Citations
- 379 F. Supp. 2d 183
Full opinion text
MEMORANDUM AND ORDER ON DEFENDANTS’ LEONARD R. SVENS-SON AND BERNARD R. SWEENEY’S MOTIONS FOR SUMMARY JUDGMENT (## 71 & 73)
COLLINGS, United States Magistrate Judge.
I. INTRODUCTION
In this action, St. Paul Fire and Marine Insurance Company (“StPaul”), as subro-gee of Vicam, L.P. (“Vicam”), has alleged legal malpractice claims against the law firm of Birch, Stewart, Kolasch & Birch, LLP. (“BSKB”) and two of its attorneys, Leonard R. Svensson (“Svensson”) and Bernard R. Sweeney (“Sweeney”). This matter is before the Court on Svensson’s and Sweeney’s Motions for Summary Judgment, # 71 and # 73 respectively. St. Paul has submitted its Opposition to Defendant Svensson’s Motion for Summary Judgment, # 85, and its Opposition to Defendant Sweeney’s Motion for Summary Judgment, # 86. Both Svensson and Sweeney have submitted Reply Memoran-da in support of their motions for summary judgment, # 83 and # 82 respectively. The motions are now in a posture for resolution. For the reasons set forth below, the Court denies both motions for summary judgment.
II. FACTUAL BACKGROUND
Beginning in February, 1995, Vicam learned that its competitor, Neogen Corporation (“Neogen”), had begun developing a product to compete with Vicam’s AflaTest, for which Vicam held two patents. # 87, Exh. 2 at 1:76. In July, 1996, Neogen sent a letter to Vicam informing Vicam that it had started to field test its product, and assuring Vicam that its product had been “thoroughly reviewed by patent counsel and found not to infringe” Vicam’s patents. Complaint, # 1, ¶ 13; Answer, # 2, ¶ 13; # 87, Exh.2 at 1:81-82. In early August, 1996, Vicam employees obtained a brochure for Neogen’s product at a trade conference. The brochure distressed Jack Radio, Vicam’s President and Chief Executive Officer (“Radio”), because Neogen’s product looked like a “direct knock-off’ of the AflaTest. # 87, Exh. 2 at 1:97. Vicam began to discuss with Svensson, its patent attorney, the possibility that Neogen was promoting a product that potentially infringed its patent. # 87, Exh.l at 1:100. Radio and Svensson discussed a number of options for dealing with the threat posed by Neogen’s new product. # 87, Exh. 1 at 100-102; 120-21; 125. Ultimately, Svens-son proposed that Vicam send a letter to Vicam’s customers advising them of the situation with Neogen. # 32 Exh. D; # 87, Exh.l at 2:237-38. Svensson drafted a letter, most or all of which Radio and Vicam adopted in their letter, and advised Radio and Vicam that they could appropriately send the letter to customers. #2, ¶ 20. The letter, dated August 12, 1996, notifies customers that its competitor, Neogen, had developed a test kit that Vi-cam considered to infringe Vicam’s patents relating to the detection of aflotoxins, and that Vicam was prepared to take legal action against infringers of its patent. #87, Exh. 5. Relying on Svensson’s advice, Radio faxed the letter (“Dear Valued Customer Letter”) that Svensson had drafted to Vicam’s customers.
Though the parties dispute the specifics of discussions surrounding the decision to send the Dear Valued Customer Letter, Svensson admits that he did not discuss what might happen if Vicam sent the letter and a court found no infringement. # 87, Exh. 1, at 124-25; 132; 155-56. Further, Svensson did not discuss with Radio the types of claims that Neogen might raise in a lawsuit, id. at 178, although he told Radio that he thought there was a “low chance” of Neogen filing suit and that “that would be a pretty aggressive move on Neogen’s part.” Id. at 194. Svensson believed, in any event, that Vicam had a good faith basis for alleging infringement in the August 12 letter. #87, Exh. 1 at 207. Thus, Svensson apparently did not advise Vicam that sending the letter might expose Vicam to liability for defamation and other torts if Neogen could establish that Vicam was acting in bad faith in sending the letter. #88 at 2 ¶ 2. Although Svensson raised a concern with Radio about the importance of determining whether Neogen’s product used monoclonal or polyclonal antibodies, # 87, Exh.2 at 1:130, a distinction that ultimately bore on the infringement issue, id., Radio testified in his deposition that Svensson did not advise Radio to wait to send the letter until Vicam could establish whether Neo-gen’s product in fact infringed Vicam’s patents. Id. at 129-131; Exh. 1 at 132.
On or about August 16, 1996, Neogen sued Vicam and Radio in the United States District Court for the Western District of Michigan for trade libel, tortious interference with potential advantageous relationships, and tortious interference with contractual relationships. #1 ¶ 21. Sweeney represented Vicam and Radio in that action. # 1, ¶ 22; # 2, ¶ 22. Although that suit was dismissed for lack of personal jurisdiction, # 1 ¶¶ 22, 23, Neogen refiled its complaint against Vicam and Radio in the United States District Court for the Middle District of Florida (the “Florida Lawsuit”), # 1 ¶ 24, this time alleging corporate defamation and other business torts, and seeking a declaratory judgment on the question of infringement. #1 ¶ 24. St. Paul, Vicam’s insurer, agreed to pay one-half of the attorney’s fees and costs incurred by Vicam in the Florida Lawsuit. #1 ¶ 27. St. Paul also agreed to defend Vicam and Radio in the Florida Lawsuit, under a reservation of rights, and referred the matter to its Florida staff counsel, J. Scott Murphy (“Murphy”). Murphy had several years experience as a litigator, but no background or expertise in intellectual property. # 32 ¶ 12. At Vicam’s and Murphy’s request, BSKB and Sweeney represented Vicam and Radio in the Florida Lawsuit. During the course of the litigation, Svensson and Sweeney assured Vi-cam that Neogen’s claims were baseless and that Vicam had a high likelihood of prevailing. # 88, ¶ 8; # 87, Exh. 10 at 231-3.
During a hearing before the Florida trial judge, Sweeney made the strategic decision that Vicam would not assert the advice-of-counsel defense and would not waive the attorney-client privilege. # 88 at 7 ¶ & In January 2000, the Florida trial court entered judgment in favor of Neogen on the question of infringement and found that Neogen’s new product did not infringe the Vicam patents. Id. at 8 ¶ 17. The Florida court, ruling from the bench, also denied Vicam’s motion for summary judgment on the tort claims and found that the issue of whether Vicam had sent the “Dear-Valued Customer Letter” in “bad faith” was an issue for the jury. # 88 at 8 ¶ 16. At the pretrial conference on March 15, 2000, Sweeney reaffirmed his decision not to assert the advice-of-counsel defense. # 88 at 9 ¶ 19. Trial began on the remaining tort claims sometime later in March 2000. After two days of trial, Vicam and Radio agreed to settle the remaining claims with Neogen for two million dollars, which St. Paul paid under the terms of the insurance policy. St. Paul, pursuant to the general liability policy and agreement with Vicam, paid one-half of BSKB’s fees, amounting to $1.8 million.
Sometime later, Vicam settled its own claims against BSKB for legal' malpractice, Plaintiffs Undisputed Material Facts, # 40 ¶ 26, in an agreement that acknowledged St. Paul’s right to proceed against BSKB in a separate action. Settlement and Mutual Release # 41, filed under seal. In a separate document, “Disclosure Authorization and Confidentiality Agreement,” Vi-cam agreed to waive its attorney-client privilege. Reply Mem. in Support of Def.’s Mot. to Dismiss, #43, Exh. A. On February 22, 2001, St. Paul brought this action as Vicam’s “subrogee” asserting claims of legal malpractice against BSKB.
III. DISCUSSION
A. Standard of Review
Summary judgment is appropriate when the record shows that “the pleadings, depositions, answers to interrogatories and admissions on file together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). A fact is “material if it carries with it the potential to affect the outcome of the suit under the applicable law.” Santiago-Ramos v. Centennial P.R. Wireless Corp., 217 F.3d 46, 52 (1st Cir.2000) (citation omitted.). “[A]n issue is ‘genuine’ if the evidence presented is such that a reasonable jury could resolve the issue in favor of the nonmoving party.” Fajardo Shopping Center, S.E. v. Sun Alliance Ins. Co. of Puerto Rico, Inc., 167 F.3d 1, 7 (1st Cir.1999); see also Nat’l Amusements, Inc. v. Town of Dedham, 43 F.3d 731, 735 (1st Cir.), cert. denied, 515 U.S. 1103, 115 S.Ct. 2247, 132 L.Ed.2d 255 (1995).
The party moving for summary judgment “bears the initial burden, which may be discharged by pointing to the absence of adequate evidence supporting the non-moving party’s case.” Michelson v. Digital Financial Services, 167 F.3d 715, 720 (1st Cir.1999) (citations omitted). Once the moving party has met its burden, “the onus is on the nonmoving party to present facts that show a genuine issue for trial.” Id. (citations omitted). In determining whether summary judgement is proper, the Court “view[s] all the facts in the light most favorable to the nonmoving party and indulge[s] all inferences advantageous to that party, provided they arise reasonably from the record.” Villanueva v. Wellesley College, 930 F.2d 124, 127 (1st Cir.), cert. denied, 502 U.S. 861, 112 S.Ct. 181, 116 L.Ed.2d 143 (1991) (citation omitted). The party opposing summary judgment, however, “may not rest on mere allegations or denials of his pleadings.” Barbour v. Dynamics Research Corp., 63 F.3d 32, 37 (1st Cir.1995) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)), cert. denied, 516 U.S. 1113, 116 S.Ct. 914, 133 L.Ed.2d 845 (1996). Rather, to resist summary judgment, the nonmoving party must produce “definite, competent evidence” on which the nonmovant bears thé ultimate burden of proof. Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir.1991), cert. denied, 504 U.S. 985, 112 S.Ct. 2965, 119 L.Ed.2d 586 (1992) (citations omitted). See also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986) (stating that summary judgment must enter “against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial.”)
B. Svensson’s Motion for Summary Judgment
Svensson makes three arguments in support of his motion for summary judgment. First, he argues that St. Paul lacks standing as Vicam’s subrogee to bring a claim for legal malpractice. Second, he argues that the legal malpractice action is barred by the statute of limitations. Finally, Svensson argues that he owed no duty to warn Vicam of the possibility that Neogen would file suit because Neogen’s claims were meritless. For the reasons set out below, the Court denies Svensson’s motion in its entirety.
1. Subrogation and Legal Malpractice Claim
St. Paul has asserted claims against Vicam’s attorneys as Vicam’s subrogee under the terms of its insurance policy and under principles of statutory and/or common law. # 1 ¶ 38. The Defendants have moved for summary judgment arguing that St. Paul, as subrogee, does not have standing under Massachusetts law to bring its cause of action for legal malpractice. Although the Supreme Judicial Court of Massachusetts has permitted the voluntary assignment of legal malpractice claims, New Hampshire Ins. Co., Inc. v. McCann, 429 Mass. 202, 210, 707 N.E.2d 332, 336 (Mass.1999) (refusing to recognize absolute ban on voluntary assignment of legal malpractice claims), the parties agree that the Supreme Judicial Court has not specifically addressed the question of whether an insurer, as subrogee of its insured, may assert legal malpractice claims against the insured’s defense counsel. The Court is thus presented with a matter of first impression in Massachusetts. In such a case, a federal court takes “a predictive approach,” F.D.I.C. v. Ogden Corp., 202 F.3d 454, 460 (1st Cir.2000), “seek[ing] guidance in analogous state court decisions, persuasive adjudications by courts of sister states, learned treatises, and public policy considerations identified in state decisional law.” Blinzler v. Marriott Int'l, Inc., 81 F.3d 1148, 1151 (1st Cir.1996) (citations omitted). “As long as these signposts are- legible, [the federal court’s] task is to ascertain the rule the state court would most likely follow under the circumstances, even if [the federal court’s] independent judgment on the question might differ.” Id. (citing Moores v. Greenberg, 834 F.2d 1105, 1107 n. 3 (1st Cir.1987)). Having examined the relevant Massachusetts law, the public policy considerations enunciated in New Hampshire Ins. Co., Inc., the doctrine of subrogation in Massachusetts, and the rulings of other jurisdictions, the Court determines that, under the facts presented in this case, St. Paul has standing to pursue its legal malpractice action against the Defendants under its right of subrogation.
a. Relevant Massachusetts Law: New Hampshire Ins. Co., Inc. v. McCann
Massachusetts is among a minority of jurisdictions that have permitted the assignment of legal malpractice claims. New Hampshire Ins. Co., Inc. v. McCann, 429 Mass. 202, 707 N.E.2d 332 (Mass.1999). The Massachusetts Supreme Judicial Court has expressly rejected the reasoning of the majority of courts that have prohibited the assignment of legal malpractice claims on public policy grounds and has concluded that not “every voluntary assignment of a legal malpractice claim should be barred as a matter of law.” New Hampshire Ins. Co., Inc., 429 Mass, at 209, 707 N.E.2d at 336. Noting that “most claims in Massachusetts are assignable,” id., the Supreme Judicial Court has stated generally that claims should be assignable “unless some, clear rule of law or professional responsibility, or some matter of public policy necessitates that the assignment should not be enforced.” Id. at 209-20, 707 N.E.2d at 336. The Supreme Judicial Court upheld the assignment under the facts before it, recognizing and approving -a number of policy considerations. First, it noted that “voluntary assignment of a legal malpractice claim to a party with an interest in the claim who has ‘the time, energy and resources to bring the suit’ may be the most efficient way, in some instances, to realize the value of such a claim.” Id. at 208, 707 N.E.2d at 335-36 (quoting Thurston v. Continental Casualty. Co., 567 A.2d 922, 923 (Me.1989)). Second, it approved the view that a court ought “ ‘not allow the concept of the attorney-client relationship to be used as a shield by an attorney to protect him or her from the consequences of legal malpractice. Where the attorney has caused harm to his or her client, there is no relationship that remains to be protected.’ ” Id. at 208, 707 N.E.2d 332, 707 N.E.2d at 336 (quoting Hedlund Mfg. Co., Inc. v. Weiser, Stapler & Spivak, 517 Pa. 522, 526, 539 A.2d 357 (Pa.1988)). Finally, in rejecting the contention that assignment would “demean the public confidence in the legal profession,” New Hampshire Ins. Co., Inc., 429 Mass, at 211, 707 N.E.2d at 337, the Supreme Judicial Court noted that “providing shelter for attorneys by prohibiting the voluntary assignment of malpractice claims [] would actually diminish public confidence in the profession by creating the perception that the system provides attorneys with unjustified special protection.” Id. (citations omitted)
However, the Supreme Judicial Court also noted that the “involuntary” assignment of malpractice claims “typically by way of bankruptcy or foreclosure,” id. at 208 n. 4, 707 N.E.2d at 335 n. 4, may “be more likely to implicate policy concerns.” Id. This language, the Defendants argue, compels the conclusion that the Supreme Judicial Court would likely prohibit the subrogation of a legal malpractice claim. #43 at 1. St. Paul, in turn, argues that subrogation in this case would implicate none of the policy concerns raised in New Hampshire Ins. Co., Inc. and that, indeed, the facts of this case present the “functional equivalent” of a voluntary assignment. Plaintiffs Opposition to Defendant’s Motion for Summary Judgment, # 85 at 5.
Although the Supreme Judicial Court did not spell out the concerns implicated in an “involuntary transfer,” those concerns have been elaborated elsewhere. See, e.g., Quinn, supra, n. 3 at 1229-30 (cited in New Hampshire Ins. Co., Inc., 429 Mass, at 211, 707 N.E.2d at 337); Tom W. Bell, Comment, Limits on the Privity and Assignment of Legal Malpractice Claims, 59 U. Chi. L.Rev., 1533, 1544 (1992) (same). Subrogation rights, the argument goes, are not created voluntarily, but arise “by operation of law.” Continental Casualty Co.v. Pullman, Comley, Bradley & Reeves, 709 F.Supp. 44, 50 n. 7 (D.Conn.1989) (noting that “[w]hile subrogation is a creature of equity that exists by operation of law, assignment is a volitional transaction between the parties.”) (citation and internal quotations omitted). In a legal malpractice action, an attorney is permitted under rules of professional responsibility to reveal confidential client information in order to wage a defense. See Picadilly, Inc. v. Raikos, 582 N.E.2d 338, 343 (Ind.1991). In the case of assignment, “[s]o long as the client retains control over the suit, the scope of the disclosure can be limited by the client’s power to drop the claim.” Id. See also Quinn, supra, n. 3, at 1229-30; Bell, supra, at 1544. Arguably, equitable subrogation poses a greater threat to the duty of confidentiality because it arises out of equitable principles and not specific contractual language to which the insured has already agreed. An insured may thus be caught blind-sided by the operation of an equitable doctrine that permits its attorney to breach confidences. Cf. Frost v. Porter Leasing Corp., 386 Mass. 425, 432, 436 N.E.2d 387, 391 (Mass.1982) (Wilkins, J., concurring) (noting that “as a realistic matter, a lay person cannot be expected to have knowledge of a common law right of subrogation.”) But see Bell, supra, at 1559 (arguing in favor of subrogation rights because “clients who enter into bankruptcy or sign insurance contracts agree to sacrifice their legal rights in exchange for something they desire more (protection from creditors or from risk.)”)
Even so, the Court notes that this concern for the duty of confidentiality is also present in the assignment context: “Once the client assigns the claim ... the client’s control over the litigation is lost, but the attorney’s right to defend himself or herself by revealing client information survives,” Picadilly, Inc., 582 N.E.2d at 343, and clients may be more or less aware of the consequences of assignment in any given case. In New Hampshire Ins. Co., Inc., for example, the Supreme Judicial Court was untroubled by the possibility of harm to the insurer-assignor, for two reasons: it had voluntarily waived its attorney-client privilege and it was a sophisticated business , entity that could fully appreciate the cost and benefit of waiving its privilege. New Hampshire Ins. Co., Inc., 429 Mass, at 210, 707 N.E.2d at 337. Thus, the insurer-assignor “adequately comprehended the extent to which its confidences might be disclosed” in assigning its malpractice claim and “knowingly gave up control over confidential information by making the assignment.” Id. On the other hand, Otis v. Arbella Mut. Ins. Co., 2003 WL 21385792 (Mass.Super.2003), aff'd, 443 Mass. 634, 824 N.E.2d 23 (2005) applying New Hampshire Insurance Co., Inc., reached a different result. In Otis, :a “voluntary” assignment, in which the assignor had “executed agreements ... to assign the legal claims and acknowledged that the waiver implicated his attorney-client privilege,” id., at *4, was invalid because, among other things, the assignor’s “legal acumen [was] marginal at best” and the “evidence suggested] that [the assignor’s] understanding of the assignment and waiver was limited ....” Id. Thus, even in the case of a “voluntary assignment,” some inquiry into the “voluntariness” of the transfer has been appropriate,
b. The Law of Subrogation in Massachusetts
With these considerations in mind, the Court notes that St. Paul has brought this action as “subrogee” under the terms of the insurance policy and “under statutory and/or common law.” # 1 ¶ 38. “An insurer’s right of subrogation may be reserved in an agreement between the insurer and the insured ... or may arise by implication, as a matter of general law.” Frost, 386 Mass, at 427, 436 N.E.2d at 389 (citations omitted.) Under Massachusetts law, the doctrine of subrogation provides that “[w]hen an insurer pays an insured’s claim under its insurance contract, the insurer succeeds to any right of action the insured may have against the parties allegedly responsible for the loss.” Liberty Mut. Ins. Co. v. Nat’l Consol. Warehouses, Inc., 34 Mass.App.Ct. 293, 296, 609 N.E.2d 1243, 1246 (Mass.App.Ct.1993) (citations omitted). Even in the absence of an agreement permitting subrogation, an insurer who has paid an insured’s claims has, with some limitations, an implied or equitable right to indemnification against losses it has sustained in paying an insured’s claims. See Travelers Ins. Co. v. Graye, 358 Mass. 238, 240, 263 N.E.2d 442, 443 (Mass.1970) (noting right to subrogation “is not dependent upon contract but