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WOLCOTT v. GINSBURG

August 7, 1990

E. KEENE WOLCOTT, et al., Plaintiffs,
v.
DAVID GINSBURG, et al., Defendants


John H. Pratt, United States District Judge.


The opinion of the court was delivered by: PRATT

JOHN H. PRATT, UNITED STATES DISTRICT JUDGE

 Plaintiffs bring this legal malpractice action for breach of fiduciary duty, negligence and fraudulent concealment. This matter comes before the Court on defendant law firm's second motion for summary judgment. Upon consideration of defendants' motion, plaintiffs' opposition thereto, the entire lengthy record in this case, and for the reasons stated below, defendants' motion is granted in part and denied in part. Summary judgment is entered in favor of defendants with respect to any recovery from the Marks-Miron financial arrangement. In all other respects defendants' second motion for summary judgment is denied.

 Background

 The essential facts are fully set forth in this Court' s Memorandum Opinion of September 23, 1988, 697 F. Supp. 540, and need only be summarized here. Plaintiffs E. Keene Wolcott and Daniel B. Nelsen, Jr. are two of fourteen original limited partners who entered into a partnership known as "Desert Exploration '76" ("DE'76" or "the Partnership"). Plaintiffs bring this suit derivatively, *fn1" seeking to enforce alleged rights of the partnership against defendants. *fn2" DE'76 was created to profit from a contract with the State of Israel for the exploration, development and production of petroleum in an area of the Gulf of Suez. In February 1980, a contractual dispute arose between DE'76 and the State of Israel. DE'76 filed a request for arbitration and hired defendant law firm of Ginsburg, Feldman and Bress, Chartered ("GF&B" or "defendant law firm"), to represent the partnership in the arbitration proceeding. As part of its request for arbitration, DE'76 designated a party-appointed arbitrator, Professor Abram Chayes.

 The Attorney General for the State of Israel notified DE'76 counsel in the Summer of 1982 that Israel intended to terminate the arbitration proceedings, based upon DE'76's failure to disclose, for more than two years, a "retainer agreement" between the Partnership and its party-appointed arbitrator. *fn3" Israel moved in the District Court for Tel Aviv-Jaffa shortly thereafter seeking an order confirming the State's decision to terminate the arbitration. On July 30, 1982, the Tel Aviv-Jaffa District Court issued a decision holding that Israel's termination of the arbitration was proper. *fn4" Counsel for DE'76 filed an appeal to the Supreme Court of Israel. A ten million dollar settlement agreement was ultimately reached between the parties, and the appeal was withdrawn. In 1983 the Supreme Court in Jerusalem granted the parties' joint petition to vacate the decision of the Tel Aviv-Jaffa District Court, consistent with the terms of the DE-Israeli settlement agreement. *fn5"

 The partnership voted to condition the distribution of proceeds from the Israeli settlement upon each partner's signing a release discharging the general partners of DE'76 and the Board of Directors of DE'76 from all future liability. *fn6" Each of the limited partners signed a release, and received their monies. After a "winding up" period of approximately seven months, the remaining assets were distributed to the partners, and the partnership was terminated. Plaintiffs filed this suit April 5, 1985, some eighteen months after the partnership was dissolved. The Verified Amended Complaint, filed April 26, 1986, asserts derivative claims on behalf of DE'76 against GF&B and its partners. *fn7"

 Plaintiffs allege that the law firm defendants breached their fiduciary duty as attorneys (Count I), and acted negligently in their representation of DE'76 (Count II), by making the unlawful payment to the arbitrator and calling for funds to prosecute the arbitration without revealing the payment or the possible negative impact of its subsequent disclosure on the arbitration. Plaintiffs assert that as a result of defendants' actions they expended large amounts of funds in the terminated arbitration and accepted a settlement considerably lower than the value of their claims. Plaintiffs seek recovery of the difference between the value of DE'76's claims against Israel and the actual amount of settlement received as well as recovery of the expenses incurred by DE'76 in the arbitration. Finally, plaintiffs claim that defendants Myer Feldman and Lee Marks fraudulently concealed the existence of the allegedly unlawful payment. (Count V). *fn8" Plaintiffs seek recovery on behalf of the partnership in an amount in excess of $ 3,000,000 in compensatory damages and $ 1,000,000 in punitive damages.

 DISCUSSION

 I. Applicable Legal Standard

 Summary judgment is proper where the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986).

 A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). Since defendants, the party moving for summary judgment, have the burden of proving the lack of any genuine issue of fact, the Court must view the available facts in the light most favorable to plaintiffs. Minihan v. American Pharmaceutical Association, 259 U.S. App. D.C. 10, 812 F.2d 726, 727 (D.C. Cir. 1987). At this stage in the proceeding, it is not our function to "weigh the evidence and determine the truth of the matter," but merely to decide whether there are any genuine issues that require a trial. Anderson, 477 U.S. at 249, 106 S. Ct. at 2510.

 II. Defendants' Second Motion for Summary Judgment

 Defendants assert four arguments in support of their second motion for summary judgment. First, they contend that plaintiffs cannot establish that DE'76's settlement with Israel resulted in a lower recovery or was caused by defendant law firm's actions, arguing that DE'76 had alternative avenues for pursuing its claims against Israel, either in the courts of Israel or the United States. Second, defendants claim that plaintiffs cannot recover the legal fees and expenses paid by DE'76 to defendants in connection with the arbitration because they cannot establish that the $ 10 million settlement could have been reached without incurring the costs of the arbitration. Further, defendants assert that fees and expenses incurred after notice by Israel of the termination of the arbitration were paid by DE'76 after disclosure of the allegedly improper payment by defendants.

 Third, defendants contend that plaintiffs cannot assert derivative claims on behalf of DE'76 because they failed to make a demand upon the general partner of DE'76, in violation of Fed. R. Civ. P. 23.1, alleging that such a demand would be futile. Finally, defendants argue that summary judgment should be granted pursuant to Fed. R. Civ. P. 19, for failure to join DE'76 and its partners as indispensable parties. We find each of these arguments without merit.

 A. Attorney Malpractice

 In the District of Columbia, the elements of an action for professional negligence are the same as those of an ordinary negligence action. *fn9" Applegate v. Dobrovir, Oakes & Gebhardt, 628 F. Supp. 378, 386 (D.D.C. 1985) (citing O'Neil v. Bergan, 452 A.2d 337, 341 (D.C. App. 1982)). A uniform standard of care applies in actions for negligence; reasonable care under the circumstances. O'Neil, 452 A.2d at 341. Moreover, a lawyer must "exercise that degree of reasonable care and skill expected of lawyers acting under similar circumstances." Id.

 As defendants state, in attorney malpractice actions, plaintiffs bear the burden of presenting evidence "which establishes the applicable standard of care, demonstrates that this standard has been violated, and develops a causal relationship between the violation and the harm complained of." O'Neil, 452 A.2d at 341 (quoting Morrison v. MacNamara, 407 A.2d 555, 560 (D.C. App. 1979)).

 
Specifically, we adopt the widely followed rule that, in a legal malpractice action, the plaintiff must present expert testimony establishing the standard of care unless the attorney's lack of care and skill is so obvious that the trier ...

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