Opinion
Civil Action No. 04-1992 (JDB).
April 29, 2005
MEMORANDUM OPINION AND ORDER
Plaintiffs Herbert and Judith Edelberg ("the Edelbergs") bring this action for legal malpractice against defendants Barry Roberts and the law firm of Roberts and Hundertmark, LLP (collectively, "defendants") for their alleged negligent representation as the Edelbergs' counsel in a prior legal malpractice action against Proskauer Rose LLP ("Proskauer"). Plaintiffs assert that Roberts' actions caused them to settle for a nominal sum with Proskauer when, absent Roberts' alleged negligence, they could have recovered damages of $500,000 to $1 million from Proskauer. Before the Court is defendants' motion to dismiss for failure to state a claim, brought pursuant to Fed.R.Civ.P. 12(b)(6).
BACKGROUND
The relevant factual background is drawn from plaintiffs' complaint. There are two distinct legal cases relevant to this Court's analysis. The first is the Edelbergs' suit against Rosenbluth International, Inc. for Rosenbluth's breach of a confidentiality agreement — Direct Travel, Inc. v. Rosenbluth Int'l, Inc., No. 00-3021 (E.D. Pa) (hereafter "Rosenbluth case" or "Rosenbluth litigation"). See Compl. ¶ 24. As a result of this alleged breach, the Edelbergs claim to have suffered some $3.5 million in losses during the process of selling their travel agency business. Id. ¶¶ 20, 28. In order to recover these losses resulting, as they saw it, from the breach of the confidentiality agreement, the Edelbergs hired Proskauer Rose LLP to represent them. Id. ¶ 29. After some progress in that litigation, the parties submitted to mediation, which the Edelbergs ultimately found unsatisfactory; no settlement was achieved and the Edelbergs allege that Proskauer had insufficiently prepared for the mediation. Id. ¶ 35.
Proskauer withdrew from representing the Edelbergs in the Rosenbluth litigation in August 2001. Id. ¶ 37. Proskauer then filed suit against the Edelbergs in D.C. Superior Court, seeking payment of fees for representing the Edelbergs (Proskauer Rose LLP v. Direct Travel, Inc., No. 01-7538). The Edelbergs hired Roberts and his law firm (defendants in this case) to represent them in the Proskauer suit. Id. ¶¶ 38-39. The Edelbergs then filed a counterclaim against Proskauer alleging legal malpractice, claiming $1 million in damages for wasting the Edelbergs' claim against Rosenbluth. Id. ¶ 41. One of Proskauer's defenses to the legal malpractice charge was that the Edelbergs had not suffered damages resulting from Proskauer's activities because the Rosenbluth litigation was still pending. The Edelbergs claim that by virtue of Proskauer raising this defense, Roberts had a duty to monitor the status of the Rosenbluth litigation. Id. ¶ 43. Ultimately, in January of 2004, Proskauer voluntarily dismissed its claim for unpaid fees in exchange for the Edelbergs' dismissal of their legal malpractice counterclaim. Id. ¶ 46, 48. The Edelbergs now claim that the "foremost reason" they accepted Roberts' advice to settle the Proskauer suit was because "Roberts also advised that the . . . cause of action against Rosenbluth in Philadelphia was still fully viable . . . and that dismissal of the . . . Proskauer attorneys claim would afford . . . Edelbergs the ability to hire new counsel . . . to press for a substantial recovery against Rosenbluth." Id. ¶ 48. In April 2004, after Roberts had finalized the Proskauer settlement, the Edelbergs learned that the Rosenbluth case had been dismissed on April 4, 2003, apparently for failure to prosecute. Id. ¶ 50.
The Edelbergs now allege that defendants are liable for malpractice on the ground that, under the standard of reasonable care, Roberts had a duty to confirm the status of the Rosenbluth case before advising the Edelbergs to dismiss with prejudice their legal malpractice case against Proskauer based on the pendency of the Rosenbluth case. Compl. ¶ 52. Furthermore, the Edelbergs ask the Court for a declaratory judgment barring Roberts from collecting $82,500 in fees, on the ground that Roberts' fee claim does not meet the reasonable fee requirements of D.C. Rules of Prof'l Conduct R. 1.5. Id. ¶ 58.
STANDARD OF REVIEW
A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) will not be granted unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957);see also Haynesworth v. Miller, 820 F.2d 1245, 1254 (D.C. Cir. 1987). All that the Federal Rules of Civil Procedure require of a complaint is that it contain "`a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests."Dura Pharmaceuticals, Inc. v. Broudo, 125 S. Ct. 1627, 1634 (2005) (quoting Conley, 355 U.S. at 47). "Given the Federal Rules' simplified standard for pleading, `[a] court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002) (quoting Hishon v. King Spalding, 467 U.S. 69, 73 (1984)).
Under Rule 12(b)(6), the plaintiff's factual allegations must be presumed true and should be liberally construed in his or her favor. Leatherman v. Tarrant Cty. Narcotics and Coordination Unit, 507 U.S. 163, 164 (1993); Phillips v. Bureau of Prisons, 591 F.2d 966, 968 (D.C. Cir. 1979). The plaintiff must be given every favorable inference that may be drawn from the allegations of fact. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000). Conclusory legal and factual allegations, however, need not be considered by the court. Domen v. Nat'l Rehabilitation Hosp., 925 F. Supp. 830, 837 (D.D.C. 1996) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)).
ANALYSIS
"To show that an attorney has been negligent, a party must prove: (1) that there is an attorney-client relationship; (2) that the attorney neglected a reasonable duty; and (3) that the attorney's negligence resulted in and was the proximate cause of loss to the client." Chase v. Gilbert, 499 A.2d 1203, 1211 (D.C. 1985) (citing Niosi v. Aiello 69 A.2d 57, 60 (D.C. 1949)). The Court sees no inadequacy as to the first element of attorney negligence; the complaint alleges that defendants and the Edelbergs signed a legal services engagement on November 26, 2001. Compl. ¶ 39. The remaining two elements will require closer scrutiny.
In order to prevail in an attorney malpractice action, plaintiffs must show that "the attorney neglected a reasonable duty." Chase, 499 A.2d at 1211. In the District of Columbia, "a lawyer must exercise that degree of reasonable care and skill expected of lawyers acting under similar circumstances."Morrison v. MacNamara, 407 A.2d 555, 561 (D.C. 1979) (citingNiosi, supra). Construing the complaint in the light most favorable to plaintiffs, as it must, the Court finds that plaintiffs adequately state a claim for relief under this standard. To establish the duty of care, "the plaintiff must present expert testimony establishing the standard of care unless the attorney's lack of care and skill is so obvious that the trier of fact can find negligence as a matter of common knowledge." O'Neil v. Bergan, 452 A.2d 337, 341 (D.C. 1982). If, in fact, as plaintiffs allege in their complaint, defendants advised the Edelbergs that the Rosenbluth action was still fully viable and the Edelbergs relied on that advice in settling the Proskauer suit, Compl. ¶ 48, then expert testimony could establish that a duty of care included an obligation to monitor the initial suit giving rise to the subsequent legal malpractice action and to provide the Edelbergs with accurate information on its status. As a general rule:
One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
Restatement (Second) of Torts § 522 (1977). If expert testimony establishes that this standard of care applies, Roberts would have been under a duty to "exercise reasonable care or competence in obtaining or communicating" information related to the guidance of his clients. The Complaint alleges that Roberts failed to take any steps to inform himself of the status of the Rosenbluth litigation, even though the viability of the Rosenbluth litigation was an essential prerequisite to any advice that might involve that claim. While this Court is not passing, at this juncture, on the facts as alleged by plaintiffs or on the ultimate existence or possible violation of a duty of care, certainly expert testimony could establish that the duty alleged by plaintiffs existed and, if the facts alleged are proven by competent evidence, that Roberts failed to act according to that standard. At this point, plaintiffs have alleged such facts and the presence of a duty — they are not yet required to present expert testimony. Accordingly, the Court finds that the Complaint adequately alleges that defendants neglected a reasonable duty.
The Restatement also suggests that an attorney's provision of information to a client would be sufficient to meet the pecuniary interest standard. See Restatement (Second) of Torts § 522, comment d. ("The fact that the information is given in the course of the defendant's business, profession or employment is a sufficient indication that he has a pecuniary interest in it, even though he receives no consideration for it at the time.")
The Edlbergs supplement their allegations in their opposition briefing, asserting that in September 2003, as part of discovery in the Proskauer litigation, Proskauer sent Roberts a copy of the dismissal of the Rosenbluth suit. Pl. Opp. at 6.
The remaining element of the legal malpractice standard requires a showing that the "attorney's negligence resulted in and was the proximate cause of a loss to the client." Chase, 499 A.2d at 1211. Plaintiffs allege that defendants' negligence resulted in the "loss of a cause of action and opportunity to recover major damages against the Proskauer law firm." Compl. ¶ 54. Plaintiffs claim that "[b]ut for the negligence of defendant . . . the Edelbergs would not have dismissed the legal negligence claim [against Proskauer] and proceeded to trial and recovery of vast damages against Proskauer." Id. ¶ 53.
Under District of Columbia law, to succeed in a legal malpractice action one must prove that the underlying cause of action would have been successful absent the alleged malpractice:
in order to maintain a legal malpractice action . . . plaintiff must demonstrate not only that the alleged malpractice was the proximate cause of the injury suffered, but also that the action for which the plaintiff had sought the attorney's services was a good cause of action. Thus, the Court must evaluate the so-called `case within the case' to determine if it was a good cause of action. If the case within the case was not a good cause of action, then the claim of professional malpractice must fail. This standard requires a plaintiff to demonstrate that his underlying case would have succeeded absent the alleged malpractice.Macktal v. Garde, 111 F. Supp. 2d 18, 21 (D.D.C. 2000) (discussing Niosi v. Aiello, supra). This Court, therefore, must evaluate the "case within the case" — here, the Proskauer litigation — to assess whether it was a "good cause of action," in order to determine whether plaintiffs have adequately alleged facts which, if proven, would establish that they would have succeeded in that action absent Roberts' alleged negligence. However, because that case was itself a legal malpractice claim, in order to make this determination, the Court must look at plaintiffs' allegations regarding the value of their claim in the underlying Rosenbluth litigation. Thus, here the Court must consider the "case within the case within the case."
Plaintiffs assert that, during discovery in the Proskauer suit, Roberts learned the following about Proskauer's actions in the Rosenbluth litigation: Proskauer had not deposed Rosenbluth, had not located the alleged recipient of the disclosure that violated the confidentiality agreement at issue in the Rosenbluth litigation, had not "worked up the causation and damages parts" of the claim against Rosenbluth, and had not secured expert testimony on the valuation of a per se violation of a confidentiality agreement. Compl. ¶ 40. Roberts also learned that Proskauer had estimated "a realistic/lowside settlement [value] in the range of $500,000 with a good potential for more," Pl. Opp., Ex. 1 (Amended Countercl. ¶ 10, Proskauer Rose LLP v. Direct Travel, Inc., No. 01-7538 (D.C. Super. Ct.)), but failed to obtain a settlement. Whether this conduct, if true, fell below the standard of care owed to clients in similar situations is a matter to be determined by expert testimony.
Defendants suggest in their motion to dismiss that plaintiffs' complaint should be dismissed because it fails to plead "facts sufficient to state a claim for damages." This assertion is based on District of Columbia cases that require damages awarded pursuant to a breach of contract to be based on more than mere "speculation." See generally Obelisk Corp. v. Riggs Nat'l Bank of Washington, D.C., 668 A.2d 847, 854 (D.C. 1995); Garcia v. Llerena, 599 A.2d 1138, 1142 (D.C. 1991). More generally, "[d]amages may not be based on mere speculation or guesswork. The evidence offered must form an adequate basis for a reasoned judgment. . . . While damages are not required to be proven with mathematical certainty, there must be some reasonable basis on which to estimate damages." Romer v. District of Columbia, 449 A.2d 1097, 1100 (D.C. 1982) (citations omitted). In the present case, the measure of damages must be a fair assessment of what is claimed to be lost: the cause of action against Proskauer. See, e.g., Campagnola v. Mulholland, Minion Roe, 55 N.E.2d 611, 613 (N.Y. May 8, 1990) ("Where the injury suffered is the loss of a cause of action, the measure of damages is generally the value of the claim lost.")
Plaintiffs allege that Proskauer estimated, based on its representation in a "similar travel industry case," that it would secure a "large settlement" of between $500,000 and $1 million in the Rosenbluth litigation. Compl. ¶ 35. When Proskauer allegedly failed to recover this sum from Rosenbluth, the Edelbergs turned to Roberts to help them recover it from Proskauer. The Edelbergs now allege that Roberts, through his negligence, caused them to lose the opportunity to recover this sum from Proskauer and that he, in turn, should be held to account. Although the Court acknowledges that this chain of events (or inferences) may involve some speculation, the Court also is mindful of the fact that potential litigation outcomes are inherently more speculative than contract terms and hence concludes that the factual allegations pled in the Complaint — the lost claim against Proskauer and the value estimated by the attorneys involved — are sufficiently concrete and specific to survive a motion to dismiss.
There remains the matter of Count 2 of the Complaint, which is a request for a declaratory judgment barring Roberts from collecting his fee for representing the Edelbergs in the Proskauer action. Because Count 2 is predicated on plaintiffs' success on Count 1 and this Court has not dismissed Count 1, it will likewise deny the motion to dismiss Count 2, pending further developments in the case.
CONCLUSION
For the reasons outlined above, defendants' motion to dismiss is DENIED.
SO ORDERED.