Southern Union Company v. Southwest Gas Corporation, CV-99-1294-PHX-ROS (D. Ariz. 7/30/2001)

Decision Date30 July 2001
Docket NumberCV-99-1294-PHX-ROS.
PartiesSouthern Union Company, a Delaware corporation Plaintiff, v. Southwest Gas Corporation, a California corporation, et al, Defendants.
CourtU.S. District Court — District of Arizona

Roslyn O. Silver, District Judge.

At a hearing held May 11, 2001, the Court indicated that it would issue an Order directing the parties to submit briefing on choice of law issues, in particular with respect to Counts Three, Seven, and Eight in the Second Amended Complaint ("SAC") in CV-99-1294-PHX-ROS. The Court issued an Order on May 18, 2001, directing the parties to simultaneously file their briefs on the choice of law issues on June 8, 2001. The parties were also directed to simultaneously file any responses to those briefs on June 15, 2001. On June 8, 2001, the Court issued a further Order stating that it would rule on the choice of law issues and on the Motions to Dismiss by June 21, 2001. This is that ruling.

I. Dioguardi

As a preliminary matter, the Court will address Dioguardi's Motion to Dismiss. Dioguardi is named as a Defendant with respect to Counts Three (Fraudulent Inducement), Seven (Tortious Interference with Business Relationship), and Eight (Tortious Interference with Contractual Relationship), and though the Court has not yet resolved the complex choice of law issues with respect to these claims, the Court finds that ruling on Dioguardi's Motion to Dismiss does not require a preliminary decision on the choice of law.

Dioguardi claims that he cannot be liable on Counts Three, Seven, or Eight, because his only acts were as an attorney for ONEOK, and Southern Union does not specifically allege that Dioguardi personally participated in any fraudulent inducement.1 Southern Union responds that Dioguardi cannot escape liability simply because he served as ONEOK's counsel and argues that attorneys who engage in fraudulent and intentional misconduct are not shielded from liability. Southern Union also asserts that Dioguardi's "involvement in this conspiracy began no later than the week of Februaiy 15, 1999, when Rose recommended that ONEOK retain Dioguardi."

Several courts have held that an attorney, as the client's agent, is not distinct from the client and therefore cannot engage in a conspiracy with the client. See Macke Laundry Service Limited Partnership v. Jetz Service Co., Inc., 931 S.W.2d 166, 176 (Mo. App. 1996) ("Macke"); Skarbrevik v. Cohen, England & Whitfield, 282 Cal.Rptr. 627, 709 (App. 1991); Doctors' Co. v. Superior Court of Los Angeles County, 49 Cal.3d 39, 45 (1989); Salaymeh v. Intergual, Inc., 508 N.E.2d 1155, 1158 (Ill. App. 1987); Fraidin v. Weitzman, 611 A.2d 1046, 1079 (Md. App. 1992).2 However, an attorney may be liable for conspiracy if the attorney "acts out of a self-interest which goes beyond the agency relationship." Macke, 931 S.W.2d at 176; Skarbrevik, 282 Cal. Rptr. at 709 (conspiracy liability may be imposed on an attorney who acts in furtherance of his own financial gain); Doctors', 49 Cal.3d at 45 ("[a]gents and employees of a corporation cannot conspire with their corporate principal or employer where they act in their official capacities on behalf of the corporation and not as individuals for their individual advantage") (internal quotes and cite omitted); Fraidin, 611 A.2d at 1079 ("[T]here can be no conspiracy when an attorney acts within the scope of his employment."). Likewise, "an attorney may be liable to a third person for acts arising out of the attorney's representation of a client, if the attorney is guilty of `fraud, collusion, or a malicious or [intentionally] tortious act.'" Macke, 931 S.W.2d at 177-78 (cites omitted); Skarbrevik, 282 Cal. Rptr. at 711; Engel v. CBS Inc., 981 F.2d 1076, 1080 (9th Cir. 1992) (applying New York law); Fraidin, 611 A.2d at 1080. If a complaint alleges that an attorney is guilty of fraud or collusion, such fraud or collusion must be pled with particularity. Fed. R. Civ. P. 9(b).

A Report and Recommendation issued by Special Master Eino Jacobson on March 7, 2001, ("First R&R") concludes that the SAC fails to state any claims for relief against Dioguardi. Specifically, the First R&R finds:

The Second Amended Complaint does not allege any personal misrepresentation to Southern Union by Dioguardi, nor does it allege that Dioguardi was acting outside of the scope of his legal employment or for his own, rather than his client's benefit. The counts or fraudulent inducement and tortious interference rest solely on theories of conspiracies by the defendants, which would be precluded by Dioguardi's agency with ONEOK.

(First R&R at 4-5) (emphasis added). The First R&R also noted that at the hearing before the Special Master on Dioguardi's Motion, "Southern Union conceded that it does not allege that Dioguardi personally benefitted from his actions." (Id. at 5 n.2).

In its Objections to the First R&R, Southern Union asserts that the cases relied upon in the First R&R actually support Southern Union's position. Southern Union does not dispute the First R&R's determination that the SAC fails to allege that Dioguardi personally made misrepresentations to Southern Union, but rather, Southern Union contends that the cases "do not require that attorney-defendants be the actual voice for the misrepresentation at issue." (Southern Union's Objections at 3). Southern Union also does not dispute that the SAC fails to allege that Dioguardi was acting outside the scope of his employment or that he was acting for his personal benefit.

The Court finds that the First R&R correctly determined that the allegations contained in the SAC are insufficient to state claims for relief against Dioguardi. First, Southern Union failed to allege that Dioguardi was acting outside the scope of his employment as counsel for ONEOK or that he was acting in furtherance of his own financial gain. See Macke, 931 S.W.2d at 176; Starbrevik, 282 Cal. Rptr. at 709; Doctors', 49 Cal.3d at 45; Fraidin, 611 A.2d at 1079. Second, Southern Union failed to plead fraud against Dioguardi with sufficient particularity. Fed. R. Civ. P. 9(b). Nowhere in Counts III, VII, or VIII does Southern Union set forth any allegations specifically involving Dioguardi. Moreover, the allegations in the SAC do not support a determination that Dioguardi fraudulently induced Southern Union to enter into the Agreement, because Dioguardi did not allegedly serve as ONEOK's counsel until Gaberino called him four days after the alleged fraudulent inducement was completed.3 (SAC at ¶ 87); see also discussion infra at n. 19.

II. Count Three in the First Arizona Action (CV-99-1294-PHX-ROS)

In Count Three, Southern Union alleges that "all Defendants"4 fraudulently induced Southern Union to enter into the Agreement. Specifically, Southern Union claims that "Southwest, through Maffie and with the knowledge and consent of the other defendants, represented to Southern Union that Southwest intended to negotiate in good faith regarding the Southern Union offer and that it would conduct a good faith evaluation and due diligence regarding Southern Union." (SAC at ¶ 289). Southern Union then claims that Southwest's representations were false and that Southwest entered the Agreement with the fraudulent intent to prevent Southern Union from approaching Southwest's shareholders with its merger offer. (Id.). Southern Union alleges that it relied on Southwest's representations in entering into the Agreement, and as a result, Southern Union was damaged in an amount not less than $750,000,000. (Id. at ¶¶ 292-93).

A. Fed. R. Civ. P. 9(b)

ONEOK5, Southwest, Irvin, Hartley, Maffie, Zub, and Rose contend that Southern Union has failed to plead fraudulent inducement with the particularity required by Fed. R. Civ. P. 9(b). ONEOK specifically asserts that Southern Union has not alleged that someone at ONEOK made fraudulent representations to someone at Southern Union which induced Southern Union to enter into the Agreement. Likewise, Irvin contends that Southern Union has not alleged that Irvin induced Southern Union to enter into the Agreement or that Irvin made any representations to Southern Union concerning that Agreement. Hartley contends that Southern Union "has not alleged a single fact showing that Hartley had anything to do with" the Agreement. (Hartley Motion at 11-12).

Rule 9(b) provides that "the circumstances constituting fraud . . . shall be stated with particularity."6 "Rule 9(b) ensures that allegations of fraud are specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong." Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). Conclusory allegations of fraud or conspiracy do not satisfy this rule. Id.; see also Utah State University of Agriculture and Applied Science v. Bear Stearns & Co., 549 F.2d 164, 171 (10th Cir.), cert. denied, 434 U.S. 890 (1977). "The pleadings must state precisely the time, place, and nature of the misleading statements, misrepresentations, and specific acts of fraud." Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir. 1994), cert. denied sub nom Payne v. Kaplan, 516 U.S. 810 (1995); see also Koch v. Koch Industries, Inc., 203 F.3d 1202, 1236 (10th Cir.) (complaint alleging fraud must "set forth the time, place and contents of the false representation, the identity of the party making the false statements and the consequences thereof.") (internal quotes omitted), cert. denied, 121 S.Ct. 302 (2000). "To allege fraud with particularity, a plaintiff must set forth more than the neutral facts necessary to identify the transaction. The plaintiff must set forth what is false or misleading about a statement, and why it is false." In re GlenFed, Inc. Securities Litigation, 42 F.3d 1541, 1548 (9th Cir. 1994) (GlenFed); see also Grossman v. Novell, Inc., 120 F.3d 1112, 1124 (10th Cir. 1...

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