Clearear, Llc v. Delue Law, Pllc ( 2020 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
CLEAREAR LLC d/b/a ACQUAMD, a ) No. 80773-1-I
Washington Limited Liability Company, )
and ILICH VAHIMI and KAILA VAHIMI, ) DIVISION ONE
Husband and Wife, and the Marital )
Community Which They Comprise, ) UNPUBLISHED OPINION
)
Appellant, )
)
v. )
)
DELUE LAW, PLLC, a Washington )
Professional Limited Liability Company, )
and; DANA DANIEL DELUE a/k/a DAN )
DELUE, Individually and on Behalf of )
the Marital Community Comprised of )
DANA DANIEL “DAN” DELUE and )
JANE DOE DELUE. )
)
Respondent. )
)
HAZELRIGG, J. — Ilich Vahimi and a company he formed, ClearEar LLC,
brought a legal malpractice claim against an attorney Vahimi hired to review and
revise a contract between ClearEar and a manufacturer in China. The plaintiffs
alleged that the attorney was negligent because revisions he suggested provided
a basis for the manufacturer to appropriate ClearEar’s intellectual property. The
trial court granted the attorney’s motion for summary judgment and dismissed the
complaint for lack of causation. Finding no error, we affirm.
No. 80773-1-I/2
FACTS
Ilich Vahimi invented a medical/homecare device called “AcquaMD,” to
remove water from the ear canal using ultrasound technology. In 2015, Vahimi
identified a potential manufacturer for the device in China, Guangdong Shunde
Luhua Photoelectric New Material Industrial Co., Ltd. (“Luhua”). In April 2015,
Vahimi formed a corporation, ClearEar, LLC, for the purpose of producing and
marketing the product.
In June of 2015, Vahimi was preparing to travel to China in order to
finalize a manufacturing contract with Luhua. After interviewing several
attorneys, Vahimi hired Seattle attorney Dan DeLue to advise him and ClearEar
in connection with the contract. Vahimi gave DeLue a copy of the contract Luhua
had proposed and DeLue agreed to review it and propose changes. Vahimi told
DeLue that his goal was to retain his intellectual property rights to the AcquaMD
device. DeLue produced a “redline” version of the contract with proposed
revisions.1 After DeLue’s review of the contract was complete, Vahimi asked him
to close his file and DeLue refunded $600 of the $1,500 Vahimi had paid him.
About two weeks later, on June 13, 2016, Vahimi and the principal of Luhua
signed the “Production Development Agreement.”
More than a year later, in August 2017, the relationship between ClearEar
and Luhua became strained following disagreements that arose during the
manufacturing process. Vahimi learned that Luhau had made copies of the
1 The contract is written in both Chinese and English. DeLue proposed changes only to
the English provisions.
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industrial molds and was “selling the AcquaMD device worldwide through four
distributors.” When Vahimi later informed DeLue of this development, DeLue
referred him and ClearEar to another attorney.
On May 6, 2019, ClearEar and Vahimi, (collectively “ClearEar”) brought a
lawsuit against DeLue and his law firm, DeLue Law, P.L.L.C., alleging legal
malpractice.2 ClearEar focused on DeLue’s revisions to a provision of the
contract in the section governing “Ownership of Technological Achievements.”
Before DeLue’s edits, paragraph 3 of that section read:
(3) After completion of the sampling work, [Luhua] is entitled to use
the results of follow-up research and development improvements.
Any substantial or creative characteristics of the new technological
advances and technological achievements will be all owned by
[Luhua]
DeLue’s redlined version, incorporated into the final contract, provided as follows:
(3) After completion of the sampling work, [Luhau] is entitled to use
the results of follow-up research and development improvements
that are derivative to the purpose of this contract. Those derivative
develops3 and technological achievements shall belong to [Luhua].
Any substantial or creative characteristics of the new technological
advances and technological achievements which are derivative to
this Agreement will be all owned by [Luhua].
ClearEar alleged that, in proposing the above changes, DeLue’s negligent
advice resulted in the “transfer significant and valuable intellectual property
rights” to Luhua. ClearEar claimed that this negligence caused damages,
resulting from the loss of ClearEar’s intellectual property rights and lost revenue.
2The complaint also asserted a cause of action for negligent misrepresentation. ClearEar
does not challenge the dismissal of that claim.
3 This is likely a translation or scrivener’s error contained in the dual language contract.
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The defendants (collectively “DeLue”) moved for summary judgment.
DeLue’s motion focused on causation. He argued that any damages to ClearEar
were caused solely by Luhua’s piracy, and not by any proposed changes in the
contract and there was no evidence that different contract language could have
prevented ClearEar’s alleged damages.
ClearEar opposed the motion, contending that proximate cause is “almost
always” a question for the trier of fact. ClearEar also claimed that Luhua
specifically relied on language “approved” by Delue to justify its conduct, and
therefore, DeLue was “responsible for the effects of [those] changes.”
Following a hearing on the motion, the court granted the motion and
dismissed the complaint. ClearEar timely appealed.
ANALYSIS
As below, ClearEar argues that causation, as a general matter, is
reserved for the trier of fact and that here in particular, genuine issues of material
fact as to causation preclude summary judgment.
This court reviews a summary judgment order de novo. Loeffelholz v.
Univ. of Wash., 175 Wash. 2d 264, 271, 285 P.3d 854 (2012). We review the
evidence in the light most favorable to the nonmoving party and draw all
reasonable inferences in that party’s favor. Klinke v. Famous Recipe Fried
Chicken, Inc., 94 Wash. 2d 255, 256, 616 P.2d 644 (1980). Summary judgment is
appropriate where there are no genuine issues of material fact and the moving
party is entitled to judgment as a matter of law. Jones v. Allstate Ins. Co., 146
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Wn.2d 291, 300-01, 45 P.3d 1068 (2002). A material fact is one upon which the
outcome of the litigation depends, either in whole or in part. VersusLaw, Inc. v.
Stoel Rives, LLP, 127 Wash. App. 309, 319, 111 P.3d 866 (2005). The court
should grant summary judgment when reasonable minds could reach only one
conclusion. Id.
To establish legal malpractice, a plaintiff must show “(1) the existence of
an attorney-client relationship giving rise to a duty of care to the client, (2) act or
omission in breach of the duty, (3) damages to the client, and (4) proximate
causation between the breach and damages.” Smith v. Preston Gates Ellis, LLP,
135 Wash. App. 859, 863-64, 147 P.3d 600 (2006). DeLue moved for summary
judgment solely based on lack of proximate causation. For this reason, we
address only causation.
“General principles of causation are no different in a legal malpractice
action than in an ordinary negligence case.” Halvorsen v. Ferguson, 46 Wn.
App. 708, 719, 735 P.2d 675 (1986). The burden is on the legal malpractice
plaintiff to show that the attorney’s negligence was the proximate cause of the
injury. Hansen v. Wightman, 14 Wash. App. 78, 88, 538 P.2d 1238 (1975)
(abrogated in part by, Bowman v. Two, 104 Wn.2d. 181, 704 P.2d 140 (1985)).
Proximate cause is the nexus between breach of duty and resulting injury.
Halvorsen, 46 Wash. App. at 719. Proximate cause has two elements: cause in
fact and legal causation. City of Seattle v. Blume, 134 Wash. 2d 243, 251, 947 P.2d
223 (1997). “Cause in fact refers to the ‘but for’ consequences of an act, that is,
the immediate connection between an act and an injury.” Id. at 251-52. The
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plaintiff must demonstrate that “but for” the attorney’s negligence the plaintiff
would have obtained a better result. Smith, 135 Wash. App. at 864. Legal
causation is based on policy considerations in determining how far the
consequences of an act should extend. Blume, 134 Wn .2d at 252. Proximate
cause is usually the province of the jury. Brust v. Newton, 70 Wash. App. 286, 291-
93, 852 P.2d 1092 (1993). However, the trial court can decide proximate cause
as a matter of law if “‘reasonable minds could not differ.’” Smith, 135 Wash. App. at
864 (quoting Hertog v. City of Seattle, 138 Wash. 2d 265, 275, 979 P.2d 400
(1999)).
To avoid summary judgment on proximate cause, ClearEar had to show
that DeLue’s breach of his professional duties caused the loss of its intellectual
property and lost revenue. In the context of this negotiated contract, ClearEar
had to show that but for DeLue’s negligence, he would have secured a “better”
contract (more favorable to ClearEar) or an improved outcome. See Id. at 864.
With no analysis of the specific language DeLue inserted, ClearEar
maintains that paragraph 3 “facilitated” Luhua’s piracy. The plain language of
that provision does not support this assertion. The proposed amendments to
paragraph 3 clarified that Luhua’s rights to use research and development
improvements were limited to those that were “derivative to the purpose of the
contract.”
Viewing this paragraph in the context of the other provisions of the
contract, which ClearEar fails to address, it is evident that the challenged
language, and the contract in general did not transfer ClearEar’s intellectual
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No. 80773-1-I/7
property interests in the AcquaMD product and prohibited Luhua from producing
and marketing the same product. ClearEar fails to mention that paragraph 1 of
the “Ownership of Technological Achievements” section, as originally proposed
by Luhua, provided that the intellectual property rights to the AcquaMD device
would be jointly owned by ClearEar and the manufacturer. But the redlined
version of that provision, which Luhau accepted, provides that ClearEar solely
retains the intellectual property rights to its product:
(1) In the performance of [the] contract herein, all the technological
achievements and [r]elated intellectual property rights [are] owned
by both only [ClearEar] as concerns the product and necessary
tooling. and [Luhua]. [ClearEar] only at the unit and their
subordinate units in range, beyond the agreed scope of use, and
should be resolved through consultation with [Luhua].4
DeLue also proposed amendments to the right to manufacture provision
that were protective of ClearEar. As redlined by DeLue and memorialized in the
final contract, the provision states:
(2) In the performance of [the] contract herein, the license to the
right of manufacturing the products developed by [Luhua] belongs
to [Luhua] for the benefit of [ClearEar] only.
DeLue also added an “INTELLECTUAL PROPERTY OWNERSHIP”
section to the contract. That section provides, in relevant part, that there would
be no transfer of “background technology.” Specifically, any technology or
intellectual property that was created or developed before the effective date of
the contract would be retained by the party who developed such technology or
intellectual property. Foreground technology, created in connection with the
manufacturing contract, would belong to the party who created it. This section
4 Terms added by DeLue are indicated by underlining and terms deleted indicated by
strike through.
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No. 80773-1-I/8
expressly gives ClearEar “full and exclusive” ownership of preexisting or
“Background” technology and “Foreground” technology, as it relates to the
“product to be manufactured.” This section also confirms Luhua’s ownership of
preexisting background technology and of “derivative technological
advancements,” as set forth in paragraph 3 of the “Ownership of Technological
Achievements” section.
The amendment DeLue proposed which assigned rights to “development
improvements that are derivative to the purpose of this contract” to Luhua did not
facilitate or permit the manufacturer to produce and market a product that is
undisputedly “exactly the same” as the AcquaMD device.
ClearEar places great emphasis on the fact that when it confronted Luhua
by email about whether it had appropriated ClearEar’s intellectual property,
Luhua pointed to language DeLue proposed in paragraph 3 as justification for its
actions. However, there are critical flaws in its argument.
First, in the email ClearEar relies on, Luhua quoted the language of the
initial proposed contract, not the final contract. Luhua asserted that according to
paragraph 1 in the “Ownership of Technological Achievements” section, all
“technological achievements” and “intellectual property rights” in connection with
the product are owned jointly by ClearEar and the manufacturer. But, as
explained, DeLue proposed material changes to that language which Luhua
accepted and the final contract provides for ClearEar’s exclusive intellectual
property rights. Luhua also cited the former language of paragraph 3, omitting
the language added by DeLue, which clarified that Luhua’s right to use “follow-up
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No. 80773-1-I/9
research and development improvements” was limited to “derivative develops”5
that were “derivative to the purpose of [the] contract.”
Second, even if it were clear that Luhua relied on language proposed by
DeLue in the final contract to justify its actions, ClearEar makes no attempt to
explain why it would be reasonable for Luhua construe those terms as conferring
intellectual property rights on the manufacturer as to the AcquaMD device.
Luhua was asserting a right to produce and market “exactly the same” product,
not a product based on derivative technological developments. The contract, as
amended based on DeLue’s revisions, only gave Luhua rights to derivative
technology and improvements, and protected ClearEar’s intellectual property
rights to the AcquaMD product itself.
ClearEar claims the trier of fact could draw reasonable inferences from the
facts to conclude that, but for DeLue’s professional negligence, the manufacturer
would have either proceeded with the original contract or would have accepted
other unspecified amendments that fully protected its intellectual property rights.
ClearEar cites the following “facts”: (1) Luhua proposed an initial contract that
was “more favorable” to ClearEar, (2) Luhua accepted all changes proposed by
Delue, (3) and Luhua expressly relied on language inserted by DeLue to justify
its “piracy.” These conclusory assertions are not supported by the evidence in
the record. ClearEar fails to identify any contract provision that, before revision
by DeLue, was more favorable or more protective of its intellectual property
rights. And a review of the redlined contract reveals the opposite. As Delue
5 This is likely a translation or scrivener’s error contained in the dual language contract.
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No. 80773-1-I/10
pointed out in his declaration, the contract Luhua originally proposed could be
characterized as “fairly one-sided” and “arguably gave Luhua rights to the
technology ClearEar had already developed.”
And while Luhua accepted the majority of amendments DeLue proposed,
it did not accept all of them. Luhua rejected DeLue’s proposals regarding
jurisdiction and choice of law. The record does not establish that the
manufacturer would have accepted any and all terms ClearEar proposed. And
more importantly, ClearEar does not describe what terms DeLue should have
suggested that would have effectively prevented the manufacturer’s actions.
Finally, as noted, Luhua’s claim that it was acting within its contractual rights was
based on the language of the preliminary contract, not language proposed by
DeLue.
In sum, ClearEar does not point to any facts supporting the inference that
it would have “‘achieved a better result had the attorney not been negligent.’” Id.
at 870 (quoting VersusLaw, 127 Wash. App. at 328). And as here, where the
causal connection is “‘so speculative and indirect’” that reasonable minds could
not differ, causation is a question of law for the court. Behla v. R.J. Jung, LLC,
11 Wash. App. 2d 329, 347, 453 P.3d 729 (2019) (quoting Mehlert v. Baseball of
Seattle, Inc., 1 Wash. App. 2d 115, 119, 404 P.3d 97 (2017)).
ClearEar failed to establish a prima facie case of causation and its legal
malpractice case cannot withstand a motion for summary judgment without such
a showing. We affirm the trial court’s order granting summary judgment.
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Affirmed.
WE CONCUR:
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