Ludwig & Robinson, PLLC v. BiotechPharma, LLC
Ludwig & Robinson, PLLC v. BiotechPharma, LLC
Opinion
Appellant Ludwig & Robinson PLLC ("L & R" or "the law firm") appeals from the Superior Court's dismissal of its claims alleging fraud and conspiracy by defendants/appellees BiotechPharma, LLC ("BTP"), BTP's wholly-owned subsidiary Converting Biophile Laboratories, Inc. ("CBL"), BTP's principal Raouf Guirguis (together, the "BTP defendants"), and Martin Kalin (alleged to be a BTP lender "who has held himself out" as BTP's "Executive Vice President"). For the reasons set out below, we reverse and remand.
I. Background
L & R's complaint alleges that in 2011, BTP engaged the law firm's services to provide the company with "advice and representation regarding cross-border intellectual property claims." The engagement, which entailed extensive motions practice in the Eastern District of Virginia (the "Rocket Docket") and elsewhere as well as depositions and interviews "across the country and overseas," began after Kalin contacted L & R seeking representation for the company. On March 4, 2011, BTP, through Guirguis, executed an engagement letter that set out L & R's hourly rates and specified a monthly billing schedule. The engagement letter provided that bills would be "due and payable upon receipt" and stated that "[i]n the event of nonpayment, the [f]irm reserves the right to withdraw from representation in this matter."
On April 25, 2011, after L & R had begun its work (including drafting a complaint for misappropriation), Kalin "sought [an] alternate billing" arrangement, and L & R and BTP signed a modified engagement letter under which L & R agreed to defer half its hourly rates and BTP agreed to pay the law firm's deferred fees plus 30% upon settlement of the misappropriation action or upon "[a]ny cumulative investment in BTP exceeding $500,000." Over the next several months, L & R continued to provide legal services to BTP but received little by way of payment for those services. On January 19, 2012, L & R held a meeting with Guirguis and Kalin during which it "raised BTP's ongoing failure to pay" its legal fees. L & R told Guirguis and Kalin "to expect larger bills for round-the-clock work and expenses ... until the case was settled or tried." L & R "conveyed [that] its lawyers would not work without pay" and said that they would "be forced to move to withdraw absent payment." Guirguis and Kalin "represented BTP would pay past bills, and $40,000 a month for December [2011] forward, through ... CBL[ ] or [through] investment in BTP."
*107 Payments were not made, however, and, in early February, after L & R reminded Guirguis and Kalin that it would "need ... a revised fee arrangement if [it was] to continue representation in light of mounting legal fees and costs," Guirguis "agreed to pay at least $75,000 a month for December forward." On February 28, 2012, "to account for further deferred payment and risk," L & R and BTP entered into a second modification to the engagement letter, "signed by Guirguis and copied to Kalin." Pursuant to the second modification letter, "BTP agreed to increase L & R's success fee to 50% of deferred fees, with guarantees ... by CBL and Guirguis." Thereafter, although "L & R sent monthly invoices ... showing [its] fees and expenses[ ] [with] detailed descriptions[ ] and time" reports, BTP "did not pay any $75,000 payment for December [2011] through May [2012]."
On January 31, 2013, after attempts to collect payment proved unsuccessful, L & R brought suit in the Superior Court, suing BTP for breach of contract (Count I); CBL and Guirguis for breach of guarantee (Count II); each of the BTP defendants for "Failure to Pay Accounts Stated" (Count III); and all defendants for fraud (Count IV), and conspiracy (Count V). The complaint alleges that as of June 5, 2012, BTP had incurred but failed to pay hourly fees of $1,233,683.08, a "success fee" of $358,659.96, and expenses of $196,605.67, for a total of $1,788,948.71.
Of particular note given the issues before us, the fraud count (Count IV) against all of the defendants/appellees alleges that Guirguis (on behalf of BTP and CBL) and Kalin represented, over the period from October 2011 to May 2012, including "[b]efore, during, and after the January 19[, 2012,] meeting," that "L & R would be paid from CBL's revenue and credit line," thus "representing [that] ... the credit line existed," even though at all relevant times CBL had no credit line. Count IV further alleges that these representations, as well as the representations regarding the large monthly payments from December 2011 forward, "were made with the intent to deceive L & R." Count IV alleges in addition that the defendants "concealed BTP's true financial condition, failing to disclose Kalin's actual investment in or loans to BTP, its indebtedness to lenders, and the fact and magnitude of liens." The foregoing representations and omissions, Count IV alleges, "induced [L & R] to continue work," as the law firm relied upon them "in deciding not to seek to withdraw as counsel on January 19, 2012[,] and thereafter, and in deciding not to require security against nonpayment of fees and expenses ... upon entering [into] the [s]econd [m]odified [e]ngagement [l]etter on February 28, 2012." Count IV includes a prayer for "damages in the amount of services rendered and billed, but not paid, with interest from when payment was due, attorney's fees, and any other appropriate relief." Count V contains similar allegations and a similar prayer for relief, including a prayer for "attorney's fees and expenses under Counts IV and V."
The Superior Court action was stayed while the contract claims against the BTP defendants proceeded to arbitration before the Attorney-Client Arbitration Board ("ACAB"), as requested by BTP. On February 11, 2015, the ACAB awarded L & R $908,000 on its claim for "approximately $1.79 million in fees and expenses, plus interest."
The Superior Court granted L & R's motion to confirm the arbitration award and entered judgment for $908,000 against BTP, CBL and Guirguis jointly and severally. On June 22, 2015, the court held a hearing on pending matters. L & R initially told the court that "[i]f the arbitration *108 award by ACAB had been complied with ... the complaint would be moot." Shortly thereafter, however, saying that it had "misspoke[n]" earlier, L & R argued that its claims for fraud and conspiracy against the BTP defendants and Kalin should proceed. The court readily disagreed as to the BTP defendants, reasoning from the bench and in a June 23, 2015, written order that all of the counts of the complaint "were pled by L & R in order to recover its unpaid legal fees"; that the fraud and conspiracy claims "were disposed [of] when [the law firm was] compensated under the [ACAB] award" (which the court said had res judicata effect as to Counts I-III of the complaint); and that L & R did not "have a separate right to compensation [from the BTP defendants] based on claims of fraud and conspiracy." Without allowing L & R an opportunity for briefing, the court dismissed the fraud and conspiracy claims against the BTP defendants. The court postponed its ruling as to dismissal of the claims against Kalin (who was not a party to the ACAB proceedings), although it preliminarily suggested that the fraud and conspiracy claims against Kalin were "subsumed within the award of the arbitrator." L & R had argued that the law firm was entitled to recover from Kalin if it could "show more than [the ACAB] award as damages as to [Kalin] up to the claimed 1.8 million dollars." L & R told the court that it was "entitled to judgment against a co-defendant [Kalin] who may be more collectible than the BTP defendants," and it asserts in its brief that it has never been able to collect the ACAB award amount.
At an October 1, 2015, hearing, the Superior Court denied the law firm's motion to alter or amend the judgment dismissing the claims against the BTP defendants. The court also dismissed the claims against Kalin, reasoning that L & R had, through the arbitration award, "received the relief it sought against the defendants, which was a money judgment essentially for payment for legal services previously rendered." The court found "without merit" the arguments "that [the] ACAB had no jurisdiction over the fraud claim" and that "the arbitration award did not create res judicata effect" as to the fraud claim. L & R explained that its request "for additional fees under a fraud and conspiracy theory ... was necessitated by [the defendants'] obstructive conduct" and pertained to "compensat[ion] for the need to pursue" and "chase" the BTP defendants "to honor [their] obligation." The court, however, characterized Counts IV and V as "alternative theories of relief for the exact same relief" that was "granted under the arbitration award." 1
Finally, in an October 13, 2015, written order, the Superior Court explained its reasoning that "the fraud and conspiracy claims are wholly dependent upon the extant contract"; that L & R has not alleged "an independent injury over and above the mere disappointment of [its] hope to receive [its] contracted-for benefit"; that L & R's claimed damages were addressed in the breach of contract claim; and that "[t]here [was] no duty owed to [L & R] 'from considerations other than the contractual relationship.' " Oct. 13, 2015, Order at 7 (quoting
Choharis v. State Farm Fire & Cas. Co.
,
L & R now appeals the dismissal of its claims for fraud and conspiracy against the BTP defendants and Kalin. As to the BTP defendants, L & R argues that dismissal of the Counts IV and V fraud and conspiracy claims was error because the law firm was *109 "entitled to recover[ ] its reasonable attorney[s'] fees incurred in having to bring this suit as an additional item of damage" for appellees' "willful and wanton" "fraudulent and collusive conduct." Regarding Kalin, L & R argues that dismissal of the fraud and conspiracy claims against him was error because he is a "jointly and severally liable tortfeasor" against whom the law firm is entitled to obtain a separate judgment. 2 L & R contends that the holding in Choharis , which the Superior Court cited in denying the law firm's motion to alter or amend judgment, is inapplicable because of "fraud-in-the-inducement" and "difference-in-damages" exceptions Choharis recognized.
II. Standard of Review
"We review an order granting a motion to dismiss de novo."
Hillbroom v. PricewaterhouseCoopers LLP
,
III. Analysis
This court stated in
Choharis
that "a cause of action that could be considered a tort independent of contract performance is a viable claim" if the tort "exist[s] in its own right independent of the contract[ ] and any duty upon which the tort is based ... flow[s] from considerations other than the contractual
*110
relationship."
As described above, the Superior Court reasoned that "[t]here [was] no duty owed to [L & R] 'from considerations other than the contractual relationship' " and that L & R had not alleged "an independent injury over and above the mere disappointment of [its] hope to receive [its] contracted-for benefit." Oct. 13, 2015, Order at 6-7 (quoting
Choharis
,
We cannot agree that the defendants/appellees owed no duty to L & R "from considerations other than the contractual relationship."
Here, the L & R-BTP relationship was an open-ended engagement; i.e., it had no fixed termination date. L & R's complaint alleges that the law firm reserved the right to "move to withdraw absent payment" and threatened to invoke that right when confronting Guirguis and Kalin about BTP's failure to pay billed amounts. The complaint further alleges that during those conversations, BTP (through Guirguis) and Kalin induced L & R to continue providing legal services to BTP under modified engagement letters, and thus not to withdraw, through false statements about payment sources available to pay the law firm's bills (e.g., CBL's purported credit line) and through omissions about "the fact and magnitude of liens" against BTP, loans by Kalin to BTP, and BTP's level of "indebtedness."
5
In the context of
*111
these alleged transactions, the defendants/appellees had a duty independent of the subsequent modified engagement letters to "state truly what" they told the law firm and "also not to suppress or conceal any facts within [their] knowledge which would materially qualify those [representations] stated."
Ehrlich
,
We also cannot agree that, like the complaint in
Choharis
, L & R's complaint failed to allege "an independent injury over and above the mere disappointment of [its] hope to receive [its] contracted-for benefit." Oct. 13, 2015, Order at 6 (quoting
Choharis
,
Mr. Choharis made no claim that, prior to Mr. Choharis's taking out the policy, the insurance company had made misrepresentations about (for example) the scope of the offered coverage or the financial strength of the company and its ability to
*112
meet its obligations under issued policies. We specifically recognized that in that very different circumstance, "an insurance company may be liable for fraud and misrepresentation in matters leading to the procurement of the contract."
We applied the principles set out in
Choharis
in
EDCare Mgmt., Inc. v. DeLisi
,
The record in
EDCare
shows that, in the GSCEP-CMC arbitration, GSCEP advanced both contract and tort claims,
see
The posture of this case is quite different from that of EDCare . First, while it appears that EDCare's fraudulent misrepresentation claim could have been brought before the arbitrators who resolved GSCEP's breach of contract and tortious interference claims, in this case, the ACAB, which arbitrated the BTP-L & R fee dispute, had no jurisdiction to consider tort claims (including claims relating to fraudulent misrepresentation or conspiracy). Under the rules of the ACAB, that body's jurisdiction is limited to disputes "about the fee paid, charged, or claimed for legal services." D.C. Bar Att'y-Client Arb. Bd. R. 3 (b). 7 In addition, the Superior Court did not find, and none of the parties has argued that, Kalin is a privy of any of the BTP defendants such that he could be bound by the ACAB decision to which the BTP defendants were subject. For those reasons, the ACAB arbitration decision did not have res judicata effect as to L & R's claims sounding in fraudulent inducement and civil conspiracy 8 against the BTP defendants, and likewise is not a res judicata bar with respect to any claim against Kalin. 9
Second, as already discussed, while this court's opinion in EDCare focuses on EDCare's complaint about misleading statements made by DeLisi during the contract period in an email sent two days before the agreed contract-termination date, L & R complains of alleged misrepresentations and omissions that preceded and induced decisions by the law firm not to withdraw *114 from the representation of BTP in an open-ended engagement, 10 and to continue work under a modified engagement letter.
Third, EDCare sought to recover its "out-of-pocket" outlays incurred in performing its obligations as the assignee of GSCEP's contract rights and obligations under the contract with CMC, i.e., the "additional resources and funds [EDCare devoted] towards the provision of emergency medicine management services for the Hospital" through the agreed contract termination date.
By contrast, L & R, through Counts IV and V of its complaint, seeks recovery of items of damages that do not "fall within the realm of recoverable contract damages" and are not "potentially compensable under contract principles."
Choharis
,
"In line with the 'American rule' for litigation generally, the parties in contract litigation pay their own attorneys' fees ... unless the contract itself provides otherwise ...." 3 Dobbs,
supra
, § 12.1 (1). "[I]n tort actions for fraud or fraudulent inducement," however, our jurisdiction recognizes the principle that "the perpetrator of a fraud is liable to respond in such damages as naturally and proximately resulted
*115
from the fraud, and the proximate result rule should be employed in a flexible manner."
Espaillat v. Berlitz Schs. of Languages of Am., Inc.
,
In seeking "its reasonable attorney's fees incurred in having to bring this suit as an additional item of damage," L & R also relies on cases applying the "almost universally recognized rule that [counsel fees] may be recovered in ... cases where the wrongful action complained of is characterized by ... gross fraud on the part of the defendant."
Schlein v. Smith
,
L & R also told the Superior Court that, through Counts IV and V of the complaint, it seeks "damages ... up to the claimed 1.8 million dollars" or, as described in the complaint, "damages in the amount of services rendered and billed, but not paid, with interest from when payment was due." It is not clear to us that L & R is still pursuing this item of claimed damages, because its briefs on appeal do not specifically argue for it. We nevertheless address this item because it might be thought that its inclusion in L & R's prayer for relief under Counts IV and V shows that these counts seek damages that
are
compensable under contract principles. That is, it might be thought that to the extent this item of damages forms the basis of L & R's prayer for relief under Counts IV and V, both counts are barred under the
Choharis
rule, which bars a parallel tort claim unless "an action for breach of contract would reach
none
of the damages suffered by the tort."
We have said that "[b]y suing in tort, the defrauded party ... claims sufficient compensation to make his position as good as it would have been had he not entered into the transaction at all."
United Sec. Corp. v. Franklin
,
In this case, the amount L & R billed BTP for legal services under the second modified engagement letter is some measure of what the law firm could have earned if the lawyers involved had withdrawn from representing BTP and taken on work for another or other clients. As L & R has suggested, its damages (if any) in this regard were likely "up to" rather than equivalent to the billed $1.8 million, because that amount was billed for what L & R has asserted was "round-the-clock work" and also because it included a success fee ($358,659.96) that the law firm would not necessarily have earned through other engagements, as well as expenses ($196,605.67, for,
inter alia
, "depositions and interviews across the country and overseas") the law firm would not necessarily have incurred in representing other clients. Whatever L & R might be able to prove in the way of "damages ... up to the claimed 1.8 million dollars," the point we make here is that L & R's inclusion of a prayer to recover such an amount as damages for alleged fraudulent inducement does not necessarily require a conclusion that the law firm is attempting to recharacterize a contract claim as a fraud claim, or is merely trying to obtain the benefit of its bargain under its contract with BTP.
13
Though monetarily equivalent to L & R's claimed damages for breach of contract, the law firm's prayer in Counts IV and V for approximately $1.8 million in damages may have a different basis and may pertain to damages that are not compensable
*117
under contract principles.
14
At the very least, the Superior Court should not have dismissed Counts IV and V in their entirety without affording the parties an opportunity for briefing on the rationale for the damages that L & R is seeking, which could be independent of the law firm's contract claims and thus recoverable notwithstanding
Choharis
and
EDCare
. Of course, in no event will L & R be permitted a duplicative recovery.
See
Saunders v. Hudgens
, No. 12-CV-1318,
IV. Conclusion
We conclude for the foregoing reasons that L & R's claims for fraud and conspiracy were erroneously dismissed. Accordingly, the judgment of the trial court is reversed and the case remanded for further proceedings consistent with this opinion.
So ordered.
The court had earlier stated that the "five counts [of the complaint] were used in order to recover under separate causes of action the same dollar amount."
See
Young v. District of Columbia
,
See also
Thermal Dynamics Int'l, Inc. v. Safe Haven Enters., LLC
,
In
Jacobson
, the court rejected the contention that all of the plaintiff homeowners' fraudulent misrepresentation claims were "inappropriately duplicative of [their] breach of contract claim."
These alleged financial misrepresentations and omissions are similar to ones that courts have held will support a claim of fraudulent misrepresentation.
See, e.g.
,
American Media, Inc. v. Bainbridge & Knight Labs., LLC
,
That said, some of L & R's allegations about statements by Guirguis and Kalin-such as the allegations that they stated BTP "would pay past bills, and $40,000 a month for December [2011] forward," and then that BTP would "pay at least $75,000 a month for December forward"-at least arguably do not support a claim of fraudulent inducement. "[P]romissory statements as to what will be done in the future ... give rise only to a breach of contract claim," while "false representations of present fact ... give rise to a separable claim of fraudulent inducement."
Stewart v. Jackson & Nash
,
And, although this was not a part of this court's rationale in
EDCare
, DeLisi's alleged statement that "there [was] absolutely no reason to have concern regarding [GSCEP's] receiving payment in full for [its] services" and his expressed "expect[ation] that the hospital would be successful in collecting the significant funds" owed to it, at least arguably were not actionable factual representations or omissions.
Cf.
Freeland v. Iridium World Commc'ns, Ltd.
,
See also D.C. Bar R. XIII (a)-(b) (providing that "[a]n attorney subject to the disciplinary jurisdiction of this [c]ourt shall be deemed to have agreed to arbitrate disputes over fees for legal services and disbursements related thereto" "pursuant to such reasonable rules and regulations ... as may be promulgated from time to time by the [ACAB].").
"Civil conspiracy is not an independent tort but only a means for establishing vicarious liability for an underlying tort."
Grimes v. District of Columbia
,
As we repeated in
EDCare
, "[u]nder the doctrine of
res judicata
, 'a final judgment on the merits of a claim [including an arbitration award] bars relitigation in a subsequent proceeding of the same claim [including any claim arising out of a common nucleus of facts that could have been litigated in that proceeding] between the same parties or their privies.' "
The parties disagree about whether, and to what extent, the Superior Court dismissed counts Count IV and V of the complaint on the ground of res judicata . In any event, no one appears to argue that the court's dismissal of those claims can be sustained on the basis of res judicata .
This case is similar to
Mendelsohn, Drucker & Assocs. v. Titan Atlas Mfg.
,
The Superior Court seemed to believe that the arbitration award of (a portion of) the fees L & R billed to BTP for legal services was "the exact same relief" L & R sought through its Count IV and Count V prayer for "attorney's fees." However, the fees at issue here are not the fees L & R billed for legal services provided to BTP, but instead are L & R's costs of representing itself in pursuing its claims against the appellees. BTP, which argues that "L & R fails to identify what exactly it retained or gave up as a consequence of BTP's alleged fraudulent misrepresentations over and above the disappointment of not getting paid by BTP," appears also to have overlooked L & R's claim for its "attorney's fees" in representing itself as an item of compensatory damages.
BTP also makes the point somewhat differently, arguing that "the arbitration award ... bars L & R from coming back and arguing that absent BTP's alleged fraud, they should have or would have gotten more in attorney's fees from BTP under the engagement letters."
More generally, the fact that a party relies on what was required under a contract to prove its alleged damages for a defendant's failure to disclose material information does not necessarily mean that the party is improperly trying to enforce the contract. For instance, in
Campbell v. Fort Lincoln New Town Corp.
,
Compare 3 Dobbs, supra , §§ 12.1 (1), 12.3 (1) (explaining that courts usually do not consider lost-opportunity costs to be contract-reliance expenses and that such costs are "special damages and subject to the limit[ing rules] that apply to such claims," including certainty and foreseeability), with 2 Dobbs, supra , § 9.2 (3) ("In most jurisdictions, the victim of fraud may recover special or consequential damages caused by the misrepresentation ....").
Reference
- Full Case Name
- LUDWIG & ROBINSON, PLLC, Appellant, v. BIOTECHPHARMA, LLC, Et Al., Appellees.
- Cited By
- 10 cases
- Status
- Published