Summary
finding undue delay and procedural manipulation because the plaintiff first sought to amend its complaint in a lower court but withdrew its motion without reason and subsequently filed the same motion to amend in a higher court when it was in the plaintiff's benefit
Summary of this case from First State Orthopaedics, P.A. v. Liberty Mut. Ins. Co.Opinion
C.A. No. 09C-08-239 JAP.
Submitted: December 4, 2009.
Decided: February 19, 2010.
Herbert W. Mondros, Esquire, Margolis Edelstein, Wilmington, Delaware, Attorney for the Plaintiffs.
Jerome M. Marcus, Esquire; Jonathan Auerbach, Esquire; Marcus Auerbach LLP, Wyncote, Pennsylvania, Attorneys pro hac vice for the Plaintiffs.
Michael D. Goldman, Esquire; Peter J. Walsh, Esquire; Scott B. Czerwonka, Esquire; Potter Anderson Corroon, LLP, Wilmington, Delaware, Attorneys for the Defendant.
MEMORANDUM OPINION
Presently before the Court is a motion to amend the Complaint to assert a legal malpractice claim against the defendant law firm and one of its lawyers. Dorsey Whitney, situated primarily in Denver, Colorado, provided legal representation to plaintiffs Sokol Holdings, Frontier Mining, Thomas Sinclair and Brian Savage in connection with subpoenas served upon them requiring production of documents in matters in which Plaintiffs are not a party. Plaintiffs were unhappy with the bills for legal fees they received from Dorsey Whitney, and they initially filed the instant case in the Delaware Court of Chancery seeking a declaration that those bills were excessive. The case was eventually transferred to this Court for jurisdictional reasons. Plaintiffs now seek to amend their complaint to allege a legal malpractice claim as a result of a federal court order entered against them in April, 2009. For the reasons which follow, Plaintiff's motion is DENIED.
1. Procedural History
The roots of this case lie in three actions filed by Michael Wilson and Partners, Ltd. ("MWP"), an international law firm with offices in Kazakhstan which represents clients in commercial and intellectual property matters in former Soviet Republics in central Asia. MWP instituted these actions in various venues around the world claiming that certain MWP lawyers secretly formed a partnership and defrauded MWP by stealing its clients and files as well as pocketing fees rightfully belonging to MWP. None of the Plaintiffs are parties to the MWP actions, but they have an interest in these actions because Sokol is apparently one of the MWP clients alleged to have been stolen by the former MWP lawyers and because fees paid by Sokol were allegedly retained by those lawyers.In the first quarter of 2007 each of the Plaintiffs was served pursuant to 28 U.S.C. § 1782 with an identical subpoena requiring them to produce documents in the MWP actions. Section 1782 provides a vehicle by which parties in litigation taking place in foreign countries can obtain discovery from persons and business entities located within the United States. In January 2007 Sokol retained Dorsey Whitney to provide legal representation in connection with those subpoenas. That representation later expanded to include representation of Sokol in proceedings in Colorado and foreign jurisdictions connected to the MWP actions.
At some point in 2007 or 2008 Plaintiffs stopped paying Dorsey Whitney's bills, and in July 2008 Plaintiffs filed a declaratory judgment action in the Delaware Court of Chancery seeking a declaration that those bills were excessive and were not due and owing. According to the complaint, Dorsey Whitney has billed Plaintiffs more than $4 million in connection with the production of roughly 70,000 documents requested by the 1782 subpoenas. Dorsey Whitney denied that its fees are excessive and, as might be expected, responded with a counterclaim in the same court seeking payment of its bills.
In a mediation proceeding taking place while this case was pending in the Court of Chancery Plaintiffs suggested for the first time that the Court of Chancery — the forum they selected in which to bring the matter — lacked subject matter jurisdiction. The Court of Chancery ordered briefing and, in a rare alignment of the planets, Defendant argued that the Court had jurisdiction while Plaintiffs took no position. The Court of Chancery observed that "[t]his refusal to address an issue Sokol itself raised was entirely improper and disrespectful to Sokol's adversaries and the court." Nonetheless the court concluded that it lacked subject matter jurisdiction and permitted Plaintiffs to transfer the matter to this Court pursuant to 10 Del. C. § 1902. Plaintiffs then filed their complaint in this Court on August 27, 2009.
Sokol Holdings, Inc. v. Dorsey Whitney, LLP, 2009 WL 2501542, at *3 (Del. Ch.).
2. The Proposed Amended Complaint
The proposed malpractice claim arises out of a deposition given by one of the Plaintiffs Brian Savage, who served as the Plaintiffs' corporate designee in Rule 30(b)(6) deposition in the 1782 proceedings. Apparently, the matters upon which examination was requested in that deposition were the corporations' efforts to preserve, locate and produce documents requested by the subpoenas. The deposition did not go well, as the United States District Court for the District of Colorado afterwards found that Mr. Savage was not properly prepared to serve as corporate designee and that the Dorsey Whitney lawyer representing Mr. Savage at the deposition improperly instructed Mr. Savage not to answer certain questions. The district court also concluded that Plaintiffs' document production and privilege log were deficient.
In the proposed amended complaint Plaintiffs seek to assert a malpractice claim against Dorsey Whitney based upon those findings. Plaintiffs also seek to name Stephen Bell, a Dorsey Whitney partner as an additional defendant.
3. Why the motion for leave to amend in denied
Superior Court Civil Rule 15(a) provides that a party may amend its pleading after a responsive pleading has been filed "only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." Although the Court is generally liberal in granting motions to amend, "permission is not automatic." The Court will not allow an amendment where there is "evidence of undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies, prejudice, futility, or the like."
Super. Ct. Civ. R. 15(a).
Krauss v. State Farm Mut. Auto. Ins. Co., 2004 WL 2830889 (Del. Super.).
Hess v. Carmine, 396 A.2d 173, 177 (Del. Super. 1978).
The Court finds that Plaintiffs' made a strategic decision to delay seeking to amend their complaint, most likely in an effort to manipulate the jurisdiction of the Court of Chancery. That deliberate delay is fatal to their motion for leave to amend. The Court also finds that the claims against proposed defendant Stephen Bell are futile because the Court lacks personal jurisdiction over him. Consequently the Court denies the motion for leave to amend.
This is not the first time Plaintiffs have been refused leave to amend a complaint because of their delay. In Sokol Holdings, Inc. v. BMB Munai, Inc., 2009 WL 3467756 (S.D.N.Y.), the district court denied the motion for leave to amend of plaintiffs Sokol, Savage, and Sinclair because they waited until after the deadline in a scheduling order to bring their motion.
a. The motion is interposed for the purpose of delay
Plaintiffs have dragged their feet from the very start of this litigation. The Court of Chancery had this to say about the delays they caused:
Although Sokol has maintained that it wishes to reach a prompt and efficient resolution to this dispute, its own tactics have resulted in a tortured path of litigation. For starters, Sokol has opted to drag Dorsey and its witnesses to Delaware, even though the center of gravity in this case rests squarely in Colorado, where most of the legal work in question was performed, where both Sokol and Dorsey conduct a substantial amount of business, and the laws of which appear to govern the merits of this case. And, after racing to be the first to file a suit regarding the fee dispute and gaining the advantage of choosing the forum, Sokol plodded its way through the litigation and failed to timely meet its obligations. For example, after Dorsey served its first request for document production on August 29, Sokol delayed in providing any response until two weeks after the thirty-day deadline and did not provide a material portion of its document production until mid-November, after Dorsey forced the matter by filing a motion to compel.
Sokol, 2009 WL 2501542, at *2.
The instant motion is a continuation of that pattern of delay. Although Plaintiffs represent to the Court that "[t]his is the first time Plaintiffs have sought to amend their complaint," the record demonstrates that they sought to amend its complaint, in the identical format, in May 2009 while this case was pending in the Court of Chancery. They opted to withdraw that motion in the Court of Chancery when they apparently thought it was to their benefit to do so. Several months later they elected to bring the same motion again, this time in this Court. Plaintiffs have not offered any explanation why they withdrew their motion in the first instance in the Court of Chancery, nor have they explained why they did not include this claim when they filed their complaint in this Court. This Court concludes, therefore that Plaintiffs delayed seeking leave to amend for strategic reasons.
Pl. Mot to Amend, at ¶ 32.
See Friedman v. Transamerica Corp., 5 F.R.D. 115 (D. Del. 1946) (denying the plaintiffs' third motion to amend where the new matter sought to be added had been included in the first amended complaint but later deleted when the plaintiffs filed their second amended complaint).
Plaintiffs' strategic decision to delay seeking to amend their complaint is not without its consequences, for this Court will not allow a party to use a motion for leave to amend as a means to manipulate the course of the litigation. In general, "a motion to amend should be made as soon as the necessity for altering the pleading becomes apparent." Indeed, evidence that a plaintiff was aware of facts and failed to include them in the complaint "might give rise to the inference that the plaintiff was engaging in tactical maneuvers." Moreover, "an amendment clearly will not be allowed when the moving party has been guilty of delay in requesting leave to amend and, as a result of the delay, the proposed amendment, if permitted, would have the effect of prejudicing another party to the action."
See Krauss, 2004 WL 2830889, at *7 (denying plaintiffs motion to amend the complaint where the motion was an attempt to "manipulate the course of litigation")
Hess, 396 A.2d at 177.
Krauss, 2004 WL 2830889, at *6 (citation omitted).
6 WRIGHT, MILLER KANE, FEDERAL PRACTICE PROCEDURE § 1488 (2d ed.).
In denying the motion for leave to amend, the Court has also taken into account the prejudice to Dorsey Whitney which would arise if the Court allowed the belated introduction of this claim. Defendant, by way of its counterclaim, asserts that it is entitled to substantial fees from its former clients. Unlike Plaintiffs, defendant has consistently sought to move this matter forward so that it may have its day in court. The addition of the malpractice claim would delay this case by a year or more. Moreover, it would likely require defendant to retrace discovery already taken. As a leading treatise explains:
See Marro v. Gomez, 1996 WL 453311 (Del. Super.) (denying a motion to amend where plaintiffs sought to amend the complaint "after completion of virtually all discovery" and failed to "offer little, if any explanation for the delay").
[I]f the amendment substantially changes the theory on which the case has been proceeding and is proposed late enough so that the opponent would be required to engage in significant preparation, the court may deem it prejudicial. In a similar vein, if the court determines that the proposed amendment would result in defendant being put to added expense and the burden of a more complicated and lengthy trial . . . leave to amend well may be denied.
6 WRIGHT, MILLER KANE, FEDERAL PRACTICE PROCEDURE § 1487 (2d ed.). See also 3 MOORE'S FEDERAL PRACTICE § 15.15[2] (3d ed.) ("Prejudice is especially likely to exist if the amendment involves new theories of recovery or would require additional discovery.").
Under the circumstances this Court is unwilling to delay resolution of Dorsey Whitney's claim.
b. The claim against the Dorsey lawyer is futile
Dorsey Whitney argues that the amended complaint, insofar as it alleges a claim against Stephen Bell, is futile because this Court lacks personal jurisdiction over him. It is correct.
The burden is on Plaintiffs to demonstrate that this Court has jurisdiction over Mr. Bell. The determination whether this Court has personal jurisdiction is, in essence, a two-step process. First, the Court must determine whether the exercise of jurisdiction over a non-resident defendant is authorized by 10 Del. C. § 3104. If Plaintiffs make that showing, then the Court must undertake the second step, which is to determine whether the exercise of personal jurisdiction is compatible with the federal constitution. In order to exercise personal jurisdiction, the Court must be satisfied plaintiff has satisfied both tests.
A plaintiff bears the burden of showing a basis for a trial court's exercise of jurisdiction over a nonresident defendant. In determining whether a plaintiff satisfies this burden, Delaware courts will apply a two-prong analysis to the issue of personal jurisdiction over a nonresident. The court must first consider whether Delaware's Long Arm Statute is applicable, and next evaluate whether subjecting the nonresident to jurisdiction in Delaware violates the Due Process Clause of the Fourteenth Amendment (the so-called "minimum contacts" Requirement).Aero Global Capital v. Cirrus Industries, Inc., 871 A.2d 428, 437-8 (Del. 2005).
The Court need not reach the constitutional issue here because Plaintiffs have not demonstrated that section 3104 authorized the exercise of personal jurisdiction over Mr. Bell. Under that section there are two instances when the Court may exercise personal jurisdiction: the first is when there is general jurisdiction over the defendant; the second is when there is specific jurisdiction over him. The Court lacks either because Mr. Bell does not live, work, render services or derive income in Delaware and because the acts giving rise to the malpractice claim did not occur in Delaware.
General jurisdiction is defined by section 3104 (c)(4). That section provides:
Vichi v. Koninkijke Philips Electronics, Inc., 2009 WL 4345724 (Del. Ch.).
As to a cause of action brought by any person arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any nonresident, or a personal representative, who in person or through an agent causes tortious injury in the State or outside of the State by an act or omission outside the State if the person regularly does or solicits business, engages in any other persistent course of conduct in the State or derives substantial revenue from services, or things used or consumed in the State.
Plaintiffs have shown no facts which subject Mr. Bell to the general jurisdiction of this Court. They point to no evidence that Mr. Bell engages in any regular or persistent conduct in this State of that he derives substantial revenue from services rendered here. To the contrary, the uncontradicted evidence shows that Mr. Bell resides in Colorado; the office in which he usually works is in Denver; he is not a member of the Delaware Bar and owns no real property in Delaware. He has appeared only once in a Delaware court in the last five years. The Court concludes, therefore, it lacks general jurisdiction over him.
Mr. Bell presented a motion in the Court of Chancery approximately two years ago in another matter, which did not involve Plaintiffs.
He also appeared as a negotiating representative of Dorsey Whitney in a mediation conducted while this case was pending in the Court of Chancery. Assuming, but not deciding, that this latter appearance constitutes activity described by section 3104(c)(4), the combination of these two appearances falls far short of the regular or persistent course of conduct within this state envisioned by this section.
Plaintiffs also assert that this Court has specific jurisdiction over Mr. Bell because he ostensibly agreed to provide corporate governance advice to one of the Plaintiffs which is a Delaware corporation whose principal place of business is in Colorado. This is a dubious proposition at best because there is no evidence that any activity in connection with this representation took place in Delaware. But the Court need not reach this argument because the advice on corporate governance does not give rise to the proposed malpractice claim.
The engagement letter upon which Plaintiffs rely does not state that Mr. Bell (who is in Dorsey's litigation group) would provide the corporate governance advice. Instead it recites that two named lawyers (in Dorsey's corporate group) would primarily provide that advice. The Court will assume, however, for purposes of this motion that Mr. Bell was providing advice on corporate governance issues.
Section 3104 provides that when jurisdiction is exercised over a person by reason of that section "only a cause of action arising from any act enumerated in this section may be asserted against the person." Here the only such act identified by Plaintiffs is his provision of corporate governance advice. But this is not the advice which gives rise to the claim against Mr. Bell. Rather it is Mr. Bell's alleged "negligence in responding to the Subpoena and in preparing Plaintiff Savage for his deposition and representing him at his deposition" that gives rise to this claim. There is no suggestion that any of this took place in Delaware. As a result, Plaintiffs have failed to show specific jurisdiction over Mr. Bell.
Proposed Amended Complaint, ¶ 27.
4. Conclusion
For the foregoing reasons, Plaintiffs' motion for leave to amend is DENIED.