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Flax v. Schertler

November 15, 2007


Appeal from the Superior Court of the District of Columbia (CM-7597-03)(Hon. Neal E. Kravitz, Trial Judge).

The opinion of the court was delivered by: Thompson, Associate Judge

Argued March 29, 2007

Before BLACKBURNE-RIGSBY and THOMPSON, Associate Judges, and FERREN, Senior Judge.

Plaintiff-appellant Jill Flax, personal representative of the estate of her late husband Howard Flax ("the Estate"), sued defendants-appellees David Schertler, Barry Coburn, Lisa Fishberg, and Coburn & Schertler LLP ("the Lawyers"), alleging that they breached the applicable standard of care in handling a lawsuit brought against Mr. Flax and others by one Benson Fischer ("the Fischer litigation" or the "underlying litigation"). The Lawyers had defended Mr. Flax in the Fischer litigation and also pursued certain counterclaims on his behalf against Fischer, Fischer Brewing Company, the investment banking firm of Laidlaw & Co. ("Laidlaw"), and Laidlaw employee Douglas Miscoll ("Miscoll"). Ms. Flax contends that the Lawyers negligently pursued counterclaims and third-party claims that failed as a matter of law and failed to plead other claims that, purportedly, were viable and would have resulted in judgments that would not have been dischargeable in (Fischer's eventual) bankruptcy.

The trial court entered judgment in favor of the Lawyers, dismissing the claims against the Lawyers that Ms. Flax set out in her Amended Complaint and denying her motion to file a second amended complaint. In the instant appeal, Ms. Flax contends that Judge Kravitz ignored certain of her claims, unduly restricted discovery, abused his discretion in declining to revisit or clarify certain rulings and in denying Ms. Flax's motion to amend her complaint for a second time, prematurely granted summary judgment to the Lawyers, failed to make accommodations in light of Ms. Flax's pro se status during a portion of the litigation, and was biased in favor of the Lawyers and should have recused himself.

We agree with Ms. Flax that the trial court too narrowly construed or overlooked some of her allegations regarding the Lawyers' failure to bring an alternative fraud-related claim or claims in the underlying litigation. The court granted summary judgment in a manner that foreclosed all of Ms. Flax's fraud-related claims, without determining whether additional time was warranted to permit her to conduct discovery as to her claim that the Lawyers negligently failed to bring fraud-in-the-inducement claims in the Fischer litigation. We remand the case to the trial court so that the trial judge may make this determination. We uphold the grant of summary judgment as to the other claims that comprised Ms. Flax's Amended Complaint, and we likewise affirm the trial court's denial of Ms. Flax's motion for leave to file a second amended complaint.

I. Procedural History

We begin by reciting the tortuous procedural history of this case, some of which is set out in our opinion in Fischer v. Estate of Howard L. Flax, 816 A.2d 1, 4-5 (D.C. 2003). In 1995, Mr. Fischer, principal owner of Fischer Brewing Company, needed financing to expand the marketing and production of one of the company's beer products. Mr. Fischer enlisted Mr. Flax, a friend, to look for an investor and, both verbally and in a February 21, 1996 letter agreement, agreed to pay Mr. Flax a substantial finder's fee (fifteen percent of future company stock, with an anticipated value of $1.5 million) if Mr. Flax succeeded in obtaining the desired financing. Mr. Flax prepared a promotional package that was sent to Laidlaw in early March, 1996, and, later during the same month, Mr. Flax and Fischer met with Laidlaw representatives, including Mr. Miscoll. Laidlaw liked Fischer's proposal and began assembling a financial package that would include a public stock offering. On April 12, 1996, Fischer signed an agreement with Laidlaw. Fischer thereafter told Mr. Flax that he would not pay him the amount promised or anything other than a nominal amount because, Fischer claimed, he had learned that National Association of Security Dealers ("NASD") rules would likely bar him from paying out more than fifteen percent of the gross offering proceeds to Mr. Flax and Laidlaw combined (meaning that if Fischer paid what he had promised to Mr. Flax, that would leave nothing to pay Laidlaw's commission). Not surprisingly, a dispute ensued between Fischer and Mr. Flax.

Laidlaw learned of the Fischer/Flax dispute and, according to appellant, insisted that the dispute be resolved "as a condition of the deal moving forward." On or about May 1, 1996, Miscoll claimed to have discovered a letter and promotional package sent to Laidlaw on Fischer's behalf by one Howard Reissner on March 6, 1996, a few days before Laidlaw received the promotional package that Mr. Flax had prepared. Laidlaw announced that it would recognize Reissner as the finder and pay him a finder's fee if the financing was provided. Eventually, however, Laidlaw withdrew its financing offer, explaining that delays had caused the participants to miss the market window for sales of brewery stocks. In contrast, Ms. Flax cited to the trial court deposition testimony, from Mr. Flax and another individual, that they had been informed that the Laidlaw financing deal failed because "one of Laidlaw's bridge lenders had withdrawn because his due diligence found that Fischer had misrepresented his company's sales."

After the financing deal fell through,Fischer sued Mr. Flax and various of his associates, blaming them for loss of the deal. Mr. Flax, represented by the Lawyers, filed a number of counterclaims and third-party claims against Fischer, his company, Laidlaw and Miscoll. The trial court (the Honorable Steffen Graae) entered a default judgment against Fischer on his claims, dismissed Mr. Flax's counterclaim against Fischer and third-party claims against Laidlaw and Miscoll that alleged conspiracy to defraud, and also dismissed Mr. Flax's other third-party claims against Laidlaw and Miscoll. Mr. Flax's dismissed fraud claims were based on allegations that Fischer, with the knowledge of Laidlaw and Miscoll, had fabricated the Reissner letter to deprive Mr. Flax of his finder's fee. Notably, Judge Graae found that Fischer had indeed fabricated the Reissner letter, well after its purported March 6, 1996 date. However, Judge Graae dismissed the fraud counterclaim against Fischer on the ground that Mr. Flax had asserted from the outset that the Reissner letter was a fake and thus had never relied on it to his detriment. Judge Graae dismissed the conspiracy-to-defraud claims against Laidlaw and Miscoll on the grounds that there was no evidence that Miscoll knew or should have known that the Reissner claim was fraudulent, and that Mr. Flax had not met his burden of showing that Fischer or Miscoll "participated in or induced the wrongful actions of the other pursuant to an agreement."

Ruling on Mr. Flax's other counterclaims against Fischer, Judge Graae entered judgments in favor of Mr. Flax for $300,000 for the quantum meruit value of the work that Mr. Flax performed for Fischer, and for a total of over $221,000 in attorney's fees and punitive damages on account of Fischer's bad faith litigation. Mr. Flax died before the Fischer litigation was resolved. Before his Estate could collect any of the judgment amounts, Fischer Brewing Company went out of business and Mr. Fischer himself filed for bankruptcy protection.

Dissatisfied, in September, 2003, Ms. Flax sued the Lawyers. In her Amended Complaint, filed on May 25, 2004, she alleged inter alia that the Lawyers were negligent in their handling of the Fischer litigation by "failing to plead and prove separate fraud claims against Miscoll, Laidlaw and Fischer, which ultimately would have been sustained by the court and yielded substantial compensatory and punitive damages, which would have been collectible and [apparently unlike the quantum meruit claim] non-dischargeable in Bankruptcy"; and by "fail[ing] to advise Plaintiff that the judgments [the Lawyers] obtained against Fischer would be potentially dischargeable in Bankruptcy and . . . to advise Plaintiff and Flax that judgments for certain intentional torts would not be dischargeable in Bankruptcy."

On April 1, 2004, the Lawyers moved for summary judgment. The trial judge, the Honorable Neal Kravitz, held a hearing on the motion on July 22, 2004, and, a few days later, on July 26, 2004, issued his written order granting partial summary judgment in favor of the Lawyers. Judge Kravitz first discussed Ms. Flax's claims that the Lawyers failed to present evidence "that her late husband relied to his detriment upon Fisher's misrepresentations and that Fischer therefore committed an actionable fraud" and that "Laidlaw and Miscoll aided and abetted Fischer's fraud and participated in a conspiracy to defraud." Judge Kravitz noted that to succeed on a fraud claim, a plaintiff must show, among other things, action taken in reliance upon a fraudulent representation. Judge Kravitz found that the "record establishes without genuine dispute that Flax has taken the position throughout [the underlying litigation] that the Reissner letter was a fake." Judge Kravitz quoted Judge Graae's finding that "Flax's own evidence completely undermines and contradicts the [reliance] element of the fraudulent misrepresentation claim." Judge Kravitz reasoned that Ms. Flax "ha[d] not proffered any evidence, either in her briefs or at oral argument, that would add to the evidence that was before Judge Graae in the underlying litigation and that would tend to show that Howard Flax relied on any material misrepresentation of fact made by Fischer." He found "no basis upon which to expect that further discovery would yield any evidence tending to show that Flax relied upon Fischer's alleged misrepresentations." Judge Kravitz also concluded that "the absence of any proof of Flax's reliance prevented the plaintiff, as a matter of law, from successfully prosecuting claims against Laidlaw and Miscoll for aiding and abetting Fischer's alleged fraud and for participating along with Fischer in a civil conspiracy to commit fraud." Accordingly, Judge Kravitz granted the Lawyers' motion for summary judgment on Ms. Flax's "fraud-related claims."

Turning to Ms. Flax's claim that the Lawyers "fail[ed] to pursue 'other intentional tort claims' against Laidlaw, Miscoll, and Fischer," Judge Kravitz noted that Ms. Flax's counsel had explained at oral argument that the claim that should have been filed was malicious prosecution. As to that claim and also as to Ms. Flax's claim that the Lawyers failed to advise that the "judgment against Fischer in the underlying action would be dischargeable in bankruptcy, while any judgments she might have obtained for intentional torts against Fischer, Laidlaw, or Miscoll would not be dischargeable and might have resulted in an award of punitive damages,"*fn1 Judge Kravitz held that Ms. Flax should have an opportunity through additional discovery to develop evidence in support of her negligence theory. Thus, as to those claims, the trial court initially denied summary judgment.

After Judge Kravitz entered partial summary judgment in favor of the Lawyers, there followed a number of submissions, motions, and rulings. On July 27, 2004, apparently before receiving a copy of the July 26, 2004 partial summary judgment order, Ms. Flax's counsel filed a memorandum to support his oral argument in opposition to summary judgment, asserting (1) that the additional "intentional tort" claim that the Lawyers should have brought against Laidlaw was not malicious prosecution, but instead a claim that Laidlaw had aided and abetted Fischer's bad faith litigation against Flax by supporting Fischer in his false claim that Mr. Flax was not the finder; and (2) that the Lawyers should have brought a claim for fraudulent inducement, based on evidence that Fischer had "never intended to ...

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