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Brown Rudnick, LLP v. Surgical Orthomedics, Inc.

United States District Court, S.D. New York

July 15, 2014

BROWN RUDNICK, LLP, Plaintiff,
v.
SURGICAL ORTHOMEDICS, INC., Defendant and Counter-Plaintiff.
v.
BROWN RUDNICK, LLP and CELIA GALVAN, Counter-Defendants, STEVEN HEWES and ANDREW HEWES, Plaintiff-Intervenors,
v.
CELIA GALVAN and BROWN RUDNICK, LLP, Defendants.

OPINION AND ORDER

JESSE M. FURMAN, District Judge.

Brown Rudnick, LLP ("Brown Rudnick"), a law firm, initiated this lawsuit against Surgical Orthomedics, Inc. ("SOI"), its former client, to collect attorney's fees it allegedly earned in representing SOI and to collect damages related to malpractice actions that SOI filed against it. (Compl. (Docket No. 1)). SOI asserted counterclaims against Brown Rudnick and a Brown Rudnick partner, Emilio Galvan, for, among other things, legal malpractice. (Second Amended Answer & Second Amended Counterclaim ("Counterclaim") (Docket No. 47). In addition, the officers and directors of SOI during the relevant time period, Steven and Andrew Hewes (the "Hewes Brothers"), intervened and filed an intervention complaint against Brown Rudnick and Galvan. (Amended Compl. in Intervention ("Intervention Complaint or Intervention Compl.") (Docket No. 48)). In February 2014, Emilio Galvan passed away, and Celia Galvan was subsequently substituted for Emilio Galvan in her capacity as the administrator of Emilio Galvan's estate. (Docket Nos. 74, 78). Presently before the Court is Brown Rudnick and Celia Galvan's (collectively, the "Counter-Defendants") consolidated motion to dismiss and motion for partial summary judgment. (Docket. No. 54). Specifically, Counter-Defendants seek dismissal of the Counterclaim and the Intervention Complaint, as well as summary judgment on certain elements of Brown Rudnick's third count for breach of contract against SOI. For the reasons discussed below, the motion to dismiss is GRANTED in part and DENIED in part. And although Brown Rudnick is the only party that has moved for summary judgment, the Court concludes that SOI is entitled to judgment as a matter of law with regard to Brown Rudnick's third cause of action; accordingly Brown Rudnick's third cause of action is dismissed.

BACKGROUND

To the extent relevant to the motion to dismiss, the following facts are taken from the Counterclaim, the Intervention Complaint, and documents incorporated by reference in those pleadings. See DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010). To the extent relevant to the motion for partial summary judgment, the following facts are undisputed, and are derived from the parties' Local Rule 56.1 Statements of Material Facts and the evidence they submitted in connection with the motion.

A. The Relationship Between SOI and Stryker Spine

SOI is a Texas corporation that markets, promotes, and sells surgical supplies and products. (Intervention Compl. ¶ 9; Compl. ¶ 3). During the time period relevant to this lawsuit, the Hewes Brothers served as SOI's directors and officers. (Intervention Compl. ¶ 9). From February 2006 to December 2008, SOI served as a distributor in the Dallas-Forth Worth region of Texas for Stryker Spine, a division of the Howmedica Osteonics Corporation. ( Id. ¶ 10). Stryker Spine develops, manufactures, and sells specialty spinal implants, products, and instruments. ( Id. ¶ 10; Decl. Andrew B. Ryan Supp. Brown Rudnick LLP's Mot. Dismiss ("Ryan Decl.") (Docket No. 55), Ex. A ("Award") 2).[1]

The relationship between SOI and Stryker was governed by two agreements, which the Court will refer to together as the "Agency Agreement." The Agency Agreement - which is incorporated by reference into the Counterclaim and Intervention Complaint ( see, e.g., Counterclaim ¶ 9; Intervention Compl. ¶ 13) - contained non-compete clauses, pursuant to which SOI and the Hewes Brothers agreed to refrain from engaging in certain behavior for the duration of the agreement and for one year after its termination. (Ryan Decl., Ex. B ("Agency Agreement") ¶ 15(a)(ii)). In particular, Paragraph 15 of the Agreement provided that the three were not to "manufacture, sell, market or deliver any product, or participate in any manner in such activities, if such product is in competition with any Product manufactured, sold, marketed or distributed for sale by Stryker Spine." ( Id. ¶ 15(a)(ii)(x)). The Agreement also provided that, if Stryker failed to extend the contract, Stryker Spine would pay SOI certain termination fees, and would retain the Hewes Brothers as paid consultants for one year following Stryker Spine's failure to extend ( Id. ¶¶ 11(e)(i), 15(b)).

B. The Dispute Between SOI and Stryker Spine

On December 3, 2008, Stryker Spine informed SOI that it would not renew the Agency Agreement; accordingly, the Agreement expired, by its terms, on December 31, 2008. (Intervention Compl. ¶ 10; Award 3). Stryker Spine, however, did not pay SOI or either of the Hewes Brothers any termination or consulting fees. (Award 4). Approximately seven months later, Stryker Spine filed a demand for arbitration with the American Arbitration Association, claiming that SOI and the Hewes Brothers (collectively, the "Former Clients") had been violating the Agreement's non-compete clause by selling competitive products through an entity called Mach Medical LLC. (Intervention Compl. ¶ 13). To represent them in the arbitration, the three Former Clients retained the services of Brown Rudnick (and its partner, Emilio Galvan), as well as Texas attorney Teresa A. Ford and her law firm. ( Id. ¶ 12).

On October 21, 2011, the arbitration panel (the "Panel") issued an award in Stryker Spine's favor. ( Id. ¶ 14). To the extent relevant here, the Panel found that the Former Clients had violated the non-compete provision in numerous ways, including by selling competing lines of products in the Dallas-Forth Worth region from certain manufacturers (Award 5); by forming and operating an organization called the North Texas Spine Society ("NTSS") that solicited surgeons in the region ( id. 6); by creating and running another organization, ASI, that invited Stryker Spine customers to a dinner meeting and attempted to persuade them to use competing product lines ( id. 7); and by forming and operating Mach Medical, a distributor of orthopedic and spine products that was "created... to circumvent the Stryker Spine non-compete agreement" ( id. 7-8). Specifically with regard to Mach Medical, the arbitration panel noted that Steven Hewes had testified "that monies of Mach Medical and SOI were commingled, that he and his brother received Mach Medical monies, and shared in Mach Medicals profits and losses." ( Id. 8). The Panel also observed that, "[u]ltimately, [the Former Clients] stipulated that the activities of Mach Medical could be attributed to them." ( Id. 9). The Panel found the Former Clients liable for damages totaling $3, 325, 543.64, comprised of $3, 298, 434 in lost profits and $27, 109.64 in interest. ( See Award 22-23).

C. The Dispute Between SOI and Brown Rudnick

On November 7, 2011, Stryker Spine initiated proceedings in the United States District Court for the District of New Jersey to confirm the award. (Counterclaim ¶ 26). In early December, the Former Clients terminated Brown Rudnick as counsel, and asked Brown Rudnick to provide its files to new counsel to defend the confirmation proceedings. ( Id. ¶ 27). Brown Rudnick refused to do so, however, asserting that it had not been paid for its representation in the arbitration proceedings. ( Id. ¶ 28). On June 29, 2012, the United States District Court for the District of New Jersey issued an order granting Stryker Spine's petition to confirm the award, and judgment was entered on July 3, 2012. ( Id. ¶ 31).

SOI subsequently brought a series of malpractice actions against Brown Rudnick. First, on December 21, 2011, SOI filed suit against Brown Rudnick and Teresa Ford in Texas state court. (Surgical Orthomedics' Counter-Statement of Material Facts Opp'n Brown Rudnick's Mot. Partial Summ. J. ("Rule 56.1 Statement") (Docket No. 66) ¶ 5). On May 11, 2012, that complaint was dismissed as against Brown Rudnick on the basis of a forum selection clause in the parties' engagement letter providing that disputes related to Brown Rudnick's representation of SOI were to be "brought in a state or federal court located in the State and City of New York." (Decl. Lawrence McNamara Supp. Surgical Orthomedic's Opp'n Brown Rudnick's Mot. Partial Summ. J. ("McNamara Decl.") (Docket No. 60), Ex. B; Ryan Decl., Ex. C ("Engagement Letter") 3). Thereafter, SOI re-filed the malpractice suit in New Jersey; on June 21, 2013, it too was dismissed based on the forum selection clause. (Rule 56.1 Statement ¶¶ 6, 10; Surgical Orthomedics, Inc. v. Brown Rudnick LLP, No. 12-CV-6652 (ES), 2013 WL 3188920 (D.N.J. June 21, 2013)).

That same day, Brown Rudnick filed the instant lawsuit against SOI. (Docket No. 1). In the Complaint, Brown Rudnick asserts three breach of contract counts against SOI: first, based on SOI's failure to pay attorney's fees (Compl. ¶¶ 23-27); second, based on SOI's receipt of, and failure to object to, Brown Rudnick's regularly provided invoices ( id. ¶¶ 28-33); and third, for SOI's breach of the forum selection clause in filing the Texas and New Jersey actions ( id. ¶¶ 34-37). On July 30, SOI filed its answer and asserted counterclaims against Brown Rudnick for breach of fiduciary duty, breach of contract, legal malpractice, unjust enrichment, and exemplary damages. (Docket No. 7). SOI amended its counterclaims on August 20, adding Galvan as a defendant, asserting claims for breach of fiduciary duty, legal malpractice, and exemplary damages against Galvan, and adding a claim for "rescission and restitution" against Brown Rudnick. (Docket No. 13). SOI amended its counterclaims once more, though the causes of actions and named counter-defendants remained the same. (Counterclaim). The Hewes Brothers then intervened, asserting causes of action for legal malpractice, breach of fiduciary duty, and exemplary damages against Brown Rudnick and Galvan. (Docket Nos. 44, 48).

As noted, presently before the Court is a consolidated motion to dismiss and a motion for partial summary judgment brought by Brown Rudnick and Galvan. (Docket No. 54). The motion to dismiss seeks dismissal, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, of SOI's Counterclaim and the Hewes Brothers' Intervention Complaint. ( Id. ). The motion for partial summary judgment, brought pursuant to Rule 56, seeks judgment on two elements of the third count of Brown Rudnick's complaint. ( Id. ). The Court first addresses the motion to dismiss, and then turns to the motion for partial summary judgment.

THE MOTION TO DISMISS

When reviewing a Rule 12(b)(6) motion to dismiss, the Court must "accept[] all factual allegations in the complaint and draw[] all reasonable inferences in the plaintiff's favor." ATSI Commc'ns, Inc. v. Schaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). The Court will not dismiss any claims pursuant to Rule 12(b)(6) unless the plaintiff - or, in this case, the Counter-Plaintiff and the Plaintiff-Intervenors - has failed to plead sufficient facts to state a claim to relief that is facially plausible. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim that is facially plausible must contain "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). More specifically, the Former Clients must allege facts showing "more than a sheer possibility that a defendant has acted unlawfully." Id. A complaint that offers only "labels and conclusions" or ...


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