the case, Power[T]rain would file papers with the Court
to dismiss [her]." ld.

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11. However, as the Third-Party Defendants correctly argue, these

allegations do not tie the alleged failure to memorialize the alleged do-no-harm agreement to the
later filing of the instant lawsuit.
Further, the Third-Party Plaintiff appears to allege that the do-no-harm agreement
concerned PowerTrain's relationship with the Third-Party Plaintiff during the Honda case only.
The Third-Party Plaintiff claims in her response to the motion to dismiss that "[t]he essence of
the []do-no-harm contract between [herself] and [PowerTrain] was that PowerTrain was

16

obligated not to file the instant lawsuit against [her]." See Third-Party Pl.'s Mem. Br. Supp.
Resp. Opp'n to Third-Party Defs.' Mot. Dismiss [148] at 4. However, this statement adds an
allegation that was never expressed in either the initial third-party complaint or amended thirdparty complaint and would alter her claim. The Third-Party Plaintiff is not entitled to add new
claims to her amended complaint by way of her response. At best, the actual allegations are
speculative that if a do-no-harm agreement had been executed, the instant suit would not have
resulted. Speculation does not suffice to prevent a motion to dismiss.
Because the Third-Party Plaintiff fails to adequately allege that a lawyer-client
relationship existed between the Third-Party Defendants and herself and further fails to allege
that the alleged breach proximately caused her injury, she fails to state a claim for legal
malpractice. Therefore, the Third-Party Defendants' motion to dismiss must be granted on this
ground.
iii. Negligent Misrepresentation

The Third-Party Plaintiff also attempts to assert a claim for negligent misrepresentation.
The Third-Party Defendants argue that she fails to allege any representation or a statement of
when or where any such statements were made. The Court finds this argument to be well taken.
To sustain a negligent misrepresentation claim, a plaintiff must establish the following:
(1) a misrepresentation or omission of a fact; (2) that the
representation or omission is material or significant; (3) that the
person charged with the negligence failed to exercise that degree of
diligence and expertise the public is entitled to expect of such
persons; (4) that they reasonably relied upon the [attorneys']
misrepresentation or omission; [and] (5) that they suffered
damages as a direct and proximate result of such reasonable
reliance.
Waggoner, 8 So. 3d at 155 (quoting Spragins v. Sunburst Bank, 605 So. 2d 777, 780 (Miss.

1992) (internal quotation marks omitted)). The Third-Party Plaintiff alleges that the Third-Party
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Defendants' alleged actions constituted negligent misrepresentation against her. Third~Party
PI. 's Am. Compl. [114] 1Mf 27-28. Specifically, she points to the alleged failure of the Third­
Party Defendants to put the alleged do-no-harm agreement in writing-which is not a
misrepresentation or omission of a fact. Even if the Court generously finds that she has alleged a
misrepresentation by stating that the Third-Party Defendants told her PowerTrain would do no
harm to her but later filed the instant lawsuit, she has not established that the purported
misrepresentation was material or significant, that the Third-Party Defendants failed to exercise
that degree of diligence and expertise the public is entitled to expect of such persons, that she
reasonably relied upon the misrepresentation or omission, and that she suffered damages as a
direct and proximate result of such reasonable reliance. Accordingly, the Third-Party Plaintiff
has failed to state a claim for negligent misrepresentation, and the motion to dismiss must be
granted on this ground, as well.
For all of the foregoing reasons, the motion to dismiss shall be granted in its entirety.
"[D]istrict courts often afford plaintiffs at least one opportunity to cure pleading deficiencies
before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise
the court that they are unwilling or unable to amend in a manner that will avoid dismissal."
Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002).

In its earlier Order [111] denying the Third-Party Defendants' motion to dismiss the initial third­
party complaint and allowing the Third-Party Plaintiff to amend her complaint, the Court
cautioned the Third-Party Plaintiff that in order to survive a subsequent Rule 12(b)(6) motion to
dismiss the Third-Party Plaintiff's amended complaint would have to allege enough facts to state
a claim to relief that was plausible on its face. Because the Third-Party Plaintiffs amended
complaint fails to do so, the third-party claims must be dismissed.

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C Federal Rule ofCivil Procedure 11 Motion for Sanctions

Finally, the Court addresses the Third-Party Defendants' motion for sanctions [184]
against the Third-Party Plaintiff and her counsel. The Third-Party Defendants maintain that
sanctions of attorney's fees are appropriate against the Third-Party Plaintiff because of "the timebarred baselessness of [the Third-Party Plaintiff's] original and amended third[:-]party
complaints" and her "misleading attempt to plead around defects in [her] claim[s]." Third-Party
Defs.' Mem. Br. SUpp. Mot. Sanctions [186] at 1, 7.
The Fifth Circuit has explained:
Rule 11 [of the Federal Rules of Civil Procedure] provides that
when a lawyer submits a pleading to the court, the lawyer certifies
that any representations made to the court are not being presented
for any improper purpose, that the legal contentions are warranted
by existing law or a non-mvolous argument for the extension,
modification, or reversal of the law, and that any allegations made
therein have evidentiary support. The district court may impose
appropriate sanctions, including attorneys' fees and costs, on an
attorney who files a pleading in violation of Rule 11.
Bergquist v. FyBX Corp., 108 F. App'x 903, 904 (5th Cir. 2004) (per curiam) (citing FED. R.

ClY. P. 11

». "Rule 11 sanctions can only be granted in situations when attorneys sign a pleading

or filing that directly violates the rule itself[.]" Webb, 457 F. App'x 448,454 n.5 (5th Cir. 2012)
(per curiam). The Court "must always make a determination of the merits of the rule violation."
See id. This determination must be based on the Third-Party Plaintiff's pleadings at the time

they were filed. See Skidmore Energy, Inc. v. KPMG, 455 F.3d 564, 570 (5th Cir. 2006). The
third-party amended complaint fails to state a claim upon which relief may be granted.
However, upon careful review of the motion for sanctions and response in opposition to the
same, all accompanying briefs, attached documentation, and authorities, the Court is of the
opinion that neither the third-party complaint nor the third-party amended complaint constituted

19

a failure to attempt a reasonable inquiry into the law or an intent to harass. See Bergquist, 108 F.
App'x at 905. Therefore, the Third-Party Defendants' motion for sanctions [184] must be
denied.

D. Conclusion
In sum, the Third-Party Defendants' motion to dismiss [144] is GRANTED; the Third-

Party Defendants' motion for sanctions [184] is DENIED; and the Third-Party Defendants'
motion for summary judgment [208] is DENIED AS MOOT.

All third-party claims are

DISMISSED, and the Third-Party Defendants William H. Shawn and ShawnCoulson, LLP are
DISMISSED AS PARTIES to this action.
An order in accordance with this opinion shall issue this day.

d;z /J

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THIS,the--'L fAugusU014.

SENIOR JUDGE

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