Opinion
Case Nos. 94-1040 through 94-1041 (HSB) Jointly Administered Adv. Proc. No. A-98-90. C.A. No. 98-140-SLR.
March 28, 2000.
Stephen W. Spence, Esquire, and Kathleen P. Makowski, Esquire, of Phillips, Goldman Spence, P.A. Counsel for plaintiff/debtor. Of Counsel: Steven E. Angstreich, Esquire; Michael Coren, Esquire; and Amy R., Brandt, Esquire, of Levy, Angstreich, Finney, Baldante, Rubenstein Coren, PC. Pace Reich, Esquire, Plymouth Meeting, Pennsylvania.
Allen M. Terrell, Jr., Esquire; Frederick L. Cottrell, III, Esquire; and Jeffrey L. Moyer, Esquire, of Richards, Layton Finger. Counsel for defendant.
MEMORANDUM OPINION
I. INTRODUCTION
Plaintiff-debtor T. Frederick Jackson, Inc. ("Jackson") initiated this adversary proceeding against defendant Pepper, Hamilton Scheetz, LLP ("PHS") on or about November 4, 1997. (D.I. 1, ¶ 2) In its complaint, Jackson alleges that PHS's representation of it during litigation of a breach of contract action in the United States District Court for the Southern District of New York was inadequate. (D.I. 1, ¶ 3) Specifically, Jackson seeks damages flowing from PHS's alleged breach of its fiduciary duty and legal malpractice. (D.I. 1, ¶ 3) Said claims arose before and during the bankruptcy proceedings involving Jackson. (D.I. 1, ¶ 3) On April 20, 1998, this court granted Jackson's motion for withdrawal of reference. (D.I. 1) The court has jurisdiction pursuant to 28 U.S.C. § 1334.
Currently before the court are the parties' cross-motions for summary judgment. (D.I. 33, 36) For the following reasons, the court shall deny Jackson's motion for summary judgment (D.I. 33) and grant PHS's motion (D.I. 36).
II. BACKGROUND
This case has a convoluted procedural and factual background. With respect to this adversary proceeding, however, the focus is on the representation PHS provided Jackson in an action brought in the Southern District of New York against Morse/Diesel, Inc. ("Morse/Diesel"), a general construction contractor. In that regard, therefore, the court will begin its review of the facts with the 1982 subcontract between Morse/Diesel and Jackson. The court notes that the facts essentially are undisputed.
A. The 1982 Subcontract
In 1982, Morse/Diesel entered into an agreement to act as the general contractor for the construction of a large hotel in Manhattan. (D.I. 34, Ex. A at A011) On or about November 4, 1982, Morse/Diesel entered into a subcontract with Jackson, whereby Jackson was retained as the electrical subcontractor for the construction project. (D.I. 34, Ex. A at A011) In addition to the subcontract, Jackson provided a performance bond and a payment bond through Fidelity and Deposit Company of Maryland ("Fidelity") with, inter alia, Morse/Diesel. (D.I. 34, Ex. A at A012) The performance bond provided that if Jackson defaulted under the contract or was declared to be in fault by the obligees and the obligees had performed their obligations under the contract, then Fidelity as the surety could either (1) remedy the default; (2) complete the contract itself; or. (3) seek bids and obtain a new contractor to perform as required, subject to payment of any damages incurred by the obligees. (D.I. 34, Ex. A at A012) Fidelity's liability under the performance bond was limited to those payments made to Jackson strictly in accordance with the subcontract; thus, Fidelity was not liable for any payments to Jackson that exceeded the subcontract price as adjusted for change orders. (D.I. 34, Ex. A at A012) The payment bond, on the other hand, provided that Fidelity would be liable for amounts due Jackson arising out of the contract. (D.I. 34, Ex. A at A012)
Construction of the hotel was delayed from the beginning. (D.I. 34, Ex. A at A014) Because of these delays and the need to open the hotel on schedule, Morse/Diesel instituted an acceleration program, which program put "an incredible strain on all participants." (D.I. 34, Ex. A at A015) Jackson agreed to the acceleration program on the condition that Morse/Diesel would fund Jackson's increased payroll (Jackson estimated that it would have to double its workforce and authorize extensive amounts of overtime to accommodate the change in schedule) while the parties negotiated a global settlement. (D.I. 34, Ex. A at A018-19)
Due to financial difficulties it had been experiencing since the start of the construction project, Jackson had sought, and received, advanced payments under the subcontract. (D.I. 34, Ex. A at A013) As a result of the acceleration program, Jackson requested additional advances to cover its rising costs. (D.I. 34, Ex. A at A013)
Negotiations with regard to the settlement were contentious and, on January 25, 1985, Jackson submitted a request for a contract change order in which it sought an increase in the base contract price or an extension of time to complete the project. (D.I. 34, Ex. A at A019) By February 1985, negotiations between the parties had reached an impasse. (D.I. 34, Ex. A at A020) On February 20, 1985, Morse/Diesel revoked its agreement to fund Jackson's payroll costs. (D.I. 34, Ex. A at A020) In response, Jackson began to reduce its workforce back to the anticipated contract level. (D.I. 34, Ex. A at A020) On February 22, 1985, Morse/Diesel served both Jackson and Fidelity a notice of default and on February 25, 1985 sent a demand to Fidelity that it remedy Jackson's default as required by the performance bond. (D.I. 34, Ex. A at A020)
B. The March Agreement
In response to Morse/Diesel's notice of default, Jackson instituted suit in New York State Court, seeking an injunction preventing Morse/Diesel from terminating Jackson's contract. (D.I. 34, Ex. A at A022) While the State Court entered an interim temporary restraining order, the court ultimately denied the preliminary injunction and the parties restarted settlement negotiations. (D.I. 34, Ex. A at A022)
On March 25, 1985, Jackson and Morse/Diesel entered into a settlement agreement memorialized in a written agreement of the same date ("the March agreement"), wherein Jackson stipulated to the suit's dismissal with prejudice. (D.I. 34, Ex. B; D.I. 38 at A564) The March agreement provided, inter alia, that the parties would meet to establish a revised construction schedule. (D.I. 34, Ex. B ¶ 3) It further provided that Jackson would be paid an additional $3 million as compensation for all cost increases attributable to the revised construction schedule from the start of the contract through the revised schedule. (D.I. 34, Ex. B ¶ 1) Said increase was to be in addition to increases made for "outstanding scope changes." (D.I. 34, Ex. B ¶ 1)
The March agreement provided in relevant part that
(t]he subcontract price shall be increased by $3,000,000 as compensation for all cost increases addressed in the Request for a Contract Change Order, Marriott Times Square Hotel, dated January 25, 1985. Specifically included within this adjustment is all compensation to be paid to Jackson as a result of any adjustments in construction schedules from the start of the contract through the revised schedule to be agreed upon in accordance with paragraph 3 of this Agreement.
(D.I. 34, Ex. B ¶ 1)
The March agreement also provided for an exchange of releases between the parties. Specifically, the agreement stated:
(A) Concurrent with the execution of this agreement, Jackson and Morse/Diesel shall execute a stipulation of dismissal with prejudice, with respect to all claims and counterclaims asserted in T. Frederick Jackson. Inc. v. Morse/Diesel. Inc., Index No. 4622/85.
(B) Concurrent with the execution of this agreement, Jackson will execute a release surrendering any and all claims that it might have against Morse/Diesel with respect to additional compensation for work performed at the Hotel up to the date of this Agreement and with respect to any claim for "compression" or "acceleration" costs arising from the revised schedule to be agreed upon pursuant to paragraph 3, of this Agreement, exempting only such claims as may arise with respect to such outstanding scope changes and to such overtime charges as may be presented in the ordinary course for work already performed.
(C) Concurrent with the execution of this agreement, Morse/Diesel will execute a release surrendering any and all claims that it might have against Jackson with respect to compensation paid to Jackson up to the date of this agreement; and with respect to any claims that it might have against Jackson with respect to Jackson's performance under the subcontract up to the date of this agreement, exempting only such claims as may arise from any defect in materials or workmanship.
(D.I. 34, Ex. B ¶ 7)
Due to the increased costs associated with the acceleration program, Jackson continued to experience financial difficulties. (D.I. 34, Ex. A at A041) In late June 1985, Morse/Diesel agreed to advance Jackson all payroll and material costs on a weekly basis. (D.I. 34, Ex. A at A041) Due to Morse/Diesel's concerns that it might overpay Jackson, and thereby cause a waiver of the surety bond Fidelity issued on the project, representatives of Morse/Diesel, Fidelity, and Jackson met on August 6, 1985, to discuss Jackson's continuing financial difficulties. (D.I. 34, Ex. A at A042) As a result of this meeting and others, on August 8, 1985, Fidelity entered into a reimbursement agreement whereby Morse/Diesel would continue to make advances to Jackson, but if Jackson were to receive more than the adjusted subcontract price, Fidelity would reimburse Morse/Diesel for the difference ("the August 8, 1985 agreement"). (D.I. 34, Ex. A at A045) Jackson also signed a reimbursement agreement whereby it agreed to return to Fidelity any funds paid it in excess of the adjusted subcontract prices. (D.I. 34, Ex. A at A045)
C. The Federal Litigation
On February 19, 1986, Morse/Diesel filed suit against Jackson in the United States District Court for the Southern District of New York ("the Morse/Diesel litigation"). (D.I. 34, Ex. A at A046) Morse/Diesel sought to recover over $5 million, plus interest, "based on breach of contract and seeking reimbursement of funds paid to Jackson (in excess of that to which Jackson was entitled] and recoverable from Fidelity under the August 8, 1995 agreement." (D.I. 34, Ex. A at A006) Fidelity in turn filed a third party complaint against Jackson, seeking indemnity for any damages recovered from Fidelity by Morse/Diesel. (D.I. 34, Ex. A at A008) In response, Jackson asserted a counterclaim against Morse/Diesel for damages in excess of $11 million arising out of Morse/Diesel's alleged breach of the expressed and implied provisions of the March agreement with Morse/Diesel. (D.I. 34, Ex. A at A007; D.I. 38 at A44-82) Jackson also asserted counterclaims for lost business damages and damages for confiscation of property by Morse/Diesel. (D.I. 38 at A44-82)
0n August 8, 1989, Morse/Diesel filed an amended complaint, adding. claims against Fidelity for fraud (specifically, that Fidelity had frauduently induced Morse/Diesel to enter the August 8, 1985 agreement) and for breach of the duty of good faith and fair dealing. (D.I. 34, Ex. A at A006) Morse/Diesel withdrew both claims at the beginning of trial. (D.I. 34, Ex. A at A006)
D. Jackson's Search for Representation
For approximately six years, Jackson was represented in the Morse/Diesel litigation by the law firm of Kornstein, Veisz Wesler ("KVW"). (D.I. 34, Ex. D ¶ 6 15) In the spring of 1992, however, Fred Olsen, Jackson's president, began to seek alternative representation. (D.I. 34, Ex. D ¶ 15) Specifically, Olsen began discussing with PHS attorney "A", inter alia, Jackson's retention of PHS in connection with the Morse/Diesel litigation. (D.I. 34, Ex. D ¶ 15; D.I. 35, Ex. FF at A476)
The court does not believe it is appropriate or necessary to specifically identify any of PHS's attorneys. They will be referred to as "PHS attorney `A' or `B'," abbreviated as "PHSA-A," or "PHSA-B," etc.
Olsen ultimately retained PHS to represent it in the Morse/Diesel litigation. At the time it was retained, PHS was aware that Fidelity would be funding Jackson's litigation efforts by "voluntarily lending money to Jackson," thereby ensuring that Jackson would adequately defend and prosecute the Morse/Diesel litigation as Jackson was not in a position to be paying for legal services. (D.I. 35, Ex. FF at A473, A475) PHS also knew that Fidelity had the right per its agreement with Jackson to stop funding at any time. (D.I. 35, Ex. FF at A543) Because of this funding arrangement and PHS's desire to avoid a contingency fee arrangement, PHSA-A informed Olsen as early as November 1992 that, despite Olsen's desire to do so, PHS would not file a "bad faith claim" against Fidelity on behalf of Jackson. (D.I. 35, Ex. FF at A472, A475, A476, A486)
On January 19, 1993, PHSA-B sent Olsen a letter containing a written retainer agreement. The letter reflected PHSA-B's earlier discussions with Olsen regarding the funding of PHS's legal services:
As we have discussed in the past, Jackson does not currently have funds available to pay our fees. We generally do not enter into contingency fee agreements, but rather expect our normal hourly rates and disbursements to be paid in a timely fashion. If we can not reach an arrangement whereby this firm is paid by Fidelity . . . under your financing agreement, we will have the right to terminate our representation unless other arrangements can be worked out. In the interim, we will perform services that cannot be deferred over the next month or so, in conjunction with (KVW], in the expectation of prompt payment by (Fidelity]. We expect eventual payment by Jackson of these interim charges once funds become available, whether or not we go forward with the representation. We will formally enter our appearance in the action once current settlement efforts play out, and once this payment issue is resolved.
(D.I. 34, Ex. E at A137) The retainer letter did not note PHS's refusal to pursue a "bad faith claim" against Fidelity.
On April 19, 1993, Olsen contacted PHSA-A, informing him that Jackson would be "going its own way" as Olsen did not anticipate he would be able to strike a funding arrangement with Fidelity that would be acceptable to PHS. (D.I. 34, Ex. I) Despite this pronouncement, Olsen continued to discuss with PHSA-A the possibility of going forward with Fidelity if "Fidelity would make payments to [him] in the requested amount, and [if he] would ha[ve] the right to object to "unreasonable' billings, and to paying [Fidelity's attorneys'] fees for the fraud claim against [Fidelity]." (D.I. 34, Ex. L at A166) PHSA-A in turn contacted the attorney representing Fidelity in the Morse/Diesel litigation, who expressed that Fidelity's
continued interest in funding the case was attributable in large part to [PHS's] involvement . . . [and] raise[d] a possible [Fidelity] concern: that any claim with Fred Olsen in charge might be risky in that he has shown the propensity to sabotage his own case to get personal funding, and might do it again.
At the time, Olsen was experiencing personal financial difficulties and seeking advances from Fidelity to help him with this situation.
(D.I. 34, Ex. L at A167; see also D.I. 34, Ex. K)
On May 20, 1993, the Fidelity's attorney contacted PHSA-A regarding PHS's representation of Jackson. According to a memorandum authored by PHSA-A documenting the call, Fidelity's attorney indicated that
he was exploring the possibility of going forward with (PHS] with a new set up whereby when the newly-to-be-agreed funding runs out, [Olsen] cannot halt the progress of the litigation to hold (Fidelity] hostage for more money by directing (PHS] . . . to stop work. He thought it might be possible to do this by creating a joint venture or some other entity which would be [PHS's] client, and ensuring, as a matter of corporate governance, that [PHS] could not be fired or directed to stop without [Fidelity's] approval, thereby permitting [PHS] ethically to continue prosecuting the claim without [Olsen's] cooperation.
(D.I. 34, Ex. J at A162) PHSA-A, who did "not see an ethical impediment to such an arrangement . . . so long as appropriate disclosures [were] made and appropriate waivers . . . procured," indicated that he "would explore the idea with [PHS's] ethical advisers." (D.I. 34, Ex. J at A162-63)
Olsen subsequently retained another law firm, Braude Margulies, P.C. ("Braude"), to represent Jackson in the Morse/Diesel litigation. Braude was willing not only to pursue the bad faith claim but also to take the case on a contingency fee basis. Retention of this firm fell through, however, in or about September 1993, in part because Fidelity was unwilling to provide funding for and subordinate its claim to the firm's legal fee. (D.I. 35, Ex. HH at A790-91; D.I. 34, Ex. M)
The retention of Braude having fallen through, Olsen considered re-retaining PHS. (D.I. 34, Ex. M) In that regard, Olsen inquired through his counsel, KVW, whether Fidelity would be willing to provide funding for PHS's representation of Jackson. (D.I. 34, Ex. N) On October 11, 1993, Olsen, on behalf of Olsen Industries, Jackson, and himself, executed an agreement with Fidelity whereby Fidelity would provide funding for the retention of PHS. (D.I. 34, Ex. R) In light of the funding agreement, PHSA-C wrote to Olsen in order to clarify PHS's "thoughts and some conditions" concerning its representation of Jackson:
At the time of the Morse/Diesel litigation, Olsen Industries owned all of the stock of Jackson, and Olsen held 62% of the stock of Olsen Industries.
So that there is no misunderstanding as to the scope of [PHS's] engagement . . . [PHS] will be representing [Jackson] in connection only with its claim against Morse/Diesel, and Morse/Diesel's claim against [Jackson]. [PHS] will not represent [Jackson], yourself, or any of the indemnitors in connection with any matter where (Jackson], yourself or any indemnitor may be adverse to [Fidelity] . . .
* * * *
Again, while it is remote that Jackson and the indemnitors will fail to cooperate as contemplated . . ., any dispute as to this issue shall not be grounds for withholding payment of attorneys fees to (PHS]. In addition, inasmuch as (defendant] will be working closely with (Fidelity] and (Fidelity's] attorneys, Jackson agrees that (PBS] can share attorney/client confidences with (Fidelity] and [its] attorneys-with respect to the prosecution and defense of the Morse/Diesel action.
* * * *
Finally, we want to make it clear that (Jackson] agrees that in the event that (PHS's] invoices are not paid in a timely fashion, (PHS] has a right to withdraw as counsel in the Morse/Diesel action without regard to whether an appearance for replacement counsel is entered.
(D.I. 34, Ex. S)
E. Litigation Strategy
Even before a funding arrangement had been reached between Jackson and Fidelity, defendant had begun working with Fidelity's attorneys who represented Fidelity in the Morse/Diesel action to develop a litigation strategy. Specifically, PHS began to formulate a strategy with respect to the damages to be sought, keeping in mind that Jackson's pleading had been directed to a breach of the March agreement and damages incurred subsequent to that breach. (D.I. 38 at A44-82) Two different theories were considered. The first established the baseline for damages as the original subcontract date ("Day One damages"), while the second set the baseline as the date of the March agreement ("Day 465 damages"). (D.I. 34, Ex. O; D.I. 35, Ex. GG at A725) The strategy issue was discussed at meetings held on or about March 19 and March 24, 1993, which meetings were not attended by Olsen, and ultimately a decision was made to seek Day 465 damages as such a strategy eliminated the need to overcome the facially valid March agreement. (D.I. 34, Exs. F, G, H, O; D.I. 35, Ex. FF at A492) Accordingly, at a meeting on April 7, 1993, which was attended by Olsen, Fidelity and its counsel, and several experts, PHSA-C advised that the working theory of the case would be premised on a Day 465 damages strategy. (D.I. 34, Exs. F, G, H, O; D.I. 35, Ex. FF at A492, A504, Ex. GG at A628; D.I. 38 at A119-30)
According to PHS, the maximum benefit the Day One theory would add to Jackson's overall claim was outweighed by the risks inherent in attempting to overcome a facially valid release under the circumstances at bar. (D.I. 35, Ex. FF at A492) Specifically, PHS was concerned that presentation of a Day One damages claim would undermine Jackson's credibility and thereby weaken its entire case. (D.I. 35, Ex. FF at A495-97) PHS believed that to assert a claim for Day One damages, Jackson would have to contend that both it and Morse/Diesel were mistaken as to the state of the project at the time the release was signed. (D.I. 35, Ex. GG at A643) Yet to prevail on its breach of contract claim against Morse/Diesel, Jackson would have to demonstrate that the costs incurred were not the result of its own mistakes or inefficiency, i.e., that its employees were skilled and knowledgeable artisans who knew the state of the project. (D.I. 35, Ex. GG at A643) Moreover, PHS felt that assertion of a claim for Day One damages would implicate the financial and managerial problems Jackson was experiencing prior to March 1985, problems that Morse/Diesel would capitalize on at trial. (D.I. 35, Ex. GG at A643) In addition, PHS believed that to prevail on a Day One damages claim Jackson would have to overcome the testimony of Mr. DePaul, Jackson's former president, who stated in his deposition that he did not rely upon Morse/Diesel's representations when he signed the March agreement. (D.I. 35, Ex. GG at A643)
Once PHS was re-retained as Jackson's counsel, it resumed litigation efforts, focusing on the Day 465 strategy. (D.I. 34, Ex. T) In May 1994, at Olsen's request, PHSA-A directed that research be done as to the effect of the March agreement on Jackson's ability to pursue Day 1 damages. (D.I. 35, Ex. FF at A565) In a letter dated June 7, 1994, PHSA-C responded to Olsen's inquiry regarding PHS's ongoing research as to the "legal theory" of the Morse/Diesel litigation. (D.I. 34, Ex. W) In the letter, PHSA-C indicated that there were difficulties in pursuing Day One damages that needed to be more thoroughly researched before a decision could be made as to "whether the baseline for damages [could] be the entire contract or just the post — March 1985 damages." (D.I. 34, Ex. W at A377) In the same letter, PHSA-C reiterated the scope of the representation PHS would provide Jackson:
I am sorry that you now disagree with the scope of the representation that [PHS] has undertaken on behalf of [Jackson]. We have however been absolutely clear with you that our role was limited to pursuing Jackson's claim, with your cooperation, and cooperation with [Fidelity's] counsel to the extent necessary in our judgment to maximize this claim. . . . [W]e need to move on to a working relationship where we are given the cooperation and information necessary on a timely basis.
* * * *
. . . We will continue not to advise you in your relationship with (Fidelity] and we assume now that you have advised us that you are consulting other counsel about these issues, that you will no longer attempt to circumvent this limitation of our representation agreement.
(D.I. 34, Ex W at A378)
On July 27, 1994, PHSA-C wrote to Olsen, summarizing the results of the research to date and enclosing copies of three legal memoranda that had been prepared in the course of that research. (D.I. 34, Exs. X, Z, T; D.I. 35, Ex. AA) Based upon the research, PHSA-C "concluded while it (is] by no means clear, there is a possibility that Jackson will be able to present a quantum meruit case from the beginning of the project. Our best theory to achieve such a result is the `equitable estoppel' theory. . . ." (D.I. 35, Ex. AA at A410) After setting out the proof Jackson would need to demonstrate that Morse/Diesel is estopped from asserting the release as a bar to its damages claim and the counter arguments Morse/Diesel was likely to raise, PHSA-C concluded that
The memoranda discussed the general parameters of thequantum meruit measure of damages, New York law concerning releases, and the theory of equitable estoppel under New York law. (D.I. 34, Exs. X, Z, T)
(PHS] view[s] as not substantial the down-side risks that making this claim will detract from Jackson's overall creditability [sic]. The same types of evidence that will support Jackson's breach of contract claim after March 1985 would also support the equitable estoppel theory which would permit damages prior to March of 1985.
(D.I. 35, Ex. AA at A412)
Subsequent to the July 27, 1994 letter, an associate at PHS prepared two legal memoranda concerning Jackson's ability to "circumvent the March agreement and pursue the antecedent claim." (D.I. 35, Ex. CC. at A417) The first of these memoranda, dated August 29, 1994 ("the August 29, 1994 memorandum"), discussed whether an accord and satisfaction theory would allow Jackson to overcome the release and seek Day One damages. (D.I. 35, Ex. CC at A418-32) According to the memorandum, in order for Jackson to recover Day One damages, it would have to show that the March agreement was an executory accord. (D.I. 35, Ex. CC at A418) The memorandum notes, however, that the concurrent execution of the release (for work already performed and for all claims in the February 1985 litigation) and the March agreement would support an argument that the "agreement manifests an intention to discharge [Morse/Diesel's] liability immediately and substitute a new liability." (D.I. 35, Ex. CC at A431) The August 29, 1994 memorandum concludes
A third legal memorandum was a request to perform the research recorded in the subsequent memoranda. (D.I. 35, Ex. CC at A417)
that the District Court will review the record to determine whether (Jackson] intended to discharge its original claim immediately or after receiving the satisfaction of (Morse/Diesel's] performance. Citing the release terms of the agreement, the Court will still characterize the (March] Agreement as a settlement which substituted a new liability for (Jackson's] claim of 25 January 1985 unless we can point to counter-veiling circumstances which manifest [Jackson's] intent to enter into an accord. At this point, we probably lack a basis to make this argument.
(D.I. 35, Ex. CC at A432; see also D.I. 35, Ex. CC at A418: "My research, therefore, concludes that [Jackson] probably cannot escape the legal effect of its release to recover those damages which pre-date 25 March 1985.")
The second memorandum, dated September 29, 1994 ("the September 29, 1994 memoranda"), discussed the need to amend Jackson's pleading should it choose to seek Day One damages. (D.I. 35, Ex. CC at A433-34) According to the memorandum, under New York law Jackson could not "plead both a breach of the accord and the original subcontract in the alternative." (D.I. 35, Ex. CC at A434) Since at that time the pleading only alleged entitlement to damages incurred after March 25, 1985, the memorandum advised that, if Day One damages were to be sought, PHS should "completely redraft the Counterclaim and allege breaches of the original subcontract with damages dating back to the formation of [the] agreement." (D.I. 35, Ex. CC at A434) The parties do not dispute that these memoranda were not forwarded to Olsen for review.
On or about December 8, 1994, a meeting attended by attorneys for both Jackson and Fidelity, a Fidelity representative, and Olsen was held to discuss litigation strategy. (D.I. 35, Ex. EE) A letter to Olsen from PHSA-A confirming the decisions reached at the meeting, indicates that PHS
recommended to (Jackson] that the claim against Morse Diesel proceed on its currently pleaded course, i.e., th[at] damages only be sought for breaches of contract after the March 1985 settlement agreement. While we considered carefully the benefits of going back to the beginning of the contract for the purposes of damages, such as the increased potential damage, and the simplicity of the damage calculation, we find them outweighed by the considerations supporting proceeding in the fashion outlined above. These include the current state of the pleadings and the need to seek an amendment if [we] were to proceed otherwise, the statements and representations made in discovery, the fact that many of the complaints Morse Diesel has about Jackson's performance were prior to the March 1985 release, and most significantly the difficulties of overcoming a facially valid settlement agreement and release under New York law.
After discussion of these factors, you concurred with our judgment, based on all of the circumstances that are present at this time, and directed us to proceed accordingly.
(D.I. 35, Ex. EE at A465) Olsen concedes that at no time did he object to the chosen course or direct PHS to proceed otherwise. (D.I. 35, Ex. JJ at A961)
F. Motion to Amend
In February 1995, PHS on behalf of Jackson filed a motion to amend its pleading to add a claim for loss of business incurred beyond March 1986. See Morse/Diesel. Inc. v. Fidelity Deposit Co. of Maryland, 86 Civ. 1494 (DLC), 1995 U.S. Dist. LEXIS 8264, *1 (S.D.N.Y. June 15, 1995). In considering the motion to amend, Judge Cote noted the liberal standard of Fed.R.Civ.P. 15(a) but went on to deny the amendment citing four separate grounds. See id. at *16.17. First, Judge Cote found that Jackson "ha[d] considerably delayed its decision to amend the counterclaim," filing it almost nine (9) years after the original counterclaim was pled and seven (7) years after Jackson had been forced to sell its business, without setting forth any justification for the delay. See id. at *17.18. The court found such "delay alone . . . sufficient to bar the amendment." Id. at *18. Second, the court found that grant of the motion would result in undue prejudice to Morse/Diesel:
The original counterclaim for lost business was limited not only to damages incurred from the period between March 1985 and March 1986 but also to the cause of those injuries, i.e., the fact that Jackson had been forced to remain on the job, thereby foregoing other jobs. (D.I. 38 at A57-58)
This action is currently scheduled to go to trial on July 10, 1995. Permitting the amendment at this point would require reopening discovery on the damages issue, possibly permitting the parties (at least Morse/Diesel) to obtain an additional expert on this issue, and delaying the trial date. Under no circumstances will the Court permit the trial date in this action to move. The undue prejudice to Morse/Diesel if the amendment were permitted, by itself, requires denial of the amendment.Id. at *18.19. Third, Judge Cote found that the amendment was time barred as it did not relate back to the original pleading "given the dramatic change in the scope of the damage claim." Id. at *21. Finally, the court found that the amendment failed to state a viable legal theory of recovery and thus was futile. See id. at *22.27
Although expert discovery was still ongoing at this point in the litigation, fact discovery, which had been limited to the period from November 4, 1982 through March 31, 1986, had closed.
G. The Morse/Diesel Litigation
The Morse/Diesel action was tried before Judge Cote in the Southern District of New York from July 10, 1995 through July 27, 1995. At trial, PHS on behalf of Jackson presented a damage claim premised upon the Day 465 damages theory. On August 1, 1995, Judge Cote rendered an oral decision in which she concluded that Morse/Diesel had breached the March agreement. (D.I. 34, Ex. A at A055) She further concluded that Morse/Diesel could not take refuge in the March agreement as a final settlement of all disputes:
None of these contractual provisions, however, provides Morse/Diesel with an escape from the undisputed fact that the March agreement settled the outstanding disputes between the parties, based on their mutual commitment to an August 1 TCO [(temporary certificate of occupancy)] date. When Morse/Diesel prevented the parties from achieving that TCO date, it breached the March agreement, and can no longer rely on it as a settlement of all Jackson's known, anticipated and unanticipated injuries.
* * * *
Morse/Diesel's primary argument is that, through the March 25th Agreement, Jackson, . . . released all past and future claims . . .
There is no question that Jackson has settled various claims to this agreement. Specifically, the release paragraph provides that "concurrent with the execution of this agreement, Jackson will execute a release surrendering any and all claims . . . for compression or acceleration costs arising from the revised schedule to be agreed upon pursuant to Paragraph 3 of this agreement."
* * * *
. . . [R]eleases are typically construed narrowly, and therefore, "if from the recitals therein or otherwise, it appears that the release is to be limited to only particular claims, demands or obligations, the instrument will not release other claims, demands, or obligations. Topat Equipment Co. v. Porter, 377 N.Y.S.2d 339, 341 (App.Div. 1975).
Reading the release signed by Jackson in light of this standard, I do not find that Jackson has waived all of its claims for damages arising out of the March agreement. Quite to the contrary, setting aside claims related to the period prior to the agreement, Jackson released only those claims "for compression or acceleration costs arising from the revised schedule to be agreed upon pursuant to Paragraph 3 of this agreement."
Thus, Jackson would be barred from recovering only if the March agreement had been adhered to, that is, if the entire hotel had received a TCO on August 1, and if the contract continued on the course contemplated in the schedule attached to the April agreement. There is nothing in the March agreement to indicate that Jackson intended to or in fact did release Morse/Diesel from claims that would arise if Morse/Diesel failed to comply with the schedule that contemplated an August 1, 1985, substantial completion and TCO date for the entire hotel.
Because, as is undisputed, the project was not completed as contemplated by the April schedule, Jackson may seek to recover from Morse/Diesel any damages that were proximately caused by Morse/Diesel's breach of any express or implied duties contained in the subcontract and which delayed the job past the schedule which the parties adopted in the April agreement.
(D.I. 34, Ex. A at A056-57, A063-66) On August 10, 1995, Judge Cote entered judgment in favor of Jackson with respect to all claims against it and with respect to its counterclaim for damages against Morse/Diesel in the amount of $2,598,071 plus interest. (D.I. 38 at A155-57)
Both Morse/Diesel and Jackson filed appeals; the trial court's decision was affirmed in August 1996.
H. Bankruptcy Litigation
While the Morse/Diesel litigation was pending, PHS on behalf of Jackson filed a Chapter 11 bankruptcy petition on October 31, 1994 in the United States Bankruptcy Court for the District of Delaware. (D.I. 35, Ex. DD at A439) PHS's role as counsel for Jackson in the bankruptcy action was funded by Fidelity. (D.I. 35, Ex. DD at A438)
That same day Olsen Industries also filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Delaware. (D.I. 35, Ex. DD at A439, A436) PHS did not represent Olsen Industries in the bankruptcy proceeding. Olsen also filed for Chapter 11 bankruptcy on October 11, but he did so in another jurisdiction. (D.I. 35, Ex. DD at A439, A436)
Fidelity also agreed to fund bankruptcy counsel for Olsen Industries and Olsen. (D.I. 35, Ex. DD at A438)
Disagreements between Olsen and PHS as to how to proceed in the bankruptcy proceedings resulted in PBS's withdrawal as counsel on November 22, 1996. (D.I. 35, Ex. EE at A439) In response to PHS's application for fees and expenses, Jackson filed an objection as well as a cross-motion for disgorgement of all fees and costs previously approved and paid to PHS. (D.I. 35, Ex. EE at A440) On November 13, 1997, the Bankruptcy Court disallowed PHS's final fee application and ordered PHS to disgorge fees for abuse of discretion, which decision was affirmed on appeal in September 1999. (D.I. 35, Ex. DD)
III. STANDARD OF REVIEW
This case is properly in this court pursuant to 28 U.S.C. § 1334(b), "related to" jurisdiction. Procedural matters, therefore, are governed by Part VII of the Bankruptcy Rules. See Phar-Mor, Inc. v. Coopers Lybrand, 22 F.3d 1228, 1236-37 (3d Cir. 1994). Accordingly, Fed.R.Bankr.P. 7056 supplies the applicable standard of review. This rule incorporates Fed.R.Civ.P. 56(c), which provides that summary judgment should be granted only if the court concludes that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the burden of proving that no genuine issue of material fact is in dispute. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 n. 10 (1986). Once the moving party has carried its initial burden, the nonmoving party "must come forward with `specific facts showing that there is a genuine issue for trial.'" Id. at 587 (quoting Fed.R.Civ.P. 56(e)). "Facts that could alter the outcome are `material,' and disputes are `genuine' if evidence exists from which a rational person could conclude that the position of the person with the burden of proof on the disputed issue is correct." Horowitz v. Federal Kemper Life Assurance Co., 57 F.3d 300, 302 n. 1 (3d Cir. 1995) (citations omitted). If the nonmoving party fails to make a sufficient showing on an essential element of his case with respect to which he has the burden of proof, the moving party is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The mere existence of some evidence in support of the nonmoving party will not be sufficient for denial of a motion for summary judgment; there must be enough evidence to enable a jury reasonably to find for the nonmoving party on that factual issue. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). This court, however, must "view the underlying facts and all reasonable inferences therefrom in the light most favorable to the party opposing the motion."Pennsylvania Coal Ass'n v. Babbitt, 63 F.3d 231, 236 (3d Cir. 1995) (citation omitted).
IV. DISCUSSION
A. Choice of Law
There is substantial disagreement among the courts as to whether or not a federal court exercising bankruptcy jurisdiction must follow the choice-of-law rules of the state in which it sits or the federal common law choice-of-law rules. Compare Kalb, Voorhis Co. v. American Fin. Corp., 8 F.3d 130 (2d Cir. 1993);In re Nantahala Village Inc., 976 F.2d 876 (4th Cir. 1992);Askanase v. Fatjo, 130 F.3d 657 (5th Cir. 1997); Elgin Sweeper Co. v. Melson Inc., 884 F. Supp. 641 (N.D.N.Y. 1995) with In re Lindsay, 59 F.3d 942 (9th Cir. 1995); In re SMEC Inc., 160 B.R. 86 (M.D. Tenn 1993); In re Gibson, 234 B.R. 776 (Bankr. N.D. Cal. 1999); In re McCorhill Publ'g Inc., 86 B.R. 783 (Bankr. S.D.N Y 1988); In re Prof'l Investors Ins. Group v. United Oversears Bank, 232 B.R. 870 (Bankr. N.D. Tex. 1999). Although the Third Circuit has not ruled explicitly on the matter, in Robeson Indus. v. Hartford Accident Indem. Co., 178 F.3d 160 (3d Cir. 1999), an appeal of the district court's affirmance of the bankruptcy court's grant of summary judgment in an adversary proceeding, the Circuit Court, which sat in diversity, applied the choice-of-law rules of the forum state. See id. ("Because we sit in diversity in the present case, we are bound to follow the substantive law of the forum, including the forum's choice-of-law rules. (internal citations omitted)). In the instant action, it matters not which choice-of-law rule is applied, as both federal common law and the forum state (Delaware) follow the approach of theRestatement (Second) of Conflict of Law's ("the Restatement") "most significant relationship" test for choice-of-law questions sounding in tort. See Pig Improvement Co. v. Middle States Holding Co., 943 F. Supp. 392, 396 (D. Del. 1996); see also Travelers Indem. Co. v. Lake, 594 A.2d 38, 41, 47 (Del. 1991).
The parties generally are in agreement that New York substantive law governs Jackson's claims at bar. Pursuant to § 145 of the Restatement, the court in determining the local law of the state that "has the most significant relationship to the occurrence and the parties" should first consider:
PHS asserts that either Pennsylvania or New York law governs the action but that the court "need not decide whether New York or Pennsylvania controls since the law of both states is the same." (D.I. 37 at 21-22) Jackson makes no argument for application of New York law but premises all of its legal assertions on the law of that state. In light of this, the court will assume that the parties do not dispute the application of New York law to the elements of Jackson's claims against PHS.
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,
(d) the protection of justified expectation,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.Restatement § 6. The court then should evaluate these factors in light of particular geographic contacts that are relevant to tort claims, specifically
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury occurred,
(c) the domicil, residence, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.Restatement § 145(2). The Restatement directs that "[t]hese contacts are to be evaluated according to their relative importance with respect to the particular issue." Id. Applying this standard to the case at bar, the court concurs with the parties that New York substantive law applies to this action since, although PHS's advice was formulated and accepted in Pennsylvania, the crux of the action concerns litigation which took place in New York and centered on a New York construction project.
B. Breach of Fiduciary Duty
It is axiomatic that an attorney stands in a fiduciary relationship to the client. See Cinema 5 Ltd. v. Cinerama, Inc., 528 F.2d 1384, 1386 (2d Cir. 1976). As a fiduciary, an attorney "is obliged to exercise the highest degree of good faith, honesty, integrity, fairness, and fidelity." Condren v. Grace, 783 F. Supp. 178, 182 (S.D.N.Y. 1982). In its complaint, Jackson alleges that PHS breached its fiduciary duty to it in two aspects: (1) by withholding material information and (2) by proceeding in a relationship with it that was tainted by a conflict of interest.
In order to prevail on a claim for breach of fiduciary duty, a plaintiff must demonstrate by a preponderance of the evidence that the defendant's conduct proximately caused its injury. See LNC Invs. Inc. v. First Fidelity Bank, N.A. N.J., 173 F.3d 454, 465 (2d Cir. 1999) (stating that in a breach of fiduciary case where the plaintiff seeks compensatory damages, the level of causation required is proximate causation; where the remedy sought is a "`restitutionary one to prevent the fiduciary's unjust enrichment,'" the less stringent substantial factor standard is more appropriate); see also DuPont v. Brady, 646 F. Supp. 1067, 1076 (S.D.N.Y. 1986) (finding that plaintiff had failed to prove by a preponderance of the evidence that his loss was caused by counsel's omission); Keywell Corp. v. Piper Marbury. L.L.P., No. 96-CV-0660E (SC), 1999 WL 66700, at *6 (W.D.N.Y. Feb. 11, 1999) (stating that "[t]o be entitled to an award of damages, a plaintiff must show with certainty that its damages were caused by the defendant's actions"). "`In the absence of a causal link between (the defendant's] alleged wrongful conduct and [the] plaintiff's alleged damages, the complaint must be dismissed.'" LNC Investments, 173 F.3d at 465-66 (quoting R.M. Newell Co. v. Rice, 653 N.Y.S.2d 1004, 1005 (N.Y.App.Div. 1997)). Moreover, in order to be entitled to damages, plaintiff, must demonstrate that the resultant loss is capable of proof with reasonable certainty. See Keywell Corp., 1999 WL 66700, at *6; Treasure Lake Assocs. v. Oppenheim, 993 F. Supp. 217, 220 (S.D.N.Y. 1998). A plaintiff, therefore, in order to demonstrate a defendant's breach of fiduciary duty, must establish both causation and damages. See Keywell Corp., 1999 WL 66700, at *6.
1. Withholding of material information
In the case at bar, Jackson alleges that PHS breached its duty to provide Jackson all information material to its claim against Morse/Diesel. Specifically, Jackson points to two internal legal memoranda, the August 29, 1994 and September 29, 1994 memoranda, that were not provided to Olsen for review. Under New York law, as part of his or her fiduciary duty, an attorney must provide the client with all information material to the client's decision to pursue a given course of action or to abstain therefrom. See Spector v. Mermelstein, 361 F. Supp. 30, 39-40 (S.D.N.Y. 1972);accord DuPont v. Brady, 646 F. Supp. 1067, 1076 (S.D.N.Y. 1986);Heine v. Newman, Tannenbaum, Helpern, Syracuse Hirschtritt, 856 F. Supp. 190, 194-95 (S.D.N.Y. 1994). "Material facts are those which, if known to the client, might well have caused him, acting as a reasonable man, to alter his proposed course of conduct."Spector, 361 F. Supp. at 40. "If an attorney negligently or willfully withholds from his client [material information] then the attorney is liable for the client's losses suffered as a result of action taken without benefit of the undisclosed material facts." Id. at 39-40.
Accepting as true that Jackson was not afforded an opportunity to review the memoranda at issue, Jackson has failed to establish that these documents are "material" under New York law. The record is devoid of any testimony from Olsen indicating that had he received the documents he would have pursued a different course of action. Nor does the record support a finding that a reasonable man in Olsen's position having reviewed the memoranda would have pursued Day One damages. The August 29, 1994 memorandum concludes that the accord and satisfaction theory discussed therein would not have been successful at trial given the circumstances at bar. Faced with that negative appraisal there is no basis for finding that a reasonable person would have altered his conduct. In fact, when presented with PHS's assessment of the two damage theories (which was consistent with the recommendation set forth in the August 29, 2994 memorandum), Olsen opted to forego Day One damages in favor of Day 465 damages. Accordingly, the court concludes that Jackson has failed to establish the materilality of the withheld memoranda.
The only support in the record for such an inference is a footnote in Jackson's reply brief in support of its motion for summary judgment, which reads in relevant part that "the undisputed facts show that had [Olsen] been told of a viable theory upon which to proceed with Day One damages, he would have proceeded." (D.I. 43 at 6 n. 5)
Even if the court were to assume that the memoranda were material, Jackson has failed to establish by a preponderance of the evidence that but for PHS's withholding of the memoranda, Jackson would have prevailed at trial on its Day One damages claim. Despite Jackson's tortured interpretation of Judge Cote's decision, there is no support in her opinion for concluding that, had Jackson presented a claim for Day One damages, she would have awarded such damages. In fact, a more likely interpretation of her decision would lead to the conclusion that such damages were barred by the release Jackson executed as part of the March agreement. Such a finding is consistent with the evidence at bar, which indicates that no viable legal theory existed that would allow Jackson to overcome the clear and unambiguous release set forth in the executed March agreement. Moreover, although Jackson contends that the language of Judge Cote's decision reflects a finding that Jackson regarded Morse/Diesel's performance under the March agreement as legal satisfaction of an accord, the court finds that such is not the case. Rather, Judge Cote found that Jackson could recover damages incurred only as a result of Morse/Diesel's breach of the March agreement as amended. Accordingly, the court finds that Jackson has failed to establish with certainty that PHS's omission caused its loss. In the absence of evidence that would enable a jury reasonably to find for Jackson on this factual issue, the court concludes that PHS is entitled to summary judgment as to this claim.
2. Conflict of interest
As a fiduciary, an attorney "`is charged with a high degree of undivided loyalty to his client'" Estate of Re v. Kornstein Veisz Wexler, 958 F. Supp. 907, 924 (S.D.N.Y. 1997) (quoting Kelly v. Greason, 23 N.Y.2d 368, 375 (N.Y.App.Div. 1968)). The unique nature of the attorney-client relationship requires that an attorney "not place himself in a position where a conflicting interest may, even inadvertently, affect, or give the appearance of affecting, the obligations of the professional relationship."Kelly, 23 N.Y.2d at 376. The nature of this relationship is reflected further in Ethical Consideration 5-21 of Canon 5 of New York's Code of Professional Responsibility:
The obligation of a lawyer to exercise professional judgment solely on behalf of his client requires that he disregard the desires of others that might impair his free judgment. The desires of a third person will seldom adversely affect a lawyer unless that person is in a position to exert strong economic, political, or social pressures upon the lawyer. These influences are often subtle, and a lawyer must be alert to their existence. A lawyer subjected to outside pressures should make full disclosure of them to his client . . .
In the case at bar, Jackson argues that the "financial pressure" Fidelity exerted over PHS posed a conflict of interest that materially limited PHS's responsibility to plaintiff. Specifically, Jackson argues that PHS, as a result of its desire to retain Fidelity's funding, compromised Jackson's claims by foregoing the Day One damages theory.
In light of the factual record in this matter, a possible conflict of interest existed vis a vis PHS's representation of Jackson. Fidelity funded PHS's handling of the Morse/Diesel litigation on behalf of Jackson. Such funding on its own does not pose a conflict of interest as long as the client has been consulted and consented to the relationship, which Olsen in the instant action did. It is clear, however, that at all times during its representation of Jackson, PHS was concerned that the funding arrangement continue uninterrupted. As a consequence, PHS imposed on itself a restriction as to the scope of its representation of Jackson — it would not represent Jackson in any matter where its position might be adverse to that of Fidelity — restriction of which Olsen was aware at the outset. Moreover, PHS formed a "cooperative" working relationship with Fidelity, such that Fidelity and its attorneys were directly involved in formulating litigation strategy, including the adoption of a damages strategy.
Although this scenario creates the risk of a conflict, there is no support in the record for Jackson's contention that Fidelity influenced PHS's decision to forgo Day One damages. Jackson contends that pursuit of Day One damages might have in some unspecified way jeopardized Fidelity's defense of Morse/Diesel's reimbursement and fraud claims and, therefore, Fidelity, through its financial pressure, caused defendant to forego the claim. Jackson's assertions in this regard are mere speculation, and mere speculation or conjecture cannot establish an essential element of the case to which a party has the burden of proof. That is particularly true here, where the record indicates that Fidelity, as surety, would be benefitted by an increase in Jackson's recovery as such would reduce Morse/Diesel's fraud claim against Fidelity. Moreover, any enhancement in Jackson's recovery would increase the likelihood that Fidelity would be able to collect upon the security interest it had in Jackson's claim against Morse/Diesel. Accordingly, the court finds that Jackson has failed to present enough evidence from which a jury reasonably could infer that a conflict actually materialized.
Even assuming that Jackson had presented evidence from which a jury could conclude that PHS's representation constituted professional misconduct, Jackson has failed to establish that its alleged loss was proximately caused by the actions of PHS. As discussed above, Jackson has failed to demonstrate by a preponderance of the evidence that it would have prevailed at trial on its claim for Day One damages. In the absence of evidence indicating that Jackson can prove such a causal link, summary judgment in favor of PHS is warranted.
C. Legal Malpractice
Jackson asserts that PHS's failure to file a motion to amend the complaint to add a claim for Day One damages constitutes legal malpractice. It is well settled under New York law, that a claim of legal malpractice requires proof of
(1) the existence of an attorney-client relationship; (2) negligence on the part of the attorney or some other conduct in breach of that relationship; (3) that the attorney's conduct was the proximate cause of injury to the plaintiff; and (4) that but for the alleged malpractice the plaintiff would have been successful in the underlying action.Sloane v. Reich, No. 90 CIV 8187 (SS), 1994 WL 88008, *3 (S.D.N.Y. March 11, 1994); accord Estate of Re, 958 F. Supp. at 920; see also Lefkowitz v. Lurie, 678 N.Y.S.2d 345, 346 (N.Y.App.Div. 199 8).
With respect to the second prong, Jackson asserts that PHS was negligent in not moving to amend the complaint to assert a claim for Day One damages at the end of August 1994. An attorney, however, "cannot be held liable for malpractice for reasonable discretion exercised during the course of litigation." Estate of Re, 958 F. Supp. at 921. Based upon its research, PHS concluded that the prudent course of action in the Morse/Diesel litigation was to pursue Day 465 damages. It advised Jackson of this decision, and the basis therefor, and Jackson ostensibly agreed to that course of action. Having so concluded and receiving the client's consent thereto, there was no need to file an amended complaint. See Hwang v. Bierman, 614 N.Y.S.2d 51, 52-53 (N Y App. Div. 1994) ("Even where there may be several alternatives, the selection of one of many reasonable defenses does not constitute malpractice."). PHS's decision to pursue Day 465 damages and, thus, not file a motion to amend, is not-so egregious as to sustain a claim for malpractice.
Even if PHS's failure to file a motion to amend were negligent, with respect to the third and fourth prongs, Jackson's allegation of legal malpractice is even more attenuated than its allegations of breach of fiduciary duty. In order to establish that PHS's conduct was the but-for cause of its loss, Jackson must demonstrate not only that Judge Cote would have granted the motion to amend to add the Day One damages claim but also that it would have prevailed at trial on that claim. As previously discussed, Jackson has failed to establish the latter. Jackson's proof is equally as deficient as regards the former.
Jackson correctly notes that Fed.R.Civ.P. 15(a) directs the courts that leave to amend "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). While such leave is left to the sound discretion of the trial court, the Supreme Court has identified several factors a court should consider when applying Rule 15(a):
In the absence of any apparent or declared reason — such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. — the leave sought should, as the rules require, be `freely given.'Foman v. Davis, 371 U.S. 178, 182 (1962)
Jackson asserts that in light of this liberal standard it is probable that Judge Cote would have granted a motion to amend to seek Day One damages had it been asserted in August 1994, following presentation of the August 29, 1994 memorandum. Given Judge Cotes' denial of Jackson's February 1995 motion to amend, however, Jackson's assertion is less than persuasive. The same considerations that led Judge Cotes to deny that motion are applicable to the amendment Jackson asserts PHS should have filed: the significant delay in filing the amendment, the need to reopen discovery on the new theory of damages, and the possibility that the amendment was both time barred and/or futile. Judge Cote's unambiguous declaration that "[u]nder no circumstances will the Court permit the trial date in this action to move" makes grant of the Day One amendment even more improbable. Under the circumstances, the court finds that Jackson has failed to provide enough evidence to enable a jury reasonably to find for it on this factual issue. Accordingly, summary judgment in favor of defendant with respect to this claim is appropriate.
Even if the court were to assume that Jackson could establish that Judge Cote would have granted the Day One damages amendment, as noted earlier, Jackson has failed to establish that it would have prevailed on that claim. Consequently, Jackson has failed to demonstrate causation with respect to its legal malpractice claim.
Having found that Jackson failed to establish that PHS breached its ethical obligations to Jackson with respect to the claims at bar, the court need not address Jackson's assertion in its belatedly filed "Supplemental Memorandum of Law" that it is entitled to the forfeiture of attorneys' fees paid PHS if the court finds Jackson "has not suffered actual damages." (D.I. 47, 49) The court notes that Jackson's supplemental memorandum was filed without leave of the court and asserts a damages theory not presented in any of its prior pleadings.
V. CONCLUSION
For the reasons stated above, the court finds that New York law applies to the merits of Jackson's claims for breach of fiduciary duty, conflict of interest, and negligence. The court further finds that there are no genuine issues of material fact relating to these claims and that Jackson has failed to provide enough evidence from which a reasonable jury could conclude that its positions as to the disputed issues is correct. PHS, therefore, is entitled to judgment as a matter of law. Accordingly, the court will deny Jackson's motion for summary judgment (D.I. 33) and grant PHS's motion for the same (D.I. 36). An appropriate order shall issue.