GMG Insurance Agency v. Margolis Edelstein

• Court: Superior Court of Delaware
• Decided: April 10, 2023
• Docket: N21C-07-002 MMJ
• Status: Published

Opinion

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

GMG INSURANCE AGENCY, ) ) Plaintiff, ) ) v. ) C.A. No. N21C-07-002 MMJ ) MARGOLIS EDELSTEIN, ) ) Defendants. )

Submitted: February 13, 2023 Decided: April 10, 2023

On Defendant’s Motion for Summary Judgment GRANTED

OPINION

Patrick K. Gibson, Esq. (Argued), Ippoliti Law Group, Wilmington, DE, Attorney for Plaintiff

Sally J. Daugherty, Esq., Salmon Ricchezza Singer & Turchi, LLP, Wilmington, DE, George M. Vinci, Jr., Esq. (pro hac vice) (Argued), David B. Picker, Esq. (pro hac vice), Spector Gadon Rosen Vinci P.C., Philadelphia, PA, Attorneys for Defendant

JOHNSTON, J. FACTUAL AND PROCEDURAL CONTEXT

This is a legal malpractice case. Plaintiff GMG Insurance Agency

(“Plaintiff”) is an insurance agency organized in Pennsylvania. Defendant Margolis Edelstein (“Defendant”) is a law firm based in Pennsylvania, with

lawyers practicing in Delaware. In February 2017, Lyons Insurance Agency

(“Lyons”) filed an action against Howard Wilson (“Wilson”) and Plaintiff in the

Court of Chancery (the “Underlying Litigation”).

The Underlying Litigation stemmed from Wilson’s employment as an

insurance broker. Wilson worked for USI Insurance Services (“USI”), then Lyons,

and finally Plaintiff. USI had an injunction against Wilson forbidding Wilson from

servicing any clients that moved with him from USI to Lyons. Some of Wilson’s

former clients at USI—in particular one of Wilson’s largest clients, OTG

Management, LLC (“OTG”)—became clients of Plaintiff. Lyons and Wilson had

entered into an employment agreement, which restricted Wilson’s ability to

compete against Lyons for two years after his termination. Nonetheless, Plaintiff

hired Wilson before the two year limitation had expired—allegedly to service his

previous clients from his time working at USI.

The Underlying Litigation alleged Wilson was violating his employment

agreement with Lyons. The complaint claimed breach of the employment

agreement, aiding and abetting breach of contract, tortious interference, unjust

enrichment, and civil conspiracy.1 Plaintiff hired Defendant as its counsel in the

1 Lyons Ins. Agency, Inc. v. Wilson, 2018 WL 4677606, at *6–10 (Del. Ch.). 2 Underlying Litigation. Defendant also represented Wilson as counsel in the

Underlying Litigation.

All parties in the Underlying Litigation filed Motions for Summary

Judgment. On September 28, 2018, the Court of Chancery issued its opinion.2 The

Court of Chancery concluded that: (1) Wilson breached the employment agreement

with respect to his competitive behavior, but not with respect to his use of

confidential information;3 (2) aiding and abetting a breach of contract is not

recognized in Delaware;4 (3) the factual record was not developed enough to

determine “whether GMG’s actions satisf[ied] the . . . tortious interference

requirements,” and therefore, the Court permitted the tortious interference claim to

move forward;5 (4) “Wilson’s Motion for Summary Judgment on the unjust

enrichment account must be granted;”6 and (5) Lyons’ claim for civil conspiracy

was waived, and therefore, Wilson’s Motion for Summary Judgment on civil

conspiracy was granted.7 Thus, the only count left unresolved after summary

judgment was for tortious interference.

Plaintiff, Defendant, Lyons, and Wilson engaged in mediation. The

mediator allegedly advised Defendant that he thought Lyons would settle the

2 Id. at *1. 3 Id. at *7–8. 4 Id. at *8. 5 Id. 6 Id. at *9. 7 Id. 3 Underlying Litigation for $600,000. On March 20, 2019, Defendant recommended

that Plaintiff offer $600,000 to settle the case. Plaintiff declined.

In April 2019, Plaintiff terminated Defendant. Plaintiff then engaged Smith

Katzenstein & Jenkins LLP (“SKJ”) to continue the Underlying Litigation.

Plaintiff also told Wilson that he needed to obtain separate legal counsel moving

forward.

On June 9, 2020, Lyons demanded that Plaintiff pay $750,000 to settle the

Underlying Action. Plaintiff rejected Lyons’ demand and made no counteroffer.8

Plaintiff’s new attorneys called the demand “laughable.”9

On December 9, 2020—after Plaintiff had terminated Wilson—Wilson

submitted an affidavit (the “Wilson Affidavit”). The Wilson Affidavit recanted

Wilson’s prior sworn testimony. The Wilson Affidavit acknowledged that Wilson,

Plaintiff, and OTG (Wilson’s former client) had conspired to move OTG’s

business from Lyons to Plaintiff, and for Plaintiff to hire Wilson. Thus, the Wilson

Affidavit threatened Plaintiff’s legal position in the Underlying Litigation.

Plaintiff then agreed to settle the Underlying Litigation with Lyons for $1.2

million.

8 Pls.’ Resps. and Objs. to Def.’s First Req. for Admis. ¶¶ 14–17. 9 Id. ¶ 17. 4 The Underlying Litigation continued only against Wilson. The Court of

Chancery awarded $1,011,54110 (1.5 times the value of “the annualized amount of

commissions generated by that portion of the ‘Book of Business’ moved to the new

employer”11) plus prejudgment interest and fifty percent of reasonable legal fees in

damages against Wilson.12

On July 1, 2021, Plaintiff filed the instant action alleging legal malpractice

(Count I) and liability for the actions of Defendant’s agents through respondeat

superior (Count II).13 Defendant filed the instant Motion for Summary Judgment.

SUMMARY JUDGMENT STANDARD

Summary judgment is granted only if the moving party establishes that there

are no genuine issues of material fact in dispute and judgment may be granted as a

matter of law.14 All facts are viewed in a light most favorable to the non-moving

party.15 Summary judgment may not be granted if the record indicates that a

material fact is in dispute, or if there is a need to clarify the application of law to

the specific circumstances.16 When the facts permit a reasonable person to draw

10 See Lyons Ins. Agency Inc. v. Wilson, 2021 WL 1696741, at *6 (Del. Ch.) (noting the Court could not reproduce the calculation leading to $1,011,541). 11 Id. at *3. 12 Id. at *7. 13 Compl. ¶¶ 114–25. 14 Super. Ct. Civ. R. 56(c). 15 Burkhart v. Davies, 602 A.2d 56, 58–59 (Del. 1991). 16 Super. Ct. Civ. R. 56(c). 5 only one inference, the question becomes one for decision as a matter of law.17 If

the non-moving party bears the burden of proof at trial, yet “fails to make a

showing sufficient to establish the existence of an element essential to that party’s

case,” then summary judgment may be granted against that party.18

ANALYSIS

Legal Malpractice

“Under Delaware law, a valid action for legal malpractice must pass the

following three-prong test: (1) employment of the attorney; (2) neglect of a

professional duty by the attorney; and (3) loss resulting from the attorney’s

neglect.”19 To establish the “loss element, a plaintiff must demonstrate that, but for

the attorney’s neglect, the plaintiff would have been successful.”20

Plaintiff alleges that Defendant committed legal malpractice in its

representation of Plaintiff in the Underlying Litigation. Plaintiff claims Defendant

was not properly equipped to handle the Underlying Litigation. Plaintiff alleges

that Defendant failed to develop the factual record by deposing various witnesses.

Plaintiff claims Defendant failed to provide factual or legal analysis of the

elements of tortious interference in its Motion for Summary Judgment during the

17 Wooten v. Kiger, 226 A.2d 238, 239 (Del. 1967). 18 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). 19 Arunachalam v. Pazuniak, 2017 WL 3978000, at *8 (D. Del.) (citing Oakes v. Clark, 2012 WL 5392139, at *3 (Del. Super.), aff’d, 69 A.3d 371 (Del. 2013)). 20 Id. 6 Underlying Litigation. Plaintiff alleges that if Defendant had properly developed

the record, and properly briefed and argued the Motion for Summary Judgment,

then the tortious interference claim of the Underlying Litigation would not have

survived summary judgment.

During oral argument on the instant motion, Plaintiff stated two reasons why

Plaintiff settled the Underlying Litigation: (1) because the Wilson Affidavit

“represented a huge departure from [] Wilson’s prior [sworn] testimony,” and it

was Wilson’s prior sworn testimony that Plaintiff intended to rely upon during

trial; and (2) because the Court of Chancery denied the request for a sixty-day

continuance to allow Plaintiff to attempt to rebut the Wilson Affidavit. 21

When the Court asked Plaintiff what evidence demonstrated that it was

reasonably foreseeable that Wilson would change his prior sworn testimony,

Plaintiff did not directly answer the question. Rather, Plaintiff contended that the

Wilson Affidavit was reasonably foreseeable, but not anticipated.22 Plaintiff’s

counsel contended that the changing of witness testimony was reasonably

foreseeable because the changing of witness testimony is always a possibility.23

Plaintiff was unable to identify any concrete evidence, or even any inference, that

21 Jan. 4 Hr’g Tr. 32:9–33:22. 22 Id. at 29:23–30:17. 23 Id. at 30:18–31:3. The Court notes that simply because something is possible, does not mean it is reasonably foreseeable. 7 would have given Defendant a reason to believe that Wilson was more likely than

any other witness to change his prior sworn testimony.

Plaintiff contends that Defendant should have obtained dismissal, through

summary judgment, of the Underlying Litigation’s tortious interference claim.

“Under Delaware law, the elements of a claim for tortious interference with a

contract are: ‘(1) a contract, (2) about which defendant knew, and (3) an

intentional act that is a significant factor in causing the breach of such contract, (4)

without justification, (5) which causes injury.’”24 The Delaware Supreme Court

has outlined seven factors to help determine whether intentional interference with a

contract occurred: (1) “the nature of the actor’s conduct;” (2) “the actor’s motive;”

(3) “the interests of the other with which the actor’s conduct interferes;” (4) “the

interests sought to be advanced by the actor;” (5) “the social interests in protecting

the freedom of an action of the actor and the contractual interests of the other;” (6)

“the proximity or remoteness of the actor’s conduct to the interference;” and (7)

“the relations between the parties.”25

Plaintiff alleges that Defendant failed to develop the factual record to

support dismissal of the tortious interference claim.26 Plaintiff alleges that if

24 Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444, 453 (Del. 2013) (quoting Irwin & Leighton, Inc. v. W.M. Anderson Co., 532 A.2d 983, 992 (Del. Ch. 1987)) (emphasis added by Delaware Supreme Court). 25 WaveDivision Holdings, LLC v. Highland Cap. Mgmt., L.P., 49 A.3d 1168, 1174 (Del. 2012) (quoting Restatement (Second) of Torts § 767 (1979)). 26 Compl. ¶ 50; see also Jan. 4 Hr’g Tr. 27:22–28:13. 8 Defendant had conducted an additional deposition of OTG’s general counsel, and

inquired whether Plaintiff sought legal advice before hiring Wilson, the tortious

interference claim would have been dismissed.27 Plaintiff alleges the additional

factual record would have demonstrated to the Court of Chancery that Plaintiff

lacked the requisite intent for a tortious interference claim to continue past

summary judgment.28 Plaintiff contends that if the tortious interference claim

never made it past summary judgment, then Plaintiff “would not have been in a

position to be negatively affected by the Wilson Affidavit.”29

Superseding Cause Doctrine

“A superseding cause is ‘a later cause of independent origin that was not

foreseeable.’”30 “In order to break the causal chain, . . . the intervening act or

event itself must have been neither anticipated nor reasonably foreseeable by the

original tortfeasor.”31 “[A] superseding cause is, by definition, the sole proximate

cause of an injury.”32 “The superseding cause doctrine . . . is concerned with how

far legal responsibility should extend.”33

A prior and remote cause cannot be made the basis of an action if such remote cause did nothing more than furnish

27 Id. ¶¶ 51–57. 28 Id. ¶¶ 56–57, 63–65. 29 Pl. Opp’n Br. 11. 30 In re Bocchino, 794 F.3d 376, 383 (3d Cir. 2015) (quoting Exxon Co., U.S.A. v. Sofec, Inc., 517 U.S. 830, 837 (1996)). 31 Duphily v. Delaware Elec. Co-op., Inc., 662 A.2d 821, 829 (Del. 1995). 32 Id. at 833. 33 Alaska Bulk Carriers, Inc. v. Goodall Rubber Co., 1990 WL 82361, at *3 (D. Del.). 9 the condition or give rise to the occasion by which the injury was made possible if there intervened between such prior or remote cause and the injury a distinct, successive, unrelated and efficient cause of the injury even though such injury would not have happened but for such condition or occasion.34

Deciding superseding causation is usually a jury question, but “a court may

decide the issue as a matter of law if there can be ‘no reasonable difference of

opinion as to the conclusion to be reached on the question of whether an

intervening cause is abnormal, unforeseeable, or extraordinarily negligent . . . .’”35

Defendant argues the Wilson Affidavit is a superseding cause of the

Underlying Litigation settlement. Defendant contends that but for Wilson

changing his sworn testimony twenty months after Plaintiff terminated Defendant

as counsel, the Underlying Litigation would never have settled.

The Court finds the evidence fails to support Plaintiff’s legal malpractice

claim. There is no reason to conclude that Defendant’s actions breached the

standard of care in developing the factual record, or when presenting the

Underlying Litigation Motion for Summary Judgment on the tortious interference

issue. The Court of Chancery granted summary judgment in favor of Plaintiff on

the issues of aiding and abetting, unjust enrichment, and civil conspiracy.36 This

34 McKeon v. Goldstein, 164 A.2d 260, 262 (Del. 1960). 35 Sims v. Stanley, 2008 WL 853538, at *2 (Del. 2008) (quoting Duphily v. Delaware Electric Co–Op., Inc. 662 A.2d 821, 831 (Del.1995)). 36 Lyons Ins. Agency, Inc. v. Wilson, 2018 WL 4677606, at *7–9 (Del. Ch.). 10 ruling alone evidences the competence and diligent representation of Plaintiff by

Defendant prior to termination.

The Court finds the undisputed evidence demonstrates that settlement would

not have occurred at the time it did, or in the agreed amount, but for the Wilson

Affidavit. The evidence on the record does not show that Defendant could

reasonably foresee—twenty months before the execution of the Wilson Affidavit—

that Wilson would perjure himself by changing his prior sworn testimony with the

Wilson Affidavit. 37 Therefore, the Court finds the Wilson Affidavit was a

superseding cause that broke the causal chain leading to the settlement of the

CONCLUSION

The Court finds the evidence fails to support Plaintiff’s legal malpractice

claim. The Court finds that there was no reason to conclude Defendant breached

the standard of care when developing the factual record, or when presenting the

37 Plaintiff claims that Defendant was aware Wilson was not a trustworthy individual, making the Wilson Affidavit a possibility during the course of litigation. The only evidence offered to demonstrate Defendant was aware of Wilson’s “untrustworthiness” is an email exchange between Plaintiff and SKJ (an email exchange without Defendant’s participation stating: “[Wilson] is very capable of lying.”) from around the time Plaintiff terminated Defendant as counsel. This argument is unpersuasive. Even if Defendant knew of Wilson’s untrustworthiness, this evidence would not demonstrate that it was reasonably foreseeable that Wilson would later perjure himself by changing his sworn testimony. In fact, the argument could be made that an untrustworthy person might be less likely to alter their testimony if it were untrue. Simply because an outcome is possible in litigation, it does not mean it is reasonably foreseeable. In this case, no evidence demonstrates Defendant would have had any reason to believe Wilson would perjure himself. 11 Underlying Litigation Motion for Summary Judgment on the tortious interference

issue. The Court finds the Wilson Affidavit was a superseding cause of Plaintiff’s

alleged loss. Therefore, Defendant’s Motion for Summary Judgment is hereby

GRANTED.

IT IS SO ORDERED.

/s/ Mary M. Johnston The Honorable Mary M. Johnston