Antioch Litig. Trust v. McDermott Will & Emery LLP

ANTIOCH LITIGATION TRUST, W. TIMOTHY MILLER, TRUSTEE, Plaintiff,

v.MCDERMOTT WILL & EMERY LLP, Defendant.

Case No. 3:09-cv-218

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO WESTERN DIVISION

Dated: April 1, 2013

Judge Timothy S. Black

ORDER GRANTING DEFENDANT MCDERMOTT WILL & EMERY LLP'S

MOTION FOR PARTIAL SUMMARY JUDGMENT (Doc. 59)

This civil action is before the Court on Defendant McDermott Will & Emery LLP's motion for partial summary judgment (Doc. 59), and the parties' responsive memoranda (Docs. 61, 65).

I. BACKGROUND FACTS

Defendant McDermott Will & Emery ("MWE") moves for summary judgment on Plaintiff's claims relating to the 2003 transaction in which The Antioch Company's Employee Stock Ownership Plan ("ESOP") became the 100% owner of the Company (the "2003 ESOP transaction"). MWE argues that Plaintiff's malpractice claims against it, relating to the 2003 ESOP transaction, are barred by Ohio's one-year statute of limitations on legal malpractice claims pursuant to Ohio Rev. Code. § 2305.11(A). Specifically, MWE maintains that its representation of Antioch as to the 2003 ESOP transaction ended in early 2004, the "cognizable event" occurred when the transactionclosed in December 2003, but Plaintiff did not initiate an action against MWE until June 4, 2009. Since Plaintiff's initial complaint was filed on June 4, 2009, more than five years after the 2003 ESOP transaction closed and MWE's representation as to that transaction ended, all of Plaintiff's claims as to the 2003 ESOP transaction are time-barred by Ohio's one year statute of limitations for legal malpractice claims.

Plaintiff maintains that the motion should be denied because issues of material fact exist as to when MWE's representation of the Company with respect to the 2003 ESOP transaction ended. Plaintiff claims that MWE's representation of the Company continued until June 5, 2008, and thus the complaint was filed (June 4, 2009) before the statute of limitations ran.

II. UNDISPUTED FACTS¹

1. In 2003, The Antioch Company engaged in a transaction by which the company's Employee Stock Ownership Plan ("ESOP"), a tax-exempt entity that owned approximately 43% of Antioch's stock prior to the transaction, became the sole shareholder of Antioch. (Doc. 59, Ex. A-1 at 22-24).

2. Antioch engaged MWE to provide legal counsel to the company. (Doc. 59, Ex. B at ¶ 2).

3. The 2003 ESOP transaction closed on December 16, 2003. (Doc. 14 at ¶ 41) ("In December 2003, each of the non-ESOP shareholders agreed to the tender offer and the company redeemed all of the shares pursuant to the terms of the tender offer.") (Doc. 23 at ¶ 41; Doc. 59, Ex. 3 at ¶ 3; Doc. 59, Ex. 2 at 84).²

4. On June 4, 2009, Plaintiff filed its first Complaint, alleging legal malpractice against MWE. (Doc. 1).

III. STANDARD OF REVIEW

A motion for summary judgment should be granted if the evidence submitted to the Court demonstrates that there is no genuine issue as to any material fact, and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party has the burden of showing the absence of genuine disputes over facts which, under the substantive law governing the issue, might affect the outcome of the action. Celotex, 477 U.S. at 323. All facts and inferences must be construed in a light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

A party opposing a motion for summary judgment "may not rest upon the mere allegations or denials of his pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 248 (1986).

IV. ANALYSIS

It is undisputed that the 2003 ESOP transaction closed on December 16, 2003 and that Plaintiff's complaint was filed on June 4, 2009. It is also undisputed that the statuteof limitations on legal malpractice in Ohio expires one year after a claim accrues. Ohio Rev. Code § 2305.11(A). The question before this Court is whether the work performed by MWE in 2004 through June 2008 was related to the 2003 ESOP transaction.

Plaintiff's legal malpractice claim is actually six separate and distinct claims for malpractice. Three of those claims relate only to the 2003 ESOP transaction, specifically to advice given (or allegedly not given) before the transaction closed: (1) whether MWE failed to advise Antioch to get a fairness opinion for the ESOP transaction to avoid corporate waste; (2) whether MWE failed to advise Antioch regarding the effect of ERISA, tax laws, and Ohio corporate law on the transaction; and (3) whether MWE failed to provide legal advice to Antioch's Board of Directors with respect to the transaction.

Also before the Court is the issue of whether MWE should have advised Antioch of breach of fiduciary duty claims against the Morgan family and other members of the Board of Directors. The statute of limitations for breach of fiduciary claims is four years. Therefore, the statute of limitations on the underlying breach of fiduciary duty claims would have run by December 2007. As a result, MWE maintains that the one-year statute of limitations for legal malpractice against it, on the claims that it failed to advise Antioch to sue the above parties before the statute of limitations expired, would have expired by December 2008, six months before Plaintiff's complaint was filed.

A. Ohio Rev. Code § 2305.11(A)

The statute of limitations on legal malpractice claims in Ohio expires one year after a claim accrues. Ohio Rev. Code § 2305.11(A). The statute of limitations begins to run upon the later of a cognizable event, or when the attorney-client relationship ends with respect to a particular transaction:

When there is a cognizable event whereby the client discovers or should have discovered that his injury was related to his attorney's act or non-act and the client is put on notice of a need to pursue his possible remedies against the attorney or when the attorney-client relationship for that particular transaction or undertaking terminates, whichever occurs later.

Zimmie v. Calfee, Halter & Griswold, 538 N.E.2d 398, 401 (Ohio 1989).

B. Malpractice Claims Related to the 2003 ESOP Transaction

Defendant argues that Plaintiff's claims against it are time-barred under either prong of the Zimmie test.

1. Cognizable event

"A 'cognizable event' is an event sufficient to alert a reasonable person that in the course of legal representation his attorney committed an improper act." Chinese Merch. Assoc. v. Chuck Y Chin, 823 N.E.2d 900, 902 (Ohio App. 2004). "Ohio law does not require actual notice that a legal wrong was done." FDIC v. Alexander, 78 F.3d 1103, 1107 (6th Cir. 1996). Instead, "Ohio law requires only constructive knowledge of facts, rather than actual knowledge of their legal significance...to start the statute of limitationsrunning." Id. It does not matter whether the attorney-client relationship remains intact; "a 'cognizable event' may occur during the course of the attorney-client relationship." Sesto v. Perduk, No. 23797, 2008 Ohio App. LEXIS 568, at *4 (Ohio App. Feb. 20, 2008).

The cognizable event putting Antioch on notice of any potential legal malpractice occurred on December 16, 2003, when the 2003 ESOP transaction closed and Antioch incurred debt to fund the transaction. (Doc. 59, Ex. 3 at ¶ 3). Four of the six legal malpractice claims relate only to the 2003 ESOP transaction and are based solely on advice provided by MWE before the transaction closed. Accordingly, those claims are barred by Ohio Rev. Code § 2305.11(A) under the "cognizable event" prong of Zimmie.³

2. Termination of representation

Plaintiff's claims against MWE relating to the 2003 ESOP Transaction are also barred by Ohio Rev. Code § 2305.11 under the "termination of representation" prong.

The "key date" for ascertaining when the termination date occurred with respect to a "particular transaction" (Zimmie, 538 N.E.2d at 401) is "when the [legal] representation on the matter in question ceases, rather than all representation." Mohler v. Unger, No. C3-90-284, 1994 U.S. Dist. LEXIS 21698, at *22 (S.D. Ohio Aug. 26, 1994) (law firm'srepresentation of a company's ESOP ended on the date that the transaction closed, i.e., on the date of the "leveraged buyout").⁴ A "continued general representation" does not extend the statute of limitations as to a particular transaction. Alexander, 78 F.3d at 1109.

The cases cited by Plaintiff are inapposite because they involved the attorney giving legal advice regarding the transaction after the transaction ended, relating to what went wrong, or correcting what went wrong with the initial transaction. See, e.g., Murphy v. Hyatt Legal Servs., No. 16194, 1993 Ohio App. LEXIS 5829, at *7-8 (Ohio App. Dec. 1, 1993); Johnson v. Lapin, No. 3:93-cv-7521, 1995 WL 681102, at *1-3 (N.D. Ohio Oct. 24, 1995). Plaintiff does not claim that MWE did work after the spring of 2004 that was intended to correct any problem with the 2003 Tender Offer transaction. Similarly, Slavens v. Spetnagel is inapposite because the underlying action remained pending and constituted continuing general representation. No. 95CA769, 1996 Ohio App. LEXIS 3305, at *11-12, 16 (Ohio App. July 26, 1996).

In Alexander, the plaintiff argued that since the defendant-attorney continued to represent the company in general matters regarding director and officer liability, the question of when the attorney-client relationship ended was necessarily one of a question of fact for the jury. 78 F.3 at 1110. The Sixth Circuit disagreed, holding that such "continued general representation" does not toll the statute of limitations; the court heldthat "a different standard could defeat the purpose of the statute of limitations where ... a client with knowledge of an attorney's malpractice may unduly perpetuate the attorney's...