NUPSON v. SCHNADER HARRISON SEGAL & LEWIS, LLP et alMOTION to Strike Defendants' Exhibits or, in the Alternative, Motion to Convert Defendants' Motion to Dismiss to Motion for Summary JudgmentE.D. Pa.March 15, 2019IN 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 MOTION TO STRIKE DEFENDANTS’ EXHIBITS OR, IN THE ALTERNATIVE, MOTION TO CONVERT DEFENDANTS’ MOTION TO DISMISS TO MOTION FOR SUMMARY JUDGMENT 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 38 Filed 03/15/19 Page 1 of 22 i TABLE OF CONTENTS Page TABLE OF AUTHORITIES .......................................................................................................... ii I. SUMMARY .........................................................................................................................1 II. ARGUMENT .......................................................................................................................2 A. Legal Standard .........................................................................................................2 B. The Exhibits Attached to Defendants’ Motion to Dismiss Should be Stricken and the Motion Denied ..............................................................................4 C. Defendants’ Extrinsic Exhibits Are Inadmissible and Do Not Establish that Plaintiff Was Aware of the Claims Asserted in the Second Amended Complaint Before May 2017 ......................................................6 1. The June 5, 2014 Letter ...............................................................................7 2. The June 5 Letter is Inadmissible and Should Be Stricken .......................10 3. The Orphans’ Court Pleadings Are Irrelevant and Inadmissible ...............................................................................................11 D. If the Court Chooses to Consider Defendants’ Extrinsic Exhibits, It Must Convert the Motion to Dismiss to a Motion for Summary Judgment and Permit Discovery ............................................................................15 III. CONCLUSION ..................................................................................................................17 CERTIFICATE OF SERVICE ......................................................................................................18 Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 2 of 22 ii TABLE OF AUTHORITIES Cases Page Brody v. Hankin, 145 Fed. Appx. 768 (3d Cir. 2005) ....................................................................................... 3, 17 DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104 (2d Cir. 2010) ........................................................................................................ 3 Fonte v. Board of Managers of Continental Towers Condominium, 848 F.2d 24 (2nd Cir. 1988) .................................................................................................... 3, 4 Global Network Commc'ns, Inc. v. City of N.Y., 458 F.3d 150 (2d Cir. 2006) ........................................................................................................ 3 HYK Construction Company, Inc. v. Smithfield Township, 8 A.3d 1009 (Pa. Commw. Ct., 2010) ......................................................................................... 5 In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410 (3d Cir. 1997) .................................................................................................... 16 In re Niaspan Antitrust Litigation, 42 F. Supp. 3d 735 (E.D. Pa. 2014) .................................................................................... 3, 4, 5 Lee v. City of Los Angeles, 250 F.3d 668 (9th Cir. 2001) ....................................................................................................... 4 Mayer v. Belichick, 605 F.3d 223 (3d Cir. 2010) ...................................................................................................... 16 Mohamed v. Donald J. Nolan, Ltd., 967 F. Supp. 2d 647 (E.D.N.Y. 2013) ..................................................................................... 3, 4 Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192 (3d Cir. 1993) .................................................................................................... 16 Schmidt v. Skolas, 770 F.3d 241 (3rd Cir. 2014)..................................................................................................... 16 United Steelworkers of America, AFL-CIO v. American International Aluminum Corp., 334 F.2d 147 (5th Cir. 1964), cert. denied, 379 U.S. 991 (1965) ............................................... 4 Victaulic Co. v. Tieman, 499 F.3d 227 (3rd Cir. 2007)....................................................................................................... 5 Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 3 of 22 iii TABLE OF AUTHORITIES (cont’d) Other Authorities 5 C. Wright & A. Miller, Federal Practice and Procedure Sec. 1366 (1969 & Supp.1986) ........... 3 Rules Fed.R.Civ.P. 12(b) .......................................................................................................................... 3 Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 4 of 22 1 I. SUMMARY In support of their Motion to Dismiss Plaintiff’s Second Amended Complaint (“SAC”), Defendants have asked the Court to take judicial notice of a June 5, 2014 letter and selected severely truncated excerpts from certain pleadings filed in the Orphans' Court in June 2015 to support their argument that the SAC is time barred. Defendants do this because they cannot contend that, on the face of the pleading, Plaintiff’s claims are time barred. After all, the SAC states claims based on facts Defendants revealed for the first time in May 2017 – facts that establish Defendants’ violations of Rule 1.7 of the Pennsylvania Rules of Professional Conduct, breach of fiduciary duty and legal malpractice, facts that they concealed for more than 15 years. Thus, on its face, this action was timely filed under either the two-year statute of limitations for legal malpractice based on negligence and breach of fiduciary duty, or the four-year statute of limitations for legal malpractice based on contract. But in a misguided attempt to avoid having to answer for what they did, Defendants concoct a false scenario and claim, without any admissible evidence and by reaching beyond the SAC itself, that Plaintiff was aware of Defendants’ misdeeds years before Defendants revealed them. Defendants make this claim by taking a June 5, 2014 letter written by Plaintiff’s counsel entirely out of context, by failing to inform the Court that other, contemporaneous correspondence makes it clear that the matters discussed in the June 5, 2014 letter are wholly unrelated to the claims raised in the SAC, and by scouring the many thousands of pages of Orphans' Court filings to “find” a few lines of text that supposedly support their contentions. But these efforts are both inappropriate at this stage of the case and futile. Defendants present nothing to show that Plaintiff knew, or reasonably should have known, of the conduct that forms the basis for the SAC until May 2017. Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 5 of 22 2 This action was therefore timely, and the documents cited and attached by Defendants do not change that conclusion. Defendants’ request that the Court take judicial notice of their extrinsic exhibits also fails for other reasons. Under controlling law, courts may not take judicial notice to resolve fact disputes. In addition, when a motion to dismiss relies on matters outside those pled in a complaint, the Court should either disregard the extrinsic material and decide the motion on the allegations of the complaint, or convert the motion to a motion for summary judgment. That rule applies with special significance here, where Defendants offer the Court “facts” which they contend demonstrate that Plaintiff knew of their misconduct in June 2015, but which establish nothing at all. For these reasons, the Court should strike Exhibits B through G from the record and decide the Motion to Dismiss based on the allegations of the SAC. In the alternative, the Court should convert Defendants’ Motion to a motion for summary judgment and permit Plaintiff to conduct discovery and file a cross motion for summary judgment.1 II. ARGUMENT A. Legal Standard Defendants have asked the Court to take judicial notice of several extrinsic exhibits related to proceedings in the Orphans’ Court. Under controlling law, this is improper. The materials a court may consider when deciding a motion to dismiss filed under Rule 12(b)(6) are limited. In 1 In conjunction with Defendants’ first Motion to Dismiss, filed on October 12, 2018, the Defendants asked the Court to take judicial notice of the exhibits at issue in this motion. Dkt. 12. The Court initially granted the motion, see Dkt. 14, but later vacated the order in light of the parties’ stipulation to extend Plaintiff’s time to respond to Defendant’s motion, see Dkt. 16. Here, in conjunction with Defendant’s Motion to Dismiss Plaintiff’s Second Amended Complaint, Defendants have not filed a similar motion to take judicial notice. Thus, the issue as to the propriety of the Court’s review of Defendants’ exhibits and whether such review requires the conversion of Defendants’ motion to a motion for summary judgment is raised herein. Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 6 of 22 3 re Niaspan Antitrust Litigation, 42 F. Supp. 3d 735 (E.D. Pa. 2014) (district court may not consider matters extraneous to the pleadings in deciding a motion to dismiss, except in limited circumstances); DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111-12 (2d Cir. 2010) (district court may consider facts alleged in the complaint, documents attached to the complaint as exhibits, and documents incorporated by reference in the complaint). “[W]hen matters outside the pleadings are presented in response to a 12(b)(6) motion,” a district court must either “exclude the additional material and decide the motion on the complaint alone” or “convert the motion to one for summary judgment under [Federal Rule of Civil Procedure 56] and afford all parties the opportunity to present supporting material.” Fonte v. Board of Managers of Continental Towers Condominium, 848 F.2d 24, 25 (2nd Cir. 1988) (citing Fed.R.Civ.P. 12(b), 5 C. Wright & A. Miller, Federal Practice and Procedure Sec. 1366 (1969 & Supp.1986)). Asking the Court to find a fact in dispute based documents not attached to the complaint or incorporated by reference is clearly an improper use of the judicial notice doctrine. In re Niaspan Antitrust Litig., 42 F.Supp. 3d at 754; Brody v. Hankin, 145 Fed. Appx. 768, 772 (3d Cir. 2005) (“[A] court that examines a transcript of a prior proceeding to find facts converts a motion to dismiss into a motion for summary judgment.”) As the court stated in Mohamed v. Donald J. Nolan, Ltd., 967 F. Supp. 2d 647 (E.D.N.Y. 2013), there are only limited circumstances where “[c]ourts may also properly consider ‘matters of which judicial notice may be taken....’” See also Global Network Commc'ns, Inc. v. City of N.Y., 458 F.3d 150, 157 (2d Cir. 2006) ( “[a] court may take judicial notice of a document filed in another court not for the truth of the matters asserted in the other litigation, but rather to establish the fact of such litigation and related filings.”) (emphasis added) (internal quotation marks omitted). Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 7 of 22 4 B. The Exhibits Attached to Defendants’ Motion to Dismiss Should be Stricken and the Motion Denied. Although a court may take judicial notice of court documents to establish the fact of the litigation or of the filings themselves, e.g. Mohamed, 967 F. Supp. 2d at 652, in this case, Defendants are asking the Court to find a fact in dispute based on extrinsic documents: namely, that Plaintiff was aware of her claims more than two years before this action was filed. This is a plainly improper use of the doctrine. “[A] court that examines a transcript of a prior proceeding to find facts converts a motion to dismiss into a motion for summary judgment.” In re Niaspan Antitrust Litig., 42 F. Supp. 3d at 754; Brody, 145 Fed. Appx. at 772 ); Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001) (district court erred in taking judicial notice of the transcript of an extradition hearing and considering disputed facts contained therein in deciding a motion to dismiss); Fonte, 848 F.2d at 25 (district court erred in considering memorandum of law and affidavit in deciding 12(b)(6) motion). It is well established law that factual allegations contained in legal briefs or memoranda are treated as matters outside the pleading for purposes of Rule 12(b). E.g. Fonte, 848 F.2d at 25; see also United Steelworkers of America, AFL-CIO v. American International Aluminum Corp., 334 F.2d 147, 149 (5th Cir. 1964), cert. denied, 379 U.S. 991 (1965). In a case such as this, where Defendants seek to use documents from another matter to establish facts in dispute, the Court must deny the request to take judicial notice. Defendants’ argument here is much like the argument rejected by the court in In re Niaspan Antitrust Litig., 42 F. Supp. 3d 735. In that case, the defendants argued plaintiff’s complaint should be dismissed for failing to show antitrust injury, supporting their motion by asking the court to take judicial notice of the contents of documents in the underlying infringement litigation. Id. at 754. Defendants argued that plaintiff’s theory of case as reflected in those pleadings made it clear Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 8 of 22 5 that the plaintiff would have lost as a matter of law, and therefore suffered no damages in the current case. Id. In rejecting the defendants’ arguments, the court noted: Although a court may take judicial notice of court documents to establish the fact of the litigation or of the filings themselves, in this case, defendants ask the Court to find a fact in dispute based on these documents, namely Barr's chances of prevailing in the underlying litigation. This is a plainly improper use of the doctrine. Id. at 754 (internal citations omitted). Similarly, Defendants here are asking this Court to take judicial notice of pleadings from the Orphans’ Court litigation in order to establish disputed facts in support of their motion: i.e. what Plaintiff knew about her malpractice claim, and when she knew it. This the Court cannot do. While the Court may take notice of a pleading to show the fact of litigation or filings, issues as to what was argued or why, and issues as to the facts underlying assertions made in pleadings, are clearly far outside what courts may judicially notice. Id. at 754; HYK Construction Company, Inc. v. Smithfield Township, 8 A.3d 1009, 1017 (Pa. Commw. Ct. 2010) (“Although a court may take judicial notice of a fact, a ‘judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned…[D]isputed questions of fact are not within the domain of judicial notice.”). See also Victaulic Co. v. Tieman, 499 F.3d 227, 237 (3rd Cir. 2007) (district court erred when it employed judicial notice at an early stage in the litigation and outside the context of an evidentiary proceeding; resolving a “thorny issue like reasonableness” falls far short of the bar); Brody, 145 Fed. Appx. at 775 (“[A] court that examines a transcript of a prior proceeding to find facts converts a motion to dismiss into a motion for summary judgment.”); Lee v. City of Los Angeles, 250 F.3d Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 9 of 22 6 668, 690 (9th Cir. 2001) (holding that the district court erred in taking judicial notice of a hearing transcript and considering disputed facts contained therein in deciding a motion to dismiss). Defendants ask the Court to find that, contrary to the allegations in the SAC, Plaintiff was aware of her claims in June 2014 or June 2015. In order to draw this conclusion, the Court would have to resolve disputed facts, many of which are presented through Defendants’ improper request that the Court take judicial notice of selected portions of the Orphans’ Court docket. This is clearly improper. Plaintiff’s Motion to Strike should therefore be granted. C. Defendants’ Extrinsic Exhibits Are Inadmissible and Do Not Establish that Plaintiff Was Aware of the Claims Asserted in the Second Amended Complaint Before May 2017. Defendants’ request that the Court take judicial notice of their extrinsic exhibits should be denied for several additional reasons. Defendants contend the exhibits establish that Plaintiff was aware of Defendants’ legal malpractice in June 2014 or in June 2015. This is simply not true, and in any event, it is a fact dispute that cannot be resolved on a motion to dismiss. The claims raised in the SAC are based on Defendants’ concealment and failure to disclose unwaivable conflicts arising out of their representation of Frances Middleton and John Middleton in the 2001 GRAT I transaction, a transaction that violated controlling Middleton family agreements, at Plaintiff’s great expense. Defendants revealed this only when they were caught in a lie – that no such document existed – and were forced to bring it to light by an order of the Orphans’ Court. See Plaintiff’s Response in Opposition to Defendants’ Motion to Dismiss at 12-15; see also SAC at ¶¶52-70. Defendants’ arguments now rest on the misleading assertion that their extrinsic exhibits establish that Plaintiff was aware of this prior, adverse representation in June 2014 or June 2015. She was not. A review of the complete record belies Defendants’ assertions. While Plaintiff need not here, as a matter of law, address the facts in dispute surrounding these exhibits, Plaintiff will Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 10 of 22 7 briefly illuminate them to illustrate the fallacy of Defendants’ arguments in their Motion to Dismiss, but more importantly to show the impropriety of the Court taking judicial notice of documents and facts selected by Defendants without affording Plaintiff discovery and a full opportunity to respond. 1. The June 5, 2014 Letter. Defendants’ Exhibit B is a June 5, 2014 letter from Tom Mucci, Plaintiff’s counsel, to Larry Laubach, counsel to John Middleton. Defendants repeatedly contend (citing it 7 times in their brief) that the June 5 letter constitutes an admission that Plaintiff was aware of the claims asserted in the SAC four years before the initial Complaint in this action was filed. But Mr. Mucci’s June 5 letter does not even mention the conduct which forms the basis of the SAC. Nor could it have done so – again, the SAC is based on Defendants’ failure to disclose their representation of Frances and John in the 2001 GRAT I transactions, under which Frances transferred 258,029 shares of Bradford stock, worth between $52,895,945 and $1,000,000,000, to a trust for John’s sole benefit, excluding Plaintiff and her sister Lucia, and in violation of controlling Middleton family agreements. These facts were concealed by Defendants, and Plaintiff had no way of learning them, until they were revealed by Defendant Rosenfield when he filed an Amended Accounting in the Orphans’ Court in May 2017. Plaintiff’s Response in Opposition to Defendants’ Motion to Dismiss at 12-15; see also SAC at ¶¶52-70. Quite simply, Mr. Mucci’s June 5, 2014 letter had nothing to do with the hidden 2001 GRAT I transactions. Instead, the June 5 letter focused on a 1998 assignment of principal distributions (“1998 Assignment”) from the 1972 Herbert Sr. Trust, the 1982 John Middleton, Inc. Trust and the 1990 Herbert Jr. and Frances Trust (the “Family Trusts”). These claims are wholly separate and apart from the claims asserted in the SAC. And this is made clear by related, Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 11 of 22 8 contemporaneous correspondence immediately preceding and following the June 5, 2014 letter, correspondence which Defendants fail to mention. A review of the relevant correspondence shows that Defendants have selected only one of many letters in an effort support their position. When all of the correspondence is considered, three things become clear: (1) the dispute over the 1998 Assignment had nothing to do with the claims asserted in the SAC; instead, the focus was on the Family Trusts and Plaintiff’s counsel’s efforts to obtain information, both from Defendants (who were still serving as Plaintiff’s lawyers) and from other parties; (2) Plaintiff was diligently attempting to obtain documents and information concerning her rights under the Family Trusts; and (3) Plaintiff’s efforts were met with delay and unnecessary obstacles. The June 5 letter was preceded by Mr. Mucci’s May 19, 2014 letter to Larry Laubach and Bruce Rosenfield. Exhibit 1. The May 19 letter focuses on the 1998 Assignment and, like the June 4 letter, does not mention the concealed 2001 GRAT I transactions. Instead, the May 19 letter expressly states that Ms. Nupson’s “primary concern is a 1998 assignment of principal distributions from the 1972 Herbert Sr. Trust, the 1982 John Middleton, Inc. Trust, and the 1990 Herbert Jr. and Frances Trust.” Exhibit 1, p. 1. The May 19 letter asked for Mr. Middleton’s assistance in retrieving distributions from the Family Trusts. Exhibit 1, p. 2. These issues have nothing to do with the claims asserted in the SAC. Other communications followed, all of which make clear that the then existing dispute involved the 1998 Assignment and attempts to obtain additional documents and information about the Family Trusts so Plaintiff could better understand her rights. See Exhibit 2 (June 9, 2014 email from Mr. Mucci to Mr. Laubach discussing a proposal to file an accounting so that Plaintiff could file an objection to the 1998 Assignment and requesting additional documents from her files); Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 12 of 22 9 Exhibit 3 (June 23, 2014 letter from Mr. Mucci to Mr. Laubach discussing the production of documents from Plaintiff’s files); Exhibit 4 (July 16, 2014 letter from Mr. Mucci to Messrs. Kipnes, Laubach and Solmssen discussing production of documents from Plaintiff’s files); Exhibit 5 (August 19, 2014 letter from Mr. Mucci to John Middleton, ℅ Mr. Laubach requesting distribution of principal from the Family Trusts); Exhibit 6 (September 15, 2014 letter from Mr. Kipnes to Mr. Mucci responding to Mr. Mucci’s request for additional documents); Exhibit 7 (September 25, 2014 letter from Mr. Mucci to Mr. Middleton, ℅ Mr. Laubach requesting distribution of principal from the Family Trusts); Exhibit 8 (October 3, 2014 letter from Mr. Mucci to Mr. Middleton ℅ Mr. Laubach again requesting distribution). All of these communications dealt with the 1998 Assignment, distributions of principal from the Family Trusts, and Mr. Mucci’s attempts to obtain his client’s files. None of these communications has anything to do with the claims asserted in the SAC. Understood in context, then, it is clear that the June 5 letter does not relate in any way to the claims asserted in the SAC. While the June 5 letter, when plucked out of context, might be read as a threat of litigation against the Schnader firm for the conflicts of interest that form the basis for the SAC, once the context is provided it is clear that this is a misimpression. The June 5 letter was about a singular issue regarding the 1998 Assignment and the Schnader firm’s reluctance to provide information. It bears repeating that neither the Trust, nor the Schnader firm’s reluctance to provide documents in 2014, are in any way at issue in this action, and do not form the basis for the claims alleged in the SAC. Indeed, Exhibit 2 makes crystal clear that the “litigation” mentioned in Mr. Mucci’s June 5 letter related solely to the 1998 Assignment and the related Family Trusts, and had nothing to do with legal malpractice claims against the Schnader law firm or Mr. Rosenfield. Exhibit 2 also Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 13 of 22 10 makes clear that any talk of litigation quickly dissipated. Exhibit 2 is an email from Mr. Mucci to Mr. Laubach and was written following a telephone call between them. It states: Thank you for your phone call today. As we discussed, I will not be filing anything with the Pennsylvania courts this week. I have spoke[n] with my client regarding your proposal for the filing of an accounting to provide an opportunity for my client to object to the invalid 1998 Assignment. As we discussed, my client will not approve the filing of any accounting at this time. * * * I enjoyed the collegial nature of our conversation. I look forward to maintaining such a cordial relationship and resolving the roadblocks outlined above. Exhibit 2. Thus, far from establishing that Plaintiff was ready in 2014 to file the claims asserted in the SAC against Defendants, the facts show that she was attempting to resolve other issues that have nothing to do with her claims in this action. 2. The June 5 Letter is Inadmissible and Should Be Stricken. There are other reasons to exclude the June 5, 2014 letter. It is inadmissible under Rule 402, Federal Rules of Evidence, because it is irrelevant. Under Rule 401, “evidence is relevant if: (a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the action.” The June 5 letter is not of any consequence in determining this action. As discussed above, the June 5 letter relates to an issue not presented in this action: whether the 1998 Assignment was valid. Because the claims asserted in the SAC have nothing to do with the 1998 Assignment, the June 5 letter is irrelevant and inadmissible. It is also inadmissible under Rule 403. Under Rule 403 the court may exclude relevant evidence if its probative value is substantially outweighed by a danger of unfair prejudice, confusing the issues or misleading the jury. Here, the June 5 letter has limited, if any, probative value and would only confuse the issues presented in this action. Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 14 of 22 11 For all of these reasons, the June 5 letter should be stricken and not considered in connection with the pending Motion to Dismiss, or in connection with a Motion for Summary Judgment should the Court convert the motion to a motion for summary judgment. 3. The Orphans’ Court Pleadings Are Irrelevant and Inadmissible. Defendants’ Exhibits C, D, E, F and G are similarly irrelevant and inadmissible under Rule 401 and Rule 402. These exhibits are excerpts from a few of the hundreds of pleadings filed in the Orphans’ Court proceedings. Defendants assert that these excerpts establish that Plaintiff was aware of Defendants’ conflicts of interest, legal malpractice, and breach of fiduciary duty when the pleadings were filed in the Orphans’ Court in June 2015. In June 2015, the Orphans’ Court proceedings were in an early stage and discovery efforts had just commenced. Exhibit 9, Affidavit of Courtney Vidales-Johnson (“Vidales Affidavit”); Exhibit 10, Affidavit of Jeffrey Baker (“Baker Affidavit”). Defendants’ arguments mislead as to what counsel for Ms. Nupson knew at the time the pleadings were filed. This is made clear by Defendants’ Exhibit F, Plaintiff’s June 23, 2015 Petition for Discovery. In the Petition for Discovery, Plaintiff requested permission from the Orphans’ Court to conduct needed discovery on several “disputed facts”: 18. The disputed facts and areas in which discovery is needed involve the following matters: * * * (f) whether Bruce A. Rosenfield, Esq. had conflicts of interest while purporting to represent Anna Nupson in the above transactions that prevented him from reasonably concluding that [sic.] could zealously represent Ms. Nupson, or worse, whether Mr. Rosenfield remained the agent of John S. Middleton in structuring this transaction to accomplish Mr. Middleton’s goal of consolidating his ownership and control of all of the Bradford stock to prepare for the sale of the family’s cigar manufacturing business. Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 15 of 22 12 Defendants’ Exhibit F at 4 (emphasis added). Rather than demonstrating that Plaintiff knew Defendants had committed legal malpractice and breach of fiduciary duty in June 2015, as Defendants urge, the Petition instead shows that Plaintiff was (appropriately) seeking discovery to determine whether Defendants had done so. The Petition for Discovery shows that counsel for Plaintiff were seeking discovery to determine whether Defendants had conflicts of interest and whether they could have reasonably concluded they could ethically represent her. Exhibit 10 at 2. The facts that could be learned from this discovery would inform Plaintiff and her counsels’ decision as to whether Defendants had committed legal malpractice as a result of any conflicts of interest. Id. It did not establish that Plaintiff or her counsel knew that Defendants had conflicts or that they had committed malpractice in June 2015. Id. The remaining excerpts from the Orphans’ Court proceedings must also be read in context. All were filed at or around the same time as the Petition for Discovery. See Defendants’ Exhibit C (Counterclaim and Petition for Declaratory and Other Relief, filed June 23, 2015); Exhibit D (Answer and New Matter Petition for Declaratory Relief and Other Relief of John S. Middleton and Bradford Holdings. Inc., filed June 23, 2015); Exhibit E (Anna K. Nupson’s Response to John Middleton’s Motion to Strike, filed May 20, 2015); Exhibit G (Anna K. Nupson’s Answer to John S. Middleton’s Motion for Sanctions, filed June 29, 2015). In each case, counsel for Plaintiff was stating what they believed may have been the case, but were at the same time seeking discovery to determine whether that belief was supported by sufficient facts to act. This is what the legal process and professionalism require. Exhibit 10 at 3. Defendants’ Exhibit C, a pleading from the Orphans’ Court proceedings, alleges “[o]n information and belief, Bruce A. Rosenfield, Esq. continued to represent John S. Middleton as trustee of the 2001 GRAT and other Middleton Trusts throughout these negotiations” and “[o]n Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 16 of 22 13 information and belief, Bruce A. Rosenfield, Esq. did not make any disclosures and consultations to any of the beneficiaries relating to limitations on his representation due to his prior representations or personal interests pursuant to Rule 1.7(b).” Defendants’ Exhibit C at p. 3, para. 42 and p. 4, para. 45 (emphasis added). As this Court has recognized, “[t]he essence of allegations made on information and belief is that they are not made based on direct, personal knowledge”). United States ex rel. Schumann v. AstraZeneca PLC (E.D. Pa. 2012) (quoting United States ex rel. Unite Here v. Cintas Corp., No. 06-2413, 2007 U.S. Dist. LEXIS 98776, *39-42 (N.D. Cal. Dec. 21, 2007)). “Tolerance of factual contentions in initial pleadings ... when specifically identified as made on information and belief does not relieve litigants from the obligation to conduct an appropriate investigation into the facts that is reasonable under the circumstances; it is not a license to . . . make claims . . . without any factual basis or justification.” Zuk v. Eastern Pennsylvania Psychiatric Institute, 103 F.3d 294, 299 (3rd Cir. 1996) (quoting the Advisory Committee Notes to the 1993 amendments to Rule 11). Defendants’ Exhibit D is another Orphans’ Court pleading, also filed on June 23, 2015, answering the allegations made in John S. Middleton’s Petition for Declaratory Relief, which sought a declaratory judgment that some of his prior actions as Trustee did not require court approval. In this pleading, Plaintiff denied John’s allegation that “Bruce A. Rosenfield was her independent counsel and/or that she was properly advised or represented by Mr. Rosenfield. Defendants’ Exhibit D at p. 4, para. 64. Defendants’ Exhibit E is no different. It was also filed at or around the same time as the other Orphans’ Court pleadings, early in the proceedings, with discovery still incomplete and ongoing, and before the facts were revealed that form the basis for Plaintiff’s claims. Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 17 of 22 14 Defendants’ Exhibit G underscores that counsel for Plaintiff needed, and was seeking, additional discovery to understand the facts necessary to represent their client: Incomplete Discovery It must be noted that discovery is incomplete. While informal discovery has been produced (some of which was inappropriately redacted), additional discovery is needed . . . . Discovery is also needed to more deeply understand the role of Attorney Bruce A. Rosenfield in the 2003 Master Settlement Agreement and his relationship before during and after the sale. Defendants’ Exhibit G, p. 2. In the excepted pleadings offered by Defendants, counsel for Plaintiff were asserting what they believed the evidence might be, but they were simultaneously pursuing discovery to learn whether there were sufficient facts on which to proceed. Exhibit 10 at 5. It is important to note that none of the excerpted pleadings stated claims against Defendants, who were not parties to the Orphans’ Court proceedings. Instead, the pleadings, from which Defendants’ exhibits were excerpted, were initial pleadings, filed in response to pleadings filed by John Middleton in proceedings between Mr. Middleton and Plaintiff. Id. Defendants’ Exhibits C-G show that in June 2015, Plaintiff knew only that Defendants had represented various members of the Middleton family and the family businesses over the course of several years. No specific representations are identified in Exhibits C-G, nor are any specific conflicts of interest identified. Exhibit 10 at 5. Knowledge that a lawyer had represented individual members of a family in various matters by itself would not be sufficient by itself to conclude that the lawyer had violated the Rules of Professional Conduct, had conflicts of interest, or had committed legal malpractice. Id. A variety of factors would have to be examined to determine whether there had been a violation of the Rules of Professional Conduct or a basis to conclude that a lawyer had committed legal malpractice. And there would need to be facts to Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 18 of 22 15 support any claims before they could be asserted in a legal action against a lawyer or a law firm. Some of the facts would include: whether the representations were concurrent or remote in time; whether the client(s)' interests were aligned or adverse; whether the client(s) were informed about the possible conflicts of interest inherent in the representation(s); and whether the clients agreed to waive the conflicts identified. Id. at 5-6. Here, without more facts than those disclosed in Defendants’ Exhibits C-G, a reasonable lawyer would not believe that he or she had sufficient facts to bring an action for breach of fiduciary duty or legal malpractice in June 2015. Exhibit 10 at 6. Instead, a reasonable lawyer would conduct further investigation and discovery to determine whether there were sufficient facts. That is what Plaintiff’s counsel did here. Id. Defendants ask the Court to draw inferences and resolve disputed facts relying solely on a few excerpts from the many thousands of pages of pleadings filed in the Orphans’ Court, and find that Plaintiff was aware of Defendants’ legal malpractice and breach of fiduciary duty in June 2015. But this is an improper use of judicial notice. And more fundamentally, nothing in the extrinsic exhibits even suggests that Plaintiff was aware of Defendants adverse representation of Frances and John in the concealed 2001 GRAT I transactions, which forms the basis for the claims raised in the SAC. These facts were concealed by Defendants until May 2017. SAC at ¶¶52-70. D. If the Court Chooses to Consider Defendants’ Extrinsic Exhibits, It Must Convert the Motion to Dismiss to a Motion for Summary Judgment and Permit Discovery. If the Court considers Defendants’ extrinsic exhibits at this stage of the proceedings, the Court must convert Defendants’ Motion to a motion for summary judgment. “To decide a motion to dismiss, courts generally consider only the allegations contained in the complaint, exhibits attached to the complaint and matters of public record.” Schmidt v. Skolas, 770 F.3d 241 (3rd Cir. Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 19 of 22 16 2014), quoting Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993); see also Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010). While there is a limited exception to the general rule in cases where a “document integral to or explicitly relied upon in the complaint” may be considered without converting the motion to dismiss into one for summary judgment, In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997), this exception does not apply here. The claims alleged in the SAC are not based in any way on the extrinsic documents offered by Defendants. The SAC states claims arising out of Defendants’ concealment of a prior, adverse representation and unwaivable conflict which was concealed for over 15 years, until Defendants were forced reveal it by the Orphans’ Court. What Defendants concealed was their representation of Frances Middleton and John Middleton in a 2001 GRAT I transaction that resulted in Frances transferring 258,029 shares of Bradford stock, worth between $52,895,945 and $1,000,000,000, to a trust for the sole benefit of John, and excluding Plaintiff and her sister Lucia. And despite the clear conflicts of interest that Defendants’ prior representation of Frances and John posed, Defendants expressly represented to Plaintiff less than a year later that they had no conflicts of interest, and based on this falsehood, Defendants proposed that they jointly represent Frances and Plaintiff in a complex series of transactions that resulted in John owning all of the Bradford shares. The extrinsic exhibits offered by Defendants have nothing to do with the hidden 2001 GRAT I transaction, nothing to do with their actions to conceal it, and nothing to do with Defendants’ undisclosed representation of Frances and John. For the reasons discussed above, these exhibits are not admissible evidence under these circumstances and they should be disregarded on a Motion to Dismiss. Should this Court wish to consider them, Defendants’ Motion must be converted to a Motion for Summary Judgment, and Plaintiff must be afforded discovery Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 20 of 22 17 and given the opportunity to present rebuttal and other evidence. E.g. Brody, 145 Fed. Appx. at 775 (“[A] court that examines a transcript of a prior proceeding to find facts converts a motion to dismiss into a motion for summary judgment.”) III. CONCLUSION Defendants’ exhibits should be excluded and stricken from the record because they are irrelevant and immaterial. They are not proper subjects for judicial notice because Defendants are asking the Court to use them to resolve disputed issues of fact. The Court should deny Defendants’ request to take judicial notice of the extrinsic exhibit and decide the Motion to Dismiss on the allegations made on the face of the SAC. In the alternative, the Court should convert Defendants’ Motion to Dismiss to a motion for summary judgment and permit Plaintiff to conduct the discovery necessary to respond to the motion and to file a cross motion for summary judgment. 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 Case 2:18-cv-02505-NIQA Document 38 Filed 03/15/19 Page 21 of 22 18 5TH STREET LAW 312 San Pasquale, NW Albuquerque, New Mexico 87104 Telephone: (505) 247-9333 kim@fifthstreetlaw.com 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 38 Filed 03/15/19 Page 22 of 22
