Hays v. Page Perry, LLC
Hays v. Page Perry, LLC
Opinion of the Court
OPINION AND ORDER
This is a legal malpractice case arising out of services provided by the Defendants to Lighthouse Financial Partners, LLC. The Receiver claims that Page Perry lawyers committed legal malpractice by not informing regulatory authorities of regulatory violations by their client. The Court granted the Defendants’ Motion to Dismiss based upon the total absence of any authority to support such a strange perversion of lawyers’ professional responsibilities to their clients: to maintain in confidence all information gained in the professional relationship. It is now before the Court on the Plaintiffs Motion for Reconsideration [Doc. 30]. For the reasons set forth below, the Plaintiffs Motion for Reconsideration [Doc. 30] is DENIED.
I. Background
On February 1, 2013, Benjamin De-Haan — the former manager and majority owner of Lighthouse Financial Partners, LLC — pled guilty to one count of wire fraud.
From 2008 until 2012, the Defendant Page Perry, LLC represented Lighthouse.
Another mock audit took place in August of 2011.
On December 14, 2011, Lighthouse received notice that the Georgia Securities Commissioner planned to audit Lighthouse’s records. The Commissioner’s office asked to see the client account statements from Interactive Brokers or TD Ameritrade. On February 23, 2012, Lighthouse asked Parker for assistance. Parker drafted an e-mail that Lighthouse sent to the auditor. This e-mail indicated that “DeHaan had been unable to obtain the client statements because TD Ameritrade had provided Lighthouse with the wrong phone numbers.”
The SEC filed a civil enforcement action against Lighthouse and DeHaan.
Remarkably, in the briefing on the Motion for Reconsideration, the Plaintiff now argues that Page Perry had “knowledge of DeHaan’s theft and assisted in and perpetuated his criminal conduct.”
II. Legal Standard
Local Rule 7.2 provides that motions for reconsideration are not to be filed “as a matter of routine practice,” but only when “absolutely necessary.”
The Plaintiff argues that the Court erred in dismissing his claim for legal malpractice. For a legal malpractice claim, “the plaintiff must establish three elements: (1) employment of the defendant attorney, (2) failure of the attorney to exercise ordinary care, skill and diligence, and (3) that such negligence was the proximate cause of damage to the plaintiff.”
A. Failure to “Report Out”
The Plaintiff argues that the Defendants knew, or should have known, that Lighthouse was impermissibly in custody of client funds. The Plaintiff claims that the Defendants were duty-bound to report these violations to a regulatory agency. If they had done so, the argument goes, De-Haan’s theft could have been limited. In the initial Order, the Court dismissed this claim because the Plaintiff had failed to establish the existence of the legal duty that the Defendants allegedly breached. As noted, under Georgia law, attorneys have a duty to exercise appropriate care and skill in performing the specific services for which they are employed.
1. Georgia Rules of Professional Conduct
To establish a “reporting out” duty, the Plaintiff refers to several provisions of the Georgia Bar Rules. In rejecting this argument, the Court first noted that although “the Code of Professional Responsibility provides specific sanctions for the professional misconduct of the attorneys whom it regulates, it does not establish civil liability of attorneys for
In response, the Plaintiff argues that the “Bar Rules are evidence of the standard of care” and that the “Defendants’ failure under these circumstances to comply with Bar Rules 1.13, [etc.] ... fell below the minimum standard of care for securities compliance counsel.” But for the Bar Rules to be relevant evidence, they must speak to the standard of care for the particular duty at issue.
But even putting that to one side, the Plaintiffs claim still fails. The Plaintiff primarily relies upon Bar Rule 1.13(b), which states:
If a lawyer for an organization knows that an officer ... is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization. Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to higher authority in the organization, including, if warranted by the circumstances, to the highest authority that can act on behalf of the organization as determined by applicable law.46
First, the Plaintiff points out that Rule 1.13(b) — in its introductory sentence— states that “lawyer[s] shall proceed as is reasonably necessary in the best interest of the organization.” The Plaintiff argues that, because notifying a regulatory agency would have been in Lighthouse’s “best interest,” the Defendants were obligated to do so. But the clause quoted by the Plaintiff — which is vague in isolation — is given meaning by the specific provisions that follow it. As noted, Rule 1.13(b) indicates that an attorney may be obligated to refer the matter to a higher authority within an organization. By contrast, Rule 1.13(c) states that notifying an external agency is permissive, but not mandatory: “if ... the highest authority that can act on behalf of the organization ... fails to address ... an action ... that is clearly a violation of law, and ... the lawyer reasonably believes that the violation is reasonably certain to result in substantial injury to the organization, then the lawyer may reveal information relating to the representation ....”
Second, the Plaintiff argues that the Defendants should have notified Anatoly Me-lamud, who “held an indirect interest in Lighthouse, incident to which he was actively involved in the activity of Lighthouse.”
The Plaintiff also argues, for the first time, that the Defendants violated Rules
2. Attorney-Client Confidentiality
In its initial Order, the Court explained how the duty asserted by the Plaintiff— which would require an attorney to divulge confidential information in the name of protecting the client — would have dire consequences for the attorney-client relationship. Under the Plaintiffs proffered duty, the risk of civil penalties would cause attorneys, out of self-preservation, to err on the side of disclosure when in doubt. Consequently, such a rule could even deter potential clients from seeking advice from a lawyer. The Plaintiff responds with two arguments. Before addressing them, the Court notqs that even if the Plaintiff’s arguments had merit, it would not change the disposition of this case. The Plaintiffs claim was dismissed because the asserted duty does not exist as a matter of law, not just because it raises public policy concerns.
First, the Plaintiff argues that the Defendants would not have violated their duty of confidentiality by reporting De-Haan because DeHaan was not their client; Lighthouse was. But this argument incorrectly assumes that the Defendants could have reported DeHaan without reporting Lighthouse. The Complaint makes clear that DeHaan’s theft was made possible due to Lighthouse’s noncompliance with custody regulations. Indeed, the SEC ultimately brought an action against both DeHaan and Lighthouse, and even referred to Lighthouse as DeHaan’s “alter ego.”
The Plaintiff then argues that there are no confidentiality issues due to the crime-fraud exception to the attorney-client privilege. This is absurd. The Plaintiff claims that, because the Defendants’ services allegedly facilitated DeHaan’s fraudulent activity, the information acquired by the Defendants was not confidential. The Plaintiff conflates attorney-client confidentiality with the attorney-client evidentiary privilege.
B. Inadequate Audit and Conflict of Interest
The Plaintiff claims that the Defendants breached their duty to Lighthouse in two additional ways. First, the Plaintiff asserts that the Defendants performed inadequate mock audits. But to recover for legal malpractice, “the alleged negligence of the attorney must be the proximate cause of the damage to the client.”
The Plaintiff also argues that the Defendants committed malpractice when they represented DeHaan before the SEC. In particular, the Plaintiff argues that this created a conflict of interest. But again, the Plaintiff does not state how the Defendants’ representation of DeHaan — which occurred well after DeHaan began his fraudulent scheme — proximately caused any damages to Lighthouse.
IV. Conclusion
The Defendants were hired to provide legal advice which they did. Securities lawyers are not informants for the SEC. The Plaintiffs legal theory is profoundly flawed. The Plaintiffs Motion for Reconsideration [Doc. 30] is DENIED.
. Compl. ¶ 28.
. Compl. ¶ 17.
. Compl. ¶ 16.
. Compl. ¶ 16.
. Compl. ¶ 16.
. Compl. ¶ 17.-
. Compl. ¶ 18.
. Compl. ¶ 41.
. Compl. ¶ 17.
. Compl. ¶ 32.
. Compl. ¶ 36.
. Compl., Ex. 2.
. Compl. ¶¶ 43-45.
. Compl. ¶ 46.
. Compl., Ex. 10 (emphasis added).
. Compl. ¶ 53.
. Compl. ¶ 53.
. Compl. ¶ 55.
. Compl. ¶ 58.
. Compl. ¶ 60.
. Compl. ¶ 61, Ex. 16.
. Compl. ¶ 63.
. Compl. ¶ 80.
. Compl., Ex. 29.
. Compl. ¶ 93.
. Compl. ¶ 94.
. Compl. ¶ 27.
. The Plaintiff seeks to hold Alan R. Perry, Jr. and the Estate of J. Boyd Page liable on a theory of supervisory liability.
. [Doc. 27],
. Mot. for Reconsideration, at 3.
. L.R. 7.2E.
. Godby v. Electrolux Corp., No. 1:93-CV-0353-ODE, 1994 WL 470220, at *1 (N.D.Ga. May 25, 1994).
. Brogdon v. National Healthcare Corp., 103 F.Supp.2d 1322, 1338 (N.D.Ga. 2000); see also Godby, 1994 WL 470220, at *1 ("A motion for reconsideration should not be used to reiterate arguments that have previously been made ... '[It is an improper use of] the motion to reconsider to ask the Court to rethink what the Court [has] already thought through-rightly or wrongly.’ ”) (quoting Above the Belt, Inc. v. Mel Bohannan Roofing, Inc., 99 F.R.D. 99, 101 (E.D.Va. 1983)) (alterations in original); In re Hollowell, 242 B.R. 541, 542-43 (Bankr.N.D.Ga. 1999) ("Motions for reconsideration should not be used to relitigate issues already decided or as a substitute for appeal ... Such motions also should not be used to raise arguments which were or could have been raised before judgment was issued.”).
. Allen v. Lefkoff, Duncan, Grimes & Dermer, P.C., 265 Ga. 374, 375, 453 S.E.2d 719 (1995) (internal quotation marks omitted).
. Tante v. Herring, 264 Ga. 694, 695, 453 S.E.2d 686 (1994) (emphasis added).
. National Foundation Co. v. Post, Buckley, Schuh & Jernigan, Inc., 219 Ga.App. 431, 433, 465 S.E.2d 726 (1995).
. See Tante, 264 Ga. at 694-95, 453 S.E.2d 686.
. Davis v. Findley, 262 Ga. 612, 613, 422 S.E.2d 859 (1992).
. 265 Ga. 374, 453 S.E.2d 719 (1995).
. Id. at 374, 453 S.E.2d 719 (internal quotation marks omitted).
. Id. at 376, 453 S.E.2d 719 (emphasis added).
. See Allen, 265 Ga. at 376, 453 S.E.2d 719.
. Id. at 377, 453 S.E.2d 719.
. See id. at 378, 453 S.E.2d 719 (Benham, J„ concurring).
. Id. at 381, 453 S.E.2d 719 (Benham, J., concurring) (emphasis added).
. Rule 1.13 Organization As Client, Georgia Rules of Professional Conduct (Jan. 1, 2001), http://www.gabar.org/barrules/ handbookdetail.cfm?what=rule&id=97.
. Although the Plaintiff alleges otherwise in his Complaint, the attached exhibits expressly contradict these allegations. And "when the exhibits contradict the general and conclusory allegations of the pleading, the exhibits govern.” Griffin Indus., Inc. v. Irvin, 496 F.3d 1189, 1206 (11th Cir. 2007).
. See, e.g., Pl.'s Br. in Resp. to Page Perry, Parker, and Terry's Motion to Dismiss, at 33-34 ("Parker ... advised [DeHaan] that he should not accept checks payable to Lighthouse.”).
. Rule 1.13 Organization As Client, Georgia Rules of Professional Conduct (Jan. 1, 2001), http://www.gabar.org/barrules/ handbookdetail.cfm?what=rule&id=97.
. Mot. for Reconsideration, at 13.
. Mot. for Reconsideration, at 15.
. Mot. for Reconsideration, at 16-21.
. Wilchombe v. TeeVee Toons, Inc., 555 F.3d 949, 957 (11th Cir. 2009).
. Pl.’s Br. in Resp. to Page Perry, Parker, and Terry’s Motion to Dismiss, at 43.
. Complaint at 1, Securities and Exchange Commission v. Dehaan et al., No. 12-CV-1996, 2012 WL 2317390 (N.D.Ga. June 9, 2012).
. See Tenet Healthcare Corp. v. Louisiana Forum Corp., 273 Ga. 206, 209, 538 S.E.2d 441 (2000) ("An attorney’s ethical and contractual duty to maintain client secrets is distinguishable from the attorney-client privilege.”).
. See NationsBank, N.A. v. SouthTrust Bank of Georgia, N.A., 226 Ga.App. 888, 896, 487 S.E.2d 701 (1997) ("[T]he attorney-client privilege bars revelation, discovery, and testimony of a lawyer except when waived by the client or in very limited circumstances.”).
. See In re Fulton County Grand Jury Proceedings, 244 Ga.App. 380, 382, 535 S.E.2d 340 (2000) ("lT]he attorney-client privilege does not extend to communications which occur before perpetration of a fraud or commission of a crime and which relate thereto.”).
. "[I]f a court determines that particular information is not covered by the attorney-client privilege, it still may be covered by the lawyer’s ethical duty of confidentiality.” Confidentiality, Privilege: A Basic Value in Two Different Applications, Center for Professional Responsibility (May 2007), http://www. americanbar.org/content/dam/aba/ administrative/professionaLresponsibility/ confidentiality_or_attorney.authcheckdam. pdf.
. Rogers v. Norvell, 174 Ga.App. 453, 457, 330 S.E.2d 392 (1985).
. Mot. for Reconsideration, at 23.
. Cf. De La Maria v. Powell, Goldstein, Frazer & Murphy, 612 F.Supp. 1507, 1518-19 (N.D.Ga. 1985) ("With the exception of ... two allegations, the plaintiff has failed to demonstrate how Mr. Gornall’s alleged conflict of interest manifested itself to the detriment of ... the plaintiff.”).
.Compl. ¶¶ 87, 94.
Reference
- Full Case Name
- S. Gregory HAYS Receiver for Lighthouse Financial Partners, LLC v. PAGE PERRY, LLC
- Cited By
- 5 cases
- Status
- Published