Segal v. Dinsmore & Shohl, LLP

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SCOTT S. SEGAL, Plaintiff, v. DINSMORE & SHOHL, LLP, an Ohio limited liability partnership, DAVID M. THOMAS, JEREMY S. ROGERS, ROBERT PALUMBI and JOHN J. BERRY, Defendants.

Civil Action No. 1:20-CV-267

United States District Court, N.D. West Virginia

March 31, 2023

MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT [ECF NO. 31] AND ADDRESSING OTHER PENDING MOTIONS

THOMAS S. KLEEH, CHIEF JUDGE

Pending before the Court is Defendants' Motion for Summary Judgement [ECF No. 31]. That motion is fully briefed and ripe for decision. For the reasons discussed herein, the Court GRANTS that motion. The other pending motions are addressed as well.

I. PROCEDURAL HISTORY

Plaintiff Scott S. Segal filed his Complaint on December 7, 2020. ECF No. 1. There, Plaintiff asserted numerous claims against Defendants Dinsmore & Shohl, LLP, David M. Thomas, Joshua S. Rogers, Robert M. Palumbi and John J. Berry. Specifically Plaintiff alleges legal malpractice against all Defendants (Count I), negligence against all Defendants (Count II) fraud against Defendants Dinsmore & Shohl and Thomas (Count III), breach of fiduciary duty against all Defendants (Count IV) and tortious interference with business relations against Defendants Dinsmore & Shohl, Thomas and Rogers (Count V). Id. Defendants filed their Motion to Dismiss in response on February 19, 2021. ECF No. 3. The Court denied that motion on September 30, 2021. ECF No. 19. Defendants answered the Complaint on November 4, 2021. ECF Nos. 23-27. The Court entered its Scheduling Order on January 12, 2022. ECF No. 28. Among the deadlines established, Plaintiff was required to make his expert witness disclosures on or before March 1, 2022 and Defendants' disclosures were due on or before April 1, 2022. Id. Plaintiff made no such disclosure. Defendants disclosed their expert witnesses on April 1, 2022. ECF No. 30.

Defendants timely filed their pending joint motion for summary judgment on May 31, 2022. ECF No. 31. Plaintiff filed a Motion for Stay, or in the alternative, for Continuance, and Opposition to Motion for Summary Judgment on June 21, 2022. ECF No. 35. Defendants filed their joint response to that motion and reply in support of their summary judgment motion on July 5, 2022. ECF No. 37. After filing their dispositive motion, Defendants served “renewed” discovery requests on June 1, 2022. ECF No. 33.

Thereafter, the parties filed their pretrial documents -motions in limine, jury instructions, proposed voir dire and proposed verdict forms. The Court sua sponte continued the pretrial conference and jury trial to consider the pending motions. This Order addresses each of them.

II. FACTUAL BACKGROUND

Plaintiff Scott S. Segal (“Segal”) alleges Defendant law firm Dinsmore & Shohl, LLP (“Dinsmore”) served as his attorneys for more than 15 years. Compl., ECF No. 1, at ¶ 2. Defendants David M. Thomas (“Thomas”), Joshua S. Rogers (“Rogers”), Robert M. Palumbi (“Palumbi”) and John J. Berry (“Berry”) are all lawyers with Dinsmore. Id. at ¶¶ 6, 7, 8, 9. Segal alleges Dinsmore “secretly maneuvered” to deprive Segal of over $20 million in collateral and $3 million in loan guarantees. Id. at ¶ 2. Thereafter, he alleges Dinsmore “tricked” him into permitting the law firm to represent another client - for whom the “maneuvering” was done - in suing Segal, including claims for fraud and punitive damages. Id. Segal claims this damaged his reputation and, by extension, his law practice. Id. Segal alleges he only learned of Dinsmore's alleged chicanery during that litigation. Id. at ¶ 3.

Dinsmore and some of its lawyers served as Segal's counsel for employment matters for over 15 years. Id. at ¶¶ 13 and 14. He paid Dinsmore more than $49,000 in legal fees over that time. Id. at ¶ 16. Segal alleges this attorney-client relationship permitted Dinsmore to learn confidential information about him including financial details. Id. at ¶ 17.

While he was a client of Dinsmore on unrelated matters, Segal invested in a now-defunct biotechnology company, Protea Biosciences, Inc. Id. at ¶ 18. Milan Puskar (“Puskar”) also invested and served on Protea's board of directors. Id. at ¶ 20. When Protea needed a capital infusion, Puskar recommended the company secure a loan from Centra Bank (“Centra”). Id. at ¶¶ 21, 22. Puskar was a founding director and a large shareholder in that bank. Id. at ¶ 22. On August 27, 2009, Protea entered into a $3 million Commercial Loan Agreement with Centra. Id. at ¶ 23. Between August and September 2009, Segal, Puskar and other of Protea's directors signed personal guarantees for portions of the loan from Centra. Id. at ¶ 24.

In the fall of 2010, Centra was in negotiations to sell its assets and operations to United Bank. Id. at ¶ 27. Prior to that development becoming public, Puskar executed a guaranty agreement (“Puskar Guaranty”) where The Milan Puskar Amended and Restated Trust (“Puskar Trust”), of which Puskar served as trustee, guaranteed the entirety of the loan from Centra Bank. Id. at ¶ 30. The Puskar Guaranty was secured by 500,000 shares of stock in Mylan Laboratories, Inc. (“Mylan”) which had a value of more than $10 million at the time it was posted. Id. at ¶ 32. Segal alleges Dinsmore provided legal services to the Puskar Trust since its inception. Id. at ¶ 31.

Segal claims “the entire purpose” of the Puskar Guaranty was to “shield” other investors, including himself, from any personal liability if Protea ever defaulted on the $3 million loan. Id. at ¶ 33. Allegedly, Puskar himself declared this intent to “numerous individuals.” Id. Puskar passed away on October 7, 2011. Id. at ¶ 35.

By early 2017, Protea began to experience financial difficulties. Id. at ¶ 36. By the same time, however, the value of the Puskar Guaranty collateral - the Mylan stock - had significantly appreciated in value with the potential for “substantial further appreciation.” Id. at ¶ 37. Considering these factors, Segal claims, the Puskar Trust became concerned Protea would default enabling the noteholder, United Bank, to liquidate a portion of the guaranty collateral. Id. at ¶ 38.

Segal alleges Dinsmore “devised a scheme” to enable the Puskar Trust to avoid its guaranty obligations. Id. at ¶¶ 39, 40. He claims Dinsmore advised the Puskar Trust to form a separate entity, a limited liability company, to purchase the note from the bank which would transfer all guaranties and control of all collateral including the Mylan stock to that limited liability company. Id. at ¶ 41. This “scheme” commenced with the creation of PITA, LLC (“PITA”) on November 21, 2017. Id. at ¶ 42. The Puskar Trust is the only member of PITA. Id. at ¶ 45. Like the Puskar Trust, Dinsmore has represented PITA since its inception. Id. at ¶ 46. Defendant Jeremy S. Rogers, a Dinsmore lawyer, organized PITA and Kyle Pratt, Puskar's grandson and a trustee of the Puskar Trust, serves as its manager. Id. at ¶ 43. Segal claims PITA was created solely to serve as a vehicle to purchase the assignment of the note and the supporting collateral Mylan stock to transfer the valuable stock back to the Puskar Trust. Id. at ¶ 47. PITA purchased the note on November 21, 2017 for $3,026,904.16, which sum Segal alleges was funded by the Puskar Trust. Id. at ¶¶ 48, 49. Dinsmore handled that transaction as counsel. Id. at ¶ 50.

One day after acquiring the note, PITA advised the bank it wished to release the entire security interest in the loan's collateral and that the Mylan stock should be returned to the Puskar Trust. Id. at ¶ 52. As the Complaint alleges, PITA did not seek satisfaction of the note by executing on the collateral or making a demand on the Puskar Trust prior to releasing the collateral back to the Trust. Id. at ¶¶ 51, 53. Segal claims these actions, much to his detriment, exposed him to liability that would not have otherwise existed had the Puskar Trust (and PITA) adhered to Puskar's stated wishes. Id. at ¶ 54. He also alleges Dinsmore advised PITA on these matters, again to his detriment despite being a client of the firm. Id. at ¶ 55.

Protea filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Northern District of West Virginia on December 1, 2017. Id. at ¶ 56. Segal alleges PITA continued to assert Protea and the loan guarantors, including Segal, owed in excess of $3 million on the loan despite holding both the Puskar Guaranty and Mylan Stock collateral. Id. at ¶ 57. Shortly after the bankruptcy filing, PITA and the Puskar Trust retained Dinsmore to represent them in an action to recover the outstanding balance of the loan. Id. at ¶ 58.

Subsequently Dinsmore contacted Segal's personal attorney seeking a waiver from Segal to permit Dinsmore to represent PITA and the Puskar Trust in recovering on the loan. Id. at ¶ 59. The Complaint alleges this would make Dinsmore directly adverse to its other client, Segal. Id. That request was followed up in writing with a letter and waiver. According to the Complaint, neither the letter nor any other communication advised Segal or his counsel PITA and the Puskar Trust released the loan collateral back to the Trust with Dinsmore's assistance. Id. at ¶¶ 60, 61. Segal further alleges Dinsmore never informed him they had represented the Puskar Trust in its acquisition of the loan, the release of the collateral or the decision to forego pursuing the Puskar Guaranty - all actions detrimental to Segal. Id. at ¶ 62. Nor did they advise Segal Dinsmore planned to file the suit against him to collect “more than his pro rata share of the outstanding balance of the Loan.” Id. at ¶ 63 (emphasis in original). The written communications were likewise silent as to the specific claims to be asserted against Segal including the fraud and punitive...