United States District Court, S.D. Indiana, Indianapolis Division
For PRICE WAICUKAUSKI & RILEY, LLC, Plaintiff: Joseph N. Williams, William N. Riley, PRICE WAICUKAUSKI & RILEY, Indianapolis, IN; Sean T. White, HOOVER HULL LLP, Indianapolis, IN.
For DENNIS E. MURRAY, SR., MARGARET A. MURRAY, DPM, LTD., DENNIS E. MURRAY, SR., MARGARET A. MURRAY, Defendants: Michael A. Wilkins, BROYLES KIGHT & RICAFORT, P.C., Indianapolis, IN.
For PRICE WAICUKAUSKI & RILEY, LLC, Counter Defendant: Alice McKenzie Morical, Michael A. Dorelli, Patrick James Olmstead, Jr., Sean T. White, HOOVER HULL LLP, Indianapolis, IN; William N. Riley, PRICE WAICUKAUSKI & RILEY, Indianapolis, IN.
ENTRY ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
Hon. William T. Lawrence, United States District Judge.
Before the Court are the parties' cross-motions for summary judgment (dkt. nos. 99, 118). The motions are fully briefed, and the Court rules as follows.
Federal Rule of Civil Procedure 56(a) provides that summary judgment is appropriate " if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." In ruling on a motion for summary judgment, the admissible evidence presented by the non-moving party must be believed and all reasonable inferences must be drawn in the non-movant's favor. Hemsworth v. Quotesmith.com, Inc., 476 F.3d 487, 490 (7th Cir. 2007); Zerante v. DeLuca, 555 F.3d 582, 584 (7th Cir. 2009) (" We view the record in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor." ). However, " [a] party who bears the burden of proof on a particular issue may not rest on its pleadings, but must affirmatively demonstrate, by specific factual allegations, that there is a genuine issue of material fact that requires trial." Id. Finally, the non-moving party bears the burden of specifically identifying the relevant evidence of record, and " the court is not required to scour the record in search of evidence to defeat a motion for summary judgment." Ritchie v. Glidden Co., 242 F.3d 713, 723 (7th Cir. 2001).
The fact that the parties have filed cross-motions for summary judgment does not alter the standard set forth in Federal Rule of Civil Procedure 56. When evaluating each side's motion, the Court simply " construe[s] all inferences in favor of the party against whom the motion under consideration is made." Metro Life. Ins. Co. v. Johnson, 297 F.3d 558, 561-62 (7th Cir. 2002) (quoting Hendricks-Robinson v. Excel Corp., 154 F.3d 685, 692 (7th Cir. 1998)).
This case was filed in August 2010 by the Plaintiff, Price Waicukauski & Riley, LLC, (" PWR" ) against the Defendants, Dennis and Margaret Murray and DPM, Ltd. (" DPM" ), to recover over $125,000 in attorneys' fees owed to PWR. The attorneys' fees stem from PWR's representation of the Murrays in a rather contentious lawsuit against Conseco, Inc. (" Conseco" ) and Conseco Services, LLC (" Services" ) that spanned more than six years. Ultimately, the case settled. Unhappy with PWR's representation, in November 2010, the Murrays filed a counterclaim against PWR alleging legal malpractice. The present cross-motions for summary judgment address both sides' claims.
A brief recitation of the relevant facts pertaining to the Underlying Litigation, the allegations of PWR's legal malpractice, and the outstanding attorneys' fees still owed by the Murrays follow. Additional relevant facts will be provided in the Discussion section below.
A. Facts Leading to the Underlying Litigation
Mr. Murray served as a member of Conseco's Board of Directors from 1994 to 2000. He is also the general partner of DPM, an Ohio limited partnership. At some point during the late 1990s and early 2000s, Mr. Murray and DPM participated in Conseco's Director and Officer Loan Program (" the D& O program" ). This
allowed directors and officers to purchase Conseco stock by borrowing large sums of money from certain banks. Conseco guaranteed the loans, and Services paid the interest on the loans. Mr. Murray and DPM executed numerous documents in conjunction with this agreement--Participation Agreements, Credit Agreements, Promissory Notes, etc.--but all essentially boiled down to the fact that as borrowers, they promised to repay the loan and/or reimburse Conseco if Conseco paid the banks pursuant to its guaranty agreement. In all, Mr. Murray borrowed $41,618,499.03 from the banks, and DPM borrowed $58,002,106.52. They also borrowed over $30 million from Services.
Unfortunately, in the late 1990s, Conseco began to experience financial difficulties; it eventually filed for Chapter 11 bankruptcy in December 2002. This was considered an event of default; therefore, the loans were automatically accelerated and became immediately due. As part of its reorganization plan, Conseco paid the banks, pursuant to its guaranty agreement, with new debt and stock rather than cash. Accordingly, the banks transferred their rights under the loans to post-reorganization Conseco. Conseco was then able to seek $99 million for the principal on the loans from the Murrays; additionally, Services sought recovery of $30 million paid in interest on the loans.
B. The Underlying Litigation
In November 2003, Mr. Murray and DPM sued Conseco and Services in this court. Their complaint alleged nine counts, including several claims for declaratory judgment, rescission, and fraud. While numerous other lawsuits were filed in other courts, this lawsuit served as the " primary venue" for the Murrays' disputes with Conseco and Services. The case lasted for six years and resulted in various motions filed by both sides, orders from the district court judge, and an appeal to the Seventh Circuit. By July 2009, the Murrays had no remaining claims against Conseco or Services that survived summary judgment; therefore, they reached an eventual settlement--$5.8 million to be paid by the Murrays to Conseco and Services. The Murrays were represented by PWR throughout the entire case and paid the firm over $2.7 million in attorneys' fees.
C. PWR's Claim for Outstanding Attorneys' Fees
Beginning in November 2009, PWR sent the Murrays a bill for outstanding attorneys' fees. It sent similar bills in December 2009 and February 2010; however, the Murrays never paid. To date, $127,592.91 has been billed and not paid. PWR's sole claim against the Murrays in the instant lawsuit seeks to recover these fees.
D. The Murrays' Claims for Legal Malpractice
As a result of its representation in the underlying lawsuit, the Murrays have asserted a legal malpractice claim against PWR. Their eight allegations are briefly summarized below.
1. PWR's Conflict of Interest
In October 2002, PWR agreed to serve as local class counsel for a class of ERISA plaintiffs in " the Russell action."  The plaintiffs in the Russell action filed suit on behalf of themselves and other purchasers of Conseco stock as participants in Conseco's ConsecoSave Plan. The suit was filed against Conseco, Services, and John Does 1-30, and alleged that the defendants
breached their fiduciary duties by, among other things, misrepresenting and failing to disclose material facts. The relevant time period for the class action was April 1999 through September 2003--a time in which Mr. Murray was on Conseco's Board of Directors.
PWR recognized that representing Mr. Murray in the underlying lawsuit while serving as local class counsel in the Russell action could potentially cause a conflict of interest. Therefore, it conducted its own research on the potential conflict, but it concluded that there was no direct conflict. While PWR asserts it obtained oral consent from Mr. Murray to the concurrent representation, it is undisputed that no written consent was ever obtained. Mr. Murray asserts he had no knowledge of the Russell action and did not consent to any concurrent representation.
Eventually, the Russell action settled for $9.75 million in October 2005. During the course of the Russell action, Conseco sought coverage from its insurance company, RLI, for its defense costs. As a result, this led to another lawsuit: " the RLI action."  The Murrays succinctly describe the relevant factual background of the RLI action as follows in their brief:
Murray and Conseco had given [releases] to RLI in the Conseco Securities litigation, in which they agreed to indemnify RLI if RLI was later required to incur expenses because of further claims made against Conseco arising out of the same conduct complained of in the Conseco Securities litigation. In the subsequent Russell  action, PWR sought damages against Conseco arising out of the same conduct as that complained of in the Conseco Securities litigation. After Russell was commenced, Conseco sought indemnity from RLI. RLI incurred attorney fees as a result of Conseco's demand and then sued Murray and Conseco pursuant to the releases given in the Conseco Securities litigation. Murray retained PWR to defend him from the causes of action of RLI.
Murrays' Reply at 38. Eventually, the RLI action settled; pursuant to the settlement agreement, all claims against Mr. Murray were dismissed in July 2007. It is undisputed that two PWR attorneys withdrew from representing Mr. Murray in the RLI action because they were identified as witnesses due to their involvement in the Russell action. The Murrays allege that the conflict of interest--simultaneous representation of both the Murrays and the plaintiffs in the Russell action--" put at risk" PWR's representation of them in the Underlying Litigation. For example, the Murrays allege that Mr. Murray could have been a potential defendant and thus liable for damages in the Russell action, that the plaintiffs' interest in the Russell action were contrary to Mr. Murray's interest in the Underlying Litigation, that Mr. Murray was a potential witness in the Russell action, that both Mr. Murray and the plaintiffs in the Russell action were competing for limited resources, and that the Russell action gave rise to further litigation against Mr. Murray (the RLI action). See Murrays' Br. at 57-62.
2. PWR's Failure to Properly Plead Federal Subject Matter Jurisdiction
The facts relevant to this allegation are set forth in an opinion resolving an appeal of the Underlying Litigation:
On October 9, 2003, Dennis E. Murray and James D. Massey filed suit against Conseco, Incorporated, Conseco Services, L.L.C., Merrill Lynch & Co., Inc., PricewaterhouseCoopers, LLP, Bank of America, N.A., and JP Morgan Chase Bank. Plaintiffs invoked 28 U.S.C. § 1331 as the basis for federal subject matter jurisdiction. On November 14, 2003, plaintiffs filed a voluntary notice of dismissal under Fed.R.Civ.P. 41(a).
On the same day, plaintiffs filed the instant action against only Conseco, Incorporated and Conseco Services, L.L.C. (" Conseco Entities" ). On May 16, 2005, plaintiffs were granted leave to file a first amended complaint. . . . Like its predecessors, the first amended complaint asserted 28 U.S.C. § 1331 as the basis for jurisdiction.
On July 15, 2005, Conseco Entities moved to dismiss the first amended complaint with prejudice under Fed.R.Civ.P. 12(b)(6). In Conseco Entities' motion, they questioned the court's subject matter jurisdiction.
On September 22, 2005, plaintiffs filed a " notice of consent to dismiss first amended complaint" in which they conceded that the district court lacked subject matter jurisdiction.
. . .
Also on September 22, 2005, plaintiff Murray filed a motion for leave to file a second amended complaint in which he brought the same claims as those he filed in the original complaint, however, upon the basis of diversity jurisdiction rather than federal subject matter jurisdiction.
On September 26, 2005, Conseco Entities filed an opposition to plaintiffs' motion for leave to file a second amended complaint. In this motion, Conseco Entities asked the district court to dismiss the case with prejudice, arguing that plaintiffs' " notice of consent to dismiss first amended complaint" was a voluntary dismissal subject to the two-dismissal rule set forth in Fed.R.Civ.P. 41(a)(1).
. . .
On December 13, 2005, the district court  determined that the court lacked subject matter jurisdiction and  concluded that the dismissal triggered the two-dismissal rule of Rule 41(a)(1).
Murray v. Conseco, Inc., 467 F.3d 602, 603-04 (7th Cir. 2006). That dismissal was appealed and the Seventh Circuit reversed, noting that " [w]hen a plaintiff alerts the court that it lacks jurisdiction to hear his case, he is not necessarily invoking Rule 41(a)(1)." Id. at 605. The Underling Litigation thus proceeded. In their present legal malpractice suit, the Murrays argue that they had to incur unnecessary fees as a result of PWR's failure to plead subject matter jurisdiction twice, which required an appeal to be filed to revive the case.
3. PWR's Failure to Properly Handle the Murrays' Claim in the Conseco Bankruptcy
As noted above, Conseco filed bankruptcy in 2002. PWR filed an objection on behalf of the Murrays arguing that the banks' assignment of the loans to " reorganized Conseco" was invalid because Mr. Murray did not provide his consent as required by the agreements he signed with the banks. Accordingly, PWR argued that reorganized Conseco lacked standing to enforce the loans; however, PWR subsequently withdrew that objection. In return,
the Murrays and Conseco entered into a stipulation that preserved the Murrays' defenses of setoff, recoupment, and other defenses in the Underlying Litigation despite the bankruptcy; this stipulation has now been described as " worthless" because " this reservation of right to pursue fraud through setoff or recoupment was ineffective to avoid the bankruptcy discharge." Tidmarsh Report at 14. The Murrays claim that PWR " failed to sufficiently analyze the claims in the context on the Conseco bankruptcy . . . [and] eliminated  the best opportunity to have successfully represented [them]" Murrays' Br. at 88.
4. PWR's Failure to Take Depositions and Conduct Discovery as Instructed by the Murrays
The Murrays claim that PWR failed to take a number of depositions of major figures involved in Conseco and the D& O program. In addition, they allege that they instructed PWR to serve third-party subpoenas to obtain discovery, but that PWR failed to do so.
5. PWR's Failure to Pursue a Cause of Action for Promissory Estoppel
Pursuant to a provision in the D& O program (" the Change of Control Provision" ), Conseco was obligated to repurchase all shares bought by the Murrays and DPM in the event of a change of control of the company. However, in November 2009, Steve Hilbert, founder of Conseco, asked Mr. Murray to sign a form eliminating the Change of Control Provision from the D& O program; in return, Hilbert agreed that Conseco would ensure that no one lost any money, essentially taking all of the risk out of the investment. Obviously, this promise was not kept, as Conseco and Services sued the Murrays and DPM for the principal and interest they paid on the loans. The Murrays argue that this promise, and subsequent reliance, could have served as the basis for a promissory estoppel claim; however, PWR never brought the claim.
6. PWR's Failure to Pursue the Murrays' Claim for Breach of Fiduciary Duty
On April 23, 2009, PWR filed a motion for leave to amend the second amended complaint; specifically, PWR wanted to add two claims, one of which was a claim for breach of fiduciary duty. Likely fearing that the motion would be denied due to its untimeliness--the case had been pending for six years at this time--PWR also argued that adding the breach of fiduciary duty claim essentially just reasserted a count in the original counterclaim in the case that was consolidated with the Underlying Litigation.
This motion was denied on June 25, 2009. The court noted " that either: (1) the Murray Parties decided not to proceed with Count VI of their original counterclaims after consolidation of the two cases; or (2) the Murray Parties forgot about the claim." UL dkt. no. 555. The Murrays argue that they constantly urged PWR to pursue this claim, and in not doing so in a timely manner, PWR committed malpractice.
7. PWR's Failure to Appeal the Order Denying the Murrays' Motion for Advancement of Fees
Pursuant to Services' Operative Agreement, Mr. Murray argued that it was required to advance him legal fees and expenses that he incurred in the underlying lawsuit. The court disagreed, noting that the " Operating Agreement did not require Conseco Services to indemnify Plaintiff for acts performed by Murray in his personal capacity." UL dkt. no. 477. Mr. Murray wanted to appeal this order, but asserts that PWR failed to do so, realizing too late that the time for so doing had passed.
8. PWR's Breach of Duty of Loyalty Regarding " the Trust"
Prior to the Underlying Litigation, Mr. Murray instructed his son to create the Margaret Murray Trust No. 2 (" the Trust" ) for the benefit of his wife. Pursuant to the Trust agreement, all distributions from Mr. Murray's law firm, Murray & Murray, went into the Trust. The Murrays admit that the purpose of setting up the Trust was " to, hopefully, legally segregate those future monies from the exposure of any future litigation." Murrays' Br. at 27. During the course of the Underlying Litigation, Conseco and Services sent a set of interrogatories to the Murrays that asked, in relevant part, for information regarding the creation of any trusts and transfers of monies. Despite its existence, the Murrays' response did not identify the Trust or the resulting ...