Waterstone Mortg. Corp. v. Offit Kurman P.A.

WATERSTONE MORTGAGE CORPORATION, Plaintiff, v. OFFIT KURMAN P.A., Defendant.

Case No. 19-CV-1117-JPS

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN

March 5, 2020

ORDER

1. INTRODUCTION

Plaintiff alleges that Defendant, its former law firm, gave bad advice which led to Plaintiff trudging through years of litigation and incurring millions of dollars in attorneys' fees. (Docket #1). Defendant has moved to dismiss Plaintiff's complaint in its entirety. (Docket #11). For the reasons explained below, the motion will be denied.

2. STANDARD OF REVIEW

Defendant has moved to dismiss Plaintiff's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). That Rule provides for dismissal of complaints which fail to state a viable claim for relief. Fed. R. Civ. P. 12(b)(6). In reviewing Plaintiff's complaint, the Court is required to "accept as true all of the well-pleaded facts in the complaint and draw all reasonable inferences in [its] favor[.]" Kubiak v. City of Chi., 810 F.3d 476, 480-81 (7th Cir. 2016) (citation omitted). To state a viable claim, a complaint must provide "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). In other words, the complaint must give "fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted). The allegations must "plausibly suggest that the plaintiff has a right to relief, raising that possibility above a speculative level[.]" Kubiak, 810 F.3d at 480 (quotation omitted).

3. RELEVANT FACTS

Accepting the truth of Plaintiff's well-pleaded allegations and drawing all reasonable inferences in its favor, the relevant facts are as follows. Plaintiff is a mortgage bank based in Waukesha. Its business relies on loan officers who work both within the company's physical offices ("inside" loan officers) and outside the offices ("outside" loan officers). Plaintiff retained Defendant, a law firm headquartered on the East Coast, to advise Plaintiff on the appropriate method for compensating its outside loan officers. Plaintiff hired Defendant and relied on it throughout the events of this case based on Defendant's representations as to their experience and skill in employment law.

Specifically, Plaintiff asked Defendant whether the outside loan officers should be considered exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq. Plaintiff had been treating the officers as exempt. Defendant advised that the officers were non-exempt. In 2010, Defendant drafted new employment agreements for Plaintiff's outside loan officers consistent with that advice. The agreements also included an arbitration and class waiver provision, forcing the officers to arbitrate any wage or hour claims and to do so on an individual basis.

In November 2011, a former outside loan officer named Pamela Herrington ("Herrington") sued Plaintiff in the Western District of Wisconsin in a class action for violation of the FLSA. Herrington v.Waterstone Mort. Corp., No. 3:11-CV-779-BBC (W.D. Wis.). Plaintiff hired Defendant to defend against Herrington. Plaintiff alleges that Defendant had a conflict of interest in taking the case, which was not disclosed to Plaintiff, because Defendant had an incentive to defend the quality of its legal advice regarding the employment agreements.

In December 2011, Plaintiff moved to dismiss Herrington's complaint and compel individual arbitration. Plaintiff contends that Defendant failed to cite appropriate authority in support of the motion. For her part, Herrington cited to an NLRB decision interpreting the National Labor Relations Act ("NLRA"), 29 U.S.C. § 151 et seq., which provided that arbitration agreements could not include class waivers. As part of the briefing, Defendant also conceded on Plaintiff's behalf that collective arbitration would be acceptable, without actually discussing that prospect with Plaintiff beforehand. In March 2012, the court followed Defendant's concession, dismissing the case and ordering collective arbitration.

The collective arbitration proceeded for the next five years. In the context of summary judgment briefing, Defendant argued that the outside loan officers should, contrary to its prior advice, be considered exempt from the FLSA under the outside sales exception. The arbitrator agreed with that legal precept, but ruled that Plaintiff may have waived the argument by drafting the employment agreements as it did.

During this time, Defendant was generally displeased with how the arbitration was going. In an effort to limit the size of the collective, Defendant suggested amending the outside loan officer employment agreements. The amendment gave the officers two options: 1) agree to arbitrate the Herrington dispute before JAMS, not AAA, which was the agency currently handling the arbitration, and agree to allow joinder ofother employees to that JAMS arbitration, or 2) do not agree to arbitrate and so permit the officer to file a lawsuit. The first option, as drafted by Defendant and sent to the officers, included a typo that seemed to permit even those who chose that option to file a lawsuit as well.

The arbitration finally ended in mid-2017, with the arbitrator awarding Herrington and the collective class over $10 million dollars in overtime compensation. Plaintiff fired Defendant and hired new attorneys. After the award was reduced to judgment, Plaintiff appealed to the Seventh Circuit. During the pendency of that appeal, the Supreme Court issued its opinion in Epic Systems Corporation v. Lewis, 138 S.Ct. 1612 (2018), holding that class waivers in arbitration agreements are valid and do not violate the NLRA. Relying on that opinion, the Seventh Circuit remanded the Herrington appeal to the district court to determine if the arbitration provision permitted collective arbitration. The district court found that it did not, and so vacated the arbitration award and ordered the outside loan officers to proceed to individual arbitration.

Since that decision, Plaintiff has been faced with numerous individual arbitrations and lawsuits from its former outside loan officers. Plaintiff complains of the substantial attorneys' fees it has paid to Defendant for its prior representation, and the fees it has and will continue to pay to its later-hired attorneys who are addressing Defendant's mistakes. Plaintiff states that it does not know its final exposure for fees or damages awards, as many of the arbitrations and lawsuits are ongoing.

Plaintiff concludes by questioning Defendant's advice regarding settlement throughout the pendency of Herrington. Defendant was adamant that the outside sales exemption could not be waived, and that in total, Plaintiff faced a loss of no more than $300,000. At one point, Herringtonmade a settlement demand which totaled about $2.7 million. Defendant recommended that Plaintiff reject the demand. Plaintiff states that Defendant failed to provide an appropriate and realistic evaluation of the prospect of settlement, a settlement which would have avoided all of the litigation Plaintiff now faces.

Though not part of the complaint, some further procedural history is in order. On October 20, 2017, soon after Plaintiff terminated Defendant's representation, Plaintiff filed a substantially similar malpractice action against Defendant in the District Court for the Western District of Wisconsin. Waterstone Mortgage Corp. v. Offit Kurman, LLC et al., Case No. 3:17-CV-796-JDP (W.D. Wis.). That action was litigated vigorously for over a year-and-a-half. On May 1, 2019, the parties asked the court to continue the trial date and various discovery deadlines in light of their desire to pursue mediation. Id., (Docket #70). The court rejected their request in large measure. On June 24, 2019, the parties jointly stipulated to the dismissal of the case without prejudice. Id., (Docket #75).

4. ANALYSIS

Plaintiff presents two causes of action. The first is for professional negligence. Plaintiff claims that Defendant's representation fell below the standard of care for lawyers having specialized employment law experience. Defendant's negligence, in turn, led to the improper collective arbitration and the subsequent individual arbitrations and lawsuits. Plaintiff's second claim is for breach of fiduciary duty. Plaintiff states that Defendant violated its fiduciary duty to Plaintiff by failing to disclose conflicts of interest and by defending its own prior advice to hide its negligence at Plaintiff's expense.

Defendant offers four arguments for dismissal of the case. First, Defendant asserts that Plaintiff fails to state viable claims for relief. Second, Defendant contends that some or all of the relevant conduct occurred beyond the applicable statutes of limitations. Third, Defendant argues that the claims are unripe. Finally, Defendant suggests that the fiduciary duty claim is unnecessarily duplicative of the professional negligence claim. The Court will begin by addressing the timeliness and justiciability issues, then move to the merits of the pleaded claims.¹

4.1 Statute of Limitations

Defendant claims that the bulk of its relevant conduct, occurring from 2010 to 2012, is too old to support Plaintiff's claims. Timeliness issues can be tricky to raise in a motion to dismiss, as factual disputes can preclude a court from deciding the issue as a matter of a law. Donaldson v. West Bend Mut. Ins. Co., 773 N.W.2d 470, 473 (Wis. Ct. App. 2009). However, whether a particular statute of limitations applies to a claim is a question of law. Munger v. Seehafer, 890 N.W.2d 22, 31 (Wis. Ct. App. 2016). Thus, where the facts underlying the timeliness analysis are undisputed, a court can rule on a statute of limitations defense raised in a motion to dismiss. State ex rel. Johnson v. Litscher, 625 N.W.2d 887, 889 (Wis. Ct. App. 2001). The relevant facts are...