Lighthouse Group LLC et al v. Strauss et al
ORDER granting 14 Motion to Dismiss plaintiffs' breach of contract and violation of the South Carolina Unfair Trade Practices Act claims. Signed by Honorable David C Norton on 2/12/16.(elim, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
LIGHTHOUSE GROUP, LLC;
SERVICES, LLC, f/k/a Lighthouse
Captive Management, LLC; and
PETER J. STRAUSS; THE STRAUSS
LAW FIRM, LLC; JOSEPH
ZIOLKOWSKI; ALPINE CAPTIVE
MANAGEMENT, LLC; HAMILTON
CAPTIVE MANAGEMENT, LLC;
WORLDWIDE PROPERTY &
CASUALTY SAC, LTD., and PORT
ROYAL PROPERTY & CASUALTY
This matter comes before the court on defendants Peter Strauss (“Strauss”),
Strauss Law Firm, LLC, Alpine Captive Management, LLC (“Alpine”), Hamilton
Captive Management, LLC (“Hamilton”), Port Royalty Property and Casualty
Reinsurance, Ltd. SAC (“Port Royal”), Joseph Ziolkowski (“Ziolkowski”), and
Worldwide Property and Casualty Ltd. SAC’s (“Worldwide”) (collectively “defendants”)
partial motion to dismiss. For the reasons set forth below, the court grants defendants’
Plaintiffs Lighthouse Group, LLC, Lighthouse Consulting Services, LLC, f/k/a
Lighthouse Captive Management, LLC, and Lighthouse International Services, LLC
(collectively the “Lighthouse companies” or “plaintiffs”) “are essentially a group of
companies that assist in creating and managing trusts and captive insurance companies.”
Am. Compl. ¶ 16. The allegations underlying the complaint arise out of and relate to the
formation and management of captive insurance companies by the Lighthouse companies
and various defendants. Plaintiffs filed the present action on June 18, 2015, bringing the
following causes of action: (1) breach of fiduciary duty as to Strauss; (2) constructive
fraud as to Strauss; (3) legal professional negligence as to Strauss; (4) breach of contract
as to the Strauss Law Firm; (5) conversion as to all defendants; (6) usurpation of
corporate opportunity as to Strauss, the Strauss Law Firm, Ziolkowski, and Alpine;
(7) Unfair Trade Practices violation as to Strauss; (8) tortious interference with contract
against Strauss, the Strauss Law Firm, Ziolkowski, and Alpine; (9) civil conspiracy as to
Strauss and Ziolkowski; (10) copyright infringement against all defendants; (11) breach
of software license agreement as to Alpine; and (12) breach of confidentiality and noncompete agreement as to Alpine and Ziolkowski.
On August 18, 2015, defendants filed the present motion to dismiss pursuant to
Federal Rule of Civil Procedure 12(b)(6) and 12(b)(1). Defendants argue that the court
lacks specific and general personal jurisdiction over defendants Worldwide and Port
Royal. Defendants also argue that plaintiffs’ claims for breach of contract and violation
of the South Carolina Unfair Trade Practices Act (“SCUTPA”) fail because they are
duplicative of the legal professional negligence cause of action. On August 27, 2015,
plaintiffs filed an amended complaint. On September 14, 2015, plaintiffs filed a response
in opposition to defendants’ motion to dismiss, and defendants replied on September 24,
2015. Plaintiffs also filed a motion to conduct personal jurisdictional discovery and for
enlargement of time to supplement opposition to defendants Worldwide and Port Royal’s
motion to dismiss for lack of personal jurisdiction. Plaintiffs sought a ninety day
extension to conduct jurisdictional discovery. Following jurisdictional discovery, the
parties, through counsel, reached an agreement to withdraw their motion to dismiss for
lack of personal jurisdiction over defendants Worldwide and Port Royal. The parties
further agreed that defendants’ motion to dismiss for failure to state a claim pursuant to
Rule 12(b)(6) with respect to the breach of contract and SCUTPA claims remains
pending and is not affected by the parties’ agreement. Therefore, the only remaining
issues in defendants’ motion to dismiss are the 12(b)(6) issues. The motion has been
fully briefed and is ripe for the court’s review.
A plaintiff’s complaint must contain “a short and plain statement of the
claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Rule 8 “does
not require ‘detailed factual allegations,’ but it demands more than an unadorned, thedefendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To show
that the plaintiff is “entitled to relief,” the complaint must provide “more than labels and
conclusions.” Twombly, 550 U.S. at 555. “[A] formulaic recitation of the elements of a
cause of action will not do.” Id. In considering a motion to dismiss pursuant to Rule
12(b)(6), the court “accepts all well-pled facts as true and construes these facts in the
light most favorable to the plaintiff . . . .” Nemet Chevrolet, Ltd. v.
Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009). Notably, “legal
conclusions, elements of a cause of action, and bare assertions devoid of further factual
enhancement” are not considered well pled facts.
To survive a Rule 12(b)(6) motion to dismiss, a complaint must state “a plausible
claim for relief.” Iqbal, 556 U.S. at 679. “The plausibility standard is not akin to a
‘probability requirement,’ but it asks for more than a sheer possibility that a defendant
has acted unlawfully. Where a complaint pleads facts that are ‘merely consistent with’ a
defendant's liability, it ‘stops short of the line between possibility and plausibility of
entitlement to relief.’” Id. (quoting Twombly, 550 U.S. at 557). Stated differently,
“where the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the
pleader is entitled to relief.’” Id. (quoting Fed. R. Civ. P. 8(a)). Still, Rule 12(b)(6)
“does not countenance . . . dismissals based on a judge’s disbelief of a complaint’s factual
allegations.” Colon Health Centers of Am., LLC v. Hazel, 733 F.3d 535, 545 (4th Cir.
2013) (quoting Neitzke v. Williams, 490 U.S. 319, 327 (1989)). “A plausible but
inconclusive inference from pleaded facts will survive a motion to dismiss . . . .”
Sepulveda–Villarini v. Dep’t of Educ. of Puerto Rico, 628 F.3d 25, 30 (1st Cir. 2010)
Defendants argue that plaintiffs’ breach of contract claim should be dismissed as
duplicative because it is dependent upon the claim for legal professional negligence.
Defs.’ Mot. to Dismiss 10. Defendants also argue that plaintiffs’ claim for violation of
the SCUTPA should be dismissed because the complaint fails to state facts sufficient to
constitute a cause of action and the claims is duplicative of the legal professional
negligence cause of action. Id. at 12–13. The court will address each cause of action
Breach of Contract
Defendants argue that plaintiffs’ breach of contract claim must be dismissed as
duplicative of the legal malpractice claim. In the breach of contract claim against the
Strauss Law Firm, plaintiffs allege that the Strauss Law Firm entered into a contract with
plaintiffs and agreed to provide them with competent and prudent legal services. Compl.
¶ 77. Plaintiffs further allege that “[b]y virtue of its contract, Defendant Strauss Law
Firm owed contractual duties to Plaintiffs to provide competent lawyers able to meet the
minimum standard of care when providing the legal services required under its contract
with” plaintiffs. Id. ¶ 79. Plaintiffs allege that the Strauss Law Firm breached its
contractual duties “by failing to supply competent lawyers able to meet the minimum
standard of care when providing the legal services required under its contract.” Id. ¶ 80.
Defendants did not cite—and the court is unaware of—any South Carolina law for
the proposition that breach of contract and legal malpractice claims are duplicative.
However, the South Carolina Supreme Court has held that a breach of fiduciary duty
claim is “duplicative” of a legal malpractice claim where the claim for breach of fiduciary
duty “arose out of the duty inherent in the attorney-client relationship and it arose out of
the same factual allegations.” RFT Mgmt. Co. v. Tinsley & Adams L.L.P., 732 S.E.2d
166, 173 (S.C. 2012). Similarly, this court granted summary judgment on a plaintiff’s
claims for breach of fiduciary duty and negligence, finding them duplicative of the
plaintiff’s legal malpractice claim. See Vieira v. Simpson, No. 2:13-cv-2610-DCN, 2015
WL 1299959, at *3 (D.S.C. Mar. 23, 2015). Circuit courts have applied the same
reasoning to breach of contract claims that share the same operative facts as a legal
malpractice claim, dismissing such claims as duplicative of legal malpractice claims.
See, e.g., McKenzie v. Berggren, 99 F. App’x 616, 620–21 (6th Cir. 2004) (“The district
court found that McKenzie’s breach of contract and fiduciary duty claims were
duplicative of his legal malpractice claim . . . a plaintiff cannot prevail on a claim for
breach of contract where the alleged facts support a claim for legal malpractice.”); PPX
Enterprises, Inc. v. Fredericks, 5 F. App’x 25, 28 (2d Cir. 2001) (“[W]hen the alleged
breach of a retainer agreement is a ‘breach of general professional standards’ and not a
breach of a particular action or promised result, then the breach of contract claim is
duplicative of the legal malpractice claim and viewed as a redundant pleading.”).
Further, while the South Carolina Supreme Court has not explicitly applied the
aforementioned analysis to breach of contract claims, many district courts have dismissed
breach of contract claims as duplicative of legal malpractice claims. See,e.g., Allied
Waste N. Am., Inc. v. Lewis, King, Krieg & Waldrop, P.C., 93 F. Supp. 3d 835, 859
(M.D. Tenn. 2015) (“[W]hen a legal malpractice and breach of contract claim share the
same operative facts and injury to the plaintiff, the breach of contract claim is duplicative
of the malpractice claim and should be dismissed.”); N. Am. Catholic Educ.
Programming Found., Inc. v. Womble, Carlyle, Sandridge & Rice, PLLC, 887 F. Supp.
2d 78, 83 (D.D.C. 2012) (“The plaintiff’s claim for breach of contract . . . [is]
duplicative of its malpractice claim and must be dismissed.”); Meador v. Albanese Law
Office, 2010 WL 3807163, at *4 (N.D.N.Y. Sept. 23, 2010) (“Where claims of
negligence, breach of contract, breach of fiduciary duty, negligent misrepresentation, or
fraudulent misrepresentation are premised on the same facts and seek identical relief as a
claim for legal malpractice, those claims are duplicative and must be dismissed.”);
Diamond v. Sokol, 468 F. Supp. 2d 626, 640 (S.D.N.Y. 2006) (“Yet a claim for breach of
contract is properly dismissed as ‘redundant . . . of a malpractice claim,’ where it is does
not ‘rest upon a promise of a particular or assured result,’ but rather upon defendant’s
alleged breach of professional standards.” (quoting Senise v. Mackasek, et al., 227
A.D.2d 184 (N.Y. 1996))); Aller v. Law Office of Carole C. Schriefer, P.C., 140 P.3d 23,
26 (Colo. App. 2005) (holding that a legal malpractice action is “essentially based on
negligence”); General Sec. Ins. Co. v. Jordan, Coyne & Savits, LLP, 357 F. Supp .2d
951, 961–62 (E.D. Va. 2005) (holding that certain claims for breach of contract and
breach of fiduciary duty were “mere disguises for the plaintiffs’ legal malpractice claims”
because the breach alleged in both was “the same failure to provide adequate legal
services that [was] the crux of the legal malpractice claims”). This court finds the
aforementioned case law persuasive and applicable under these circumstances.
Plaintiffs’ breach of contract claim arises solely out of defendants’ alleged failure
to “provide competent lawyers able to meet the minimum standard of care when
providing the legal services required under its contract.” Am. Compl. ¶ 80. Plaintiffs’
legal malpractice claim alleges that “Strauss failed to meet the minimum standard of care
thereby breaching his professional duties to [p]laintiffs . . . .” Id. ¶ 72. Therefore, the
breach of contract claim essentially restates the legal malpractice allegations because it
arises solely out of defendants’ failure to comply with the standard of care and involves
the same factual allegations. Plaintiffs do not allege a breach of a particular action or
promised result but rather a breach of general professional standards because the
allegations relate solely to Strauss’s conduct as a lawyer and the legal services he
provided. Therefore, the court grants defendants’ motion to dismiss plaintiffs’ breach of
contract claim as duplicative of the legal malpractice claim.1
Unfair Trade Practices
Defendants next argue that plaintiffs’ SCUTPA claim should be dismissed
because plaintiffs “make no allegations regarding [d]efendant Strauss’[s] advertising
practices or any indication that his advertising was false, deceptive, or misleading, other
than to say he failed to perform as promised in his areas of expertise.” Defs.’ Mot. 11.
Defendants further argue that plaintiffs failed to “assert a single factual allegation to
support its claim that [d]efendant Strauss did not adequately perform in his areas of
expertise, namely the formation of captive insurance companies and asset protection.”
Id. at 12. In response, plaintiffs argue that the allegations are sufficient to state a claim
for a SCUTPA violation. Pls.’ Resp. 14–15.
The SCUTPA prohibits “unfair methods of competition and unfair or deceptive
acts or practices in the conduct of any trade or commerce.” S.C. Code Ann. § 39-5-20(a).
Trade or commerce includes “the advertising, offering for sale, sale or distribution of any
services and any property . . . and any other article, commodity or thing of value.” S.C.
Code Ann. § 39-5-10(b). In order to establish a SCUTPA violation, a plaintiff must
allege “(1) that the defendant has engaged in an unlawful trade practice, (2) that the
Notably, this same analysis does not apply to plaintiffs’ breach of fiduciary duty
claim against Strauss because the underlying allegations of the breach of fiduciary duty
claim relate to his duties beyond those as their attorney—namely his duties as a business
partner. Am. Compl. ¶¶ 56–62.
plaintiff suffered actual, ascertainable damages as a result of the defendant’s use of the
unlawful trade practice, and (3) that the unlawful trade practice engaged in by the
defendant had an adverse impact on the public interest.” Havird Oil v. Marathon Oil Co.,
Inc., 149 F.3d 283, 291 (4th Cir. 1998).
“A trade practice is ‘unfair’ when it is offensive to public policy or when it is
immoral, unethical, or oppressive; a practice is ‘deceptive’ when it has a tendency to
deceive.” Young v. Century Lincoln-Mercury, Inc., 396 S.E.2d 105, 108 (S.C. Ct. App.
1989). “An impact on the public interest may be shown if the acts or practices have the
potential for repetition.” Singleton v. Stokes Motors, Inc., 595 S.E.2d 461, 466 (S.C.
2004) (emphasis added). The potential for repetition can be shown by either “showing
the same kind of actions occurred in the past, thus making it likely they will continue to
occur absent deterrence” or “showing the company’s procedures created a potential for
repetition of the unfair and deceptive acts.” Id. “Conduct that affects only the parties to
the transaction and not the public interest provides no basis for a SCUTPA claim.”
Bessinger v. Food Lion, Inc., 305 F. Supp. 2d 574, 581 (D.S.C. 2003). However, “the
plaintiff in a SCUTPA action is required only to allege and prove those facts sufficient to
demonstrate potential for repetition; at that point, plaintiff has proven an adverse effect
on the public interest sufficient to recover under the SCUTPA.” Liberty Mut. Ins. Co. v.
Emp. Res. Mgmt., Inc., 176 F. Supp. 2d 510, 516 (D.S.C. 2001).
The SCUTPA exempts certain practices and transactions from coverage; the
burden of proving an exemption is upon the party claiming the exemption. S.C. Code
Ann. § 39–5–40 (1985 & Supp. 2011). One exemption provides that the SCUTPA does
not apply to “[a]ctions or transactions permitted under laws administered by any
regulatory body or officer acting under statutory authority of this State or the United
States or actions or transactions permitted by any other South Carolina State law.” S.C.
Code Ann. § 39–5–40(a) (1985). The Supreme Court of South Carolina has “interpreted
this exemption to exclude from the UTPA those actions or transactions which are allowed
or authorized by a regulatory agency or other statutes.” Taylor v. Medenica, 479 S.E.2d
35, 44 (S.C. 1996) (citing Ward v. Dick Dyer & Assocs., 403 S.E.2d 310 (S.C. 1991)).
The South Carolina Supreme Court has held that this exemption does not apply to the
legal profession. See RFT Mgmt. Co., 732 S.E.2d at 174.
Plaintiffs allege that Strauss engaged in unfair methods of competition and unfair
and deceptive acts and practices and that he has unfairly and deceptively failed to
perform as promised. Am. Compl. ¶¶ 99–100. Plaintiffs also allege that Strauss’s unfair
and deceptive acts and promises affect the public interest. Id. ¶ 101. Plaintiffs further
alleged that Strauss’s “unfair and deceptive acts and promises have either been repeated
or have the potential for repetition,” causing plaintiffs damages. Id. ¶ 102–03. Plaintiffs
Defendants argue that the complaint fails to provide any supporting facts of how
Strauss failed to perform in his area of expertise. In response, plaintiffs argue that their
allegations that Strauss used “his fiduciary capacity as both their lawyer and a business
partner as a vehicle to misappropriate valuable corporate information and business
opportunities that belonged to his Lighthouse clients” and that “after acting as a lawyer
and a business partner for several years, [Strauss] secretly started his own competing
companies and purloined the business of Lighthouse’s established customers and new
customer referrals for the benefit of his own competing companies” are sufficient to
allege a SCUTPA violation. Am. Compl. ¶ 1; Pls.’ Resp. 15.
Plaintiffs have failed to allege sufficient facts to demonstrate that Strauss’s
conduct had an adverse impact on the public interest. Rather, plaintiffs’ SCUTPA claim
consists of mere “labels and conclusions” and is “a formulaic recitation of the elements of
a cause of action,” which does not “state a claim to relief that is plausible on its face.”
Twombly, 550 U.S. at 55, 570. “Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Iqbal, 550 U.S. at 678.
Plaintiffs fail to sufficiently allege how Strauss’s conduct affects the public interest, and
the complaint does not provide a factual basis of what actions constitute a SCUTPA
violation. See In re Nix, 2012 WL 27667, at *11 (Bankr. D.S.C. Jan. 5, 2012)
(“Plaintiff’s Complaint recites the elements of a SCUTPA claim without providing any
factual basis as to what actions undergone by [the defendant] constitute a violation of
SCUTPA.”). “[A] plaintiff must use specific facts to show that members of the public
were or were likely to be affected.” Morgan v. HSBC Bank USA, Nat. Ass’n, No. 6:13cv-03593, 2015 WL 3888412, at *5 (D.S.C. June 24, 2015) (citing Jefferies v. Phillips,
451 S.E.2d 21, 23 (S.C. Ct. App. 1994) (emphasis added). The complaint “provides no
specific facts demonstrating that [Strauss] ha[s] conducted the same kind of actions in the
past or that [his] procedures or business practices created a potential for repetition in the
future.” Ameristone Tile, LLC v. Ceramic Consulting Corp., 966 F. Supp. 2d 604, 621
(D.S.C. 2013); see also Ethox Chem., LLC v. Coca-Cola Co., No. 6:12-cv-01682, 2013
WL 41001, at *3 (D.S.C. Jan. 3, 2013) (“[T]he complaint fails to allege any specific
procedures or business practices that create the potential for repetition.”). “Absent
specific facts, a plaintiff is merely offering a speculative claim about adverse public
impact.” Morgan, 2015 WL 3888412, at *5.
Therefore, the court holds that the allegations, viewed in the light most favorable
to plaintiffs, are insufficient to state a SCUTPA violation. As such, the court grants
defendants’ motion to dismiss as it pertains to plaintiffs’ SCUTPA claim.
For the reasons set forth above, the court GRANTS defendants’ motion and
DISMISSES plaintiffs’ breach of contract claim and violation of the SCUTPA claim.
AND IT IS SO ORDERED.
DAVID C. NORTON
UNITED STATES DISTRICT JUDGE
February 12, 2016
Charleston, South Carolina
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