Felis v. Downs Rachlin Martin PLLC

• Decision Date: 16 October 2015
• Docket Number: No. 15–092.,15–092.
• Court: Vermont Supreme Court
• Parties: Kenneth P. FELIS v. DOWNS RACHLIN MARTIN PLLC, and Gallagher, Flynn & Company, LLP.

133 A.3d 836

Kenneth P. FELIS

v.DOWNS RACHLIN MARTIN PLLC, and Gallagher, Flynn & Company, LLP.

No. 15–092.

Supreme Court of Vermont.

Oct. 16, 2015.

Jennifer B. Colin of Stackpole & French Law Offices, Stowe, for Plaintiff–Appellant.

Eric S. Miller and Kevin A. Lumpkin of Sheehey Furlong & Behm P.C., Burlington, for Defendant–Appellee Downs Rachlin Martin PLLC.

Matthew B. Byrne and David A. Boyd of Gravel & Shea PC, Burlington, for Defendant–Appellee/Cross–Appellant Gallagher, Flynn & Company, LLP.

Present: DOOLEY, SKOGLUND, ROBINSON and EATON, JJ., and MORSE, J. (Ret.), Specially Assigned.

DOOLEY, J.

¶ 1. This case arises out of a divorce proceeding between plaintiff Kenneth Felis and his former wife, Vicki Felis. Defendant Downs Rachlin Martin PLLC (DRM) represented Ms. Felis in the divorce proceeding, and defendant Gallagher, Flynn & Company, LLP (GFC) was retained by DRM on behalf of Ms. Felis to prepare business valuations related to the proceeding. Plaintiff appeals the decision of the Chittenden Superior Court, Civil Division, granting defendants' motions to dismiss plaintiff's claims of fraud and breach of fiduciary duty based on DRM's representation of Ms. Felis. GFC cross-appeals the superior court's denial of its motion to strike pursuant to 12 V.S.A. § 1041.¹ We affirm.

¶ 2. Plaintiff's complaint alleges the following, as relevant to this appeal. In January 2007, plaintiff commenced a contentious, multi-year, high-asset divorce proceeding against Ms. Felis. At the time of filing, the parties to the divorce had a minor child and a marital estate worth approximately twelve to fifteen million U.S. dollars in cash, assets, real property, and business interests. Both parties were represented by counsel throughout the duration of the proceeding. In February 2008, Ms. Felis hired DRM, a Vermont-based law firm, to represent her in the divorce; this representation continued until May 2011. DRM subsequently retained the services of GFC to appraise plaintiff's interest in several business enterprises.

¶ 3. Plaintiff alleges that early on in the litigation "[t]he red fee-building flag went up ... in DRM's handling of the case" when DRM twice asked the court for large distributions from the marital estate to pay legal fees and expenses, both of which the court granted. According to plaintiff, DRM's litigation strategy was to "build its fees and harass and injure" plaintiff by "pursuing unreasonable legal positions, demanding extensive and unnecessary discovery, promoting and claiming outrageous asset valuations, raising claims without proper foundation ... and billing excessive time."

¶ 4. In November 2008 and January 2009, defendants filed documents with the court on Ms. Felis' behalf, claiming plaintiff wastefully dissipated millions of dollars from the marital estate. Plaintiff's counsel devoted extensive time producing detailed financial records for Ms. Felis and preparing accounting documents to defend against the claim. Plaintiff alleges that this claim was "without proper cause and for improper and wrongful motive, namely to build fees and harass and injure" him. After a hearing, the court found insufficient evidence to support the claim.²

¶ 5. Plaintiff also alleges that GFC's expert testimony on the valuation of his business was part of defendants' fee-maximization strategy. Specifically, he claims that years of discovery and hundreds of thousands of dollars were invested in analyzing the extensive financial and business information, but that "DRM intentionally and wrongfully put up false expert testimony of GFC in an attempt to influence the court to improperly value [plaintiff's] business assets and achieve an exorbitant and outrageous property distribution for Ms. Felis that was not grounded in the law."

¶ 6. At the close of the divorce proceeding, DRM billed Ms. Felis over $800,000 in attorney's fees, and GFC billed roughly $248,000 for its services. The family court found the fees unreasonable and awarded a substantially lower sum from the marital estate. Plaintiff alleges that DRM required Ms. Felis to sign an "Acknowledgment" agreeing to pay DRM any money distributed to her in the divorce order until DRM's bill was satisfied in full. Under the agreement, if those funds were insufficient, Ms. Felis was obligated to liquidate real estate and other assets awarded by the court in order to pay the bill. Plaintiff contends that this "Acknowledgment" "demonstrates improper motive on the part of DRM to engage in protracted and vexatious litigation against [plaintiff] in order to build fees that would be paid through the marital estate."

¶ 7. Finally, plaintiff alleges that, during the child-support hearing, DRM submitted to the court a false financial affidavit regarding Ms. Felis' indebtedness. He claims that "DRM knowingly submitted false material evidence" or "participated in the submission of false material evidence" to the court with the intent of improperly influencing the outcome of the trial, interfering with the court's impartial adjudication of the proceeding, procuring a strategic advantage, and causing damage and injury to plaintiff.

¶ 8. Plaintiff filed suit in superior court. The complaint set forth extensive and detailed factual allegations but contained only one theory of liability, fraud, which was alleged in a short statement. DRM filed a motion to dismiss for failure to state a claim, V.R.C.P. 12(b)(6), on the ground that plaintiff failed to allege facts sufficient to support his fraud claim, and argued that the litigation privilege and collateral estoppel barred plaintiff's claims. GFC filed a similar Rule 12(b)(6) motion, as well as a motion to strike under 12 V.S.A. § 1041 and motions to dismiss on witness immunity and collateral estoppel grounds. In his briefing to the superior court on the motions to dismiss, plaintiff additionally asserted a breach of fiduciary duty claim, upon which the superior court ruled.³

¶ 9. The superior court granted defendants' Rule 12(b)(6) motions, concluding that: (1) DRM owed no duty to plaintiff on which he could base a claim for breach of fiduciary duty; and (2) plaintiff failed to allege the necessary elements of fraud in his complaint. With respect to the fiduciary duty claim, the court stated that a party to litigation cannot assert negligence or breach of fiduciary duty against opposing counsel. The court also found no merit in plaintiff's argument that DRM owed a duty to the marital estate, reasoning that, because nearly all divorce proceedings result in fees being paid from the joint assets, adopting such a theory "would mean that every litigant in every divorce case might have a claim against opposing counsel for breach of duty." With respect to the fraud claim, the court found that the plaintiff failed to allege that DRM directed the false statements to plaintiff, rather than the court, that he was unaware the statements were false, or that he relied on any allegedly false statements. Because the court dismissed plaintiff's claim on these grounds, it did not address the litigation privilege and collateral estoppel issues.

¶ 10. The superior court also granted GFC's motion to dismiss on witness immunity grounds, concluding that witness immunity covers not just false testimony but also extends to conspiracies to present false testimony. Because the court found the claims against GFC barred by witness immunity, it concluded that the § 1041motion to strike was moot.⁴ This appeal followed.

¶ 11. Plaintiff raises four main issues on appeal: (1) that his complaint supports a valid fraud claim; (2) that his complaint supports a valid claim for breach of fiduciary duty; (3) that his complaint states a cause of action for prima facie tort; and (4) that his claims are not barred by either witness immunity or litigation privilege. On cross-appeal, GFC raises two main issues: (1) that its motion to strike is not moot because it is entitled to attorney's fees and (2) that its testimony is protected under 12 V.S.A. § 1041, the so-called anti-SLAPP statute.

¶ 12. We review the superior court's decision on a motion to dismiss de novo, under the same standard as the trial court, and will uphold such a motion only if "it is beyond doubt that there exist no facts or circumstances that would entitle the plaintiff to relief." Birchwood Land Co. v. Krizan, 2015 VT 37, ¶ 6, 198 Vt. 420, 115 A.3d 1009 (quotation omitted). "We assume as true all facts as pleaded in the complaint, accept as true all reasonable inferences derived therefrom, and assume as false all contravening assertions in the defendant's pleading[ ]." Id. We are limited to determining "whether the bare allegations of the complaint are sufficient to state a claim." Id. (quotation omitted).

¶ 13. We start with plaintiff's fraud claim. To maintain a cause of action for fraud, plaintiff must demonstrate five elements: "(1) intentional misrepresentation of a material fact; (2) that was known to be false when made; (3) that was not open to the defrauded party's knowledge; (4) that the defrauded party act[ed] in reliance on that fact; and (5) is thereby harmed."⁵ Estate of Alden v. Dee, 2011 VT 64, ¶ 32, 190 Vt. 401, 35 A.3d 950. Failure to prove any one of the five elements defeats the fraud claim. Id. We focus on the third and fourth elements, which were central to the superior court's discussion. We conclude, as did the superior court, that plaintiff has failed to allege facts to support these two elements.

¶ 14. With respect to the third element, plaintiff's knowledge of the alleged falsity, the statements in his complaint directly contradict the presence of this element. Plaintiff alleged that "[t]he red fee-building flag went up early in DRM's handling of the case," and that "DRM demonstrated from the outset of its representation ... that its litigation strategy and plan was to build its fees and harass and injure" him. Plaintiff further recounted his efforts defending against defendants' wasteful dissipation...