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Edens Technologies, LLC v. Kile Goekjian Reed & McManus

December 22, 2009

EDENS TECHNOLOGIES, LLC, PLAINTIFF,
v.
KILE GOEKJIAN REED & MCMANUS, PLLC, DEFENDANT.



The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge

MEMORANDUM OPINION

Plaintiff Edens Technologies, LLC ("Edens"), a Michigan-based technology company, filed this action for legal malpractice against defendant Kile Goekjian Reed & McManus PLLC ("KGRM"), a law-firm based in Washington, D.C. Edens alleges that KGRM provided negligent advice and representation to Edens in connection with a patent infringement action brought by Golf Tech, LLC against Edens in the U.S. District Court for the District of Maine. Before the Court is defendant's motion to dismiss for failure to state a claim on the grounds that 1) the complaint fails to plead the elements necessary to sustain an action for legal malpractice; and 2) the action violates public policy because Edens has assigned this malpractice claim to Golf Tech, its former litigation adversary. Because the Court finds that this assignment contravenes public policy, defendant's motion to dismiss is granted, and the case is dismissed without prejudice.

BACKGROUND

Edens is a manufacturer of golf simulation technology that is used in video games. (Compl. & 8.) In 2007, Edens sought legal advice from KGRM about whether a device Edens had developed infringed on a patent owned by Golf Tech, LLC (the "'211 patent"). (Compl. && 9-10.) According to Edens, the non-lawyer brother of a KGRM associate, acting at the behest of the associate, advised Edens that "[y]ou should be fine." (Compl. && 10-11.) The next month, the brother stated to Edens' founder that "I think this means your [sic] clear of the patent you are trying to avoid." (Compl. & 12.) This allegedly negligent advice was conveyed by the brother in Michigan and was received by Edens in Michigan. Relying on this advice, Edens launched its device. (Compl. && 13, 15.) Golf Tech, represented by the Maine-based law firm Pierce Atwood, sued Edens in federal court in Maine for patent infringement. (Compl. & 16.)

KGRM represented Edens in the infringement action. (Id.)*fn1 Edens also retained Kurt E. Olafsen, an attorney in Maine, to serve as local counsel in the infringement action and provide advice regarding local rules and practices. (Declaration of Kurt E. Olafsen ("Olafsen Decl.") at &3 [Dkt. 14].) In defending Edens, KGRM did not assert patent invalidity as a defense (Compl. & 18), but instead it pursued a non-infringement defense based on a claim construction argument. (Id. & 20.) On August 1, 2008, Mr. Olafsen attended a meeting in Portland, Maine with Edens and KGRM attorneys. (Olafsen Decl. & 5.) Mr. Olafsen avers that during the meeting, KGRM advised Edens not to search for additional prior art which may have rendered the '211 patent invalid and been "case dispositive," because KGRM believed that the one example of prior art it had already found was enough. (Id. & 5; Compl. & 19.) The Maine court rejected the claim construction argument made by KGRM, entered summary judgment in favor of Golf Tech on liability, and set a trial date on damages. (Compl. & 20.) A week before trial, KGRM notified the court that it wanted to file a motion for leave to reopen the invalidity issue based on "newly discovered prior art." (Id. & 21.) The court denied this motion as untimely and said "[t]he omission here was Edens' failure to investigate the case thoroughly in a timely manner. . . . That is a glaring omission, causing the unnecessary expenditure of resources and delay, and there is no satisfactory excuse." (Id. & 22.)

Edens, believing that KGRM was unprepared for trial, substituted its local counsel in place of KGRM. (Compl. & 23.) In light of the denial of the motion for leave to reopen the invalidity issue, Edens believed that the evidence at a trial would support damages of at least $370,000 with the possibility that the record would support an award of treble damages and attorney's fees. (Id. & 24.) In order to "save the company," Edens entered into a Settlement Agreement with Golf Tech on May 7, 2009, and on May 14, the parties filed a joint motion for consent judgment in the amount of $734,246. (Id. & 25.)

The Settlement Agreement between Edens and Golf Tech provides that Golf Tech agrees to accept as "satisfaction in full" for the $734,246 judgment "a partial assignment of the proceeds, if any, of an action for legal malpractice to be filed by Edens against [KGRM]," with Edens retaining any recovery in excess of the consent judgment amount. (Settlement Agreement at 2 & 2.)*fn2 The parties stipulated that there was sufficient evidence from which a jury could find that Edens' infringement was willful and, therefore, it would be liable for treble damages. (Id. at 1-2 & 1.) The malpractice action against KGRM, although filed with Edens named as the plaintiff, is to be prosecuted by counsel selected by Golf Tech, and Edens must cooperate with the suit. (Id. at & 3.) Further, all decisions relating to this malpractice action are "controlled" by Golf Tech, with Golf Tech paying all litigation costs and attorneys' fees. (Id.)*fn3 Edens was represented by Mr. Olafsen during the settlement negotiations. (Olafsen Decl. & 6.)

On May 14, 2009, the same day that the joint motion for consent judgment was filed, Edens commenced this malpractice action against KGRM in the U.S. District Court for the District of Maine. Edens is currently represented by Pierce Atwood, the same firm that represented Golf Tech in the patent litigation and settlement negotiations. The next day, May 15, 2009, the consent judgment in the underlying patent infringement action was approved. In this malpractice case, Edens asserts that KGRM negligently 1) advised Edens that its device would not infringe on Golf Tech's patent, and 2) failed to diligently search for prior art and to raise the invalidity defense.

This case was transferred from Maine to this district pursuant to 28 U.S.C. § 1404(a), because the Maine court found that the alleged negligent advice was formulated in Washington, D.C., and that this would be the most convenient forum for most of the witnesses. Edens Tech., LLC v. Kile, Goekjian, Reed & McManus, PLLC, No. 09-cv-1850, 2009 WL 3065211, at *4 (D. Me. Sept. 18, 2009). Presently before the Court is defendant KGRM's motion to dismiss Edens' complaint on two grounds. First, KGRM argues under Federal Rule of Civil Procedure 12(b)(6) that the complaint fails to state a claim upon which relief can be granted. Second, KGRM argues that the cause of action should be dismissed as contrary to public policy because of the assignment by Edens to Golf Tech of its legal malpractice claim. Since the Court agrees that the assignment is contrary to public policy, it need not address defendant's Rule 12(b)(6) argument.

ANALYSIS

I. CONFLICT OF LAWS

In his opinion transferring venue, Judge Hornby of the Maine district court questioned the applicability of Maine law "given the genesis of the alleged malpractice in D.C. and Michigan." Edens Tech., 2009 WL 3065211, at *5 n.8. This Court ordered supplemental briefing on the choice of law issue to determine which state's laws apply to this case and how that affects the outcome. (See Nov. 2, 2009 Minute Order.)*fn4 Plaintiff continues to argue that Maine's substantive law applies but maintains that even if D.C. or Michigan law applies, the result is the same -- legal malpractice claims are assignable. Defendant argues that D.C. substantive law applies to bar this assignment, but that even if this case is governed by Maine law, the assignment still cannot be enforced.

A thorough review of the briefing reveals that the choice-of-law issue is actually what is known as a "false conflict." Century Int' l. Arms, Ltd. v. The Federal State Unitary Enter. State Corp. ' Rosvoorouzhenie' , 172 F. Supp. 2d 79, 90 (D.D.C. 2001). Although the analysis differs in each state, the Edens/Golf Tech assignment would be invalid as a matter of public policy no matter which jurisdiction's law is applied. In reaching this conclusion, the Court will first address the problems raised by the assignment of a legal malpractice claim, ...


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