NUPSON v. SCHNADER HARRISON SEGAL & LEWIS, LLP et al

RESPONSE in Opposition re MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

E.D. Pa.March 15, 2019

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ANNA K. NUPSON, ) ) Plaintiff, ) ) v. ) Civil Action No.: 2:18-cv-02505-NIQA ) SCHNADER HARRISON SEGAL ) & LEWIS, LLP, and BRUCE A. ) ROSENFIELD, ESQ., ) ) Defendants. ) PLAINTIFF’S RESPONSE IN OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS PLAINTIFF’S SECOND AMENDED COMPLAINT Justin R. Kaufman DURHAM, PITTARD & SPALDING, L.L.P. 505 Cerrillos Road, Suite A209 Santa Fe, NM 87501 Telephone: (505) 986-0600 Facsimile: (505) 986-0632 jkaufman@dpslawgroup.com Brian A. Gordon GORDON & ASHWORTH, P.C. One Belmont Ave., Suite 519 Bala Cynwyd, PA 19004 Telephone: (610) 667-4500 Briangordon249@gmail.com Kimberly Brusuelas 5TH STREET LAW 312 San Pasquale, NW Albuquerque, New Mexico 87104 Telephone: (505) 247-9333 kim@fifthstreetlaw.com COUNSEL FOR PLAINTIFF Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 1 of 39 i TABLE OF CONTENTS Page TABLE OF AUTHORITIES ......................................................................................................... iii I. SUMMARY .......................................................................................................................1 II. FACTS PLED IN PLAINTIFF’S SECOND AMENDED COMPLAINT ..........................4 A. Background Facts.....................................................................................................4 1. The Middleton Family and Bradford ...........................................................4 2. Defendants’ Legal Representation of the Middleton Family and Bradford ................................................................................................4 3. The Middleton Family Agreements .............................................................5 4. Defendants’ Legal Representation of Frances and John in the 2001 GRAT I Transactions ..........................................................................7 5. Defendants’ Joint Representation of Plaintiff and Frances........................10 B. Facts Giving Rise to Plaintiff’s Claims .................................................................12 1. The Disclosure of the Conflict in the Orphans’ Court Litigation ....................................................................................................12 2. Defendants Concealed GRAT I .................................................................13 3. Plaintiff’s Discovery of GRAT I and Defendants’ Malpractice ................................................................................................14 III. THE CLAIMS ASSERTED IN THE SECOND AMENDED COMPLAINT ....................................................................................................................15 IV. ARGUMENT .....................................................................................................................19 A. The Claims Asserted in the SAC Were Timely Filed; Plaintiff Did Not Know and Could Not Have Reasonably Discovered Defendants’ Unwaivable Conflicts of Interest until October 2016 or March 2017 ............................................................................................................19 1. Legal Standard ...........................................................................................19 Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 2 of 39 ii TABLE OF CONTENTS (cont’d) Page 2. On Its Face, Plaintiff’s SAC States Timely Claims ...................................20 3. Defendants’ Legal Authorities Are Inapposite ..........................................22 B. Because Defendants Concealed their Conduct, the Statute of Limitations Did Not Accrue until Plaintiff Had Actual Knowledge of their Conduct .....................................................................................................24 C. Defendants Were Fiduciaries and Should Not Be Permitted to Benefit from Their Misconduct .............................................................................25 D. There Is No Basis for Judicial Estoppel .................................................................26 E. The Second Amended Complaint States a Claim for Breach of Contract under Pennsylvania Law .........................................................................29 V. CONCLUSION ..................................................................................................................31 CERTIFICATE OF SERVICE ......................................................................................................33 Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 3 of 39 iii TABLE OF AUTHORITIES Cases Page Ayers v. Morgan, 154 A.2d 788 (Pa. 1959) ..................................................................................................... 20, 21 Bailey v. Tucker, 621 A.2d 108 (Pa. Super. Ct. 1993) .................................................................................... 15, 30 Baselice v. Francisco Friars Assumption BVM Province Inc., 879 A.2d 270 (Pa. Super. Ct. 2005) .......................................................................................... 23 Beauty Time, Inc, v. VU Skin Systems, Inc., 118 F.3d 140 (3d Cir. 1997) ...................................................................................................... 26 Bruno v. Erie Insurance, 106 A.3d 48 (Pa. 2014) ............................................................................................................. 30 Chao v. Roy's Constr., Inc., 517 F.3d 180 (3d Cir. 2008) ...................................................................................................... 27 Communications Network International, Ltd. v. Mullineaux, 187 A.2d 951 (Pa. Super. Ct. 2018) .......................................................................................... 22 Dam Things from Denmark v. Russ Berrie & Co., Inc., 290 F.3d 548 (3d Cir. 2002) ...................................................................................................... 27 Dougherty v. Pepper Hamilton, LLP, 133 A.3d 792 (Pa. Super. Ct. 2016) .......................................................................................... 30 Fine v. Checcio, 870 A.2d 850 (Pa. 2005) ............................................................................................... 20, 21, 24 Garcia v. Community Legal Servs. Corp., 524 A.2d 980 (Pa. Super. Ct. 1987) .................................................................................... 15, 30 G-I Holdings v. Reliance Ins. Co., 586 F.3d 247 (3d Cir. 2009) ................................................................................................ 26, 27 Glenbrook Leasing Co. v. Beausang, 839 A.2d 437 (Pa. Super. Ct. 2003) .......................................................................................... 24 Gorski v. Smith, 812 A.2d 683 (Pa. Super. Ct. 2002) .................................................................................... 15, 30 Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 4 of 39 iv TABLE OF AUTHORITIES Cases Page Gurfein v. Sovereign Group, 826 F. Supp. 890 (E.D. Pa. 1993) ............................................................................................. 25 Guy v. Liederbach, 459 A.2d 744 (Pa. 1983) ........................................................................................................... 30 Hayward v. Medical Center of Beaver County, 608 A.2d 1040 (Pa. 1992) ......................................................................................................... 21 In re Estate of Pedrick, 482 A.2d 215 (Pa. 1984) ........................................................................................................... 28 In re Mushroom Transp. Co., Inc., 382 F.3d 325 (3d Cir. 2004) ...................................................................................................... 25 Leone v. Aetna Cas. & Sur. Co., 599 F.2d 566 (3d Cir. 1979) ...................................................................................................... 19 Lewey v. H.C. Frick Coke Co., 31 A. 261 (Pa. 1895) ........................................................................................................... 20, 24 Maritrans GP, Inc. Pepper, Hamilton & Sheetz, 602 A.2d, 1277 (Pa. 1992) ........................................................................................................ 16 Montrose Med. Group Participating Sav. Plan v. Bulger, 243 F.3d 773 (3d Cir. 2001) ...................................................................................................... 27 New Hampshire v. Maine, 532 U.S. 742, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001) ........................................................... 27 Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806 (1945) .................................................................................................................. 28 Robbins & Seventko Orthopedic Surgeons, Incl., v. Geisenberger, 674 A.2d 244 (Pa. Super. Ct. 1996) .................................................................................... 21, 24 Robinson v. Johnson, 313 F.3d 128 (3d Cir. 2002) ................................................................................................ 19, 21 Schwartz v. Pierucci, 60 B.R. 397 (Bankr. E.D. Pa. 1986) .......................................................................................... 25 Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 5 of 39 v TABLE OF AUTHORITIES (cont'd) Cases (cont'd) Page Seidner v. Finkelman, 2018 WL 4178147 (Pa. Super. Ct. 2018) .................................................................................. 29 Shapiro v. Shapiro, 204 A.2d 266 (Pa. 1964) ........................................................................................................... 28 Southern Cross Overseas Agencies Inc. v. Wah Kwong Shipping Group Ltd., 181 F.3d 410 (3d Cir. 1999) ...................................................................................................... 19 Trice v. Mozenter, 515 A.2d 10 (Pa. Super. Ct. 1986) ............................................................................................ 23 United States v. Pelullo, 399 F.3d 197 (3d Cir. 2005) ...................................................................................................... 27 Van Buskirk v. Carey Canadian Mines, Ltd., 760 F.2d 481 (3d Cir. 1985) ...................................................................................................... 19 Wachovia Bank, N.A. v. Ferretti, 935 A.2d 565 (Pa. Super. Ct. 2007) ........................................................................ 20, 24, 30, 31 Wise v. Mortgage Lenders Network USA, Inc., 420 F. Supp. 2d 389 (E.D. Pa. 2006) ........................................................................................ 26 Statutes 42 Pa. C.S.A. § 5524 ..................................................................................................................... 20 Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 6 of 39 1 I. SUMMARY This case is about a years-long effort by Defendants Schnader Harrison Segal & Lewis, LLP (“Schnader”) and Bruce Rosenfield (“Rosenfield”) to conceal multiple conflicts of interest relating to their legal representation of Plaintiff Anna Nupson. These conflicts were unwaivable and included Defendants’ consecutive and concurrent representations of other of Plaintiff’s family members in matters where each had continuing, adverse, and competing interests concerning the family estate and assets. Schnader and Rosenfield hid these conflicts until May of 2017, when the Orphans’ Court, in a matter filed by Plaintiff’s brother John Middleton to enforce a family settlement agreement, discovered that Defendants had failed to provide the Court with documents which would have revealed the unwaivable conflicts. The Court then ordered Defendants to produce the actual documents. That is when Plaintiff learned – for the first time – that Defendants, her lawyers, had hidden facts that demonstrated they had unwaivable conflicts over a course of years, all the while purporting to represent Plaintiff’s interests; that is when Plaintiff first learned of her lawyers’ violations of professional and ethical duties in representing her, violations that caused her significant damages. Plaintiff timely filed the present action on June 14, 2018, less than two years later, well within all applicable statutes of limitations. Defendants’ Brief in Support of their Motion to Dismiss cites a number of legal authorities that Defendants contend support their position that the claims raised in the Plaintiff’s Second Amended Complaint (“SAC”) are time barred. But Defendants never even mention the controlling ethical rules and other legal authorities that form the basis for the claims raised in Plaintiff’s SAC. Defendants cannot, and in the interests of justice and public policy should not, be allowed to avoid answering for their conduct, where their ongoing efforts to hide and conceal malpractice have only Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 7 of 39 2 recently come to light. Defendants’ Motion to Dismiss, relying on a timeline of facts irrelevant to the SAC, is without merit and must be denied. Defendants’ Motion to Dismiss studiously avoids discussing the facts that establish Plaintiff’s claims: Defendants concealed from Plaintiff that they had previously represented Plaintiff’s mother, Frances Middleton, and brother, John Middleton, in a transaction where Frances transferred 258,029 shares of Bradford Holdings, Inc. (“Bradford”) worth between $52,895,945 and $1,000,000,000, naming John and his family as the sole beneficiaries. This transfer violated the terms of an earlier agreement between Frances and her late husband (Plaintiff’s father) Herbert, that required that any transfer of Frances’ Bradford shares must result in Herbert and Frances’ three children sharing the value in equal amounts. Defendants were well aware of this restriction: Defendants had represented the Middleton family for years and had drafted the agreement that restricted Frances’ shares. Less than a year after Defendants represented Frances Middleton and her son John in creating the 2001 GRAT I,1 naming John and his family as the sole beneficiaries and excluding Plaintiff, Defendant Rosenfield proposed to Anna that Rosenfield should jointly represent Frances and Anna in connection with a series of complex business transactions that resulted in John becoming the sole owner of Bradford. To persuade Anna to agree to his representation of her, Rosenfield told Anna that he was permitted to represent her under Rule 1.7 of the Pennsylvania Rules of Professional Conduct, and that he had no conflicts of interest. Rosenfield did not disclose to Anna that he had just represented Frances and John in the 2001 GRAT I transaction, which 1 A "GRAT" is a grantor restricted annuity trust. As is explained below, under the 2001 GRAT, Frances transferred substantial assets to John, in violation of Plaintiff's rights. See Section II(C)(4) infra. Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 8 of 39 3 violated the restrictions on Frances’ shares by transferring them to John alone, instead of to John, Lucia and Anna in equal shares. Defendant Rosenfield concealed his prior representation of Frances and John from Anna for 15 more years, and disclosed it only in May 2017, after an Order from the Orphans’ Court required him to do so. Once the 2001 GRAT I was revealed, Plaintiff learned for the first time that Defendants’ agreement to jointly represent her and Frances was tainted by an unwaivable conflict of interest of massive proportions. Plaintiff filed this action on June 15, 2018, less than 14 months later. Under the Pennsylvania Rules of Professional Conduct, Rosenfield was duty bound to disclose to Anna his recent representation of Frances and John, and the resulting conflicts of interest. But instead, Rosenfield hid his conflicts from Anna, only revealing them pursuant to a Court order to correct prior, false accountings Rosenfield had filed in Orphan’s Court. At the time, Rosenfield apologized to the Court for his conduct, but that did nothing to correct his violations of the law and the impact on Anna. Defendants’ attempts to offer highly selected, incomplete, and misleading extrinsic documents in an effort to shift the focus away from the well pled allegations of the SAC fail. As is demonstrated in Plaintiff’s accompanying Motion to Strike/Motion Convert, these extrinsic matters are inadmissible and must be disregarded in the context of Defendants’ Motion to Dismiss. Contrary to Defendants’ contentions, the claims raised in the SAC were neither discovered nor, given Defendants’ efforts to conceal them, discoverable until May 2017. Plaintiff’s original Complaint, filed on June 15, 2018, was timely. The Motion to Dismiss should be denied. Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 9 of 39 4 II. FACTS PLED IN PLAINTIFF’S SECOND AMENDED COMPLAINT A. Background Facts 1. The Middleton Family and Bradford Plaintiff is the daughter of Herbert Middleton, Jr. (“Herbert”) and Frances Middleton (“Frances”). SAC ¶8. Herbert and Frances had two other offspring, Plaintiff’s siblings, John Middleton (“John”) and Lucia Middleton Hughes (“Lucia”). SAC ¶8. The Middleton Family owned a very successful business, started by Herbert’s father, Plaintiff’s grandfather. That business, first known as John Middleton, Inc., later a subsidiary of G.W. Hunter, and later Bradford, manufactured several tobacco products, the most famous of which were the Black and Mild, Middleton’s Cherry Blend, Gold and Mild, and Prince Albert’s. SAC ¶9. The Middleton family’s business was enormously successful and generated vast wealth for the Middleton Family. By way of illustration, the Company had revenues of $194,981,434 (for the year ended January 31, 2001) and total assets of $233,456,477. SAC ¶10. 2. Defendants’ Legal Representation of the Middleton Family and Bradford Before 1994, Defendant Schnader began representing the Middleton Family and Bradford. SAC ¶11. Over the course of the following decades, Defendant Schnader represented Bradford, Herbert, Frances, John, and Plaintiff, as well as a host of other Middleton Family and Bradford- related entities. SAC ¶11. At times, Defendant Schnader and Defendant Rosenfield represented Bradford or individual members of the Middleton Family; at other times Defendant Schnader and Defendant Rosenfield represented the interests of the Middleton Family as a whole. SAC ¶11. However, before representing Frances and John in the 2001 GRAT I transaction, Defendants had not represented any member of the Middleton family in a matter in which other family members were directly adverse. Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 10 of 39 5 3. The Middleton Family Agreements The Middleton Family entered into a series of agreements that governed their ownership of Bradford and their financial assets. SAC ¶13. Defendants represented the Middleton Family in connection with each of these agreements and Defendants were well aware of their terms. SAC ¶13. In 1982, Defendants represented the Middleton Family in creating a Shareholders’ Agreement that controlled the ownership of stock in the Company. SAC ¶14. The Shareholders’ Agreement was amended several times, in 1987, 1993, and 1997. In each case, Defendants provided legal advice to the Middleton Family and drafted the agreements. SAC ¶14. The 1982 Shareholders’ Agreement imposed restrictions on the shares of the Middleton Family business and its successors. SAC ¶15. These restrictions were designed to keep the shares of the Company in the Middleton Family, and to ensure that the three Middleton children (Lucia, Anna, and John) were treated equally with respect to their ownership interest in the Company. SAC ¶15. On December 15, 1993, Herbert and Frances executed an agreement (the “Restriction Agreement”) under which Herbert agreed to transfer to himself and Frances, as tenants by the entireties, 439,374 shares of Class B non-voting stock of G.W. Hunter, Inc. (Bradford’s predecessor), as well as other assets. SAC ¶16. These shares represented approximately 45% of the total outstanding shares of the Company. SAC ¶16. The Restriction Agreement imposed restrictions on Frances’ disposition of the Bradford shares transferred by Herbert. SAC ¶17. Specifically, the Restriction Agreement provided that if Frances survived Herbert, she: will not transfer ownership (either by gift, sale or otherwise) of the Shares, or shares of any successor to G.W. Hunter, Inc., or in property received in conversion or exchange for the Shares, to any party other than G.W. Hunter, Inc. or the descendants of HERBERT and FRANCES, during her lifetime or upon her death, without the consent of John S. Middleton (or if he is not then sui Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 11 of 39 6 juris, then without the consent of LUCIA M. HUGHES and ANNA M. BAUER who are then sui juris.) SAC ¶17. On the same date that Herbert and Frances executed the Restriction Agreement, Frances also executed an Agreement To Be Bound by the terms of the 1982 Shareholders’ Agreement. SAC ¶¶18-19. As noted above, the 1982 Shareholders’ Agreement imposed restrictions on the transfer of the future and outstanding shares of the Company. The restrictions imposed by the 1982 Shareholders’ Agreement included a provision which required, among other things, that any shareholder who wished to transfer his or her shares, other than “outright to an Eligible Family Member” or “In Trust,” must first offer the shares to the Company or to the other shareholders in proportion to their interest. SAC ¶20. If the transfer were made in Trust, several conditions had to be met to avoid the requirement that the shares first be offered to the Company or to the other shareholders. In addition, the 1982 Shareholders’ Agreement required that the value of the shares being transferred be established by a recent fair valuation. SAC ¶20. The net effect of the Shareholders’ Agreement, the Restriction Agreement, the Agreement to Be Bound, and other agreements entered into by the Middletons, was that any transfer of the Bradford shares must result in John, Lucia and Plaintiff retaining proportional ownership in Bradford, or receiving fair value for relinquishing that proportional ownership. SAC ¶21. This was consistent with Herbert’s and Frances’ estate planning, which was designed to ensure that Plaintiff, Lucia and John would be treated equally in the distribution of the Middleton Family assets. SAC ¶22. As counsel to the Middleton Family, Defendants were aware of, and indeed had drafted, the operative agreements. SAC ¶22. Thus, Defendants were at all times well aware of the Middletons’ estate planning goals, and specifically the requirement that any transfer of Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 12 of 39 7 Frances’ Bradford shares must result in the three Middleton children each owning an equal number of Frances’ Bradford shares or proportionate value. SAC ¶23. 4. Defendants’ Legal Representation of Frances and John in the 2001 GRAT I Transactions Beginning in 2000 and continuing into 2001, Defendants represented Frances and John in a transaction that resulted in Frances transferring her Bradford shares to a trust whose sole beneficiaries were John and his family, and thereby excluding Lucia and Plaintiff. SAC ¶24. Despite the fact that Defendant Rosenfield and Defendant Schnader had represented, and continued to represent, all members of the Middleton Family, both collectively and individually, and despite the fact that Defendant Rosenfield represented Plaintiff, Defendants did not disclose their representation of Frances and John to Plaintiff. SAC ¶25. Defendants further failed to inform Plaintiff that Frances’ Bradford shares had been transferred to John in violation of the terms of the Shareholders’ Agreement and the Restriction Agreement. SAC ¶25. As part of this transaction, beginning in 1999 and continuing to late 2000, John, Frances and Defendant Rosenfield discussed an inter vivos transfer of Frances’ Bradford shares to John, using a grantor retained annuity trust (“GRAT”) as a vehicle to avoid the substantial gift taxes that would otherwise apply to an inter vivos gift of the Bradford shares. SAC ¶ 26. The Bradford shares that were the subject of this inter vivos transfer were worth at least $52,895,945 and may have been worth more than $1,000,000,000. SAC ¶27. The gift tax applicable on an inter vivos gift of Frances’ Bradford shares to John was substantial, and would have totaled at least $20,000,000 and could have totaled more than $400,000,000. SAC ¶27. By December 2000, John, with Defendant Rosenfield’s legal advice and assistance, had secured Frances’ agreement to fund a two-year GRAT, using 258,029 of Frances’ Bradford shares, Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 13 of 39 8 with the shares being transferred to a trust for the sole benefit of John and his family, excluding Lucia and Plaintiff. SAC ¶28. Over the next several months, Defendant Rosenfield prepared trust instruments to be used to document the already effected transfer of Frances’ Bradford shares to John. SAC ¶31. These documents provided that, upon termination of a two-year annuity trust for Frances’ benefit, the trust assets would be delivered to another trust solely for the benefit of John and his family, excluding completely Lucia and Plaintiff. SAC ¶31. Defendant Rosenfield has stated under oath that on November 19, 2001, Frances signed the 2001 GRAT I trust document prepared by Defendant Rosenfield for the transfer of Frances’ Bradford shares. SAC ¶32. The trust document bore a February 1, 2001 date, but this was false. SAC ¶32. Frances’ agreement to transfer the Bradford shares had occurred months before and, according to Defendant Rosenfield’s later sworn statement, the Bradford shares had already been transferred to John by means of an oral trust. SAC ¶32. Despite this, Defendant Rosenfield witnessed Frances’ signature on the trust document, which was drafted, signed and witnessed many months after the fact. SAC ¶32. Defendants did not inform Plaintiff about the oral trust or the 2001 GRAT I transaction, and Plaintiff did not learn about either until October 2016. SAC ¶33. Instead, Defendants actively and fraudulently concealed the oral trust and the 2001 GRAT I transaction from Plaintiff. SAC ¶34. In addition, Defendants did not disclose to Plaintiff that they had represented John and Frances in the oral trust or in the 2001 GRAT I transaction. SAC ¶35. Plaintiff only learned these facts when Defendants filed the Amended Accounting in the Orphans’ Court in May 2017. The oral trust and the 2001 GRAT I transaction violated the terms of the Middleton Family Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 14 of 39 9 agreements and Herbert’s and Frances’ estate plan, which required that any transfer of Frances’ Bradford shares must be a transfer to John, Lucia and Anna in equal shares, or in a manner that resulted in equal value. SAC ¶36. In addition, the 1982 Shareholders’ Agreement required that the transfer of Bradford stock be preceded by sufficient notice to all shareholders, triggered a right for any other shareholder to purchase the shares, and required a formal valuation to insure that the proposed transfer was at fair value. SAC ¶36. Defendants did not advise Plaintiff of Lucia’s allegation against John of exerting undue influence over Frances. SAC ¶39. Plaintiff did not learn of Lucia’s belief that John had exerted undue influence over Frances in the transfer of the shares to 2001 GRAT I until October 2016. SAC ¶39. Defendants failed in their duty to notify Plaintiff of the potential conflict and the legal ramifications she suffered as a result, and instead concealed these facts from Plaintiff. SAC ¶39. As a result of Lucia’s claims of undue influence, GRAT I was later modified and a new GRAT (“GRAT II”) was adopted, and backdated to February 1, 2001. SAC ¶40.2 Under the terms of GRAT II, in 2005, Defendant Rosenfield assumed his role as Trustee of the Anna Nupson 2001 Trust. Rosenfield currently serves as trustee of the Anna Nupson 2001 Trust. SAC ¶41. As trustee, and as her lawyer, Defendant Rosenfield owed a fiduciary duty to Plaintiff. SAC ¶41. 2 Defendants suggest in passing that Plaintiff was not harmed by their prior, adverse representation of Frances and John in the secret 2001 GRAT I transaction because GRAT I was later replaced by the backdated GRAT II in connection with the 2003 MSA. Brief in Support at p. 26. This misses the point and cannot excuse Defendants' legal malpractice and breach of fiduciary duties. The kind and amount of Plaintiff's damages will be the subject of significant discovery and expert testimony. In any event, the issue is not now before the Court. If and when it is properly presented in some future motion, Plaintiff will fully address the flaws in Defendants' assertion. Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 15 of 39 10 5. Defendants’ Joint Representation of Plaintiff and Frances In late 2002 and early 2003, Defendants represented Plaintiff and Frances in connection with negotiations leading to a transaction engineered by John in which, among other things, Plaintiff, her sister Lucia, and their mother Frances transferred all of their interests in Bradford stock to the Company (the “Bradford Stock Sale Transaction”). SAC ¶42. As noted above, the net effect of this transaction was that John became the sole owner of Bradford. SAC ¶42. When they commenced their representation of Plaintiff in the Bradford Stock Sale Transaction, Defendants did not disclose to Plaintiff: a. That Defendants had represented Frances and John in the 2001 oral trust and the 2001 GRAT I transaction, under which Frances transferred Bradford shares to John alone, excluding Lucia and Plaintiff; b. The existence of the 2001 oral trust and the 2001 GRAT I transaction, and that these transactions were structured to transfer Frances’ Bradford shares to John and his family, excluding Plaintiff and Lucia from the ownership of Frances’ Bradford shares; c. That Defendants had also represented Frances in the 2001 oral trust and the 2001 GRAT I transaction; and d. That John had been accused of exerting undue influence over Frances in connection with the 2001 oral trust and the 2001 GRAT I transaction. SAC ¶45. At the time Defendants undertook to represent Plaintiff in the Bradford Stock Sale Transaction, Defendant Rosenfield drafted a letter to Frances, John and Plaintiff, which purported to satisfy his obligations under Pennsylvania law to disclose all actual or potential conflicts of interest before undertaking the joint representation of Plaintiff and Frances. SAC ¶46. Defendant Rosenfield’s letter stated: We believe that Rule 1.7 [of the Rules of Professional Conduct] does not preclude us from representing either and both of you [Frances and Plaintiff] in this matter and that the criteria of Rule 1.7(a) are satisfied, provided that we obtain the consent of each of you. Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 16 of 39 11 SAC ¶46.3 Defendant Rosenfield’s letter was false. SAC ¶48. The Rules of Professional Conduct did not permit Defendant Rosenfield to jointly represent Plaintiff and Frances, given his very recent representation of Frances in the oral trust and 2001 GRAT I transaction and his failure to obtain Plaintiff’s informed consent. SAC ¶48. Defendant Rosenfield did not identify each and every conflict being waived as required by the Rules of Professional Conduct. Indeed, Defendant Rosenfield did not identify any conflicts at all. SAC ¶¶48-49. In addition, Defendant Rosenfield’s letter did not disclose, but instead concealed, that Defendant Rosenfield had assumed a duty to John and Bradford that was in direct opposition to the interests of Plaintiff and Frances. SAC ¶49. Having just represented Frances and John in the 2001 oral trust and the 2001 GRAT I transaction, which were designed to allow John to obtain for himself Frances’ Bradford shares, in breach of the Middleton Family agreements and in violation of Herbert’s and Frances’ estate plan, Defendant Rosenfield was well aware that he had an actual and serious conflict of interest that could not be waived. Defendant Rosenfield and Defendant Schnader failed to disclose these serious conflicts to Plaintiff. SAC ¶49. Defendant Rosenfield was aware of his obligations and duties under Pennsylvania law to disclose to Plaintiff any actual or potential conflicts of interest he or Defendant Schnader had before undertaking to represent Plaintiff. SAC ¶50. Defendant breached those duties by failing to disclose his representation of John and Frances in the 2001 oral trust and the 2001 GRAT I transaction. SAC ¶50. Defendant Rosenfield undertook to represent both Plaintiff and Frances in 3 Rule 1.7 requires that a lawyer make full disclosure to a client in connection with conflict waivers and requires that any consent given be an informed consent to be valid. SAC ¶47. Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 17 of 39 12 the Bradford Stock Sale Transaction. This was yet another conflict of interest. SAC ¶51. B. Facts Giving Rise to Plaintiff’s Claims The history detailed above and the facts set forth below were largely unknown and unknowable to Plaintiff until the Orphan’s Court required Defendants’ disclosure. 1. The Disclosure of the Conflict in the Orphans’ Court Litigation In 2015, John initiated multiple proceedings in the Orphans’ Court of Montgomery County (“Orphans’ Court Litigation”) seeking declaratory judgment regarding the Bradford Stock Sale Transaction, among other relief. SAC ¶52. In general, John initially took the position that the Bradford Stock Sale Transaction was valid. SAC ¶53. In the course of the Orphans’ Court Litigation, in October 2016 John’s counsel disclosed for the first time the existence of the 2001 GRAT I transaction gifting Frances’ Bradford shares to John. SAC ¶54. By Order dated March 16, 2017, the Orphans’ Court dismissed John’s Declaratory Judgment actions, and ordered both John and Defendant Rosenfield to file amended accountings for the GRAT. SAC ¶55. On May 1, 2017, John filed a new Declaratory Judgment action, asserting for the first time that the 2001 GRAT, which was solely for his benefit, had been amended to benefit all siblings equally, as consideration for Plaintiff in the Bradford Stock Sale Transaction, and in a Master Settlement Agreement (“MSA”) and Family Settlement Agreement entered into at or around the same time. SAC ¶56. In addition, on May 1, 2017, Defendant Schnader, as lawyers, and Defendant Rosenfield, as the Trustee of the 2001 Anna Trust, filed an amended accounting in the Orphans’ Court, which disclosed the facts underlying the 2001 oral trust and the 2001 GRAT I Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 18 of 39 13 transaction for the first time. SAC ¶57. This, some 15 years after the fact. In the Amended Accounting, Defendant Rosenfield stated, under oath, that the trust had been oral until November 2001 and the written trust instrument was backdated to February 1, 2001. SAC ¶¶59-60. 2. Defendants Concealed GRAT I. Plaintiff did not know these facts and could not in the exercise of reasonable diligence have learned these facts, before they were disclosed by Defendants Schnader and Rosenfield. SAC ¶58. Indeed, these facts had been actively and fraudulently concealed from Plaintiff by Defendants. SAC ¶58. Prior to filing the Amended Accounting, in sworn filings with the Orphans’ Court, Defendant Rosenfield had asserted that GRAT II (leaving the Bradford shares equally to all three siblings) was signed on February 1, 2001, and was the only GRAT that ever existed, omitting any mention of the oral trust or 2001 GRAT I, which solely benefited John. SAC ¶59. Moreover, in the course of the Orphans’ Court Litigation, Defendants Rosenfield and Schnader disclosed, for the first time, that the 2001 GRAT I was not executed on February 1, 2001. SAC ¶60. Instead, Defendant Rosenfield admitted that the 2001 GRAT I was not drafted until November 2001, and that Defendant Rosenfield had backdated the instrument to February 1, 2001 and “witnessed” Frances’ and John’s signatures on the backdated document. SAC ¶60. Defendant Rosenfield drafted and facilitated the execution of the 2001 GRAT I, which benefited John and was contrary to the rights and interests of Plaintiff and the interests of Lucia. SAC ¶61. Defendant Rosenfield represented that Frances’ Bradford shares were transferred to the 2001 GRAT I in February 2001, even though the 2001 GRAT I had not been drafted and had not been executed. SAC ¶62. Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 19 of 39 14 The IRS does not recognize oral GRATs. SAC ¶64. Any transaction in which Frances’ Bradford shares were transferred to John by oral trust for John’s benefit, would have been a taxable event. SAC ¶64. The IRS also does not recognize any modification of a GRAT during its term. SAC ¶65. As a result of the facts disclosed by Defendant Rosenfield in May 2017, the validity of all versions of the GRAT were called into question. SAC ¶65. If the 2001 GRAT I had been set aside, Frances and John would have incurred a substantial tax liability, because Frances’ inter vivos gift to John in February 2001 via the oral trust was a taxable event. As noted above, had Frances’ gift to John been taxable, the tax liability would have ranged from $20,000,000 to $400,000,000. SAC ¶65. Defendant Rosenfield did not disclose to Plaintiff that he had drafted the 2001 GRAT I in November 2001, backdated it to February 1, 2001 and “witnessed” Frances’ and John’s signatures. SAC ¶66. Defendant Rosenfield further did not disclose to Plaintiff that he had negotiated the modification of the oral GRAT I (that solely benefitted John) and further backdated the later GRAT II (that purported to benefit all siblings), as supposed consideration for the Bradford Stock Sale Transaction and the 2003 MSA. SAC ¶67. 3. Plaintiff’s Discovery of GRAT I and Defendants’ Malpractice Plaintiff did not learn these facts, and could not have learned these facts in the exercise of reasonable diligence, until John filed the 2001 GRAT I in the Orphans’ Court Litigation on February 23, 2017, and an Amended Petition for Declaratory Relief on May 1, 2017, producing a verified copy of the original 2001 GRAT I for the first time. SAC ¶68. Plaintiff did not learn of these facts and could not have learned of these facts in the exercise of reasonable diligence, until Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 20 of 39 15 Defendant filed an Amended Accounting on May 1, 2017, contradicting John’s Amended Declaratory Action and revealing for the first time that the 2001 GRAT I solely benefitting John had been oral and that the written version was backdated. SAC ¶69. Defendants concealed these facts from Plaintiff to cover up their own conduct and to protect John from the possible effects of their conduct. SAC ¶70. III. THE CLAIMS ASSERTED IN THE SECOND AMENDED COMPLAINT Plaintiff’s SAC states claims for legal malpractice, based on both negligence and contract, and a claim for breach of fiduciary duty. Under Pennsylvania law "[a]n action for legal malpractice may be brought in either contract or tort." Garcia v. Community Legal Servs. Corp., 524 A.2d 980, 982 (Pa. Super. Ct. 1987). The elements of a legal malpractice action, sounding in negligence, include: (1) employment of the attorney or other basis for a duty; (2) failure of the attorney to exercise ordinary skill and knowledge; and (3) that such failure was the proximate cause of the harm to the plaintiff. Bailey v. Tucker, 621 A.2d 108, 112 (Pa. Super. Ct. 1993). With regard to a breach of contract claim, "an attorney who agrees for a fee to represent a client is by implication agreeing to provide that client with professional services consistent with those expected of the profession at large." Bailey, 621 A.2d at 115; see also Gorski v. Smith, 812 A.2d 683, 694 (Pa. Super. Ct. 2002) (citing Bailey and noting that "when an attorney enters into a contract to provide legal services, there automatically arises a contractual duty on the part of the attorney to render those legal services in a manner that comports with the profession at large"). The claims asserted in the SAC arise from Defendants’ concealment of their breach of the express terms of their engagement agreement with Plaintiff. Defendant Rosenfield expressly Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 21 of 39 16 agreed that he had no conflicts of interest and could jointly represent Plaintiff and Frances. In fact, Defendants had serious, hidden conflicts that they did not disclose, including the fact that they had recently represented Frances and John in the 2001 GRAT I transactions that violated the Restriction Agreement and the Shareholders’ Agreement. SAC ¶25- ¶46. In addition, Defendants’ agreement to jointly represent both Plaintiff and Frances was another, separate breach of their express agreement. SAC ¶54. Defendants’ conduct also constitutes a breach of their fiduciary duty to Plaintiff. The Pennsylvania Supreme Court has recognized that a violation of Rule 1.7 constitutes a breach of the duty of loyalty and gives rise to a claim for breach of fiduciary duty: [L]aw established by the courts of this Commonwealth and throughout the United States which have imposed civil liability on attorneys for breaches of their fiduciary duties by engaging in conflicts of interest, notwithstanding the existence of professional rules under which the attorneys also could be disciplined. * * * At common law, an attorney owes a fiduciary duty to his client; such duty demands undivided loyalty and prohibits the attorney from engaging in conflicts of interest, and breach of such duty is actionable. Maritrans GP, Inc. Pepper, Hamilton & Sheetz, 602 A.2d, 1277, 1282-1283 (Pa. 1992). Here, Defendants violated Rule 1.7 of the Pennsylvania Rules of Professional Conduct, which states: (a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; or Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 22 of 39 17 (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer. Defendants violated Rule 1.7(a)(1). Rosenfield represented both Anna and Frances in connection with the Bradford Stock Transaction and the MSA despite the fact that their interests were clearly adverse. Frances’ interest was to preserve the income stream established by the 2001 GRAT I transactions and Frances therefore had an interest in the continuing validity of the oral GRAT and the 2001 GRAT I. Anna’s interests were adverse. Anna (had she known about the 2001 GRAT I transactions) would have sought to negate the 2001 GRAT I because (a) it violated the TBE Agreement, whose purpose was to insure that the value of Frances’ Bradford shares would be divided equally among John, Lucia and Anna and (b) it was contrary to the terms of Frances’ Will, which provided that Frances’ assets would be divided equally among John, Lucia and Anna. In addition, Rule 1.7(a)(2) applies. Rosenfield’s representation of Frances presented a significant risk that his representation would be materially limited by his responsibilities to Anna (and vice versa). Again, Frances’ interest was to preserve the 2001 GRAT I transactions. In contrast, Anna’s interest would be served by invalidating the 2001 GRAT I transactions. Rosenfield could not represent both clients at the same time. Also, Rosenfield’s representation of Anna presented a material risk that his representation would be materially limited by his responsibilities to John, his former client. John’s interest was to preserve the validity of the 2001 GRAT I transactions to greatly enrich himself and his family; Anna’s interests (had she known about the 2001 GRAT I transactions) would have been served by invalidating the GRAT I transactions as contrary to prior agreements. Thus, Rosenfield’s joint representation of both Frances and Anna was plainly prohibited, unless he reasonably believed that Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 23 of 39 18 he could represent the interests of both clients and he obtained informed consent. In fact, Rosenfield could not meet either of these requirements. Rule 1.7(b) provides: Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; * * * * and (4) each affected client gives informed consent. The requirements of Rule 1.7(b) were not met. Rosenfield could not have reasonably believed that he could provide competent and diligent representation to Frances and Anna. As discussed above, Frances’ interests were best served by the continuing validity of the 2001 GRAT I transactions, while Anna’s interests were best served by the 2001 GRAT I transactions being invalidated. On top of this, Rosenfield’s duties to John required that Rosenfield act to preserve the validity of the 2001 GRAT I transactions. Rosenfield’s “former” client John’s interests demanded this, both because John wanted the benefits associated with owning and controlling Frances’ Bradford shares and because John would be exposed to massive gift tax liability if the 2001 GRAT 1 transactions were invalidated. Rosenfield violated Rule 1.7(b) because even if these conflicts were waivable (and they were not), he failed to obtain informed consent from Anna. The Comments to Rule 1.7 explain what informed consent requires: Informed Consent (18) Informed consent requires that each affected client be aware of the relevant circumstances and of the material and reasonably foreseeable ways that the conflict could have adverse effects on the interests of that client. See Rule 1.0(e) (informed consent). The information required depends on the nature of the conflict and the nature of the risks involved. When representation of multiple clients in a single matter is undertaken, the information must include the implications of the common representation, including possible effects on Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 24 of 39 19 loyalty, confidentiality and the attorney-client privilege and the advantages and risks involved. Rosenfield did not make Anna aware of the “relevant circumstances and of the material and foreseeable ways that the conflict could have adverse effects on” Anna’s interests. Rosenfield told Anna nothing about the 2001 GRAT I transactions, and instead actively concealed them for 15 years, disclosing them only after the Orphans’ Court dismissed John’s Petition and pressed for full disclosure of the relevant underlying facts. IV. ARGUMENT A. The Claims Asserted in the SAC Were Timely Filed; Plaintiff Did Not Know and Could Not Have Reasonably Discovered Defendants’ Unwaivable Conflicts of Interest until October 2016 or March 2017 1. Legal Standard Under the so-called “Third Circuit Rule,” Defendants may assert a limitations defense in a Rule 12(b)(6) motion only where the time alleged in the statement of the claim, on its face, shows that the cause of action has not brought within the statute of limitations. Robinson v. Johnson, 313 F.3d 128, 135 (3d Cir. 2002) (citation omitted). Conversely, where “the complaint’s allegations, taken as true, allege facts sufficient to toll the statute of limitations, it must survive a motion to dismiss.” Southern Cross Overseas Agencies Inc. v. Wah Kwong Shipping Group Ltd., 181 F.3d 410, 425 (3d Cir. 1999) (quoting Van Buskirk v. Carey Canadian Mines, Ltd., 760 F.2d 481, 498 (3d Cir. 1985) (when the applicability of the statute of limitations is in dispute, there are usually factual questions as to when a plaintiff discovered or should have discovered the elements of its cause of action). Moreover, "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Leone v. Aetna Cas. & Sur. Co., 599 F.2d 566, 569 (3d Cir. 1979) (emphasis added). Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 25 of 39 20 2. On Its Face, Plaintiff’s SAC States Timely Claims. Plaintiff’s SAC states three claims against Defendants: breach of fiduciary duty, breach of contract, and legal malpractice. The statute of limitations for a claim of breach of fiduciary duty is two years. 42 Pa. C.S.A. § 5524. While legal malpractice claims sounding in tort have a two-year statute of limitations, legal malpractice claims sounding in contract have a four-year statute of limitations. See 42 Pa. C.S.A. §§ 5524-25; Wachovia Bank, N.A. v. Ferretti, 935 A.2d 565, 570 (Pa. Super. Ct. 2007). All of Plaintiff’s claims are timely. In determining when the statute of limitations begins to run in a malpractice action, Pennsylvania courts apply the occurrence rule, which provides that the statutory period commences upon the happening of the alleged breach of duty. E.g. Wachovia Bank, at 572. However, it is settled Pennsylvania law that in the interest of justice (and common sense), there is an exception to the occurrence rule: the equitable discovery rule. Fine v. Checcio, 870 A.2d 850, 850 (Pa. 2005). The discovery rule tolls the statute of limitations “when the injured person is unable, despite the exercise of due diligence, to know of the injury or its cause.” Wachovia Bank at 572; see also Lewey v. H.C. Frick Coke Co., 31 A. 261 (Pa. 1895) (statute of limitations did not bar the lawsuit of a plaintiff who could not know that a trespasser had subterraneously extracted coal from his land until 7 years later); Ayers v. Morgan, 154 A.2d 788 (Pa. 1959) (plaintiff entitled to present evidence that he did not and could not know that his pain was the result of a sponge left in his body during an operation performed nine years before; statute tolled until hospital tests showed presence of sponge 9 years after surgery). As the Pennsylvania Supreme Court stated in Fine: “The purpose of the discovery rule has been to exclude from the running of the statute of limitations that period of time during which a party who has not suffered an immediately ascertainable injury is reasonably unaware he has been Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 26 of 39 21 injured, so that he has essentially the same rights as those who have suffered such an injury.” 870 A.2d at 860; see also Hayward v. Medical Center of Beaver County, 608 A.2d 1040, 1043 (Pa. 1992) (abrogated by Fine on other grounds). Indeed, any other result would be manifestly unjust. The Pennsylvania Supreme Court’s decision in Hayward is instructive here. In Hayward, the Court considered when a claim for medical malpractice based on an unnecessary lung surgery had accrued for statute of limitations purposes. The defendant argued Hayward’s claim accrued when he learned he had been misdiagnosed, almost immediately after the surgery. Hayward argued he could not reasonably be held to know of his claim until two years later, when he was told by another doctor that the surgery was unnecessary. Id. at 1043. In reversing the trial court’s summary judgment for the defendant, the court held the issue was properly one for a jury, noting reasonable minds could differ as to when the plaintiff should reasonably have discovered the malpractice. Id. This was especially true because the defendant surgeon had assured plaintiff, a layperson, that the surgery was necessary. Id.; see also Ayers, supra (even though Plaintiff experienced pain after surgery, statute of limitations in medical malpractice claim was tolled until plaintiff actually learned of sponge left in his body 9 years later); Robbins & Seventko Orthopedic Surgeons, Incl., v. Geisenberger, 674 A.2d 244, 448-449 (Pa. Super. Ct. 1996) (proper date of accrual of legal malpractice action is when client acquired knowledge of the harm, not when the breach of duty occurred.) Before the Court here is Defendants’ 12(b)(6) motion (Defendants’ attempts to cherry-pick “evidence” outside the four corners of the complaint notwithstanding), and the only issue before the Court is whether the allegations in the SAC, taken as true, state a viable and timely claim. Robinson, 313 F.3d at 135. Plaintiff was unaware that Defendants had represented Frances and John in the 2001 GRAT I transactions until Defendants were forced to reveal that fact by the Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 27 of 39 22 Orphans’ Court in 2017. Defendants themselves knew that their representation of Frances and John violated the Restriction Agreement and the Shareholders’ Agreement – to Plaintiff’s detriment – but they concealed those facts from Plaintiff to induce her to retain Defendant Rosenfield to represent her. Despite the fact that Defendants had substantial and serious conflicts, they told Plaintiff that they were free to represent her, and worse, Defendant Rosenfield told Plaintiff that he could jointly represent both her and Frances, whose interests were adverse, given the 2001 GRAT I transactions. But Plaintiff knew none of this until Defendants were forced to reveal their role in the 2001 GRAT I transactions in May 2017. Plaintiff’s Complaint, filed on June 15, 2018, was therefore timely. 3. Defendants’ Legal Authorities Are Inapposite. Defendants cite the Pennsylvania Superior Court’s decision in Communications Network International, Ltd. v. Mullineaux, 187 A.2d 951, 965 (Pa. Super. Ct. 2018) to support their argument that equitable tolling should not be applied in the present case. Yet that case has no application here. First, it did not involve a 12(b)(6) motion, but rather an appeal from the trial court’s granting of summary judgment for the lawyer defendant. In Mullineaux, the attorney defendant failed to adequately plead a counterclaim, resulting in the underlying case’s dismissal. Id. at 958. The court held that the statute of limitations began to run when plaintiff’s principals, sophisticated business men, conceded they received copies of the court opinions finding Mullineaux’s pleading inadequate; noting that neither of the plaintiff clients bothered to read the opinions, even though they admitted to attending board meetings where the opinions were discussed, the court found there was no concealment because plaintiff had access to the facts. Id. at 963-964. In this case, Defendants successfully concealed their legal malpractice and breach of Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 28 of 39 23 fiduciary duty from Plaintiff; as soon as it was disclosed, reluctantly and by order of the Orphans’ Court, Plaintiff filed this action within the limitations period. Defendants’ reliance on Trice v. Mozenter, 515 A.2d 10 (Pa. Super. Ct. 1986) is also misplaced. In that case, the court found the client Trice was aware of his malpractice claims against attorney Mozenter as of the date he filed an affidavit and motion to reverse a conviction based on ineffective assistance of counsel, alleging specific instances of counsel’s ineffectiveness, instead of on the date his conviction was actually overturned on appeal. Id. at 15. Unlike Trice, however, Plaintiff did not know of Rosenfield’s breach of fiduciary duty: she first learned of it in May 2017. Similarly, Defendants’ reliance on Baselice v. Francisco Friars Assumption BVM Province Inc., 879 A.2d 270 (Pa. Super. Ct. 2005) is equally unavailing. There, the plaintiff, a victim of sexual abuse, was aware of the abuse and the abuser when it occurred. And that is when the statute began to run. But here, Plaintiff was unaware of Rosenfield’s conduct and he hid evidence of that conflict -- even hiding it from the Orphans’ Court-- until he was forced to reveal it in May 2017.4 Pennsylvania law is well established: where the existence of the injury is not known to the complaining party and such knowledge cannot reasonably be ascertained within the prescribed statutory period, the limitations period does not begin to run until the discovery of the injury and 4 Defendants also cite three federal court decisions in support of their argument that the discovery rule should not be applied. These cases support Plaintiff’s position here. E.g. Spade v. Star Bank, 2002 WL 31492258 (E.D. Pa. Nov. 6, 2002) (discovery rule applied; plaintiff should have known of claim against CFO when IRS informed him payroll taxes had not been paid); McClain v. Golden, 2017 WL 3226471 (E.D. Pa. July 28, 2017) (facts alleged in complaint sufficient to survive motion to dismiss based on equitable tolling); Doe v. E. Hills Moravian Church, Inc., 2013 WL 5050593 (E.D. Pa. September 13, 2013) (dismissal of cause of action for statute of limitations under 12(b)(6) motion appropriate; on its face, complaint showed statute had run). Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 29 of 39 24 its cause is reasonably possible. E.g Fine, 870 A.2d 850; Glenbrook Leasing Co. v. Beausang, 839 A.2d 437, 441 (Pa. Super. Ct. 2003) (unreasonable to expect plaintiffs to learn of unconveyed parking spaces when they received deed to office space which did not mention parking spaces; under discovery rule, malpractice claim accrued 1994, when plaintiffs were informed by seller homeowner association and by new counsel that parking spaces had not been conveyed); Robbins, 674 A.2d at 246-47 (plaintiffs’ claim against law firm for malpractice, where law firm failed to properly set up employee pension plan, accrued not when the alleged breach of duty took place in 1976 or 1977, but in 1983 when IRS notified appellants that the pension plan failed to qualify and deductions made were disallowed); cf. Wachovia Bank, 935 A.2d at 572. B. Because Defendants Concealed their Conduct, the Statute of Limitations Did Not Accrue until Plaintiff Had Actual Knowledge of their Conduct. As noted by the court in Fine, a defendant may not invoke the statute of limitations, if through fraud or concealment he causes the plaintiff to relax his vigilance or deviate from inquiry into the facts. “The doctrine does not require fraud in the strictest sense encompassing an intent to deceive, but rather, fraud in the broadest sense, which includes an unintentional deception.” Id. at 861. The Fine court advocated for a broad application of tolling where a defendant has concealed his acts giving rise to the cause of action: Inasmuch as the doctrine of fraudulent concealment “is premised on a defendant's obstructionist conduct, there is an argument that a plaintiff's actual knowledge, of his injury and its cause, as opposed to the knowledge that reasonable diligence would give him, should control.” Fine, 870 A.2d at 861 (emphasis added) (citation omitted); see also Lewey, 31 A. 261. Plaintiff did not have actual knowledge of Defendants’ conduct until they revealed it in 2017. Until then, she was led to believe by her attorneys’ conduct that her interests were being protected. Therefore her complaint in this case was timely. Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 30 of 39 25 C. Defendants Were Fiduciaries and Should Not Be Permitted to Benefit from Their Misconduct. Pennsylvania courts, recognizing the impact of a fiduciary relationship, have liberally applied the discovery rule in cases raising claims against a fiduciary. For example, in Schwartz v. Pierucci, 60 B.R. 397 (Bankr. E.D. Pa. 1986), the trustee asserted claims against a bank in an effort to recover funds improperly drawn by principals and officers of the debtor from the debtor's account. The district court denied the bank's motion for summary judgment, rejecting its contention that the statute of limitations barred certain of the claims against it. Specifically, the court found that the officers' wrongful conduct tolled the applicable limitations period, reasoning that: Where a fiduciary commits an act of fraud against his principal, the statute of limitations will be tolled, since the very position the fiduciary is in prohibits the principal from uncovering the fraud. Furthermore, the fiduciary, because of his position of trust, would have an affirmative duty to the principal to disclose the fraud. Absent a disclosure, the fiduciary commits an act of continual covering up of the fraud. Id. at 403 (emphasis added). The court noted that letters sent by counsel for the creditors to the trustee urging the trustee to investigate matters pertaining to the purloined funds might have imposed a duty to inquire upon the trustee, but "whether or not the letters imposed a duty upon the trustee to investigate is a question of fact, which must be resolved by a trier of fact." Id.; see also In re Mushroom Transp. Co., Inc., 382 F.3d 325, 343 (3d Cir. 2004) (existence of a fiduciary relationship is relevant to a discovery rule analysis precisely because it entails such a presumptive level of trust in the fiduciary by the principal that it may take a "smoking gun" to excite searching inquiry on the principal's part into its fiduciary's behavior); Gurfein v. Sovereign Group, 826 F. Supp. 890, 919 and n. 31 (E.D. Pa. 1993) (existence of a fiduciary relationship is relevant to the question of when a cause of action accrues; fiduciary's unique position of trust directly relevant to the question of when a plaintiff's Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 31 of 39 26 duty might arise); Wise v. Mortgage Lenders Network USA, Inc., 420 F. Supp. 2d 389, 395-96 (E.D. Pa. 2006) (“when underlying events being sued upon sound inherently in fraud or deceit … that, without more, will toll the statute of limitations until such time as the fraud has been revealed, or should have been revealed by the exercise of due diligence by the plaintiff”) (quoting Beauty Time, Inc, v. VU Skin Systems, Inc., 118 F.3d 140, 144 (3d Cir. 1997)). Defendants’ contention that there must be an affirmative and independent act of concealment that would divert or mislead the Plaintiff is incorrect. (Defendants’ Brief in Support of Motion to Dismiss, p. 27). First, as discussed above, this is not the law in the case of a fiduciary and principal. Second, affirmative and independent acts of concealment abound. Defendant Rosenfield affirmatively acted to keep from Plaintiff learning about his conflicts of interest arising from his just concluded, adverse representation of Frances and John in the 2001 GRAT I transactions on multiple occasions. In his conflict waiver letter, Rosenfield affirmatively told Plaintiff he had no conflicts and was free to represent her if she would give her consent. He ignored his duty to disclose his prior representation of Frances and John and hid the 2001 GRAT I transactions from Plaintiff for 15 years. Rosenfield only revealed it when the Orphans’ Court required him to reveal it. And, Rosenfield had previously filed a false accounting in that Court, again affirmatively misleading both the Orphans’ Court, and Plaintiff. Under these facts, Defendants’ argument fails utterly. D. There Is No Basis for Judicial Estoppel. Defendants also argue that Plaintiff is judicially estopped from arguing that she was not aware of Defendants’ violations of Rule 1.7 and their related legal malpractice and breach of fiduciary duty, citing G-I Holdings v. Reliance Ins. Co. 586 F.3d 247 (3d Cir. 2009). That case, Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 32 of 39 27 and other controlling Third Circuit cases, hold squarely against Defendants’ argument. As the court stated in G-I Holdings: [I]n our Circuit judicial estoppel is generally not appropriate where the defending party did not convince the District Court to accept its earlier position. United States v. Pelullo, 399 F.3d 197, 222-23 (3d Cir. 2005) (quoting New Hampshire v. Maine, 532 U.S. 742, 750-51, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001)); Dam Things from Denmark v. Russ Berrie & Co., Inc., 290 F.3d 548, 559 n. 16 (3d Cir. 2002); Montrose Med. Group Participating Sav. Plan v. Bulger, 243 F.3d 773, 778 (3d Cir. 2001). 586 F.3d at 262. Here, Plaintiff did not convince the Orphans’ Court to adopt the position that Defendants had violated Rule 1.7 when they failed to disclose their recent, adverse representation of Frances and John in the 2001 GRAT I transaction, for the simple reason that Defendants concealed their conduct and Plaintiff therefore never asserted the position. While Plaintiff sought discovery on whether Defendants had conflicts of interest, and generally asserted her beliefs in that regard in pleadings and discovery responses,5 those statements were made at the initial, pleading stages of the Orphans’ Court proceedings and the Court never ruled on them. Judicial estoppel, therefore, does not apply. Furthermore, even if the issue had been presented to and ruled on by the Orphans’ Court, judicial estoppel would not be appropriate here. The Third Circuit has identified three factors that should be considered in addressing a claim of judicial estoppel: there must be (1) "irreconcilably inconsistent positions;" (2) "adopted ... in bad faith;" and (3) "a showing that ... estoppel ... address[es] the harm and ... no lesser sanction [is] sufficient." G-I Holdings, 586 F.3d at 262 (quoting Chao v. Roy's Constr., Inc. 517 F.3d 180, 186 n. 5 (3d Cir. 2008) (internal quotation marks omitted). None of these factors is present here and there is no basis for judicial estoppel. 5 These matters are fully addressed in Plaintiff’s accompanying Motion to Strike/Motion to Convert. Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 33 of 39 28 Plaintiff did not take irreconcilably inconsistent positions in a prior proceeding; Plaintiff was unaware of Defendants’ conduct and therefore did not raise it in the Orphans’ Court. There can be no argument that Plaintiff is now acting in bad faith by asserting her claims against the Defendants. It is her right to do so. Finally, precluding her claims under a theory of judicial estoppel would serve no legitimate purpose. Judicial resources have not been wasted; neither Defendants or any third party have been prejudiced. Moreover, precluding Plaintiff’s claims here would be contrary to public policy. The Pennsylvania Supreme Court’s decision in In re Estate of Pedrick, 482 A.2d 215, 222-24 (Pa. 1984) dictates a rejection of Defendants’ attempt to avail themselves of the benefit of the equitable remedy of judicial estoppel. In Pedrick, the Court denied the attorney any relief from the Orphan’s Court ruling on enforceability of his client’s “death-bed” will, where Pedrick had acted as scrivener- attorney-beneficiary and only witness, in violation of ethical rules. Id. In so holding, the Court noted: [A]n attorney whose conduct the record shows was ‘unfortunate and inexcusable’ comes into a court applying equitable principles to secure a benefit from the very conduct which the accepted standards of the profession preclude. Such conduct may constitute “unclean hand” which bars relief in equity. We hold it does on the facts of this case. Id. at 543, 222; see also Shapiro v. Shapiro, 204 A.2d 266, 268 (Pa. 1964) (“while ‘equity does not demand that its suitors shall have led blameless lives’... as to other matters, it does require that they shall have acted fairly and without fraud or deceit as to the controversy in issue...”) (quoting Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 814-15, (1945)). As in Pedrick and Shapiro, Defendants Schnader and Rosenfield have acted in a manner that is both “unfortunate” and “inexcusable.” Defendants’ concealed their prior representation of Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 34 of 39 29 Frances and John in a transaction directly contrary to the interests of Plaintiff, hiding the GRAT I from Plaintiff and the Orphans’ Court and revealing it only when forced to do so. In direct contravention of their fiduciary duties and Ethical Rule 1.7, Defendants represented to Plaintiff that they could undertake to represent her, and purported to do so in negotiations which divested her of assets in ways which were contrary to her interests, prior family agreements, and her father, Herbert Middleton’s, express intentions that his three children share his estate in equal proportions. It is difficult, if not impossible, to imagine how a law firm and a lawyer could conceivable justify such a representation. And it is impossible to imagine why a lawyer would make concerted and continuous efforts over a course of years to conceal those conflicts. Yet, this is what happened in the present case. Defendants successfully concealed their malpractice and breach of fiduciary duty until May of 2017. Once it was discovered, Plaintiff timely filed her claims against them and Defendants cannot be heard to argue now that they are entitled to equitable relief barring those claims. E. The Second Amended Complaint States a Claim for Breach of Contract under Pennsylvania Law. Defendants cite cases from the federal courts in this District to argue that the claims alleged in the SAC sound in tort, not contract, and that the four year statute of limitations for legal malpractice claims based in contract does not apply.6 (Motion at 29-30). Defendants do not 6 Defendants also cite Seidner v. Finkelman, 2018 WL 4178147 (Pa. Super. Ct. 2018), a non- precedential state court opinion. There, the Pennsylvania Superior Court upheld the trial court’s finding that under a “gist of the action” doctrine, plaintiff’s malpractice claim sounded in tort, not breach of contract. Notably, the plaintiff did not argue that her lawyer failed to fulfill the objectives of the agreement for representation. Id. at 13. But even assuming the case had precedential value, which is does not, it has no application in this case. Here, Defendants expressly told Plaintiff there was no conflict which would prevent them from representing her, and as a result, Plaintiff agreed to the representation. Thus, Defendants failed to fulfill the objectives of the agreement for representation free of conflicts. Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 35 of 39 30 explain how any of these cases could overrule decades of decisions by the Pennsylvania Supreme Court and other Pennsylvania appellate courts holding that legal malpractice claims may be brought both in contract and for negligence. E.g Gorski v. Smith, 812 A.2d 684 (Pa. Super. Ct. 2002), appeal denied, 856 A.2d 834 (Pa. 2004); Wachovia Bank, N.A., 935 A.2d at 570 ("[a]n action for legal malpractice may be brought in either contract or tort”; “with regard to a breach of contract claim, ‘an attorney who agrees for a fee to represent a client is by implication agreeing to provide that client with professional services consistent with those expected of the profession at large.’”); Garcia v. Community Legal Servs. Corp., 524 A.2d 980, 982 (Pa. Super. Ct. 1987) (“An action for legal malpractice may be brought in either contract or tort.”) (citing Guy v. Liederbach, 459 A.2d 744, 748 (Pa. 1983); Bailey v. Tucker, 621 A.2d 108, 112 (Pa. 1993) (legal malpractice actions “can sound in trespass and/or assumpsit”); Dougherty v. Pepper Hamilton, LLP, 133 A.3d 792, 796 (Pa. Super. Ct. 2016) (“[T]he attorney's liability must be assessed under the terms of the contract. Thus, if the attorney agrees to provide . . . her best efforts and fails to do so, an action in assumpsit will accrue.”). 7 Defendants argue that Bruno v. Erie Insurance, 106 A.3d 48 (Pa. 2014), supports their position that Plaintiff’s claims cannot be based on contract. Bruno does not apply here. In Bruno, the court considered whether a negligence claim against the plaintiff's insurer was barred by the "gist of the action" doctrine, which is designed to ensure that a party does not bring a tort claim for what is, in actuality, a claim for a breach of contract considered as being in tort. The Bruno court held that the insured's claim could be brought in negligence. Id. at 71. But Bruno involved a 7 Also, Plaintiff was required to plead both negligence and breach of contract claims in her SAC. Wachovia Bank, 935 A.2d at 570 (“Additionally, we note that, to avoid waiver of either claim, Wachovia had to assert them together in one action, because the claims arose from the same "transaction or occurrence" against the "same person.") (citations omitted). Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 36 of 39 31 claim against an insurance company, not a malpractice claim against a lawyer. It did not alter the longstanding Pennsylvania rule that legal malpractice claims can be brought either in tort, or in contract. In actions for legal malpractice there is no need to distinguish whether the "gist of the action" is contract or tort. Both claims are allowed. E.g. Wachovia Bank, N.A., 935 A.2d at 570. Even if Defendants were correct that the long standing Pennsylvania rule on legal malpractice was somehow abrogated or muddied, and that only cases arising out of a specific breach of the attorney client agreement are actionable as a breach of contract, Plaintiff’s claims in this case arise out of contract. Defendant Rosenfield expressly agreed that he could undertake the joint representation of Plaintiff and Frances and he also agreed and represented that he had no conflicts preventing him from doing so. Based on this, Plaintiff agreed to retain Defendant Rosenfield to represent her. As is demonstrated in the SAC, Defendant Rosenfield breached his agreement with Plaintiff from the inception of his representation. Plaintiff’s legal malpractice claims, therefore, can be brought either as contract-based or negligence-based claims. V. CONCLUSION On its face, the SAC states timely claims for legal malpractice and breach of fiduciary duty. Under controlling law, Defendants’ Motion to Dismiss must therefore be denied. In addition, for the reasons stated in Plaintiff’s accompanying Motion to Strike/Motion to Convert, the extrinsic material offered by Defendants should be disregarded. If that extrinsic material is considered, the Motion to Dismiss must be converted to a motion for summary judgment. Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 37 of 39 32 Respectfully submitted, DURHAM, PITTARD & SPALDING, L.L.P. _/s/ Justin R. Kaufman______________________ Justin R. Kaufman 505 Cerrillos Road, Suite A209 Santa Fe, NM 87501 Telephone: (505) 986-0600 Facsimile: (505) 986-0632 jkaufman@dpslawgroup.com Brian A. Gordon GORDON & ASHWORTH, P.C. One Belmont Ave., Suite 519 Bala Cynwyd, PA 19004 Telephone: (610) 667-4500 Briangordon249@gmail.com Kimberly Brusuelas 5TH STREET LAW 312 San Pasquale, NW Albuquerque, New Mexico 87104 Telephone: (505) 247-9333 kim@fifthstreetlaw.com Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 38 of 39 33 CERTIFICATE OF SERVICE I hereby certify that a true and complete copy of the foregoing instrument was served on all counsel via the ECF system on this the 15th day of March, 2019. /s/ Justin R Kaufman Justin R. Kaufman Case 2:18-cv-02505-NIQA Document 37 Filed 03/15/19 Page 39 of 39