McCoubrey v. Kellogg, Krebs & Moran

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ALBERT H. MCCOUBREY, III, 
Plaintiff-Appellant,
v.
KELLOGG, KREBS & MORAN, a
partnership; MARK E. KELLOGG,  No. 00-1608
P.C.; WILLIAM F. KREBS, P.C.;
GEORGE LEROY MORAN, P.L.C.;
RICHARD P. BUZAN,
Defendants-Appellees.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Andre M. Davis, District Judge.
(CA-99-3781-AMD)
Argued: January 23, 2001
Decided: April 4, 2001
Before NIEMEYER and MOTZ, Circuit Judges, and
David A. FABER, United States District Judge for
the Southern District of West Virginia, sitting by designation.
Affirmed by unpublished opinion. Judge Faber wrote the opinion, in
which Judge Niemeyer and Judge Motz joined.
COUNSEL
ARGUED: David Thomas Ralston, Jr., HOPKINS & SUTTER,
Washington, D.C., for Appellant. David Bruce Stratton, JORDAN,
2 MCCOUBREY v. KELLOGG
COYNE & SAVITS, L.L.P., Washington, D.C., for Appellees. ON
BRIEF: John D. Brosnan, Fairfax, Virginia, for Appellant. J. Paul
Mullen, Kathleen M. Bustraan, LORD & WHIP, P.A., Baltimore,
Maryland; Richard T. Tomar, MARGOLIUS, MALLIOS, DAVIS,
RIDER & TOMAR, Washington, D.C., for Appellees.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
FABER, District Judge:
Albert H. McCoubrey, III ("McCoubrey") appeals from a final
order of the United States District Court for the District of Maryland
dismissing a legal malpractice claim against his former lawyers, their
professional corporations and a now-dissolved Virginia law firm.
Finding no error in the judgment of the district court, we affirm.
I.
McCoubrey, a resident of Maryland, was president and majority
shareholder of Integrated Design & Construction, Inc. ("IDC"). IDC
managed design and construction of embassy facilities for the United
States Department of State.
In 1996, Ronald G. Eberhardt ("Eberhardt"), Senior Staff Vice
President of IDC, brought a qui tam action in federal court in Virginia
against IDC and McCoubrey under 31 U.S.C. § 3730(b)(1), the fed-
eral "whistle blower" statute, for fraudulent billing in violation of the
False Claims Act, 31 U.S.C. § 3729. Eberhardt also contended that
IDC had discriminated against him by decreasing his salary, and by
demoting and terminating him in retaliation for acts he took in fur-
therance of his qui tam action. The law firm of Kellogg, Krebs &
Moran, IDC’s primary corporate counsel, represented McCoubrey
and IDC in the civil action. Kellogg, Krebs & Moran was a Virginia
MCCOUBREY v. KELLOGG 3
law partnership whose partners consisted of three professional corpo-
rations, Mark E. Kellogg, P.C., William F. Krebs, P.C., and George
Leroy Moran, P.L.C. Initially, Kellogg represented IDC in the Eber-
hardt suit and Krebs represented McCoubrey. When it became appar-
ent that Kellogg was a potential witness in the case, Richard P.
Bazun, another attorney with the Kellogg firm, assumed representa-
tion of IDC. After the trial McCoubrey replaced the Kellogg firm with
new counsel, Hopkins & Sutter, a District of Columbia firm with
experience in government contract litigation. The new firm, in a post-
trial Rule 60 motion, moved to dismiss the case as to McCoubrey on
the ground that he was not an "employer" within the meaning of the
whistle blower statute and therefore not amenable to suit. The Kel-
logg firm had failed to plead this as a defense or otherwise raise the
issue prior to trial on the merits.
The United States intervened and settled the qui tam claim. Eber-
hardt’s discrimination case went to trial and resulted in a $417,700.99
verdict in his favor against IDC and McCoubrey. Upon post-trial
motions, Eberhardt was granted prejudgment interest on his back pay
award and attorneys fees. The judgment currently exceeds $650,000.
The district court subsequently granted McCoubrey’s motion under
Rule 60(b) and relieved him from the judgment on the ground that he
could not be held liable as an employer under 31 U.S.C. § 3730(h).
Eberhardt appealed the case to this court, which reversed the trial
court’s ruling on McCoubrey’s Rule 60(b) motion and affirmed it in
all other respects. See Eberhardt v. Integrated Design & Construc-
tion, Inc., 167 F.3d 861 (4th Cir. 1999). The Court of Appeals rea-
soned that McCoubrey’s defense that he was not an "employer" for
purposes of § 3730(h) was essentially a motion for failure to state a
claim under Rule 12(b)(6) which was waived because not made prior
to trial on the merits.
McCoubrey then filed the present action for legal malpractice
against the Kellogg firm, the three professional corporate partners of
the Kellogg firm, and individual defendants Kellogg, Krebs, Moran
and Bazun.1 The action was filed in the United States District Court
1
The District Court dismissed Bazun for want of personal jurisdiction,
a ruling that has not been appealed.
4 MCCOUBREY v. KELLOGG
for the District of Maryland, with jurisdiction based on diversity of
citizenship. The trial court, applying the Maryland conflicts rule,
determined that Virginia substantive law applied and that, under Vir-
ginia law, McCoubrey’s action was premature because he had not
pleaded actual payment of the judgment. From the dismissal of his
case for failure to state a claim under Rule 12(b)(6) McCoubrey
appealed to this court.
Two issues presented on appeal are dispositive of this case. First,
did the District Court err in applying Virginia, as opposed to Mary-
land, substantive law? Second, did the District Court err in holding
that under Virginia law a legal malpractice case may not be brought
until the complaining plaintiff has actually paid the judgment against
him?
II.
The issues on this appeal stem from the Virginia case of Allied
Productions, Inc. v. Duesterdick, 217 Va. 763, 232 S.E.2d 774(1977), in which the Virginia Supreme Court adopted the "payment
rule" for attorney malpractice actions. Under the payment rule, dam-
ages in such a case are not deemed to occur until payment is made
by the injured party. If Allied Productions is applied here, McCoubrey
has suffered no damages and has no course of action until he actually
pays the judgment against him.
Maryland follows a different course. The Maryland courts have
expressly rejected the payment rule in favor of a "judgment rule," per-
mitting a malpractice suit to proceed as soon as a judgment is
obtained against the aggrieved client. See Roebuck v. Steuart, 76 Md.
App. 298, 544 A.2d 808 (1988). In Roebuck, liquor suppliers brought
an action against the guarantor of a bankrupt corporation’s debts. The
guarantor sued his attorney for malpractice seeking indemnity. The
Maryland Court of Special Appeals rejected the payment rule in favor
of a "judgment rule" which allowed recovery against the indemnitor
when judgment against the indemnitee was entered, although not yet
paid. The court discussed Allied Productions and rejected its reason-
ing. The consequences of the choice of law between Maryland and
Virginia in this appeal are therefore draconian — if we follow Allied
MCCOUBREY v. KELLOGG 5
Productions and Virginia law, McCoubrey loses; if we apply Mary-
land law, he wins.
McCoubrey has a fall back position if he loses on the choice of
law: he attacks the payment rule of Allied Productions on two
grounds. First, he says, the payment rule is no longer the law in Vir-
ginia; it has been changed by the legislature, rejected by a lower
court, and would no longer be followed by Virginia’s highest court.
Second, he argues that application of the payment rule raises a consti-
tutional issue: the Virginia statute of limitations applicable to legal
malpractice actions begins to run when the client discharges the mal-
feasant attorney. Thus, under the payment rule it is possible (and in
some cases even likely) that the period of limitations will expire
before the right to sue accrues, thereby depriving the aggrieved party
of his remedy without due process of law.2 We consider each of
McCoubrey’s arguments in turn.
A. The Choice of Law
In a diversity case, a United States District Court sitting in Mary-
land applies Maryland’s choice of law rule. This principle has been
settled since Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487(1941), which extended the rule of Erie R.R. v. Tompkins, 304 U.S.
64 (1938), to choice of law questions. Under Maryland’s choice of
law a tort claim is to be governed by the law of the place of the
wrong, the lex loci delicti. See Naughton v. Bankier, 114 Md. App.
641, 691 A.2d 712 (1997); Black v. Leatherwood Motor Coach Corp.,
92 Md. App. 27, 37, 606 A.2d 295 (1992).
McCoubrey would avoid the consequences of this rule by treating
his claim as one for breach of the attorney’s employment contract and
applying the Maryland conflicts rule governing contract cases. The
facts, however, do not support McCoubrey’s position. A legal mal-
practice action may sound in either tort or contract depending upon
the context. The difference is illustrated by a simple example: sup-
pose a purchaser of real estate employs a lawyer to examine the title.
2
Concern that the statute of limitations could run before the right to sue
accrued was one of the reasons the Maryland court rejected the payment
rule in Roebuck.
6 MCCOUBREY v. KELLOGG
If the lawyer overlooks a lien of record, he is negligent, and has com-
mitted a tort. If he takes a fee and never examines the title at all, he
has broken his promise to perform a professional service, which is a
breach of contract. See Fishow v. Simpson, 55 Md. App. 312, 462
A.2d 540, 543-44 (1983). Here, the essence of McCoubrey’s claim is
the lawyer’s negligence for failure to plead a defense in the whistle
blower case, not a failure to perform a service he had contracted to
provide.
Under the lex loci delicti choice of law rule for torts, the situs of
the tort is generally deemed to be the place where the last act neces-
sary to complete it took place. See Scoles & Hay, Conflict of Laws,
§ 17.2, 571 (2d ed. 1992). The last act required to complete the tort
of failing to plead a good defense in a lawsuit would appear to be the
place of filing the responsive pleading which omits the defense. In the
instant case, this act occurred in Virginia. We note that the offending
attorneys were all members of the Virginia bar, and their offices,
where the defective pleading was presumably prepared, are located in
Virginia. We are mindful of this court’s opinion in Farwell v. Un, 902
F.2d 282 (4th Cir. 1990), which applied a Maryland choice of law
analysis in a medical malpractice case against a psychiatrist. There,
the allegedly negligent treatment had been administered in Delaware
and the court held that the Delaware standard of care should be used
to measure the purported misconduct, even though the last act neces-
sary to complete the tort, the patient’s suicide, took place in Pennsyl-
vania. The court noted that a "common sense" analysis pointed to
Delaware, where the malpractice took place, as the place of the
wrong, even though the damage resulting from the wrong, the dece-
dent’s suicide, occurred in Pennsylvania. Both the pure lex loci delicti
analysis and the common sense approach of Farwell point to Virginia
as the situs of the tort in this case. Accordingly, we hold that the dis-
trict court was correct in applying the substantive law of Virginia.
B. The Payment Rule
In Allied Productions, supra, Virginia’s highest court, over a vigor-
ous dissent, adopted the following rule for legal malpractice: "[W]hen
a client has suffered a judgment for money damages as the proximate
result of his lawyer’s negligence such judgment constitutes actual
damages recoverable in a suit for legal malpractice only to the extent
MCCOUBREY v. KELLOGG 7
such judgment has been paid." Allied Productions, Inc., 232 S.E.2d
at 766. In that case, defendant Duesterdick and his law partners were
charged with undertaking to defend a lawsuit filed against Allied Pro-
ductions and negligently allowing a default judgment in the amount
of $210,000 to be taken against their client. Allied Productions’ mal-
practice complaint, called a motion for judgment under Virginia law,
did not allege that any part of the default judgment had been paid. In
the absence of payment, the court reasoned, the client’s damages are
speculative since a judgment might have been rendered against him
even if the suit had been defended. Citing two Virginia cases, Bartlett
v. Recapping, Inc., 207 Va. 789, 793, 153 S.E.2d 193, 196 (1967),
and American National Bank v. Ames, 169 Va. 711, 748, 194 S.E.
784, 797 (1938), the court was guided by analogy to cases of contri-
bution and indemnity.
Justice Poff filed a vigorous and compelling dissent. There were
three strings to his bow. First, he alluded to society’s interest in deter-
ring legal malpractice and pointed out that the payment rule has the
anomalous impact of making it harder for a client to recover against
his lawyer if the judgment is large. "The rule would seem to penalize
a lawyer for his negligence when it costs his client a modest judgment
but grant him immunity when his negligence results in a judgment too
large for his client to pay," the Justice said. 232 S.E.2d at 777. Next,
Justice Poff pointed out that, if the rule pushes the client into a state
of insolvency, it prejudices his innocent creditors. Finally, he argued
that the payment rule could produce a multiplicity of suits if the
aggrieved client sued his lawyer each time he made a partial payment
on the judgment against him.
The dissent in Allied Productions gives us pause in applying the
payment rule. Other states, including Maryland, in agreement with
Justice Poff, allow an aggrieved client to sue his lawyer regardless of
whether he has paid the judgment. See Roebuck v. Steuart, supra. Our
task in a diversity case, however, is to apply the substantive law of
the appropriate state, not to question the wisdom of the lawmaker. See
Harbor Court Associates v. Leo A. Daly Co., 179 F.3d 147 (4th Cir.
1999), which pointed out that the task of a federal court sitting in
diversity is to rule upon state law as it exists, not to surmise or sug-
gest its expansion.
8 MCCOUBREY v. KELLOGG
Allied Productions is the most recent pronouncement of the Vir-
ginia Supreme Court on point. It remains for us to consider whether
it continues to be the law of Virginia or whether it has been sup-
planted by legislative enactment. Section 8.01-281 of the Code of Vir-
ginia was amended in 1981, some four years after the Allied
Productions decision. It now reads as follows:
A party asserting either a claim, counterclaim, cross-claim,
or third-party claim or a defense may plead alternative facts
and theories of recovery against alternative parties, provided
that such claims, defenses, or demands for relief so joined
arise out of the same transaction or occurrence. Such claim,
counterclaim, cross-claim, or third-party claim may be for
contribution, indemnity, subrogation, or contract, express or
implied; it may be based on future potential liability, and it
shall be no defense thereto that the party asserting such
claim, counterclaim, cross-claim or third-party claim has
made no payment or otherwise discharged any claim as to
him arising out of the transaction or occurrence.
Va. Code Ann. § 8.01-281 (Michie 2000) (as amended in 1981 Va.
Acts of the General Assembly of the Commonwealth of Virginia)
(emphasis added to represent amended language). McCoubrey urges
us to hold that this amendment implicitly overruled Allied Produc-
tions and repudiated the payment rule.
In Jones v. Hyatt Legal Services, 38 Va. Cir. 140 (1995), a Virginia
trial court accepted the proposition McCoubrey presses upon this
court. In Jones, the plaintiff contended that the defendant had negli-
gently failed to represent him properly in a prior case, resulting in a
judgment against him for $1,160,000 which he had not paid. Relying
on Allied Productions, defendant moved to dismiss. The court held
that, under the plain meaning of § 8.01-281, as amended, the plaintiff
could bring a claim for "future potential liability" which might
include future payments he was required to make because of his law-
yer’s malpractice.
Another Virginia trial court, in a decision subsequent to Jones, took
a different approach. Pilkington v. NVC of Vienna, Inc., 1999 WL
MCCOUBREY v. KELLOGG 9
1499537 (Va. Cir. Ct.), was not an attorney malpractice case, but the
court did have occasion to construe § 8.01-281. The court said:
This section and the corresponding Supreme Court rule,
Rule 3.10(a), merely authorize litigation of these claims in
the underlying action as a means of promoting judicial econ-
omy. They neither mandate the filing of all such claims in
the underlying action nor affect the settled principle that the
rights to contribution and indemnification otherwise arise
only upon payment or discharge of the joint obligation.
(citation omitted).
Pilkington, at 3.
We believe that the decision of Virginia’s highest court in Gemco-
Ware, Inc. V. Rongene Mold and Plastics Corp., 234 Va. 54, 360
S.E.2d 342 (1987), is a clear indication that, if confronted with the
question today, that court would follow Pilkington and reject Jones.
Gemco-Ware was a products liability action against the manufacturer
of a teakettle that had come apart in use and spilled boiling water on
the complainant. Gemco-Ware filed third-party claim for indemnity
against Rongene Mold and Plastics, the maker of the teakettle’s han-
dle. The court held that, under § 8.01-281, a claim based on future
potential liability could be asserted by way of a third-party complaint.
The court observed, however, that the provision for such a claim in
the statute is a procedural device designed to promote judicial econ-
omy and has no effect on substantive law. The court said that "[o]ne
federal district court sitting in Virginia has correctly construed the
effect of these procedural measures, while another has erroneously
interpreted their effect." Gemco-Ware, Inc., 360 S.E.2d at 344. The
case construing it correctly was In re FELA Asbestos Litigation, 638
F. Supp. 107, 114 (W.D. Va. 1986), in which Judge Kizer held that
a cause of action for indemnity accrues at the time of the indemnitee’s
injury, rather than at the time of the original plaintiff’s injury. Section
8.01-281 does not, he opined, change that rule. "In my view," the
court said, "the 1981 amendment to Va. Code § 8.01-281 is a proce-
dural device for the sake of judicial economy. It just allows third-
party plaintiffs to make these indemnity claims before the actual
claim has technically accrued."
10 MCCOUBREY v. KELLOGG
Accordingly, we conclude that the Supreme Court of Appeals of
Virginia, if called upon to determine whether the 1981 amendment to
§ 8.01-281 changes the payment rule of Allied Productions, would
hold that it does not. 638 F. Supp. at 114.
C. Due Process
McCoubrey’s final argument is based on the due process clause.
The Virginia period of limitations for legal malpractice claims is,
upon the facts of this case, three years. MacLellan v. Throckmorton,
235 Va. 341, 367 S.E.2d 720 (1988). The inception of this period
under Virginia law is the point at which the attorney’s employment
by the claimant ends. See Keller v. Denny, 232 Va. 512, 352 S.E.2d
327, 330 (1987). In McCoubrey’s case, the statute began to run in
September, 1997, when he discharged the Kellogg firm and replaced
it with Hopkins & Sutter. Therefore, the limitations period expired
before McCoubrey’s cause of action, under the payment rule, accrued.
This issue, however, is not ripe for adjudication. The time to raise
it would be when McCoubrey’s suit, after he has paid the judgment
and obtained the right to sue, is attacked as coming too late. It is at
that time in that suit, not now in this suit, that his due process rights
would be implicated. The application of the statute of limitations in
a given suit, not its potential to bar a future suit, is what raises a due
process claim. See Keller v. Denny, 352 S.E.2d at 332.
Accordingly, the judgment of the district court is
AFFIRMED.