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RICHTER v. ANALEX CORP.

October 3, 1996

PAUL S. RICHTER, Plaintiff, Counter-Defendant, and Third Party Plaintiff,
v.
ANALEX CORPORATION, Defendant and Counter-Plaintiff, v. ALAN C. DUVALL, et al., Third Party Defendants.



The opinion of the court was delivered by: FRIEDMAN

 Analex D.C. was a District of Columbia corporation for which plaintiff, Paul S. Richter, served as counsel from 1982 until 1989. In 1986, Analex D.C. paid large bonuses to two of its former officials and in 1987 and 1988, it negotiated consulting agreements with them. Analex D.C. "passed through" the costs of these bonuses and consulting agreements to NASA with which it had an aerospace contract. As a result of these activities, Analex D.C. incurred both criminal and civil liabilities, pleading guilty in 1994 to one count of submitting a false claim. On March 31, 1990, defendant Analex Corporation ("defendant" or "Analex"), a Nevada corporation, purchased "certain assets" from Analex D.C., which then, in April 1990, changed its name to Xanalex. *fn1" Defendant Analex also assumed financial responsibility for some of the fines imposed upon Xanalex.

 Plaintiff has now brought this action against Analex for breach of contract, collection of obligations, intentional interference with contractual relations and conversion. Defendant has counterclaimed for legal malpractice. Plaintiff also filed a third party complaint for contribution and indemnification against Alan C. Duvall, Raymond P. Kinney, Jr., and Duvall & Associates, Inc., an accounting firm headquartered in Ohio that was retained by Analex D.C. since 1986 and by Analex since 1989. This case is now before the Court on Plaintiff's Motion to Dismiss the Counterclaim and Third Party Defendants' Motion to Dismiss the Third Party Complaint.

 I. PLAINTIFF'S MOTION TO DISMISS THE COUNTERCLAIM

 This motion revolves around the single issue of whether defendant Analex can assert Xanalex's legal malpractice claim against plaintiff. The parties agree that generally a third party cannot bring a malpractice claim against another person's attorney even where that third party has suffered harm from the attorney's malpractice. See Needham v. Hamilton, 459 A.2d 1060, 1061 (D.C. 1983). Defendant argues, however, that Analex acquired the malpractice claim, along with Xanalex's liabilities with respect to the bonuses and consulting agreements and all of Xanalex's assets, and that as successor and assignee it can assert Xanalex's claim against plaintiff. Plaintiff responds that Analex and Xanalex are two separate and independent entities, that Analex never acquired the rights to Xanalex's malpractice claim, that Xanalex still exists, and that Xanalex could still bring the malpractice claim itself if it chose to do so.

 A. Analex as Successor

 Defendant maintains that because it purchased the assets and liabilities of Analex D.C. and continues Analex D.C.'s business, it is the successor to Analex D.C. for purposes of this suit. Analex did not purchase all of Analex D.C.'s assets, however; the sales contract appears to transfer only "certain assets" and those assets are specifically enumerated. Agreement of Sale and Purchase at 1, Def.'s Opp'n, Ex. A. Moreover, Xanalex entered into a Covenant Not to Compete with Analex which suggests that Xanalex still exists in more than merely a formal way. Def.'s Opp'n, Exs. C, D. It follows from these facts that defendant does not automatically succeed to the right of Xanalex to pursue its legal malpractice claim.

 Defendant cites Bingham v. Goldberg, Marchesano Koheman, Inc., 637 A.2d 81, 90 (D.C. 1994), Dawn v. Stern Equipment Co., 134 A.2d 341 (D.C. Mun. Ct. App. 1957), and Colonial Ice Cream Co. v. Southland Ice Utilities Corp., 60 App. D.C. 320, 53 F.2d 932 (D.C. Cir. 1931), for the proposition that where one entity takes over the assets of another and there is a continuation of the same business, the new entity is the successor in interest and acquires all the predecessor's rights of action. The court in Bingham made clear, however, that where the selling entity continues to exist in a way that is not merely formal, the acquiring entity is not the successor for purposes of bringing pre-existing claims. Accordingly, these cases do not support defendant's position and defendant has failed to show that it is the successor to Analex D.C. as a matter of law or fact.

 B. Analex as Assignee

 Defendant next argues that under District of Columbia law, the general rule is that all claims are freely assignable, National Union Fire Ins. Co. v. Riggs National Bank, 303 U.S. App. D.C. 302, 5 F.3d 554, 556 (D.C. Cir. 1993), and that Analex D.C. assigned its legal malpractice claim against plaintiff to defendant. *fn2" It relies on the following language in the sales contract:

 Def.'s Opp'n, Ex. A at 1-2 (emphasis added).

 Plaintiff responds that the use of the terms "claims and demands" in the contract is not dispositive because legal malpractice claims are simply not assignable as a matter of law. The parties agree that no court has yet decided whether a legal malpractice claim is assignable under District of Columbia law and that other states are split on the issue, see Zuniga v. Groce, Locke & Hebdon, 878 S.W.2d 313, 315 (Tex. App. 1994), with a majority of states barring the assignment of such claims. Id. *fn3"

 The courts that have barred the assignment of legal malpractice claims have relied primarily on factors not present in this case, including the fear that parties will sell off claims, particularly to opponents or completely unrelated third parties, and a concern about jeopardizing the personal nature of legal services. See Zuniga v. Groce, Locke & Hebdon, 878 S.W.2d at 315; Joos v. Drillock, 127 Mich. App. 99, 338 N.W.2d 736, 738 (Mich. App. 1983); Goodley v. Wank and Wank, Inc., 62 Cal. App. 3d 389, 133 Cal. Rptr. 83 (Cal. App. 1976); cf. Bank IV Wichita, National Assoc. v. Arn. Mullins, Unruh, Kuhn & Wilson, 250 Kan. 490, 827 P.2d 758 764-65 (Kan. 1992) (borrower could not assign his legal malpractice claim to his lending bank); Schroeder v. ...


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