Mirch v. Frank

• Decision Date: 11 December 2003
• Docket Number: No. CV-N-01-0443-ECR RAM.,CV-N-01-0443-ECR RAM.
• Citation: 295 F.Supp.2d 1180
• Parties: Kevin MIRCH, Plaintiff, v. Kenneth FRANK, Advanced Physicians Products, Inc., Defendants.
• Court: U.S. District Court — District of Nevada

295 F.Supp.2d 1180

Kevin MIRCH, Plaintiff, v. Kenneth FRANK, Advanced Physicians Products, Inc., Defendants.

No. CV-N-01-0443-ECR RAM.

United States District Court, D. Nevada.

December 11, 2003.

Kevin J. Mirch, Mirch & Mirch, Reno, NV, for Plaintiff.

Leigh T. Goddard, McDonald Carano Wilson, and Kent R. Robison, Robison Belaustegui Sharp & Low, Reno, NV, Marilyn Bulloch, Jeffrey A. Dickerson, Judy Frank and Kenneth Frank, Leigh T. Goddard, McDonald Carano Wilson, Reno, NV, and Kent R. Robison, Robison Belaustegui Sharp & Low, Reno, NV, for Advanced Physicians Products, Inc., defendant. Bruce R. Laxalt, Laxalt & Nomura, Ltd., Reno, NV, Gary Hill, Gary J. Hill, Hill & Associates, Santa Barbara, CA, for Leigh Goddard, Pat Lundvall, and Mc Donald Carano Wilson McCune, defendant.

ORDER

EDWARD C. REED, JR., District Judge.

The order of the court (# 177) dated October 24, 2003, and filed on October 27, 2003, is amended to read as follows:

This action arises from unpaid attorneys' fees that defendants Dr. Kenneth Frank ("Frank") and Advanced Physicians Products, Inc. ("APPI") allegedly owe plaintiff Kevin J. Mirch ("Mirch") pursuant to a contingency fee agreement. Mirch represented APPI and Frank in a lawsuit, which resulted in a default judgment in favor of APPI, and Mirch claims that APPI and Frank failed to pay Mirch's legal fees.

Defendants Frank and APPI filed a counterclaim (# 113) against Mirch for legal malpractice and for breach of fiduciary duty. Mirch then filed a third party claim (# 116) against the defendants'/counter-claimants' counsel, Pat Lundvall, Leigh Goddard, and McDonald, Carano, Wilson LLP (collectively "McDonald Carano"), alleging indemnity for a "set off" for the amount of damages attributable to the malpractice of McDonald Carano.¹ McDonald Carano then filed a Motion to Dismiss (# 126). Mirch filed an Opposition (# 154) and McDonald Carano Replied (# 156).

BACKGROUND

The background of this case dates back to 1991 when Universal Sales, Inc. filed a lawsuit against APPI claiming that APPI breached the parties' exclusive marketing agreement. Soon after, Mirch was engaged to represent Dr. Frank and APPI in the lawsuit, Universal Sales, Inc. v. Advanced Physicians' Prods., Inc., et al., CV-N-91-0375-ECR(VPC), (hereinafter the Universal Sales case).

The parties dispute the fee agreement for Mirch's representation. Mirch asserts that in accordance with his engagement letter dated January 9, 1992, the parties agreed he would be paid $25 as an hourly fee to defend claims and that he would be entitled to recover 40% of any judgment obtained. Mirch asserts that the parties entered into a written contingency fee agreement memorializing these terms. Defendants deny there was any such agreement either written or otherwise and assert that the parties agreed upon an hourly payment. It is undisputed that defendants would reimburse Mirch for costs incurred.

Although the Universal Sales case was scheduled for trial on January 24, 1995 the opposing party, the Brooks, did not appear. A default judgment was entered on behalf of defendants and Stephen Cherniske, who has since assigned his rights to the judgment to defendants. Mirch appeared at a prove-up hearing where he established damages on behalf of defendants. Mirch did not argue for attorneys' fees although the contract might have called for them. Originally, the court accepted Mirch's proposed damage amount and awarded defendants $3,439,868.77. In 2000, upon a motion by the Brooks, the court set aside the judgment as to Dr. and Mrs. Frank and reduced the total award by $1.1 million to exclude damages for emotional distress and personal losses on behalf of the Franks.

In 1999, Dr. Frank engaged a collection agency, RC International, to locate assets of the Brooks to satisfy the Universal Sales judgment. To pay for these services, Dr. Frank assigned a portion of his rights to the judgment to RC International. The assignment agreement gave RC International rights to 50% of any assets they recovered. RC International located $1.8 million in assets, which have since been deposited with this court and are the subject of an interpleader action, Case No. CV-N-00-0580-ECR(VPC). Mirch intervened in that action and filed an attorneys' lien.

He also instituted a lawsuit, alleging that Dr. Frank and APPI breached the contingency fee agreement that the parties entered into whereby Mirch would be entitled to 40% of any recovery earned in the Universal Sales case by fraudulently assigning Mirch's rights to the proceeds to RC International. Mirch also charges that Judy Frank and defendant Marilyn Bulloch intentionally interfered with this contract by making misrepresentations about the fraudulent assignment. Last, he asserts that the Franks and Bulloch's actions with regard to the assignment were part of a conspiracy to improperly deprive Mirch of his interest in the judgment.

Frank and APPI counterclaimed against Mirch for, amongst other things, legal malpractice. Specifically, the counterclaimants allege that Mirch: (a) failed to reasonably prepare for the damages claim at the prove-up hearing, (b) failed to request attorneys' fees, (c) failed to keep his client reasonably informed, (d) abandoned his clients and failed to collect on the judgment, (e) represented a client against counter-claimants in substantially the same matter, (f) claimed a contingency fee when the parties never agreed to such a fee. Counterclaim at ¶ 20.

Mirch responded to the counterclaim by filing a third party claim against the counterclaimants' attorneys, McDonald Carano. Mirch's third party claim against McDonald Carano can be pared down to a claim for indemnity or contribution for any damage caused by malpractice that McDonald Carano might have committed in representing Mirch's former clients, Frank and APPI.² In essence, Mirch is claiming that McDonald Carano's malpractice exacerbated the injuries suffered by Frank and APPI, and, if Mirch has to pay any damages, McDonald Carano should bear its share of the costs. McDonald Carano responds that this third party claim is not allowed under Nevada law.

STANDARDS—Motion to Dismiss under 12(b)(6)

A motion to dismiss under Fed.R.Civ.P. 12(b)(6) will only be granted if it appears beyond doubt that "plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Lewis v. Tel. Employees Credit Union, 87 F.3d 1537, 1545 (9th Cir.1996). The review is limited to the complaint, and all allegations of material fact are taken as true and viewed in the light most favorable to the non-moving party. In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1403 (9th Cir.1996). However, although courts generally assume the facts alleged are true, courts do not "assume the truth of legal conclusions merely because they are cast in the form of factual allegations." W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981).

Dismissal for failure to state a claim is proper only if it is clear that no relief may be granted under any set of facts that could be proved consistent with the allegations of the complaint. Williamson v. Gen. Dynamics Corp., 208 F.3d 1144, 1149 (9th Cir.2000). Review is limited to the contents of the complaint; if matters outside the pleadings are submitted, the motion to dismiss may be treated as one for summary judgment if the district court relies on the materials. Anderson v. Angelone, 86 F.3d 932, 934 (9th Cir.1996); Allarcom Pay Television, Ltd. v. Gen. Instrument Corp., 69 F.3d 381, 385 (9th Cir. 1995).

On a motion to dismiss, we presume that general allegations embrace those specific facts that are necessary to support the claim. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (quotation omitted). However, conclusory allegations and unwarranted inferences are insufficient to defeat a motion to dismiss. In re Stac Elecs. Sec. Litig., 89 F.3d at 1403.

ANALYSIS

In a diversity action, the district court should apply the substantive law of the forum state. St. Paul Fire & Marine Ins. Co. v. Weiner, 606 F.2d 864, 867 (9th Cir.1979). In interpreting state law, federal courts are bound by the pronouncements of the state's highest court. Dyack v. Commonwealth of N. Mariana Islands, 317 F.3d 1030, 1034 (9th Cir.2003). In the absence of a controlling state Supreme Court decision, a federal court applying state law must apply the law as it believes the state Supreme Court would apply it. Gravquick A/S v. Trimble Navigation Intn'l. Ltd., 323 F.3d 1219, 1222 (9th Cir. 2003). In other words, a federal district court in diversity cases must predict how the Nevada Supreme Court would decide unresolved issues of state law, using statutes and decisions from other jurisdictions as interpretive aids. Id. Therefore, since Nevada is the forum state, this court must apply Nevada substantive law as it predicts the Nevada Supreme Court would apply it.

The main issue in this motion to dismiss is whether an attorney defending a malpractice suit should be permitted to implead his former client's current counsel in order to seek indemnity or contribution for the current counsel's alleged malpractice. As counsel for both parties have ably pointed out, although a majority of states do not allow such a suit, the issue is unsettled in Nevada and many states have split on its resolution. See Stone v. Satriana, 41 P.3d 705, 712 (Colo.2002) (en banc) (not allowing third party suit because successor counsel owed no duty to former counsel); Holland v. Thacher, 199 Cal.App.3d 924, 245 Cal.Rptr. 247 (1988) (rejecting a case-by-case approach and foreclosing third-party action against successor attorney); Goldfisher v. Superior Ct., 133 Cal.App.3d 12, 183 Cal.Rptr. 609 (1982) (not allowing on public policy grounds); Waldman v. Levine, 544 A.2d 683 (D.C.1988) (not allowing on public policy grounds); Hughes v. Housley, 599 P.2d 1250 (Utah 1979) (finding successor counsel had no duty to former...