United States District Court, D. Maryland
JOHN E. DELL and PRIME PLUS ACQUISITION CORP., a Florida corporation
RICHARD A. DETAR and MILES & STOCKBRIDGE, P.C., a Maryland Professional corporation
Frederick Motz United States District Judge.
John E. Dell ("Dell") and Prime Plus Acquisition
Corp. ("PPAC") bring this lawsuit against
defendants Richard A. DeTar ("DeTar") and Miles
& Stockbridge, P.C. ("M&S") alleging legal
malpractice, breach of fiduciary duty, gross negligence, and
vicarious liability of M&S in connection with
defendants' legal representation of plaintiffs following
the discovery of financial fraud by an asset-based lending
company in which PPAC had invested. Now pending is
defendants' motion for judgment on the pleadings and
partial summary judgment. (ECF No. 65). The motions are fully
briefed and no oral argument is necessary. See Local
R. 105.6. For the reasons set forth below, defendants'
motion is granted in part and denied in part.
dispute arises out of DeTar and M&S's allegedly
deficient legal representation of Dell and Prime Plus
following the discovery and subsequent prosecution of
financial fraud on the part of John Murphy
("Murphy"), the sole manager of an asset-based
lending company that had received substantial investments
from PPAC and its lenders. (ECF No. 7). Plaintiff Dell is the
Vice President of Florida Corporation PPAC. (Id.
¶¶ 1, 2). Defendant DeTar has represented PPAC and
Dell, individually, on various matters since Dell and DeTar
met in 2000. (Id. ¶ 32; ECF. No. 74, Ex. A,
¶¶ 6-8). Eventually, DeTar would become Dell's
primary personal attorney as well as the primary attorney for
PPAC. (ECF No. 7 ¶ 33). Though Dell and PPAC are located
in the state of Florida, law firm M&S, at which DeTar is
a Principal and employee, has its principal place of business
in Baltimore, Maryland. (Id. ¶ 3-4). Detar is
licensed to practice law in the state of Maryland, but
plaintiffs maintain he frequently traveled to Florida to
provide legal advice to plaintiffs. (Id. ¶ 3;
ECF No. 74, Ex. A, ¶¶ 9-12).
2001, PPAC, along with the Israeli Discount Bank of New York
("IDB") and an individual named John Murphy
("Murphy"), provided investments and loans to form
Oak Rock Financial, LLC, ("Oak Rock"). (ECF No. 7
¶ 24). Oak Rock was an asset-based lending company that
financed installment contracts for the purchase of consumer
goods by various dealers. (Id.
¶23). Oak Rock's primary source of funds was
a syndicate of banks formed by IDB, though it received
investments and loans from a variety of other sources.
(Id. ¶ 29-30). As a condition of providing the
bulk of Oak Rock's financing, IDB mandated that Oak Rock
be exclusively managed by Murphy. (Id. ¶ 27).
the financial crisis in 2008, Oak Rock began exploring new
corporate governance and restructuring options. (Id.
¶ 35). In 2009, Oasis Oak Rock Investors, LLC
("Oasis) was formed to invest in Oak Rock's Senior
Preferred Units and Class B Common Units. (Id.
¶ 36). As part of Oak Rock's restructuring effort,
PPAC exchanged ten million dollars of its secured Oak Rock
debt for preferred membership interests in Oak Rock that were
ultimately subordinate to all loans to Oak Rock as well as
Oasis' investments. (Id. ¶ 39). In 2010,
DeTar introduced Dell to Aubrey Gladstone
("Gladstone"), president of Gladstone Consulting,
Inc. ("GO") and managing member and sole owner of
EPIX Litigation Funding, LLC ("EPIX").
(Id. ¶¶ 41, 43). Shortly after Gladstone
and Dell were introduced, EPIX invested $1.3 million in
membership interests of Oasis, and Gladstone and his wife
loaned PPAC $500, 000 which was then loaned to Oak Rock.
(Id. ¶¶ 43, 45). GCI became the record
owner of EPIX's investment in Oasis in 2012.
(Id. ¶ 46).
Rock began to attract more investors following its
restructuring efforts, Dell, PPAC, and the management at
Oasis decided that broadening Oak Rock's management team
and making improvements to its computerized systems would
help boost Oak Rock's institutional image. (Id.
¶ 48-49). DeTar performed a number of legal services for
PPAC over the course of Oak Rock's restructuring efforts
including, but not limited to, reviewing Murphy's
employment contract, the provisions of Oak Rock's
Operating Agreement, and various loan documents.
(Id. ¶ 50). During the process of updating Oak
Rock's computer systems, Oasis' manager and a
computer scientist uncovered discrepancies in Oak Rock's
financial records. (Id. ¶ 53). Murphy
subsequently admitted he had been committing fraud and
misrepresenting the state of Oak Rock's receivables.
(Id. ¶ 54). Murphy's fraud and subsequent
criminal prosecution put Oak Rock's creditors and
investors at risk of losing a substantial amount of money.
(See Id. ¶ 58). Because PPAC's $15, 000,
000 financial stake in Oak Rock was subordinate to that of
Oak Rock's other investors, PPAC was the least likely to
share in any recovery and was at risk of defaulting on its
own financial obligations. (Id.).
recommended that Dell and PPAC retain his firm, M&S, as
well as Gladstone's consulting company, GCI, to help
plaintiffs navigate the ensuing crisis. (Id. ¶
65). Furthermore, DeTar advised Dell, PPAC, Oasis, and
Oasis's manager to retain himself, M&S, and GCI on
behalf of Oak Rock. (Id. ¶¶ 68, 70).
According to Dell, because GCI had invested in Oasis and
Gladstone had personally loaned Dell $500, 000 that was
eventually invested through PPAC in Oak Rock, retaining GCI
to represent Dell, PPAC, and Oak Rock was contingent on
Gladstone, GCI, and EPIX agreeing not to pursue any action
against plaintiffs or advance their interests over those of
other investors during the process. (Id. ¶ 73).
After receiving assurances that DeTar would secure
subordination agreements from Gladstone and GCI, Oak Rock
executed a consulting agreement with GCI. (Id.
¶ 76). Plaintiffs were aware when they retained
GCI that there were no formal subordination agreements in
place, but they maintain that they relied on DeTar's
assurances that the agreements and necessary waivers would be
timely executed. (Id. ¶ 66). DeTar never
obtained subordination agreements from the Gladstones or GCI.
(Id. ¶ 81).
and his wife filed a lawsuit against PPAC in Florida state
court on May 13, 2013, seeking repayment of their $500, 000
note. (Id. ¶ 84). On February 18, 2014, GCI filed a
lawsuit against PPAC, Dell, Oasis Capital Management, LLC,
Thomas Stephens ("Stephens") in Florida state
court, relating to EPIX's $1, 300, 000 investment in
Oasis. (Id. ¶ 85). Additionally, on June 20,
2014, Gladstone filed a lawsuit in Florida state court
against Dell relating to the aforementioned $500, 000 note.
(Id. ¶ 86). IDB and the group of syndicate
banks formed to generate loans to Oak Rock filed a petition
for involuntary bankruptcy against Oak Rock on April 29,
2013. (Id. ¶ 99). The involuntary bankruptcy
petition cited conduct on the part of Oak Rock that
plaintiffs contend was undertaken as a direct result of
advice they received from M&S attorneys. (Id.
filed a complaint in the Southern District of Florida
December 30, 2015, alleging DeTar committed legal
malpractice, breach of fiduciary duty, and gross negligence,
and that M&S is vicariously liable for DeTar's
actions. (ECF No. 1). An amended complaint was filed on
January 28, 2016, (ECF No. 7), and defendants moved to
dismiss the amended complaint on February 17, (ECF No. 14).
Judge Donald M. Middlebrooks granted in part defendants'
motion to dismiss on the grounds that venue in the Southern
District of Florida was improper on March 23, 2016, and
transferred the case to the District of Maryland. (ECF No.
30). On March 29, 2017, defendants filed a motion for
judgment on the pleadings and partial summary judgment. (ECF
No. 65). The amended complaint alleges four counts: legal
malpractice (Count I); breach of fiduciary duty (Count II);
gross negligence (Count III): and vicarious liability of
M&S (Count IV).
Rule of Civil Procedure 12(c) provides that "[a]fter the
pleadings are closed-but early enough not to delay trial-a
party may move for judgment on the pleadings."
Fed.R.Civ.P. 12(c). A motion for judgment on the pleadings is
evaluated under the same standards as a motion to dismiss
under Rule 12(b)(6). See Bruce v. Riddle, 631 F.2d
272, 273-74 (4th Cir. 1980). In reviewing a motion to dismiss
for failure to state a claim, the court "must accept as
true all of the factual allegations contained in the
complaint" and "draw all reasonable inferences in
favor of the plaintiff." E.I. du Pont de Nemours
& Co. v. Kolon Indus., Inc., 637 F.3d 435, 440 (4th
Cir. 2011). The complaint must allege facts sufficient to
"state a claim to relief that is plausible on its face,
" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007), and allow the court to "draw the reasonable
inference that the defendant is liable for the misconduct
alleged." Ashcroft v. Iqbal, 566 U.S. 662, 678
(2009). The court is not, however, required to accept the
legal conclusions derived from the facts, and "[a]
complaint that provides no more than labels and conclusions
or a formulaic recitation of the elements of a cause of
action" is insufficient to meet the pleading standard.
Twombly, 550 U.S. at 555; see also Walters v.
McMahen, 684 F.3d 435, 439 (4th Cir. 2012) (stating that
the "mere recital of elements of a cause of action,
supported only by conclusory statements, is not sufficient to
survive a motion made pursuant to Rule 12(b)(6)").
56(a) of the Federal Rules of Civil Procedure provides the
"court shall grant summary judgment if the movant shows
that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(a). "By its very terms, this standard
provides that the mere existence of some alleged
factual dispute between the parties will not defeat an
otherwise properly supported motion for summary judgment; the
requirement is that there be no genuine issue of
material fact." Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247-48 (1986) (emphasis in
original). A genuine issue of material fact exists where
"the evidence is such that a reasonable jury could
return a verdict for the non-moving party." Id.
When reviewing a motion for summary judgment, the court must
take all facts and inferences in the light most favorable to
the non-moving party. Scott v. Harris, 550 U.S. 372,
not the role of the judge on summary judgment "to weigh
the evidence and determine the truth of the matter but to
determine whether there is a genuine issue for trial."
Anderson, Ml U.S. at 249. The court may not, for
example, make credibility determinations. Jacobs v. N.C.
Administrative Office of the Courts,780 F.3d 562, 569
(4th Cir. 2015); Mercantile Peninsula Bank v.
French,499 F.3d 345, 352 (4th Cir. 2007). Furthermore,
in the face of competing evidence, summary judgment
ordinarily is not appropriate, because it is the function of
the factfinder to resolve factual disputes. See Black