United States District Court, E.D. Michigan, Southern Division
ORDER DENYING DEFENDANTS' MOTION FOR JUDGMENT AS
A MATTER OF LAW AND ALTERNATIVELY FOR NEW TRIAL [DOC.
CARAM STEEH UNITED STATES DISTRICT JUDGE.
Neal Cohen, Darren Chaffee and one of their businesses, SSL
Assets, brought this action alleging that they hired
defendant law firm Jaffe, Raitt, Heuer & Weiss
(“Jaffe”), and partners Jeffrey Weiss, Lee
Kellert and Deborah Baughman to provide legal advice in
connection with the possible purchase of LSI Corporation of
America (“LSI”). Plaintiffs maintain that Jaffe
and its partners provided faulty legal advice which rose to
the level of legal malpractice as well as breach of contract.
The court dismissed plaintiffs' breach of contract claim
by granting defendants' motion for judgment as a matter
of law pursuant to Fed.R.Civ.P. 50(a) prior to submitting the
case to the jury. The issue of professional negligence was
submitted to the jury, which concluded that defendants had an
attorney client relationship with SSL Assets, and that there
was professional negligence and proximate cause. The matter
is before the court on defendants' motion for judgment as
a matter of law or for a new trial.
Defendants' Motion for Judgment as a Matter of
base their motion on the argument that the jury's verdict
in this case was based on speculation and conjecture.
Defendants argue that there is no evidence at all that they
freely and consensually entered into an attorney-client
relationship with SSL Assets. Defendants maintain that it is
for the court to determine what evidence is minimally
necessary to establish the elements of a relationship on
which tort liability may be premised, and that there was no
direct or objective evidence at trial to establish an
attorney-client relationship between defendants and SSL
Assets in this case.
50(b) provides that a party may file a renewed motion for
judgment as a matter of law, and a federal court sitting in
diversity applies the standard for a directed verdict used by
the courts of the state whose substantive law governs the
action. Betts v. Costco Wholesale Corp., 558 F.3d
461, 466 (6th Cir. 2009). The defendant bears the burden of
proving, “after viewing all of the evidence in the
light most favorable to the non-moving party, that reasonable
minds could not differ on any question of material
fact.” Id. at 467.
action for legal malpractice, the plaintiff has the burden of
demonstrating the existence of the attorney-client
relationship. Basic Foods Ind., Inc. v. Grant, 107
Mich.App. 685, 690 (1981). The attorney-client relationship
is based on contract; it is consensual and it may not be
based on a unilateral act. However, the “contract may
be implied from the conduct of the parties”; payment of
a fee or a formal contract is not required. Macomb County
Taxpayer Ass'n v. L'Anse Creuse Pub. Sch., 455
Mich. 1, 11 (1997). The Michigan Supreme Court held that an
attorney-client relationship exists when “it is shown
that the advice and assistance of the attorney are sought and
received in matters pertinent to his profession.”
Id.; see People v. Crockran, 292 Mich.App.
253, 259 (2011).
Evidence and Analysis
April 3, 2013 email was the first contact between plaintiffs
and defendants regarding the LSI deal. Chaffee's up-front
communication regarding his concern about preventing
controlled group liability demonstrates that plaintiffs
considered the issue to be paramount to the representation.
“We also want to be sure that we aren't personally
liable or put our other assets/companies at risk.” The
nature of controlled group liability is that it attaches only
to other companies sharing certain ownership interests with
the company that has the pension withdrawal liability.
Controlled group liability does not attach to individuals
personally. In this case plaintiffs and defendants knew that
LSI had pension withdrawal liability. The evidence presented
at trial supports a conclusion that Chaffee understood enough
to know that by purchasing LSI there was an issue whether
Chaffee's and Cohen's other companies would become
part of LSI's controlled group. This evidence also
supports the conclusion that Chaffee and Cohen hired
defendants to advise them on the risks of controlled group
liability connected with acquiring LSI so they could make the
decision whether to acquire LSI.
Weiss had authority to bind the Jaffe law firm and the
evidence was that Weiss knew that Cohen and Chaffee owned
other companies and he understood their concerns and why they
sought defendants' representation and advice. Weiss
testified that he understood he owed a duty of care to Cohen,
Chaffee and their other assets and companies. (Trial
Transcript, September 28, 2017 at 19:5-8). In spite of this
knowledge, Weiss testified that he never asked Cohen or
Chaffee to identify what other assets and companies they
held. (Trial Transcript, September 28, 2017 at 18:17-20).
This testimony supports the jury's conclusion that
defendants accepted the representation of Cohen and
Chaffee's “other companies.”
evidence, including emails from Mr. Weiss to Mr. Chaffee
dated May 5, 2014 and June 18, 2013, demonstrates that
defendants actually provided legal advice on controlled group
liability. Plaintiffs' standard of care expert, Andrew
Stumpff, testified it was incumbent on defendants to explain
the controlled group tests and gather the complete facts
before rendering their opinions. Stumpff is an ERISA lawyer
and testified that under the circumstances in this case, with
the April 3, 2013 email and the now known ownership structure
of SSL Assets, he would have believed his client is the
“group” including SSL Assets. (Trial Transcript,
Sept. 28, 2017 at 151:13-19). Of course, the defendants did
not know the ownership structure of SSL Assets, or even that
SSL Assets existed, but that is only because they did not
make the inquiry required to obtain the information necessary
to ascertain SSL's existence and what that meant
regarding controlled group liability. Without being told the
legal tests for determining controlled group liability,
plaintiffs could not be expected to know which of their other
companies to bring to defendants' attention.
admitted at trial that he (1) clearly understood
plaintiff's concerns; (2) understood that his charge was
to structure the LSI acquisition in a way that would protect
Cohen and Chaffee's other companies from being part of a
controlled group with LSI, or to advise them prior to closing
the acquisition if this could not be done; (3) knew Cohen and
Chaffee owned other companies; (4) owed a duty of care to
Cohen and Chaffee and also to their other companies; and (5)
advised Cohen and Chaffee that the purchase of LSI with a
49%-49%-2% ownership structure would not expose any of their
other companies to controlled group liability. What Weiss and
the other defendants failed to do was the very thing they
were hired to do - explain the controlled group tests and
explore whether any of Cohen or Chaffee's other companies
might be subject to controlled group liability.
defendant's theory, if a lawyer fails to ask the
necessary questions to competently perform a controlled group
analysis, he would be immunized from his own negligence as
long as he also fails to ask the identity of the companies
that he exposes to liability. The injured companies would
never have standing to sue the lawyer for malpractice.
testified Weiss never asked him for a list of their other
companies and never explained the brother-sister test or
attribution rules, and Weiss admitted to not explaining the
attribution rules. Weiss never asked the relevant and
necessary questions, as identified by standard of care expert
Andrew Stumpff. Nor did Weiss ask ...