DocketNumber: Civil Action No. 1:13-CV-3925-TWT
Citation Numbers: 26 F. Supp. 3d 1311
Judges: Thrash
Filed Date: 6/10/2014
Status: Precedential
Modified Date: 7/25/2022
OPINION AND ORDER
This is a legal malpractice case arising out of services provided by the Defendants to Lighthouse Financial Partners, LLC. The Plaintiff, Lighthouse’s Receiver, argues that the Defendants were awáre that Lighthouse was not complying with applicable regulations; and that they were legally obligated to violate their duty of confidentiality and inform the' regulatory authorities of the non-compliance. The Plaintiff argues that failure to do this allowed Benjamin DeHaan to continue stealing from Lighthouse’s clients. The case is before the Court on the Defendants Page Perry, LLC, J. Steven Parker, and Robert D. Terry’s Motion to Dismiss [Doc. 11] and the Defendants Daniel I. MacIntyre, Alan R. Perry, Jr., and the Estate of J. Boyd Page’s Motion to Dismiss [Doc. 12], For the reasons set forth below, the Motions to Dismiss are both GRANTED.
On February 1, 2018, Benjamin De-Haan — the former manager and majority owner of Lighthouse Financial Partners, LLC — pled guilty to one count of wire fraud.
From 2008 until 2012, the Defendant Page Perry, LLC represented Lighthouse.
Another mock audit took place in August of 2011.
On December 14, 2011, Lighthouse received notice that the Georgia Securities Commissioner planned to audit Lighthouse’s records. The Commissioner’s office asked to see the client account statements from Interactive Brokers or TD Ameritrade. On February 23, 2012, Lighthouse asked Parker for assistance. Parker drafted an email that Lighthouse sent to the auditor. This e-mail indicated that “DeHaan had been unable to obtain the client statements because TD Ameritrade had provided Lighthouse with the wrong phone numbers.”
The SEC filed a civil enforcement action against Lighthouse and DeHaan.
II. Legal Standard
A complaint should be dismissed under Rule 12(b)(6) only where it appears
“[T]he analysis of a 12(b)(6) motion is limited primarily to the face of the complaint and attachments thereto.”
III. Discussion
A. Professional Malpractice
The Plaintiff claims that the Defendants’ professional malpractice proximately caused the harm that Lighthouse suffered from DeHaan’s theft of client funds. The Plaintiffs response to the Motion to Dismiss begins with a blatant misstatement of the law: that in ruling on a motion to dismiss, this Court is bound by O.C.G.A. § 9-11-9.1. No authority for this preposterous statement is given. Of course, federal law determines the pleading standard in ruling on a motion to dismiss in federal court. To establish a legal malpractice claim, “the client has the burden of establishing three elements: (1) employment of the defendant attorney, (2) failure of the attorney to exercise ordinary care, skill and diligence, and (3) that such negligence was the proximate cause of damage to the plaintiff.”
If a lawyer for an organization knows that an officer ... associated with the organization is engaged in action ... related to the representation that is ... a violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization. Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to higher authority in the organization, including, if warranted by the circumstances, to the highest authority that can act on behalf of the organization as determined by applicable law.39
To begin, the Georgia Supreme Court has made clear that the GRPC rules do not independently constitute legal duties which give rise to malpractice claims.
The Plaintiff tries to argue that the “highest authority” was the SEC or the Georgia Securities Commissioner. The Plaintiff cites no authority for this argument and it is entirely without merit. Rule 1.13 clearly states.that “the lawyer shall refer the matter to higher authority in the organization, including ... to the highest authority that can act on behalf of the organization.” That the Receiver may now act on behalf of Lighthouse is immaterial. The Receiver did not have such authority when there was an attorney-client ■relationship between the Defendants and Lighthouse. GRPC Rule 1.13(c) makes clear that, in this circumstance, disclosure to an external agency is permissive but not mandatory: “if ... the highest authority that can act on behalf of the organization ... fails to address ... an action ... that is clearly a violation of law, and ... the lawyer reasonably believes that the violation is reasonably certain to result in substantial injury to the organization, then the lawyer may reveal information relating to the representation....”
The Bullard Affidavit relies upon a nonexistent duty and can be entirely disregarded. The Plaintiffs central claim that Defendants were affirmatively required to reveal regulatory non-compliance to the government agencies regulating Lighthouse is unsupported by any legal authority. Significantly, in his response to the Motion to Dismiss, the Plaintiff fails to identify a single case or statute even intimating that Georgia lawyers have a duty to blow the whistle on their, clients to regulators. In fact, Georgia law — preferring a policy that encourages the confidentiality of information obtained during the attorney-client relationship — never obligates a lawyer to report even the most serious client misconduct to regulators. A lawyer is not even permitted to report his client except in the most limited circumstances — circumstances Page Perry never faced during its representation of Lighthouse until the very end when the lawyers persuaded DeHaan to allow them to report his theft of client funds to the SEC.
The Plaintiffs theory — that Page Perry had to inform on Lighthouse of suspected or known regulatory violations — would put every corporate lawyer in a position of policing his client and turning it in to authorities despite the Bar Rules under
Disregarding the wild exaggerations, implausible inferences and selective quotations from e-mails, the Plaintiff fails to allege facts showing a single instance in which the Page Perry lawyers gave Lighthouse bad advice. The Plaintiff argues that the Defendants breached their duty of care by performing deficient mock audits. But even assuming this to be true, the Complaint does not state a causal link between this alleged breach and Lighthouse’s subsequent damages. To the contrary, the Complaint makes clear that Lighthouse’s compliance issues were not caused by inadequate legal advice, but by DeHaan’s decision to flout applicable regulations to further his fraudulent scheme, and then lie to his clients and his lawyers. In fact, as explained above, the Defendants did notify DeHaan of the potential noncompliance and DeHaan ignored their advice. The Complaint fails to indicate how a more adequate mock audit, by itself, would have prevented DeHaan’s criminal conduct. Consequently, the Plaintiff would not be entitled to recovery for this alleged breach.
Finally, the Plaintiff argues that the Defendants breached their duty of care to Lighthouse by representing DeHaan before the SEC even though his interests were adverse to those of Lighthouse. But again, there is no causal link between this alleged breach and the damages that Lighthouse suffered. The Complaint does not explain, with any specificity, how the
B. Breach of Fiduciary Duty and Breach of Contract
The Plaintiffs remaining claims are duplicative of the professional malpractice claim. Georgia courts routinely dismiss fiduciary duty and contract claims when they rely on the same allegations and implausible inferences as in the legal malpractice claim.
The Plaintiff also asserts his professional malpractice, fiduciary duty, and contract claims against the Estate of J. Boyd Page and Perry individually. To begin, there is no allegation that Page or Perry ever performed any direct services for Lighthouse. Perhaps recognizing this, the Plaintiff relies on theories of vicarious liability. He argues that Page and Perry are liable for the alleged malpractice of other attorneys at the law firm. But the Plaintiff acknowledges that Page Perry was a limited liability company, and Georgia law makes clear that “[a] person who is a member, manager, agent, or employee of a limited liability company is not liable, solely by reason of being a member, manager, agent, or employee of the limited liability company ... for the acts or omissions of any other member ... of the limited liability company, whether arising in contract, tort, or otherwise.”
In response, the Plaintiff first argues that Page and Perry are directly liable because they collaborated with the other attorneys at the firm in deciding how to counsel Lighthouse once the state investigation took place. He also argues that Page and Perry must have discussed Lighthouse at meetings within the law firm, and must have had input in the decision to represent DeHaan before the SEC. These allegations are not stated in the Complaint. And contrary to the Plaintiffs assertion, these are not reasonable inferences. There is no basis for assuming that Page and Perry played a material role in the services provided to every client of the firm.
Second, the Plaintiff appears to jettison his negligent supervision claim, and substitute it with a standard negligence claim based upon the “voluntary undertaking” rule: “when one undertakes an act which he has no duty to perform and another reasonably relies upon that undertaking, the act must generally be performed with reasonable care.”
Finally, the Plaintiff also, asserts malpractice, fiduciary duty, and contract claims against MacIntyre based on his representation of DeHaan before the SEC. However, as explained above, there is no causal link between this representation and any of the damages that Lighthouse suffered. There is also no indication of what MacIntyre specifically advised De-Haan to do, or how it affected Lighthouse in any way. Accordingly, the Plaintiff’s claims against the Estate of J. Boyd Page, Perry, and MacIntyre should be dismissed.
IV. Conclusion
For these reasons, the Court GRANTS the Defendants Page Perry, LLC, J. Steven Parker, and Robert D. Terry’s Motion to Dismiss [Doc. 11] and GRANTS the Defendants Daniel I. MacIntyre, Alan R. Perry, Jr., and the Estate of J. Boyd Page’s Motion to Dismiss [Doc. 12].
. Compl. ¶ 28.
. Compl. ¶ 17.
. Compl. ¶ 16.
. Compl. ¶ 16.
. Compl. ¶ 16.
. Compl. ¶ 17.
. Compl. ¶ 18.
. Compl. ¶ 41.
. Compl. ¶ 17.
. Compl. ¶ 32.
. Compl. ¶ 36.
. Compl., Ex. 2.
. Compl. ¶¶ 43-45.
. Compl. ¶ 46.
. Compl., Ex. 10 (emphasis added).
. Compl. ¶ 53.
. Compl. ¶ 53.
. Compl. ¶ 55.
. Compl. ¶ 58.
. Compl. ¶ 60.
. Compl. ¶ 61.
. Compl. ¶ 63.
. Compl. ¶ 80.
. Compl., Ex. 29.
. Compl. ¶ 93.
. Compl. ¶ 94.
. Compl. ¶ 27.
. The Plaintiff seeks to hold Alan R. Perry, Jr. and the Estate of J. Boyd Page liable on a theory of supervisory liability.
. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009); Fed. R. Civ. P. 12(b)(6).
. Bell Atlantic v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
. See Quality Foods de Centro America, S.A. v. Latin American Agribusiness Dev. Corp., S.A., 711 F.2d 989, 994-95 (11th Cir.1983); Sanjuan v. American Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (7th Cir.1994) (noting that at the pleading stage, the plaintiff “receives the benefit of imagination”).
. See Lombard’s, Inc. v. Prince Mfg., Inc., 753 F.2d 974, 975 (11th Cir.1985).
. See Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081. (2007) (citing Twombly, 127 S.Ct. at 1964).
. Brooks v. Blue Cross & Blue Shield, 116 F.3d 1364, 1368 (11th.Cir.1997).
. Id. at 1369.
. Fortson v. Hotard, 299 Ga.App. 800, 802, 684 S.E.2d 18 (2009) (internal quotation marks omitted).
. Tante v. Herring, 264 Ga. 694, 695, 453 S.E.2d 686 (1994) (emphasis added).
. City of Douglas v. Hudson, 315 Ga.App. 20, 22, 726 S.E.2d 496 (2012).
. Rule 1.13 Organization As Client, Georgia Rules of Professional Conduct (Jan. 1, 2001), http://www.gabar.org/barrules/ handbookdetail.cfm?what=rule&id=97 (emphasis added).
. See Davis v. Findley, 262 Ga. 612, 613, 422 S.E.2d 859 (1992) ("[W]hile the Code of Professional Responsibility provides specific sanctions for the professional misconduct of the attorneys whom it regulates, it does not establish civil liability of attorneys for their professional misconduct, nor does it create remedies in consequence thereof.”); Allen v. Lefkoff, Duncan, Grimes & Dermer, P.C., 265 Ga. 374, 453 S.E.2d 719 (1995) ("[W]e have held that an alleged violation of the Code of Professional Responsibility ... or the Standards of Conduct ... ‘standing alone, cannot serve as a legal basis’ for a legal malpractice action.”).
.Although the Plaintiff alleges otherwise in his Complaint, the attached exhibits expressly contradict these allegations. And “when the exhibits contradict the general and conclusory allegations of the pleading, the exhibits govern.” Griffin Indus., Inc. v. Irvin, 496 F.3d 1189, 1206 (11th Cir.2007).
. See, e.g., PL’s Br. in Resp. to Page Perry, Parker, and Terry’s Motion to Dismiss, at 33 ("DeHaan repeatedly told [the Defendants] that he was not complying with their advice and he gave them the financial statements that plainly showed that he had custody of client funds.”).
. Rule 1.13 Organization As Client, Georgia Rules of Professional Conduct (Jan. 1, 2001), http://www.gabar.org/barrules/ handbookdetail.cfm?what=rule&id=97 (emphasis added).
.The Plaintiff also cites to an affidavit by Mercer E. Bullard in support. Pl.’s Br. in Resp. to Page Perry, Parker, and Terry's Motion to Dismiss, at 42. But "the existence of a legal duty is a question of law, [and] an expert affidavit does not, and cannot, create a legal duty where none existed before.” Diamond v. Department of Transp., 326 Ga.App. 189, 756 S.E.2d 277, 282 (2014) (internal quotation marks omitted).
. See Crowley v. Trust Co. Bank of Middle Georgia, N.A., 219 Ga.App. 531, 532, 466 S.E.2d 24 (1995) ("A client may recover for legal malpractice only if the negligence of the attorney is the proximate cause of damages to the client ... [a]nd if it is shown, without dispute, that a client co.uld have avoided damages resulting from an attorney’s mistake but did not do so, recovery for legal malpractice (as with any other tort) is limited to those losses the client would have suffered had damages been properly mitigated.”).
. Cf. De La Maria v. Powell, Goldstein, Frazer & Murphy, 612 F.Supp. 1507, 1518-19 (N.D.Ga.1985) ("With the exception of ... two allegations, the plaintiff has failed to demonstrate how Mr. Gornall’s alleged conflict of interest manifested itself to the detriment of ... the plaintiff.”).
. Compl. ¶¶ 87, 94.
. The Court notes that in his Response brief, the Plaintiff focuses far too much on what the Defendants might have known, and far too little on what they had a legal obligation to do. In moving to dismiss, the Defendants are arguing that even assuming they were aware that Lighthouse was not in compliance with custody regulations, they were under no duty to do any more than they did.
. See Oehlerich v. Llewellyn, 285 Ga.App. 738, 740-41, 647 S.E.2d 399 (2007) ("[T]he trial court stated that the breach of contract and breach of fiduciary duty claims are based on the allegations that defendants failed to investigate fully the claims- and failed to advise plaintiff properly. As such, 'these allegations clearly call into question the degree of professional skill exercised,' and therefore are duplications of the legal malpractice claim. We agree.”); Griffin v. Fowler, 260 Ga.App. 443, 446, 579 S.E.2d 848 (2003) ("Griffin's breach of fiduciary duty claim is a mere duplication of the malpractice claim and cannot be maintained.”); McMann v. Mockler, 233 Ga.App. 279, 281, 503 S.E.2d 894 (1998) ("The court ruled that the claims were ‘mere duplications of the legal malpractice claim which itself is based on the establishment of a fiduciary, attorney-client relationship that is breached.’ ”); Anderson v. Jones, 323 Ga.App. 311, 318, 745 S.E.2d 787 (2013) ("[T]he [fiduciary duty] claim duplicated her legal malpractice claim: the duties arose from the same source (that is, the attorney-client relationship), were allegedly breached by the same conduct, and allegedly caused the same damages.”).
.See Compl. ¶ 125 ("Page Perry and the individual Defendants breached their fiduciary duty to Lighthouse by treating DeHaan as their client and putting his interest above that of Lighthouse ... and facilitating and participating in .his fraud against Lighthouse, as fully set forth above."); Compl. ¶ 133 (“Page Perry breached the Retainer Agreement by failing to properly advise Lighthouse ... failing to address the material regulatory deficiencies it discovered or should have discovered ... and failing to act in Lighthouse's best interest with respect to known regulatory violations.”).
. O.C.G.A. § 14-11-303.
. Novare Grp., Inc. v. Sarif, 290 Ga. 186, 190-91, 718 S.E.2d 304 (2011).
. Mixon v. Georgia Cent. Ry., L.P., 266 Ga. App. 365, 367, 596 S.E.2d 807 (2004).