San Francisco Residence Club, Inc. v. Leader, Bulso & Nolan, PLC

          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 ...