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Dell v. Detar

United States District Court, D. Maryland

August 31, 2017

JOHN E. DELL and PRIME PLUS ACQUISITION CORP., a Florida corporation
RICHARD A. DETAR and MILES & STOCKBRIDGE, P.C., a Maryland Professional corporation


          J. Frederick Motz United States District Judge.

         Plaintiffs 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.


         This 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).

         In 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).[1] 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).

         Following 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).

         As Oak 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.).

         DeTar 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).[2] 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).

         Gladstone 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).[3] On February 18, 2014, GCI filed a lawsuit against PPAC, Dell, Oasis Capital Management, LLC, [4] and Thomas Stephens ("Stephens")[5] in Florida state court, relating to EPIX's $1, 300, 000 investment in Oasis. (Id. ¶ 85).[6] 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. ¶ 101).[7]

         Plaintiffs 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).


         Federal 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)").

         Rule 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, 378 (2007).

         It is 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 ...

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