Prescott Investors, Inc. v. Blum, Civ. No. B-90-45 (JAC).

• Decision Date: 07 May 1991
• Docket Number: Civ. No. B-90-45 (JAC).
• Citation: 762 F. Supp. 1553
• Court: U.S. District Court — District of Connecticut
• Parties: PRESCOTT INVESTORS, INC. v. Daniel G. BLUM and Aaron, Blum & Collier v. SEWARD & KISSEL and Richard H. Valentine.

762 F. Supp. 1553

PRESCOTT INVESTORS, INC. v. Daniel G. BLUM and Aaron, Blum & Collier v. SEWARD & KISSEL and Richard H. Valentine.

Civ. No. B-90-45 (JAC).

United States District Court, D. Connecticut.

May 7, 1991.

Jo-Ann L. Bowen, Reid & Riege, Hartford, Conn., for third-party plaintiffs.

John C. Yavis, Jr., Everett E. Newton, Murtha, Cullina, Richter and Pinney, Hartford, Conn., for third-party defendants.

RULING ON THIRD-PARTY DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

JOSÉ A. CABRANES, District Judge:

The primary question presented by the pending motion is whether an attorney may be liable to a non-client accounting firm for negligent rendering of services to a client that the attorney and the accounting firm both have in common. Another question presented is whether, under Connecticut law, the non-client accounting firm is entitled to indemnification from the attorney for damages that the non-client paid to the aggrieved common client.

Background

The following facts are undisputed. Plaintiff, Prescott Investors, Inc. ("Prescott"), brought this action against its former tax accountants, the defendants and third-party plaintiffs Daniel G. Blum and the firm of Aaron, Blum & Collier ("the Blum firm"), to recover damages for the Blum firm's allegedly negligent failure to prepare tax forms and provide tax planning advice for Prescott's Connecticut corporation tax for three fiscal years (1986, 1987, and 1988). See Complaint (filed January 30, 1991) ("Prescott Complaint").

The Prescott Complaint did not allege any wrongdoing by Prescott's corporate counsel, Seward & Kissel and one of its partners, Richard H. Valentine (collectively "Seward & Kissel"). And Prescott has never claimed that Seward & Kissel was responsible for its tax losses. Indeed, to the contrary, Thomas Smith, Prescott's President and sole shareholder, Statement of Material Facts Not in Dispute of Third-Party Defendants Seward & Kissel and Richard H. Valentine (filed Dec. 3, 1991) ("Undisputed Facts") ¶ 4, has stated that the Blum firm was "responsible for the implementing of everything" relating to Prescott's tax planning and form filing, Undisputed Facts ¶ 67, and that Seward & Kissel "had nothing to do with" the Blum firm's failure to file Prescott's corporate taxes in Connecticut. Undisputed Facts ¶ 68. Moreover, Prescott was satisfied with all legal services rendered by Seward & Kissel. Undisputed Facts ¶ 69.¹

In the Amended Third-Party Complaint (filed July 25, 1990) ("Third-Party Complaint"), the Blum firm claims that Seward & Kissel was liable for any damages the Blum firm would have to pay to Prescott. Third-Party Complaint ¶ 10. The Blum firm settled the action commenced by the Prescott Complaint for $500,000.

In the third-party complaint, the Blum firm claims that Seward & Kissel was negligent in the independent legal services it provided to Prescott and that this purported negligence caused the Blum firm's failure to provide adequate tax planning and tax form preparation services to Prescott. Third-Party Complaint ¶¶ 8 & 9.

In the first count of the third-party complaint, the Blum firm claims that Seward & Kissel is directly liable to it in tort. Third-Party Complaint ¶¶ 5-10. The second count asks for indemnity, asserting that Seward & Kissel was primarily responsible for Prescott's losses and for the Blum firm's deficient tax advice and form preparation, Third-Party Complaint ¶¶ 12-15. The Blum firm makes these claims notwithstanding the undisputed facts that the Blum firm admitted it had exclusive control of and responsibility for Prescott's tax filings, Undisputed Facts ¶¶ 52-54, that Seward & Kissel had confirmed in correspondence to Prescott that Connecticut imposed corporate taxes, Undisputed Facts ¶¶ 42, 61-62, and that the Blum firm had been independently aware of the Connecticut tax requirements, Undisputed Facts ¶ 63.²

On December 3, 1990, Seward & Kissel filed a motion for summary judgment. For the reasons stated below, that motion is granted.

DISCUSSION

A.

Summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits ... show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "The mere existence of some allegedly factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) (emphasis in original). While the court must view the inferences to be drawn from the facts in the light most favorable to the party opposing the motion, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986), a party may not "rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987). The non-moving party may defeat the summary judgment motion by producing sufficient specific facts to establish that there is a genuine issue of material fact for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Finally, "`mere conclusory allegations or denials'" in legal memoranda or oral argument are not evidence and cannot by themselves create a genuine issue of material fact where none would otherwise exist. Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 445 (2d Cir.1980) (quoting SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir.1978)).

A full review of the record as it now stands — including, inter alia, the Memorandum of Law of Third-Party Plaintiffs Daniel Blum and Aaron, Blum & Collier in Support of The Opposition to Seward & Kissel's Motion for Summary Judgment (filed Jan. 7, 1991) ("Third-Party Plaintiff's Response") and the exhibits and statement of facts in dispute attached thereto — reveals that there are no genuine issues of material fact which could be said to defeat third-party defendants' motion for summary judgment. See Celotex v. Catrett, 477 U.S. 317, 322-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). The undisputed facts make clear that third-party plaintiffs have failed to establish, with respect to Count One of the Third-Party Complaint, that they were owed a duty by third-party defendants, much less that any alleged duty was breached, or, with respect to Count Two of the Third-Party Complaint, that there is any basis for their claim for indemnification.

B.

In a diversity case a district court looks to the forum state to select choice of law rules. Klaxon Co. v. Stentor Elec. Mfg., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Lund's Inc. v. Chemical Bank, 870 F.2d 840, 845 (2d Cir.1989) ("A federal district court deciding a diversity case applies the same choice of law rules as the state courts in the state in which it sits."). It is not disputed in this case that the substantive law of Connecticut applies. See generally O'Connor v. O'Connor, 201 Conn. 632, 519 A.2d 13 (1986); Whitfield v. Empire Mut. Ins. Co., 167 Conn. 499, 356 A.2d 139 (1975); Feldt v. Sturm, Ruger & Co., 721 F.Supp. 403, 405-06 (D.Conn.1989) (explaining that Connecticut courts have not abandoned the traditional lex loci delicti rule for choice of law questions in tort cases except where that rule would produce an arbitrary, irrational result); Katz v. Gladstone, 673 F.Supp. 76, 79-80 n. 2 (D.Conn.1987) (same); Brilmayer, The Choice of Law Revolution in Connecticut, 62 Conn.B.J. 373 (1988) (urging caution in abandoning lex loci).

C.

The Blum firm's first claim is that third-party defendants are liable to it in tort for the amount of the settlement — that is, $500,000. The Blum firm argues that "Seward & Kissel failed to advise and negligently advised" Prescott, "a mutual client" of Seward and Kissel and the Blum firm. Third-Party Plaintiffs' Response at 2. According to the Blum firm, "that failure to advise and negligent advice resulted in Prescott's failure to be recognized by the state of Connecticut as able to conduct its corporate business there. It further resulted in Prescott failing to file corporate tax returns in Connecticut for three fiscal years without the state noticing the delinquency." Id.

To succeed on its first claim, the Blum firm must offer evidence from which a jury could reasonably find that Seward & Kissel owed a duty or obligation to the Blum firm and breached that duty or obligation. Krawczyk v. Stingle, 208 Conn. 239, 244, 543 A.2d 733, 735 (1988) (Peters, C.J.). However, there are no facts from which such a finding could be made and, hence, Seward & Kissel cannot be liable in tort to the Blum firm.

In most jurisdictions, there are situations in which a non-client who justifiably relies to his detriment on the representation of another party's lawyer may have a cause of action against the lawyer. Such non-clients are sometimes referred to as "derivative" clients. See G. Hazard & W. Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct 58-60, 321 (1987 Supp.). This situation arises where the lawyer's client is a fiduciary and where the non-client is the beneficiary and does not, therefore, stand at arm's length from the client.

Perhaps the most commonly encountered situation involving fiduciaries occurs when a lawyer represents the fiduciary, but the fiduciary, in turn, has special obligations to the beneficiary. In such cases the fiduciary has usually hired a lawyer for the precise purpose of assisting him in carrying out his duties to the beneficiary.

G. Hazard & W. Hodes, supra, at 59; see also In re Dolan, 76 N.J. 1, 384 A.2d 1076, 1082 n. 1 (1978) (Pashman, J., concurring) (explaining...