Abdulla v. Klosinski

• Decision Date: 25 September 2012
• Docket Number: No. CV 110–159.,CV 110–159.
• Citation: 898 F.Supp.2d 1348
• Parties: Sohail M. ABDULLA, Plaintiff, v. Scott J. KLOSINSKI, Klosinski Overstreet, LLP, and Johnston, Wilkin, & Williams, Defendants.
• Court: U.S. District Court — Southern District of Georgia

898 F.Supp.2d 1348

Sohail M. ABDULLA, Plaintiff,

v.Scott J. KLOSINSKI, Klosinski Overstreet, LLP, and Johnston, Wilkin, & Williams, Defendants.

No. CV 110–159.

United States District Court,

S.D. Georgia,

Augusta Division.

Sept. 25, 2012.

Tucker S. Player, Player Law Firm, LLC, Columbia, SC, for Plaintiff.

Thomas W. Tucker, Tucker, Everitt, Long, Brewton & Lanier, PC, Wendell E. Johnston, Jr., Johnston, Wilkin & Williams, Augusta, GA, Johannes S. Kingma, John L. Bunyan, Carlock, Copeland, Semler & Stair, LLC, Atlanta, GA, for Defendants.

ORDER

J. RANDAL HALL, District Judge.

Presently pending before the Court are Defendants' joint motion to strike the testimony and opinions of Plaintiff's Rule 26(a)(2) expert (doc. no. 32) and individual motions for summary judgment (doc. nos. 33, 37). For the reasons stated below, the motion to strike is DENIED IN PART, but the motions for summary judgment are GRANTED.

I. BACKGROUND

This legal malpractice and breach of fiduciary duty case arises out of the alleged representation of Plaintiff Sohail M. Abdulla by William J. Williams and Defendant Scott J. Klosinski. During all relevant times, Plaintiff owned and operated Sportsman's Link, Inc., a sporting and outdoor equipment store in Augusta, Georgia. (Abdulla Dep. at 19–21.) The facts construed in favor of Plaintiff, the non-moving party, are as follows.

A. The First Lawsuit by Henry's Tackle and the Origins of Representation

Sometime in 2006, a dispute arose between Sportsman's Link and one of its wholesale vendors, Henry's Tackle, LLC, over a shipment of merchandise. (Abdulla Dep. at 64–66; see also doc. no. 37–3.) According to Plaintiff, Henry's Tackle delivered merchandise valued at approximately $460,650.00 prematurely and out of season. (Abdullah Dep. at 63–69.) The delivery maxed out Sportsman's Link's credit-line with Henry's Tackle, disabling it from purchasing desired seasonal merchandise. ( Id. at 64; see also doc. no. 37–3.) Unable to sell the out-of-season merchandise and not wanting to retain it, Plaintiff came to an agreement with Henry's Tackle whereby Sportsman's Link would review its inventory and identify items to be returned for credit; at the same time, it would pay $75,000.00 each month to Henry's Tackle until its outstanding account balance was settled. (Doc. no. 37–5.) Sportsman's Link sent one payment of $75,000.00 to Henry's Tackle but stopped payment on the check because Henry's Tackle did not pick up any of the merchandise marked for credit. (Abdulla Dep. at 78–82.) None of the merchandise at issue was ever returned to Henry's Tackle. ( Id. at 70.)

In December of 2006, Henry's Tackle sued Sportsman's Link and Plaintiff in the Superior Court of Richmond County to recover amounts owed on the unpaid merchandise, as well as incentives Plaintiff allegedly received for orders placed with Henry's Tackle. (Doc. no. 37–6.) Sportsman's Link and Plaintiff retained attorney William J. Williams, a partner with Defendant Johnston, Wilkins & Williams (“JWW”), to represent them in the case. (Abdullah Dep. at 84.) Williams had previously represented Sportsman's Link and Plaintiff in several other unrelated legal matters. ( Id. at 35–38.)

B. Sportsman's Link Files for Chapter 11 Bankruptcy

Sportsman's Link's sales and profits dropped significantly in 2006, resulting in a net loss of over $200,000.00. (Doc. 37–7; see also Abdulla Dep. at 56.) As a result, Williams advised Plaintiff to consider the possibility of petitioning for Chapter 11 bankruptcy and directed him to Defendant Scott J. Klosinski, a partner with Defendant Klosinski Overstreet, LLP (“KO”). (Abdulla Dep. at 95–96) After discussions with Klosinski and Williams, Plaintiff elected to file a Chapter 11 petition in March 2007. (Doc. no. 37–9.) The suit filed by Henry's Tackle in Richmond County was consequently stayed.

C. Henry's Tackle Moves for Either Appointment of a Trustee or Lifting of the Bankruptcy Stay

In June of 2007, Henry's Tackle filed an application for the appointment of a trustee to take over the property of Sportsman's Link and operate the business (the “Trustee Motion”). (Doc. no. 37–13.) According to the Trustee Motion, Plaintiff had used Sportsman's Link “as a sham to purchase and leverage his [individual] assets” by commingling personal and corporate funds and withdrawing corporate funds for his individual benefit and to the detriment of creditors. ( Id.) The Trustee Motion sought the appointment of a trustee or, in the alternative, a lifting of the bankruptcy stay to allow for a suit to pierce the corporate veil and hold Plaintiff personally liable for Sportsman's Link's debts. ( Id.) Plaintiff has admitted that he personally lent money to Sportsman's Link (Abdulla Dep. at 127) and used his personal credit card to make business purchases (doc. no. 37–11 at 77–79). Sportsman's Link, in return, made payments to Plaintiff. (Abdulla Dep. at 127.) Schedules attached to Sportsman's Link's bankruptcy petition indicate that the corporation paid Plaintiff over $440,000.00 within one year of commencement of the bankruptcy case (doc. no. 37–10 at 30), but Plaintiff and Sportsman's Link's accountant both attest that Plaintiff did not use business funds for his own personal benefit. (Abdulla Dep. at 127; Leonard Dep. at 35.)

Appointment of a trustee would have ousted Plaintiff from control of Sportsman's Link's operations and could have resulted in liquidation of the corporation's assets. Hoping to avoid this result, Klosinski discussed with Louis Saul, counsel for Henry's Tackle, the possibility of having the Trustee Motion withdrawn. (Klosinski Dep. at 17, 148; Saul Dep. at 26–27.) Saul indicated that the Motion would be withdrawn if a series of conditions were met, including execution of a personal guaranty from Plaintiff. (Saul Dep. at 26.) Klosinski forwarded the conditions to Plaintiff and Williams for review. (Doc. 37–14.) Sometime during this period, Klosinski advised Plaintiff that if Chapter 11 reorganization was not successful, his commingling of personal and business accounts could be considered fraudulent conveyances and form the basis for personal liability on Sportsman's Link's debts under a piercing the corporate veil claim. (Klosinski Dep. at 36.) Williams, meanwhile, was initially reluctant to have Plaintiff obligate himself on the corporation's debt, but he eventually advised Plaintiff to execute the guaranty. (Abdulla Dep. at 171–72.)

D. Plaintiff Signs the Guaranty

On July 18, 2007, Plaintiff executed a personal guaranty of Sportsman's Link's debt in favor of Henry's Tackle in the amount of $547,219.49 (the “Guaranty”). ¹ (Doc. no. 37–16.) The Guaranty provides that Henry's Tackle may proceed to collect the debt from Plaintiff in the event of default, with default defined to include, inter alia, withdrawal of Sportsman's Link's Chapter 11 petition or conversion to Chapter 7. ( Id. § 2(a).) The Guaranty further provides that “[a]ll notices, requests, demands, directions and other communications” required under the Guaranty and directed to Plaintiff are to be addressed to both Klosinski and Williams. ( Id. § 15.) Counsel for Henry's Tackle drafted and included this provision out of concern that Plaintiff might leave the country following execution of the Guaranty. (Saul Dep. at 40–41.) Finally, the Guaranty includes a waiver-of-defenses clause which states that it “is valid and binding according to its terms, subject to no defense, counterclaim, set-off or objection of any kind.” (Doc. no. 37–16 § 8.)

E. Sportsman's Link's Bankruptcy is Converted to Chapter 7 Proceeding, Triggering Default of the Guaranty

In June of 2008, the United States Trustee moved to convert Sportsman's Link's bankruptcy case to a Chapter 7 proceeding pursuant to 11 U.S.C. § 1112(b), which provides that the Bankruptcy Court may effect a conversion if the movant establishes a “substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation.” According to the Chapter 7 Motion, conversion was merited because Sportsman's Link's post-petition operations had significantly trended downward, resulting in a net loss and negative cash flow. (Doc. no. 37–17.) Moreover, inventory had dropped over twenty-five percent in value—evidence that the business was surviving through the cannibalization of inventory, a process that reduces the liquidation value of the estate to the prejudice of creditors. ( Id.) In July of 2008, the Bankruptcy Court granted the Chapter 7 Motion (Coleman Dep. at 8), and as a result the Guaranty entered default. Plaintiff moved for reconsideration of the Chapter 7 conversion, even offering to transfer $1,000,000.00 of his personal assets to the corporation, but the motion was denied. (Doc. no. 34–1 at 50.)

F. The Second Lawsuit by Henry's Tackle and Plaintiff's Default

A month later, in August of 2008, Henry's Tackle filed suit against Plaintiff in Superior Court ² to enforce the Guaranty. (Doc. no. 37–19.) Per the terms of the Guaranty's notice clause, process was served by hand-delivery on Klosinski and Williams. (Trotter Dep. at 16–17.) Henry's Tackle also tried to serve Plaintiff personally but could not locate him. ( Id. at 17.) Shortly before the suit was filed, Plaintiff and his wife had gone to Pakistan to stay with family. (Abdulla Dep. at 24.) Plaintiff did not return to the United States until sometime in November 2009. ( Id. at 28.)

On August 20, 2008, Klosinski forwarded the complaint to Plaintiff by e-mail. (Doc. no. 37–21.) Attached to the complaint was a letter informing Plaintiff that KO would not be representing him in the case and advising him to contact a lawyer to defend himself “as soon as possible.” (Doc. no. 37–22.) The letter further advised Plaintiff that he “should be personally served with the complaint, and ... will have thirty (30) days from the date of service to file an answer.” ( Id.) On or about August 21 or 22, 2008, Plaintiff received the...