Technine, Inc. v. Simonds ( 2011 )

Technine, Inc. v. Simonds, No. S1210-09 CnC (Tomasi, J., Oct. 5, 2011)
[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
accompanying data included in the Vermont trial court opinion database is not guaranteed.]
STATE OF VERMONT
SUPERIOR COURT CIVIL DIVISION
Chittenden Unit No. S1210-09 CnC
TECHNINE, INC.,
Plaintiff,
v.
JOSHUA L. SIMONDS, ESQ.,
Defendant.
Ruling On Defendant’s Motion For Summary Judgment
Plaintiff Technine, Inc. (Technine) sues its former attorney, Defendant
Joshua L. Simonds, Esq., alleging legal malpractice. Specifically, Technine
asserts that, after Technine’s former president and majority shareholder Ray
Fortier asked Simonds about a balloon payment provision that Fortier
thought was included in Fortier’s employment agreement with Technine,
Simonds altered the executed employment agreement to add a balloon
payment provision. Technine alleges that this conduct damaged Technine
financially in three ways: (1) it forced Technine to mount a costly defense to
a lawsuit—Fortier v. Technine, No. S0558-06 CnC—in which Fortier
attempted to reform the employment agreement to include the balloon
payment and to obtain control over Technine’s intellectual property; (2)
Fortier made disparaging remarks about Technine during the Fortier
litigation that damaged Technine’s business reputation; and (3) the Fortier
litigation caused a potential merger with Genfoot, Inc. to fail, resulting in
business losses. Technine alleges that Simonds was negligent (Count I),
breached his legal services contract with Technine (Count II), and breached
fiduciary duties he owed to Technine (Count III). Simonds has filed a motion
for summary judgment on the grounds that there is no legally sufficient
causal connection between his alleged misconduct and Technine’s alleged
damages.
I. Background
Based on the parties’ Statements of Uncontested and Contested
Material Facts, the following material facts are undisputed, except where
noted. Technine is a Vermont corporation. Although Technine denies
(without citing anything in the record) that it is currently engaged in the
business of producing and selling snowboard goods, it seems undisputed that,
at the times relevant to this litigation, Technine produced and sold
snowboarding “hard goods,” such as snowboards and bindings, and “soft
goods,” such as jackets, sweatshirts, and other clothing and accessories.
Technine’s president in 2001 was Ray Fortier. Attorney Simonds represented
Technine from 2002 to 2005.
In 2002 or 2003, Fortier first met Matthew Nielson, the founder of an
Australian swimwear company called Sevcoy Proprietary, Ltd. (Sevcoy).
Nielsen viewed the snowboarding business as a growth opportunity, and he
and Fortier met to discuss potential investment by Sevcoy in Technine. At
their meeting, Fortier and Nielson agreed that Sevcoy would provide design
2
assistance and clothing production as well as financial support in exchange
for a 50% interest in Technine. Although Technine was then operating at a
loss, Nielsen expected Technine to break even within a year or two and to
generate profits in three years.
Sevcoy executed a written agreement for the purchase of Technine
shares. Sevcoy invested $1.4 million in Technine for the 2002–2003
snowboarding season. For the following season, Sevcoy continued to invest in
Technine but the business was losing money.
In late 2004 or early 2005, Nielsen and Fortier had a discussion about
Sevcoy buying out Fortier’s interest in Technine but keeping Fortier involved
in the business. As a result of that discussion, Simonds drafted a “master
agreement” between Technine and Sevcoy. In August 2005, two documents
were signed: a stock purchase agreement between Fortier and Sevcoy and an
employment agreement between Fortier and Technine. Although the matter
may have been discussed, the executed employment agreement did not
contain a “balloon payment” provision for Fortier in the event Technine was
sold in the future.
Technine claims that, beginning in late 2005, Genfoot, Inc., began to
express interest in buying or merging with Technine. A November 2005
meeting between Sevcoy and Genfoot led to a draft Letter of Understanding
dated December 30, 2005. A final Letter of Understanding was never
executed.
3
The potential for the sale of Technine was growing, however, and
Fortier asked Simonds about a “balloon payment” provision in the
employment contract. At that point, the written contract contained no such
provision. Simonds proceeded to add a balloon payment provision to the
already-executed agreement. He accomplished this by re-formatting a page
of the agreement and inserting the new page, with the balloon payment
language, into the signed contract.1
When Nielsen learned of the balloon payment provision, he indicated
that he had not agreed to it and that it would not be honored by Technine.
On May 19, 2006, Fortier filed suit against Technine to reform the
employment contract to include the balloon payment provision (the “Fortier
suit”). On June 9, 2006, Technine fired Fortier. On June 28, 2006, Fortier
filed a notice of dismissal of his complaint in the Fortier suit. Counsel for
Technine objected to the dismissal. The suit was not dismissed.
In early October 2006, Fortier amended his complaint to add a number
of other claims, including a claim concerning ownership of Technine’s
trademark. On October 31, 2006, this court, Judge Katz presiding, granted a
preliminary injunction against Fortier to prohibit him from using the
Technine trademark. After a hearing on the merits, on March 1, 2007, the
court rendered a decision in the Fortier suit. Technine prevailed on all the
1Simonds asserts that he believed a mistake had been made in omitting the
balloon payment language from the final version of the employment
agreement.
4
claims Fortier asserted against Technine. As to the balloon payment, the
court concluded as follows:
The Fortier employment agreement ultimately executed
by Nielsen did not contain a balloon payment provision. That
would clearly have been an important item for Fortier. We are
convinced that although he might not have parsed all the
employment agreement’s language, he would have checked for
that provision. It was not there. It was not there for a reason—
Nielsen never agreed to its inclusion. Nielsen never intended to
grant Fortier such a termination benefit. Its absence from the
written documents is no accident or error. To support his claim
for reformation, Fortier offered the evidence of Joshua Simonds,
corporate attorney for Technine. Simonds attended the meeting
and had the task of scrivener. He testified that an earlier draft
of Fortier’s employment agreement had the termination
protection, but in his late-in-the-evening edits, he somehow
dropped it. What is undisputed is that some months later, upon
being informed by Fortier of its absence, Simonds retyped the
agreement so as to include the termination balloon payment
paragraph 6(f), made sure the pagination roughly matched and
brought these substitute pages to Fortier, who inserted them
into the Nielsen-signed document. Simonds would appear to be
something of a more neutral witness than either Nielsen or
Fortier. At the very least, it is not his money which is at stake.
Nevertheless, we decline to accept his testimony as the most
reliable indicator of what bargain was struck between Nielsen
and Fortier, given the clause’s importance [to] Fortier and
absence from the executed document.
Paragraph 6(f) provides for three-times salary, plus
expenses, payable immediately upon sale of the company.
That’s a lot of money. For any person, three times annual salary
is a lot of money. It strains credulity that, at a time when the
relationship between Fortier and Nielsen was becoming
increasingly testy, when Nielsen was both consolidating control
and complaining about poor corporate performance, Fortier
would not look for 6(f), even if he looked for nothing else. He is
nothing if not practical and mature; he is approaching
retirement age. Three to four hundred thousand dollars
constitutes an awful lot of money to him. Although the factual
question may not be free from doubt, we are not persuaded that
5
Nielsen and Fortier actually agreed on the 6(f) balloon but
inadvertently omitted it from the signed agreement.
Fortier v. Technine, No. S0558-06 CnC (Vt. Super. Ct. Mar. 1, 2007) (Katz,
J.). Fortier did not appeal.
Technine claims that the deal with Genfoot fell through by June 2007.
Citing Nielsen’s deposition testimony, Simonds asserts that Nielsen did not
know the reason Genfoot walked away from the deal. Citing the same
testimony, Technine denies that assertion, and suggests that Nielsen did
know the reason. There appears to be no dispute as to what Nielsen said at
his deposition, and the Court reproduces here the sections the parties have
cited:
I don’t know what went through [Genfoot President]
Rick[] [Cook’s] mind at the end of it all when it finally went
down. . . . I never got a specific answer other than something to
the tune of the time frame that had evolved. . . . I didn’t get a
black-and-white answer that we’re no longer going forward.
Genfoot just came out and said we’re not going forward with this
deal. We’re now talking by the time we got this answer, it was
in—like I say, a year-and-a-half later. I can only make
assumptions that too much time had past [sic]. They moved on.
Whether another opportunity came up or not, I don’t know.
Nielsen Dep. 204:15–17, 207:1–3, 7–14, Sept. 19, 2010. In 2008, Technine
was sold to another company, Brand Base.
II. Discussion
The Court begins with a brief examination of the three counts in
Technine’s complaint. As mentioned above, Technine alleges that Simonds
was negligent (Count I), breached his legal services contract with Technine
6
(Count II), and breached fiduciary duties he owed to Technine (Count III). It
appears to the Court that each count is predicated on the same alleged
conduct: Simonds’ alteration of the already-executed employment contract to
include the balloon payment provision. Simonds asserts in his motion that
Technine’s breach of contract claim (Count II) is subsumed by the malpractice
claim (Count I). Mot. for Summ. J. at 4–5 (filed Apr. 11, 2011) (citing Deptula
v. Kane, No. 2008-139 (Vt. Nov. 5, 2008) (unpublished mem.), available at
http://www.vermontjudiciary.org/d-upeo/eo08-139.pdf). Technine does not
directly address that assertion in its opposition, although it does maintain
that Simonds breached “numerous duties” owed to Technine. Opp’n at 17
(filed May 20, 2011).
In Deptula, Edward Deptula brought suit against attorney Paula
Kane, alleging various failures and asserting breach of contract, professional
malpractice, and violation of Vt. R. Prof’l C. 1.7. The trial court granted
summary judgment to Kane on all of Deptula’s claims. As to Deptula’s
contract claim, the trial court reasoned that the contract claim and the
malpractice claim were both based on an allegation of negligence, and
considered the two claims as one. Deptula appealed, arguing, among other
things, that the trial court failed to address his claim for breach of contract.
The Supreme Court found no error, citing Bloomer v. Gibson, 2006 VT 104,
¶ 24, 180 Vt. 397, and concluding that the trial court properly found
Deptula’s contract claim to be a restatement of his negligence claim.
7
Here, Technine alleges in Count II that Simonds breached his contract
to provide legal services to Technine by failing to act in Technine’s best
interest and by failing to perform his work in a careful, reasonable, and
lawyerlike manner. Compl. ¶ 43. Technine has not alleged that Simonds
breached any “special obligations” contained in his employment contract with
Technine. Bloomer, 2006 VT 104, ¶ 24. The Court concludes that Count II is
a restatement of the malpractice claim in Count I and that those two counts
should be treated as a single negligence claim.
Simonds does not explicitly address whether Count III (breach of
fiduciary duty) should be subsumed into Count I. Since Technine seeks the
same monetary relief for the alleged breach of fiduciary duties as for
malpractice, however, the causation analysis appears to be the same under
Count III as under Count I. See Restatement (Third) of Agency § 8.01 cmt.
d(1) (“An agent’s breach also creates distinct bases on which the principal
may recover monetary relief. An agent’s breach subjects the agent to liability
for loss that the breach causes the principal. . . . In these respects, the
consequences of a breach of fiduciary duty do not differ from those of other
torts that an agent may commit against a principal.”); see also Nordwind v.
Rowland, 584 F.3d 420, 433 (2d Cir. 2009) (“[W]here damages are sought for
breach of fiduciary duty under New York law, the plaintiff must demonstrate
that the defendant’s conduct proximately caused injury in order to establish
liability.” (citation omitted)); 1 Ronald E. Mallen & Jeffrey M. Smith, Legal
8
Malpractice § 8:5 (WL updated Jan. 2011) (“The same rules of causation
apply whether the alleged wrong concerns a fiduciary breach or a breach of
contract.”).
As to causation, a “legal malpractice action is at base a negligence
action: plaintiff must prove that the attorney was in fact negligent and that
this negligence was the proximate cause of plaintiff’s injury.” Roberts v.
Chimileski, 2003 VT 10, ¶ 15, 175 Vt. 480 (mem.). “[A]n element of
proximate cause in lawyer malpractice actions is ‘cause-in-fact.’” Id. In a
legal malpractice action, if a plaintiff cannot prove that the lawyer’s conduct,
even if negligent, was the cause-in-fact of harm to the plaintiff, then the
plaintiff cannot recover. See Knott v. Pratt, 158 Vt. 334, 335 (1992)
(concluding, in legal malpractice action, that there was no need to reach the
issue of negligence because “plaintiff failed to prove that defendant, even if
negligent, proximately caused her harm”).
Simonds’ Motion for Summary Judgment basically raises two
causation issues: (1) whether his allegedly negligent conduct caused the
Fortier suit at all and (2) whether the Fortier suit, even if caused by that
conduct, caused Technine to suffer any damages. The Court will address
each of these issues in turn.
A. Whether Simonds’ Allegedly Negligent Conduct Caused
the Fortier Suit
Simonds contends that the Fortier suit was the result of posturing by
Fortier and that, even in the absence of Simonds’ conduct, Fortier would have
9
filed his legal action. Mot. for Summ. J. at 10, 13 (filed Apr. 11, 2011).
Technine asserts that “[i]t is clear that if Simonds had not taken these
actions against the interest of his client, Technine would not have been forced
to defend the Fortier litigation.” Opp’n at 13 (filed May 20, 2011).
Ultimately, Simonds argues that “[t]he struggle between Fortier and Nielsen
was longstanding and certainly not the result of attorney Simonds’ conduct
relative to the 2005 transaction. The bottom line is that there is no evidence
that attorney Simonds’ conduct was a cause-in-fact of the Fortier suit.” Reply
at 5 (filed June 21, 2011).
For two reasons, the Court disagrees with Simonds. First, Technine
has raised an issue of fact over whether Simonds’ alleged malpractice was the
but-for cause of the Fortier action. Undoubtedly, the insertion of the balloon
payment provision in the contract may have added force to Fortier’s legal
position. The filing of the suit so soon after Nielson’s rejection of the balloon
payment provides an additional connection. A jury might well conclude the
alleged malpractice and the filing of the action were inextricably intertwined.
Second, the alleged malpractice need not have been the sole cause of
the lawsuit. The “but for” rule of causation is inapplicable where there
potentially are “multiple sufficient” causes of an event. Wilkins v. Lamoille
Cnty. Mental Health Servs., 2005 VT 121, ¶ 13 n.3, 179 Vt. 107; see also 1
Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 8:5 (WL updated
Jan. 2011) (“This ‘but for’ rule is appropriate where there are no other causes.
10
The major failing of the rule is if there are multiple causes of the loss.”).
Instead, the relevant question is whether the alleged malpractice was a
“substantial factor” in brining about the Fortier suit. See Wilkins, 2005 VT
121, ¶ 13. While the parties’ “struggles” also may have led eventually to the
litigation, that does not negate Technine’s claim. In this case, at a minimum,
a question of fact exists as to whether altering the employment contract was
a substantial factor in brining about the Fortier lawsuit. Where, as here,
reasonable minds might differ as to whether certain conduct caused an
alleged harm, the issue is for the jury to resolve. W. Keeton, et al., Prosser
and Keeton on Torts § 41, at 267 (5th ed. 1984).
B. Whether the Fortier Suit Caused Technine any Damage
Simonds asserts that, as a matter of law, Technine did not suffer any
harm because Technine prevailed in the Fortier suit, and that Technine
actually welcomed the suit as an opportunity for resolution of its dispute with
Fortier. Mot. for Summ. J. at 9–13. Simonds also contends that Technine is
speculating when it says that the Fortier suit caused the Genfoot merger to
fail, and that, even if it did, there was never an agreement to sell Technine to
Genfoot. Further, he claims there is insufficient evidence to prove what the
financial return would have been had the merger gone through. Id. at 14–20.
For its part, Technine maintains that, even though it did prevail in the
Fortier litigation, it was still harmed because it incurred attorney’s fees and
costs in defending the suit. Opp’n at 12 (filed May 20, 2011). Technine also
11
maintains that it did not “welcome” the Fortier suit, and that its opposition to
Fortier’s notice of dismissal was not motivated out of a desire to litigate, but
was, instead, a strategic decision. Id. at 13–14. Technine asserts that the
agreement with Genfoot was real, that it suffered real damages as a result of
the termination of the merger with Genfoot, and that it was, indeed, the
Fortier litigation that caused the merger to fall through. Id. at 14–17.
The Court concludes that, if there is liability on any of Counts I
through III, Technine has presented a sufficient factual showing that it may
be entitled to some damages. Specifically, on the summary judgment record,
the Court finds that Technine could potentially recover attorney’s fees and
costs in defending the Fortier suit, at least up to the time that Fortier filed
his notice of dismissal.2 See Bloomer v. Gibson, 2006 VT 104, ¶ 27, 180 Vt.
397 (“If plaintiff had incurred legal fees to correct the adverse consequences
of defendant’s malpractice, those fees might be recoverable because they were
2 The parties dispute why Technine opposed Fortier’s attempt to dismiss his
case in June 2006. Simonds asserts that Technine affirmatively wanted to
litigate, and that this further erodes any connection between Simonds’
alleged misconduct and any damages stemming from the Fortier litigation.
Technine maintains that Simonds has presented no factual support for his
assertion that Technine wanted to litigate, and suggests that Fortier’s
attempt at dismissing his case in state court was a prelude to filing an action
in federal court. Technine says that it resisted dismissal in order to avoid
having to incur additional fees and expenses in defending an action in federal
court. Neither party has supplied factual support in its statement of facts for
its assertions regarding Technine’s reasons for resisting Fortier’s attempt to
dismiss. As a result, the Court expresses no view as to whether Technine
may be able to recover costs and attorneys’ fees after Fortier sought to
voluntarily dismiss the Fortier suit.
12
‘caused by the wrongful act or omission.’” (quoting Bourne v. Lajoie, 149 Vt.
45, 53 n.3 (1987))); 1 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice
§ 8:5 (WL updated Jan. 2011) (“A negligently drafted provision or erroneous
advice can involve the client in litigation. Those expenses may be the only
damages sustained and can be recovered as direct damages.” (footnote
omitted)). For that reason, Simonds is not entitled to complete summary
judgment.
On the other hand, the Court agrees with Simonds that Technine has
failed to come forward with evidence connecting the alleged malpractice to
the intellectual property claims eventually set forth in the Fortier suit or to
the alleged failure of the merger with Genfoot. The Court notes that Fortier’s
claim that he owned the trademarks is, at best, only tangentially related to
his claim regarding the employment agreement. There is no allegation that
Simonds’ alleged misconduct concerning the balloon payment had anything to
do with the issue of intellectual property. On the present record, the Court
sees no affirmative link between the employment litigation, which it has
found was potentially connected to the alleged malpractice, and either the
intellectual property dispute that eventually became the focus of the Fortier
lawsuit or the failed merger.
Technine’s arguments to the contrary are not convincing. Technine
maintains that the connection between the Fortier litigation and the collapse
of its relationship with Genfoot is “apparent.” Opp’n at 16. In support,
13
Technine cites a letter from Genfoot’s counsel (Attorney Fitzgerald) to
Sevcoy’s counsel (Attorney de Vere), dated September 21, 2006.3 In the
letter, Attorney Fitzgerald wrote, among other things, that her firm had:
invested considerable time, at Genfoot’s expense, trying to
ascertain what party has the right to sell the marks. We have
been unable to do so with certainty. This uncertainty is
exacerbated by Raymond Fortier’s claim that he owns the
Marks. We give that little credence, but his claim has the
potential to sabotage the deal.
Nielsen Aff. ¶ 5, Ex. 3.
It also submits the deposition testimony of Nielsen. But, that
testimony does not provide a sufficient foundation for a conclusion as to what
ultimately caused the merger with Genfoot to fall through. The only
“specific” reason Genfoot’s president gave Nielsen for the collapse of the
merger was that the “time frame” had “evolved.”
None of this evidence connects the altered employment agreement to
the intellectual property claims or to the merger. While the letter suggests a
connection between the intellectual property claims and the merger, it does
not indicate that the dispute over the balloon payment had any potential to
sabotage the deal. Similarly, the Nielsen testimony provides little, if any,
connection between the failed merger and even the intellectual property
3Technine did not assert the contents of the letter in its response to
Defendant’s statement of undisputed facts. In addition, Simonds objects to
the letter as hearsay. Even assuming that neither of these issues presents an
obstacle, the Court concludes that the letter is insufficient to establish
causation.
14
claims set out in the Fortier suit. In any event, to the extent Genfoot was at
all concerned about the dispute over the balloon payment, that dispute was
resolved in Technine’s favor before Genfoot decided not to go forward with the
merger.4
On the present record, the jury would have to speculate to conclude
that the alleged malpractice was causally connected to the intellectual
property claims or to the failed merger. While causation is typically a factual
matter reserved for the jury, where the evidence is wholly speculative or
otherwise insufficient to support a verdict, summary judgment may be
appropriate. See Blanchard v. Goodyear Tire & Rubber, 2011 VT 85, ¶ 5
(mem.) (plaintiff brining toxic tort claim can not survive summary judgment
unless he is able to point to evidence suggesting a probability, rather than a
mere possibility, of general and specific causation); Travelers Ins. Co. v.
Demarle, Inc., USA, 2005 VT 53, ¶ 10, 178 Vt. 570 (mem.) (trial court did not
err by concluding that there was insufficient evidence to create a jury
question on causation; at best there was only a “possibility” of causation);
Fuller v. City of Rutland, 122 Vt. 284, 289 (1961) (“Evidence which merely
4 In addition, Technine’s opposition to Fortier’s attempt to dismiss his case at
its very inception further erodes any causal connection. As mentioned above,
the parties seem to dispute why Technine opposed dismissal. Whatever
Technine’s reason, however, its opposition to the dismissal is, at a minimum,
another weakness in the claimed causal chain.
15
makes it possible for the fact in issue to be as alleged, or which raises a mere
conjecture, surmise or suspicion is an insufficient foundation for a verdict.”).5
While the instant record leaves the Court unconvinced that a jury
could rightly find a factual chain of causation between the altered
employment agreement and the intellectual property claims or the failed
merger, the Court does not enter summary judgment at this time. The Court
understands that, in professional negligence cases, expert testimony is
commonly necessary to show that the defendant’s conduct was the cause of
the plaintiff’s harm. Clayton v. Unsworth, 2010 VT 84, ¶ 17. Here, Technine
has not presented expert testimony on the question of causation in support of
its claims, nor did it request additional time to retain experts or to obtain
discovery under Vt. R. Civ. P. 56(f). While these are significant points, the
Court is also guided by the fact that the issue of lack of expert testimony was
not raised in Simonds’ Motion for Summary Judgment. Further, based on a
review of the docket entries in this matter, the parties have now retained
experts and have agreed to an extension of the discovery schedule. In light of
the Supreme Court’s admonition that summary judgment typically not be
entered until the parties have had an adequate time for discovery, see Town
of Victory v. State, 174 Vt. 539, 543–44 (2002) (mem.), the Court believes it
5
Technine’s passing attempt to link the alleged malpractice to disparaging
remarks about Technine that were purportedly made independently by
Fortier is equally unpersuasive.
16
prudent to deny the remainder of Simonds’ Motion for Summary Judgment at
this time. The denial is without prejudice.
Order
Defendant’s motion for summary judgment is denied.
Dated at Burlington this ___ day of October, 2011.
____________________
Timothy B. Tomasi
Superior Court Judge
17