Opinion
1:22-cv-1864-MLB
02-08-2023
CasKim, LLC and Pacman Properties, LLC, Plaintiffs, v. Carver Bible College, Inc., Defendant.
OPINION & ORDER
MICHAEL L. BROWN UNITED STATES DISTRICT JUDGE
Before the Court are Plaintiffs' Motion to Dismiss Defendant's Counterclaims (Dkt. 13), Defendant's Motion to Deny the Plaintiffs' Motion to Dismiss (Dkt. 19), Defendant's Motion to Disqualify Law Firm of Schreeder, Wheeler and Flint LLP (Dkt. 24), and Defendant's Motion for Leave to Amend Answer, Defenses and Counterclaims (Dkt. 26). The Court grants in part Defendant's Motion for Leave to Amend Answer, denies as moot Plaintiffs' Motion to Dismiss Counterclaims, denies as moot Defendant's Motion to Deny Plaintiffs' Motion to Dismiss, and denies Defendant's Motion to Disqualify Law Firm of Schreeder, Wheeler and Flint LLP.
Defendant's Motion to Deny the Plaintiffs' Motion to Dismiss (Dkt. 19) is just Defendant's opposition to Plaintiffs' Motion to Dismiss (Dkt. 13). Filing an opposition as a separate motion does not render it timely. The Court includes Defendant's misnaming of its response for clarity in the docket.
I. Background
This case involves a series of transactions between Plaintiffs Pacman, LLC and CasKim, LLC (“Plaintiffs”) and Defendant Carver Bible College, Inc. (“Defendant”). It also involves the acts of Plaintiffs' law firm Schreeder, Wheeler & Flint LLP (“SWF”), Leo Rose, a partner at SWF, and Oronda M. Smith, Defendant's former counsel and a member of Defendant's Board of Trustees. The claims, counterclaims and motions in this case arise from different-but in some cases related- transactions. The Court summarizes the relevant transactions below.
Some facts and claims in this case involve one Plaintiff but not the other. To avoid confusion, this order uses each Plaintiff's proper name when referring to them individually, but “Plaintiffs” when referring to them collectively.
A. The Rights of First Refusal
In November 2017, Defendant Carver borrowed $100,000 from Pacman and, as part of that transaction, granted Pacman a 30-year right of first refusal (“ROFR”) on a property Defendant owned. (Dkt. 27 ¶ 5, 7.) It essentially states that, if Defendant receives a legitimate third-party offer for the purchase of the property and wishes to accept that offer, Pacman may purchase the property on the same terms as the third-party offer. (Dkt. 26-2 at 1, 26-4 at 1-2.) Defendant alleges its former president, Robert Crummie, granted the ROFR without its Board of Director's authority, consent, knowledge, or approval. (Dkt. 27 ¶ 4-5.)
The Court pulls allegations considered in this order from Plaintiffs' complaint (Dkt. 1) and Defendant's proposed first amended answer, defenses and counterclaims (Dkt. 27). Citations to paragraphs of Docket Entry 27 refer to Defendant's counterclaim allegations.
Defendant and Pacman amended the ROFR twice, most recently in July 2019. (Dkt. 27 ¶¶ 10-12.) The third agreement extended Pacman's rights until July 2080. It also states that the ROFR remains in effect even if Pacman exercises its option after a legitimate third-party offer but then fails to close on its purchase of the properly. (Dkt. 27 ¶¶ 10-12.) Pacman filed each ROFR with the Fulton County Superior Court. (Dkt. 27 ¶¶ 9, 10.)
B. The 2019 and 2020 Loan and Loan Agreements
In 2019, Pacman loaned Defendant $300,000. (Dkts. 1 at ¶¶ 10-11, 27 ¶¶ 42-43.) Pacman made the loan pursuant to a promissory note with a maturity date of July 31, 2020 and a monthly interest rate of 3.5%. (Dkt. 1 ¶ 10.) A security deed designated the property as collateral for the loan. (Dkt. 1 ¶ 10.) When the note was due, Defendant owed Pacman $405,000 in principal and accumulated interest. (Dkt. 1 ¶ 12, at 41.) Defendant requested an extension and additional funds. Pacman agreed, and the parties executed a new note. (Dkt. 1 ¶ 12.) The 2020 note had a total principal of $605,000, which included the original loan balance of $300,000, accrued interest of $105,000 on the original loan, and an additional advance of $200,000. (Dkt. 1 at 41.) The 2020 note was secured by an amendment to the 2019 security deed and had a maturity date of July 31, 2021. (Dkt. 1 ¶ 12.)
The loan agreements called for a portion of the loan proceeds to be held in escrow by SWF. (Dkt. 27 ¶ 45.) SWF was to disburse the escrowed funds to some of Defendant's creditors, including for payment on an outstanding water bill, repairs to the property, and liens owed to the Georgia Department of Labor. (Dkts. 26-6 at 5, 26-7, 26-8.) Defendant claims Pacman (through SWF) failed to disburse approximately $96,000 in escrowed funds. (Dkt. 27 ¶ 45.)
Leo Rose, a partner at SWF, represented Pacman in the negotiation and execution of the 2019 and 2020 loan documents. (Dkt. 24 at 2.) Oronda Smith (Defendant's former counsel and a member of Defendant's Board of Trustees) represented Defendant. (Dkt. 24-1.) Smith also gave Pacman a legal opinion that the 2020 documents are enforceable. (Id.) Defendant alleges that was not a legitimate legal opinion because Smith merely added her letterhead and signature to a document SWF drafted. (Dkt. 24 at 3-4.) Defendant further alleges the individuals who executed the loan agreements on Defendant's behalf were not authorized to do so. (Dkt. 24 at 2.)
C. The Agreement of Sale and Leaseback
Simultaneous to the 2020 note, Defendant entered an “Agreement for the Sale and Leaseback” with Pacman and CasKim LLC, an entity affiliated with Pacman. (Dkt. 1 ¶ 14.) The sales agreement stated that, if Defendant failed to repay the 2020 note by its maturity date, Defendant would (i) sell the property to CasKim for $650,000, (ii) CasKim would assume the indebtedness of Pacman, and (iii) CasKim would lease the property back to Defendant. (Dkt. 1 ¶ 14.) Pursuant to the sale agreement, Defendant delivered certain documents (including a warranty deed transferring the property to CasKim) to an escrow agent. (Dkt. 1 ¶ 16.) Defendant contends Clifford Ice (Defendant's Interim President) executed the sale agreement without authority and that the warranty deed was altered after its execution. (Dkt. 24 at 2.)
Defendant contends the warranty deed was signed and dated six months after the death of the alleged signatory, Robert Crummie. (Dkt 24 at 2.) Plaintiffs respond that Crummie signed the deed before he died but dated it into the future. (Dkt. 31 at 11)
The Court will not consider factual allegations made exclusively in Defendant's motion to disqualify counsel, (Dkt. 24), in deciding Defendant's motion for leave to amend, (Dkt. 26). But, for the purpose of clarity and completeness, the Court combined the related allegations.
Defendant defaulted on the 2020 note but refused to sell the property to CasKim. (Dkt. 1 ¶¶ 18-19.) Pacman thus advertised the property for sale at foreclosure. (Id.) Defendant then asked Pacman to stop the foreclosure so it could complete the sale to CasKim. (Dkt. 1 ¶ 20.) Pacman did so, and the parties executed a settlement agreement in August 2021. (Id.) Smith represented Defendant; Rose represented Plaintiffs. (Dkt. 24 at 2, 4.)
The settlement agreement (i) ratified and confirmed the sale agreement, (ii) instructed the escrow agent to record the warranty deed and release the sale documents to CasKim, (iii) affirmed the validity of the loan agreements and the ROFRs, and (iv) released CasKim, Pacman and SWF from any claims arising from these transactions. (Dkt. 1 ¶ 23.) Smith recommended Defendant sign the settlement agreement. (Dkt. 24 at 5.) Defendant did. (Id.) The parties then started arguing about Defendant's alleged failure to insure the property. So Defendant decided not to sell CasKim the property. (Dkt. 1 ¶¶ 24-30.) Plaintiffs say Defendant breached both the sale agreement and the settlement agreement.
D. The Present Action
Plaintiffs sued Defendant for specific performance, breach of contract, and attorney's fees arising from Defendant's refusal to sell Plaintiffs the property. (Dkt. 1.) Defendant counterclaimed for slander of title and fraud based on the ROFRs. (Dkt. 10.) Plaintiffs moved to dismiss Defendant's counterclaims for failure to state a claim. (Dkt. 13.) Defendant moved for leave to amend its counterclaim, proposing six additional causes of action for breach of contract, unjust enrichment, promissory estoppel, conversion, usury, and attorney's fees based on the ROFRs and loan agreements. (Dkts. 26, 27.) Plaintiffs oppose Defendant's motion for leave to amend, arguing all counterclaims (except the claims for breach of contract and usury) are futile. (Dkt. 32.) Defendant then moved to disqualify SWF as a result of the law firm's involvement in the underlying transactions. (Dkt. 24.)
Plaintiffs do not mention the usury or breach of contract claims in their opposition, so the Court does not consider them here.
II. Standard of Review
A. Motion for Leave to Amend
Rule 15 provides a one-time automatic right to amend a pleading within 21 days after serving it, or, if the pleading is one to which a responsive pleading is required, within 21 days after service of a responsive pleading or a motion under Rule 12(b), (e), or (f), whichever is earlier. Fed.R.Civ.P. 15(a)(1). Thereafter, Rule 15 requires a plaintiff seeking to amend her complaint to obtain either the consent of the defendant or leave of court. Fed.R.Civ.P. 15(a)(2). Such leave should be freely given when justice so requires. Id. “Unless there is a substantial reason to deny leave to amend, the discretion of the district court is not broad enough to permit denial.” Burger King Corp. v. Weaver, 169 F.3d 1310, 1319 (11th Cir. 1999). Substantial reasons include “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party . . ., [and] futility of amendment.” Foman v. Davis, 371 U.S. 178, 182 (1962).
B. Motion to Dismiss
“A motion to dismiss a counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6) is evaluated in the same manner as a motion to dismiss a complaint.” Geter v. Galardi S. Enterprises, Inc., 43 F.Supp.3d 1322, 1325 (S.D. Fla. 2014). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. This requires more than a “mere possibility of misconduct.” Id. at 679. Plaintiff's well-pleaded allegations must “nudge[] [his] claims across the line from conceivable to plausible.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
C. Motion to Disqualify Counsel
A party is entitled to counsel of his choice, and that choice “may be overridden only if compelling reasons exist.” Herrmann v. GutterGuard, Inc., 199 Fed.Appx. 745, 752 (11th Cir. 2006). Because disqualification of counsel is a “harsh sanction” that often results in “substantial hardship to the client,” disqualification should “be resorted to sparingly.” Id. Motions to disqualify are governed by the Georgia Rules of Professional Conduct and federal common law. Id. The party seeking disqualification bears the burden of proving the grounds for it. Id. And “[i]n Georgia, it is always presumed that members of the State Bar have complied with the relevant ethical directory and disciplinary rules in the absence of contrary evidence.” Adkins v. Hosp. Auth. of Houston Cnty., Ga., 2009 WL 3428788, at *12 (M.D. Ga. Oct. 20, 2009). When a disqualification order deals with an alleged ethical violation, the court must identify a specific Rule of Professional Conduct applicable to the relevant jurisdiction and conclude the attorney violated that rule. Id.
III. Discussion
A. Defendant's Motion for Leave to Amend Answer
“Because justice does not require district courts to waste their time on hopeless cases, leave [to amend] may be denied if a proposed amendment fails to correct the deficiencies in the original complaint or otherwise fails to state a claim.” Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1255 (11th Cir. 2008). In other words, “the denial of leave to amend is justified by futility when the complaint as amended is still subject to dismissal.” Burger King Corp. v. Weaver, 169 F.3d 1310, 1320 (11th Cir. 1999). Plaintiffs argue Defendant's proposed amendments are futile for failure to state a claim. (Dkt. 32.) The Court thus examines Defendant's counterclaims under the Rule 12(b)(6) standard for a motion to dismiss.
1. The Settlement Agreement
Plaintiffs argue Paragraph 6 of the settlement agreement bars all of Defendant's counterclaims. But when considering whether a counterclaim states a claim on its face, “the court limits its consideration to the pleadings and exhibits attached thereto.” Nicopior v. Moshi Palm Grove, LLC, 375 F.Supp.3d 1278, 1282 (S.D. Fla. 2019). The Court may only consider extrinsic evidence when (1) it is central to the [movant's] claim, and (2) its authenticity is not challenged.” Speaker v. U.S. Dep't of Health & Human Servs. Centers for Disease Control & Prevention, 623 F.3d 1371, 1379 (11th Cir. 2010). As Defendant did not include or reference the settlement agreement in its counterclaim, and Plaintiffs have not argued it is admissible as extrinsic evidence, the Court cannot consider the settlement agreement. The agreement thus cannot render futile Defendant's proposed amended allegations. That Plaintiffs attached the settlement agreement to their Complaint is immaterial. See Kisby Lees Mechanical LLC v. Pinancle Insulation, Inc., 2012 WL 3133681, at *4 (D.N.J. July 31, 2012) (A court cannot consider facts pleaded in the complaint in a Rule 12(b)(6) motion to dismiss counterclaims.)
In Kisby, the Court converted the motion to dismiss the counterclaims into a motion for summary judgment pursuant to Fed.R.Civ.P. 12(d). Since Plaintiffs are opposing amendment under Fed. R. 15(a), the Court cannot do the same in this case. But if Plaintiffs believe this is a viable path forward after Defendant files its amended counterclaims, Plaintiffs are invited to file a 12(b)(6) motion to dismiss, and the Court will consider converting it into a motion for summary judgment.
2. Slander of Title (Count I)
Georgia law states that “[t]he owner of any estate in lands may bring an action for libelous or slanderous words which falsely and maliciously impugn his title if any damage accrues to him therefrom.” O.C.G.A. § 51-9-11. To bring a claim for slander of title against Pacman, Defendant must establish (1) Pacman uttered and published a slanderous work; (2) the work was false; (3) the work was malicious; (4) Defendant possessed an estate in the property slandered; and (5) Defendant sustained special damages. Amador v. Thomas, 259 Ga.App. 835, 578 (Ga.Ct.App. 2003). Defendant claims the ROFRS were “illegal alienations on the conveyance of real property,” and by recording the ROFRs, Pacman “falsely and maliciously impugned the title of [Defendant's] property to which [Defendant] has suffered special damages.” (Dkt. 27 ¶¶ 14-15.)
Though Defendant's slander of title claim is confusing, it appears to go something like this:
The ROFRs were false because they were unenforceable. (Dkt. 27 ¶¶ 4, 14.) Pacman was not required to record the documents because rights of first refusal are not property interests. (Dkt. 27 ¶¶ 23-24.) But Pacman did so anyway. (Dkt. 27 ¶ 30.) So, Pacman must have maliciously recorded the bogus ROFRs solely to alienate Defendant's interest in the
property and to obtain the property at a below market price. (Dkt. 28 ¶ 30.) Because of Pacman's actions, the property has lost value and Defendant can no longer sell it. (Dkt. 27 ¶¶ 2627.)
Pacman argues Defendant has not pleaded the ROFRS were false and malicious or that Defendant suffered special damages. (Dkt. 32 at 6.) Pacman also argues the economic loss doctrine bars the claim. (Dkt. 32 at 14.) The Court agrees Defendant has not stated a claim for slander of title.
a) Special Damages
Defendant alleges it suffered special damages because the execution and recording of the ROFRs diminished the property's value. (Dkt. 27 ¶ 26.) It further alleges that, because of the ROFRs, Defendant has been “unable to refinance or sell the property.” (Dkt. 27 ¶ 27.) But Defendant can recover “only such special damages as [it] actually sustained as a consequence of the alleged wrongful acts, and [it] was required to plead them plainly, fully and distinctly.” Copeland v. Carpenter, 203 Ga. 18, 20 (1947). Here, Defendant has provided no specific numbers to show the ROFRs diminished the property's value - a fact fatal to Defendant's slander of title claim. See Harmon v. Cunard, 190 Ga.App. 19 (1989) (affirming judgment notwithstanding the verdict where the plaintiff offered no “specific figures for the damage allegedly suffered.”); Veatch v. Aurora Loan Servs., LLC, 331 Ga.App. 597, 602 (2015) (affirming summary judgement where “[Plaintiff] failed to offer any specific figures to show special damage resulting from the defendants' actions (...)”).
Allegations that the ROFR prevented Defendant from selling the property, without offering specific figures, are insufficient to plead special damages. Harmon, 190 Ga. App at 19 (insufficient proof of special damages premised on failure to obtain funds for completion of house and inability to sell house, where no specific figures offered for the damage allegedly suffered); Peterson v. Merscorp Holdings, Inc., 2012 WL 3961211 at *3 (N.D.Ga. Sept. 10, 2012) (granting motion to dismiss because allegations that plaintiffs “were prevented from the full enjoyment of their property and from exercising their rights with respect to the property, including their right to sell the Property” insufficient to plead special damages.) So, Defendant has not pleaded special damages.
Defendant only provides specific figures for the property's current market value and Pacman's loans to Defendant. To the extent Defendant suggests the ROFR allowed Pacman to acquire the property for the value of either loan, the plain text of the ROFRs contradicts that. All three ROFRs allowed Pacman to purchase the property for the price offered by a third party-not the loan amount. (Dkt. 26-4 at 2.)
b) False and Malicious
Defendant argues the ROFRS are false because they (1) constitute illegal restraints on alienation, and (2) were entered without authority. (Dkt. 27 ¶¶ 4, 14.) As a threshold issue, Defendant cites no authority suggesting an invalid contract satisfies the falsity requirement for slander of title. Case law from other states, if anything, suggests the contrary. See, e.g., Matheson v. Harris, 98 Idaho 758, 572 P.2d 861 (1977) (an unenforceable contract is not “false” for purposes of slander of title); Battistelli v. Corso, 30 Conn. Supp. 135, 304 A.2d 676 (Super. Ct. 1973) (recording of purchase agreement that was never consummated and later rescinded did not constitute slander of title). And the plain wording of the statute demonstrates that it applies to false and malicious words that impugn a title, not to the obtaining (or filing) of a contract that is unenforceable for some legal reason.
Put differently, the mere fact a contract might be found unenforceable does not render it false and malicious. To hold otherwise, would allow a slander of title claim whenever a deed or security agreement contains a legal error. Nothing suggests Georgia law is that broad. Roofing Supply of Atlanta, Inc. v. Forrest Homes, Inc., 279 Ga.App. 504, 508 (2006) (improperly filed lien with no false statements does not support slander of title.) And Defendant does not allege the ROFRs contained inaccurate statements or otherwise misrepresented the terms of the parties' negotiations. Again, it claims Crummie did not have the right to enter into the first ROFR. (Dkt. 27 at ¶ 14.) But that is a legal conclusion and does not identify any false and malicious statement in that ROFR or the subsequent ROFRs. Defendant also argues Pacman should have known the refusal period granted under the ROFRs was “an illegal alienation on the conveyance of real property.” (Id.) This is another legal conclusion that identifies no allegedly false and malicious statement in the documents. Because Defendant has not identified any allegedly false and malicious utterances by Pacman, its proposed counterclaim fails as a matter of law.
Even assuming an invalid ROFR is “false,” Defendant's sole argument for illegal restraint, and thus invalidity, is that the 60-year duration of the ROFR is unreasonable. But the Georgia Supreme Court has held that preemptive rights-even of unlimited duration-are not unreasonable restraints on alienation if the “holder of the preemption right is merely entitled to meet the offer of an open market purchaser.” Shiver v. Benton, 251 Ga. 284, 285 (1983). That is all the ROFRS did. And, while a party must invoke its right of first refusal within a reasonable time, courts determine reasonableness when the holder actually invokes that right. Id. Defendant's allegation the ROFRS are an illegal restraint on alienation fails as a matter of law.
Finally, Defendant argues Pacman acted maliciously by recording the ROFR because the ROFRS were not property rights and were not subject to Georgia's recording statute. (Dkt. 27 ¶¶ 23-24.) Defendant thus concludes Pacman recorded the ROFR “to effectuate a malicious predatory lending scheme to acquire and transfer the title to [Defendant's] property to itself and CasKim at less than 10% of its true market value.” (Dkt. 28 ¶ 30.) Again, the plain text of the ROFRs contradict this: they merely allow Pacman to match a third-party offer. (Dkt. 26-4 at 2.)
Defendant has not plausibly alleged Pacman acted maliciously.
To the extent Defendant argues Pacman acted maliciously because it recorded the ROFRs while knowing they were invalid, Defendant has provided no factual allegations in support of this allegation.
c) Economic Loss Doctrine
“The economic loss rule generally provides that a contracting party who suffers purely economic losses must seek his remedy in contract and not in tort.” Gen. Elec. Co. v. Lowe's Home Centers, Inc., 608 S.E.2d 636, 637 (Ga. 2005). Pacman argues the Court should deny Defendant's motion to add this claim because any alleged damages, such as the devaluation in property, are purely economic. (Dkt. 13-1 at 19.) Pacman has not cited any Georgia cases, and the Court is aware of none, that apply the economic loss rule to slander of title claims. True, courts in other districts have dismissed slander of title claims that arise from contractual relationships and allege solely economic damages. See e.g., Perez v. JPMorgan Chase Bank, N.A., 2016 WL 816752, at *7 (D.N.J. Feb. 29, 2016) (finding that the economic loss doctrine barred claims for slander of title in an action arising from a mortgage loan transaction); Marte v. Deutsche Bank Nat'l Tr. Co., 2016 WL 6403082, at *4 (D.N.J. Oct. 26, 2016) (“Here, the forgoing claims arise solely from the Mortgage loan contract and, accordingly, must be dismissed.”)
But other courts have been more hesitant to apply the economic loss doctrine to slander of title. The Central District of California held:
slander of title is not a contract claim. It is an independent tort that could occur absent a contractual relationship between the plaintiff and defendant. Here, Plaintiff and Defendant had been in a contractual relationship, but Plaintiff does not base his slander of title claim on Defendant's performance of any contract between them. (...) Plaintiff's claim therefore does not seek to recover damages from a contractual breach through a tort claim, and the economic loss rule does not apply.Sparling v. Bank of Am., 2018 WL 5099727, at *3 (C.D. Cal. Jan. 19, 2018). While the facts of Sparling are different from those at hand, the Court shares similar concerns. Pacman and Defendant had a contractual relationship, both through the ROFRs at issue and through other agreements. But the harms alleged in the slander of title claim do not arise from any alleged breach. The Court thus concludes the economic loss doctrine is not a bar to Defendant's claim.
d) Conclusion
Defendant has not plausibly alleged falsity, malice, or special damages. So amending the slander of title claim is futile.
Defendant identifies both Plaintiffs in the title of Count II but includes no allegations against CasKim. So, the Court considers Count II as brought against Pacman alone.
Defendant claims Pacman committed fraud because Pacman's “stated intent on making a loan to Defendant was a pretext to acquiring the property at a price significantly lower than market value through deception, artifice, and misrepresentations.” (Dkt. 27 ¶ 34.) Defendant further alleges Pacman sought to “loan money on terms that would ultimately result in it owning the property that served as the security for the loan.” (Dkt. 27 ¶ 37.) Finally, Defendant alleges “[b]y both omission and commission Pacman misrepresented its intentions and deceptively induced Crummie to execute the initial [ROFR].” (Dkt. 27 ¶ 40.) Pacman argues Defendant does not plead all elements of fraud and does not meet the heightened pleading standard under Federal Rule 9(b). (Dkt. 32 at 7.) The Court agrees.
To state a claim for fraud, Defendant must show (1) a false representation by Plaintiff, (2) scienter, (3) intention to induce Defendant to act or refrain from acting, (4) justifiable reliance by Defendant, and (5) damage to Defendant.” Engelman v. Kessler, 340 Ga.App. 239, 246 (2017). In its fraud claims, Defendant describes Pacman as a “predatory lender” and its extension of the loan as “predatory lending.” By way of further explanation, Defendant claims Pacman obtained the first ROFR to “forc[e] a sale of the Refusal Property at a value severely less than market value” and that it made the first loan as “a pretext to acquiring the Refusal Property at a price significantly lower than the market value through deception, artifice, and misrepresentations.” (Dkt. 27 at ¶¶ 3334.) As its only other meaningful allegation, Defendant claims Pacman “misrepresented its intentions and deceptively induced Crummie” into signing the initial ROFR. (Id. at ¶40.)
These allegations are insufficient to state a claim for fraud. First, labeling Pacman's conduct as “predatory lending” merely provides a pejorative characterization of conduct without actually describing conduct that might amount to fraud. So, those allegations are insufficient. Second, Defendant's fraud claim fails because its premise- that Defendant used the loan and ROFR to acquire the property at below market value-is implausible. As noted several times already, the ROFRs did not require Defendant to sell the property, allow Pacman to force a sale, or set a price for any such sale. (Dkt. 26-4 at 2.) Pacman simply had the right to match an offer Defendant decided to accept from some other party. Defendant's allegations about the effect of the ROFRs are at odds with the plain meaning of those instruments. So, the Court need not accept Defendant's allegations as true. See Griffin Indus., Inc. v. Irvin, 496 F.3d 1189, 1206 (11th Cir. 2007) (“Where there is a conflict between allegations in a pleading and exhibits thereto, it is well settled that the exhibits control.”)
The Court interprets Count Two to involve the 2017 loan and all three ROFRs but not the 2019 and 2020 loans (or related security deed). Even if it could be read to include those documents, that would not matter. The loans simply advanced money. (Dkt. 26-5; 26-6.) The security deed states that, in the event of default, Pacman can take possession of the property or sell it “before the door of the courthouse” to the “highest bidder” in order to pay any outstanding indebtedness, with the remainder of the proceeds going to Defendant. (Dkt. 1 at 29.) The deed does not force a below market sale. (Defendant neither referenced the security deed in its proposed amended counterclaim nor attached it as an exhibit. But Plaintiffs attached it to the complaint and Defendant admits its authenticity. (Dkt. 27 at 12.) The Court thus references it to fully consider Defendant's allegations.)
Third, even disregarding the implausibility of the claim, Defendant provides no allegations addressing justifiable reliance. In fact, Defendant's fraud claim does not even mention reliance or due diligence, a cornerstone of justifiable reliance under Georgia law. Walden v. Smith, 249 Ga.App. 32, 35 (2001) (“When a buyer could have protected himself by the exercise of due diligence, he cannot show justifiable reliance on his part.”) On this ground alone, Defendant does not state a claim for fraud. See Spivey v. Smith, 303 Ga.App. 469, 474 (2010) (fraud claim without evidence of justifiable reliance “fails as a matter of law.”)
Finally, Defendant's mere allegation that Pacman “misrepresented its intentions and deceptively induced Crummie” into signing the initial ROFR fails to state a claim. Federal Rule 9(b) requires a plaintiff to plead the circumstances constituting fraud with “particularity.” A plaintiff must allege: “(1) the precise statements, documents, or misrepresentations made; (2) the time, place, and person responsible for the statement; (3) the content and manner in which these statements misled the [Defendant]; and (4) what the [Plaintiff] gained by the alleged fraud.” Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1291 (11th Cir. 2010). In other words, “Rule 9(b) demands that [Defendant] must actually plead the who, what, when, where, and how of specific misrepresentations that led them astray.” Lawrie v. Ginn Dev. Co., LLC, 656 Fed.Appx. 464, 474 (11th Cir. 2016). Failure to do so requires dismissal. In re Galectin Therapeutics, 843 F.3d at 1269.
Defendant does not do that here. It does not allege who made misrepresentations to Crummie or what that person said to him to “deceptively induce” him into executing the initial ROFR. Defendant also does not allege when this statement was allegedly made, where it was allegedly made, or how it allegedly deceived Crummie. At most, Defendant alleges Yoav Bitter (one of Pacman's principal members) “engaged in negotiations” with Crummie in November 2017. (Dkt. 27 at ¶ 3.) But Defendant does not allege Bitter made any false or deceptive statements at the time. The complaint also says nothing about “how [the misrepresentations] were communicated (orally or in which documents).” Centennial Bank v. Noah Grp., LLC, 445 Fed.Appx. 277, 278 (11th Cir. 2011). To allow Defendant's fraud claim to proceed would permit any plaintiff to maintain a fraud action by simply alleging “the other party deceived me” with no more details. That is not enough. See Fortson v. Best Rate Funding, Corp., 602 Fed.Appx. 479, 482-83 (11th Cir. 2015) (dismissing fraud claim where “complaint contains only conclusory allegations and fails entirely to identify specific instances of fraud or misrepresentation, the parties responsible for the alleged fraud or misrepresentation, or Defendants' roles in the alleged fraud or misrepresentation.”)
Defendant has neither alleged the elements of fraud, nor complied with the particularity requirement of Fed.R.Civ.P. 9(b). Thus, Defendant's proposed fraud claim is futile.
4. Unjust Enrichment (Count IV)
Defendant claims unjust enrichment based on two loan agreements with Pacman. The loan agreements direct some of the loan proceeds into an escrow account with SWF to pay Defendant's outstanding water bills and other liens on the property. (Dkt. 27 ¶¶ 51-52.) Defendant alleges SWF never disbursed the escrowed funds to creditors, thus enriching Pacman in the amount withheld. (Dkt. 27 ¶ 53.) Pacman argues (a) no benefit was conferred upon it, and (b) the loan agreements preclude a claim for unjust enrichment. (Dkt. 32 at 9-10.) The Court agrees.
a) Defendant Fails to Show a Benefit Conferred
“To state a claim for unjust enrichment, a plaintiff must show that (1) a benefit was provided [to the other party], (2) compensation for that benefit was not received, and (3) the failure to compensate renders the transaction unjust.” Ridgeline Cap. Partners, LLC v. MidCap Fin. Servs.,LLC, 340 F.Supp.3d 1364, 1372 (N.D.Ga. 2018). Defendant falters because it cannot show a benefit conferred from Defendant to Pacman. The funds at issue here are in escrow with SWF, not with Pacman.
And Defendant has not alleged that Pacman somehow re-claimed or otherwise used the funds to its benefit. Thus, Defendant has shown no enrichment to Pacman. GSR Markets Ltd. v. Diana McDonald, et al., 2022 WL 13676281, at *4 (N.D.Ga. Oct. 21, 2022) (“As discussed above, there is no allegation the Valkyrie Defendants received any of the funds placed into escrow by Plaintiff.”)
In a separate but related case, SWF moved to interplead the escrowed funds with the Court.
Defendant also does not show why Pacman should be liable for the alleged misuse of the escrowed funds. Defendant does not allege Pacman directed SWC to withhold funds or otherwise caused SWC to breach the agreements. See DaimlerChrysler Motors Co., LLC v. Clemente, 294 Ga.App. 38, 53 (2008) (“[A] principal cannot be held liable for the acts of its agent taken outside the scope of the agency, unless the principal ratifies such acts.”)
b) Express Contract Precludes Unjust Enrichment
Defendant's unjust enrichment claim, on its face, relies on the loan agreements. (Dkt. 27 ¶¶ 51-53.) But “[t]he theory of unjust enrichment applies when there is no legal contract and when there has been a benefit conferred which would result in an unjust enrichment unless compensated.” Smith Serv. Oil Co. v. Parker, 250 Ga.App. 270, 272 (2001). Thus, unjust enrichment is available only when there is no legal contract. See Camp Creek Hospitality Inns, Inc. v. Sheraton Franchise Corp., 139 F.3d 1396, 1413 (11th Cir.1998); Tidikis v. Network for Med. Commc'n & Research LLC, 274 Ga.App. 807 (2005) (unjust enrichment claim properly dismissed when benefits were conferred in accordance with unchallenged contract). Based on Defendant's allegations, “it is evident that any benefit conferred upon [Pacman] was triggered by provisions of a contract the validity of which neither side challenges.” Am. Casual Dining, L.P. v. Moe's Sw. Grill, L.L.C., 426 F.Supp.2d 1356, 1372 (N.D.Ga. 2006).
Defendant's allegations within the unjust enrichment claim puzzle the Court. On the one hand, Defendant challenges the validity of the contract, alleging the loan agreements were executed “notwithstanding that the persons executing the agreement were not authorized by the Carver Board of Trustees to do so.” (Dkt. 27 at ¶ 49.) On the other hand, Defendant uses that same “notwithstanding” language in its breach of contract claim, which requires a valid contract. (Id. at ¶ 42.) Other allegations indicate Defendant's unjust enrichment claim presumes the existence of a contract. (Id. at ¶ 52) (“Pacman's failure to disburse escrowed funds constitutes an unjust enrichment to Pacman in the amount of all funds withheld in violation of the Loan Agreements (...).”) Indeed, outside the loan agreements, Defendant has pleaded no entitlement to the escrowed funds. See Huddle House, Inc. v. Two Views, Inc., 2013 WL 1390611, at *4 (N.D.Ga. Apr. 4, 2013) (“Indeed, any of the benefits allegedly conferred on Defendants accrued only as a result of the Franchise Agreement.”) Given this, the Court interprets Defendant's unjust enrichment claim to presume a valid contract.
“Although it is permissible to assert alternative and inconsistent claims, [Defendant] cannot claim within a single count that there was an agreement and that [Plaintiff] was unjustly enriched.” Id. (emphasis added). And Defendant claims both an agreement and unjust enrichment in a single count - not as alternative counts. (Dkt. 27 ¶ 53.) Defendant's final allegation even states “Pacman's failure to disburse escrowed funds constitutes an unjust enrichment to Pacman in the amount of funds withheld in violation of the Loan Agreements and not used for the purposes intended [per the Loan Agreements.]” (Dkt. 27 ¶ 53.) Thus, the opportunity to plead unjust enrichment in the alternative to breach of contract does not rescue Defendant's claim. See In re Equifax, Inc., Customer Data Sec. Breach Litig., 362 F.Supp.3d 1295, 1330-31 (N.D.Ga. 2019) (“While a party, indeed, cannot recover under both a breach of contract and unjust enrichment theory, a plaintiff may plead these claims in the alternative.”); Collins v. Athens Orthopedic Clinic, 849 S.E.2d 213, 217 n.6 (Ga.Ct.App. 2020) (Dismissing unjust enrichment claim where it was not pleaded in the alternative.)
c) Conclusion
Defendant has not shown that it conferred a benefit on Pacman and, even if it had, unjust enrichment is not viable when based on an uncontested contract. Thus, the unjust enrichment claim would be futile.
5. Promissory Estoppel (Count V)
Defendant claims promissory estoppel because it relied on the loan agreements and the closing statements to assume its debts were being paid. (Dkt. 27 ¶ 62.) This reliance was detrimental because, while the funds were never disbursed to Defendant's creditors, Defendant accumulated additional debt from late fees, interest charges and other expenses. (Dkt. 27 ¶ 63.) Pacman argues the loan agreements preclude a claim for promissory estoppel. (Dkt. 32 at 11.) The Court agrees.
Promissory estoppel requires a showing that (1) the [Plaintiff] made certain promises, (2) the [Plaintiff] should have expected that the [Defendant] would rely on such promises, and (3) the [Defendant] did in fact rely on such promises to their detriment. Doll v. Grand Union Co., 925 F.2d 1363 (11th Cir.1991). “Importantly, where [Defendant] seeks to enforce an underlying contract which is reduced to writing, promissory estoppel is not available as a remedy.” Adkins v. Cagle Foods JV, LLC, 411 F.3d 1320, 1326 (11th Cir. 2005). Here, Defendant is trying to enforce promises made pursuant to the loan agreements and the closing statements. (Dkt. 277 ¶¶ 57-59.) Thus, Defendant cannot recover for promissory estoppel, and amendment would be futile. See Am. Casual Dining, L.P., 426 F.Supp.2d at 1371.
Like with unjust enrichment, a party may plead promissory estoppel in the alternative to breach of contract if a party contests the contract's validity. Am. Casual Dining, L.P 426 F.Supp.2d at 1371. For the same reasons cited for Defendant's unjust enrichment claim, the Court does not construe Defendant's statement that the Agreements were executed “notwithstanding that the persons executing the agreement were not authorized by the Carver Board of Trustees to do so” as a challenge to validity. Furthermore, Defendant does not contest the validity of the closing statements, which were signed by both parties.
6. Conversion (Count VI)
Defendant claims conversion based on Pacman's alleged withholding of the escrowed funds. Defendant alleges “[u]pon information and belief Pacman has converted the escrowed and withheld funds to its own use,” “Pacman has no legal right to use the escrowed and withheld funds for its own use,” and Pacman has failed and refused to account to [Defendant] as to the use of the withheld escrowed funds.” (Dkt. 27 ¶¶ 72-74.) Pacman argues Defendant has not alleged that it ever demanded return of the escrowed funds or that Pacman refused to return the funds. (Dkt. 32 at 12.) Pacman also argues Defendant cannot bring a conversion claim arising from a contract. (Dkt. 32 at 13.) The Court agrees Defendant has not pleaded the elements of conversion but does not decide the contract issue.
Defendant also argues conversion does not apply to money. But money “in an account is capable of being converted (...) as the money converted constitutes specific identifiable funds.” See Adler v. Hertling, 215 Ga.App. 769, 773-74 (1994) (“In this case we conclude that Hertling and Sahara Club's conversion claims involve distinct identifiable Sahara Club funds (i.e., the refinancing proceeds held in escrow in Account 3018 for the sole use of Sahara Club). As such, the conversion claims are appropriate.”)
a) Elements of Conversion
To allege a plausible claim for conversion, Defendant must show “(1) title to the property or the right of possession, (2) actual possession in the other party, (3) demand for return of the property, and (4) refusal by the other party to return the property.” Perdum v. Wells Fargo Home Mortg., 2017 WL 8186694, at *14 (N.D.Ga. Dec. 8, 2017). Even assuming Pacman is in possession (which, given the interpleader action, seems implausible), Defendant does not allege it demanded repayment of the escrowed funds, or that Pacman refused to return said funds. But there is a “second avenue to prove conversion that does not require a showing of a demand and refusal; it requires only that the defendant, who comes into possession of the property unlawfully, disposes of the property without authority and retains the proceeds.” Williams v. Nat'l Auto Sales, Inc., 287 Ga.App. 283, 286, 651 S.E.2d 194, 197 (2007), citing Wallace & Williams v. Mallary, 117 Ga. 161 (1903) (“[a] conversion may also be proved by showing that the defendant sold the property and used the proceeds for his own benefit; and when this is shown, it is not necessary to prove a demand and refusal”).
Here, Defendant alleges “[u]pon information and belief Pacman has converted the escrowed and withheld funds to its own use.” (Dkt. 27 at 72.) If Defendant is alleging Pacman disposed of or otherwise used the funds for its own purpose, it has not pleaded so sufficiently. “The tenet that a court must accept a complaint's allegations as true is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 663. And Defendant's allegation is a textbook example of “mere recital” of the elements. See City of Monroe, Georgia v. U.S. Bank Nat'l Ass'n, 2015 WL 12867019 at *4 (N.D.Ga. Feb. 4, 2015) (“The City merely states in paragraph 138 of the Complaint that U.S. Bank has converted the funds, without stating how the funds are being misused.”)
b) Contractual Bar
“Georgia's conversion law does not transform every breach of a contractual obligation to pay money into a tort, comprised of withholding funds and exercising dominion over them.” LaRoche Industries, Inc. v. AIG Risk Management, Inc., 959 F.2d 189 (11th Cir. 1992). But “Georgia law recognizes conversion where the plaintiff's claims are to specific escrow funds and when the plaintiff seeks recovery of specific proceeds collected by the defendant and then misapplied.” Id. See also Charter Mortgage Co. v. Ahouse, 165 Ga.App. 497, 498 (1983) (Conversion claim proper where defendant promised to use escrowed funds for repairs to the plaintiff's house, failed to make the repairs and refused to return the plaintiff's money.) Here, the escrowed funds were specific funds for a specific purpose, so the mere existence of the loan agreements does not preclude a claim for conversion. (Dkt. 27 ¶¶ 68-69.) And under Charter Mortgage Co., it appears that failure to use escrow funds for their designated purpose may rise to misappropriation. Id. But, as Defendant has not pleaded a proper claim for conversion, the Court need not decide this issue.
Pacman also raises the economic loss doctrine against Defendant's conversion claim. But, like the contractual bar, the applicability of the economic loss rule to this conversion claim is not apparent. When a party “asserts a conversion claim based on (...) alleged willful and wrongful conversion of [another's] property,” the economic loss rule does not bar the claim. Perez v. Wells Fargo Bank, Nat'l Ass'n, Inc., 2015 WL 13066079, at *11 (N.D.Ga. Mar. 31, 2015); Hanover Ins. Co. v. Hermosa Const. Group, LLC, 2014 WL 5486602, at *7 (N.D.Ga. May 1, 2014) (finding that economic loss rule did not bar a conversion claim where a plaintiff alleged “conduct that was not merely a failure to perform under the contract, but rather a willful and wrongful conversion of [the plaintiff's] property for personal use.”) The Court has not decided whether the Loan Agreements bar the conversion claim, so the Court cannot decide this issue either. If a conversion based on pure economic loss is barred by contract, it is necessarily barred by the economic loss doctrine. But if a conversion claim can, despite a contract, proceed under the escrow exception, the economic loss doctrine would not apply. As Defendant has not stated a viable conversion claim, the Court need not decide this issue.
c) Conclusion
Defendant has not stated a viable conversion claim because it has not pleaded the essential elements. So, amendment to assert the proffered claim would be futile.
7. Attorney's Fees (Count VIII)
Plaintiffs argue Defendant is not entitled to attorney's fees when all underlying claims fail. A claim for attorney's fees under O.C.G.A. § 13-6-11 cannot stand on its own, it requires a viable, independent claim. SRM Grp., Inc. v. Travelers Prop. Cas. Co. of Am., 308 Ga. 404, 406 (2020) (“In order for a plaintiff-in-counterclaim to assert a claim for attorney fees and litigation expenses under OCGA § 13-6-11, that party must also have another claim that is separate, or free-standing, from the OCGA § 13-6-11 claim.”). But Plaintiffs have not challenged Defendant's claim for breach of contract or usury. Since Defendant asserts those claims only against Pacman, its claim for attorney's fees may proceed only as to Pacman. Of course, it remains Defendant's burden to show its entitlement to attorney's fees when this case reaches litigation on the merits. Williams v. Binion, 227 Ga.App. 893, 894, 490 S.E.2d 217, 218 (1997) (“Awards under OCGA § 13-6-11, however, must be specifically pleaded and prayed for in the complaint, (...) and are decided by the trier of fact upon proof presented at trial.”); Meunier Carlin & Curfman, LLC 324 F.Supp.3d at 1286 (“The existence of bad faith or stubborn litigiousness usually is a jury question, and only in the rare case where there was absolutely no evidence to support the award of expenses of litigation would the trial court be authorized to grant summary adjudication on such issues.”)
A counterclaim-plaintiff may recover attorney's fees in breach of contract cases upon separate assessment under § 13-6-11. But breach of contract claims, unlike intentional torts, do not automatically entitle a party to attorney's fees. Meunier Carlin & Curfman, LLC v. Scidera, Inc., 324 F.Supp.3d 1269 (N.D.Ga. 2018), aff'd, 813 Fed.Appx. 368 (11th Cir. 2020) (Applying OCGA § 13-6-11 to breach of contract claim). The Court is not aware of a case that awards attorney's fees based on a usury claim. However, given usury requires intent to violate the law, the Court assumes parties may recover attorney's fees in usuary actions. See Zedan v. Bailey, 522 F.Supp.3d 1363, 1380 (M.D. Ga. 2021). (“Indeed, it is well-established Georgia law that “[e]very intentional tort invokes a species of bad faith that entitles a person wronged to recover the expenses of litigation including attorney fees.””)
8. Conclusion
Defendant's proposed counterclaims for slander of title (Count I), fraud (Count II), unjust enrichment (Count IV), promissory estoppel (Count V), and conversion (Count VI) fail to state a claim upon which relief could be granted. Amendment is thus futile as to those claims. But as Plaintiffs did not challenge the proposed counterclaims for breach of contract (Count III) and usury (Count VII), the Court will-pursuant to Federal Rule 15-allow Defendant to file those proposed counterclaims, as well as a claim for attorney's fees against Pacman.
B. Disqualification of Counsel
Defendant moves to disqualify Plaintiffs' law firm, Schreeder, Wheeler & Flint LLP pursuant to Georgia Rule of Professional Conduct 3.7 because Leo Rose, an SWF partner who represented Plaintiffs in the transactions, is an essential witness in this litigation. (Dkt. 24 at 13.) Under Georgia Rule of Professional Conduct 3.7(a), “[a] lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness except where: (1) the testimony relates to an uncontested issue; (2) the testimony relates to the nature and value of legal services rendered in the case; or (3) disqualification of the lawyer would work substantial hardship on the client.” Under Rule 3.7(b), “[a] lawyer may act as advocate in a trial in which another lawyer in the lawyer's firm is likely to be called as a witness unless precluded from doing so by Rule 1.7 or Rule 1.9.”
Plaintiffs initially argue Defendant's motion is premature because Rule 3.7 applies only at trial. (Dkt. 31 at 16.) The Court agrees. “The text of the rule is clear that the prohibition only applies when the lawyer acts both as an advocate and a witness at trial. The prohibition against a lawyer serving as advocate and witness in the same matter is essentially aimed at eliminating confusion about the lawyer's role. While a witness is required to testify on the basis of personal knowledge, an advocate is expected to explain and comment on evidence given by others.” Hallmark Devs., Inc. v. Fulton Cnty., 2004 WL 5492706, at *8 (N.D.Ga. Sept. 27, 2004), aff'd sub nom. Hallmark Devs., Inc. v. Fulton Cnty., Ga., 466 F.3d 1276 (11th Cir. 2006). As this case has not progressed to trial, and may never progress to trial, Defendant's motion is premature. See Thomas, 2022 WL 1572392, at *4 (“The Rule states only that a lawyer may not act as advocate at a trial in which the lawyer is likely to be a necessary witness, but this case has not progressed to a trial.”)
Putting timing aside, the Court denies Defendant's motion on the merits. In doing so, the Court need not consider whether Mr. Rose would be disqualified under Rule 3.7(a) since he is not involved in this case. The question is whether two of his partners-John Christy and Stephen Mulherin-should also be disqualified as a result of Mr. Rose's involvement in the underlying transactions. Defendant says Rule 3.7(a) disqualifies Mr. Rose's entire firm. (Dkt. 24 at 15.) Plaintiffs argue Rule 3.7(a) applies to individual lawyers, not law firms. (Dkt. 31 at 14-15.)
Again, the Court agrees with Plaintiffs. By its plain terms, Rule 3.7(a) applies to “[a] lawyer” not a law firm. See Iguana, LLC v. Lanham, 628 F.Supp.2d 1361, 1374 (M.D. Ga. 2008) (“Notably, Rule 3.7 and its rules against attorneys acting as witnesses are not included in the imputation provision. Accordingly, as no ethical rule exists to impute disqualification onto [Firm] based upon [Individual Attorney's] potential necessity as a witness, [Firm] cannot be disqualified on this basis.”); Thomas v. Bank of Am., 2022 WL 1572392, at *4 (N.D.Ga. May 11, 2022) (“For starters, it does not appear Rule 3.7 applies to entire law firms.”) Besides, interpreting Rule 3.7(a) as imputing one lawyer's conflict to an entire firm would stand in direct conflict with provision 3.7(b), which establishes a baseline that one lawyer's participation in a case does not preclude representation by another member of the same firm. See Id. (“The text of the Rule refers only to individual lawyers, not entire law firms, and Rule 3.7(b) indicates that other lawyers from an entire law firm are not prohibited from acting as an advocate just because one of its lawyers may be called as a witness.) Thus, the Court will not disqualify SWF under 3.7(a).
So, the question then is whether the presumption under Rule 3.7(b), that other members of SWF can participate in this mater, carries the day. That rule allows the firm's ongoing participation unless precluded by Rules 1.7 or 1.9. The first rule states “[a] lawyer shall not represent or continue to represent a client if there is a significant risk that the lawyer's own interests or the lawyer's duties to another client, a former client, or a third person will materially and adversely affect the representation of the client, except as permitted in (b).” The second governs the specifics of conflicts of interest with former clients. Defendant does not allege that Christy and Mulherin-or other attorneys at SWF-have any conflicts of interest pursuant to Rules 1.7 or 1.9 that would taint their representation of Plaintiffs. And the Court is aware of none. Thus, Christy and Mulherin are explicitly permitted to represent Plaintiffs in this matter pursuant to Rule 3.7(b).
Defendant argues Comment 5 states a lawyer's disqualification as necessary witness is imputed to law firms pursuant to Rule 1.10. But Comment 5 says no such thing. Rather, Comment 5 clarifies that a law firm must be disqualified if representation by another attorney from the firm would be improper pursuant to Rule 1.7 or 1.9.
Defendant alleges criminal activity by SWF and seeks to invoke the crime-fraud exception to the attorney-client privilege. The Court is unsure how the crime-fraud exception relates to the motion. Even if it did, it would allow Defendants to discover items normally protected by the attorney-client privilege. It would not disqualify Plaintiffs' counsel.
IV. Conclusion
The Court GRANTS IN PART Defendant's Motion for Leave to Amend Answer (Dkt. 26). As Plaintiffs do not challenge Defendant's counterclaims for breach of contract (Count III) and usury (Count VII),
Defendant may file amended counterclaims containing those two counts, as well as a claim for attorney's fees against Pacman. The Court DIRECTS Defendant to file its amended answer, pursuant to the instructions set forth in this Order, no later than February 22, 2023. The Court DENIES AS MOOT Plaintiffs' Motion to Dismiss Counterclaims and Defendant's Motion to Deny Plaintiffs' Motion to Dismiss (Dkts. 13, 19). The Court DENIES Defendant's Motion to Disqualify Law Firm of Schreeder, Wheeler and Flint LLP (Dkt. 24).
SO ORDERED.