Argued
March 16, 2017
Appeal
from the Superior Court of the District of Columbia
(CAB-884-13) Hon. Brian Holeman, Trial Judge
Robert
W. Ludwig, with whom Salvatore Scanio and James E. Tompert
were on the brief, for appellant.
Albert
Wilson, Jr., with whom Lily A Graves was on the brief, for
appellees BiotechPharma, LLC, Converting Biophile
Laboratories, Inc., and Raouf Guirguis.
Jeffrey S. Jacobovitz for appellee Martin Kalin.
Before
Glickman, Fisher, and Thompson, Associate Judges.
Thompson, Associate Judge
Appellant
Ludwig & Robinson PLLC ("L&R" or "the
law firm") appeals from the Superior Court's
dismissal of its claim alleging fraud and conspiracy by
defendants/appellees BiotechPharma, LLC ("BTP"),
BTP's wholly-owned subsidiary Converting Biophile
Laboratories, Inc. ("CBL"), BTP's principal
Raouf Guirguis (together, the "BTP defendants"),
and Martin Kalin (alleged to be a BTP lender "who has
held himself out" as BTP's "Executive Vice
President"). For the reasons set out below, we reverse
and remand.
I
Background
L&R's
complaint alleges that in 2011, BTP engaged the law
firm's services to provide the company with "advice
and representation regarding cross-border intellectual
property claims." The engagement, which entailed
extensive motions practice in the Eastern District of
Virginia (the "Rocket Docket") and elsewhere as
well as depositions and interviews "across the country
and overseas, " began after Kalin contacted L&R
seeking representation for the company. On March 4, 2011,
BTP, through Guirguis, executed an engagement letter that set
out L&R's hourly rates and specified a monthly
billing schedule. The engagement letter provided that bills
would be "due and payable upon receipt" and stated
that "[i]n the event of nonpayment, the [f]irm reserves
the right to withdraw from representation in this
matter."
On
April 25, 2011, after L&R had begun its work (including
drafting a complaint for misappropriation), Kalin
"sought [an] alternate billing" arrangement, and
L&R and BTP signed a modified engagement letter under
which L&R agreed to defer half its hourly rates and BTP
agreed to pay the law firm's deferred fees plus 30% upon
settlement of the misappropriation action or upon "[a]ny
cumulative investment in BTP exceeding $500, 000." Over
the next several months, L&R continued to provide legal
services to BTP but received little by way of payment for
those services. On January 19, 2012, L&R held a meeting
with Guirguis and Kalin during which it "raised
BTP's ongoing failure to pay" its legal fees.
L&R told Guirguis and Kalin "to expect larger bills
for round-the-clock work and expenses . . . until the case
was settled or tried." L&R "conveyed [that] its
lawyers would not work without pay" and said that they
would "be forced to move to withdraw absent
payment." Guirguis and Kalin "represented BTP would
pay past bills, and $40, 000 a month for December [2011]
forward, through . . . CBL[] or [through] investment in
BTP."
Payments
were not made, however, and, in early February, after L&R
reminded Guirguis and Kalin that it would "need . . . a
revised fee arrangement if [it was] to continue
representation in light of mounting legal fees and costs,
" Guirguis "agreed to pay at least $75, 000 a month
for December forward." On February 28, 2012, "to
account for further deferred payment and risk, " L&R
and BTP entered into a second modification to the engagement
letter, "signed by Guirguis and copied to Kalin."
Pursuant to the second modification letter, "BTP agreed
to increase L&R's success fee to 50% of deferred
fees, with guarantees . . . by CBL and Guirguis."
Thereafter, although "L&R sent monthly invoices . .
. showing [its] fees and expenses [] [with] detailed
descriptions [] and time" reports, BTP "did not pay
any $75, 000 payment for December [2011] through May
[2012]."
On
January 31, 2013, after attempts to collect payment proved
unsuccessful, L&R brought suit in the Superior Court,
suing BTP for breach of contract (Count I); CBL and Guirguis
for breach of guarantee (Count II); each of the BTP
defendants for "Failure to Pay Accounts Stated"
(Count III); and all defendants for fraud (Count IV), and
conspiracy (Count V). The complaint alleges that as of June
5, 2012, BTP had incurred but failed to pay hourly fees of
$1, 233, 683.08, a "success fee" of $358, 659.96,
and expenses of $196, 605.67, for a total of $1, 788, 948.71.
Of
particular note given the issues before us, the fraud count
(Count IV) against all of the defendants/appellees alleges
that Guirguis (on behalf of BTP and CBL) and Kalin
represented, over the period from October 2011 to May 2012,
including "[b]efore, during, and after the January 19[,
2012, ] meeting, " that "L&R would be paid from
CBL's revenue and credit line, " thus
"representing [that] . . . the credit line existed,
" even though at all relevant times CBL had no credit
line. Count IV further alleges that these representations, as
well as the representations regarding the large monthly
payments from December 2011 forward, "were made with the
intent to deceive L&R." Count IV alleges in addition
that the defendants "concealed BTP's true financial
condition, failing to disclose Kalin's actual investment
in or loans to BTP, its indebtedness to lenders, and the fact
and magnitude of liens." The foregoing representations
and omissions, Count IV alleges, "induced [L&R] to
continue work, " as the law firm relied upon them
"in deciding not to seek to withdraw as counsel on
January 19, 2012[, ] and thereafter, and in deciding not to
require security against nonpayment of fees and expenses . .
. upon entering [into] the [s]econd [m]odified [e]ngagement
[l]etter on February 28, 2012." Count IV includes a
prayer for "damages in the amount of services rendered
and billed, but not paid, with interest from when payment was
due, attorney's fees, and any other appropriate
relief." Count V contains similar allegations and a
similar prayer for relief, including a prayer for
"attorney's fees and expenses under Counts IV and
V."
The
Superior Court action was stayed while the contract claims
against the BTP defendants proceeded to arbitration before
the Attorney-Client Arbitration Board ("ACAB"), as
requested by BTP. On February 11, 2015, the ACAB awarded
L&R $908, 000 on its claim for "approximately $1.79
million in fees and expenses, plus interest."
The
Superior Court granted L&R's motion to confirm the
arbitration award and entered judgment for $908, 000 against
BTP, CBL and Guirguis jointly and severally. On June 22,
2015, the court held a hearing on pending matters. L&R
initially told the court that "[i]f the arbitration
award by ACAB had been complied with . . . the complaint
would be moot." Shortly thereafter, however, saying that
it had "misspoke[n]" earlier, L&R argued that
its claims for fraud and conspiracy against the BTP
defendants and Kalin should proceed. The court readily
disagreed as to the BTP defendants, reasoning from the bench
and in a June 23, 2015, written order that all of the counts
of the complaint "were pled by L&R in order to
recover its unpaid legal fees"; that the fraud and
conspiracy claims "were disposed [of] when [the law firm
was] compensated under the [ACAB] award" (which the
court said had res judicata effect as to Counts
I-III of the complaint); and that L&R did not "have
a separate right to compensation [from the BTP defendants]
based on claims of fraud and conspiracy." Without
allowing L&R an opportunity for briefing, the court
dismissed the fraud and conspiracy claims against the BTP
defendants. The court postponed its ruling as to dismissal of
the claims against Kalin (who was not a party to the ACAB
proceedings), although it preliminarily suggested that the
fraud and conspiracy claims against Kalin were "subsumed
within the award of the arbitrator." L&R had argued
that the law firm was entitled to recover from Kalin if it
could "show more than [the ACAB] award as damages as to
[Kalin] up to the claimed 1.8 million dollars." L&R
told the court that it was "entitled to judgment against
a co-defendant [Kalin] who may be more collectible than the
BTP defendants, " and it asserts in its brief that it
has never been able to collect the ACAB award amount.
At an
October 1, 2015, hearing, the Superior Court denied the law
firm's motion to alter or amend the judgment dismissing
the claims against the BTP defendants. The court also
dismissed the claims against Kalin, reasoning that L&R
had, through the arbitration award, "received the relief
it sought against the defendants, which was a money judgment
essentially for payment for legal services previously
rendered." The court found "without merit" the
arguments "that [the] ACAB had no jurisdiction over the
fraud claim" and that "the arbitration award did
not create res judicata effect" as to the fraud
claim. L&R explained that its request "for
additional fees under a fraud and conspiracy theory . . . was
necessitated by [the defendants'] obstructive
conduct" and pertained to "compensation] for the
need to pursue" and "chase" the BTP defendants
"to honor [their] obligation." The court, however,
characterized Counts IV and V as ―alternative theories
of relief for the exact same relief that was "granted
under the arbitration award."[1]
Finally,
in an October 13, 2015, written order, the Superior Court
explained its reasoning that "the fraud and conspiracy
claims are wholly dependent upon the extant contract";
that L&R has not alleged "an independent injury over
and above the mere disappointment of [its] hope to receive
[its] contracted-for benefit"; that L&R's
claimed damages were addressed in the breach of contract
claim; and that "[t]here [was] no duty owed to [L&R]
=from considerations other than the contractual
relationship.'" Oct. 13, ...