Attorney malpractice claims in $100 million D.C. patent malpractice suit survive preliminary motions
January 27th, 2012
In Lans v. Adduci Mastriani & Schaumberg L.L.P., No. 02-2165 (D.D.C. May 23, 2011), the District Court, in a 120-page opinion, denied the defendants' motion to dismiss an attorney malpractice suit arising out of patent litigation. In this suit, the plaintiffs claim that the defendants' alleged misdeeds resulted in the loss of the plaintiffs' proprietary interests in a patent worth more than $100 million.
Judge Walton's opinion is predominantly a discussion of challenges raised by defendants concerning personal jurisdiction under the D.C. long-arm jurisdiction statute, concerning the fiduciary shield doctrine, and concerning the application of issue and claim preclusion based on decisions in the underlying litigation. Judge Walton dismissed the plaintiffs' civil RICO claims.
Concerning the malpractice claims, Judge Walton ruled that although no federal claims remained in the case, the state law malpractice claims require resolution of substantial questions of federal patent law under 28 U.S. C. sec. 1338(a). Judge Walton decided that the Court would maintain subject matter jurisdiction over the malpractice claim, due to the need to litigate the issue of patent infringement and resulting damages in the malpractice claim. Further, the court maintained supplemental jurisdiction over all the remaining state-law claims in the case.
The defendants had argued that the plaintiffs' claims for breach of contract, breach of fiduciary duty, and breach of the implied covenant of good faith and fair dealing should be dismissed because they were all duplicative of the malpractice claim, arose out of the same facts as the negligence claim, and required essentially the same standard of care. The Court rejected this argument, on the grounds that the various causes of action each rested on different proof. The malpractice claim was based on the alleged failure to investigate and clarify ownership of the patent. The breach of contract claim was based on alleged failure to carry out the terms of the contingency fee agreement, and on alleged conversion of funds owed under the terms of the fee agreement. The breach of the implied covenant of good faith was based on the same facts as the breach of contract claim. The breach of fiduciary duty claim centered on alleged violations of the D.C. Code of Professional Conduct and the Swedish Bar's Canon of Ethics, including among other things failure to disclose conflicts of interest. Thus, the Court found that the fiduciary duty claims did not arise out of the same facts as the malpractice claim, and that a failed malpractice claim would not neessarily preclude recovery on a claim for breach of fiduciary duty. Thus, the Court found that none of the other state-law claims were duplicative of the malpractice claims.
Interestingly, the Court also rejected an argument by the defendant law firm that an independent cause of action for breach of the covenant of good faith and fair dealing does not exist in the District of Columbia for claims based on an attorney's representation of a client. See slip op. at 118. The Court distinguished Jacobsen v. Oliver, 201 F.Supp. 2d 93, 98 n. 2 (D.D.C. 2002), on the grounds that Jacobsen dismissed the implied covenant count because it was identical to a malpractice claim in that case. But in this case, the plaintiffs' implied covenant claims were founded upon their contingent fee agreement with the defendant law firm, not on the legal representation or alleged malpractice. Therefore, Judge Walton reasoned, the general rule applies that in every contract there is an implied covenant of good faith and fair dealing. "No cases addressing legal malpractice have carved out an exception for such cases, and therefore, just like other contracts, contracts with attorneys are subject to an implied covenant of good faith and fair dealing."
Judge Walton's opinion is predominantly a discussion of challenges raised by defendants concerning personal jurisdiction under the D.C. long-arm jurisdiction statute, concerning the fiduciary shield doctrine, and concerning the application of issue and claim preclusion based on decisions in the underlying litigation. Judge Walton dismissed the plaintiffs' civil RICO claims.
Concerning the malpractice claims, Judge Walton ruled that although no federal claims remained in the case, the state law malpractice claims require resolution of substantial questions of federal patent law under 28 U.S. C. sec. 1338(a). Judge Walton decided that the Court would maintain subject matter jurisdiction over the malpractice claim, due to the need to litigate the issue of patent infringement and resulting damages in the malpractice claim. Further, the court maintained supplemental jurisdiction over all the remaining state-law claims in the case.
The defendants had argued that the plaintiffs' claims for breach of contract, breach of fiduciary duty, and breach of the implied covenant of good faith and fair dealing should be dismissed because they were all duplicative of the malpractice claim, arose out of the same facts as the negligence claim, and required essentially the same standard of care. The Court rejected this argument, on the grounds that the various causes of action each rested on different proof. The malpractice claim was based on the alleged failure to investigate and clarify ownership of the patent. The breach of contract claim was based on alleged failure to carry out the terms of the contingency fee agreement, and on alleged conversion of funds owed under the terms of the fee agreement. The breach of the implied covenant of good faith was based on the same facts as the breach of contract claim. The breach of fiduciary duty claim centered on alleged violations of the D.C. Code of Professional Conduct and the Swedish Bar's Canon of Ethics, including among other things failure to disclose conflicts of interest. Thus, the Court found that the fiduciary duty claims did not arise out of the same facts as the malpractice claim, and that a failed malpractice claim would not neessarily preclude recovery on a claim for breach of fiduciary duty. Thus, the Court found that none of the other state-law claims were duplicative of the malpractice claims.
Interestingly, the Court also rejected an argument by the defendant law firm that an independent cause of action for breach of the covenant of good faith and fair dealing does not exist in the District of Columbia for claims based on an attorney's representation of a client. See slip op. at 118. The Court distinguished Jacobsen v. Oliver, 201 F.Supp. 2d 93, 98 n. 2 (D.D.C. 2002), on the grounds that Jacobsen dismissed the implied covenant count because it was identical to a malpractice claim in that case. But in this case, the plaintiffs' implied covenant claims were founded upon their contingent fee agreement with the defendant law firm, not on the legal representation or alleged malpractice. Therefore, Judge Walton reasoned, the general rule applies that in every contract there is an implied covenant of good faith and fair dealing. "No cases addressing legal malpractice have carved out an exception for such cases, and therefore, just like other contracts, contracts with attorneys are subject to an implied covenant of good faith and fair dealing."
