Quantlab Group, LP et al v. Dempster et al
Filing
42
MEMORANDUM AND ORDER denying 6 Motion to Dismiss Under the TCPA; denying as moot 19 Motion to Extend Hearing Date and for Limited Discovery.(Signed by Judge Nancy F Atlas) Parties notified.(TDR, 4)
United States District Court
Southern District of Texas
ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
QUANTLAB GROUP, LP, et al.,
Plaintiffs,
v.
ALLEN HERMAN DEMPSTER,
et al.,
Defendants.
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§
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§
December 21, 2018
David J. Bradley, Clerk
CIVIL ACTION NO. H-18-2171
MEMORANDUM AND ORDER
This case is before the Court on the Motion to Dismiss Under the Texas
Citizens’ Participation “Anti-SLAPP” Act (“Motion to Dismiss”) [Doc. # 6] filed by
Defendants Allen Dempster and Dempster & Dietler, LLP (collectively, “Dempster”),
to which Plaintiffs Quantlab Group, LP and Quantlab Financial, LLC, filed a
Response [Doc. # 14].1 Defendants neither filed a reply nor requested an extension
of the reply deadline.
The Court has carefully reviewed the record in this case. Based on that review
and the application of relevant legal authorities, the Court denies the Motion to
Dismiss.
1
Also pending is Plaintiffs’ Emergency Motion to Extend the Hearing Date and
Request for Limited Discovery (“Motion for Discovery”) [Doc. # 19]. Because the
Court denies the Motion to Dismiss, the Motion for Discovery is denied as moot.
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I.
BACKGROUND
Dr. W.E. “Ed” Bosarge is the founder of the Quantlab companies. Quantlab
Group LP is the holding company for Quantlab Financial, LLC, which performs
research, technology and administrative functions for Quantlab Group and other
related companies. Bosarge-related entities own approximately 72% of the limited
partner interests in Quantlab Group, LP, and 75% of Quantlab Group GP, LLC, the
general partner of Quantlab Group, LP.
Bruce P. Eames and Andrey Omeltchenko are two of Quantlab Group’s
minority partners.
Eames owns approximately 25% and Omeltchenko owns
approximately 4%.
Dempster for many years served as attorney and accounting advisor for the
Quantlab entities and their principals. Beginning in July 2017, Dempster also served
as a Senior Tax Advisor for a wholly-owned subsidiary of Quantlab Financial.
Plaintiffs allege that, while serving as attorney and accountant for Quantlab, Dempster
prepared partnership agreements and Voting Trust Agreements that granted Eames
and Omeltchenko voting rights that were disproportionately higher than their
ownership interest in Quantlab. Plaintiffs allege that this enabled Eames and
Omeltchenko to attempt to take control of Quantlab Group and its related companies.
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Plaintiffs allege also that Dempster, in his capacity as attorney for Quantlab, obtained
confidential information which he has improperly used to Plaintiffs’ detriment.
Plaintiffs allege that Eames and Omeltchenko, exercising their increased voting
rights and without notice to Bosarge, executed a written appointment of Dempster as
Quantlab’s Voting Trustee. Plaintiffs allege that Eames and Omeltchenko instructed
Dempster, as the Voting Trustee, to vote in favor of removing Quantlab Group GP,
LLC as the general partner of Quantlab and replacing it with a general partner owned
by Eames and Omeltchenko.
Plaintiffs allege that Eames and Omeltchenko filed a lawsuit in the Delaware
Court of Chancery, seeking an order validating their actions to oust Quantlab Group
GP, LLC. Quantlab Group, LP was a named defendant in the Delaware lawsuit, in
which Dempster provided legal counsel to Eames and Omeltchenko. The Delaware
court entered a final judgment holding that the actions replacing Quantlab Group GP,
LLC as the general partner of Quantlab Group, LP were without legal effect, and that
Quantlab Group GP, LLC remained the general partner.2
Plaintiffs filed this lawsuit against Dempster asserting a breach of fiduciary
duty claim and a malpractice claim. Plaintiffs seek monetary and injunctive relief.
2
Rather than appeal the Delaware court’s judgment, Eames and Omeltchenko filed a
new lawsuit in Harris County, Texas.
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Defendants filed their Motion to Dismiss, arguing that the claims are precluded by the
Texas Citizens’ Participation Act (“TCPA”), TEX. CIV. PRAC. & REM. CODE § 27.001
et seq. Defendants argue that the claims are barred by the TCPA because they are
“based on, relate to, and/or are in response to Defendants’ exercise of the right of free
speech, right of association, and/or right to petition.” See Motion to Dismiss, p. 5.
The Motion to Dismiss has been fully briefed and is now ripe for decision.
II.
STANDARD FOR TCPA DISMISSAL
The TCPA is Texas’s anti-SLAPP statute.3 “The TCPA’s purpose is to identify
and summarily dispose of lawsuits designed only to chill First Amendment rights,”
while at the same time preserving the right of litigants to bring meritorious lawsuits.
See In re Lipsky, 460 S.W.3d 579, 589 (Tex. 2015); TEX. CIV. PRAC. & REM. CODE
§ 27.002 (stating the Act’s dual purposes).
The TCPA permits litigants to bring a “special motion to dismiss” to challenge
suits and claims that are designed to stifle the exercise of statutorily protected rights.4
3
“SLAPP stands for strategic lawsuit against public participation.” Diamond
Consortium, Inc. v. Hammervold, 733 F. App’x 151, 152 (5th Cir. 2018) (per curiam).
4
The Fifth Circuit has questioned, but has not decided, whether the TCPA applies to
cases in federal court. The Eleventh Circuit recently held that Georgia’s anti-SLAPP
statute does not apply in federal court. See Carbone v. Cable News Network, Inc., __
F.3d __, 2018 WL 6565917 (Dec. 13, 2018). Because the Court concludes that the
breach of fiduciary duty and malpractice claims in the lawsuit currently before it are
not based on protected activity under the TCPA, the Court need not address whether
the state statute applies generally to cases in federal court.
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4
See Youngkin v. Hines, 546 S.W.3d 675, 679 (Tex. 2018). These “special” motions
involve a “three-step analysis.” Id. First, the moving party must show “by a
preponderance of the evidence” that the claim or suit against it “is based on, relates
to, or is in response to the [moving] party’s exercise of” the right of free speech,
petition, or association. See TEX. CIV. PRAC. & REM. CODE § 27.005(b). To
determine whether the moving party has met this burden, courts “consider the
pleadings and supporting and opposing affidavits stating the facts on which the
liability or defense is based.” Id., § 27.006(a). Only if the movant satisfies this
burden is the Court required to proceed to the remaining two steps of the analysis.
If the movant satisfies the first step, the burden shifts to the nonmoving party
to establish “a prima facie case for each essential element of the claim in question”
with “clear and specific evidence.” See id., § 27.005(c). In the third step, the burden
returns to the moving party to establish “by a preponderance of the evidence each
essential element of a valid defense to the nonmovant’s claim.” See id., § 27.005(d).
III.
ANALYSIS
As noted above, to obtain dismissal of Plaintiffs’ Complaint based on the
TCPA, Dempster must first show by a preponderance of the evidence that the claims
asserted in the Complaint are based on, relate to, or are in response to his exercise of
the right of free speech, petition, and/or association. See TEX. CIV. PRAC. & REM.
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CODE § 27.005(b). The Court must not “blindly accept” attempts by a defendant to
characterize the plaintiff’s claims as implicating protected activity but, instead, must
view the pleadings in the light most favorable to the plaintiff. See Sloat v. Rathbun,
513 S.W.3d 500, 504 (Tex. App. – Austin 2015, pet. dism’d); see also Beving v.
Beadles, __ S.W.3d __, 2018 WL 5074765, *6 (Tex. App. – Fort Worth 2018).
A.
Plaintiffs’ Claims
Plaintiffs assert a breach of fiduciary duty claim that is based on Dempster’s
alleged misuse of confidential information obtained while Quantlab’s attorney, and
his service as legal counsel to Eames and Omeltchenko against Quantlab, his former
client. See Complaint, Count I. Plaintiffs’ malpractice claim against Dempster is
based on his failure to act as a reasonably prudent professional when he represented
Quantlab, specifically in connection with his legal advice regarding the Voting Trust
Agreements and other Quantlab documents. See id., Count II.
Several courts have held that actions based on an attorney’s breach of his
professional and ethical obligations to a client are not subject to an anti-SLAPP
statute. See Sprengel v. Zbylut, 241 Cal. App. 4th 140 (2015), and cases cited therein;
Castleman v. Sagaser, 216 Cal. App. 4th 481, 488 (2013). These courts note that the
foundation of the claims by a client against the attorney was the attorney’s breach of
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duties of loyalty and confidentiality owed to the plaintiff by virtue of the prior
attorney-client relationship. See, e.g., id. at 493.
The Texas Supreme Court has recently stated, “[i]mportantly, we do not opine
on whether an attorney has a constitutional right to petition that encompasses speaking
on behalf of a client.” Youngkin v. Hines, 546 S.W.3d 675, 681 (Tex. 2018). As
discussed below, Plaintiffs’ claims in the Complaint in this case are not based on and
do not relate to communications in connection with Dempster’s right of free speech,
petition, or association. Therefore, the Court need not decide whether, as a general
rule, the TCPA is inapplicable to attorney malpractice or breach of fiduciary duty
claims asserted against the attorney by a client or former client.
B.
Right of Free Speech
The TCPA defines the “exercise of the right of free speech” as “a
communication made in connection with a matter of public concern.” TEX. CIV.
PRAC. & REM. CODE § 27.001(3). A “matter of public concern” includes an issue
related to “(A) health or safety; (B) environmental, economic, or community
well-being; (C) the government; (D) a public official or public figure; or (E) a good,
product, or service in the marketplace.” Id., § 27.001(7).
In this case, neither of Plaintiffs’ claims is based on, relates to, or is in response
to any communications by Dempster that were made in connection with a matter of
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public concern. Instead, any communications at issue were made in connection with
Quantlab internal economic and governance disputes. As a result, the TCPA’s
freedom of speech element does not apply in this case. See, e.g., Mathiew v. Subsea
7 (US) LLC, 2018 WL 1515264, *5 (S.D. Tex. Mar. 9, 2018), adopted 2018 WL
1513673 (S.D. Tex. Mar. 26, 2018) (Ellison, J.); Brugger v. Swinford, 2016 WL
4444036, *3 (Tex. App. – Houston [14th Dist.] 2016, no pet.) (communication
connected to a business dispute “is insufficient to elevate it to a matter of public
concern under the TCPA”).
C.
Right to Petition
In the definition of “exercise of the right to petition,” the TCPA includes a
variety of communications in judicial, administrative, executive, and legislative
proceedings.5 See TEX. CIV. PRAC. & REM. CODE § 27.001(4). Although Plaintiffs
5
(4) “Exercise of the right to petition” means any of the following:
(A)
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a communication in or pertaining to:
(i)
a judicial proceeding;
(ii)
an official proceeding, other than a judicial proceeding, to
administer the law;
(iii) an executive or other proceeding before a department of the
state or federal government or a subdivision of the state or
federal government;
(iv) a legislative proceeding, including a proceeding of a legislative
committee;
(v)
a proceeding before an entity that requires by rule that public
notice be given before proceedings of that entity;
(continued...)
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include allegations in the Complaint regarding lawsuits filed by Eames and
Omeltchenko, neither the breach of fiduciary duty claim nor the malpractice claim
against Dempster is based on, relates to, or is in response to those lawsuits. Instead,
the claims are based on conduct by Dempster that allegedly occurred before the
lawsuits were filed and, are not “based on” or “in response” to them. The gravamen
5
(...continued)
(vi)
a proceeding in or before a managing board of an educational or
eleemosynary institution supported directly or indirectly from
public revenue;
(vii) a proceeding of the governing body of any political subdivision
of this state;
(viii) a report of or debate and statements made in a proceeding
described by Subparagraph (iii), (iv), (v), (vi), or (vii); or
(ix) a public meeting dealing with a public purpose, including
statements and discussions at the meeting or other matters of
public concern occurring at the meeting;
(B)
a communication in connection with an issue under consideration or
review by a legislative, executive, judicial, or other governmental body
or in another governmental or official proceeding;
(C)
a communication that is reasonably likely to encourage consideration
or review of an issue by a legislative, executive, judicial, or other
governmental body or in another governmental or official proceeding;
(D)
a communication reasonably likely to enlist public participation in an
effort to effect consideration of an issue by a legislative, executive,
judicial, or other governmental body or in another governmental or
official proceeding; and
(E)
any other communication that falls within the protection of the right to
petition government under the Constitution of the United States or the
constitution of this state.
TEX. CIV. PRAC. & REM. CODE § 27.001(4).
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of Plaintiffs’ breach of fiduciary duty claim is that Dempster provided legal counsel
to Eames and Omeltchenko against Quantlab, his former client. The gravamen of
Plaintiffs’ malpractice claim is that Dempster, while acting as the attorney and
accountant for Quantlab, failed to satisfy the applicable standard of care of a
reasonably prudent professional, inter alia, in connection with the Voting Trust
Agreements. Neither of these claims relate to communications in or pertaining to a
judicial, administrative, legislative, or other proceeding described in the TCPA’s
definition of “exercise of the right to petition.” As a result, the Motion to Dismiss
based on this protected activity is denied.
D.
Right of Association
The TCPA defines the “exercise of the right of association” as “a
communication between individuals who join together to collectively express,
promote, pursue, or defend common interests.” TEX. CIV. PRAC. & REM. CODE
§ 27.001(2). Dempster argues that Plaintiffs’ claims are based on his exercise of his
right of association with Eames and Omeltchenko.
Dempster’s argument is
unpersuasive.
Plaintiffs’ breach of fiduciary duty claim is based on Dempster’s failure to
maintain his loyalty to Quantlab, not on his association with Eames and Omeltchenko.
See, e.g., Benasra v. Mitchell Silberberg & Knupp LLP, 123 Cal. App. 4th 1179, 1189
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(2004) (noting that the breach of fiduciary duty occurs when the attorney abandons
the former client, not when he represents the new client).
That Eames and
Omeltchenko were the new clients is incidental to the focus of Plaintiffs’ breach of
fiduciary duty claim.
Similarly, Plaintiffs’ malpractice claim is not based on Dempster’s association
with Eames and Omeltchenko, but on Dempster’s failure to perform his
responsibilities as attorney and accountant for Quantlab in a competent manner. As
a result, Dempster has failed to show by a preponderance of the evidence that
Plaintiffs’ breach of fiduciary duty or malpractice claims in this case are based on,
relate to, and/or are in response to his exercise of his right of association under the
TCPA.
IV.
CONCLUSION AND ORDER
Plaintiffs’ claims in this lawsuit are not based on protected activity under the
TCPA. As a result, it is hereby
ORDERED that Defendants’ Motion to Dismiss [Doc # 6] is DENIED. It is
further
ORDERED that Plaintiffs’ Motion for Discovery [Doc. # 19] is DENIED AS
MOOT. It is further
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ORDERED that the Court will address a schedule for Plaintiffs’ Motion for
Preliminary Injunction [Doc. # 24] at the conference on January 9, 2019.
SIGNED at Houston, Texas, this 21st day of December, 2018.
NAN Y F. ATLAS
SENIOR UNI
STATES DISTRICT JUDGE
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