IN THE SUPERIOR COURT OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY

Transcription

1 IN THE SUPERIOR COURT OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY ROGER KEITH, CO-EXECUTOR : TO THE ESTATE OF : C.A. NO.: 05C ERNEST V. KEITH, : : Plaintiff, : : v. : : GEORGE A. SIORIS, ESQ., : HENRY A. HEIMAN, ESQ., and : HEIMAN, ABER, GOLDLUST & : BAKER, : : Defendants. : Submitted: October 6, 2006 Decided: January 10, 2007 Kevin W. Gibson, Esq., Gibson & Perkins, P.C., Wilmington, Delaware for Plaintiff. John A. Elzufon, Esq., Elzufon, Austin, Reardon, Tarlov & Mondell, Wilmington, Delaware for Defendants Henry A. Heiman, Esq., and Heiman, Aber, Goldlust & Baker. George A. Sioris, Esq., pro se. Upon Consideration of Defendants Defendants Motion to Dismiss for Lack of Standing DENIED and Motion for Summary Judgment GRANTED OPINION AND ORDER Young, Judge

2 On February 24, 2005, the Plaintiff, Roger Keith, one of the co-executors of the estate of Ernest V. Keith, Esq., filed the underlying legal malpractice lawsuit against George A. Sioris, Esq., Henry A. Heiman, Esq. and Heiman Aber Goldlust & Baker (HAGB) (collectively the Defendants ). The Plaintiff s two count complaint alleges: (1) Negligence against Sioris and Heiman and (2) Respondeat Superior against HAGB. On April 8, 2005, Defendants Heiman and HAGB answered the complaint. Defendant Sioris moved to have the case transferred to Delaware s Federal District Court, however, it was transferred back to Superior Court because the federal court lacked subject matter jurisdiction due to a lack of complete diversity among the parties. On October 4, 2005, Defendant Sioris answered the complaint in the matter before this Court. Subsequently, Defendants Heiman and HAGB filed a motion to dismiss for lack of standing and a motion for summary judgment. Defendant Sioris filed only a motion to dismiss for lack of standing. For the following reasons, the motion to dismiss for lack of standing is DENIED, however, the motion for summary judgment is GRANTED. FACTS The lawsuit underlying the present motion alleges legal malpractice against Sioris, Heiman, and HAGB for their negligent prosecution of the Plaintiff s complaint against Norris Wright, Esq., (Wright) and his firm Morris, James, Hitchens & Williams (MJHW). Wright was retained by John and Marlene Koutoufaris to represent their interests in a complex real estate transaction involving the deceased, Ernest Keith. To understand this lawsuit fully one must review the facts of the 2

3 transaction between Ernest Keith and the Koutoufarises. The Real Estate Transaction In the early 1990s, Ernest Keith owned a tract of land consisting of three contiguous parcels. In 1992, Ernest Keith conveyed one of these parcels to John and Marlene Koutoufaris for $500, No mortgage was executed at the time of the transaction. This may be due to the fact that Marlene Koutoufaris was the daughter of Ernest Keith and is the sister of Roger Keith. On April 7, 1992, the Koutoufarises transferred ownership of the property from themselves to Koutoufaris Enterprises, Inc. Koutoufaris Enterprises then hired High Construction to do site work on the property in an effort to develop the land for a hotel. When High Construction was not paid for its work, the company sued and entered arbitration proceedings. High Construction ultimately prevailed, receiving an award of $130,000 on June 9, The next day, Koutoufaris Enterprises executed a mortgage in favor of Ernest Keith for the property in the amount of $485,350. The mortgage was drafted for the Koutoufarises by the law firm of Dodge & O Brien, in an effort to secure Ernest Keith s interest ahead of the High Construction s recording of the arbitration award. The mortgage states, in relevant part, that the mortgagee does hereby agree to release this mortgage upon payment of $25,000 to mortgagee by mortgagor. 2 The Koutoufarises began experiencing financial difficulties, became unable to develop the property into a hotel, and decided to sell. Talks began with representatives of voncroy Trust, which was interested in purchasing the entire three 1 During this transaction Ernest Keith served as his own attorney. 2 Again, Ernest Keith represented himself in this matter. 3

4 parcel tract; both the Koutoufaris property and the two parcels held by Ernest Keith. In May 1994, the Koutoufarises retained Wright and his firm, MJHW to assist them with personal and business matters. During this time, the Koutoufaris financial problems worsened, and the company began defaulting on its obligations, including the mortgage held by Ernest Keith. According to Roger Keith, who was involved with the process and served as Ernest Keith s agent, his father considered foreclosure but decided against it because it would mess up the refinancing the Koutoufarises were doing. Apparently the Koutoufarises were attempting to refinance a loan to consolidate their debt, after becoming the victim of a loan scam in late By June 1994, the Koutoufarises thought they had secured a source for a refinancing loan. As the Koutoufarises were in the process of settling the loan in October 1994, their creditors began hounding them. Wright sent these creditors, including Ernest Keith, a form letter explaining the impending nature of the refinancing loan. 3 At the same time, an agreement to sell the property to the voncroy Trust was reached and settlement was held on October 7, With the proceeds from the sale of the property, the Koutoufarises were able to pay Ernest Keith $50,000 toward the $485,350 mortgage. Upon receipt of the $50,000, Ernest Keith, by the terms of the mortgage, then released the mortgage in exchange for a promissory note personally executed by the Koutoufarises. The Koutoufarises had 3 Prior to the issuance of letter the Plaintiff alleges personal consultation between Roger Keith, acting as Ernest Keith s agent, and Norris Wright. During this consultation, Roger Keith was assured of the forthcoming nature of the Koutoufarises loans. Plaintiff argues that it was because of this consultation and the letter that his father did not foreclose on the mortgage and that the mortgage release was ultimately executed. 4

5 hoped that they would also receive the refinancing loan by this date, so they could pay off the promissory note immediately. As it turned out, the loan was part of another scam. The Koutoufarises found themselves without the money necessary to settle their debts. By February 1995, the Koutoufarises were forced to file Chapter 11 bankruptcy. On May 16, 1996, Ernest Keith passed away. Pursuant to Ernest Keith s will, Roger Keith (his son), David Buckson, (his lawyer), and Donna Baker, (his secretary), were named co-executors of his estate. The Bankruptcy Court Action Against Wright and Morris, James With no payment on the promissory note forthcoming and the Koutoufarises in bankruptcy, Roger Keith, as co-executor of Ernest Keith s estate, hired Sioris, a New York attorney who associated with Heiman as local counsel, to sue Wright and his firm, MJHW, for legal malpractice. The complaint, filed as an Adversary Proceeding in Delaware s Bankruptcy Court, alleged legal malpractice based in part on Wright s letter to the Koutoufarises creditors, including Ernest Keith, stating the imminence of the refinancing loan in October Wright and MJHW moved for summary judgement, which the Bankruptcy Court granted. In doing so, the Court stated: The complaint says that the estate was paid more than was required in the release and I m not sure how there could be any reliance even if there was a malpractice. So, I believe the complaint as to the Estate of Keith does have to be dismissed. I see no basis in law or in fact for the complaint to ride through these issues. The Plaintiff, through counsel, timely filed a notice of appeal with the District Court. 5

6 That appeal was dismissed due to the Plaintiff s failure to prosecute, which occurred because Plaintiff s counsel neglected to file an appellate brief within the time allotted. The Plaintiff, through counsel, timely filed a notice of appeal of the District Court s decision to dismiss with the Third Circuit Court of Appeals, which affirmed. The Present Action At the close of the appeal process, Roger Keith, acting on his own as a coexecutor of Ernest Keith s estate, filed the complaint which is the subject of Defendants Motion for Summary Judgment. The Plaintiff, Roger Keith, alleges that Sioris and Heiman committed legal malpractice by failing: (1) to bring a cause of action for Breach of Fiduciary Duties; (2) to properly prosecute the case against Norris Wright and Morris, James; (3) to properly conduct discovery in aid of prosecuting the underlying case; (4) to secure a qualified expert to prove legal malpractice; (5) to file timely pleadings, briefs as required by the Courts; and (6) to attend all hearings and arguments scheduled before the Courts. The Defendants answered the complaint. Separate motions followed. Heiman and HAGB filed a motion to dismiss for lack of standing and a motion for summary judgment. A hearing on this motion was held on Friday, October, 6, Following the hearing, Sioris filed a motion to dismiss for lack of standing, but did not move for summary judgment. DISCUSSION The Court will individually address the two motions before it, beginning with the Defendants Motion to Dismiss due to a lack of standing and then addressing 6

7 Heiman and HAGB s Motion for Summary Judgment. The Defendants Motion to Dismiss The Defendants contend that the Plaintiff lacks standing to prosecute the complaint and, therefore, ask that the case be dismissed. Standing is an issue of state subject matter jurisdiction. 4 Our Courts apply the concept of standing, but as a matter of self-restraint to avoid the rendering of advisory opinions, rather than as a stated constitutional requirement. 5 The Defendants standing argument is based on two Delaware court decisions, May v. DuPont and Jones v. Taylor. In the first, May v. DuPont, the Delaware Supreme Court was faced with a question as to the power of co-executors to distribute the residuary estate under 12 Del. C following the Court of Chancery s ruling that a majority of the co-executors could act to distribute the residuary. 6 Court, overturning the Court of Chancery s ruling, held: The basic proposition is that in the regular course of the administration of an estate, the act of one co-executor is binding on all and one may act for all; but an act not in the regular course of administration may not be performed by less than all co-executors, particularly over the objection of a co-executor. By definition, the word regular means uniform in course, practice or occurrence; routine; systematic; customary; not exceptional or unusual; normal. 7 The May 4 Murphy v. United Services Auto Ass n, 2005 WL , at *2 (Del. Super.). 2003). 5 Dover Historical Soc y v. City of Dover Planning Comm n, 838 A.2d 1103, 1111 (Del. 6 May v. DuPont, 216 A.2d 870, 871 (Del. 1966). 7 Id. at

8 Upon reviewing the statute at issue, the Court concluded that delivery of the residuary assets does not fall within the regular course of the administration of an estate. 8 Therefore, the Court held that there was no support for the Court of Chancery s majority rule and that unanimous action by all the executors was required in that instance. 9 The Court stated that it would not allow this unanimity requirement to obfuscate the administration of an estate. Instead, it placed the Court of Chancery in charge of granting appropriate relief under its general jurisdiction over fiduciaries, with proper protective devices for all concerned. 10 In the second decision cited by the Plaintiff, Jones v. Taylor, the defendants argued to the Delaware Court of Chancery, in the context of a stockholder derivative action arising out of a plaintiff s expectant legacy in stock, that the Delaware Supreme Court s decision in May controlled and the court had to find the plaintiff was without standing to bring the suit. 11 The Court of Chancery, interpreting May, stated that the Supreme Court held that before a co-executor can bring an action on behalf of the estate, he must request the other co-executor to join in, and if the latter declines to do so, the former must apply to [the Court of Chancery] for authorization 8 Id. at Id. 10 Id. at Jones v. Taylor, 348 A.2d 188, 192 (Del. Ch. 1975). 8

9 to bring suit on his own. 12 The Court of Chancery concluded that despite the fact the plaintiff in this case did not follow the procedure the action did not need to be dismissed because she filed the action in her own name and not as co-executor. 13 Thus, the Court did not dismiss the action for lack of standing. 14 Turning to the case at bar, this Court will also not dismiss the matter for lack of standing. At the October 6 motion hearing, the parties agreed that neither of the other two co-executors objected to the action taken by Roger Keith. The inference in the May Court s holding is that, when the action of a single co-executor is not objected to by the other co-executors, an act not in the regular course of administration of an estate may still be performed. Regardless of whether this lawsuit is within the regular course of administration of an estate or not, the act was not objected to by either of the other co-executors. Indeed, the evidence indicates it was actually assented to by both. Therefore, because Roger Keith, acting as a coexecutor, has standing to sue, the Defendants motion to dismiss for lack of standing is DENIED. Heiman and HAGB s Motion for Summary Judgment Summary judgment should be rendered if the record shows that there is no genuine issue as to any material fact, and the moving party is entitled to judgment as 12 Id. 13 Id. 14 Id. 9

10 a matter of law. 15 The facts must be viewed in the light most favorable to the nonmoving party. 16 Summary judgment may not be granted if the record indicates that a material fact is in dispute, or if it seems desirable to inquire more thoroughly into the facts in order to clarify the application of the law to the circumstances. 17 However, when the facts permit a reasonable person to draw but one inference, the question becomes one for decision as a matter of law. 18 initially borne by the moving party. 19 The burden of proof is However, if the movant can make such a showing, the burden shifts to a non-moving party to demonstrate that there are material issues of fact. 20 If, as in this case, the non-moving party is the party who will bear the burden of persuasion at trial, then, to survive summary judgment, that party is obliged to point to facts in the record that will support its prima facie case at trial. 21 In resisting the motion, the non-movant s evidence of material facts, or the significance of them, in dispute must be sufficient to withstand a motion for judgment 15 Super. Ct. Civ. R. 56(c). 16 Guy v. Judicial Nominating Comm n, 659 A.2d 777, 780 (Del. Super. 1995). 17 Ebersole v. Lowengrub, 180 A.2d 467, (Del. 1962). 18 Wootten v. Kiger, 226 A.2d 238, 239 (Del. 1967). 19 Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979) (citing Ebersole v. Lowengrub, 180 A.2d 476 (Del. 1962)). 20 Id. at 681 (citing Hurtt v. Goleburn, 330 A.2d 134 (Del. 1974)). 21 Burkhart v. Davies, 602 A.2d 56, 59 (Del. 1991) (citing Celotex Corp. v. Catrett, 477 U.S. 317, (1986)); See also Hynansky v. Vietri, 2003 WL , at *2 (Del. Ch.) ( In the face of a properly supported motion for summary judgment, the non-moving party must produce evidence that creates a triable issue of fact or suffer the entry of judgment against it. ). 10

11 as a matter of law and must support the verdict of a rational jury. 22 Heiman and HAGB argue that the motion for summary judgment must be granted, because Plaintiff has failed to prove all of the elements of legal malpractice. In Delaware, to prevail in a legal malpractice case, a plaintiff-client must meet each prong of a three element test, which includes proving: (1) the employment of the attorney; (2) the attorney s neglect of a reasonable duty; and (3) the fact that such negligence resulted in and was the proximate cause of loss to the client. 23 Heiman and HAGB apparently concede the first two elements, as against them. They rest their motion on the argument that even if Heiman s acts of malpractice had not occurred, the Plaintiff would still have lost the underlying legal malpractice case against Wright and MJHW. Thus, the plaintiff must prove only the third element. To accomplish this, the plaintiff must demonstrate that but for his lawyer s negligence, he would have been successful in the prosecution or defense of the underlying action. 24 From a reading of the Complaint and the briefs submitted on this motion, it appears that the Plaintiff is alleging that the Defendants are negligent through their 22 Lum v. Anderson, 2004 WL , at *2 (Del. Super.) (citing James W. Moore et. al., Moore s Federal Practice 56.03[3], at (3d ed. 2003)). 23 Weaver v. Lukoff, 1986 WL 17121, at *1 (Del.) (citing Pusey v. Reed, 258 A.2d 460, 461 (Del. 1969), overruled on different grounds, Starun v. All American Engineering Co., 350 A.2d 765, 768 (Del. 1978)). 24 Trader v. Streett, 1997 WL , at * 2 (Del. Super.); See also, Pusey v. Reed, 258 A.2d 460, 461 (Del. 1969), overruled on different grounds, Starun v. All American Engineering Co., 350 A.2d 765, 768 (Del. 1978). 11

12 failure to do certain acts 25 associated with the prosecution of the legal malpractice claim, and through their failure to bring a cause of action against Wright and MJHW for Breach of Fiduciary Duties. For the Plaintiff to prevail on the first allegation of negligence in the present case, he must prove that but for the Defendants negligent handling of the case he would have prevailed in the underlying case, the legal malpractice action against Wright and MJHW. Likewise, for the Plaintiff to prevail against the Defendants for their failure to allege a Breach of Fiduciary Duties, the Plaintiff must show that, but for Defendants failure, he would have prevailed against Wright and MJHW on this theory. First, turning to the underlying legal malpractice action against Wright and MJHW, the Court finds that because the Plaintiff could not have prevailed in that case, summary judgment is appropriate. In order to prevail against Wright and MJHW, the Plaintiff would have to prove the three elements of legal malpractice: duty, breach, and causation. It is generally held that a claim for professional negligence will fail when a third party brings an action against an attorney because beyond the duty owed to their client and the Court, no other duty is owed by an attorney. 26 However, the courts have recognized certain exceptions to the general 25 The Plaintiff alleges that these acts include: failing to properly conduct discovery in aid of prosecuting the underlying case; failing to secure a qualified expert to prove legal malpractice; failing to timely file pleadings, briefs, and filing as require by the Courts; and failing to attend all hearings and arguments scheduled before the Courts. 26 Nichols v. Twilley, Street & Braverman, P.A., 1991 WL , at * 2 (D. Del.). 12

13 rule. 27 Thus, a duty to a non-client will arise if the complaining party can show there was fraud or collusion on the part of the attorney, privity of contract with the attorney or that they were an intended beneficiary of the attorney s services. 28 Regardless of these exceptions, the courts remain unwilling to extend an attorney s duty when an adversarial relationship exists between the parties. When it does, reliance does not exist. 29 In the present case, the Plaintiff attempts to take himself outside the general rule by arguing Ernest Keith relied on the statements by Wright to his detriment by abstaining from foreclosing on the mortgage. The question for the Court then becomes whether or not, as a matter of law, the relationship between Ernest Keith, as mortgagee, and the Koutoufarises, as mortgagor, was an adversarial one. Wright made statements to Keith, because Keith stated a desire to foreclose on the property subject to the mortgage. The Koutoufarises needed to retain possession of the property in order to receive the much needed loan. In order to prevent foreclosure, they asked their attorney, Wright, to inform Keith, and other creditors, about the impending nature of the loan. It was in the process of defending the Koutoufarises from threatened foreclosure that Wright made the statements upon which Keith 27 Delaware has not abandoned the requirement of privity outright, but it has acknowledged that strict privity invites overly harsh results. Pinckney v. Tigani, 2004 WL , at *8 (Del. Super.). Thus, it appears that the federal District Court s statement on Delaware legal malpractice law, and its allowance for exceptions to privity, is correct. 28 Nichols, 1991 WL , at * Id. (quoting Conservation Club of Washington v. Finklestein, 738 F. Supp. 6, 10 (D. D.C. 1990) ( [An] attorney owes his primary and paramount duty to his client. The very nature of the adversarial process precludes reliance by opposing parties. )). 13

14 allegedly relied. Whatever else the relationship might have been at other times, when this threat was made the relationship between the Koutoufarises and Keith was directly adverse. 30 Because the relationship was adverse, there can be no duty or reliance. Without a duty, a legal malpractice action against Wright and MJHW could not be sustained, and without success against Wright, there can be no success against the Defendants. Therefore, summary judgment is appropriate. Turning to the issue of the Defendants failure to allege a Breach of Fiduciary Duties claim, in order for the Plaintiff to have prevailed on this claim in the Bankruptcy Court action, he would have had to prove, by a preponderance of the evidence, that (1) a fiduciary duty existed and (2) a fiduciary breached that duty. 31 In order for the Plaintiff to recover in a legal malpractice claim based on the Defendant s failure to file such a claim, the Plaintiff has to prove that but for the Defendants negligence in failing to file such a claim, he could have prevailed on the claim. The Delaware Supreme Court has stated that the fiduciary duty arises in fiduciary relationships where one person reposes special trust in another or where 30 Other courts have found an adversarial relationship existing between a mortgagor and a mortgagee at other times. For example, in Federal Sav. and Loan Corp. V. Anderson,1990 WL (E.D. La.), and Cramer v. Metropolitan Sav. Ass., 357 N.W.2d 51, (Mich. App. 1983), an adversarial relationship was held to have existed during foreclosure proceedings. Furthermore, in Flaherty v. Weinberg, 492 A.2d 618 (Md. 1985), an adversarial relationship was found to have existed during the mortgage process itself. 31 Heller v. Kiernan, 2002 WL , at *3 (Del. Ch.). 14

15 a special duty exists on the part of one person to protect the interests of another. 32 It should be noted that the Court of Chancery has held that attention must be paid to the word special lest the statement be thought to describe too broadly Chancery s concerns with relationships where an element of trust, as commonly understood, is present. 33 Delaware law has acknowledged various relationships as proper fiduciary relationships, for example: attorney and client, general partners, administrators or executors, guardians, and principals to their agents. 34 In the present case, the Plaintiff argues that the relationship between Ernest Keith, as mortgagee, and the Koutafaris, as mortgagors, was a fiduciary relationship and that because of that relationship Wright and MJHW, the Koutoufarises attorneys, owe fiduciary duties to Ernest Keith. 35 Thus, again the Court s attention turns to the issue of duty and its boundaries. As the Delaware Supreme Court noted, agreeing with the Court of Chancery decision it was reviewing, the Court is mindful of the fact that normal business dealings can sometimes take on certain aspects of a fiduciary relationship. At the same time, however, it is vitally important that the exacting standards of fiduciary duties not be extended to quotidian commercial 32 Wal-Mart Stores v. AIG Life Ins. Co., 901 A.2d 106, 113 (Del. 2006) (quoting Wal- Mart Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611, 624 (Del. Ch. 2005)). 33 Heller, 2002 WL at *3 (quoting McMahon v. New Castle Associates, 532 A.2d 601, 604 (Del.1987)). 34 Bird s Const. v. Milton Equestrian Center, 2001 WL , at *4 (Del. Ch. 2001). 35 It should be noted that the Plaintiff does not argue that an attorney-client relationship existed so as to give rise to a fiduciary duty. 15

16 relationships. 36 In a nation where the economy is based on consumer spending, there is no more ordinary commercial relationship than the debtor-creditor relationship. Our neighboring sister States agree, and their courts have stated that as a general rule there is no fiduciary relationship between a debtor and a creditor, i.e., also a mortgagee and a mortgagor and, therefore, there can be no breach of fiduciary duty claim. 37 Because the Plaintiff s Breach of Fiduciary Duties claim is not supported by the case law, a victory in the Bankruptcy court action was impossible. Without a victory in that case, the Plaintiff cannot prove causation to support a legal malpractice action against the Defendants. Therefore, summary judgment is also appropriate as to this claim. Accordingly, the Defendants Motion to Dismiss is DENIED, however, Heiman and HAGB s Motion for Summary Judgment is GRANTED as to all the claims in the complaint and the matter is DISMISSED. 38 SO ORDERED. RBY/sal oc: Prothonotary cc: Opinion Distribution /s/ Robert B. Young J. 624). 36 Wal-Mart Stores, Inc., 901 A.2d at 113 (quoting Wal-Mart Stores, Inc., 872 A.2d at App. Div.). 37 Margulies v. Chase Manhattan Mortg. Corp., 2005 WL , *2 (N.J. Super. Ct. 38 Although Mr. Sioris did not file a motion for summary judgment, he is entitled to the benefit of the Court s grant of Heiman and HAGB s motion. 16