The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.
After a six day trial, a jury returned a verdict in favor of Plaintiff Lawrence Goetz, finding Defendant Peter Hershman, and his former law firm Siegel O'Connor Zangari O'Donnell & Beck, P.C. ("Siegel O'Connor"), liable for malpractice and breach of fiduciary duty and awarding Plaintiff $810,000 in damages. By motions dated February 26, 2010, Defendants Peter Hershman and Siegel O'Connor move for judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50(b) and, in the alternative, move for a new trial pursuant to Federal Rule of Civil Procedure 59. On March 12 and March 17, 2010, Plaintiff submitted memoranda of law in opposition to Defendants' Rule 59 and Rule 50 motions. On March 23 and March 30, 2010, Defendants submitted reply memoranda of law in further support of their Rule 59 and Rule 50 motions.
By post trial memorandum dated January 29, 2010, Plaintiff moved for an award of prejudgment interest. Defendants opposed Plaintiff's prejudgment interest motion by memorandum of law dated February 8, 2010, and Plaintiff filed a reply in further support of his pre-judgment interest motion on February 11, 2010. This opinion resolves each of the three post-trial motions in this matter.
I. FACTUAL AND PROCEDURAL BACKGROUND
In this case, Plaintiff's*fn1 claims are based on Defendant Peter Hershman's actions as an attorney during the time leading up to the dissolution of a 24 year business relationship between Plaintiff Lawrence Goetz and Richard Volpe, a non-party to this action. The facts of the case were presented through documentary evidence and the testimony of Lawrence Goetz and Peter Hershman. Mr. Hershman testified about his representation of Mr. Goetz, Mr. Volpe and their businesses over the years. Plaintiff also called two expert witnesses who testified about the duty of professional care and duty of loyalty that lawyers owe their clients under Connecticut law and who provided expert opinion testimony, based on a set of assumed facts, on whether Mr. Hershman's conduct fell below the required level of professional care and duty of loyalty. Defendants Peter Hershman and his former firm, Siegel O'Connor, also called two expert witnesses to opine on whether Mr. Hershman's conduct fell below the professional standard of care and duty of loyalty owed to his clients. Viewing the evidence in the light most favorable to the non-moving party (in this case Plaintiff) and drawing all reasonable inferences in favor of the non-moving party, as the Court must on a Rule 50(b) motion for judgment as a matter of law, Chartschlaa v. Nationwide Mut. Ins. Co., 538 F.3d 116, 122 (2d Cir. 2008) (per curiam), the following facts were established at trial.
Together with Mr. Volpe, Mr. Goetz owned a company called Able Automotive which operated a number of Midas Muffler stores starting in 1979. (Trial Transcript ("Tr.") at 33, 35.) In or around 1984, Goetz and Volpe formed a real estate company -- R&L Leasing -- and through that company acquired the commercial real estate underlying the Midas Muffler stores. (Id. at 33.) In 1995, R&L Leasing became an LLC; prior to that time it had operated as a partnership. (Id. at 40; Plaintiff's Trial Exhibit ("Pl. Ex.")
1.) Volpe went on permanent disability and withdrew from all business activities as a result of a severe injury he suffered in 1996 and remained inactive in the business until Able Automotive closed its doors in 1999, as a result of financial difficulties. (Tr. at 33, 35-36.) After Able Automotive folded, Goetz and Volpe ceased to own and operate Midas Muffler stores, and the commercial real estate held by R&L Leasing became their sole business. (Id. at 33.) By the year 2000, R&L Leasing owned eight commercial properties. (Id. at 33-34.)
Changes to R&L Leasing's Ownership Structure 1997-2002
In 1995, at the time of its conversion to an LLC, all interests in R&L leasing -- capital, income and voting rights -- were split 50/50 between Goetz and Volpe. (Tr. at 40; Pl. Ex. 1.) Effective March 31, 1997, Goetz and Volpe entered into an agreement that adjusted their relative ownership interests in light of Volpe's disability due to his injury and the fact that Goetz had become solely responsible for the management of R&L (the "1997 Agreement"). (Pl. Ex. 2.) The 1997 Agreement provided that Goetz owned 75% of R&L and Volpe 25% and the respective parties would receive a 75/25 split in proceeds in the event of a sale or liquidation of R&L. (Id. ¶ 1.) Per the 1997 Agreement, income continued to be allocated on a 50/50 split (id. ¶ 2), but Volpe retained an option to restore his equity ownership to 50% upon written notice to Goetz and upon "contributing an amount to [R&L] so that he brings the total value of his contributions to one-half of the then fair market value of [R&L]" (id. ¶ 3). Under the 1997 Agreement, until Volpe exercised his option to increase his equity ownership to 50%, Goetz held the right to vote Volpe's interests in R&L. (Id. ¶ 4.)
Effective August 31, 1999, Goetz and Volpe entered into a second agreement that again adjusted their relative ownership interests in R&L Leasing (the "1999 Agreement"). (Pl. Ex. 3.) Pursuant to the 1999 Agreement (which references and affirms the 1997 Agreement), the income split would continue to be 50/50 until December 31, 2001. (Id. ¶ 1.) In exchange, Goetz received a distribution of $176,000 from R&L. (Id. ¶ 2.) Under the 1999 Agreement, after December 31, 2001 the income split would change to 75/25 in Goetz's favor unless Volpe exercised an option to increase his equity interest on or before December 31, 2001. (Id. ¶ 1.) In order to exercise his option under the 1999 Agreement, Volpe was required to contribute $2,250,000 to his capital account, and in the event Volpe exercised his option, both the income distribution and the distribution of proceeds in the event of a sale or liquidation would return to 50/50. (Id. ¶ 3.)*fn2 Likewise, if Volpe did not exercise his option, the distribution of proceeds in the event of a sale or liquidation would remain at 75/25 in Goetz's favor and after December 31, 2001, the income split would adjust to 72/25 in Goetz's favor. (Id. ¶¶ 1, 3.)
Goetz and Volpe executed an Amended LLC Operating Agreement for R&L Leasing effective January 1, 2000. (Pl. Ex. 4.) In connection with the execution of the Amended LLC Operating Agreement, Richard Volpe signed a letter dated September 27, 2000 confirming that the Amended LLC Operating Agreement continued to be modified by the 1997 Agreement and the 1999 Agreement and "such Agreements remain in full force and effect." (Pl. Ex. 5.)*fn3
In 2002, Volpe asked Goetz to delay the change in income distribution as of December 31, 2001 for a period of time and Goetz agreed. (Tr. at 44.) In May of 2002, Goetz agreed to accept a note and pledge agreement (the "Note and Pledge") from Volpe as a way of triggering Volpe's option to remain at 50/50 under the 1999 Agreement in lieu of the capital contribution contemplated by the 1999 Agreement. (Id. at 78, 221-22.) In September of 2002, Volpe told Goetz that he thought the Note and Pledge was too onerous and asked if they could walk away from it. (Id. at 78-79.) Goetz agreed, but informed Volpe that, without the Note and Pledge, they would live by the provisions of the 1999 Agreement. (Id.) Goetz sent a letter to Volpe in September 2002 to that effect, with a copy to Hershman, confirming that he was invoking the 1999 Agreement and would proceed with the 75/25 income allocation. (Id. at 80-82; Pl. Ex. 9.) Thereafter, the income division between Goetz and Volpe changed from 50/50 to 75/25 in accordance with the 1999 Agreement, and such change was reflected in R&L Leasing's tax returns. (Tr. at 43, 82-84.)
The October 2003 Settlement
By September 2003, R&L Leasing's income had been distributed 75/25 in Goetz's favor for thirteen months. (Id. at 46.) Goetz testified that Volpe had, at this point, "expressed some displeasure and disagreement with the agreements" and "wanted to return to 50/50." (Id.) On October 2, 2003, Goetz and Volpe met at Peter Hershman's office to discuss Volpe's issues, with Hershman present.*fn4 (Id.) After an emotional meeting, lasting most of the day, Goetz and Volpe agreed that: (i) going forward, both the equity interest and the income distribution in R&L Leasing would be split 55/45 in Goetz's favor; (ii) Goetz and Volpe would have 50/50 voting rights (i.e. equal control in R&L Leasing); and (iii) Goetz would receive 45% of any recovery from Volpe's then pending insurance litigation related to his 1996 injury and subsequent disability. (Id. at 47-52.) Goetz and Volpe instructed Hershman to draft the documents necessary to effectuate their agreement. (Id. at 50.)
The process of completing the documents necessary to finalize the October 2, 2003 agreement took approximately two months. (Id. at 54-55.) Draft agreements were circulated. (Id. at 55.) By letter dated November 7, 2003, Goetz sent Hershman signed copies of the circulated documents and informed Hershman that he could distribute the final, signed agreements once he had received signed copies of the documents from Volpe.*fn5 (Id. at 59.)
At the end of November 2003, Goetz learned from Volpe that the insurance litigation had settled for $700,000 -- a figure lower than Goetz's expectations. (Id. at 63-64.) By cover letter addressed to Goetz and Volpe dated December 11, 2003, Hershman released the following: (i) an agreement executed by both Goetz and Volpe dated as of December 31, 2002, that reflected the new income allocation, capital allocation and voting rights of R&L Leasing as agreed to at the October 2, 2003 meeting; (ii) a letter executed by Volpe confirming that Goetz is entitled to 45% of net proceeds from Volpe's insurance litigation; and (iii) a letter executed by both Goetz and Volpe jointly releasing each other from any potential claims resulting from past 75/25 income distributions (collectively the "2003 Agreement"). (Pl. Ex. 6; Tr. at 66-67.)
Unbeknownst to Goetz, sometime before the end of 2003, Volpe had discharged Hershman as his attorney and retained new counsel. (Tr. 68-69.) In January 2004, Goetz received a letter from Volpe's new counsel, and by mid-January, Goetz came to understand that Volpe was disavowing the 2003 Agreement, as well as the 1999 Agreement and the 1997 Agreement, and claiming that he owned 50% of R&L Leasing. (Id. at 69-71.)
Starting in early 2004, after attempts to resolve their issues failed, Goetz brought a lawsuit against Volpe, and the two entered into a "very lengthy and expensive court battle" where Goetz sought to enforce the 2003 Agreement (reflecting a 55/45 split of income and distribution of proceeds upon a sale of R&L Leasing) and sought to collect his share of the insurance litigation proceeds.*fn6 (Id. at 98-100.) The Goetz v. Volpe lawsuit settled in April of 2006. (Id. at 101.) Under the terms of the settlement the executed documents distributed by Hershman on December 11, 2003 were not enforced. Instead, Goetz received 53% and Volpe received 47% of R&L Leasing and Goetz did not receive any portion of the insurance litigation proceeds. (Id.)
As of late 2003, Goetz had known Peter Hershman for over 20 years, and since the early 1980s Hershman had served as an attorney for Goetz personally and for R&L Leasing. (Id. at 36-37.) Hershman had drafted each of the 1997 Agreement, the 1999 Agreement and the 2003 Agreement, as well as other legal documents for Goetz, Volpe and R&L Leasing. (See id. at 38, 43, 45, 60, 72.)
Goetz testified that in 2003 Hershman never discussed with him the possible implications of an attorney representing two parties who have an actual or potential conflict, nor did Hershman ever suggest that Goetz consult another attorney. (Id. at 91-92.) Goetz also testified that he did not know, and Hershman never told him, in 2003 that Volpe owed Hershman's law firm "a lot of money" in connection with Volpe's insurance litigation (id. at 93) or that Peter Hershman had executed and delivered to Volpe a sworn affidavit dated November 17, 2003 (the "Hershman Affidavit") which read, in its entirety:
PETER D. HERSHMAN, being duly sworn, deposes and says that:
1. He represents Richard Volpe, an individual presently residing in New York, R&L Leasing Company L.L.C. of New York, and Lawrence Goetz, an individual presently residing in Florida.
2. In 1999, Richard Volpe and Lawrence Goetz discussed modifications and changes to their operating agreement with him which incorporated changes in the allocation of distributions.
3. In 1999, documentation regarding a possible change in the economic relationship between the parties, and a note between the parties related thereto was prepared by him.
4. To the best of his knowledge and based upon statements made to him by Lawrence Goetz and Richard Volpe, no such transaction in 1999 was consummated.
(Pl. Ex. 25.) It is noteworthy that the Hershman Affidavit had been prepared and executed before Hershman released the signed copies of the 2003 Agreement on December 11, 2003. Goetz testified that the first two paragraphs of the Hershman Affidavit are true statements. (Tr. at 74-75.) Goetz testified that the fourth paragraph is "a lie" because the 1999 Agreement was consummated. (Id. at 80.) Goetz further testified that Hershman knew the 1999 Agreement was consummated because Goetz sent a letter to Volpe in September 2002, with a copy to Hershman, stating that he was invoking the 1999 Agreement and would proceed with the 75/25 income allocation as contemplated by the 1999 Agreement. (Id. at 80-82; Pl. Ex. 9.)
Goetz testified that he had no knowledge of the Hershman Affidavit in November or December 2003, and only became aware of its existence in early 2004 when he received a copy from Volpe's new attorney. (Id. at 73, 87.) In January 2004, when Goetz asked Hershman about the transaction not consummated in 1999 in paragraph 4 of the Hershman Affidavit, Hershman assured Goetz that it related to the Note and Pledge only. (Id. at 88.) Later, in the Goetz v. Volpe litigation, Hershman testified that the Hershman Affidavit related to both the 1999 Agreement and the 2002 Note and Pledge related thereto. (Id. at 89.) Also during the Goetz v. Volpe litigation, Goetz learned that Volpe had informed Hershman that, as a prerequisite to finalizing the 2003 Agreement and related documents, he wanted to examine the books of R&L Leasing -- a prerequisite of which Hershman did not advise Goetz in 2003. (Id. at 90.)
Goetz testified that the deficiencies in Hershman's legal work were the "key factor" in his decision to settle the Goetz v. Volpe litigation. (Id. at 101.) First, Goetz testified that because Volpe alleged in the Goetz v. Volpe litigation that he had instructed Hershman not to release the 2003 Agreement without his consent and that he had never given that consent, the enforceability of the 2003 Agreement was subject to attack. (Id. at 102.) Specifically, because Hershman did not obtain documentation of Volpe's consent to Hershman's release of the executed documents in December 2003, Volpe was able to argue in the Goetz v. Volpe litigation that Hershman released the executed copy of the 2003 Agreement improperly and accordingly the 2003 Agreement never became effective. (Id. at 102, 105.) Second, Goetz testified that the Hershman Affidavit (and Hershman's testimony in the Goetz v. Volpe litigation that the Hershman Affidavit covered the 1999 Agreement) was false and also called into question the enforceability of the 1999 Agreement, which in turn provided Volpe with an incentive to disavow the 2003 Agreement. (Id. at 102-04.) Goetz testified that these ...