United States District Court, N.D. Alabama, Southern Division
MEMORANDUM OPINION
KARON
OWEN BOWDRE, CHIEF UNITED STATES DISTRICT JUDGE.
These
three consolidated legal malpractice and unpaid legal fees
cases come before the court on Defendants' motions for
summary judgment filed in each case and Plaintiffs'
associated motion to exclude two of Defendants' expert
witnesses. (2:14-cv-1953-KOB, Docs. 205 and 208;
2:14-cv-1954-KOB, Docs. 208, 211, and 214; 2:14-cv-1955-KOB,
Docs. 204, 207, and 210).
The
Plaintiffs in these cases were all collectively engaged in
the activities that form the basis of the claims in the
underlying lawsuits described below during which the
Defendants allegedly committed malpractice. The Plaintiffs
are (1) San Francisco Residence Club, Inc., a California
corporation primarily engaged in real estate business; (2)
Thomas O'Shea, a California resident who conducted real
estate business and appears in his individual capacity and as
a trustee of the Trust of Thomas O'Shea and Anne Donahue
O'Shea; (3) Anne Donahue O'Shea, a California
resident who conducted real estate business and appears in
her individual capacity and as a trustee of the Trust of
Thomas O'Shea and Anne Donahue O'Shea; (4) Kate
Larkin Donahue, a California resident who conducted real
estate business and appears in her individual capacity; and
(5) Grandview Credit, LLC, a California limited liability
company primarily engaged in financial business with only one
member who is a California resident and not separately a
plaintiff in this case. The Plaintiffs collectively bring the
same claims in these cases and mostly refer to themselves as
“Plaintiffs” in their complaint and brief in
opposition to summary judgment, so, unless differentiation is
necessary, the court will refer to the Plaintiffs
collectively throughout this memorandum opinion.
The
Defendants in these cases are (1) Leader, Bulso & Nolan,
PLC, a law firm based in Nashville, Tennessee
(“LBN”); and (2) Eugene N. Bulso, Jr., a lawyer
and partner of LBN. Defendants represented Plaintiffs as
counsel in the underlying lawsuits described below.
Plaintiffs bring their claims against LBN and Mr. Bulso
collectively, alleging that they are jointly and severally
liable for all claims.
The
Plaintiffs suffered substantial losses from several botched
real estate transactions. They retained Defendants as counsel
to recover those losses in at least five underlying lawsuits.
Plaintiffs experienced several setbacks during those lawsuits
and place the blame for their suboptimal results on
Defendants' legal representation. Specifically,
Plaintiffs allege that Defendants did not timely disclose all
of the damages that Plaintiffs would pursue; designated an
unqualified expert witness; wrongfully diverted settlement
funds; and overbilled Plaintiffs for attorneys' fees and
expenses. Plaintiffs assert that each of these acts
constitutes a violation of the standard of care that
Defendants owed them under the Alabama Legal Services
Liability Act (“ALSLA”).
Plaintiffs
also move to exclude the testimony of two of Defendants'
expert witnesses. Defendants anticipate that those experts
will testify at trial that Defendants' representation of
Plaintiffs never violated the ALSLA standard of care.
According to Plaintiffs, those two experts are not qualified
to give their opinions, have not used reliable methodology to
form their opinions, and will not provide helpful testimony
to a jury.
Defendants
deny that they violated the ALSLA during the course of their
legal representation of Plaintiffs and move for summary
judgment on all of Plaintiffs' claims. Specifically,
Defendants contend that their late disclosure of all of
Plaintiffs' damage claims in an underlying lawsuit did
not deprive Plaintiffs of any more favorable result; that
Defendants did not violate any standard of care in their
choice of an expert witness, a choice that backfired only on
a matter of first impression; that Defendants used settlement
funds in a manner approved by their fee agreement with
Plaintiffs; and that Defendants never overbilled Plaintiffs.
Also,
Defendants bring a counterclaim in each of these three
consolidated cases to recover a total of $312, 327.25 in
legal bills that Plaintiffs have not paid. Defendants move
for summary judgment on their counterclaims because they
contend that no genuine dispute exists that they billed
Plaintiffs only for reasonable and necessary services and
expenses.
The
court will grant Defendants' motions for summary judgment
as to all of Plaintiffs' claims. As explained below, no
evidence supports Plaintiffs' “case within a
case” that they must show to state an ALSLA claim;
i.e., Plaintiffs have failed to show that
Defendants' committed actionable fault in the
underlying lawsuits as required to state a claim in
these cases. Also, Plaintiffs' claims based on
Defendants' choice of expert witness and handling of
settlement funds fail because neither of these acts breached
any duty owed to Plaintiffs.
And the
court will grant in part Defendants' motions for summary
judgment on their counterclaims as to Plaintiffs'
liability for any damages that a jury may award. But the
court will deny in part Defendants' motions for summary
judgment on their counterclaims as to the amount of damages
for their counterclaims because a genuine dispute exists as
to whether Defendants agreed to waive or reduce some of their
fees.
The
consolidation of these cases, the number of pending motions,
the extensive discovery overseen substantially by a Special
Master and meticulously documented on the record, and the
nature of Plaintiffs' claims contribute to the somewhat
convoluted nature of these actions. To most effectively
unravel these cases and to most clearly express the
court's findings, this memorandum opinion will proceed in
the following sequence: (1) the applicable standard of review
for Defendants' motions for summary judgment; (2)
background on each of these three consolidated cases
individually, further broken down into the facts of the
underlying lawsuits during which Defendants' allegedly
committed malpractice; (3) analysis of Plaintiffs' motion
to exclude two of Defendants' expert witness; (4) review
of the law governing legal malpractice claims in Alabama; (5)
individual analysis of each of Defendants' motions for
summary judgment as to Plaintiffs' ALSLA claims; and (6)
analysis of Defendants' counterclaims.
I.
STANDARD OF REVIEW
A trial
court can resolve a claim and/or a counterclaim on summary
judgment only when the moving party establishes two essential
elements: (1) no genuine disputes of material fact exist;
and (2) the moving party is entitled to judgment as
a matter of law. Fed.R.Civ.P. 56(a).
Under
the first element of the moving party's summary judgment
burden, “‘[g]enuine disputes [of material fact]
are those in which the evidence is such that a reasonable
jury could return a verdict for the
non-movant.'” Evans v. Books-A-
Million, 762 F.3d 1288, 1294 (11th Cir. 2014)
(emphasis added) (quoting Mize v. Jefferson City Bd. of
Educ., 93 F.3d 739, 742 (11th Cir. 1996)). And when
considering whether any genuine disputes of material fact
exist, the court must view the evidence in the record in the
light most favorable to the non-moving party and draw
reasonable inferences in favor of the non-moving party.
White v. Beltram Edge Tool Supply, Inc., 789 F.3d
1188, 1191 (11th Cir. 2015).
Conclusory
allegations cannot create genuine issues of material fact.
Harris v. Ostrout, 65 F.3d 912, 916 (11th Cir.
1995). And inferences can defeat summary judgment only if
drawn from facts. Carlson v. FedEx Ground
Package Sys., Inc., 787 F.3d 1313, 1318 (11th Cir.
2015).
II.
BACKGROUND
A.
The Park Tower Case (the Subject Matter of No.
2:14-cv-1953)
1.
Underlying Facts in the Park Tower Case
The
“Park Tower Case” refers to the case styled as
San Francisco Residence Club, et al. v. Park Tower LLC,
et al., No. 5:08-cv-01423-AKK, in which Defendants
represented Plaintiffs as counsel.
The
Park Tower Case arose out of Plaintiffs' attempt in 2007
to purchase a commercial office building in Huntsville,
Alabama known as Park Tower. Plaintiffs invested nearly $6
million in cash and assumed nearly $5 million in debt to
purchase the property. Plaintiffs intended for the
transaction to qualify as a like- kind exchange under Section
1031 of the Internal Revenue Code so they could defer capital
gains taxes. But, after the transaction closed, they owned no
interest in the Park Tower property and reaped no Section
1031 benefits. Instead, title vested entirely in “Park
Tower, LLC, ” a limited liability company controlled by
Plaintiffs' real estate agent and property manager, Scott
McDermott, and in which no Plaintiff had any direct interest.
(See cv-1953, Doc. 207-1 at ¶¶
14-15).[1]
Plaintiffs
sued four groups of defendants for the botched transaction:
(1) Scott McDermott and his associates (“the McDermott
defendants”); (2) Wilmer & Lee P.A. and one of the
firm's attorneys, Sam Givhan, who served as
Plaintiffs' closing attorney for the Park Tower
transaction (“the W&L defendants”); (3)
Coldwell Banker Real Estate LLC, the franchisor of Mr.
McDermott's real estate agency; and (4) InterSouth
Properties, Inc., an affiliate of Mr. McDermott. (cv-1953,
Doc. 207-1 at ¶ 16). Plaintiffs brought their case,
styled as San Francisco Residence Club, et al. v. Park
Tower LLC, et al., No. 5:08-cv-01423-AKK, in this court
before Judge Abdul Kallon in 2008.
Mr.
Bulso and his firm, LBN, represented Plaintiffs as counsel in
the Park Tower Case. Over the course of three years,
Plaintiffs reached pro tanto settlement agreements
with each group of defendants one by one. Plaintiffs first
reached cash settlements with Coldwell Banker and InterSouth.
Plaintiffs then reached a pro tanto settlement
agreement with the McDermott defendants pursuant to which
Plaintiffs would acquire total ownership of the Park Tower
property in a manner that would render the transaction a
Section 1031 like-kind exchange. Judge Kallon entered an
order enforcing the settlement agreement with the McDermott
defendants on October 7, 2010. (See cv-1953, Doc.
207-1 at ¶¶ 17-19).
Then
the sequence of events underlying Plaintiffs' allegations
of malpractice in the Park Tower Case occurred.
After
Judge Kallon's October 7, 2010 order enforcing the
settlement agreement with the McDermott defendants,
Plaintiffs finally owned Park Tower. But, at that time, Park
Tower's investment value was substantially worse than
when Plaintiffs paid for the building in 2007. For example,
Park Tower had an 80% occupancy rate in 2007 but had only a
30% occupancy rate in 2010. (cv-1953, Doc. 231-42 at 4).
Scott McDermott was in charge of managing Park Tower during
this three-year period.
Having
taken ownership of a building much less valuable than when
they paid for it three years earlier, Plaintiffs sought to
pursue loss of value damages in the Park Tower Case. And
Plaintiffs believed that their closing attorneys in the Park
Tower transaction, the W&L defendants-the only remaining
defendants in the Park Tower Case after the pro
tanto settlement agreement with the McDermott
defendants-were complicit with Mr. McDermott in damaging Park
Tower's value.
So, on
October 11, 2010, Plaintiffs disclosed to the court and the
W&L defendants for the first time that Plaintiffs would
pursue loss of value damages against the W&L defendants.
(cv-1953, Doc. 207-1 at ¶¶ 20-21). LBN disclosed
those damages by supplementing Plaintiffs' prior damages
disclosure pursuant to Federal Rule of Civil Procedure 26(e),
which requires a party to supplement in a timely manner a
prior disclosure of the damages he alleges if he attempts to
assert a new category of damages. The Rule 26(e) supplement
added the loss of value damages to Plaintiffs' claimed
damages. (Id. at ¶ 21).
The
W&L defendants objected to the Rule 26(e) supplement as
untimely and prejudicial; the new loss of value category of
damages would require the court to reopen discovery and the
parties to take additional expert testimony. Judge Kallon
agreed. On March 31, 2011, Judge Kallon entered an order
striking the loss of value damages from Plaintiffs' Rule
26(e) supplement and precluded Plaintiffs from pursuing those
damages as a Rule 37 sanction. (cv-1953, Doc. 207-1 at ¶
22). Federal Rule of Civil Procedure 37 provides that if a
party violates Rule 26(e), then he may not rely on the
information he failed to timely disclose “unless the
failure was substantially justified or is harmless.”
Judge Kallon did not find Plaintiffs' failure
substantially justified or harmless.
Plaintiffs
ultimately settled all claims against the W&L defendants
in the Park Tower Case on January 26, 2013. Pursuant to their
settlement agreement, Plaintiffs received a cash settlement
in a confidential amount from the W&L defendants.
(cv-1953, Doc. 207-1 at ¶ 24). The court stayed
consideration of a motion to enforce an attorney's lien
that remains pending in that case.
2.
ALSLA Claims in this Case Arising out of the Park Tower
Case
In
their complaint in No. 2:14-cv-1953, Plaintiffs allege that
Defendants committed the following violations of the ALSLA
during the course of their representation of Plaintiffs in
the Park Tower Case: (1) Defendants failed to timely disclose
that Plaintiffs were asserting loss of value damages, which
consequently resulted in a court sanction precluding
Plaintiffs from pursuing those damages; and (2) Defendants
billed Plaintiffs for unreasonable, unnecessary, or
nonexistent services and expenses. (cv-1953, Doc. 1 at
¶¶ 10, 21-29).
The
court cannot determine whether Plaintiffs intended for a few
other factual allegations in their complaint to serve as
independent bases for ALSLA claims. Plaintiffs allege that
Defendants (1) “misrepresented the status of the
litigation and misrepresented to Plaintiffs that they had
claims worth several millions of dollars despite Bulso's
superior knowledge of the effect of the sanctions against
Bulso”; (2) failed to meaningfully pursue Grandview
Credit's claims in the Park Tower Case; and (3)
improperly asserted liens on money not owed to them.
(cv-1953, Doc. 1 at ¶¶ 11-14).
But, in
any event, those three allegations do not by themselves serve
as ALSLA claims. Plaintiffs do not meaningfully rely on those
allegations as independent bases for ALSLA claims in their
response in opposition to summary judgment. So, to the extent
that Plaintiffs intended to state independent ALSLA claims
based on those three allegations, Plaintiffs have abandoned
those claims.
See
Tr. Corp. v. Dunmar Corp., 43 F.3d 587, 599 (11th Cir.
1995) (“[G]rounds alleged in the complaint but not
relied upon in summary judgment are deemed
abandoned.”); Cole v. Owners Ins. Co., 326
F.Supp.3d 1307, 1329 (N.D. Ala. 2018) (“The court finds
that the Coles abandoned any suppression- or deceit-based
fraud theory by failing to advance a relevant argument in
response to Owners's motion for summary
judgment.”). Instead, those three allegations exist
only as factual allegations on which Plaintiffs' rely to
support their actual ALSLA claims.
3.
Counterclaims in this Case Arising out of the Park Tower
Case
Defendants
have counterclaimed for $66, 540.65 in attorneys' fees
and expenses that Plaintiffs allegedly still owe Defendants
for services rendered in the Park Tower Case. (See
cv-1953, Doc. 4 at ¶¶ 8-9). Plaintiffs admit that
they did not pay the $66, 540.65 but assert that they had no
obligation to pay for reasons discussed below. Defendants
move for summary judgment on their counterclaim as well as
Plaintiffs' claims.
B.
The Moquin Case (the Subject Matter of No.
2:14-cv-1954)
1.
Underlying Facts in the Moquin Case
The
“Moquin Case” refers to the case styled as
San Francisco Residence Club, et al. v. Baswell-Guthrie,
et al., No. 5:09-cv-00421-CLS, in which Defendants
represented Plaintiffs as counsel.
The
Moquin Case arose from another botched real estate
transaction in 2007 involving the same participants as in the
Park Tower transaction.
On
January 30, 2007, Plaintiffs paid for two parcels of real
property in Huntsville, Alabama known as Moquin and Fountain
and another property known as Corporate Drive. Through their
qualified intermediary, WaMu 1031 Exchange, Plaintiffs sent
cash to W&L with instructions to close the purchases in
Plaintiffs' name as Section 1031 like-kind exchanges.
Plaintiffs
alleged that W&L did not follow their instructions.
Instead, similar to what W&L did in the Park Tower
transaction, W&L closed the Moquin and Fountain purchases
in the name of “Moquin, LLC, ” an entity in which
no Plaintiff had any direct interest, and closed the
Corporate Drive purchase in the name of “Corporate
Drive, LLC, ” also an entity in which no Plaintiff had
any direct interest. So, like the Park Tower transaction,
Plaintiffs paid for properties that they did not receive and
did not reap Section 1031 benefits as intended.
Plaintiffs
then sued the same groups of defendants as they did in the
Park Tower Case who essentially performed the same roles in
the Moquin transactions as they did in the Park Tower
transaction: (1) the McDermott defendants; (2) the W&L
defendants; (3) InterSouth; and (4) Coldwell
Banker.[2] Plaintiffs brought their case, styled as
San Francisco Residence Club, et al. v. Baswell-Guthrie,
et al., No. 5:09-cv-00421-CLS, in this court before
Judge C. Lynwood Smith in 2009.
Mr.
Bulso and his law firm, LBN, represented Plaintiffs in the
Moquin Case. The case followed a familiar sequence:
Plaintiffs settled with InterSouth and Coldwell Banker for
confidential cash amounts; Plaintiffs then entered a pro
tanto settlement agreement with the McDermott defendants
pursuant to which the parties would reform the property
transactions to qualify as Section 1031 like-kind exchanges
in Plaintiffs' name; and then only Plaintiffs' claims
against the W&L defendants remained.
Then
the sequence of events underlying Plaintiffs' allegations
of malpractice in the Moquin Case occurred.
Issues
arose with respect to Plaintiffs' claims against the
W&L defendants. Because Plaintiffs alleged that W&L
committed malpractice by violating Section 1031 of the
Internal Revenue Code, Plaintiffs needed a witness to testify
as an expert on Section 1031. So LBN hired Joe Vaulx
Crockett, III as an expert witness with respect to Section
1031. Mr. Crockett was undisputedly a nationally recognized
expert in Section 1031 real estate transactions, but Judge
Smith still found one issue with Mr. Crockett's
qualifications: he was not licensed to practice law in
Alabama. (See cv-1954, Doc. 213-1 at ¶¶
9-12).
In a
matter of first impression, Judge Smith found that, because
Plaintiffs alleged in the Moquin Case that W&L violated
the Alabama Legal Services Liability Act by failing
to comply with Section 1031 of the Internal Revenue Code,
Plaintiffs required an expert on the standard of care owed by
attorneys to clients under Alabama law, not just an
expert on Section 1031. San Francisco Residence Club,
Inc. v. Baswell-Guthrie, 897 F.Supp.2d 1122, 1192 (N.D.
Ala. 2012). Judge Smith found that, in part because Mr.
Crockett was not licensed to practice law in Alabama,
“[r]egardless of the nature and extent of
Crockett's experience with like-kind exchanges and real
estate transactions in general, he does not possess the
requisite experience or competence to testify on the standard
of care expected of real estate attorneys closing property
acquisitions in Huntsville, Alabama.” Id. at
1193. So Judge Smith excluded Mr. Crockett as an expert
witness. As a result, Plaintiffs had no evidence to support
their malpractice claims against W&L and Judge Smith
dismissed those claims.
Like in
the Park Tower Case, Plaintiffs eventually settled their
remaining claims against W&L in the Moquin Case.
Plaintiffs
litigated separate cases arising out of other real estate
transactions in other jurisdictions while they pursued the
Moquin Case before Judge Smith. Plaintiffs brought suit
against several of the same defendants and their associates
in federal courts in Hawaii and California and in state court
in California. The facts of these so-called “White
Sands Cases” and the “Contra County Case”
are not pertinent to the present motions for summary
judgment; but, importantly, Defendants represented Plaintiffs
in those cases while representing Plaintiffs in the Moquin
Case. And Defendants applied some of the proceeds obtained
from the cash settlement with Coldwell Banker in the Moquin
Case to the fees that Plaintiffs owed to Defendants in the
White Sands Cases and the Contra County Case.
Defendants
asserted that they could apply the funds obtained from the
Coldwell Banker settlement agreement in the Moquin Case to
legal fees owed in other cases pursuant to a fee agreement
they entered into with Plaintiffs on August 5, 2009.
(See cv-1954, Doc. 213-1 at ¶ 15). Indeed, that
agreement provides that the fees owed in the Park Tower Case,
the Moquin Case, and the White Sands Cases could be paid out
of settlement proceeds obtained in any of those cases.
(cv-1954, Doc. 24-4 at 1).
2.
ALSLA Claims in this Case Arising out of the Moquin
Case
In
their complaint in No. 2:14-cv-1954, Plaintiffs allege that
Defendants committed the following violations of the ALSLA
during the course of their representation of Plaintiffs in
the Moquin Case: (1) Defendants failed to designate a
suitable expert witness to support Plaintiffs' ALSLA
claims-instead, Defendants designated an expert that Judge
Smith excluded because the witness was not an expert on the
standard of care owed by attorneys in Alabama; (2) Defendants
wrongfully diverted funds obtained from the cash settlement
with Coldwell Banker; and (3) Defendants billed Plaintiffs
for unreasonable, unnecessary, or nonexistent services and
expenses. (See cv-1954, Doc. 1 at ¶¶ 10-
14, 27-34).
3.
Counterclaims in this Case Arising out of ...